Exhibit 13


    HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY - SELECTED CONSOLIDATED
                                 FINANCIAL DATA
                    (Dollars in Thousands Except Share Data)

The following table presents selected  consolidated  financial and other data of
the Company for the five years in the period ended June 30,  2000.  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,                                      2000        1999         1998         1997        1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>          <C>         <C>          <C>
Balance Sheet Data
Securities held for trading and available for sale                  $ 117,904    $ 183,702    $ 291,531   $ 318,480    $ 321,897
Loans receivable-net                                                  270,970      259,632      163,546      93,958       65,925
Total assets                                                          435,192      471,339      446,797     446,797      418,196
Deposits                                                              361,241      333,245      178,311     136,175      135,143
Core retail deposits                                                  334,467      322,898      166,818     123,489      112,369
Securities sold under agreements to repurchase                         28,038       60,198      240,396     245,571      219,067
Federal Home Loan Bank advances                                         7,000       40,000       26,000      26,000       26,000
Note payable                                                           12,995       13,995       13,495       9,995        8,998
Stockholders' equity                                                   16,257       19,139       22,664      24,994       23,117(1)
Stockholders' equity per share                                           5.16         5.97         6.92        7.67         7.10

Income Statement Data
  Interest income                                                   $  31,893    $  35,204    $  33,956   $  34,474    $  23,484
  Interest expense                                                     23,522       29,123       29,032      26,408       18,004
                                                                      -------      -------       ------     -------       ------
          Net interest income                                           8,371        6,081        4,924       8,066        5,480
  Provision for loan losses                                               587          511          147          92           (1)
                                                                         ----         ----         ----         ---          ---
  Net interest income after provision for loan losses                   7,784        5,570        4,777       7,974        5,481
  Retail banking fees and other income                                    772          433          295         239          256
                                                                         ----         ----         ----        ----          ---
  Total net revenue                                                     8,556        6,003        5,072       8,213        5,737
  Operating expenses                                                    9,627        8,500        6,460       5,444        3,740
                                                                       ------       ------       ------      ------        -----
  Income (loss) before tax provision, gain (loss) on
  securities and minority interest                                     (1,071)      (2,497)      (1,388)      2,769        1,997
                                                                     --------     --------     --------      ------        -----
  Gain (loss) on sale of securities held for training                  (4,498)       4,755         (775)     (1,623)       1,834
  Unrealized gain (loss) on securities held for trading                 3,494       (6,402)        (930)      2,117       (1,960)
  Gain (loss) on sale of loans                                         (1,173)
                                                                     --------     --------     --------        ----        -----
  Net gain (loss) on securities and loans                              (2,177)      (1,647)      (1,705)        494         (126)
                                                                     --------     --------     --------        ----        -----
  Income (loss) before income tax provision and minority interest      (3,248)      (4,144)      (3,093)      3,263        1,871
  Income tax provision                                                 (1,277)      (1,646)      (1,234)      1,261          648
                                                                     --------     --------     --------      ------          ---
  Income (loss) before minority interest                               (1,971)      (2,498)      (1,859)      2,002        1,223
  Minority interest                                                        92           43
                                                                     --------     --------     --------        ----        -----
  Net income (loss)                                                 $  (1,879)   $  (2,455)   $  (1,859)  $   2,002    $   1,223
                                                                   ==========   ==========   ==========    ========      =======

  Basic earnings (loss) per share                                   $   (0.59)   $   (0.76)   $   (0.57)  $    0.61    $    0.57
  Diluted earnings (loss) per share                                 $   (0.59)   $   (0.76)   $   (0.57)  $    0.61    $    0.56
  Cash dividends per share                                          $    0.12    $    0.12    $    0.12   $    0.03    $     N/A
  Market value, fiscal year-end per share                           $    6.50    $    7.25    $   11.25   $   12.13    $   10.50

Performance Ratios
  Return on average assets (2)                                          (0.41)%      (0.44)%      (0.34)%      0.50 %       0.37 %
  Return on average equity (2)                                         (10.70)      (12.54)       (7.56)      10.52         9.49
  Interest rate spread                                                   1.75         1.06         0.79        1.43         1.64
  Net interest margin                                                    1.87         1.12         0.94        1.62         1.73
  Average interest-earning assets to average
   interest-bearing liabilities                                        102.16       101.14       102.73      103.67       101.55
  Net interest income after provision for loan losses to
   total other expenses (2)                                             80.86        65.53        73.95      172.82       146.55
  Total other expenses to average total assets (2)                       2.08         1.51         1.20        0.91         1.13
  Full service offices                                                      9            8            7           4            3

Asset Quality Ratios (at end of period)
  Non-performing loans to total loans (3)                                0.07         0.03         0.17        0.36         0.40
  Non-performing assets to total assets (3)                              0.13         0.13         0.18        0.25         0.32
  Allowance for loan losses to total loans                               0.52         0.33         0.22        0.23         0.02
  Allowance for loan losses to total non-performing loans              782.22     1,142.11       126.32       63.39        45.98

Capital Ratios (4)
  Tangible capital ratio                                                 6.65         6.95         6.88        6.96         6.27
  Core capital ratio                                                     6.65         6.95         6.88        6.96         6.27
  Risk-based capital ratio                                              12.75        12.33        21.92       31.14        30.10
  Equity to assets at end of period                                      3.74         4.06         4.68        5.59         5.53
</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.


                                       1

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


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

General

             Harrington's  business  strategy  focuses on  achieving  attractive
returns  consistent  with  prudent  risk  management.  Harrington  has sought to
implement  this  strategy by: (1)  expanding  its banking  locations and product
offerings  in  order  to  build  a  strong  community  banking  franchise;   (2)
controlling  interest rate risk by matching the interest rate sensitivity of its
assets to that of its  liabilities;  (3) controlling  credit risk by originating
well-collateralized  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.

Highlights of the principal  elements of the Company's  business strategy are as
follows:

             Expand Banking Locations and Product Offerings. An integral part of
the  Company's  strategy  has been to  expand  opportunistically  the  products,
services,  and banking  locations  for business and retail  customers in markets
where the Company's  management and directors have market knowledge and customer
relationship  potential. A total of eight new banking locations have been opened
since May 1994, and the Commercial  Loan Division was developed in the Spring of
1998. With the primary expansion complete,  the Company is focused on efficiency
and revenue enhancement to improve profitability.

             In March 2000, the Company  reached a definitive  agreement to sell
the Bank's two southern Indianapolis  branches.  The Company determined that the
branches did not strategically fit with its market development on the north side
of  Indianapolis  in Hamilton  County.  On September  8, 2000,  the Company sold
deposits and certain  assets of the two branch  banking  locations.  The Company
sold $43.5 million of deposits, $0.4 million of office properties and equipment,
and paid  approximately  $41.7  million.  The sale resulted in a pre-tax gain of
approximately $1.4 million.

             The  Company's  lending  emphasis  is on the  origination  of loans
secured  by  first  and  second  liens  on  single-family  (one to  four  units)
residences and commercial  real estate,  equipment,  inventory,  and receivables
lending through its Commercial  Loan Division.  In fiscal year 2000, the Company
originated  $10.7  million in single  family  related  loans,  $12.6  million in
consumer  related loans,  and $53.9 million in commercial  related loans.  Total
loans have  increased to $271.0  million at June 30, 2000 from $94.0  million at
June 30, 1997.

             The Company  believes  that retail  deposits  are a  cost-effective
source of funds, provide an additional source of fee income, and also permit the
further  cross selling of additional  products and services.  Consequently,  the
Company is focusing on  increasing  its retail  deposit  base while  controlling
deposit  cost.  Core  deposits  (total  consolidated  deposits less public funds
deposits and brokered  deposits)  were $334.4  million at June 30, 2000 and have
increased from $123.5 million at June 30, 1997.

             The  Company  also  formed  Harrington  Wealth  Management  Company
("HWM") in  February  1999.  HWM is a strategic  alliance  between the Bank (51%
owner) and Los Padres Bank (49%  owner),  a  federally  chartered  savings  bank
located in California.  HWM provides trust,  investment management,  and custody
services for individuals and institutions.

             Control  Interest  Rate Risk.  The  Company  attempts to manage its
assets and  liabilities in order to maintain a portfolio that produces  positive
returns in either an  increasing or decreasing  interest rate  environment.  The
Company has sought to control  interest  rate risk both  internally  through the
management  of the  composition  of its assets and  liabilities  and  externally
through the utilization of interest rate contracts.  Interest rate contracts are
purchased  with the  intention  of  protecting  the  market  value of the Bank's
portfolio and net interest income.



                                       2
<PAGE>



             Control  Credit  Risk.  In  order  to limit  the  Company's  credit
exposure, the Company originates and adds to portfolio well-secured  residential
and  commercial  loans and maintains  strict  underwriting  standards.  As such,
non-performing  loans have remained  relatively low, with only $180,000 or 0.07%
of total loans at June 30, 2000.

             Utilize  Excess  Capital  Balances.  The  Company  utilizes  excess
capital  balances  through  the  management  of a  hedged  investment  portfolio
primarily consisting of mortgage-backed securities and corporate bonds. Although
these  securities  often  carry  lower  yields  than  traditional   loans,  such
securities  generally  increase the quality of the  Company's  assets,  are more
liquid than individual  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  community bank expansion  opportunities as
they arise.

             During  fiscal  year 2000,  the  Company  marked  almost all of its
investment  securities  and related  interest rate contracts to market either in
earnings (trading  portfolio) or in equity (available for sale portfolio).  This
method of  accounting  was  consistent  with the  Company's  strategy  of active
portfolio  management  and provided the Company with the  flexibility  to adjust
quickly the mix of its interest  earning  assets in response to changing  market
conditions or to take advantage of community banking growth opportunities.  With
the growth in the core  retail and  commercial  banking  business,  the level of
assets subject to mark-to-market accounting has declined.

             In summary,  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 and net interest
income. Management's primary goal is to increase stockholders' value as measured
on a risk-adjusted total return basis.

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

             In addition to historical information,  forward-looking  statements
contained  in this  annual  report are subject to risks and  uncertainties  that
could cause  actual  results to differ  materially  from those  reflected in the
forward-looking statements. Factors that could cause future results to vary from
current  expectations  include,  but are not  limited to, the impact of economic
conditions  (both  generally  and  more  specifically  in the  markets  in which
Harrington operates),  the impact of competition for Harrington's customers from
other providers of financial services,  the impact of government legislation and
regulation  (which  changes from time to time and over which  Harrington  has no
control),  and other  risks  detailed in the Annual  Report and in  Harrington's
other Securities and Exchange Commission ("SEC") filings.  Readers are cautioned
not to place undue reliance on these forward-looking  statements,  which reflect
management's  analysis  only as of the date  hereof.  Harrington  undertakes  no
obligation to publicly revise these forward-looking statements to reflect events
or  circumstances  that arise after the date hereof.  Readers  should  carefully
review the risk factors described in other documents  Harrington files from time
to time with the SEC,  including the Quarterly  Reports on Form 10-Q to be filed
by  Harrington  in 2000 and 2001 and any  Current  Reports  on Form 8-K filed by
Harrington.

Changes in Financial Condition

               General. At June 30, 2000,  Harrington's total assets amounted to
$435.2 million,  as compared to $471.3 million at June 30, 1999. The decrease in
total assets was  primarily  due to a $62.0  million  decrease in the  Company's
securities  portfolio which was partially offset by an $11.3 million increase in
the loan  portfolio  and a $14.8 million  increase in cash and interest  bearing
deposits.

               Cash and  Interest-Bearing  Deposits.  Cash and  interest-bearing
deposits  amounted to $24.3  million and $9.5 million at June 30, 2000 and 1999,
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  $10.0 million to $25.0 million.  Harrington  attempts to
invest  its  excess  liquidity  in  higher  yielding  assets  such as  loans  or
securities.


                                       3
<PAGE>


               Securities  Held for Trading and  Available for Sale. In order to
reduce the Company's  credit risk exposure,  to enhance balance sheet liquidity,
and to utilize excess capital  balances,  Harrington  maintains a portion of its
assets in a hedged investment  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 or available for sale
and,  pursuant to SFAS 115, are reported at fair value with unrealized gains and
losses included in earnings or equity, respectively.

               Securities  held  for  trading   (consisting  of  mortgage-backed
securities,  mortgage-backed derivative securities,  interest rate contracts and
equity securities) amounted to $53.9 million and $183.2 million at June 30, 2000
and 1999, respectively.  Securities classified as available for sale (consisting
of a non-agency  mortgage-backed security,  corporate bonds, and adjustable rate
mortgage  securities)  increased from $502,000 at June 30, 1999 to $64.1 million
at June 30, 2000.

               Loans Receivable.  At June 30, 2000, loans receivable (net of the
Company's  allowance for loan losses) amounted to $271.0 million, an increase of
4.4% over the June 30,  1999  total of $259.6  million.  This  loan  growth  was
accomplished  despite  the sale of $22.0  million  of low  coupon  single-family
mortgage  loans  in  June  2000.  Harrington  has  significantly  increased  its
community  banking  operations,   including  the  origination  of  single-family
residential and commercial loans. Loans originated through  correspondents  must
meet the same pricing and underwriting standards as loans originated internally.
The Bank's consumer and commercial loan portfolio  significantly  increased from
$42.6 million at June 30, 1999 to $90.1 million at June 30, 2000.

               Allowance  for  Loan  Losses.  At  June  30,  2000,  Harrington's
allowance for loan losses totaled $1.4 million, compared to $868,000 at June 30,
1999. At June 30, 2000, the Company's allowance represented  approximately 0.52%
of the total loan  portfolio as compared to 0.33% at June 30, 1999. The ratio of
total  non-performing  loans to total  loans  amounted to 0.07% at June 30, 2000
compared to 0.03% at June 30,  1999,  which  reflects  Harrington's  emphasis on
maintaining low credit risk with respect to its operations.

               Although Harrington's  management believes that its allowance for
loan  losses at June 30,  2000 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, 2000,  deposits totaled $361.2 million, as
compared to $333.2 million as of June 30, 1999.  Core deposits  increased  $11.5
million,  from  $322.9  million at June 30,  1999 to $334.4  million at June 30,
2000,  primarily due to  Harrington's  strategy of rapidly  building a community
banking  franchise which included the opening of the North Carolina Bank in July
1999.  The North  Carolina  branch  contributed  $43.7  million of the growth in
fiscal year 2000,  while  deposits in the Bank's other  markets  declined  $32.2
million.  Non-retail deposits increased by $16.5 million during the same period,
for a total increase in deposits of $28.0 million.

               Borrowings.  At June 30, 2000, reverse repurchase  agreements and
dollar rolls (both of which are securities  sold under  agreements to repurchase
and are accounted  for as a financing)  totaled  $28.0  million,  as compared to
$60.2 million as of June 30, 1999.

               Advances from the FHLB of  Indianapolis  amounted to $7.0 million
and $40.0 million as of June 30, 2000 and 1999, respectively.  At June 30, 2000,
the FHLB  advance  was  scheduled  to  mature in fiscal  2001,  with an  average
interest rate thereon of 6.87%, as compared to 4.94% at June 30, 1999.

               The  Company's  note payable  amounted to $13.0 million and $14.0
million at June 30, 2000 and 1999,  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 $19.1
million at June 30, 1999 to $16.3  million at June 30, 2000.  This  decrease was
due primarily to the $1.9 million of net loss recognized during fiscal 2000, the
purchase  of  treasury  stock  amounting  to  $326,000,  and the  payment of the
Company's quarterly dividends of $.03 per share, or $384,000 in total.


                                       4
<PAGE>


Results of Operations

               Summary  of  Operations.  Harrington  reported a net loss of $1.9
million or $0.59 basic loss per share for the year ended June 30, 2000  compared
to a net loss of $2.5  million or $0.76  basic loss per share for the year ended
June 30, 1999.  This $576,000 or 23.5% decrease in net loss was due primarily to
a $2.6  million  increase in net revenue  which was  partially  offset by a $1.1
million increase in operating expenses, a $481,000 increase in other losses, and
a $369,000 decrease in the income tax benefit.

               The  Company's  primary goal in fiscal years 1999 and 2000 was to
improve the value of the banking franchise through profitable deposit, loan, and
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  year 2000.  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 $2.3  million  over fiscal year 1999,  which
reflects  the  growth  in the  Company's  commercial  loan  portfolio  and  core
deposits.  Furthermore,  the core  income  deficit  has been  reduced  from $2.5
million in fiscal year 1999 to $1.1 million in fiscal year 2000. Contributing to
this  improvement is higher spread earning loans, the reduction in deposit costs
related to  borrowings,  and the control of  operating  expenses  through  staff
reductions, a senior management realignment, and a cost reduction program.

               The net loss for the year ended June 30, 1999 was $2.5 million or
$0.76  basic loss per  share,  compared  to a net loss of $1.9  million or $0.57
basic loss per share for the year ended June 30,  2000.  The  $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.

               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 for the Bank during the periods presented.


                                       5
<PAGE>



<TABLE>
<CAPTION>
                                                                                   Years Ended June 30,
                                                 -----------------------------------------------------------------------------------
                                                                    2000                                         1999
                                                       Average                    Yield/          Average                  Yield/
                                                       Balance     Interest      Rate (1)         Balance      Interest   Rate (1)
                                                       -------     --------      --------         -------      --------   --------
                                                                                  (Dollars in Thousands)
<S>                                                   <C>            <C>          <C>             <C>            <C>        <C>
Interest-Earning Assets:
Interest-bearing deposits                             $ 15,795       $ 784        4.96 %          $ 13,489       $ 611      4.53 %
Securities held for trading (2)                        132,550       8,816        6.65 %           300,223      18,104      6.03 %
Securities available for sale (3)                       17,479       1,094        6.26 %               699          66      9.44 %
Securities held to maturity                              2,308         171        7.41 %                 -           -      0.00 %
Loans receivable, net (4)                              275,454      20,637        7.49 %           223,174      16,032      7.18 %
Federal Home Loan Bank stock                             4,879         391        8.01 %             4,879         391      8.01 %
                                                        ------        ----                          ------        ----

Total interest-earning assets                          448,465      31,893        7.11 %           542,464      35,204      6.49 %
                                                                                  ======                                    ======
Non-interest-earning assets                             14,773                                      19,206
                                                       -------                                     -------
Total assets                                         $ 463,238                                   $ 561,670
                                                    ==========                                  ==========

Interest Bearing Liabilities:
Deposits:
  NOW and DDA accounts                                $ 18,612       1,013        5.44 %          $ 13,050         306      2.34 %
  Savings accounts                                      33,291       1,371        4.12 %            30,520       1,279      4.19 %
  Money market deposit accounts                        117,919       5,148        4.37 %            73,256       3,546      4.84 %
  Certificates of deposit                              186,308      10,694        5.74 %           156,262       8,969      5.74 %
                                                      --------     -------                        --------      ------

Total deposits                                         356,130      18,226        5.12 %           273,088      14,100      5.16 %
Securities sold, repurchase agreement                   52,550       2,809        5.35 %           213,428      11,433      5.36 %
Federal Home Loan Bank advances                         15,540       1,192        7.67 %            36,172       2,481      6.86 %
Note payable                                            14,753       1,295        8.78 %            13,672       1,109      8.11 %
                                                       -------      ------                         -------      ------

Total interest-bearing liabilities                     438,973      23,522        5.36 %           536,360      29,123      5.43 %
                                                                   -------        ======                       -------      ======

Non-interest-bearing liabilities                         5,782                                       5,328
                                                        ------                                      ------
 Total liabilities                                     444,755                                     541,688
Minority interest                                          916                                         401
Stockholders' equity                                    17,567                                      19,581
                                                       -------                                     -------
Total liabilities and stockholders' equity           $ 463,238                                   $ 561,670
                                                    ==========                                  ==========

Net interest income; interest rate spread (5)                      $ 8,371        1.75 %                       $ 6,081      1.06 %
                                                                  ========        ======                      ========     ======

Net interest margin (5) (6)                                                       1.87 %                                    1.12 %
                                                                                  ======                                    ======
Average interest-earning assets
  to average intersest-bearing liabilities                                       102.16 %                                  101.14 %
                                                                                ========                                  ========
</TABLE>


<TABLE>
<CAPTION>
                                                                        Years Ended June 30,
                                                            -------------------------------------------
                                                                                1998
                                                             Average                            Yield/
                                                             Balance           Interest        Rate (1)
                                                             -------           --------        --------
                                                                    (Dollars in Thousands)
<S>                                                           <C>                 <C>            <C>
Interest-Earning Assets:
Interest-bearing deposits                                     $ 14,590            $ 792          5.43 %
Securities held for trading (2)                                386,640           23,947          6.19 %
Securities available for sale (3)                                1,039               91          8.76 %
Securities held to maturity                                          -                -          0.00 %
Loans receivable, net (4)                                      116,982            8,734          7.47 %
Federal Home Loan Bank stock                                     4,858              392          8.07 %
                                                                ------          -------

Total interest-earning assets                                  524,109           33,956          6.48 %
                                                                                                 ======
 Non-interest-earning assets                                    14,872
                                                              --------
Total assets                                                 $ 538,981
                                                             =========

Interest Bearing Liabilities:
Deposits:
  NOW and DDA accounts                                         $ 6,788              166          2.45 %
  Savings accounts                                              25,188            1,091          4.33 %
  Money market deposit accounts                                  2,713              127          4.68 %
  Certificates of deposit                                      117,073            6,919          5.91 %
                                                              --------           ------

Total deposits                                                 151,762            8,303          5.47 %
Securities sold, repurchase agreement                          319,578           17,905          5.60 %
Federal Home Loan Bank advances                                 27,488            1,843          6.70 %
Note payable                                                    11,355              981          8.64 %
                                                               -------             ----

Total interest-bearing liabilities                             510,183           29,032          5.69 %
                                                                                -------          ======

Non-interest bearing liabilities                                 4,200
                                                              --------
Total liabilities                                              514,383
Minority interest
Stockholders' equity                                            24,598
                                                              --------
Total liabilities and stockholders' equity                   $ 538,981
                                                             =========

Net interest income; interest rate spread (5)                                   $ 4,924          0.79 %
                                                                               ========          ======

Net interest margin (5) (6)                                                                      0.94 %
                                                                                                 ======
Average interest-earning assets
  to average intersest-bearing liabilities                                                      102.73 %
                                                                                                ========
</TABLE>


(1)   At June 30,  2000,  the  yields  earned  and rates  paid were as  follows:
      interest-bearing  deposits,  6.36%;  securities  held for trading,  6.87%;
      securities avaliable for sale, 6.79%; securities held to maturity,  7.38%;
      loans receivable,  net 7.96%; FHLB stock,  8.00%;  total  interest-earning
      assets,  7.55%;  deposits,  5.50%;  securities  sold under  agreements  to
      repurchase,  6.31%;  FHLB  advances,  6.87%;  note payable,  9.50%;  total
      interest-bearing liabilities, 5.71%; interest rate spread 1.84%.

(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, 2000,  1999 and 1998, the
      net costs of hedging the Company's  interest rate exposure with respect to
      its securities held for trading amounted to $85,000 or 0.13%, $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 $97,000, $114,000 and $155,000 for
      the years ended June 30, 2000, 1999 and 1998, 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 1.77%,  1.17%
      and 1.07%, and the Company's net interest margin amounted to 1.89%,  1.23%
      and 1.22% for the years ended June 30, 2000, 1999 and 1998, respectively.

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



                                        6
<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>

Year Ended June 30,                                         2000 vs. 1999                               1999 vs. 1998
                                                  --------------------------------------     ------------------------------------
(Dollars in Thousands)                                 Increase (Decrease)                     Increase (Decrease)
                                                            Due to               Total               Due to                Total
                                                  -------------------------     Increase     -----------------------     Increase
                                                     Rate          Volume      (Decrease)      Rate         Volume      (Decrease)
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Interest earning assets:
  Interest bearing deposits                        $     63      $    110      $    173      $   (124)     $    (57)     $   (181)
  Securities held for trading                         2,099       (11,387)       (9,288)         (617)       (5,226)       (5,843)
  Securities available for sale                         (14)        1,042         1,028             8           (33)          (25)
  Securities held to maturity                            (6)          146           140            12            (4)            8
  Loans receivable net                                  734         3,901         4,635          (319)        7,609         7,290
  Federal Home Loan Bank stock                            -             -             -            (3)            2            (1)
                                                   --------      --------      --------      --------      --------      --------
           Total interest earning assets           $  2,876      $ (6,188)     $ (3,312)     $ (1,043)     $  2,291      $  1,248
                                                    =======    ==========     =========     =========      ========       =======

Interest bearing liabilities:
  NOW and DDA accounts                             $    534      $    172      $    706      $     (7)     $    147      $    140
  Savings accounts                                      (22)          114            92           (34)          222           188
  Money market deposits accounts                       (307)        1,909         1,602             4         3,414         3,418
  Certificates of deposits                                -         1,725         1,725          (193)        2,243         2,050
                                                         --        ------        ------        ------        ------         -----
           Total deposits                               205         3,920         4,125          (230)        6,026         5,796
Securities sold under agreements to repurchase          (24)       (8,600)       (8,624)         (756)       (5,716)       (6,472)
Federal Home Loan Bank advances                         338        (1,626)       (1,288)           43           594           637
Note payable                                             95            91           186           (55)          183           128
                                                   --------      --------      --------      --------      --------      --------
           Total interest bearing liabilities      $    614      $ (6,215)     $ (5,601)     $   (998)     $  1,087      $     89
                                                     ======    ==========     =========      ========      ========          ====

Increase (decrease) in net interest income                                      $ 2,289                                   $ 1,159
                                                                               ========                                   =======
</TABLE>


Interest Income

               For the year ended June 30, 2000,  Harrington's  interest  income
decreased by $3.3 million or 9.4% to $31.9  million,  compared to the year ended
June 30, 1999.  This decrease was  primarily due to an $8.1 million  decrease in
interest  income from the  securities  portfolio.  This  decrease was  partially
offset by a $4.6  million  increase in  interest  income on the  Company's  loan
portfolio.  The increase in interest  income on the loan  portfolio was a direct
result of the $52.4 million  increase in the level of the average loan portfolio
which was partially  offset by a 32 basis point  increase in the interest  yield
earned caused  primarily by an overall  increase in the level of interest  rates
during  fiscal  2000.  The  decrease  in  interest  income  from the  investment
portfolio was a result of the $148.7  million  decrease in the average  balances
offset by a 57 basis point increase in the yield of the portfolio.

               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.


                                       7
<PAGE>

               Interest Expense. For the year ended June 30, 2000,  Harrington's
interest expense  decreased by $5.6 million or 19.2% to $23.5 million,  compared
to the year ended June 30,  1999.  This  decrease was  primarily  due to a $97.4
million  decrease in the level of average  interest-bearing  liabilities and a 7
basis point decrease in the cost of interest-bearing liabilities.

               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.

               Net  Interest  Income.  Net  interest  income  increased  by $2.3
million or 37.7% to $8.4 million  during  fiscal year 2000 as compared to fiscal
year  1999.  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.

               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 $587,000,
$511,000,  and $147,000  during the years ended June 30, 2000,  1999,  and 1998,
respectively.   During  such  respective  periods,   loan  charge-offs  (net  of
recoveries)  amounted to $47,000,  $3,000,  and $0,  respectively.  Although the
Company's  non-performing  loans remain low,  given the growth in the commercial
and  consumer  loan   portfolios,   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 0.5% and 0.3% at June 30, 2000
and 1999, 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  positive  return on its
securities   portfolio  relative  to  its  funding  costs  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  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 Company, however, has reduced the
level of the assets subject to "mark-to-market" accounting through its community
banking expansion and reduction in its investment portfolio.

                                       8
<PAGE>


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


<TABLE>
<CAPTION>

(Dollars in Thousands)                                                     Years Ended June 30,
                                                             --------------------------------------
                                                                2000           1999          1998
<S>                                                           <C>            <C>           <C>
Gain (loss) on sale of securities held for trading            $(4,498)       $ 4,755       $ (775)
Gain (loss) on sale of loans                                   (1,173)             -            -
Unrealized gain (loss) on securities held for trading           3,494         (6,402)        (930)
Other (1)                                                         772            433          295
Total other income (loss)                                     $(1,405)       $(1,214)     $(1,410)
                                                              =======        =======      =======
</TABLE>


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

               Total other income (loss) amounted to $(1.4) million for the year
ended June 30, 2000.  This total consisted of a net realized and unrealized loss
of $1.0  million  on the  trading  portfolio,  a loss on sale of  loans  of $1.2
million plus fee and other  retail bank income of  $772,000.  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 losses on the
trading  portfolio,  net of hedges,  reflect  only a portion of the total income
(loss)  produced from this portfolio in fiscal 2000 and 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 2000, 1999, and 1998, this portfolio  produced a
net-hedged spread to one-month LIBOR of (.98)%, 0.28%, and 0.15%,  respectively.
Due to the market  uncertainty  over Federal  Reserve  action,  an oversupply of
corporate debt issuances due to Y2K concerns which  increased both financing and
credit  margins,  concerns  that  the  government  sponsored  agencies  would be
privatized,  and spreads of mortgage  securities  to  Treasury  widening  during
fiscal years 1999 and 2000,  the hedge gains  therefore  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 fixed income
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.

               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 1998 and 1999,  the Company
accelerated  its  investment  spending in operating  expenses to accomplish  the
business line and facilities expansion in order to grow revenue in future years.
This  expansion  culminated  with the  opening of the North  Carolina  branch in
August 1999. With the primary expansion complete in fiscal year 2000, management
has implemented  efficiency  enhancements  within the 2000 fiscal year, a senior
management  realignment,   administrative   staffing  reductions,   and  a  cost
containment program to improve profitability. Also, two underperforming branches
and related deposits were sold in southern Indianapolis on September 8, 2000 for
a pretax gain on sale of $1.4 million.  These  measures are expected to save the
Company  over $1.0  million in  operating  expenses  in fiscal  year  2001.  The
following table sets forth certain  information  regarding other expense for the
periods shown.


                                       9
<PAGE>



(Dollars in Thousands)                       Years Ended June 30,
                                     ----------------------------------
                                        2000          1999        1998

Salaries and employee benefits       $ 5,090       $ 4,290     $ 3,295
Pemises and equipment                  1,516         1,262         805
FDIC insurance premiums                  133           125          86
Marketing                                382           314         183
Computer services                        611           509         243
Consulting fees                          276           301         287
Other (1)                              1,619         1,699       1,561
                                      ------        ------       -----
Total other expense                  $ 9,627       $ 8,500     $ 6,460
                                    ========      ========     =======


(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 $800,000 or 18.6%, and $1.0 million or
30.2%  during  fiscal  2000 and 1999,  respectively.  The  major  cause of these
increases was the  continuing  implementation  of  Harrington's  community  bank
expansion strategy. A total of eight new banking locations were opened since May
1994,  with three being opened in the third  quarter of fiscal year 1998 and one
each in the first  quarters  of fiscal  year 1999 and  2000.  In  addition,  new
employees were hired in connection with the growth in the Bank's  development of
the commercial loan division.

               Premises and equipment expense increased by $254,000 or 20.1% and
$457,000 or 56.8%  during  fiscal 2000 and 1999,  respectively.  The increase in
premises  and  equipment  expense  during the periods was  primarily  due to the
opening of new branches.

               Federal Deposit Insurance Corporation ("FDIC") premiums increased
by $8,000 or 6.4% during  fiscal year 2000 due to the increase in deposit  size.
During fiscal 1999,  FDIC  insurance  premiums  increased  $39,000 or 45.3% also
primarily due to an increase in the deposit base.

               Harrington incurred marketing expenses of $382,000, $314,000, and
$183,000 during the years ended June 30, 2000, 1999, and 1998, respectively. The
fluctuations in marketing  expense during the periods  reflected the advertising
costs associated with the opening of the Bank's new branch offices.

               Computer  services  expense  increased  by  $102,000 or 20.0% and
$266,000 or 109.5%  during  fiscal years 2000 and 1999,  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 and the cost of the new computer  operating  system.
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, 2000,
1999,  and 1998,  which are  based on the  Company's  asset  size,  amounted  to
$276,000, $301,000, and $287,000, respectively.

               Income Tax Provision. The Company received income tax benefits of
$1.3  million,  $1.6  million and $1.2  million  during the years ended June 30,
2000, 1999 and 1998, respectively.  The Company's effective tax rate amounted to
39.3%,  39.7%,  and 39.9% during the years ended June 30, 2000,  1999, and 1998,
respectively.


                                       10
<PAGE>


 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 24.4% at
June 30,  2000,  as compared to 16.7% at June 30, 1999.  At June 30,  2000,  the
Bank's liquid assets as defined by the OTS totaled  approximately $85.3 million,
which was $71.3 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.  During the
year ended June 30, 2000,  there was a net increase of $14.8 million in cash and
cash equivalents. The primary uses of cash during the year included purchases of
securities for the trading portfolio of $319.3 million,  purchases of securities
available  for  sale  of  $70.4  million,  repayments  of  borrowings  including
securities  sold under  agreements  to  repurchase  and  Federal  Home Loan Bank
advances of $112.2 million, and the change in loans receivable of $11.9 million.
Partially offsetting these cash uses, the main sources of cash during the fiscal
year were $446.5  million in proceeds  from sales and  maturities  of securities
held for  trading,  a $28.0  million net  increase in deposits  and $47,000 from
proceeds from Federal Home Loan Bank advances.

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  that offer
attractive net risk-adjusted  spreads and meet customer  preferences whether the


                                       11
<PAGE>

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 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,  Chief Financial 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
Investment  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,  The Managers 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 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.


                                       12
<PAGE>


             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, 2000,  Harrington was a party to one interest rate swap
agreement held in its trading portfolio.  The agreement had a notional amount of
$5.0  million  and a maturity  in April 2001.  With  respect to this  agreement,
Harrington  makes fixed interest  payments at 6.58% and receives  payments based
upon the three-month London Interbank Offered Rate ("LIBOR").

             The net expense  relating to Harrington's  interest rate swaps held
in the trading  portfolio was $85,000,  $580,000,  and $313,000 during the years
ended June 30, 2000, 1999, and 1998, respectively.  The approximate market value
of the interest  rate swaps which are  maintained  in the trading  portfolio was
$(18,000),  $(175,000)  and  $(397,000)  as of June 30,  2000,  1999  and  1998,
respectively.

             In addition,  the Company  also has swaps which hedge  liabilities,
and are not included in the trading portfolio. The five swap agreements excluded
from the trading portfolio had an aggregate notional amount of $35.0 million and
maturities   from  February  2004  to  February  2009.  With  respect  to  these
agreements, Harrington makes fixed interest payments ranging from 5.27% to 6.51%
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 (expense)  relating to Harrington's  swaps which are
not included in the trading portfolio was $(75,000), $31,000, and $70,000 during
the years  ended  June 30,  2000,  1999,  and 1998,  respectively.  This  income
(expense)  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 $1.9
million,  $2.3  million  and  $137,000  as of June 30,  2000,  1999,  and  1998,
respectively.

In June, 2000 the Bank, using proceeds from the sale of loans,  extinguished $25
million of securities  sold under  agreements to repurchase  and  terminated $25
million in interest  rate swaps that were being  utilized to modify the interest
rate  sensitivity  of a  portion  of  the  Bank's  short-term  LIBOR  correlated
borrowings,  which  included the  extinguished  liabilities.  As a result of the
termination of the interest rate swaps, the bank recorded a gain of $1.6 million
in  interest  expense  and a deferred  gain of  approximately  $485,000 in other
liabilities.  The  deferred  gain  represents  interest  sensitivity  protection
derived from the swaps related to short-term  LIBOR  correlated  borrowings that
are  recorded  as  liabilities  of June 30,  2000.  This  deferred  gain will be
reclassed to earnings  over the original  terms of the swaps as an adjustment to
interest expense.


                                       13
<PAGE>



             An  interest  rate cap or an  interest  rate  floor  consists  of a
guarantee  given by the issuer (i.e.,  a broker),  to the purchaser  (i.e.,  the
Company),  in exchange for the payment of a premium.  This guarantee states that
if  interest  rates rise above (in the case of a cap) or fall below (in the case
of a floor) a specified rate on a specified interest rate index, the issuer will
pay to the purchaser the difference between the then current market rate and the
specified rate on a notional principal amount. No funds are actually borrowed or
repaid.

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

             At June 30, 2000,  Harrington  held one swaption  agreement and one
interest rate collar in its trading  portfolio.  These  contracts,  which expire
from  August  2003 to June  2009,  have an  aggregate  notional  amount of $15.3
million.  The swaption agreement provides for a payment beginning in August 2003
to August  2008,  whenever  the defined  floating  rate is less than 6.00%.  The
interest rate collar provides for a payment to be received  whenever the defined
floating  rate is  greater  than  10.25% or a payment  to be made  whenever  the
floating rate is less than 5.25%.

             The  aggregate  net  expense  (income)  relating  to the  Company's
interest rate caps, collars, swaptions, and floors held in the trading portfolio
was $(87,000),  $(343,000),  and $223,000  during the years ended June 30, 2000,
1999,  and 1998,  respectively.  The  approximate  market value of  Harrington's
interest  rate caps,  collars  and floors  which are  maintained  in the trading
portfolio was $2,000,  $5.0 million and $4.6 million as of June 30, 2000,  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 liabilities which include short-term deposits,  securities sold under
agreements to repurchase and the Federal Home Loan Bank Advances. Net expense on
the caps was $247,000, $494,000, and $257,000 for the years ended June 30, 2000,
1999, and 1998, respectively. The approximate market value of the caps, which is
not  reflected in the Company's  financial  statements,  was $5.1 million,  $4.4
million and $2.5 million at June 30, 2000, 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  increase.  Consequently,  sales of futures contracts serve as a hedge
against rising interest rates. At June 30, 2000,  Harrington had sold Eurodollar
and  Treasury  Note  futures  contracts  with an  aggregate  notional  amount of
approximately $516 million.  The Company had total gains (losses) on its futures
contracts of $1.9 million, $3.2 million, and $(8.6) million for the fiscal years
ended June 30, 2000, 1999, and 1998, 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

                                       14
<PAGE>

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, 2000, Harrington
did not have any  purchased  options  contracts  in  portfolio.  The net expense
relating to purchased  options  contracts was $172,000,  $466,000,  and $943,000
during the years ended June 30, 2000, 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.

(Dollars in Thousands)                                      Years Ended June 30,
                                                      -------------------------
                                                        2000      1999     1998

Interest rate contract (income) expense:
  Swaps                                                  $ -     $ 457    $ 313
  Caps, floors, and collars                              (87)     (343)     223
  Options                                                172       466      943
                                                        ----      ----      ---
  Net interest expense on interest rate contracts       $ 85     $ 580   $1,479
                                                       =====    ======   ======

             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, 2000,  these  prepayment  assumptions  varied from 4% to 18% for  fixed-rate
mortgages  and  mortgage-backed  securities  and  varied  from  12% to  22%  for
adjustable rate mortgages and mortgage-backed securities.


                                       15
<PAGE>


             The  following  table  sets  forth at June 30,  2000 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)
                                          ---------------------------------------------------------------------------------------
(Dollars in Thousands)                      -300            -200         -100        --      +100         +200           +300
                                          ---------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>                 <C>           <C>           <C>
Market value gain (loss) of assets         $ 20,556      $ 15,590      $  8,644      --    $(10,076)     $(20,884)     $(31,752)
Market value gain (loss) of
  liabilities                                (9,160)       (6,494)       (3,494)     --       4,137         8,806        13,683
                                            -------        ------        ------               -----        ------        ------
Market value gain (loss) of net
  assets before interest rate contracts      11,396         9,096         5,150      --      (5,939)      (12,078)      (18,069)
Market value gain (loss) of
  interest rate contracts                   (12,150)       (8,770)       (4,790)     --       5,312        10,757        16,103
                                            -------        ------        ------               -----        ------        ------
   Total change in MVPE(2)                 $   (754)     $    326      $    360      --    $   (627)     $ (1,321)     $ (1,966)
                                           ========      ========      ========            ========      ========      ========


Change in MVPE as a percent of:
  MVPE(2)                                      (2.8)%         1.2%          1.3%     --        (2.3)%        (4.9)%        (7.3)%
  Total assets of the Bank                     (0.2)%         0.1%          0.1%     --        (0.1)%        (0.3)%        (0.5)%
</TABLE>


(1)   Assumes  an  instantaneous  parallel  change  in  interest  rates  at  all
      maturities.

(2)   Based on the Bank's pre-tax MVPE of $27.0 million at June 30, 2000.

             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 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)
                                      --------------------------------------------------------------------------------
  (Dollars in Thousands)                 -300          -200         -100       --      +100         +200        +300

                                      --------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>   <C>          <C>          <C>
  After tax market value gain (loss)
  of assets                             $ 2,898      $ 1,792      $   886      --    $(1,084)     $(2,381)     $(3,765)
After tax market value gain (loss)
  of interest rate contracts             (1,792)      (1,277)        (676)     --        733        1,497        2,276
                                                   ---------     ----------------  ---------    ---------    ---------
After tax gain (loss) in equity         $ 1,106      $   515      $   210      --    $  (351)     $  (884)     $(1,489)
                                                  ==========    =================  =========  ===========    =========
After tax gain (loss) in equity as a
  percent of the Company's
  equity at June 30, 2000                   6.8%         3.2%         1.3%     --       (2.2)%       (5.4)%       (9.2)%
</TABLE>

                                       16

<PAGE>


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

               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,  and SFAS 138,  Accounting  for  Certain  Derivative  Instruments  and
Certain  Hedging  Activities - An Amendment of SFAS 133.  SFAS 133 as amended by
SFAS 137 and SFAS 138, 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.  The  adoption  of SFAS  133 by the
Company  on July 1, 2000  resulted  in the  cumulative  effect of an  accounting
change of an  $800,000  loss net of tax being  recognized  in the  statement  of
operations and an increase in other  comprehensive  income totaling $3.8 million
in Shareholders' Equity net of tax.





                                       17
<PAGE>

INDEPENDENT AUDITORS' REPORT


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

We have  audited the  accompanying  consolidated  balance  sheets of  Harrington
Financial Group, Inc. and its subsidiary (the "Company") as of June 30, 2000 and
1999,  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, 2000. 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 auditing standards generally accepted
in the  United  States of  America.  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,  2000 and  1999,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
June 30, 2000 in conformity with accounting principles generally accepted in the
United States of America.




/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 18, 2000


                                       18
<PAGE>

HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Share Data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                            June 30,
                                                                                                  ----------------------------
                                                                                                      2000            1999
<S>                                                                                                <C>             <C>
ASSETS

  Cash                                                                                             $   2,314       $   1,414
  Interest-bearing deposits (Note 13)                                                                 22,007           8,087
                                                                                                   ---------       ---------
    Total cash and cash equivalents                                                                   24,321           9,501
  Securities held for trading - at fair value (amortized cost of $55,288 and $188,130)
    (Notes 2,8,13)                                                                                    53,852         183,200
  Securities available for sale - at fair value (amortized cost of $64,495 and $461) (Note 2)         64,052             502
  Securities held to maturity - at amortized cost (fair value of $3,875 and $0) (Note 2)               3,857
  Loans receivable (net of allowance for loan losses of $1,408 and $868) (Note 3)                    270,970         259,674
  Interest receivable, net (Note 4)                                                                    2,186           2,340
  Premises and equipment, net (Note 5)                                                                 5,828           6,499
  Federal Home Loan Bank of Indianapolis stock - at cost                                               4,878           4,878
  Deferred income taxes, net (Note 10)                                                                 2,089             596
  Income taxes receivable (Note 10)                                                                       51             569
  Other                                                                                                3,108           3,580
                                                                                                   ---------       ---------
TOTAL ASSETS                                                                                       $ 435,192       $ 471,339
                                                                                                   =========       =========
LIABILITIES AND STOCKHOLDERS' EQUITY

  Deposits (Note 6)                                                                                $ 361,241       $ 333,245
  Securities sold under agreements to repurchase (Note 7)                                             28,038          60,198
  Federal Home Loan Bank advances (Note 8)                                                             7,000          40,000
  Note payable (Note 9)                                                                               12,995          13,995
  Interest payable on securities sold under agreements to repurchase (Note 7)                              5              66
  Other interest payable                                                                               2,360           1,925
  Advance payments by borrowers for taxes and insurance                                                  746             795
  Accrued expenses payable and other liabilities                                                       5,705           1,039
                                                                                                   ---------       ---------
           Total liabilities                                                                         418,090         451,263
                                                                                                   =========       =========
COMMITMENTS AND CONTINGENCIES (Notes 13, 14, 16)

MINORITY INTEREST (Note 1)                                                                               845             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 3,150,632 and 3,205,382 shares                                                 425             425
  Additional paid-in capital                                                                          16,946          16,946
  Treasury stock, 249,306 and 194,556 shares at cost                                                  (2,488)         (2,162)
  Accumulated other comprehensive income (loss), net of deferred tax of $(173) and $16                  (268)             25
  Retained earnings                                                                                    1,642           3,905
                                                                                                   ---------       ---------
           Total stockholders' equity                                                                 16,257          19,139
                                                                                                   ---------       ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                         $ 435,192       $ 471,339
                                                                                                   =========       =========
</TABLE>


See notes to consolidated financial statements.





                                       19
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share Data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                    Years Ended June 30,
                                                                         ----------------------------------------
                                                                              2000          1999           1998
<S>                                                                        <C>            <C>            <C>
INTEREST INCOME:
  Securities held for trading                                              $  8,901       $ 18,684       $ 25,426
  Net interest expense on interest rate contracts maintained in
    the trading portfolio (Note 13)                                             (85)          (580)        (1,479)
  Securities available for sale                                               1,094             66             91
  Securities held to maturity                                                   171             31             23
  Loans receivable (Note 3)                                                  20,637         16,001          8,711
  Dividends on Federal Home Loan Bank of Indianapolis stock                     391            391            392
  Deposits                                                                      784            611            792
                                                                               ----           ----            ---
                                                                             31,893         35,204         33,956
                                                                            -------        -------         ------
INTEREST EXPENSE:
  Deposits (Notes 6, 13)                                                     18,226         14,100          8,303
  Federal Home Loan Bank advances (Note 8)                                    1,192          2,481          1,843
  Securities sold under agreements to repurchase (Note 7)                     2,809         11,433         17,905
  Note payable (Note 9)                                                       1,295          1,109            981
                                                                             ------         ------            ---
                                                                             23,522         29,123         29,032
                                                                            -------        -------         ------
NET INTEREST INCOME                                                           8,371          6,081          4,924
PROVISION FOR LOAN LOSSES (Note 3)                                              587            511            147
                                                                               ----           ----            ---
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                           7,784          5,570          4,777
                                                                             ------         ------          -----

OTHER INCOME (LOSS):
  Loss on sale of securities held for trading (Notes 2, 13)                  (4,498)         4,755           (775)
  Loss on sale of loans                                                      (1,173)
  Unrealized gain (loss) on securities held for trading (Notes 2, 13)         3,494         (6,402)          (930)
  Other                                                                         772            433            295
                                                                               ----           ----            ---
                                                                             (1,405)        (1,214)        (1,410)
                                                                           --------       --------        -------
OTHER EXPENSE:
  Salaries and employee benefits (Note 12)                                    5,090          4,290          3,295
  Premises and equipment expense (Note 5)                                     1,516          1,262            799
  FDIC insurance premiums                                                       133            125             86
  Marketing                                                                     382            314            183
  Computer services                                                             611            509            243
  Consulting fees (Note 15)                                                     276            301            287
  Other                                                                       1,619          1,699          1,567
                                                                             ------         ------          -----
                                                                              9,627          8,500          6,460
                                                                             ------         ------          -----

LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST                         (3,248)        (4,144)        (3,093)
INCOME TAX BENEFIT (Note 10)                                                 (1,277)        (1,646)        (1,234)
                                                                           --------       --------        -------
NET LOSS BEFORE MINORITY INTEREST                                            (1,971)        (2,498)        (1,859)
MINORITY INTEREST                                                                92             43
                                                                                               ---             --
NET LOSS                                                                   $ (1,879)      $ (2,455)      $ (1,859)
                                                                         ==========     ==========      =========

BASIC LOSS PER SHARE (Note 1)                                              $  (0.59)      $  (0.76)      $  (0.57)
                                                                          =========      =========       ========
DILUTED LOSS PER SHARE (Note 1)                                            $  (0.59)      $  (0.76)      $  (0.57)
                                                                          =========      =========       ========
</TABLE>


See notes to consolidated financial statements.



                                       20
<PAGE>

HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands Except Share Data)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                                                 Additional                 Other
                                                            Shares       Common   Paid-in   Treasury    Comprehensive    Retained
                                                         Outstanding     Stock    Capital    Stock      Income (Loss)    Earnings

<S>            <C> <C>                                    <C>            <C>      <C>        <C>           <C>           <C>
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


Net loss                                                                                                                  (1,879)
Cash dividends declared on common stock
  ($0.12 per share)                                                                                                         (384)
Purchase of treasury stock                                  (54,750)                            (326)
Net change in unrealized gain (loss) on securities
  available for sale, net of deferred tax of $(195)                                                         (293)
                                                          ---------       ----      ------    ------         ----          -----
BALANCES, JUNE 30, 2000                                   3,150,632      $ 425    $ 16,946   $ (2,488)     $ (268)       $ 1,642
                                                          =========     ======   =========  ==========    ========      ========
</TABLE>



<TABLE>
<CAPTION>

                                                           Total       Comprehensive
                                                        Stockholders'      Income
                                                           Equity          (Loss)

<S>            <C> <C>                                    <C>            <C>
BALANCES, JUNE 30, 1997                                   $ 24,994

Stock options exercised (Note 12)                            1,074
Tax benefit from exercise of non-qualified
  stock options                                                283
Net loss                                                    (1,859)       $ (1,859)
Cash dividends declared on common
  stock ($0.12 per share)                                     (395)
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)
                                                                          =========

Net loss                                                    (1,879)       $ (1,879)
Cash dividends declared on common stock
  ($0.12 per share)                                           (384)
Purchase of treasury stock                                    (326)
Net change in unrealized gain (loss) on securities
  available for sale, net of deferred tax of $(195)           (293)           (293)
                                                              ------          -----
BALANCES, JUNE 30, 2000                                     $ 16,257       $ (2,172)
                                                           =========      =========
</TABLE>


See notes to consolidated financial statements.


                                       21
<PAGE>

HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                          Years Ended June 30,
                                                                                ------------------------------------------
                                                                                  2000             1999            1998
<S>                                                                             <C>             <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                      $  (1,879)      $  (2,455)      $  (1,859)
  Adjustments to reconcile net loss to net cash from operating activities:
      Provision for loan losses                                                       587             511             147
      Depreciation                                                                    770             549             348
      Premium and discount amortization on securities, net                          1,213           2,624           1,434
      (Gain) loss on sale of securities held for trading                            4,498          (4,755)            775
      Unrealized (gain) loss on securities held for trading                        (3,494)          6,402             930
      Effect of minority interest                                                     (92)            (43)
      Purchases of securities held for trading                                   (319,334)       (780,260)       (657,211)
      Decrease in amounts due from brokers                                                                         11,308
      Proceeds from maturities of securities held for trading                      11,554          51,419          28,438
      Proceeds from sales of securities held for trading                          434,911         831,978         652,380
      Deferred income tax provision and other                                        (883)            (68)           (980)
      Net increase (decrease) in assets and liabilities                             5,703             617          (1,815)
                                                                                   ------            ----         -------
           Net cash from operating activities                                     133,554         106,519          33,895
                                                                                 --------        --------          ------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of securities available for sale                                      (70,408)
  Proceeds from maturities of securities available for sale                         6,394             446             259
  Change in securities held to maturity                                            (3,813)
  Change in loans receivable, net                                                 (11,925)        (96,927)        (69,885)
  Minority interest and other                                                                         980             (26)
  Purchases of premises and equipment                                                (108)         (1,436)         (1,653)
                                                                                   ------        --------         -------
            Net cash from investing activities                                    (79,860)        (96,937)        (71,305)
                                                                                ---------       ---------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits                                                         27,996         154,934          42,136
  Decrease in securities sold under agreements to repurchase                      (32,160)       (180,198)         (5,175)
  Proceeds from Federal Home Loan Bank advances                                    47,000          83,000          99,000
  Principal repayments on Federal Home Loan Bank advances                         (80,000)        (69,000)        (99,000)
  Dividends paid on common stock                                                     (384)           (385)           (395)
  Purchase of treasury stock                                                         (326)           (784)         (1,467)
  Other, net                                                                       (1,000)            573           4,574
                                                                                 --------            ----           -----
           Net cash from financing activities                                     (38,874)        (11,860)         39,673
                                                                                ---------       ---------          ------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               14,820          (2,278)          2,263
CASH AND CASH EQUIVALENTS, beginning of year                                        9,501          11,779           9,516
                                                                                   ------         -------           -----
CASH AND CASH EQUIVALENTS, end of year                                          $  24,321       $   9,501       $  11,779
                                                                                =========        ========        ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                                        $  23,431       $  28,682       $  29,624
  Cash paid for income taxes                                                                    $      43       $     321
</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.


                                       22
<PAGE>



HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY

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 nine full-service
          branch   offices   located  in  Carmel,   Fishers,   Noblesville   and
          Indianapolis,   Indiana;  Mission,  Kansas;  and  Chapel  Hill,  North
          Carolina.  The  Company  is a  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.

          Harrington West Financial Group,  Inc.  ("HWFG"),  the holding company
          for  Los  Padres  Bank  ("LPB"),  is a  related  party  to  Harrington
          Financial Group, Inc. ("HFGI") and Harrington Bank, FSB ("HB") in that
          certain  officers and  directors of HWFG and LPB are also officers and
          directors of HFGI and HB.

          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 accounting
          principles generally accepted in the United States of America 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, Held to Maturity,  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.

                                       23
<PAGE>


          As  discussed  below,   SFAS  No.  133,   "Accounting  For  Derivative
          Investments,"  as amended  permits a one time  transfer of  securities
          previously  classified as held to maturity into the available for sale
          category.  On July 1,  2000 the  Company  transferred  mortgage-backed
          securities  previously classified as held to maturity to the available
          for sale  category at fair value.  At the time of the  transfer  these
          securities  had an amortized  cost of  $3,822,000  and a fair value of
          $3,840,000.

          Premiums and discounts are amortized over the contractual lives of the
          related  securities using the level yield method.  Purchases and sales
          of  securities  are  recorded in the balance  sheet on the trade date.
          Gains and losses from security sales or disposals are recognized as of
          the trade date in the statement of operations  for the period in which
          securities are sold or otherwise  disposed of. The Company also enters
          into  forward  contracts  to  purchase  or sell  securities  held  for
          trading.  Changes  in the  fair  value  of the  forward  contract  are
          recognized  in earnings as they occur.  Securities  purchased  or sold
          under a forward  contract  are  recorded  at their fair  values at the
          settlement date.

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

          The Company's  available for sale  portfolio  consists of a non-agency
          participation certificate and mortgage backed securities.

          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

                                       24
<PAGE>


          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   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 files 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.


                                       25
<PAGE>


          The  following  is a  reconciliation  of the weighted  average  common
          shares for the basic and diluted earnings per share computations:

<TABLE>
<CAPTION>

                                                                       Years Ended June 30,
                                                     -------------------------------------------------
                                                          2000                1999           1998
          <S>                                          <C>                 <C>             <C>
          Basic earnings per share:
            Weighted average common shares              3,199,034           3,216,626       3,285,166
                                                       ==========          ==========       =========

          Diluted earnings per share:
            Weighted average common shares              3,199,034           3,216,626       3,285,166
            Dilutive effect of stock options (1)                                               24,876
                                                        ---------           ---------       ---------
            Weighted average common and incremental
              shares (2)                                3,199,034           3,216,626       3,310,042
                                                       ==========           =========       =========
</TABLE>

          (1) The  impact  of  stock   options  was  not  included  due  to  the
              anti-dilutive  effect for the fiscal years ended June 30, 2000 and
              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, and
          SFAS 138,  Accounting for Certain  Derivative  Instruments and Certain
          Hedging  Activities - An Amendment of SFAS 133. SFAS 133 as amended by
          SFAS 137 and SFAS 138,  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.  The
          adoption  of SFAS 133 by the  Company on July 1, 2000  resulted in the
          cumulative  effect of an accounting  change of an $800,000 loss net of
          tax being recognized in the statement of operations and an increase in
          other  comprehensive  income  totaling  $3.8 million in  Shareholders'
          Equity net of tax.

          Reclassifications of certain amounts in the 1999 and 1998 consolidated
          financial   statements   have  been  made  to   conform  to  the  2000
          presentation.

          Changes in Presentation - Certain items appearing in the 1999 and 1998
          financial  statements  have been  reclassified  to conform to the 2000
          presentation.


                                       26
<PAGE>


2.        SECURITIES

          The amortized  cost and estimated  fair values of securities  held for
          trading and securities available for sale are summarized as follows:

           <TABLE>
           <CAPTION>
(Dollars in Thousands)                                                    June 30, 1999
                                                        ------------------------------------------------
                                                                       Gross        Gross
                                                        Amortized    Unrealized  Unrealized      Fair
                                                           Cost        Gains       Losses       Value
           <S>                                          <C>          <C>           <C>          <C>
             Securities held for trading:
             GNMA certificates                          $24,662      $   111        $  242      $24,531
             FHLMC CERTIFICATES                          14,921          102           645       14,378
             FNMA certificates                            8,830            3           371        8,462
             Collateralized mortgage obligations          5,609           34            57        5,586
             Residuals                                      139           40                        179
             Interest-only strips                           631                        374          257
             Principal-only strips                          306           86                        392
             Interest rate swaps                                                        18          (18)
             Interest rate collar                             3            -             1            2
             Swaptions                                      181            -            68          113
             Futures                                                                    41          (41)
             Equity securities                                6            5             -           11
                                                      ---------         ----        ------     --------
           Totals                                       $55,288      $   381       $ 1,817      $53,852
                                                      =========       ======      ========     ========

           Securities available for sale:
             GNMA certificates                          $63,806      $     3       $   488      $63,321
             Commercial mortgage backed securities          353            -             -          353
             Non-agency participation certificate           336           42             -          378
                                                      ---------         ----        ------     --------
           Totals                                       $64,495      $    45       $   488      $64,052
                                                      =========        =====        ======     ========

           Securities held to maturity:
             Mortgage backed securities                 $ 3,821      $    14           $ -      $ 3,835
             Other                                            1            4             -            5
             Mortgage revenue bonds                          35            -             -           35
                                                      ---------         ----        ------     --------
           Totals                                       $ 3,857      $    18           $ -      $ 3,875
                                                       ========        =====          ====      =======
</TABLE>


          The Bank's collateralized  mortgage obligation (CMO) portfolio at June
          30, 2000  consisted  of three  agency  investments  with an  estimated
          remaining weighted average life of 9.9 years.


                                       27
<PAGE>

<TABLE>
<CAPTION>

(Dollars in Thousands)                                           June 30, 1999
                                         -------------------------------------------------------
                                                             Gross         Gross
                                            Amortized      Unrealized    Unrealized       Fair
                                               Cost          Gains         Losses        Value
<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.

          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>

          (Dollars in Thousands)                                                      June 30, 2000
                                                           -------------------------------------------------------------------------
                                                             Held for Trading        Available for Sale          Held to Maturity
                                                           -------------------------------------------------------------------------
                                                            Amortized     Fair      Amortized      Fair       Amortized        Fair
                                                              Cost        Value        Cost        Value         Cost         Value
<S>                                                         <C>          <C>          <C>          <C>          <C>          <C>
       Debt securities (due after 1 year through 5 years):
           Mortgage-backed securities                       $48,413      $47,371      $64,159      $63,674      $ 3,821      $ 3,835
           Non-agency participation certificates                                          336          378
           Collateralized mortgage obligations                5,609        5,586
           Mortgage-backed derivatives                        1,076          828
           Interest rate contracts                              184           56
           Mortgage revenue bonds                                                                                    35           35
           Other                                                  6           11                                      1            5
                                                           --------    ---------    ---------    ---------     --------      -------
                                                            $55,288      $53,852      $64,495      $64,052      $ 3,857      $ 3,875
                                                           ========    =========    =========    =========     ========      =======
</TABLE>

                                       28
<PAGE>

          Securities  with a total amortized cost of $35,889,000 and $66,550,000
          and a total fair value of $35,633,000 and $65,572,000  were pledged at
          June 30, 2000 and 1999,  respectively,  to secure interest rate swaps,
          securities sold under agreements to repurchase, and letters of credit.
          As of June 30, 2000 the Bank had $149,000,000 in mortgages  pledged as
          collateral for Federal Home Loan Bank advances.  At June 30, 1999, the
          Bank had a blanket collateral agreement for the Federal Home Loan Bank
          advances.

          Activities  related  to the  sale  of  securities  are  summarized  as
          follows:

<TABLE>
<CAPTION>

         (Dollars in Thousands)                                                June 30,
                                                                ------------------------------------
                                                                    2000         1999        1998
<S>                                                              <C>         <C>          <C>
         Proceeds from sale of securities held for trading       $ 434,910   $ 831,978    $ 652,380
         Gross gains on sales of securities held for trading        40,381      64,966       46,537
         Gross losses on sales of securities held for trading       44,879      60,218       47,312
         Gross gains on sales of securities available for sale                       7
</TABLE>


3.        LOANS RECEIVABLE

          Approximately  87% of the Bank's loans are 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:

<TABLE>
<CAPTION>

          (Dollars in Thousands)                                                             June 30,
                                                                                    -------------------------
                                                                                       2000           1999
<S>                                                                                 <C>             <C>
          Loans secured by one to four family residences:
            Real estate mortgage                                                    $ 181,350       $ 216,402
            Commercial                                                                 72,965          33,778
            Property improvement                                                        4,935           2,119
            Consumer and home equity lines of credit                                    9,313           3,324
            Automobile loans                                                            2,371           2,811
            Other loans                                                                   997             904
                                                                                   ----------       ---------
          Subtotal                                                                    271,931         259,338

          Net deferred loan fees and origination costs, premiums and discounts            549           1,260
          Allowance for loan losses                                                    (1,408)           (868)
          Other                                                                          (102)            (56)
                                                                                   ----------       ---------
          Loans receivable, net                                                     $ 270,970       $ 259,674
                                                                                   ==========       =========
</TABLE>


          The  principal   balance  of  loans  on  nonaccrual   status   totaled
          approximately  $180,000  and  $76,000  at  June  30,  2000  and  1999,
          respectively.  For the years ended June 30, 2000, 1999 and 1998, gross
          interest  income  which  would  have  been  recorded  had  the  Bank's
          nonaccruing  loans been current with their  original terms amounted to
          $6,000, $1,000, and $15,000,  respectively.  At June 30, 2000 and June
          30, 1999, the Company had no impaired loans.


                                       29
<PAGE>


          The Bank had  commitments  to originate or purchase  loans  consisting
          primarily  of real  estate  mortgages  secured  by one to four  family
          residences   approximating   $1,379,000   and   $1,589,000   excluding
          undisbursed  portions of loans  in-process  at June 30, 2000 and 1999,
          respectively.  In addition, as of June 30, 2000 and 1999, the Bank had
          commitments  to  fund   approximately   $7,151,000   and   $5,125,000,
          respectively 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:
<TABLE>
<CAPTION>

             (Dollars in Thousands)                                      June 30,
                                                                -----------------------
                                                                   2000          1999
             <S>                                                 <C>           <C>
             Beginning balance                                   $ 4,515       $ 1,927
             Loans made                                            4,358         2,969
             Principal repayments                                    (38)         (189)
             Change due to status of officers and employees           (1)         (192)
                                                                --------       -------
             Ending balance                                      $ 8,834       $ 4,515
                                                                ========       =======
</TABLE>


          The  amount of loans  serviced  for  others  totaled  $24,163,000  and
          $2,020,000 at June 30, 2000 and 1999,  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 $13,000 and $16,000 at
          June 30, 2000 and 1999, respectively.

          Loan servicing fee income included in other income for the years ended
          June 30, 2000, 1999 and 1998 was $7,000, $10,000 and $15,000,
          respectively.

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

             <TABLE>
             <CAPTION>

             (Dollars in Thousands)                         June 30,
                                            ----------------------------------------
                                              2000           1999            1998
             <S>                            <C>             <C>             <C>
              Beginning balance             $   868         $   360         $   213
              Provision for loan losses         587             511             147
              Net charge-offs                   (47)             (3)
                                            -------         -------         -------
              Ending balance                $ 1,408         $   868         $   360
                                            =======         =======         =======
             </TABLE>


          As a federally  chartered  savings  bank,  aggregate  commercial  real
          estate  loans may not exceed 400% of capital as  determined  under the
          capital   standards   provisions  of  FIRREA.   This   limitation  was
          approximately  $110 million at June 30, 2000.  Also under FIRREA,  the
          loans-to-one  borrower  limitation  is  generally  15%  of  unimpaired
          capital and surplus which, for the Bank, was  approximately $4 million
          at June  30,  2000.  The  Bank  was in  compliance  with  all of these
          requirements at June 30, 2000.


                                       30
<PAGE>


4.        INTEREST RECEIVABLE

          Interest receivable is summarized as follows:

<TABLE>
<CAPTION>

         (Dollars in Thousands)                                          June 30,
                                                                   --------------------
                                                                     2000        1999

<S>                                                                 <C>         <C>
         Loans (less allowance for uncollectibles - $6 and $1)      $1,479      $1,375
         Interest-bearing deposits                                      22          18
         Securities held for trading                                   317         943
         Securities available for sale                                 345           4
         Securities held to maturity                                    23
                                                                    ------      ------
         Interest receivable, net                                   $2,186      $2,340
                                                                    ======      ======
</TABLE>



5.        PREMISES AND EQUIPMENT

          Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>

          (Dollars in Thousands)                                      June 30,
                                                            -------------------------
                                                                2000         1999

<S>                                                           <C>          <C>
          Land                                                $ 1,003      $ 1,003
          Buildings and leasehold improvements                  4,684        4,672
          Furniture, fixtures and equipment                     2,709        2,857
                                                               ------       -----
          Total                                                 8,396        8,532
          Less accumulated depreciation                        (2,568)      (2,033)
                                                             --------      -------
          Premises and equipment, net                        $ 5,828       $ 6,499
                                                              ========      =======
</TABLE>


          Depreciation  expense  included in  operations  during the years ended
June  30,  2000,  1999  and  1998  totaled   $770,000,   $549,000  and  $348,000
respectively.

6.             DEPOSITS


<TABLE>
<CAPTION>

          (Dollars in Thousands)                                            June 30,
                                                     ----------------------------------------------------
                                                              2000                           1999
                                                     -----------------------      -----------------------
                                                                   Weighted                    Weighted
                                                                    Average                      Average
                                                       Amount         Rate           Amount       Rate

          <S>                                         <C>            <C>            <C>           <C>
          NOW and DDA accounts                        $ 37,879       3.29 %         $ 16,911      2.35 %
          Savings accounts                              35,646       4.37 %           33,163      4.12 %
          Money market deposit accounts                62,159        5.20 %          137,463      4.89 %
                                                       -------                      --------
                                                      135,684                       187,537
                                                      --------                      -------
          Certificates of deposit:
          1 year and less                              162,795                       126,592
          1 to 2 years                                  37,936                         9,543
          2 to 3 years                                  11,586                         4,730
          3 to 4 years                                   2,431                         2,867
          Over 4 years                                  10,809                         1,976
                                                       -------                         -----
                                                      225,557        6.13 %          145,708      5.16 %
                                                      --------                      --------
          Total deposits                            $ 361,241                     $ 333,245
                                                    ==========                    ==========
          </TABLE>


                                       31
<PAGE>



          Certificates  of  deposit in the amount of  $100,000  or more  totaled
          approximately  $57  million and $31 million at June 30, 2000 and 1999,
          respectively.

          A summary of certificate  accounts by scheduled fiscal year maturities
          at June 30, 2000, is as follows:
<TABLE>
<CAPTION>

          (Dollars in Thousands)
                                      2001        2002      2003       2004       2005      Thereafter       Total
<S>                                <C>          <C>       <C>         <C>       <C>             <C>       <C>

          3.00% or less                $ 28       $ 182                                          $ 3         $ 213
          3.01% - 5.00%               7,444         428     $ 660      $ 415                                 8,947
          5.01% - 7.00%             139,375      33,785    10,547      1,909     $ 8,436         719       194,771
          7.01% - 9.00%              15,273       3,541       379        107       1,607          44        20,951
          9.01% or greater              675                                                                    675
                                 ----------    --------  --------    -------    --------       -----     ---------
          Totals                  $ 162,795    $ 37,936  $ 11,586    $ 2,431    $ 10,043       $ 766     $ 225,557
                                 ==========    ========  ========    =======    ========       =====     =========
</TABLE>


          Interest expense on deposits is as follows:

<TABLE>
<CAPTION>

          (Dollars in Thousands)
                                                        Years Ended June 30,
                                            -----------------------------------
                                                2000         1999         1998
          <S>                                 <C>          <C>          <C>
          NOW and DDA accounts                $ 1,013      $   306      $   166
          Savings accounts                      1,371        1,279        1,091
          Money market deposits accounts        5,148        3,546          127
          Certificates of deposit              10,694        8,969        6,919
                                              -------       ------        -----
                                              $18,226      $14,100      $ 8,303
                                              =======      =======      =======
</TABLE>


          Interest  expense on certificates of deposit is net of interest income
          (expense)  on interest  rate  contracts  of  $(75,000),  $31,000,  and
          $70,000   for  the  years  ended  June  30,   2000,   1999  and  1998,
          respectively.

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

7.        SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE


          <TABLE>
          <CAPTION>

          (Dollars in Thousands)                                                        June 30,
                                                                               -----------------------
                                                                                    2000        1999
          <S>                                                                     <C>          <C>
          Securities sold under agreements to repurchase:
            Same securities                                                       $28,038      $43,323
            Substantially identical securities                                                  16,875
                                                                                  -------      -------
                                                                                  $28,038      $60,198
                                                                                =========     ========

          Accrued interest on securities sold under agreements to repurchase      $     5      $    66
                                                                                  =======      =======
        </TABLE>

]

          At June 30,  2000,  securities  sold under  agreements  to  repurchase
          mature within one month.


                                       32
<PAGE>


          An  analysis  of  securities  sold  under  agreements  to  repurchase,
          excluding related accrued interest, is as follows:

<TABLE>
<CAPTION>

          (Dollars in Thousands)                                     Years Ended June 30,
                                                              -----------------------------------
                                                               2000          1999           1998
          <S>                                                <C>           <C>           <C>
          Maximum amount outstanding at any month-end        $102,953      $334,160      $342,094

          Daily average amount outstanding                     52,466       213,428       319,579

          Weighted average interest rate at end of year        6.31 %        4.85 %        5.65 %
          </TABLE>



          Assets  pledged  to  secure   securities  sold  under   agreements  to
          repurchase  are  concentrated  among one  dealer  and  eight  business
          customers and three dealers and five business customers as of June 30,
          2000 and  1999,  respectively.  The Bank  exercises  control  over the
          securities  pledged  when the same  security  is  repurchased.  Assets
          pledged are as follows:


          (Dollars in Thousands)                 June 30,
                                          ---------------------
                                            2000         1999
          Mortgage-backed securities:
            At amortized cost              $30,932      $63,158
            At fair value                   30,675       62,191



          An analysis  of the amount at risk under  repurchase  agreements  with
          counterparties  exceeding 10% of stockholders' equity at June 30, 2000
          is as follows:



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

          Dean Witter              $ 24,884            $ 5          25
                                   =========          ====



8.        FEDERAL HOME LOAN BANK ADVANCES

          Advances  from the  Federal  Home  Loan  Bank of  Indianapolis  are as
          follows:


<TABLE>
<CAPTION>


          (Dollars in Thousands)                                         June 30,
                                               ---------------------------------------------------
                                                          2000                   1999
                                               -----------------------       ---------------------
                                                              Variable                  Variable
                                                              Weighted                  Weighted
                                                               Average                   Average
                        Fiscal Year Maturity      Amount         Rate         Amount       Rate

          <S>                   <C>               <C>           <C>          <C>           <C>
                                2001              $ 7,000       6.87 %
                                2000                                         $ 40,000      4.94 %
          </TABLE>



          The Bank was eligible to receive  advances  from the Federal Home Loan
          Bank up to  $93,700,000  and  $86,400,000  at June 30,  2000 and 1999,
          respectively.  The Bank has  pledged  qualifying  mortgage  loans  and
          Federal Home Loan Bank stock as collateral.


                                       33
<PAGE>


9.        NOTE PAYABLE

          At June 30, 2000, the Company  maintained a $13,000,000 term loan from
          Firstar Bank Midwest., N.A. (formerly Mercantile Bancorporation,  Inc.
          and Mark Twain Bank) of which  $12,995,000  was outstanding as of June
          30, 2000. Quarterly  interest-only  payments,  based on the prime rate
          published in the Wall Street  Journal  (9.50% at June 30,  2000),  are
          payable  through  maturity of January 31, 2001.  The unpaid  principal
          balance  outstanding  is payable in full on January 31, 2001.  At June
          30, 1999,  the Company  maintained a  $15,000,000  loan  facility from
          Mercantile  Bancorporation consisting of a revolving line of credit of
          $5,000,000,  of which  $4,000,000 was outstanding as of June 30, 1999,
          and a $10,000,000  term loan of which $5,000 had been repaid under the
          term loan at June 30, 1999.

          As of June 30, 2000, 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, 2000, HFG was in compliance
          with all such debt covenants.

10.       INCOME TAXES

          An analysis of the income tax benefit is as follows:


<TABLE>
<CAPTION>

          (Dollars in Thousands                      Years Ended June 30,
                                         ------------------------------------------
                                            2000            1999             1998
          <S>                            <C>              <C>                <C>
          Current:
            Federal                                                           $ 7
            State                                                               4
          Deferred:
            Federal                      $(1,161)         (1,304)            (989)
            State                           (116)           (342)            (256)
                                          ------          ------          -------
          Total income tax benefit       $(1,277)        $(1,646)         $(1,234)
                                         =======         =======          =======
          </TABLE>




         The difference between the financial  statement income tax rate and the
amount computed by using the statutory rate of 34% is reconciled as follows:



<TABLE>
<CAPTION>

          (Dollars in Thousands)                                   Years Ended June 30,
                                                           -------------------------------------
                                                            2000           1999           1998

          <S>                                             <C>            <C>            <C>
          Federal statutory income tax at 34%             $(1,104)       $(1,409)       $(1,052)
          State income taxes, net of federal tax benefit     (186)          (226)          (166)
          Other, net                                          13             (11)           (16)
                                                          --------       --------       --------
          Total income tax benefit                        $(1,277)       $(1,646)       $(1,234)
                                                          ========       ========       ========
          </TABLE>


                                       34
<PAGE>

          The Company's deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>

                (Dollars in Thousands)                                                  June 30,
                                                                              ----------------------------
                                                                                   2000             1999
          <S>                                                                    <C>              <C>
          Net operating loss carryforwards                                       $ 2,112          $ 1,164
          Bad debt reserves, net                                                     520              293
          Unrealized (gain) loss on securities available for sale included in
            accumulated other comprehensive income                                   173              (16)
          Unrealized gain on securities held for trading                            (505)            (634)
          Differences in income recognition on investments                          (246)            (306)
          Other, net                                                                  35               95
                                                                                 -------            -----
          Deferred income taxes, net                                             $ 2,089            $ 596
                                                                                 =======            =====
</TABLE>


          As of June 30, 2000,  the Company's net operating  loss  carryforwards
          expire  in fiscal  years  2018  through  2020.  Based on  management's
          assessment,  it is more likely than not that all the net  deferred tax
          assets  will  be  realized   through   future   taxable   earnings  or
          implementation of tax planning strategies.

          Retained earnings at June 30, 2000 and 1999 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,  2000,  that the Bank
          meets all capital adequacy requirements to which it is subject.


                                       35
<PAGE>


          As of June  30,  2000,  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.


<TABLE>
<CAPTION>

(Dollars in Thousands)                                                                                        To Be Categorized
                                                                                                            as "Well Capitalized"
                                                                                                                Under Prompt
                                                                                     For Capital              Corrective Action
                                                            Actual                Adequacy Purposes             Provisions
                                                   -------------------------  ----------------------------- ------------------------
                                                    Amount          Ratio         Amount         Ratio         Amount        Ratio
<S>                                                 <C>              <C>         <C>             <C>         <C>             <C>
As of June 30, 2000:
Tangible capital (to total assets)                  $28,735          6.65%       $ 6,483         1.50%           N/A           N/A
Core capital (to total assets)                       28,735          6.65         17,288         4.00            N/A           N/A
Total risk-based capital (to risk weighted assets)   30,143         12.75         18,919         8.00        $23,649         10.00%
Tier I risk-based capital (to risk weighted assets)  28,735         12.15            N/A          N/A         14,190          6.00
Tier I leverage capital (to average assets)          28,735          6.65            N/A          N/A         21,610          5.00

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
</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, 2000, 1999 and 1998 were $49,000, $99,000, and $87,000,
          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.  Awarded  options vest at a rate of 20% per year.  At June
          30, 2000,  all  outstanding  stock options were  exercisable up to May
          2010.  The following is an analysis of stock option  activity for each
          of the three  years in the period  ended  June 30,  2000 and the stock
          options outstanding at the end of the respective years:


<TABLE>
<CAPTION>
                                                                                   Years ended June 30,
                                                       --------------------------------------------------------------------------
                                                                2000                      1999                    1998
                                                       -----------------------  -----------------------   -----------------------
                                                                     Weighted                 Weighted                   Weighted
                                                                     Average                  Average                    Average
                                                        Shares        Price      Shares        Price       Shares         Price

          <S>                                           <C>        <C>           <C>       <C>            <C>          <C>
          Outstanding, beginning of fiscal year         102,200    $   10.57     60,000    $   11.33      176,450      $   8.08
          Granted                                        62,000         7.02     43,000         9.52       31,950         12.11
          Exercised                                                                                      (143,200)         7.50
          Forfeited or expired                          (10,500)       10.29       (800)       10.00       (5,200)        11.25
                                                       --------       ------     ------       ------      --------        -----
          Outstanding, end of fiscal year               153,700    $    9.16    102,200    $   10.57       60,000      $  11.33
                                                       ========      =======   ========     ========      =======       =======
          Options exercisable at end of fiscal year      37,230    $   10.75     20,290    $   10.98        8,310      $  10.42
                                                        =======     ========    =======     ========       ======       =======
</TABLE>



          As of June 30, 2000, options  outstanding have exercise prices between
          $6.00 and $12.50 and a weighted average remaining  contractual life of
          8.5 years.


                                       36
<PAGE>



         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  consistent
         with the fair value method of SFAS No. 123,  Accounting for Stock-Based
         Compensation, the Company's net loss per share would have increased the
         pro forma amounts indicated below:

            (Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>


                                                          Years Ended June 30,
                                             --------------------------------------------
                                                 2000             1999           1998
          <S>                              <C>            <C>            <C>
          Net loss:
            As reported                    $   (1,879)    $    (2,455)   $     (1,859)
            Pro forma                      $   (1,910)    $    (2,482)   $     (1,875)

          Basic loss per share:
            As reported                    $    (0.59)    $     (0.76)   $      (0.57)
            Pro forma                      $    (0.60)    $     (0.77)   $      (0.57)

          Diluted loss per share:
            As reported                    $    (0.59)    $     (0.76)   $      (0.57)
            Pro forma                      $    (0.60)    $     (0.77)   $      (0.57)
</TABLE>


          The weighted  average fair value of options  granted was $1.99,  $1.69
          and $3.72 in fiscal years 2000, 1999 and 1998, 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 2.00%,  risk-free  interest rates
          ranging from 4.38% to 6.74%, expected volatilities ranging from 15.80%
          to 28.13% 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  2000  fiscal  year,  the ESOP
          purchased  7,250  shares at a price of $5.75 per share.  These  shares
          have been  allocated  to  eligible  employees.  During the 1999 fiscal
          year, the ESOP purchased 22,674 shares at prices ranging from $8.06 to
          $9.63 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  2000,  1999  and  1998  was  $49,000,   $121,000  and  $73,000,
          respectively.


                                       37
<PAGE>


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.

          The Bank is a party to an interest  rate collar  which also is used to
          manage interest rate risk in the trading portfolio.  The interest rate
          collar  consists  of an  interest  rate  cap  held by the  Bank and an
          interest  rate floor written by the Bank.  The notional  amount of the
          interest  rate  collar  is  based  on the  balance  in the  collection
          accounts of certain Merrill Lynch  collateralized  mortgage obligation
          trusts.

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

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

          Cash  restrictions  - The Bank  maintained  $999,000 and $2,298,000 at
          June 30, 2000 and 1999,  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


                                       38
<PAGE>

          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>

          (Dollars in Thousands)                                        June 30, 2000
                                      --------------------------------------------------------------------------
                                                        Estimated
                                      Contract or       Fair Value             Weighted Average Interest Rate
                                       Notional      -------------------    ------------------------------------
                                        Amount       Asset     Liability    Payable  Receivable     Cap    Floor
           <S>                          <C>          <C>          <C>          <C>        <C>       <C>      <C>

          Interest rate swaps:
           Pay fixed rate               $5,000                   $ 18         6.58 %     6.28 %     N/A      N/A
          Interest rate collar             343        $ 2                     6.57 %     6.23 %    10.25    5.25
          Futures                      516,000                     41          N/A        N/A        N/A     N/A
          Swaptions                     15,000        113                      N/A        N/A        N/A     N/A
                                       -------       ----
                                     $ 536,343      $ 115        $ 59
                                    ==========     ======       =====
         </TABLE>


<TABLE>
<CAPTION>

          (Dollars in Thousands)                                        June 30, 2000
                                      --------------------------------------------------------------------------
                                                        Estimated
                                      Contract or       Fair Value             Weighted Average Interest Rate
                                       Notional      -------------------    ------------------------------------
                                        Amount       Asset     Liability    Payable  Receivable     Cap    Floor

Interest rate swaps:
<S>                                <C>               <C>           <C>        <C>       <C>        <C>     <C>
  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
Swaptions                               33,000          328                    N/A       N/A        N/A      N/A
                                    ----------         ----
                                   $ 3,132,287       $ 5,301      $ 1,786
                                   ===========      ========      =======
</TABLE>




<TABLE>
<CAPTION>

          (Dollars in Thousands)                    Years Ended June 30,
                                    ---------------------------------------------------
                                               2000                       1999
                                    -------------------------    ----------------------
                                            Monthly                      Monthly
                                            Average                      Average
                                           Fair Value                  Fair Value
                                    -------------------------    ----------------------
                                      Asset       Liability         Asset     Liability
          <S>                       <C>            <C>            <C>           <C>
          Interest rate swaps:
            Pay fixed rate                           $ (9)                       $ 340
          Interest rate caps                                         $ 280
          Interest rate floors                                       5,643
          Interest rate collar         $ 3                                          13
          Futures                                     190                           98
          Swaptions                   184                             411
                                      ----                            ---
                                    $ 187          $ 181          $ 6,334       $ 451
                                    ======         ======         ========      =====
          </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.

                                       39
<PAGE>

<TABLE>
<CAPTION>

          (Dollars in Thousands)                      Years Ended June 30, 2000
                                             ---------------------------------------------
                                             Realized      Unrealized     Net Trading
                                               Gains/         Gains/         Gains/
                                              (Losses)       (Losses)       (Losses)
          <S>                                <C>           <C>           <C>
          Interest rate contracts:
            Swaps                            $   129       $   192       $   321
            Caps                                (746)          596          (150)
            Floors                            (1,008)                     (1,008)
            Collar                                              (1)           (1)
            Futures                            2,667         1,570         4,237
            Swaptions                            (43)          (99)         (142)
                                            --------        ------       -------
          Total                                  999         2,258         3,257
          MBS and other trading asssets       (5,497)        1,235        (4,262)
                                            --------        ------       -------
          Total trading portfolio            $(4,498)      $ 3,493       $(1,005)
                                           =========      ========     =========
          </TABLE>

  <TABLE>
<CAPTION>
          (Dollars in Thousands)                   Years Ended June 30, 1999
                                          -----------------------------------------
                                           Realized     Unrealized     Net Trading
                                            Gains/        Gains/         Gains/
                                           (Losses)      (Losses)       (Losses)
          <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)
                                           ========     =========     =========
          </TABLE>

<TABLE>
<CAPTION>

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




                                       40
<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, 2000.

<TABLE>
<CAPTION>



           (Dollars in Thousands)                                  Maturities During Fiscal Years Ending June 30,
                                                  ---------------------------------------------------------------------------------
                                                    2001        2002           2003          2004         2005          Thereafter
           <S>                                      <C>           <C>           <C>          <C>           <C>               <C>
           Interest rate swaps-Pay fixed rate
             Notional amount                        $ 5,000
             Weighted average payable rate           6.58 %
             Weighted average receivable rate        6.28 %

           Interest rate collar
             Notional amount                                                                                 $ 343
             Weighted average cap rate                                                                     10.25 %
             Weighted average floor rate                                                                    5.25 %

           Futures
             Notional amount                                    $ 37,000      $ 148,000    $ 125,000     $ 142,000         $ 64,000

           Options
             Notional amount                                                                $ 15,000
           </TABLE>


          The  following  interest  rate  hedges are not  included in the Bank's
          trading  portfolio.  At June 30, 1999,  one of the interest rate swaps
          was  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, 2000 and 1999, the Bank held  approximately  $2.7 million and
          $2.9 million of inverse  variable  rate CDs,  with  original  terms to
          maturity  ranging from three to ten years.  In 1999, the Bank utilized
          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, 2000, these swaps had
          a total notional amount of $35 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, 2000 and 1999,  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,
          2000 and 1999, 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.


                                       41
<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>

(Dollars in Thousands)                                   June 30, 2000
                            ---------------------------------------------------------------------------
                             Contract or                                               Weighted Average
                              Notional              Fair Value                          Interest Rate
                               Amount        Asset            Liability      Payable     Receivable
<S>                          <C>             <C>                              <C>          <C>
Interest rate swaps:
  Pay floating rate
  Pay fixed rate             $ 35,000        $ 1,929                          6.03 %       6.64 %
Interest rate caps             90,000          5,124                          N/A           6.83
</TABLE>


<TABLE>
<CAPTION>

(Dollars in Thousands)                                   June 30, 2000
                            ---------------------------------------------------------------------------
                             Contract or                                               Weighted Average
                              Notional              Fair Value                          Interest Rate
                               Amount        Asset            Liability      Payable     Receivable
<S>                          <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

</TABLE>


          The following table sets forth the maturity  distribution and weighted
          average  interest  rates of 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, 2000:

<TABLE>
<CAPTION>
                                          2001   2002    2003    2004      2005  Thereafter
<S>                                       <C>     <C>     <C>     <C>      <C>    <C>

Interest rate swaps-pay fixed rate
  Notional amount                                                $ 5,000           $ 30,000
  Weighted average payable rate                                     5.27 %             6.15 %
  Weighted average receivable rate                                  6.39 %             6.68 %

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

</TABLE>


          In June,  2000  the  Bank,  using  proceeds  from  the sale of  loans,
          extinguished  $25  million  of  securities  sold under  agreements  to
          repurchase and terminated $25 million in interest rate swaps that were
          being utilized to modify the interest rate sensitivity of a portion of
          the Bank's short-term LIBOR correlated borrowings,  which included the
          extinguished  liabilities.  As a  result  of  the  termination  of the
          interest  rate  swaps,  the bank  recorded  a gain of $1.6  million in
          interest  expense  and a deferred  gain of  approximately  $485,000 in
          other liabilities.  The deferred gain represents interest  sensitivity
          protection   derived  from  the  swaps  related  to  short-term  LIBOR
          correlated  borrowings  that are recorded as  liabilities  of June 30,
          2000.  This  deferred  gain will be  reclassed  to  earnings  over the
          original terms of the swaps as an adjustment to interest expense.

                                       42
<PAGE>


14.       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>

          (Dollars in Thousands)                                                June 30,
                                                     -------------------------------------------------------------
                                                               2000                          1999
                                                     --------------------------   --------------------------------
                                                                    Interest                      Interest
                                                        Amount       Rates           Amount        Rates
          <S>                                          <C>         <C>             <C>           <C>
          One to four family real estate-fixed rate    $ 1,379     7.63%-8.63%     $ 1,589       6.75%-8.375%
          Commercial loans-fixed rate                      126     9.00%               450       Priced at closing
          Commercial loans-adjustable rate               7,025     9.50%-11.00%      4,675       7.75%-8.75%
                                                        ------                      ------
                                                       $ 8,530                     $ 6,714
                                                       =======                     =======
</TABLE>




         At June 30, 2000, 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, 2000:



                  Year Ended June 30,
                (Dollars in Thousands)

          2001                          $ 303
          2002                            296
          2003                            297
          2004                            287
          2005                            218
          2006 and thereafter           1,750
                                        -----
          Total minimum payments      $ 3,151
                                      =======



          Rental expense under operating  leases for fiscal years 2000, 1999 and
          1998 was $320,000, $292,000 and $100,000, respectively.



                                       43
<PAGE>


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,  2000,  1999 and 1998 was  $276,000,
          $301,000  and  $287,000  respectively.   SBA  has  a  commercial  loan
          outstanding with the Bank at June 30, 2000, 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.

          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, 2000, the Bank would be required to file an
          application with the OTS for any proposed capital distribution.

          Reserve  Requirements  -As of June 30, 2000, the Bank was not required
          to maintain reserve balances with the Federal Reserve Bank.


                                       44
<PAGE>


17.       FAIR VALUES OF FINANCIAL INSTRUMENTS

          The following  disclosures  of the  estimated  fair value of financial
          instruments are made in accordance  with the  requirements of SFAS No.
          107, Disclosures about Fair Value of Financial Instruments:

<TABLE>
<CAPTION>


          (Dollars in Thousands)                                                            June 30,
                                                                     ----------------------------------------------------
                                                                        2000                              1999
                                                                     ------------------------   -------------------------
                                                                      Carrying        Fair        Carrying        Fair
                                                                       Value          Value        Value          Value
          <S>                                                          <C>           <C>           <C>           <C>

          ASSETS:
            Cash                                                       $  2,314      $  2,314      $  1,414      $  1,414
            Interest-bearing deposits                                    22,007        22,007         8,087         8,087
            Securities held for trading                                  53,852        53,852       183,200       183,200
            Securities available for sale                                64,052        64,052           502           502
            Securities held to maturity                                   3,857         3,871
            Loans receivable, net                                       270,970       261,500       259,632       253,400
            Interest receivable                                           2,186         2,186         2,340         2,340
            Federal Home Loan Bank stock                                  4,878         4,878         4,878         4,878

          LIABILITIES:
            Deposits                                                    361,241       356,200       333,245       330,300
            Securities sold under agreements to repurchase               28,038        28,036        60,198        60,200
            Federal Home Loan Bank advances                               7,000         7,000        40,000        40,000
            Interest payable on securities sold under
              agreements to repurchase                                        5             5            66            66
            Other interest payable                                        2,360         2,360         1,925         1,925
            Note payable                                                 12,995        12,995        13,995        13,995
            Advance payments by borrowers for taxes and insurance           746           746           795           795

          OFF BALANCE SHEET HEDGING INSTRUMENTS:
            Interest rate swaps                                                         1,929                       2,301
            Interest rate caps                                            2,606         5,124         3,101         4,387
          </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.

          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.


                                       45
<PAGE>


          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,  2000  and  1999.  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.



                                       46
<PAGE>


18.       SEGMENT INFORMATION

          The Company's  principal  business lines include  community banking in
          the  Indiana,   Kansas,   and  North  Carolina   markets,   investment
          activities,  including treasury management,  and other activities. 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 years ended June 30, 2000 and 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>



  Segment Information                                                Year Ended June 30, 2000
  (Dollars in Thousands)            ------------------------------------------------------------------------------------------
                                               Community Banking
                                    --------------------------------------
<S>                                  <C>          <C>           <C>          <C>          <C>          <C>          <C>
                                                                  North
                                       Indiana       Kansas     Carolina    Investments       HWM        Other         Total

Net interest income (1)              $   4,093    $   2,267     $     245    $   1,701    $      88    $     (23)   $   8,371
Provision for loan losses                  179          362            49                                     (3)         587
                                     ---------    ---------     ---------    ---------    ---------    ---------    ---------
Net interest income after
  provision loan losses                  3,914        1,905           196        1,701           88          (20)       7,784

Other operating income                     643           49             3            6          106           18          825
Depreciation expense                       316           61            55            4            8          351          795
Other operating expense                  4,590        1,362         1,025          876          494          485        8,832
                                     ---------    ---------     ---------    ---------    ---------    ---------    ---------

CORE BANKING INCOME
  (LOSS) BEFORE TAXES                     (349)         531          (881)         827         (308)        (838)      (1,018)

Realized and unrealized loss on
  securities, net of hedging            (1,096)         (47)                    (1,025)                      (62)      (2,230)
                                     ---------    ---------     ---------    ---------    ---------    ---------    ---------
Loss before income taxes                (1,445)         484          (881)        (198)        (308)        (900)      (3,248)
Applicable income taxes                   (549)         193          (340)         (44)        (121)        (416)      (1,277)
                                     ---------    ---------     ---------    ---------    ---------    ---------    ---------

NET LOSS BEFORE
  MINORITY INTEREST                       (896)         291          (541)        (154)        (187)        (484)      (1,971)
Minority interest, net of taxes                                                                               92           92
                                     ---------    ---------     ---------    ---------    ---------    ---------    ---------

NET LOSS                             $    (896)   $     291     $    (541)   $    (154)   $    (187)   $    (392)   $  (1,879)
                                     =========     =========     =========   ==========     ========    =========    =========

Identifiable assets                  $ 127,264    $  54,471     $  11,510    $ 148,651    $   1,760    $  91,536    $ 435,192
                                     =========     =========     =========   ==========     ========    =========    =========
</TABLE>


(1) Interest income is presented net of interest expense





                                       47
<PAGE>

<TABLE>
<CAPTION>

           Segment Information                                     Year Ended June 30, 1999
                                           ------------------------------------------------------------------------
          (Dollars in Thousands)           Community Banking
                                           --------------------------
                                                Indiana        Kansas       Investments        Other          Total

          <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 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





                                       48
<PAGE>

19.       HARRINGTON FINANCIAL GROUP, INC. FINANCIAL INFORMATION (PARENT COMPANY
          ONLY)

         The following  condensed  balance  sheets as of June 30, 2000 and 1999,
         and condensed  statements  of  operations  and cash flows for the three
         years in the period ended June 30, 2000 for Harrington Financial Group,
         Inc.  should be read in  conjunction  with the  consolidated  financial
         statements and notes thereto.
<TABLE>
<CAPTION>


CONDENSED BALANCE SHEETS                                                June 30,
                                                                 ---------------------
(Dollars in Thousands)                                              2000          1999
<S>                                                             <C>           <C>
ASSETS
Cash and cash equivalents                                       $    215      $    277
Securities held for trading                                           11           134
Deferred income taxes, net                                         1,533           854
Income taxes receivable                                               28           143
Other assets                                                          21            27
Intercompany receivable                                                1           107
Investment in subsidiary                                          27,623        31,769
                                                                 -------        ------
TOTAL ASSETS                                                    $ 29,432      $ 33,311
                                                               =========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable                                                    $ 12,995      $ 13,995
Accrued expenses payable and other liabilities                       180           177
                                                                    ----           ---
           Total liabilities                                      13,175        14,172
                                                                 -------        ------

Common stock                                                         425           425
Additional paid-in capital                                        16,946        16,946
Treasury stock                                                    (2,488)       (2,162)
Accumulated other comprehensive income (loss), net of taxes         (268)           25
Retained earnings                                                  1,642         3,905
                                                                  ------         -----
           Total stockholders' equity                             16,257        19,139
                                                                 -------        ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $ 29,432     $ 33,311
                                                               =========      ========
</TABLE>


<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF OPERATIONS                                     June 30,
                                                          -----------------------------------
(Dollars in Thousands)                                      2000          1999        1998
<S>                                                       <C>          <C>          <C>
Interest income from securities held for trading          $     1      $     2      $     6
Interest on deposits                                            6            3           18
Gain on sale of securities held for trading                    81           21           94
Unrealized gain (loss) on securities held for trading         (60)         (35)         (59)
                                                            -----        -----         ----
           Total income (loss)                                 28           (9)          59
                                                              ---         ----           --

Interest expense on long-term borrowings                    1,295        1,109          981
Salaries and employee benefits                                274          294          263
Other expenses                                                158          174          249
                                                             ----         ----          ---
           Total expenses                                   1,727        1,577        1,493
                                                           ------       ------        -----

Income (loss) before equity in undistributed earnings      (1,699)      (1,586)      (1,434)
Income tax provision (benefit)                               (673)        (627)        (566)
Equity in undistributed earnings of subsidiary               (853)      (1,496)        (991)
                                                           ------     --------        -----
Net income (loss)                                         $(1,879)     $(2,455)     $(1,859)
                                                       ==========   ==========    =========
</TABLE>

                                       49
<PAGE>

<TABLE>
<CAPTION>


CONDENSED STATEMENTS OF CASH FLOWS                                      Years Ended June 30,
                                                              ------------------------------------
(Dollars in Thousands)                                            2000         1999         1998
<S>                                                             <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                      $(1,879)     $(2,455)     $(1,859)
  Adjustments to reconcile net loss to net cash from
    operating activities:
      Net increase (decrease) in assets and liabilities             230          (91)         123
      Gain on sale of securities held for trading                   (81)         (21)         (94)
      Unrealized (gain) loss on securities held for trading          60           35           59
      Purchases of securities held for trading                                             (2,000)
      Proceeds from sales of securities held for trading            144           52        2,300
      Deferred income tax provision                                (679)         (62)        (588)
      Decrease in undistributed earnings of subsidiary            3,853        1,471          991
                                                                 ------       ------          ---
           Net cash from operating activities                     1,648       (1,071)      (1,068)
                                                                 ------     --------      -------

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

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from stock options exercised                                                     1,074
  Proceeds from note payable                                      1,000          500        3,500
  Principal repayments on note payable                           (2,000)
  Dividends paid on common stock                                   (384)        (385)        (395)
  Purchase of treasury stock                                       (326)        (784)      (1,467)
  Proceeds from issuance of treasury stock                                        73
                                                                                               --
           Net cash from financing activities                    (1,710)        (596)       2,712
                                                               --------       ------        -----

NET DECREASE IN CASH AND CASH EQUIVALENTS                           (62)      (1,667)      (1,556)

CASH AND CASH EQUIVALENTS, beginning of year                        277        1,944        3,500
                                                                   ----       ------        -----

CASH AND CASH EQUIVALENTS, end of year                          $   215      $   277      $ 1,944
                                                                 ======       ======      =======
</TABLE>




20.       SUBSEQUENT EVENT (UNAUDITED)

          On September 8, 2000 the Company sold  deposits and certain  assets of
          two branch  banking  locations.  The  Company  sold  $43.5  million of
          deposits,  $0.4 million of office  properties  and  equipment and paid
          approximately  $41.7  million.  The sale resulted in a pre-tax gain of
          approximately $1.4 million.

                                       50