Harrington Financial Group, Inc.

                               1999 Annual Report

                                       to

                                  Stockholders
<PAGE>
Financial
Highlights (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
For the Years Ended June 30,                                           1999           1998            1997
                                                                   ----------      ---------       ---------
<S>                                                                <C>             <C>             <C>
 Net interest income                                               $    6,081      $   4,924       $   8,066
  Income (loss) before tax provision, gain (loss) on securities
    and minority interest                                              (2,497)        (1,388)          2,769
 Net realized and unrealized gain (loss) on securities                 (1,647)        (1,705)            494
 Special SAIF assessment                                                                                 830
 Net income (loss)                                                     (2,455)        (1,859)          2,002
 Return on average assets before special SAIF assessment                (0.44)%        (0.34)%          0.50%
 Return on average assets after special SAIF assessment                 (0.44)%        (0.34)%          0.39%
 Return on average equity before special SAIF assessment               (12.54)%        (7.56)%         10.52%
 Return on average equity after special SAIF assessment                (12.54)%        (7.56)%          8.34%


At June 30,
Total assets                                                       $  471,339      $ 484,397       $ 446,797
 Total loans                                                          259,674        163,546          93,958
 Total securities                                                     183,702        291,531         318,480
 Total deposits                                                       333,245        178,311         136,175
 Stockholders' equity                                                  19,139         22,664          24,994
 Common shares outstanding                                          3,205,382      3,275,886       3,256,738


Average Balances
Assets                                                             $  561,670      $ 538,981       $ 507,407
 Loans                                                                223,174        116,982          78,545
 Core retail deposits                                                 254,843        136,594         116,210
 Other deposits                                                        18,245         15,168          20,592
 Total deposits                                                       273,088        151,762         136,802


Per Share
Basic earnings (loss) per share                                    $    (0.76)     $   (0.57)      $    0.61
 Diluted earnings (loss) per share                                      (0.76)         (0.57)           0.61
 After tax basic earnings (loss) excluding special SAIF assessment      (0.76)         (0.57)           0.78
 Book value, fiscal year end                                             5.97           6.92            7.67
 Market value, fiscal year end                                           7.250         11.250          12.125


Asset Quality at June 30,
Non-performing assets to total assets                                    0.13%          0.18%           0.25%
 Loan loss reserves to non-performing loans                           1142.11%        126.32%          63.39%


Capital Ratios at June 30 (Harrington Bank)
Tangible capital                                                         6.95%          6.88%           6.96%
 Core capital                                                            6.95%          6.88%           6.96%
 Risk-based capital                                                     12.33%         21.92%          31.14%
</TABLE>

                                       14
<PAGE>
FINANCIAL REVIEW
--------------------------------------------------------------------------------

Selected Consolidated Financial Data                   16

Management's Discussion and
Analysis of Financial Condition
and Results of Operation                               17

Consolidated Balance Sheets                            32

Consolidated Statements of Operations                  33

Consolidated Statements of
Change in Stockholders' Equity                         34

Consolidated Statements
of Cash Flows                                          35

Notes to Consolidated
Financial Statements                                   36

Independent Auditors' Report                           59
<PAGE>
Selected Consolidated
Financial Data

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,  1999.  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>
                                                                                     At or For the Years Ended June 30,
                                                                       -------------------------------------------------------------
                                                                         1999         1998         1997         1996        1995
                                                                       ---------    ---------    ---------    ---------   ---------
Balance Sheet Data
<S>                                                                    <C>          <C>          <C>          <C>         <C>
      Securities held for trading and available for sale               $ 183,702    $ 291,531    $ 318,480    $ 321,897   $ 249,274
      Loans receivable-net                                               259,674      163,546       93,958       65,925      37,010
      Total assets                                                       471,339      484,397      446,797      418,196     300,174
      Deposits                                                           333,245      178,311      136,175      135,143     115,312
      Securities sold under agreements to repurchase                      60,198      240,396      245,571      219,067     130,217
      Federal Home Loan Bank advances                                     40,000       26,000       26,000       26,000      31,000
      Note payable                                                        13,995       13,495        9,995        8,998       9,200
      Stockholders' equity                                                19,139       22,664       24,994       23,117      10,361
      Stockholders' equity per share                                        5.97         6.92         7.67         7.10        5.28

 Income Statement Data
      Interest income                                                  $  35,204    $  33,956    $  34,474    $  23,484   $  17,560
      Interest expense                                                    29,123       29,032       26,408       18,004      12,779
                                                                       ---------    ---------    ---------    ---------   ---------
          Net interest income                                              6,081        4,924        8,066        5,480       4,781
      Provision for loan losses                                              511          147           92           (1)         15
                                                                       ---------    ---------    ---------    ---------   ---------
      Net interest income after provision for loan losses                  5,570        4,777        7,974        5,481       4,766
      Retail banking fees and other income                                   433          295          239          256         238
                                                                       ---------    ---------    ---------    ---------   ---------
      Total net revenue                                                    6,003        5,072        8,213        5,737       5,004
      Operating expenses                                                   8,500        6,460        5,444        3,740       3,167
                                                                       ---------    ---------    ---------    ---------   ---------
      Income (loss) before tax provision, gain (loss) on securities
          and minority interest                                           (2,497)      (1,388)       2,769        1,997       1,837
                                                                       ---------    ---------    ---------    ---------   ---------

      Gain (loss) on sale of securities held for trading                   4,755         (775)      (1,623)       1,834          66
      Unrealized gain (loss) on securities held for trading               (6,402)        (930)       2,117       (1,960)      1,535
      Permanent impairment of securities available for sale                                                                    (414)
                                                                       ---------    ---------    ---------    ---------   ---------
          Net gain (loss) on securities                                   (1,647)      (1,705)         494         (126)      1,187
                                                                       ---------    ---------    ---------    ---------   ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                    <C>          <C>          <C>          <C>         <C>
      Income (loss) before income tax provision and minority interest     (4,144)      (3,093)       3,263        1,871       3,024
      Income tax provision                                                (1,646)      (1,234)       1,261          648       1,171
                                                                       ---------    ---------    ---------    ---------   ---------
      Income (loss) before minority interest                              (2,498)      (1,859)       2,002        1,223       1,853

      Minority interest                                                       43
                                                                       ---------    ---------    ---------    ---------   ---------

      Net income (loss)                                                $  (2,455)   $  (1,859)   $   2,002    $   1,223   $   1,853
                                                                       =========    =========    =========    =========   =========

      Basic earnings (loss) per share                                  $   (0.76)   $   (0.57)   $    0.61    $    0.57   $    1.20
                                                                       =========    =========    =========    =========   =========
      Diluted earnings (loss) per share                                $   (0.76)   $   (0.57)   $    0.61    $    0.56   $    1.20
                                                                       =========    =========    =========    =========   =========
      Cash dividends per share                                         $    0.12    $    0.12    $    0.03          N/A         N/A
                                                                       =========    =========    =========    =========   =========

 Performance Ratios
      Return on average assets (2)                                         (0.44%)      (0.34%)       0.50%        0.37%       0.76%
      Return on average equity (2)                                        (12.54)       (7.56)       10.52         9.49       22.24
      Interest rate spread                                                  1.06         0.79         1.43         1.64        2.13
      Net interest margin                                                   1.12         0.94         1.62         1.73        2.10
      Average interest-earning assets to average interest-
          bearing liabilities                                             101.14       102.73       103.67       101.55       99.57
      Net interest income after provision for loan losses to total
          other expenses (2)                                               65.53        73.95       172.82       146.55      150.49
      Total other expenses to average total assets (2)                      1.51         1.20         0.91         1.13        1.30
      Full service offices                                                     8            7            4            3           2

 Asset Quality Ratios (at end of period)
      Non-performing loans to total loans (3)                               0.03         0.17         0.36         0.40        0.95
      Non-performing assets to total assets (3)                             0.13         0.18         0.25         0.32        0.59
      Allowance for loan losses to total loans                              0.33         0.22         0.23         0.02        0.03
      Allowance for loan losses to total non-performing loans           1,142.11       126.32        63.39        45.98       34.57

 Capital Ratios (4)
      Tangible capital ratio                                                6.95         6.88         6.96         6.27        6.12
      Core capital ratio                                                    6.95         6.88         6.96         6.27        6.12
      Risk-based capital ratio                                             12.33        21.92        31.14        30.10       24.62
      Equity to assets at end of period                                     4.06         4.68         5.59         5.53        3.45
</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)  For comparability  purposes, the 1997 fiscal year ratios exclude the effect
     of the special SAIF assessment of $830,000.
(3)  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,  assets  acquired  by  foreclosure  or
     repossession and a single non-agency  participation  certificate classified
     as substandard.
(4)  Regulatory  capital ratios apply to the Bank  (Harrington  Bank,  FSB) as a
     federally chartered savings bank.

16
<PAGE>
                       MANAGEMENT'S DISCUSSION & 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  primarily  through  de novo
branching;  (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 as well as commercial loans,  approximately 39% 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  expansion   opportunities  as  they  arise.
Furthermore, the Company's origination of commercial mortgage and commercial and
industrial loans through the newly developed  commercial loan division  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 community banking growth opportunities.

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

                                       17
<PAGE>
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 1999 and 2000 and any  Current  Reports  on Form 8-K filed by
Harrington.


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 and meet customer preferences 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 the 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.

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, and 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

                                       18
<PAGE>
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 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, 1999,  Harrington was a party to three interest rate swap agreements
held in its trading  portfolio.  The agreements had an aggregate notional amount
of $21.0 million and maturities  from April 2000 to April 2001.  With respect to
these agreements, Harrington makes fixed interest payments ranging from 6.14% 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 $457,000, $313,000 and $330,000 during the years ended
June 30, 1999, 1998 and 1997, respectively.  The approximate market value of the
interest  rate  swaps  which  are  maintained  in  the  trading   portfolio  was
$(175,000), and $(397,000) as of June 30, 1999 and 1998, respectively.

In  addition,  the Company  also has swaps that are not  included in the trading
portfolio.  One of these swaps,  whereby the Company pays a floating rate (based
on three-month  LIBOR) and receives a fixed rate of 6.96%, had a notional amount
of $7.5 million and is used to modify the interest rate  sensitivity  of certain
certificates  of deposit issued by the Bank. This  floating-pay  swap matures in
December of 1999.  The remaining six swap  agreements  excluded from the trading
portfolio had an aggregate  notional amount of $50.0 million and maturities from
February 2004 to February  2009.  With respect to these  agreements,  Harrington
makes fixed interest  payments ranging from 5.27% to 6.48% and receives payments
based upon the  three-month  LIBOR.  These  fixed-pay  swaps, in addition to cap
agreements that are not included in the Company's trading portfolio, are used to
effectively  modify the  interest  rate  sensitivity  of a portion of the Bank's
short-term  LIBOR  correlated  borrowings  which  include  short-term  deposits,
securities  sold under  agreements to repurchase  and the Federal Home Loan Bank
advances.

The net income  relating to  Harrington's  swaps  which are not  included in the
trading portfolio was $31,000,  $70,000 and $130,000 during the years ended June
30, 1999, 1998 and 1997,  respectively.  This income is netted against  interest
expense in the Company's Consolidated Statements of Operations.  The approximate
market  value of these  interest  rate  swaps  (which  is not  reflected  in the
Company's  financial  statements)  was $2.3  million and $137,000 as of June 30,
1999 and 1998, respectively.

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


                                       19
<PAGE>
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, 1999,  Harrington  held seven interest rate cap  agreements,  eleven
interest  rate floor  agreements  and one  interest  rate  collar in its trading
portfolio.  These  contracts,  which expire from July 1999 to June 2009, have an
aggregate  notional amount of $378.6  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%.

The aggregate net expense (income) relating to the Company's interest rate caps,
collars and floors held in the trading  portfolio was  $(343,000),  $223,000 and
$(370,000)  during the years ended June 30, 1999,  1998 and 1997,  respectively.
The  approximate  market value of Harrington's  interest rate caps,  collars and
floors which are  maintained in the trading  portfolio was $5.0 million and $4.6
million as of June 30, 1999 and 1998, 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%.
These  caps,  in  addition  to  fixed-pay  swaps  that are not  included  in the
Company's trading  portfolio,  are used to effectively  modify the interest rate
sensitivity of a portion of the Bank's  short-term LIBOR  correlated  borrowings
which  include  short-term   deposits,   securities  sold  under  agreements  to
repurchase and the Federal Home Loan Bank advances.  Net expense on the caps was
$494,000,  $257,000 and  $178,000  for the years ended June 30,  1999,  1998 and
1997,  respectively.  The  approximate  market  value of the caps,  which is not
reflected  in the  Company's  financial  statements,  was $4.4  million and $2.5
million at June 30, 1999 and 1998, 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, 1999,  Harrington had sold  Eurodollar and
Treasury  Note  futures   contracts  with  an  aggregate   notional   amount  of
approximately $2.7 billion.  The Company had total gains (losses) on its futures
contracts  of $3.2  million,  $(8.6)  million and $(3.9)  million for the fiscal
years ended June 30, 1999, 1998 and 1997, 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, 1999,  Harrington had 180 purchased
options  contracts  with an aggregate  notional  amount of  approximately  $33.0
million that were included in the trading portfolio. The net expense relating to
these options  contracts was  $466,000,  $943,000 and $770,000  during the years
ended June 30, 1999, 1998 and 1997,  respectively.  The approximate market value
of the  Company's  options  contracts,  which  are  maintained  in  the  trading
portfolio, was $328,000 and $50,000 as of June 30, 1999 and 1998, respectively.

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.

                                       20
<PAGE>
Years Ended June 30,                           1999         1998         1997
                                             -------      -------      -------
(Dollars In Thousands)
Interest rate contract (income) expense:
   Swaps                                     $   457      $   313      $   330
   Caps, floors, and collars                    (343)         223         (370)
   Options                                       466          943          770
                                             -------      -------      -------
   Net interest expense on
     interest rate contracts                 $   580      $ 1,479      $   730
                                             =======      =======      =======

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  counterparties  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.

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 300 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,  1999,  these  prepayment
assumptions varied from 4% to 21% for fixed-rate  mortgages and  mortgage-backed
securities  and  varied  from  14% to 22%  for  adjustable  rate  mortgages  and
mortgage-backed securities.

The following table sets forth at June 30, 1999 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.
<TABLE>
<CAPTION>
Change in
Interest Rates (in Basis Points) (1)             -300        -200       -100        -      +100        +200       +300
                                              --------    --------   --------     ----   --------    --------   --------
(Dollars in Thousands)
<S>                                           <C>         <C>         <C>               <C>          <C>        <C>
Market value gain (loss) of assets            $ 31,783    $ 27,669   $ 16,604       -    $(21,142)   $(45,579)  $(72,166)
Market value gain (loss) of liabilities         (5,319)     (3,902)    (2,150)      -       2,591       5,642      9,096
                                              --------    --------   --------     ----   --------    --------   --------
Market value gain (loss) of net
  assets before interest rate contracts         26,464      23,767     14,454       -     (18,551)    (39,937)   (63,070)
Market value gain (loss) of
  interest rate contracts                      (29,705)    (21,859)   (12,223)      -      15,112      32,257     50,377
                                              --------    --------   --------     ----   --------    --------   --------

Total change in MVPE(2)                       $ (3,241)   $  1,908    $  2,231      -   $ (3,439)    $ (7,680)  $(12,693)
                                              ========    ========    ========    ====  ========     ========   ========

Change in MVPE as a percent of:
  MVPE(2)                                       (10.8)%        6.4%        7.5%     -      (11.5)%     (25.7)%    (42.5)%
  Total assets of the Bank                       (0.7)%        0.4%        0.5%     -       (0.7)%      (1.6)%     (2.7)%
</TABLE>

(1)      Assumes  an  instantaneous  parallel  change in  interest  rates at all
         maturities.
(2)      Based on the Bank's pre-tax MVPE of $29.9 million at June 30, 1999.

                                       21
<PAGE>
The table set forth above 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.

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>
Change in
Interest Rates (in Basis Points)          -300        -200        -100        -     +100        +200       +300
                                        --------    --------    --------    ----  --------    --------   --------
(Dollars in Thousands)
<S>                                     <C>         <C>         <C>           <C> <C>         <C>        <C>
After tax market value gain (loss)
   of assets                            $ 10,573    $  8,684    $  5,050      -   $ (6,256)   $(13,463)  $(21,308)
                                        --------    --------    --------    ----  --------    --------   --------
After tax market value gain (loss)
   of interest rate contracts             (9,988)     (7,712)     (4,524)     -      6,019      13,120     20,852
                                        --------    --------    --------    ----  --------    --------   --------

After tax gain (loss) in equity         $    585    $    972    $    526      -   $   (237)   $   (343)  $   (456)
                                        ========    ========    ========    ====  ========    ========   ========

After tax gain (loss) in equity as a
   percent of the Company 's
   equity at June 30, 1999                  3.1%        5.1%        2.7%      -      (1.2)%      (1.8)%     (2.4)%
</TABLE>

Changes in Financial Condition
--------------------------------------------------------------------------------

General. At June 30, 1999, Harrington's total assets amounted to $471.3 million,
as compared to $484.4 million at June 30, 1998. The decrease in total assets was
primarily due to a $107.8 million decrease in the Company's securities portfolio
which was partially offset by a $96.1 million increase in the loan portfolio.

Cash and Interest-Bearing  Deposits. Cash and interest-bearing deposits amounted
to $9.5  million  and $11.8  million  at June 30,  1999 and 1998,  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  approximately  $8.0 million to $17.0 million.  Harrington  attempts to
invest  its  excess  liquidity  in  higher  yielding  assets  such as  loans  or
securities.

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 $183.2  million and $290.6 million at June 30, 1999 and
1998, respectively. Securities classified as available for sale (consisting of a
non-agency  mortgage-backed security and municipal bonds) declined from $922,000
at June 30, 1998 to $502,000 at June 30, 1999.

Loans  Receivable.  At June 30, 1999,  loans  receivable  (net of the  Company's
allowance for loan losses) amounted to $259.7 million, an increase of 58.8% over
the  June 30,  1998  total  of  $163.5  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.  In addition,
the Bank has increased its  commercial  loan portfolio from $4.7 million at June
30, 1998 to $33.8 million at June 30, 1999.

                                       22
<PAGE>
Allowance  for Loan Losses.  At June 30, 1999,  Harrington's  allowance for loan
losses  totaled  $868,000,  compared to $360,000 at June 30,  1998.  At June 30,
1999, the Company's allowance  represented  approximately 0.3% of the total loan
portfolio  as  compared  to  0.2%  at  June  30,   1998.   The  ratio  of  total
non-performing  loans to total loans amounted to 0.03% at June 30, 1999 compared
to 0.2% at June 30, 1998,  which reflects  Harrington's  emphasis on maintaining
low credit risk with respect to its operations.

Although  Harrington  management  believes that its allowance for loan losses at
June 30, 1999 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, 1999,  deposits  totaled $333.2  million,  as compared to
$178.3 million as of June 30, 1998.  Retail deposits  increased  $154.0 million,
from  $166.8  million  at June 30,  1998 to  $320.8  million  at June 30,  1999,
primarily due to Harrington's  strategy of rapidly building a community  banking
franchise  which  included  the opening of the Kansas  branch in August of 1998.
Non-retail  deposits  increased by $933,000 during the same period,  for a total
increase in deposits of $154.9 million.

Borrowings.  At June 30, 1999,  reverse  repurchase  agreements and dollar rolls
(both of which are  securities  sold  under  agreements  to  repurchase  and are
accounted  for as a  financing)  totaled  $60.2  million,  as compared to $240.4
million as of June 30, 1998.

Advances  from the FHLB of  Indianapolis  amounted  to $40.0  million  and $26.0
million as of June 30, 1999 and 1998,  respectively.  At June 30, 1999, the FHLB
advance was  scheduled to mature in fiscal 2000,  with an average  interest rate
thereon of 4.9%, as compared to 5.6% at June 30, 1998.

The Company's  note payable  amounted to $14.0 million and $13.5 million at June
30, 1999 and 1998,  respectively.  The note payable  relates to a loan  facility
that 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 $22.7 million at June
30, 1998 to $19.1  million at June 30, 1999.  This decrease was due primarily to
the $2.5 million of net loss  recognized  during  fiscal  1999,  the purchase of
treasury stock amounting to $784,000 and the payment of the Company's  quarterly
dividends of $.03 per share,  or $385,000 in total.  This decrease was partially
offset by the $73,000 proceeds from the issuance of treasury stock.


Results of Operations
--------------------------------------------------------------------------------

Summary of  Operations.  Harrington  reported  net loss of $2.5 million or $0.76
basic loss per share for the year ended June 30, 1999  compared to a net loss of
$1.9  million or $0.57  basic  loss per share for the year ended June 30,  1998.
This $596,000 or 32.1%  increase in net loss was due primarily to a $2.0 million
increase in operating expenses and a $364,000 increase in the provision for loan
losses,  which was partially  offset by a $1.2 million  increase in net interest
income,  a $196,000  increase in other income (loss) and a $412,000  decrease in
the income tax provision.

The  Company's  primary  goal in fiscal  years 1999 and 1998 was to improve  the
value of the banking  franchise  through  profitable  deposit,  loan, market and
business line expansion. The market expansion into Kansas and North Carolina and
the establishment of the necessary  infrastructure were substantially  completed
during  fiscal years 1999 and 1998.  The recent  losses are due primarily to the
underperformance  of  the  investment  portfolio  combined  with  the  necessary
investment   spending  to  complete  the  market   expansion   and  develop  the
infrastructure to support continued growth into the future.  With the foundation
now in place for its community banks in Indiana,  Kansas and North Carolina, the
Company is making marked  improvement  in its core banking  income (net interest
income after provision for loan losses plus fees minus operating expenses).  Net
interest  income has  increased  by $1.2  million  over fiscal year 1998,  which
reflects the  tremendous  growth in the Company's  loan  portfolio and deposits.
Furthermore,  the core income  deficit has been reduced from $1.1 million in the
June 1998  quarter to $219,000 in the June 1999  quarter.  Contributing  to this
margin  improvement is a lower cost of deposits compared to initial  promotional
levels,  falling from 5.50% at June 30, 1998 to 4.80% at June 30, 1999.  The net
interest  margin also  increased from 0.69% in the June 1998 quarter to 1.77% in
the June 1999 quarter.

Net loss for the year ended June 30,  1998 was $1.9  million or $0.57 basic loss
per share,  compared to $2.0  million or $0.61 basic  earnings per share for the
year ended June 30, 1997. The $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.

                                       23
<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  daily
balances during the periods presented.

<TABLE>
<CAPTION>
                                                                         Years Ended June 30,
                                               --------------------------------------------------------------------
                                                               1999                              1998
                                               ---------------------------------   --------------------------------
                                                  Average               Yield/      Average               Yield/
                                                  Balance    Interest  Rate (1)     Balance    Interest  Rate (1)
                                               ------------ ---------  ---------   ----------- --------- ----------
                                                                        (dollars in thousands)
Interest-Earning Assets:
<S>                                               <C>        <C>        <C>         <C>        <C>         <C>
    Interest-bearing deposits                     $ 13,489   $   610    4.52%       $ 14,590   $   792     5.43%
    Securities held for trading (2)                300,223    18,104    6.03%        386,640    23,947     6.19%
    Securities available for sale (3)                  699        66    9.44%          1,039        91     8.76%
    Loans receivable, net (4)                      223,174    16,033    7.18%        116,982     8,734     7.47%
    Federal Home Loan Bank stock                     4,879       391    8.01%          4,858       392     8.07%
                                                  --------   -------                --------   -------
    Total interest-earning assets                  542,464    35,204    6.49%        524,109    33,956     6.48%

Non-interest-earning assets                         19,206                            14,872
    Total assets                                  $561,670                          $538,981
Interest-Bearing Liabilities:
    Deposits:
      NOW and DDA accounts                        $ 13,050       306    2.34%       $  6,788       166     2.45%
      Savings accounts                              30,520     1,279    4.19%         25,188     1,091     4.33%
      Money market deposit accounts                 73,256     3,546    4.84%          2,713       127     4.68%
      Certificates of deposit                      156,262     8,969    5.74%        117,073     6,919     5.91%
                                                  --------   -------                --------   -------
    Total deposits                                 273,088    14,100    5.16%        151,762     8,303     5.47%

    Securities sold under agreements
        to repurchase                              213,428    11,433    5.36%        319,578    17,905     5.60%
    Federal Home Loan Bank advances                 36,172     2,481    6.86%         27,488     1,843     6.70%
    Note payable                                    13,672     1,109    8.11%         11,355       981     8.64%
                                                  --------   -------                --------   -------
    Total interest-bearing liabilities             536,360    29,123    5.43%        510,183    29,032     5.69%

Non-interest bearing liabilities                     5,729                             4,200
    Total liabilities                              542,089                           514,383
Minority interest                                      401
Stockholders' equity                                19,581                            24,598
                                                 ---------                          --------
Total liabilities and stockholders' equity       $ 561,670                          $538,981
                                                 =========                          ========
Net interest income; interest rate spread(5)                 $ 6,081    1.06%                  $ 4,924     0.79%
                                                             =======    ====                   =======     ====
Net interest margin (5)(6)                                              1.12%                              0.94%
                                                                        ====                               ====
Average interest-earning assets
    to average interest-bearing liabilities                           101.14%                            102.73%
                                                                      ======                             ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          ---------------------------------
                                                           1997
                                          ---------------------------------
                                            Average                 Yield/
                                            Balance     Interest     Rate
                                          ------------ --------- ----------
<S>                                           <C>        <C>         <C>
Interest-Earning Assets:
    Interest-bearing deposits                 $ 22,727   $ 1,197     5.27%
    Securities held for trading (2)            390,867    26,808     6.86%
    Securities available for sale (3)            1,375       133     9.67%
    Loans receivable, net (4)                   78,545     6,087     7.75%
    Federal Home Loan Bank stock                 3,179       249     7.83%
                                              --------   -------
     Total interest-earning assets              496,693    34,474     6.94%

Non-interest-earning assets                     10,714
    Total assets                              $507,407
Interest-Bearing Liabilities:
    Deposits:
      NOW and DDA accounts                    $  4,697       124     2.64%
      Savings accounts                          20,463       844     4.12%
      Money market deposit accounts              1,886        82     4.35%
      Certificates of deposit                  109,756     6,416     5.85%
                                              --------   -------
    Total deposits                             136,802     7,466     5.46%

   Securities sold under agreements
        to repurchase                          306,034    16,391     5.36%
    Federal Home Loan Bank advances             26,089     1,644     6.30%
    Note payable                                10,168       907     8.92%
                                              --------   -------
    Total interest-bearing liabilities         479,093    26,408     5.51%

Non-interest bearing liabilities                 4,307
    Total liabilities                          483,400
Minority interest
Stockholders' equity                            24,007
                                              --------
Total liabilities and stockholders' equity    $507,407
                                              ========
Net interest income; interest rate spread(5)             $ 8,066     1.43%
                                                         =======     ====
Net interest margin (5)(6)                                           1.62%
                                                                     ====
Average interest-earning assets
    to average interest-bearing liabilities                        103.67%
                                                                   ======
</TABLE>
<PAGE>
----------------------
(1)    At June 30,  1999,  the yields  earned  and rates  paid were as  follows:
       interest-bearing  deposits,  5.05%;  securities held for trading,  6.28%;
       securities  avaliable for sale, 7.95%; loans receivable,  net 7.06%; FHLB
       stock, 8.00%; total  interest-earning  assets,  6.72%;  deposits,  4.80%;
       securities  sold under  agreements to  repurchase,  4.85%;  FHLB advances
       6.25%; note payable,  7.81%; total interest-bearing  liabilities,  5.03%;
       interest rate spread 1.69%.
(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, 1999,  1998 and
       1997, the net costs of hedging the Company's  interest rate exposure with
       respect to its securities held for trading amounted to $580,000 or 0.39%,
       $1.5 million or 0.77% and $730,000 or 0.37%, 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 $114,000,  $155,000 and $276,000
       for the years ended June 30, 1999, 1998 and 1997 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
       1.17%, 1.07% and 1.58%, and the Company's net interest margin amounted to
       1.23%,  1.22% and 1.77% for the years ended June 30, 1999, 1998 and 1997,
       respectively.
(6)    Net  interest   margin  is  net  interest   income   divided  by  average
       interest-earning assets.

24
<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>
                                                                                  Years Ended June 30,
                                                         -----------------------------------------------------------------------
                                                                  1998 vs. 1997                         1998 vs. 1997
                                                         ----------------------------------       ------------------------------
                                                                Increase                              Increase
                                                               (Decrease)                            (Decrease)
                                                                 Due to             Total              Due to             Total
                                                         --------------------     Increase        -----------------     Increase
                                                           Rate       Volume     (Decrease)       Rate       Volume    (Decrease)
                                                           ----       ------     ----------       ----       ------    ----------
                                                                                  (dollars in thousands)
<S>                                                      <C>          <C>          <C>          <C>          <C>          <C>
 Interest-earning assets:
      Interest-bearing deposits                          $  (125)     $   (57)     $  (182)     $    36      $  (441)     $  (405)
      Securities held for trading and securities
          available for sale                                (615)      (5,253)      (5,868)      (2,593)        (310)      (2,903)
      Loans receivable, net                                 (342)       7,641        7,299         (230)       2,877        2,647
      Federal Home Loan Bank stock                            (3)           2           (1)           8          135          143
                                                         -------      -------      -------      -------      -------      -------

          Total interest-earning assets                  $(1,085)     $ 2,333        1,248      $(2,779)     $ 2,261         (518)
                                                         =======      =======      -------      =======      =======      -------

 Interest-bearing liabilities:
      NOW and DDA accounts                               $    (7)     $   147          140      $   (10)     $    52           42
      Savings accounts                                       (36)         224          188           44          203          247
      Money market deposit accounts                            4        3,415        3,419            7           38           45
      Certificates of deposit                               (205)       2,255        2,050           71          432          503
                                                         -------      -------      -------      -------      -------      -------
          Total deposits                                    (244)       6,041        5,797          112          725          837
      Securities sold under agreements to repurchase        (755)      (5,717)      (6,472)         772          742        1,514
      Federal Home Loan Bank advances                         43          595          638          108           91          199
      Note payable                                           (63)         191          128          (29)         103           74
                                                         -------      -------      -------      -------      -------      -------

          Total interest-bearing liabilities             $(1,019)     $ 1,110           91      $   963      $ 1,661        2,624
                                                         =======      =======      -------      =======      =======      -------

Increase (decrease) in net interest income                                         $ 1,157                                $(3,142)
                                                                                   =======                                =======
</TABLE>
<PAGE>
Interest Income. For the year ended June 30, 1999,  Harrington's interest income
increased by $1.2 million or 3.7% to $35.2  million,  compared to the year ended
June 30, 1998.  This increase was  primarily  due to a $7.3 million  increase in
interest income from the loan portfolio. This increase was partially offset by a
$5.9 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. The increase in interest income on the loan
portfolio was a direct result of the $106.2 million increase in the level of the
average loan portfolio which was partially offset by a 29 basis point decline in
the interest yield earned caused primarily by an overall decline in the level of
interest  rates  during  fiscal 1999.  The decrease in interest  income from the
investment  portfolio was a result of the $86.8 million  decrease in the average
balances  as well as the 15 basis point  decline in the level of interest  rates
during fiscal 1999.

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.

                                                                              25
<PAGE>
Interest  Expense.  For the year  ended  June 30,  1999,  Harrington's  interest
expense  increased  by $91,000 or 0.3% to $29.1  million,  compared  to the year
ended June 30, 1998. This increase was primarily due to a $26.2 million increase
in the level of average interest-bearing  liabilities,  which was offset by a 26
basis point decrease in the cost of interest-bearing liabilities.

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.

Net Interest  Income.  Net interest income increased by $1.2 million or 23.5% to
$6.1 million  during  fiscal year 1999 as compared to fiscal year 1998.  For the
year ended June 30,  1998,  Harrington's  net interest  income  amounted to $4.9
million, compared to $8.1 million for the year ended June 30, 1997.

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  for loan losses of  $511,000,  $147,000 and
$92,000  during the years  ended  June 30,  1999,  1998 and 1997,  respectively.
During such respective periods, loan charge-offs (net of recoveries) amounted to
$(1,000), $0 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 loans was 0.3% and 0.2% at June 30, 1999
and 1998, respectively.

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.

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.

Years Ended June 30,                  1999        1998         1997
                                    --------    ---------     --------
(Dollars In Thousands)
Gain (loss) on sale of
  securities held for trading       $  4,755    $    (775)    $ (1,623)
Unrealized gain (loss) on
  securities held for trading         (6,402)        (930)       2,117
Other (1)                                433          295          239
                                    --------    ---------     --------

  Total other income (loss)         $ (1,214)   $  (1,410)    $    733
                                    ========    =========     ========

(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.

                                       26
<PAGE>
Total other income (loss) amounted to $(1.2) million for the year ended June 30,
1999. This total consisted of a net realized and unrealized loss of $1.6 million
on the trading portfolio, plus fee and other retail bank income of $433,000. The
loss on the trading  portfolio,  net of hedges,  reflects  only a portion of the
total income (loss)  produced from this  portfolio in fiscal 1999.  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 1999, 1998, and 1997, this portfolio  produced a net-hedged  spread
to one-month LIBOR of 0.28%,  0.15% and 1.47%,  respectively.  Due to the market
uncertainty over Federal Reserve action, a glut of corporate debt issuance which
increased both financing and credit margins,  and spreads of mortgage securities
to  Treasury  widening  during  fiscal  year 1999,  the hedge  gains  lagged the
realized and unrealized  losses on securities.  The Company's  community banking
expansion  is expected to reduce the  reliance on  investment  returns  over the
coming years,  although the Company remains  confident in its core competency in
mortgage investments.

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
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.

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.


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.  However,  during fiscal years 1999 and 1998, the Company has accelerated
its  investment  spending in operating  expenses to accomplish the business line
and facilities expansion in order to grow revenue in future years. The following
table sets forth  certain  information  regarding  other expense for the periods
shown.

Years Ended June 30,                  1999        1998          1997
                                    --------     --------     --------
(Dollars In Thousands)
Salaries and employee benefits      $  4,290     $  3,295     $  2,174
Premises and equipment                 1,287          805          532
Special SAIF assessment                                            830
FDIC insurance premiums                  125           86          180
Marketing                                314          183          136
Computer services                        509          243          165
Consulting fees                          301          287          281
Other(1)                               1,674        1,561        1,146
                                    --------     --------     --------

  Total other expense               $  8,500     $  6,460     $  5,444
                                    ========     ========     ========

(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 $995,000 or 30.2%, and $1.1 million or 51.6% during
fiscal 1999 and 1998,  respectively.  The major cause of these increases was the
continuing  implementation of Harrington's  community bank expansion strategy. A
total of seven new  banking  locations  were opened  since May 1994,  with three
being  opened in the  third  quarter  of  fiscal  year 1998 and one in the first
quarter of fiscal year 1999, 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 division.

                                       27
<PAGE>
Premises and  equipment  expense  increased by $482,000 or 59.9% and $273,000 or
51.3% during  fiscal 1999 and 1998,  respectively.  The increase in premises and
equipment  expense  during the periods was  primarily  due to the opening of new
branches during fiscal years 1999 and 1998.

Federal Deposit Insurance  Corporation ("FDIC") premiums increased by $39,000 or
45.3% during fiscal year 1999 due to the increase in deposit size. 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.  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 FDIC insurance rate dropped from 23 basis points to 6 basis points on
its deposits.

Harrington incurred marketing expense of $314,000,  $183,000 and $136,000 during
the years ended June 30, 1999, 1998 and 1997, 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 1999 and 1998.

Computer  services expense  increased by $266,000 or 109.5% and $78,000 or 47.3%
during fiscal 1999 and 1998, 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.   In  addition,  during  fiscal  year  1999,  the  Company  incurred
approximately  $107,000  in  non-recurring  expense  related to  on-line  system
conversions.

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, 1999,  1998 and 1997,  which are
based on the Company's asset size, amounted to $301,000,  $287,000 and $281,000,
respectively.

Income Tax Provision. The Company received an income tax benefit of $1.6 million
during  fiscal 1999 as  compared  to an income tax  benefit of $1.2  million and
income tax  expense of $1.3  million  during the years  ended June 30,  1998 and
1997,  respectively.  The Company's  effective tax rate amounted to 39.7%, 39.9%
and 38.6% during the years ended June 30, 1999, 1998 and 1997, respectively.


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 16.65% at June 30, 1999,
as compared to 15.58% at June 30,  1998.  At June 30,  1999,  the Bank's  liquid
assets as defined by the OTS  totaled  approximately  $87.7  million,  which was
$66.6 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.

The Bank's liquidity,  represented by cash and cash equivalents,  is a result of
its operating,  investing and financing  activities.

                                       28
<PAGE>
During the year ended June 30, 1999, there was a net decrease of $2.3 million in
cash and cash  equivalents.  The primary  uses of cash during the year  included
purchases of securities for the trading portfolio of $780.3 million,  repayments
of borrowings  including  securities  sold under  agreements  to repurchase  and
Federal  Home  Loan Bank  advances  of $249.2  million  and the  change in loans
receivable of $96.9 million.  Partially  offsetting these uses of cash, the main
sources of cash  during the fiscal year were  $883.4  million in  proceeds  from
sales and  maturities  of  securities  held for  trading,  a $154.9  million net
increase in deposits  and $83,000  from  proceeds  from  Federal  Home Loan Bank
advances.


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.

I. THE COMPANY'S STATE OF READINESS

The Company has  prepared 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 currently Year
2000 compliant. The IT systems used by the Company have been extensively tested.
The  components of the IT systems that were examined are: 1) personal  computers
(PCs),  hardware and  software,  2) data service  bureau,  and 3) other  service
providers.

The  hardware  and  software  on all  the  PCs  used by the  Company  have  been
inventoried  and tested.  The limited  number of PCs and software  that were not
Year 2000 compliant were replaced in the first quarter of calendar year 1999.

The Company  converted its data service provider to the Vision platform supplied
by FISERV. The conversion was accomplished in April of 1999. FISERV provided the
Company with assurances and documentation  that the Vision product was Year 2000
compliant.  One hundred sixty (160) FISERV clients tested the Vision platform in
1998 and did not find any material  Year 2000  problems.  The Company  conducted
tests in May 1999 on the Vision software system to confirm this compliance.  The
tests  performed  by the Company did not find any  problems  related to the Year
2000.

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.


II. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

The limited  number of PCs and software that were not Year 2000  compliant  were
replaced in the first quarter of calendar year 1999. The cost of replacing these
machines and software was  approximately  $43,500 in capitalized fixed assets in
fiscal year 1999. The Company does not foresee any  significant  outlays related
to Year 2000 issues or readiness for the remainder of the 1999 calendar year.


III. 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 are being  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

                                       29
<PAGE>
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.

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.


IV. 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  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  notice and  disclosures to the customers) so that the Bank
could more efficiently process these accounts.

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.  Some of the  smaller  regional  brokers  have yet to
provide these assurances. Beginning in November 1999, the Company will no longer
enter into any  transactions  with any 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  has  provided  documentation  to the  Company  that  they are  Year  2000
compliant.  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 the first quarter of calendar year 1999,  the Company had replaced
or upgraded  all of its  personal  computers  that  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.  As of June
1999, the majority of the vendors and service  providers used by the Company had
provided  the  Company  with  assurances  that  they  were or would be Year 2000
compliant by September 1999. The Company does not, at this time, believe that it
will have to replace  any of its  vendors or service  providers.  If the Company
does have to  replace a vendor  or  service  provider,  it is  possible  that an
increased cost to the institution could result from this.


                                       30
<PAGE>
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
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  No.  133, as
amended by  Statement  No. 137,  that the  Company  will be required to adopt in
future periods. See Note 1 to the Consolidated  Financial Statements for further
discussion of this pronouncement.

                                       31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)

                                                                                             June 30,
                                                                                   --------------------------
ASSETS                                                                                1999             1998
                                                                                   ----------      ----------
<S>                                                                                <C>             <C>
Cash                                                                               $    1,414      $    1,567
Interest-bearing deposits (Note 13)                                                     8,087          10,212
                                                                                   ----------      ----------
  Total cash and cash equivalents                                                       9,501          11,779
Securities held for trading - at fair value (amortized cost of
  $188,130 and $289,137) (Notes 2, 8, 13)                                             183,200         290,609
Securities available for sale - at fair value (amortized cost of
  $461 and $924) (Note 2)                                                                 502             922
Loans receivable  (net of allowance for loan losses of
  $868 and $360) (Note 3)                                                             259,674         163,546
Interest receivable, net (Note 4)                                                       2,340           2,318
Premises and equipment, net (Note 5)                                                    6,499           5,614
Federal Home Loan Bank of Indianapolis stock - at cost                                  4,878           4,878
Deferred income taxes, net (Note 10)                                                      596             240
Income taxes receivable (Note 10)                                                         569             435
Other                                                                                   3,580           4,056
                                                                                   ----------      ----------

TOTAL ASSETS                                                                       $  471,339      $  484,397
                                                                                   ==========      ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Deposits (Note 6)                                                                  $  333,245      $  178,311
Securities sold under agreements to repurchase (Note 7)                                60,198         240,396
Federal Home Loan Bank advances (Note 8)                                               40,000          26,000
Note payable (Note 9)                                                                  13,995          13,495
Interest payable on securities sold under agreements to repurchase (Note 7)                66             282
Other interest payable                                                                  1,925           1,596
Advance payments by borrowers for taxes and insurance                                     795             785
Accrued expenses payable and other liabilities                                          1,039             868
                                                                                   ----------      ----------

  Total liabilities                                                                   451,263         461,733
                                                                                   ----------      ----------


COMMITMENTS AND CONTINGENCIES (Notes 13, 14, 16)


MINORITY INTEREST (Note 1)                                                                937
                                                                                   ----------      ----------


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 shares,
  Outstanding 3,205,382 and 3,275,886 shares                                              425             425
Additional paid-in capital                                                             16,946          16,962
Treasury stock, 194,556 and 124,052 shares at cost                                     (2,162)         (1,467)
Accumulated other comprehensive income (loss), net of deferred tax
 of  $16 and $(1)                                                                          25              (1)
Retained earnings                                                                       3,905           6,745
                                                                                   ----------      ----------
  Total stockholders' equity                                                           19,139          22,664
                                                                                   ----------      ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $  471,339      $  484,397
                                                                                   ==========      ==========
</TABLE>

See notes to consolidated financial statements.

                                       32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)

                                                                               Years Ended June 30,
                                                                  -------------------------------------------
                                                                      1999            1998            1997
                                                                  -----------      ----------      ----------
<S>                                                               <C>              <C>             <C>
INTEREST INCOME:
Securities held for trading                                       $    18,684      $   25,426      $   27,538
Net interest expense on interest rate contracts maintained in
  the trading portfolio  (Note 13)                                       (580)         (1,479)           (730)
Securities available for sale                                              66              91             133
Loans receivable (Note 3)                                              16,033           8,734           6,087
Dividends on Federal Home Loan Bank of Indianapolis stock                 391             392             249
Deposits                                                                  610             792           1,197
                                                                  -----------      ----------      ----------
                                                                       35,204          33,956          34,474
                                                                  -----------      ----------      ----------
INTEREST EXPENSE:
Deposits (Notes 6, 13)                                                 14,100           8,303           7,466
Federal Home Loan Bank advances (Note 8)                                2,481           1,843           1,644
Securities sold under agreements to repurchase (Note 7)                11,433          17,905          16,391
Note payable (Note 9)                                                   1,109             981             907
                                                                  -----------      ----------      ----------
                                                                       29,123          29,032          26,408
                                                                  -----------      ----------      ----------

NET INTEREST INCOME                                                     6,081           4,924           8,066
PROVISION FOR LOAN LOSSES (Note 3)                                        511             147              92
                                                                  -----------      ----------      ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                     5,570           4,777           7,974
                                                                  -----------      ----------      ----------
OTHER INCOME (LOSS):
Gain (loss) on sale of securities held for trading (Notes 2, 13)        4,755            (775)         (1,623)
Unrealized gain (loss) on securities held for trading (Notes 2, 13)    (6,402)           (930)          2,117
Other                                                                     433             295             239
                                                                  -----------      ----------      ----------
                                                                       (1,214)         (1,410)            733
                                                                  -----------      ----------      ----------
OTHER EXPENSE:
Salaries and employee benefits (Note 12)                                4,290           3,295           2,174
Premises and equipment expense (Note 5)                                 1,287             805             532
SAIF assessment (Note 16)                                                                                 830
FDIC insurance premiums                                                   125              86             180
Marketing                                                                 314             183             136
Computer services                                                         509             243             165
Consulting fees (Note 15)                                                 301             287             281
Other                                                                   1,674           1,561           1,146
                                                                  -----------      ----------      ----------
                                                                        8,500           6,460           5,444
                                                                  -----------      ----------      ----------

INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) AND
   MINORITY INTEREST                                                   (4,144)         (3,093)          3,263
INCOME TAX PROVISION (BENEFIT) (Note 10)                               (1,646)         (1,234)          1,261
                                                                  -----------      ----------      ----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST                             (2,498)         (1,859)          2,002
MINORITY INTEREST                                                          43
                                                                  -----------      ----------      ----------
NET INCOME (LOSS)                                                 $    (2,455)     $   (1,859)     $    2,002
                                                                  ===========      ==========      ==========

BASIC EARNINGS (LOSS) PER SHARE (Note 1)                          $     (0.76)     $    (0.57)     $     0.61
                                                                  ===========      ==========      ==========
DILUTED EARNINGS (LOSS) PER SHARE (Note 1)                        $     (0.76)     $    (0.57)     $     0.61
                                                                  ===========      ==========      ==========
</TABLE>

See notes to consolidated financial statements.

                                       33
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands except share data)

                                                                                                      Accumulated
                                                                                                        Other
                                               Shares      Common     Additional      Treasury      Comprehensive     Retained
                                             Outstanding   Stock    Paid-in Capital     Stock       Income (Loss)     Earnings
                                             -----------   -----    ---------------     -----       -------------     --------
<S>                                           <C>           <C>       <C>            <C>              <C>              <C>
BALANCES, JULY 1, 1996                        3,256,738     $407      $ 15,623                        $    (8)         $ 7,095
     Net income                                                                                                          2,002
     Cash dividends declared on
          common stock ($0.03 per share)                                                                                   (98)
     Net change in unrealized gain
          (loss) on securities available
          for sale, net of deferred
          tax of $(23)                                                                                    (27)
                                              ---------     ----      --------                        -------          -------
BALANCES, JUNE 30, 1997                       3,256,738      407        15,623                            (35)           8,999

     Stock options exercised
          (Note 12)                           143,200         18         1,056
     Tax benefit from exercise of
          non-qualified stock options                                      283
     Net loss                                                                                                           (1,859)
     Cash dividends declared on
         common stock ($0.12 per share)                                                                                   (395)
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                                                                      34
                                              ---------     ----      --------       --------         -------          -------
BALANCES, JUNE 30, 1998                       3,275,886      425        16,962         (1,467)             (1)           6,745

     Net loss                                                                                                           (2,455)
     Cash dividends declared on
          common stock ($0.12 per share)                                                                                  (385)
     Purchase of treasury stock                 (78,178)                                 (784)
     Issuance of treasury stock                   7,674                    (16)            89
     Net change in unrealized gain
          (loss) on securities available for
          sale, net of deferred tax of $17                                                                 26
                                              ---------     ----      --------       --------         -------          -------
BALANCES, JUNE 30, 1999                       3,205,382     $425      $ 16,946       $ (2,162)        $    25          $ 3,905
                                              =========     ====      ========       ========         =======          =======

<PAGE>
<CAPTION>


                                                Total
                                             Stockholders'     Comprehensive
                                                Equity         Income (Loss)
                                                ------         -------------
<S>                                           <C>                <C>
BALANCES, JULY 1, 1996                        $ 23,117
     Net income                                   2002           $ 2,002
     Cash dividends declared on
          common stock ($0.03 per share)           (98)
     Net change in unrealized gain
          (loss) on securities available
          for sale, net of deferred
          tax of $(23)                             (27)              (27)
                                              --------           -------
BALANCES, JUNE 30, 1997                         24,994           $ 1,975
                                                                 =======
     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)
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                         22,664           $(1,825)
                                                                 =======
     Net loss                                   (2,455)          $(2,455)
     Cash dividends declared on
          common stock ($0.12 per share)          (385)
     Purchase of treasury stock                   (784)
     Issuance of treasury stock                     73
     Net change in unrealized gain
          (loss) on securities available for
          sale, net of deferred tax of $17          26                26
                                              --------           -------
BALANCES, JUNE 30, 1999                       $ 19,139           $(2,429)
                                              ========           =======
</TABLE>

See notes to consolidated financial statements.

                                       34
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
                                                                               Years Ended June 30,
                                                                  -------------------------------------------
                                                                      1999           1998             1997
                                                                  -----------      ----------      ----------
<S>                                                               <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $    (2,455)     $   (1,859)     $    2,002
  Adjustments to reconcile net income (loss) to net
    cash provided by (used) in operating activities:
    Provision for loan losses                                             511             147              92
    Depreciation                                                          549             348             235
    Premium and discount amortization on securities, net                2,624           1,434           1,925
    (Gain) loss on sale of securities held for trading                 (4,755)            775           1,623
    Unrealized (gain) loss on securities held for trading               6,402             930          (2,117)
    Effect of minority interest                                            43
    Purchases of securities held for trading                         (780,260)       (657,211)       (913,766)
    (Increase) decrease in amounts due from brokers                                    11,308          (6,934)
    Proceeds from maturities of securities held for trading            51,419          28,438          26,398
    Proceeds from sales of securities held for trading                831,978         652,380         888,429
    Deferred income tax provision and other                               (68)           (980)            614
    Net increase (decrease) in assets and liabilities                     617          (1,815)         (3,547)
                                                                  -----------      ----------      ----------
       Net cash provided by (used in) operating activities            106,605          33,895          (5,046)
                                                                  -----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Federal Home Loan Bank of Indianapolis stock                                (26)         (2,207)
  Proceeds from maturities of securities available for sale               446             259             879
  Change in loans receivable, net                                     (96,927)        (69,885)        (28,134)
  Minority interest                                                       894
  Purchases of premises and equipment                                  (1,436)         (1,653)         (1,554)
                                                                  -----------      ----------      ----------
     Net cash used in investing activities                            (97,023)        (71,305)        (31,016)
                                                                  -----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits                                            154,934          42,136           1,032
  Increase (decrease) in securities sold under agreements to
    repurchase                                                       (180,198)         (5,175)         26,504
  Proceeds from Federal Home Loan Bank advances                        83,000          99,000           3,300
  Principal repayments on Federal Home Loan Bank advances             (69,000)        (99,000)         (3,300)
  Dividends paid on common stock                                         (385)           (395)            (98)
  Purchase of treasury stock                                             (784)         (1,467)
  Other                                                                   573           4,574             997
                                                                  -----------      ----------      ----------
     Net cash provided by (used in) financing activities              (11,860)         39,673          28,435
                                                                  -----------      ----------      ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (2,278)          2,263          (7,627)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                         11,779           9,516          17,143
                                                                  -----------      ----------      ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                          $     9,501      $   11,779      $    9,516
                                                                  ===========      ==========      ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest                                            $    28,682      $   29,624      $   25,434
Cash paid for income taxes                                                 43             321           1,889
</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.

                                       35
<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 seven  full-service  branch  offices  located in Carmel,
Fishers, Noblesville and Indianapolis, Indiana, and Mission, Kansas. The Company
also opened an additional branch in July of 1999 in Chapel Hill, North Carolina.
The  Company is a growing  community  bank with a focus on the  origination  and
management of mortgage loans and securities. The Bank also operates a commercial
loan  division for  business  customers  and owns a 51%  interest in  Harrington
Wealth Management  Company (HWM), which provides trust,  investment  management,
and custody services for individuals and institutions.

Basis of  Presentation  - The  consolidated  financial  statements  include  the
accounts of HFG, the Bank and HWM.  All  significant  intercompany  accounts and
transactions have been eliminated.

In February 1999, the Company  formed HWM. HWM is a strategic  alliance  between
the Bank (51% owner) and Los Padres  Bank (49%  owner),  a  federally  chartered
savings bank located in California.  The accompanying consolidated balance sheet
includes 100 percent of the assets and  liabilities of HWM, and the ownership of
Los Padres Bank is recorded as "Minority  interest."  The results of  operations
include  100  percent  of the  revenues  and  expenses  of HWM  from the date of
formation,  and the  ownership  of Los  Padres  Bank is  recorded  as  "Minority
interest" net of income taxes.

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 - The Company  classifies its
securities  in one of three  categories  and  accounts  for the  investments  as
follows:

o   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.

o   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.

o   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.

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.

                                       36
<PAGE>
The   Company's   available  for  sale   portfolio   consists  of  a  non-agency
participation  certificate  and municipal  bonds which were called during fiscal
year 1999.

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 - 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 fair value with realized
and unrealized gains and losses on these instruments  recognized in other income
(see Note 2).

The Bank entered into a floating-pay  interest rate swap agreement as a means of
managing the interest rate exposure of certain  inverse  variable rate deposits.
The Bank also entered into fixed-pay  interest rate swap agreements and interest
rate cap agreements to modify the interest rate  sensitivity of a portion of the
Bank's  short-term  LIBOR  correlated   borrowings,   which  include  short-term
deposits,  securities  sold under  agreements to repurchase and the Federal Home
Loan Bank  advances.  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 fair
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 floating-pay interest rate swap
is designated to the inverse variable rate deposits,  and the fixed-pay interest
rate swaps and the interest rate caps are  designated to a portion of the Bank's
short-term  LIBOR  correlated  borrowings  which  include  short-term  deposits,
securities  sold under  agreements to repurchase  and the Federal Home Loan Bank
advances.

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.

Discounts and premiums on purchased  residential real estate loans are amortized
to income  using the  effective  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

                                       37
<PAGE>
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 the 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.

Federal  Income Taxes - The Company and its wholly owned  subsidiary,  the Bank,
file a  consolidated  tax return.  HWM will file a separate  tax return,  as the
total  ownership  of the company does not qualify for  consolidated  tax filing.
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.

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:


Years Ended June 30,                         1999          1998          1997
----------------------------------------------------     ---------    ----------

Basic earnings per share:
   Weighted average common shares          3,216,626     3,285,166    3,256,738
                                           =========     =========    =========

Diluted earnings per share:
   Weighted average common shares          3,216,626     3,285,166    3,256,738
    Dilutive effect of stock options (1)                    24,876       42,214
                                           ---------     ---------    ---------
    Weighted average common and
        incremental shares (2)             3,216,62      3,310,042    3,298,952
                                           ========      =========    =========

(1)  The  impact of stock  options  was not  included  due to the  anti-dilutive
     effect for the fiscal year ended June 30,  1999.
(2)  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.

Comprehensive Income - The Company adopted SFAS No. 130,  Comprehensive  Income,
effective  July 1, 1998.  It  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.  All prior  year  financial  statements  have been  reclassified  for
comparative purposes.

New  Accounting  Pronouncements  -  SFAS  No.  133,  Accounting  for  Derivative
Instruments and Hedging Activities,  was issued in June 1998 and amended by SFAS
No. 137, Accounting for Derivative  Instruments and Hedging  Activities-Deferral
of the  Effective  Date of SFAS  133.  SFAS 133,  as  amended  by SFAS  137,  is
effective for all fiscal  quarters of all fiscal years  beginning after June 15,
2000.  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 is currently in the process of determining the effect of
the new standard on the financial statements.

Reclassifications of certain amounts in the 1998 and 1997 consolidated financial
statements have been made to conform to the 1999 presentation.

                                       38
<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>
                                                                 Gross           Gross
                                             Amortized        Unrealized       Unrealized           Fair
June 30, 1999                                  Cost              Gains           Losses             Value
------------------------------------------------------        ----------        ----------        ---------
(Dollars In Thousands)
<S>                                          <C>               <C>              <C>               <C>
Securities held for trading:
  GNMA certificates                          $ 37,986          $    315         $     185         $  38,116
  FHLMC certificates                           69,114               304             1,568            67,850
  FNMA certificates                            28,034                43               478            27,599
  Commercial mortgage backed securities        34,896                               1,088            33,808
  Collateralized mortgage obligations          10,738               331                              11,069
  Residuals                                       205                21                                 226
  Interest-only strips                            818                 1               442               377
  Principal-only strips                           403               103                                 506
  Interest rate swaps                                                                 175              (175)
  Interest rate collar                              4                                                     4
  Interest rate caps                            1,744                               1,157               587
  Interest rate floors                          3,821               976               415             4,382
  Options                                         298                92                62               328
  Futures                                                                           1,611            (1,611)
  Equity securities                                69                65                                 134
                                             --------          --------         ---------         ---------
Totals                                       $188,130         $   2,251         $   7,181         $ 183,200
                                             ========         =========         =========         =========

Securities available for sale:
   Non-agency participation certificate      $    461          $     41                           $     502
                                             ========         =========         =========         =========
</TABLE>

The Bank's  collateralized  mortgage obligation (CMO) portfolio at June 30, 1999
consisted  of three agency  investments  with an  estimated  remaining  weighted
average life of 9.2 years.

                                       39
<PAGE>
<TABLE>
<CAPTION>
                                                                 Gross           Gross
                                             Amortized        Unrealized       Unrealized           Fair
June 30, 1998                                  Cost              Gains           Losses             Value
-----------------------------------------------------          --------         ---------         ---------
(Dollars In Thousands)
<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.

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

The  amortized  cost and  estimated  fair values of  securities  by  contractual
maturity are as follows:
<TABLE>
<CAPTION>
                                                 Held for Trading                    Available for Sale
                                             -------------------------            -------------------------
                                             Amortized        Fair                Amortized         Fair
June 30, 1999                                  Cost           Value                 Cost            Value
------------------------------------------------------       ---------            ---------       ---------
(Dollars In Thousands)
<S>                                          <C>             <C>                  <C>             <C>
Debt securities (due after 1 year through
  5 years):
  Mortgage-backed securities                 $170,030        $ 167,373
  Non-agency participation certificates                                           $     461       $     502
  Collateralized mortgage obligations          10,738           11,069
  Mortgage-backed derivatives                   1,426            1,109
  Interest rate contracts                       5,867            3,515
  Equity securities                                69              134
                                             --------        ---------            ---------       ---------
                                             $188,130        $ 183,200            $     461       $     502
                                             ========        =========            =========       =========
</TABLE>

Securities  with a total amortized cost of $66,550,000  and  $252,445,000  and a
total fair value of $65,572,000 and  $255,568,000  were pledged at June 30, 1999
and 1998, respectively,  to secure interest rate swaps and securities sold under
agreements to  repurchase.  As of June 30, 1999 and 1998, the Bank had a blanket
collateral  agreement  for the  Federal  Home  Loan  Bank  advances  instead  of
utilizing specific securities as collateral.

                                       40
<PAGE>
Activities related to the sale of securities are summarized as follows:

June 30,                                1999         1998         1997
---------------------------------------------     ---------    ---------
(Dollars In Thousands)
Proceeds from sales of securities
   held for trading                 $ 831,978     $ 652,380    $ 888,429
Gross gains on sales of securities
   held for trading                    64,966        46,537       44,324
Gross losses on sales of securities
   held for trading                    60,218        47,312       45,947
Gross gains on sales of securities
   available for sale                       7


3. LOANS RECEIVABLE
--------------------------------------------------------------------------------

Approximately  86% of the Bank's loans is to customers  located in the immediate
market  areas of its offices in Richmond  and  Indianapolis,  Indiana as well as
Mission,  Kansas  and  Chapel  Hill,  North  Carolina.  The  portfolio  consists
primarily of owner occupied single family residential mortgages.

Loans receivable are summarized as follows:

June 30,                                             1999         1998
-----------------------------------------------------------    ---------
(Dollars In Thousands)

Loans secured by one to four family residences:
  Real estate mortgage                            $ 216,402    $ 154,148
  Participation loans purchased                         109          188
Commercial                                           33,778        4,723
Property improvement                                  2,119        1,248
Loans on savings accounts                               426          221
Consumer and home equity lines of credit              3,324        2,288
Automobile loans                                      2,811           13
Other consumer loans                                    369          240
                                                  ---------    ---------
Subtotal                                            259,338      163,069

Unamortized push-down accounting adjustment             (54)        (113)
Undisbursed loan proceeds                                (2)          (6)
Net deferred loan fees, premiums and discounts        1,260          956
Allowance for loan losses                              (868)        (360)
                                                  ---------    ---------
Loans receivable, net                             $ 259,674    $ 163,546
                                                  =========    =========

The  principal  balance  of loans on  nonaccrual  status  totaled  approximately
$76,000  and  $285,000 at June 30,  1999 and 1998,  respectively.  For the years
ended June 30, 1999, 1998 and 1997,  gross interest income which would have been
recorded had the Bank's nonaccruing loans been current with their original terms
amounted to $1,000, $15,000, and $6,000, respectively. At June 30, 1999 and June
30, 1998, the Company had no impaired loans.

The Bank had commitments to originate or purchase loans consisting  primarily of
real estate  mortgages  secured by one to four family  residences  approximating
$1,589,000 and $11,863,000 excluding undisbursed portions of loans in-process at
June 30, 1999 and 1998, respectively. In addition, as of June 30, 1999, the Bank
had  commitments to fund  approximately  $5,125,000 in commercial  loans secured
primarily by commercial real estate.

The  Bank  has  granted  loans  to its  directors,  officers,  employees  and an
affiliate (Smith Breeden Associates, Inc., see Note 15). Such loans were made in
the ordinary  course of business at the Bank's normal  credit  terms,  including
interest rate and  collateralization  and do not represent  more than the normal
risk of collection. These loans to related parties are summarized as follows:

June 30,                                             1999         1998
-----------------------------------------------------------    ---------
(Dollars In Thousands)
Beginning balance                                 $   1,927    $     228
Loans made                                            2,969        1,716
Principal repayments                                   (189)         (17)
Change due to status of officers and employees         (192)
                                                  ---------    ---------
Ending balance                                    $   4,515    $   1,927
                                                  =========    =========

                                       41
<PAGE>
The amount of loans  serviced for others  totaled  $2,020,000,  $3,411,000,  and
$4,657,000 at June 30, 1999,  1998 and 1997,  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 $16,000 and $27,000 at June 30, 1999 and 1998, respectively.

Loan servicing fee income  included in other income for the years ended June 30,
1999, 1998 and 1997 was $10,000, $15,000 and $19,000, respectively.

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

Years Ended June 30,                    1999         1998         1997
---------------------------------------------     ---------    ---------
(Dollars In Thousands)

Beginning balance                   $     360     $     213    $     120
Provision for loan losses                 509           147           93
Recoveries                                 (1)
                                    ---------     ---------    ---------
Ending balance                      $     868     $     360    $     213
                                    =========     =========    =========

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 $127 and $133 million at
June 30,  1999 and 1998,  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, 1999 and 1998. The Bank
was in compliance with all of these requirements at June 30, 1999 and 1998.


4. INTEREST RECEIVABLE
--------------------------------------------------------------------------------

Interest receivable is summarized as follows:

June 30,                                                   1999        1998
----------------------------------------------------------------     --------
(Dollars In Thousands)

Loans (less allowance for uncollectibles - $1 and $15)    $1,375     $    744
Interest-bearing deposits                                     18            2
Securities held for trading                                  943        1,543
Securities available for sale                                  4           29
                                                       ---------    ---------
Interest receivable, net                               $   2,340    $   2,318
                                                       =========    =========



5. PREMISES AND EQUIPMENT
--------------------------------------------------------------------------------

Premises and equipment are summarized as follows:

June 30,                                             1999         1998
-----------------------------------------------------------    ---------
(Dollars In Thousands)
Land                                              $   1,003    $   1,003
Buildings and leasehold improvements                  4,672        4,422
Furniture, fixtures and equipment                     2,857        1,673
                                                  ---------    ---------
Total                                                 8,532        7,098
Less accumulated depreciation                        (2,033)      (1,484)
                                                  ---------    ---------
Premises and equipment, net                       $   6,499    $   5,614
                                                  =========    =========

Depreciation  expense  included  in  operations  during the years ended June 30,
1999, 1998 and 1997 totaled $551,000, $348,000, and $235,000 respectively.

                                       42
<PAGE>
6. DEPOSITS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,                                               1999                                 1998
----------------------------------------------------------------------             -------------------------
(Dollars in Thousands)                                      Weighted                              Weighted
                                              Amount      Average Rate             Amount       Average Rate
                                              ------      ------------             ------       ------------
<S>                                          <C>                 <C>              <C>                 <C>
  NOW and DDA accounts                       $ 16,911            2.35%            $   8,202           2.39%
  Savings accounts                             33,163            4.12                26,688           4.36
  Money market deposit accounts               137,463            4.89                 7,093           4.42
                                             --------                             ---------
                                              187,537                                41,983
                                             --------                             ---------
  Certificates of deposit:
  1 year and less                             126,592                               113,237
  1 to 2 years                                  9,543                                13,169
  2 to 3 years                                  4,730                                 3,570
  3 to 4 years                                  2,867                                 3,198
  Over 4 years                                  1,976                                 3,154
                                             --------                             ---------
                                              145,708            5.16               136,328           5.96
                                             --------                             ---------
  Total deposits                             $333,245                             $ 178,311
                                             ========                             =========

</TABLE>

Certificates of deposit in the amount of $100,000 or more totaled  approximately
$31 million and $25 million at June 30, 1999 and 1998, respectively.

A summary of certificate  accounts by scheduled  fiscal year  maturities at June
30, 1999, is as follows:
<TABLE>
<CAPTION>
                           2000         2001         2002         2003          2004       Thereafter     Total
--------------------------------      -------       ------      -------       ------       ----------   --------
(Dollars In Thousands)
<S>                     <C>           <C>           <C>         <C>           <C>            <C>        <C>
    3.00% or less       $      4                                                             $     4    $      8
    3.01%-5.00%           81,554      $ 3,594       $  467      $   612       $   358             26      86,611
    5.01%-7.00%           43,809        5,148        2,177        1,603           996            416      54,149
    7.01%-9.00%            1,216          127        1,311          652           100             76       3,482
    9.01% or greater           9          674          775                                                 1,458
                        --------      -------       ------      -------       -------        -------    --------
    Totals              $126,592      $ 9,543       $4,730      $ 2,867       $ 1,454        $   522    $145,708
                        ========      =======       ======      =======       =======        =======    ========
</TABLE>

Interest expense on deposits is as follows:

Years Ended June 30,                    1999         1998         1997
---------------------------------------------     ---------    ---------
(Dollars In Thousands)
NOW and DDA accounts                $     306     $     166    $     124
Savings accounts                        1,279         1,091          844
Money market deposit accounts           3,546           127           82
Certificates of deposit                 8,969         6,919        6,416
                                    ---------     ---------    ---------
                                    $  14,100     $   8,303    $   7,466
                                    =========     =========    =========

Interest  expense  on  certificates  of  deposit  is net of  interest  income on
interest rate  contracts of $31,000,  $70,000,  and $130,000 for the years ended
June 30, 1999, 1998 and 1997, respectively.

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

                                       43
<PAGE>
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
--------------------------------------------------------------------------------

June 30,                                             1999         1998
-----------------------------------------------------------    ---------
(Dollars In Thousands)
Securities sold under agreements to repurchase:
   Same securities                                $  43,323    $ 240,396
   Substantially identical securities                16,875
                                                  ---------    ---------
                                                  $  60,198    $ 240,396
                                                  =========    =========

Accrued interest on securities sold under
   agreements to repurchase                       $      66    $     282
                                                  =========    =========

At June 30, 1999,  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:

Years Ended June 30,                    1999         1998         1997
---------------------------------------------     ---------    ---------
(Dollars In Thousands)

Maximum amount outstanding
   at any month-end                 $ 334,160     $ 342,094    $ 343,427

Daily average amount outstanding      213,428       319,579      306,034

Weighted average interest rate at
   end of year                          4.85%         5.65%        5.47%

Assets  pledged to secure  securities  sold under  agreements to repurchase  are
concentrated  among three dealers and five business customers and six dealers as
of June 30, 1999 and 1998,  respectively.  The Bank  exercises  control over the
securities pledged when the same security is repurchased.  Assets pledged are as
follows:

June 30,                                             1999         1998
-----------------------------------------------------------    ---------
(Dollars In Thousands)

Mortgage-backed securities:
   At amortized cost                              $  63,158    $ 245,510
   At fair value                                     62,191      248,537

An  analysis   of  the  amount  at  risk  under   repurchase   agreements   with
counterparties  exceeding  10% of  stockholders'  equity at June 30,  1999 is as
follows:

                                                               Weighted
                                                                Average
                                     Amount        Accrued    Maturity
                                   Outstanding    Interest    (in days)
----------------------------------------------    ---------   --------
(Dollars In Thousands)

Federal Home Loan
   Mortgage Corporation             $  30,723     $      64         9
Salomon Smith Barney, Inc.             16,875                      14
BB&T Capital Markets                   11,150             2        14
                                    =========     =========
                                    $  58,748     $      66
                                    =========     =========


8. FEDERAL HOME LOAN BANK ADVANCES
--------------------------------------------------------------------------------

Advances from the Federal Home Loan Bank of Indianapolis are as follows:
<TABLE>
<CAPTION>
June 30,                                               1999                                 1998
--------------------------------------------------------------------------        -----------------------------
(Dollars in Thousands)                                   Variable Weighted                    Variable Weighted
                                              Amount        Average Rate             Amount       Average Rate
                                              ------        ------------             ------       ------------
<S>                                          <C>                 <C>              <C>                <C>
  Fiscal Year Maturity:
     2000                                    $ 40,000            4.94%
     1999                                                                         $  26,000           5.64%
</TABLE>

As of June 30, 1999 and 1998,  the Bank had a blanket  collateral  agreement for
the Federal Home Loan Bank advances instead of utilizing specific  securities as
collateral.

                                       44
<PAGE>
9. NOTE PAYABLE
--------------------------------------------------------------------------------

At June 30, 1999 and 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  $4,000,000 and $3,500,000 was
outstanding as of June 30, 1999 and 1998,  respectively,  and a $10,000,000 term
loan of which  $5,000 had been  repaid  under the term loan at June 30, 1999 and
1998. Quarterly interest-only payments, based on the prime rate published in the
Wall Street Journal (7.75% at June 30, 1999),  are payable  through  maturity of
June 2000. The unpaid principal  balance  outstanding is payable in full in June
2000.

As of June 30, 1999, 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, 1999, HFG was in compliance with all such debt covenants.


10. INCOME TAXES
--------------------------------------------------------------------------------

An analysis of the income tax provision (benefit) is as follows:

Years Ended June 30,                    1999         1998         1997
---------------------------------------------     ---------    ---------
(Dollars In Thousands)

Current:
  Federal                                         $       7    $     451
  State                                                   4          205
Deferred:
  Federal                           $  (1,304)         (989)         484
  State                                  (342)         (256)         121
                                    ---------     ---------    ---------
Total income tax provision
  (benefit)                         $  (1,646)    $  (1,234)   $   1,261
                                    =========     =========    =========

The difference between the financial  statement  provision  (benefit) and amount
computed by using the statutory rate of 34% is reconciled as follows:

Years Ended June 30,                        1999         1998         1997
---------------------------------------------------    ---------    ---------
(Dollars In Thousands)
Federal statutory income tax at 34%     $   (1,409)    $ (1,052)    $   1,109
Tax exempt interest and dividends               (7)         (12)          (14)
State income taxes, net of
   federal tax benefit                        (226)        (166)          185
Amortization of fair value adjustments         (10)          (1)          (12)
Other, net                                       6           (3)           (7)
                                         ---------     --------     ---------
Total income tax provision (benefit)     $  (1,646)    $ (1,234)    $   1,261
                                         =========     ========     =========

The Company's deferred income tax assets and liabilities are as follows:

June 30,                                                   1999         1998
-----------------------------------------------------------------    ---------
(Dollars In Thousands)
Deferred tax assets:
  Net operating loss carryforward                       $   1,164    $   1,016
  Tax benefit from exercise of non-qualified options                       266
  Bad debt reserves, net                                      293           15
  Deferred compensation                                        18           24
  Other                                                        89           62
                                                        ---------    ---------
                                                            1,564        1,383
                                                        ---------    ---------
Deferred tax liabilities:
  Unrealized gain on securities available for
     sale included in accumulated other
     comprehensive income                                     16
  Unrealized gain on securities held for trading             634          793
  Differences in income recognition on investments           306          350
  Other                                                       12
                                                       ---------    ---------
                                                             968        1,143
                                                       ---------    ---------
Deferred income taxes, net                             $     596    $     240
                                                       =========    =========

                                       45
<PAGE>
As of June 30, 1999,  $208,000 and $956,000 of the Company's net operating  loss
carryforward expire in fiscal years 2018 and 2019, respectively.

Retained earnings at June 30, 1999 and 1998 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 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  began in taxable  year 1999.  The  adoption  of the act did not have a
material adverse effect on the Company's consolidated financial position.


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,
1999,  that the Bank  meets all  capital  adequacy  requirements  to which it is
subject.

As of June  30,  1999  and  1998,  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.


                                       46
<PAGE>
<TABLE>
<CAPTION>
                                                                                        To Be Categorized as
                                                                                         "Well Capitalized"
                                                                  For Capital          Under Prompt Corrective
                                          Actual               Adequacy Purposes          Action Provisions
--------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)             Amount        Ratio       Amount         Ratio         Amount       Ratio
-------------------------------------------------------     ------------------------    ----------------------
<S>                                 <C>          <C>        <C>               <C>       <C>             <C>
As of June 30, 1999:
Tangible capital (to total assets)  $ 32,681      6.95%      $  7,049          1.50%         N/A          N/A
Core capital (to total assets)        32,681      6.95         18,797          4.00          N/A          N/A
Total risk-based capital
   (to risk weighted assets)          33,546     12.33         21,769          8.00     $ 27,211        10.00%
Tier I risk-based capital
   (to risk weighted assets)          32,681     12.01            N/A           N/A       16,327         6.00
Tier I leverage capital
   (to average assets)                32,681      6.95            N/A           N/A       23,497         5.00
                                    --------      ----       --------          ----     --------        -----

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

</TABLE>

12. EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------

Profit-sharing plan - The Company has a qualified noncontributory profit-sharing
plan for all eligible  employees.  The plan  provides for  contributions  by the
Company  in such  amounts  as its Board of  Directors  may  annually  determine.
Contributions  charged to expense  for the years ended June 30,  1999,  1998 and
1997 were $99,000, $87,000, and $85,000, 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 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, 1999, all  outstanding
stock options were exercisable through May 2009. The following is an analysis of
stock  option  activity for each of the three years in the period ended June 30,
1999 and the stock options outstanding at the end of the respective years:
<TABLE>
<CAPTION>
Years ended June 30,                       1999                      1998                       1997
-------------------------------------------------------    -----------------------       -------------------
                                               Weighted                   Weighted                  Weighted
                                               Average                    Average                   Average
                                   Shares        Price       Shares         Price        Shares       Price
                                   ------        -----       ------         -----        ------       -----
(Dollars In Thousands)
<S>                               <C>           <C>        <C>             <C>           <C>        <C>
Outstanding, beginning
   of fiscal year                  60,000       $11.33      176,450       $  8.08        155,700    $   7.70
Granted                            43,000         9.52       31,950         12.11         21,000       10.89
Exercised                                                  (143,200)         7.50
Forfeited or expired                 (800)       10.00       (5,200)        11.25           (250)      10.00
                                  -------       ------       ------        ------        -------    --------
Outstanding, end of fiscal year   102,200       $10.57       60,000        $11.33        176,450    $   8.08
                                  =======       ======       ======        ======        =======    ========
Options exercisable at end
   of fiscal year                  20,290       $10.98        8,310        $10.42          2,500    $  10.00
                                  =======       ======       ======        ======        =======    ========
</TABLE>

As of June 30, 1999, options outstanding have exercise prices between $8.125 and
$12.50 and a weighted average remaining contractual life of 8.7 years.

The  Company  applies  APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees,   and  related   interpretations   in  accounting  for  the  options;
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


                                       47
<PAGE>
consistent  with  the  fair  value  method  of  SFAS  No.  123,  Accounting  for
Stock-Based  Compensation,  the Company's net income (loss) per share would have
decreased to the pro forma amounts indicated below:

Years Ended June 30,                    1999         1998         1997
---------------------------------------------     --------     ---------
(Dollars in thousands,
except per share data)

Net income (loss):
   As reported                      $ (2,455)     $ (1,859)    $   2,002
   Pro forma                        $ (2,482)     $ (1,875)    $   1,995

Basic earnings (loss) per share:
   As reported                      $  (0.76)     $  (0.57)    $    0.61
   Pro forma                        $  (0.77)     $  (0.57)    $    0.61

Diluted earnings (loss) per share:
   As reported                      $  (0.76)     $  (0.57)    $    0.61
   Pro forma                        $  (0.77)     $  (0.57)    $    0.60

The weighted average fair value of options granted was $1.69, $3.72 and $3.42 in
fiscal  years 1999,  1998 and 1997,  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% to 1.60%,
risk-free  interest  rates  ranging from 4.38% to 6.62%,  expected  volatilities
ranging  from 15.80% to 27.25% and expected  lives of 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 has an Employee Stock Ownership Plan
(ESOP) for all eligible  employees of the Company,  the Bank and HWM.  Employees
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 1999
fiscal year,  the ESOP  purchased  22,674 shares at prices ranging from $8.06 to
$9.63 per  share.  Of these  purchases,  6,947  shares  have been  allocated  to
eligible employees. During the 1997 fiscal year, the ESOP purchased 5,000 shares
at  $10.25  per  share,  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 1999,  1998 and 1997 was  $121,000,  $73,000 and
$51,000, 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.

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.

                                       48
<PAGE>
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  $2,298,000 and $2,100,000 at June 30,
1999 and 1998, 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.

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  positions are included in the Bank's  trading  portfolio and are
thus reported in the financial statements at current fair value.
<TABLE>
<CAPTION>
                       Contract            Estimated
                      or Notional          Fair Value                  Weighted Average Interest Rate
---------------------------------       --------------------      -----------------------------------------
June 30, 1999           Amount          Asset      Liability      Payable   Receivable      Cap       Floor
---------------------------------       ------     ---------      -------   ----------     ----       -----
(Dollars In Thousands)
<S>                   <C>              <C>         <C>             <C>         <C>         <C>        <C>
Interest rate swaps:
  Pay fixed rate      $    21,000                  $   175         6.34%       5.17%        N/A        N/A
Interest rate caps        133,000      $   587                      N/A         N/A         7.92%      N/A
Interest rate floors      245,000        4,382                      N/A         N/A         N/A       6.11%
Interest rate collar          587            4                      N/A         N/A        10.25      5.25
Futures                 2,699,700                    1,611          N/A         N/A         N/A        N/A
Options                    33,000          328                      N/A         N/A         N/A        N/A
                      -----------      ------      -------
                      $ 3,132,287      $ 5,301     $ 1,786
                      ===========      =======     =======
<CAPTION>
                       Contract            Estimated
                      or Notional          Fair Value                  Weighted Average Interest Rate
---------------------------------       --------------------      -----------------------------------------
June 30, 1998           Amount          Asset      Liability      Payable   Receivable      Cap       Floor
---------------------------------       -----      ---------      -------   ----------    ----       ------
(Dollars In Thousands)
<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
                      ===========      =======     =======
</TABLE>

                                       49
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,                                    1999                                 1998
---------------------------------------------------------------------             -------------------------
(Dollars in Thousands)                            Monthly Average                      Monthly Average
                                                    Fair Value                           Fair Value
---------------------------------------------------------------------             -------------------------
                                               Asset        Liability               Asset         Liability
-----------------------------------------------------       ---------             ---------       ----------
<S>                                          <C>            <C>                   <C>             <C>
Interest rate swaps:
   Pay fixed rate                                           $    340                              $   376
Interest rate caps                           $    280                             $     720
Interest rate floors                            5,643                                 4,946
Interest rate collar                                              13                                   19
Futures                                                           98                                  256
Options                                           411                                   125
                                             --------       --------              ---------       -------
                                             $  6,334       $    451              $   5,791       $   651
                                             ========       ========              =========       =======
</TABLE>

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>
                                     Realized         Unrealized       Net Trading
Year Ended June 30, 1999          Gains/(Losses)    Gains/(Losses)   Gains/(Losses)
-----------------------------------------------    ---------------   --------------
(Dollars In Thousands)
<S>                                  <C>               <C>             <C>
Interest rate contracts:
  Swaps                              $     13          $    222        $     235
  Caps                                                    1,000            1,000
  Floors                                                   (469)            (469)
  Collar                                                     60               60
  Futures                               4,591            (1,354)           3,237
  Options                                                    48               48
                                     --------          --------        ---------
Total                                   4,604              (493)           4,111
MBS and other trading assets              144            (5,909)          (5,765)
                                     --------          --------        ---------
Total trading portfolio              $  4,748          $ (6,402)       $  (1,654)
                                     ========          ========        =========
<CAPTION>
                                     Realized         Unrealized       Net Trading
Year Ended June 30, 1998          Gains/(Losses)    Gains/(Losses)   Gains/(Losses)
-----------------------------------------------     --------------   --------------
(Dollars In Thousands)
<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>
                                     Realized         Unrealized       Net Trading
Year Ended June 30, 1997          Gains/(Losses)    Gains/(Losses)   Gains/(Losses)
------------------------------------------------    --------------   --------------
(Dollars In Thousands)
<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>

                                       50
<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, 1999.
<TABLE>
<CAPTION>
Maturities During Fiscal
Years Ending June 30,                        2000         2001        2002          2003         2004      Thereafter
-----------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S>                                     <C>            <C>          <C>          <C>            <C>         <C>
Interest rate swaps-Pay fixed rate
   Notional amount                      $   16,000     $   5,000
   Weighted average payable rate              6.27%         6.58%
   Weighted average receivable rate           5.23%         5.00%

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                      $   30,000     $  70,000    $ 20,000     $  60,000      $ 35,000    $  30,000
   Weighted average floor rate                6.50%         6.50%       6.00%         5.75%         5.79%        6.00%

Interest rate collar
   Notional amount                                                                                          $     587
   Weighted average cap rate                                                                                    10.25%
   Weighted average floor rate                                                                                   5.25%

Futures
   Notional amount                      $1,019,700     $ 585,000    $513,000     $ 346,000      $124,000    $ 112,000

Options
   Notional amount                      $   18,000                                              $ 15,000
</TABLE>

The  following  interest  rate  hedges are not  included  in the Bank's  trading
portfolio.  One of the interest  rate swaps is 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, 1999 and 1998,
the Bank held  approximately  $2.9 million and $5.2 million of inverse  variable
rate CDs, with original terms to maturity  ranging from three to ten years.  The
Bank  utilizes  the  interest  rate swap to convert  the inverse  variable  rate
certificates  of deposit  effectively to fixed rate deposits.  The interest rate
swap protects the Bank against the exposure to falling  interest  rates inherent
in these  CDs.  As of June 30,  1999,  the swap had a  notional  amount  of $7.5
million.

In addition,  the Bank also has interest rate swaps which are used to modify the
interest rate sensitivity of a portion of the Bank's short-term LIBOR correlated
borrowings, which include short-term deposits,  securities sold under agreements
to  repurchase  and the Federal  Home Loan Bank  advances.  As of June 30, 1999,
these  swaps  had  a  total  notional  amount  of  $50  million.  The  repricing
characteristics  of the Bank's  short-term  borrowings  are similar in nature to
those of the related interest rate swap  instruments.  The short term borrowings
reach their maturities before the maturities of the matched interest rate swaps;
however, it is the Bank's intent to consistently  maintain such short term LIBOR
correlated  borrowings in the normal course of business which will be designated
against these specific interest rate swaps.

The Bank also has  interest  rate caps  which  are used to  effectively  cap the
interest rates on its short-term  LIBOR  correlated  borrowings.  As of June 30,
1999 and 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
short-term  LIBOR  correlated  borrowings,  which include  short-term  deposits,
securities  sold under  agreements to repurchase  and the Federal Home Loan Bank
advances.  As of June 30, 1999 and 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 short-term  borrowings are similar in nature to
those of the related  interest rate cap  agreements.  The short-term  borrowings
reach their maturities  before the maturities of the matched interest rate caps;
however, it is the Bank's intent to replace the short-term  borrowings when they
mature with additional short-term liabilities,  which will be designated against
the interest rate caps.

                                       51
<PAGE>
The fair 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>
                       Contract              Estimated
                      or Notional            Fair Value                  Weighted Average Interest Rate
---------------------------------       --------------------             -------------------------------
June 30, 1999           Amount          Asset      Liability             Payable              Receivable
---------------------------------       -----      ---------             -------              ----------
(Dollars In Thousands)
<S>                   <C>              <C>         <C>                     <C>                   <C>
Interest rate swaps:
   Pay floating rate  $     7,500      $    60                             5.25%                 6.96%
   Pay fixed rate          50,000        2,282     $    41                 5.76                  5.14
Interest rate caps         90,000        4,387                             N/A                   N/A
<CAPTION>
                       Contract              Estimated
                      or Notional           Fair Value                    Weighted Average Interest Rate
---------------------------------      ---------------------             --------------------------------
June 30, 1998           Amount          Asset      Liability             Payable              Receivable
---------------------------------      ------      ---------             -------              -----------
(Dollars In Thousands)
<S>                   <C>              <C>         <C>                     <C>                   <C>
Interest rate swaps:
Pay floating rate     $     7,500      $   137                             5.74%                 6.96%
Interest rate cap          90,000        2,495                             N/A                   N/A
</TABLE>

The following table sets forth the maturity  distribution  and weighted  average
interest  rates of the interest  rate swap used to protect the inverse  variable
rate CDs from adverse rate  movements  and the interest  rate swaps and interest
rate caps used to cap a portion of the Bank's LIBOR correlated  borrowings which
include short-term deposits,  securities sold under agreements to repurchase and
the Federal Home Loan Bank advance as of June 30, 1999:
<TABLE>
<CAPTION>
Maturities During Fiscal
Years Ending June 30,                        2000         2001          2002         2003         2004      Thereafter
-----------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S>                                        <C>        <C>               <C>          <C>      <C>         <C>
Interest rate swaps-pay floating rate
Notional amount                            $ 7,500
Weighted average payable rate                 5.25%
Weighted average receivable rate              6.96%

Interest rate swaps-pay fixed rate
Notional amount                                                                               $  5,000    $  45,000
Weighted average payable rate                                                                     5.27%        5.81%
Weighted average receivable rate                                                                  5.00%        5.15%

Interest rate caps
Notional amount                                      $  30,000                                            $  60,000
Weighted average cap rate                                7.00%                                                 6.00%
</TABLE>

                                       52
<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  loan  commitments  whose  contract
amounts  represent  credit risk and the  applicable  range of interest rates for
such loan commitments.
<TABLE>
<CAPTION>
June 30,                                               1999                                 1998
-------------------------------------------------------------------------          -------------------------
(Dollars in Thousands)                                      Interest                              Interest
                                              Amount          Rates                Amount           Rates
-----------------------------------------------------   -----------------         ---------      -----------
<S>                                          <C>        <C>                       <C>            <C>
One to four family real estate-fixed rate    $  1,589     6.75%-8.375%            $  11,863      6.75-10.00%
Commercial loans-fixed rate                       450   Priced at closing
Commercial loans-adjustable rate                4,675      7.75%-8.75%
                                             --------                             ---------
                                             $  6,714                             $  11,863
                                             ========                             =========
</TABLE>

At June 30,  1999,  the Company was  obligated  under  noncancelable  leases for
buildings.  Several of these  leases  contain  renewal  options  and  escalation
clauses  calling for rentals to be adjusted for increased  real estate taxes and
other  operating  expenses or  proportionately  adjusted  for  increases  in the
consumer price indices or other basis.

The following  summary  reflects the future minimum rental  payments,  by fiscal
year,  required under operating leases that have remaining  noncancelable  lease
terms in excess of one year as of June 30, 1999:

Years Ended June 30,
--------------------------------------------------------------------------
(Dollars in thousands)

2000                                                           $     330
2001                                                                 322
2002                                                                 306
2003                                                                 298
2004                                                                 277
2005 and thereafter                                                1,828
                                                               ---------
Total minimum payments                                         $   3,361
                                                               =========

Rental expense under  operating  leases for fiscal years 1999, 1998 and 1997 was
$292,000, $100,000 and $70,000.


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, 1999, 1998
and 1997 was $301,000, $287,000 and $281,000 respectively.  SBA has a commercial
loan outstanding with the Bank at June 30, 1999, see Note 3.


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 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.

                                       53
<PAGE>
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 from the  current  calendar
year plus the prior two calendar years.  Under this  limitation,  as of June 30,
1999,  the Bank would be  required to file an  application  with the OTS for any
proposed capital distribution.

Reserve  Requirements  - As of June  30,  1999,  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.


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>
June 30,                                               1999                                 1998
--------------------------------------------------------------------              ------------------------
(Dollars in Thousands)                       Carrying         Fair                Carrying          Fair
                                               Value          Value                 Value           Value
-----------------------------------------------------      ---------              ---------       --------
<S>                                          <C>           <C>                    <C>             <C>
ASSETS:
Cash                                         $  1,414      $   1,414              $   1,567       $  1,567
Interest-bearing deposits                       8,087          8,087                 10,212         10,212
Securities held for trading                   183,200        183,200                290,609        290,609
Securities available for sale                     502            502                    922            922
Loans receivable, net                         259,674        253,500                163,546        166,400
Interest receivable                             2,340          2,340                  2,318          2,318
Federal Home Loan Bank stock                    4,878          4,878                  4,878          4,878

LIABILITIES:
Deposits                                      333,245        330,300                178,311        178,400
Securities sold under agreements
  to repurchase                                60,198         60,200                240,396        240,400
Federal Home Loan Bank advances                40,000         40,000                 26,000         26,000
Interest payable on securities sold
  under agreements to repurchase                   66             66                    282            282
Other interest payable                          1,925          1,925                  1,596          1,596
Note payable                                   13,995         13,995                 13,495         13,495
Advance payments by borrowers for
  taxes and insurance                             795            795                    785            785

OFF BALANCE SHEET HEDGING
   INSTRUMENTS:
  Interest rate swaps                                          2,301                                   137
  Interest rate caps                            3,101          4,387                  3,595          2,495
</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.

                                       54
<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.

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, DDA, 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 deposit and a portion of the Bank's LIBOR correlated  short-term
borrowings,  including short-term deposits,  securities sold under agreements to
repurchase  and the Federal  Home Loan Bank  advances.  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, 1999 and 1998. 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.

                                       55
<PAGE>
18. SEGMENT INFORMATION
--------------------------------------------------------------------------------

The Company's  principal business lines include community banking in the Indiana
and Kansas markets,  investment activities,  including treasury management,  and
other activities including the start-up of the North Carolina community bank and
Harrington  Wealth  Management.  The community  banking segment  provides a full
range of deposit  products as well as mortgage,  consumer and commercial  loans.
The  investment  segment is  comprised  of the  Company's  held for  trading and
available for sale securities, as well as the treasury management function.

Results of operations and asset  information by operating  segment are presented
below  for  the  fiscal  year  ended  June  30,  1999.  No  comparative  segment
information  is available for prior years.  The financial  information  for each
operating  segment is reported  on the basis used  internally  by the  Company's
management to evaluate performance and allocate resources.

The  measurement of the  performance  of the operating  segments is based on the
management  and  corporate  structure  of the  Company  and  is not  necessarily
comparable with similar  information for any other  financial  institution.  The
information presented is also not necessarily  indicative of the segments' asset
size and results of operations if they were independent entities.
<TABLE>
<CAPTION>

Year Ended                             COMMUNITY BANKING
                                  --------------------------------------------------------------------------
June 30, 1999                      Indiana          Kansas       INVESTMENTS        OTHER          TOTAL
-------------                      -------          ------       -----------        -----          -----
(Dollars In Thousands)
<S>                               <C>             <C>            <C>             <C>            <C>
Net interest income (1)           $    3,826      $     748      $    1,504      $       3      $     6,081
Provision for loan losses                192            318                              1              511
                                  ----------      ---------      ----------      ---------      -----------
Net interest income after
   provision for loan losses           3,634            430           1,504              2            5,570

Other operating income                   343              8               9             73              433
Depreciation expense                     439             70              30             11              550
Other operating expense                5,129          1,244             955            622            7,950
                                  ----------      ---------      ----------      ---------      -----------
CORE BANKING INCOME
   (LOSS) BEFORE TAXES                (1,591)          (876)            528           (558)          (2,497)

Realized and unrealized loss on
   securities, net of hedging            (10)            (1)         (1,636)                         (1,647)
                                  ----------      ---------      ----------      ---------      -----------
Loss before income taxes              (1,601)          (877)         (1,108)          (558)          (4,144)
Applicable income taxes                 (636)          (348)           (441)          (221)          (1,646)
                                  ----------      ---------      ----------      ---------      -----------
NET LOSS BEFORE
   MINORITY INTEREST                    (965)          (529)           (667)          (337)          (2,498)
Minority interest, net of taxes                                                         43               43
                                  ----------      ---------      ----------      ---------      -----------
NET LOSS                          $     (965)     $    (529)     $     (667)     $    (294)     $    (2,455)
                                  ----------      ---------      ----------      ---------      -----------

Identifiable assets               $  219,607      $  42,851      $  198,672      $  10,209      $   471,339
                                  ==========      =========      ==========      =========      ===========
</TABLE>

(1) Interest income is presented net of interest expense

                                       56
<PAGE>
19. HARRINGTON FINANCIAL GROUP, INC. FINANCIAL INFORMATION (PARENT COMPANY ONLY)
--------------------------------------------------------------------------------

The  following  condensed  balance  sheets  as of June 30,  1999 and  1998,  and
condensed  statements  of  operations  and cash flows for the three years in the
period ended June 30, 1999 for Harrington  Financial Group,  Inc. should be read
in conjunction with the consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                   ---------------------------
CONDENSED BALANCE SHEETS                                                             1999             1998
---------------------------------------------------------------------------------------------      -----------
(Dollars In Thousands)
<S>                                                                                <C>             <C>
ASSETS

Cash and cash equivalents                                                          $      277      $    1,944
Securities held for trading                                                               134             199
Deferred income taxes, net                                                                854             791
Income taxes receivable                                                                   143              23
Other assets                                                                               27             146
Intercompany receivable                                                                   107               5
Investment in subsidiary                                                               31,769          33,240
                                                                                   ----------      ----------
TOTAL ASSETS                                                                       $   33,311      $   36,348
                                                                                   ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Note payable                                                                       $   13,995      $   13,495
Accrued expenses payable and other liabilities                                            177             189
                                                                                   ----------      ----------
Total liabilities                                                                      14,172          13,684
                                                                                   ----------      ----------

Common stock                                                                              425             425
Additional paid-in capital                                                             16,946          16,962
Treasury stock                                                                         (2,162)         (1,467)
Accumulated other comprehensive income (loss), net of taxes                                25              (1)
Retained earnings                                                                       3,905           6,745
                                                                                   ----------      ----------
Total stockholders' equity                                                             19,139          22,664
                                                                                   ----------      ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $   33,311      $   36,348
                                                                                   ==========      ==========
<CAPTION>

                                                                           For the Years Ended June 30,
-------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS                                    1999            1998             1997
------------------------------------------------------------------------------     ----------      ----------
(Dollars In Thousands)
<S>                                                               <C>              <C>             <C>
Dividends from subsidiary                                                                          $    4,000
Interest income from securities held for trading                  $         2      $        6              76
Interest on deposits                                                        3              18               8
Gain on sale of securities held for trading                                21              94              12
Unrealized gain (loss) on securities held for trading                     (35)            (59)            105
                                                                  -----------      ----------      ----------
  Total income (loss)                                                      (9)             59           4,201
                                                                  -----------      ----------      ----------

Interest expense on long-term borrowings                                1,109             981             907
Salaries and employee benefits                                            294             263             231
Other expenses                                                            174             249             315
                                                                  -----------      ----------      ----------
  Total expenses                                                        1,577           1,493           1,453
                                                                  -----------      ----------      ----------

Income (loss) before equity in undistributed earnings                  (1,586)         (1,434)          2,748
Income tax provision (benefit)                                           (627)           (566)           (509)
Equity in undistributed earnings of subsidiary                         (1,496)           (991)         (1,255)
                                                                  -----------      ----------      ----------
Net income (loss)                                                 $    (2,455)     $   (1,859)     $    2,002
                                                                  ===========      ==========      ==========
</TABLE>

                                       57
<PAGE>
<TABLE>
<CAPTION>
                                                                           For the Years Ended June 30,
                                                                   -------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS                                    1999           1998             1997
------------------------------------------------------------------------------     -----------     -----------
(Dollars In Thousands)
<S>                                                               <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                 $    (2,455)     $   (1,859)     $    2,002
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
    Net increase (decrease) in assets and liabilities                     (91)            123             174
    Gain on sale of securities held for trading                           (21)            (94)            (12)
    Unrealized gain (loss) on securities held for trading                  35              59            (105)
    Purchases of securities held for trading                                           (2,000)
    Proceeds from sales of securities held for trading                     52           2,300             203
    Deferred income tax provision                                         (62)           (588)             53
    Decrease in undistributed earnings of subsidiary                    1,471             991           1,255
                                                                  -----------      ----------      ----------
       Net cash provided by (used in)
          operating activities                                         (1,071)         (1,068)          3,570
                                                                  -----------      ----------      ----------

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

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from stock options exercised                                               1,074
    Proceeds from note payable                                            500           3,500           2,300
    Principal repayments on note payable                                                               (1,303)
    Dividends paid on common stock                                       (385)           (395)            (98)
    Purchase of treasury stock                                           (784)         (1,467)
    Proceeds from issuance of treasury stock                               73
                                                                  -----------      ----------      ----------
       Net cash provided by (used in) financing activities               (596)          2,712             899
                                                                  -----------      ----------      ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                              (1,667)         (1,556)         (1,771)

CASH AND CASH EQUIVALENTS,
   Beginning of year                                                    1,944           3,500           5,271
                                                                  -----------      ----------      ----------

CASH AND CASH EQUIVALENTS,
   End of year                                                    $       277      $    1,944      $    3,500
                                                                  ===========      ==========      ==========
</TABLE>

                                       58
<PAGE>
                                Independent Auditor's 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, 1999 and
1998,  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, 1999. 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,  1999 and  1998,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles.


/s/Deloitte & Touche LLP


Indianapolis, Indiana
July 27, 1999