HARRINGTON FINANCIAL GROUP INC
DEF 14A, 1998-09-22
SAVINGS INSTITUTION, FEDERALLY CHARTERED
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                                  SCHEDULE 14A
                                 (Rule 14a-101)
                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

           Proxy Statement Pursuant to Section 14(a) of the Securities
                 Exchange Act of 1934 (Amendment No. __________)

Filed by the Registrant [ X ]


Filed by a Party other than the Registrant  [   ]


Check the appropriate box:

[   ]    Preliminary Proxy Statement

[   ]    Confidential, for Use of the Commission Only
         (as permitted by Rule 14a-6(e)(2))

[ X ]    Definitive Proxy Statement                  

[   ]    Definitive Additional Materials

[   ]    Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12


                        Harrington Financial Group, Inc.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)

                        Harrington Financial Group, Inc.
- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

[ X ]   No fee required.

[   ]   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

         (1) Title of each class of securities to which transaction applies:
         (2) Aggregate number of securities to which transactions applies:
         (3) Per unit price or other  underlying  value of transaction  computed
             pursuant to  Exchange  Act Rule 0-11 (Set forth the amount on which
             the filing fee is calculated and state how it was determined):
         (4) Proposed maximum aggregate value of transaction:
         (5) Total fee paid:

[   ]    Fee paid previously with preliminary materials.

[   ]    Check box if any part of the fee is offset as provided by Exchange  Act
         Rule  0-11(a)(2)  and identify the filing for which the  offsetting fee
         was paid  previously.  Identify  the  previous  filing by  registration
         statement number, or the Form or Schedule and the date of its filing.

         (1) Amount previously paid:
         (2) Form, schedule or registration statement no.:
         (3) Filing party:
         (4) Date filed:
<PAGE>
                       [Harrington Financial Group, Inc.]

                                                              September 22, 1998


Dear Stockholder:

         You are cordially  invited to attend the Annual Meeting of Stockholders
of  Harrington  Financial  Group,  Inc. The meeting will be held at the Sheraton
Indianapolis  North located at 8787  Keystone  Crossing,  Indianapolis,  Indiana
46240,  on Tuesday,  October 20, 1998 at 2:00 p.m.,  Eastern  Standard Time. The
matters to be considered by  stockholders at the Annual Meeting are described in
the accompanying materials.

         It is very  important  that you be  represented  at the Annual  Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return  it in the  envelope  provided,  even if you plan to  attend  the  Annual
Meeting.  Voting by proxy will not prevent  you from voting in person,  but will
ensure that your vote is counted if you are unable to attend.

       Your  continued  support of and interest in Harrington  Financial  Group,
Inc. are sincerely appreciated.

                                                         Sincerely,



                                                         /s/ Douglas T. Breeden
                                                         -----------------------
                                                         Douglas T. Breeden
                                                         Chairman of the Board



                                                         /s/ Craig J. Cerny
                                                         -----------------------
                                                         Craig J. Cerny
                                                         President

<PAGE>
                        HARRINGTON FINANCIAL GROUP, INC.
                               722 E. Main Street
                             Richmond, Indiana 47375
                                 (765) 962-8531


                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                         To Be Held on October 20, 1998


         NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Harrington  Financial  Group,  Inc. (the "Company") will be held at
the Sheraton Indianapolis North located at 8787 Keystone Crossing, Indianapolis,
Indiana 46240, on Tuesday, October 20, 1998 at 2:00 p.m., Eastern Standard Time,
for the following  purposes,  all of which are more  completely set forth in the
accompanying Proxy Statement:

         (1) To  elect  one (1)  director  for a  one-year  term  and  four  (4)
directors  for a  three-year  term or until  their  successors  are  elected and
qualified;

         (2) To ratify the  appointment  by the Board of Directors of Deloitte &
Touche LLP as the Company's independent auditors for the fiscal year ending June
30, 1999; and

         (3) To transact  such other  business as may  properly  come before the
meeting or any  adjournment  thereof.  Management is not aware of any other such
business.

         The Board of Directors has fixed September 8, 1998 as the voting record
date for the determination of stockholders  entitled to notice of and to vote at
the  Annual  Meeting.  Only  those  stockholders  of  record  as of the close of
business on that date will be entitled to vote at the Annual Meeting.

                                              BY ORDER OF THE BOARD OF DIRECTORS

                                              /s/ Debra L. Dugan
                                              ------------------
                                              Debra L. Dugan
                                              Corporate Secretary
Richmond, Indiana
September 22, 1998

- --------------------------------------------------------------------------------
YOU ARE CORDIALLY  INVITED TO ATTEND THE ANNUAL  MEETING.  IT IS IMPORTANT  THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE,  SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY  IN THE  ENVELOPE  PROVIDED.  IF YOU ATTEND THE  MEETING,  YOU MAY VOTE
EITHER IN PERSON OR BY PROXY.  ANY PROXY  GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- --------------------------------------------------------------------------------
<PAGE>
                        HARRINGTON FINANCIAL GROUP, INC.

                                  ------------
                                 PROXY STATEMENT

                                  ------------
                         ANNUAL MEETING OF STOCKHOLDERS

                                October 20, 1998

         This Proxy  Statement is furnished to holders of common  stock,  $0.125
par value per share ("Common Stock"),  of Harrington  Financial Group, Inc. (the
"Company"),   the  Indiana-chartered   registered  thrift  holding  company  for
Harrington Bank, FSB (the "Bank").  Proxies are being solicited on behalf of the
Board  of  Directors  of the  Company  to be  used  at  the  Annual  Meeting  of
Stockholders  ("Annual  Meeting") to be held at the Sheraton  Indianapolis North
located at 8787  Keystone  Crossing,  Indianapolis,  Indiana  46240 on  Tuesday,
October 20, 1998 at 2:00 p.m., Eastern Standard Time, for the purposes set forth
in the Notice of Annual Meeting of  Stockholders.  This Proxy Statement is first
being mailed to stockholders on or about September 22, 1998.

         The proxy  solicited  hereby,  if properly  signed and  returned to the
Company and not revoked prior to its use,  will be voted in accordance  with the
instructions  contained  therein.  If no contrary  instructions are given,  each
proxy received will be voted FOR the nominees for director described herein, FOR
ratification  of the  appointment  of Deloitte & Touche LLP for fiscal 1999, and
upon the  transaction  of such other  business as may  properly  come before the
meeting  in  accordance  with the best  judgment  of the  persons  appointed  as
proxies.  Any stockholder  giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the  Secretary of the Company  written
notice thereof (Secretary, Harrington Financial Group, Inc., 722 E. Main Street,
Richmond, IN 47375); (ii) submitting a duly-executed proxy bearing a later date;
or (iii) appearing at the Annual Meeting and giving the Secretary  notice of his
or her intention to vote in person.  Proxies  solicited  hereby may be exercised
only at the Annual Meeting and any adjournment  thereof and will not be used for
any other meeting.

                                     VOTING

         Only  stockholders  of record at the close of business on  September 8,
1998 ("Voting Record Date") will be entitled to vote at the Annual  Meeting.  On
the Voting Record Date, there were 3,230,517 shares of Common Stock outstanding,
and the Company had no other class of equity securities outstanding.  Each share
of Common  Stock is  entitled  to one vote at the Annual  Meeting on all matters
properly  presented at the meeting.  Directors are elected by a plurality of the
votes cast with a quorum  present.  The five  persons who  receive the  greatest
number of votes of the holders of Common Stock represented in person or by proxy
at the Annual Meeting will be elected directors of the Company.  Abstentions are
considered in determining  the presence of a quorum and will not affect the vote
required for the election of directors. The affirmative vote of the holders of a
majority

<PAGE>
of the total  votes  present  in person or by proxy is  required  to ratify  the
appointment  of the  independent  auditors.  Abstentions  will not be counted as
votes cast and  accordingly  will have no effect on the voting of this proposal.
Under  rules  of  the  New  York  Stock  Exchange,  all  of  the  proposals  for
consideration  at the Annual Meeting are considered  "discretionary"  items upon
which brokerage firms may vote in their discretion on behalf of their clients if
such  clients  have  not  furnished  voting  instructions.  Thus,  there  are no
proposals  to  be  considered  at  the  Annual   Meeting  which  are  considered
"non-discretionary" and for which there will be "broker non-votes."

INFORMATION  WITH RESPECT TO NOMINEES FOR  DIRECTOR,  CONTINUING  DIRECTORS  AND
EXECUTIVE OFFICERS

Election of Directors

         The  Amended and  Restated  Articles  of  Incorporation  of the Company
provide that the Board of  Directors of the Company  shall be divided into three
classes which are as nearly equal in number as possible and that members of each
class of directors are to be elected for a term of three years.  One class is to
be elected  annually.  Stockholders of the Company are not permitted to cumulate
their votes for the election of directors.

         No director or executive officer of the Company is related to any other
director or executive officer of the Company by blood, marriage or adoption with
the  exception  of Douglas T.  Breeden,  Chairman  of the  Company,  and Russell
Breeden III,  Director of the Company,  and  President and Director of the Bank,
who are brothers.

         Each of the  nominees  currently  serves as a director of the  Company,
except  Sharon E.  Fankhauser,  C.P.A.  Unless  otherwise  directed,  each proxy
executed  and  returned by a  stockholder  will be voted for the election of the
nominees for director  listed  below.  If the person or persons named as nominee
should be unable or  unwilling  to stand for  election at the time of the Annual
Meeting, the proxies will nominate and vote for one or more replacement nominees
recommended  by the Board of  Directors.  At this time,  the Board of  Directors
knows of no reason  why the  nominees  listed  below may not be able to serve as
directors if elected.

         The following  tables present  information  concerning the nominees for
director of the Company and each director whose term continues.

Nominee for the Board of Directors for One-Year Term Expiring in 1999

                                                                  Director
       Name                                Age(1)                  Since
       ----                                ------                  -----

Russell Breeden III                         49                      1998


                                       2
<PAGE>
Nominees for the Board of Directors for Three-Year Terms Expiring in 2001

                                                                  Director
       Name                                Age(1)                  Since
       ----                                ------                  -----

Sharon E. Fankhauser, C.P.A.                49                       --
Michael J. Giarla                           40                     1988
David F. Harper, C.P.A.                     55                     1995
John J. McConnell                           52                     1995

         The Board of Directors recommends that you vote FOR the election of the
above nominees for director.

Members of the Board of  Directors  Continuing  in Office  Whose Terms Expire in
1999

                                                                  Director
       Name                                Age(1)                  Since
       ----                                ------                  -----
Craig J. Cerny                              43                     1988
Stanley J. Kon                              49                     1994
William F. Quinn, C.F.A.                    34                     1991

Members of the Board of  Directors  Continuing  in Office  Whose Terms Expire in
2000

                                                                  Director
       Name                                Age(1)                  Since
       ----                                ------                  -----
Douglas T. Breeden                          47                     1988
Daniel C. Dektar                            39                     1996
Stephen A. Eason, C.F.A.                    41                     1991
Marianthe S. Mewkill, C.P.A.                37                     1997

- ------------------
(1)      As of September 8, 1998.

         Information  concerning the principal position with the Company and the
Bank and  principal  occupation  of each nominee for director and members of the
Board continuing in office during the past five years is set forth below.

Nominee for the Board of Directors for a One-Year Term Expiring in 1999

         Russell Breeden III. Mr. Breeden has been a Director of the Company and
a Director and President of the Bank since January 1998. Since October 1993, Mr.
Breeden  has been  Chairman  and Chief  Executive  Officer  of  Community  First
Financial Group,  Inc., an Indiana bank holding company that owns 100 percent of
English  State  Bank,  English,  Indiana,  52.5  percent of  Peoples  Trust Bank
Company,  Corydon,  Indiana,  and 92 percent of Peninsula  Banking Group,  Inc.,
Redondo Beach, California. Mr. Breeden is Chairman of the Board of Peoples Trust
Bank Company and Peninsula


                                       3
<PAGE>
Banking  Group,  Inc.  and a Director  of English  State  Bank.  Mr.  Breeden is
Chairman of the Board of Bay Cities National Bank, Redondo Beach,  California; a
subsidiary of Peninsula  Banking  Group,  Inc. Mr. Breeden is also a Director of
the Indiana Bond Bank,  Indianapolis,  Indiana,  a state agency issuing debt for
communities throughout the State of Indiana, and Bettenhausen Motorsports, Inc.,
a championship  auto racing team.  After  graduating  from DePauw  University in
Greencastle,  Indiana,  Mr.  Breeden  spent 20 years in  investment  banking  at
Raffensperger,Hughes & Co., Inc. Indiana's largest investment banking firm. From
his  entry-level  position  in 1973,  he moved up through  management  to become
Director,  President and Chief Executive  Officer in 1990. He is a member of the
Community  Bankers  Association of Indiana and the Indiana Bankers  Association,
serves on the Finance  Council for the Eiteljorg  Museum of American  Indian and
Western Art. Mr. Breeden is the brother of Douglas T. Breeden.

Nominees for the Board of Directors for a Three-Year Term Expiring in 2001

         Sharon E. Fankhauser,  C.P.A. Ms. Fankhauser is a Principal,  Executive
Vice President and Director of Smith Breeden Associates, Inc. ("Smith Breeden"),
a money management and financial  consulting firm with over $4 billion of assets
under  management,   where  she  has  been  employed  since  January  1986.  Ms.
Fankhauser's   primary   responsibilities   are  in  the  areas  of  accounting,
compliance,  and administration.  Since December 1992, Ms. Fankhauser has been a
Director of New Homes  Publishing,  which publishes real estate  information for
the Kansas  City  metropolitan  area.  In April  1998,  she became a Director of
Wyandotte  Community  Corporation  which  owns  The  Overlook  Restaurant,   The
Leavenworth  Inn,  and  Provisions  located in Indiana.  Prior to joining  Smith
Breeden,  Ms. Fankhauser,  a Certified Public Accountant,  was employed by Mayer
Hoffman  McCann,  Kansas  City,  Missouri.  She  earned  a  Bachelor  of Arts in
sociology  from  Drake  University  where she was named to Phi Beta  Kappa.  She
concentrated in accounting in the Master of Business  Administration  program at
California State  University at Sacramento,  where she was elected to Beta Alpha
Psi Honor Society.  Ms.  Fankhauser was awarded the Elijah Watts Sells Award for
the top 100 candidates passing the Certified Public Accountant exam.

         Michael J. Giarla. Mr. Giarla is President, Chief Operating Officer and
Director of Smith Breeden  where he has been  employed  since July 1985. He also
serves as President of the Smith Breeden Mutual Funds.  Formerly Smith Breeden's
Director of Research, he was involved in research and programming,  particularly
in the development and  implementation  of models to evaluate and hedge mortgage
securities.   Mr.  Giarla  holds  a  Master  of  Business   Administration  with
Concentration in Finance from Stanford  University  Graduate School of Business.
He earned a  Bachelor  of Arts in  Statistics,  summa cum  laude,  from  Harvard
University.

         David F. Harper,  C.P.A. Mr. Harper has been a Vice President of Harris
Harper Counsel, Inc., an investment advisory firm located in Richmond,  Indiana,
since January 1991. Mr. Harper also has maintained a public accounting  practice
since October 1990.


                                       4
<PAGE>
He previously was a Partner in the Indiana C.P.A.  firm of George S. Olive & Co.
from October 1978 to October  1990.  Mr.  Harper has served as a Director of the
Bank since 1991. He holds a Bachelor of Business  Administration  in Accounting,
magna cum laude, from the University of Cincinnati.

         John J. McConnell. Dr. McConnell is the Emanuel T. Weiler Distinguished
Professor of  Management  and the Director of Doctoral  Programs and Research at
the Krannert  School of Management,  Purdue  University,  and has served in that
capacity  since  1989.  He has been a Professor  of Finance at that  institution
since 1983.  Dr.  McConnell  currently  serves as Director  of  Harrington  West
Financial Group, Inc. and its wholly owned subsidiary,  Los Padres Savings Bank.
He  served  on the  Board  of  Directors  of  the  Federal  Home  Loan  Bank  of
Indianapolis  from  1983 to 1986  and  has  done  consulting  work  for  various
government  agencies,  trade  associations  and  corporations.  He has  authored
numerous  publications  on topics  related to  financial  services  and  general
finance.  Dr.  McConnell  holds a Ph.D. in Finance from Purdue  University and a
Master of Business  Administration in Finance and Accounting from the University
of Pittsburgh.  He received his  undergraduate  degree in Economics from Denison
University.

Members of the Board of  Directors  Continuing  in Office  Whose Terms Expire in
1999

         Craig J. Cerny. Mr. Cerny has been the President of the Company and the
Chairman  of the Board and Chief  Executive  Officer of the Bank since  February
1992. Prior thereto,  Mr. Cerny was the Company's Executive Vice President since
1988 and the  Bank's  President  from  July  1994 to  January  1998.  Mr.  Cerny
currently  serves as the  Chairman of the Board and Chief  Executive  Officer of
Harrington  West Financial  Group,  Inc., a $464 million thrift holding  company
with offices on the southern and central coast of California, and as Director of
its wholly owned subsidiary, Los Padres Savings Bank, FSB. Mr. Cerny is a former
Principal,  Executive  Vice President and Director of Smith Breeden where he was
employed  from  April  1985 to  December  1996.  Mr.  Cerny was  active in Smith
Breeden's bank  consulting and investment  advisory  practice.  Prior to joining
Smith Breeden, Mr. Cerny held a number of financial management related positions
with  Hallmark  Cards  and  Pizza  Hut  Restaurants,  Inc.  He holds a Master of
Business  Administration  in Finance from  Arizona  State  University,  where he
graduated  with  distinction.  Mr. Cerny earned a Bachelor of Science in Finance
from Arizona State University and was a member of the Honors Convocation.

         Stanley J. Kon.  Dr. Kon is a Principal  of Smith  Breeden  Associates,
Inc.  and  Director  of  Research.  Dr.  Kon was a  Professor  of Finance at the
University  of  Michigan  from 1982 to June 1997.  During this time he served as
Chairman of the Finance Department, Director of the J. Ira Harris Center for the
Study of Corporate  Finance,  and a member of the Advisory  Board for the Mitsui
Life Financial  Research Center.  Prior to 1982, Dr. Kon served on the faculties
of New York University,  University of Chicago,  and the University of Wisconsin
at Madison.  He has written  extensively in the areas of investment  management,
performance measurement, asset pricing, and statistical models of stock returns.
Dr. Kon has also served as a consultant  to  government,  business and financial
institutions. Dr. Kon is

                                       5
<PAGE>
Director of Harrington  Bank,  Harrington  West Financial  Group,  Inc., and Los
Padres Savings Bank. Dr. Kon holds a Ph.D. in Finance from the State  University
of New York at  Buffalo;  a Master of  Business  Administration  in Finance  and
Economics  from St.  John's  University  and a Bachelor  of Science in  Chemical
Engineering from Lowell Technological Institute.

         William F. Quinn,  C.F.A.  Mr. Quinn has been a Director of the Company
since  1991.  He also serves as Vice  President  and  Director of Smith  Breeden
Associates,  Inc.  where he has been  employed  since June 1986.  Mr. Quinn is a
portfolio  manager for Smith Breeden,  where he manages fixed income  portfolios
for a number of  institutional  clients.  He is also  actively  involved  in the
formulation and  implementation  of investment and risk management  policies and
procedures  as well as clients'  strategic  and  business  plans.  Mr. Quinn was
Executive  Vice  President  of the Company  from March 1992 to October  1996 and
served  on  the  Bank's  Investment  Committee,  where  he  participated  in the
determination of the Bank's investment  strategies.  Mr. Quinn holds a Master of
Science in Management with  Concentrations  in Finance,  MIS and System Dynamics
from the Sloan School of Management,  Massachusetts Institute of Technology.  He
earned a Bachelor  of  Science  in  Management  Science  from the  Massachusetts
Institute of Technology.

Members of the Board of  Directors  Continuing  in Office  Whose Terms Expire in
2000

         Douglas T. Breeden.  Dr. Breeden is currently  Chairman of the Board of
the  Company  and  Chairman  of the Board and Chief  Executive  Officer of Smith
Breeden,  which he co-founded in June 1982.  Dr. Breeden also serves as Chairman
of the Board of the Smith  Breeden  Mutual  Funds,  and Chairman of the Board of
Wyandotte  Community  Corporation,  which  owns  The  Overlook  Restaurant,  The
Leavenworth  Inn, and Provisions  located in Indiana.  Dr. Breeden has served on
business  school  faculties at Duke  University,  Stanford  University,  and the
University  of  Chicago,  and as a visiting  professor  at Yale  University  and
Massachusetts  Institute  of  Technology.  He is Editor of the  Journal of Fixed
Income.  Dr.  Breeden  has  served as  Associate  Editor  for five  journals  in
financial  economics,  and was elected to the Board of Directors of the American
Finance Association. He has published several well-cited articles in finance and
economics  journals.  Dr.  Breeden  holds  a  Ph.D.  in  Finance  from  Stanford
University  Graduate School of Business,  and a B.S. in Management  Science from
Massachusetts Institute of Technology.  Dr. Breeden was formerly Chairman of the
Board of Roosevelt  Financial Group, a $9 billion thrift (acquired by Mercantile
Bancorp).  He is also the principal investor in Community First Financial Group,
Inc. In  philanthropic  activities,  he serves as Chairman of the Breeden Family
Foundation and Director of the Fund for Human  Possibilities.  He is a member of
the President's Council of Massachusetts  Institute of Technology,  the Founding
Grant  Society of Stanford  University,  and is on the Board of Visitors at Duke
University's  Fuqua  School of Business.  Dr.  Breeden is the brother of Russell
Breeden III.

         Daniel C. Dektar.  Mr.  Dektar is a Director,  Principal  and Executive
Vice  President of Smith Breeden  Associates,  Inc. He joined the firm in August
1986  where he serves  as a  liaison  among the  trading,  client  service,  and
research groups to ensure accurate analysis


                                       6
<PAGE>
and timely  execution of trading  opportunities.  Mr.  Dektar  manages  mortgage
portfolios  for the Smith Breeden Family of Mutual Funds and is a Vice President
of several of the funds. Mr. Dektar consults  institutional clients in the areas
of investments and risk management. He holds a Master of Business Administration
from Stanford  University  Graduate  School of Business.  Mr. Dektar  received a
Bachelor  of  Science in  Business  Administration,  summa cum  laude,  from the
University of  California  at Berkeley,  where he was a University of California
Regent's Scholar.

         Stephen A. Eason,  C.F.A.  Mr. Eason is a Principal and Executive  Vice
President  and  Director of Smith  Breeden  Associates,  Inc.  where he has been
employed since April 1988. Mr. Eason manages Smith  Breeden's  Dallas office and
is Director of the firm's discretionary separate account management business. He
holds a Master of Business Administration with Concentration in Finance from The
Wharton School, Graduate Division, University of Pennsylvania.  Mr. Eason earned
a Bachelor of Science in Business Administration, Finance, and Banking, from the
University of Arkansas, where he graduated with Highest Honors.

         Marianthe  S.  Mewkill,  C.P.A.  Ms.  Mewkill  has been a  Director  of
Harrington Financial Group, Inc. since October 1997 and is a Principal and Chief
Financial Officer of Smith Breeden Associates,  Inc. where she has been employed
since 1992. She also serves as the Chief Financial  Officer of the Smith Breeden
Mutual Funds. She handles financial reporting,  budgeting,  and tax research and
planning for Smith Breeden's five offices,  the Smith Breeden Mutual Funds,  and
Smith Breeden's  investment  limited  partnerships.  She also ensures compliance
with agency  regulations and administers  Smith Breeden's  internal  trading and
other  policies.  Ms. Mewkill holds a Master of Business  Administration  with a
concentration in Finance from the Leonard N. Stern School of Business,  New York
University.  She earned a Bachelor  of Arts from  Wellesley  College,  magna cum
laude, with a major in History and French, and a minor in Economics.

Stockholder Nominations

         Article III,  Section 14 of the Company's  Amended and Restated  Bylaws
("Bylaws")  governs  nominations  for  election  to the Board of  Directors  and
requires all such nominations, other than those made by the nominating committee
of the Board, to be made at a meeting of stockholders called for the election of
directors, and only by a stockholder who has complied with the notice provisions
in that section.  Stockholder nominations must be made pursuant to timely notice
in writing to the Secretary of the Company. To be timely, a stockholder's notice
must be delivered to, or mailed,  postage  prepaid,  to the principal  executive
offices of the Company not later than 90 days prior to the  anniversary  date of
the mailing of proxy materials by the Company in connection with the immediately
preceding annual meeting of stockholders of the Company.  Each written notice of
a  stockholder  nomination  shall  set  forth  (a) the name and  address  of the
stockholder  who intends to make the  nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Company  entitled to vote at such  meeting and intends to appear in
person or by proxy at the meeting to nominate the person or


                                       7
<PAGE>
persons  specified  in the notice;  (c) a  description  of all  arrangements  or
understandings  between the stockholder and each nominee and any arrangements or
understandings  between the stockholder and each nominee and any other person or
persons  (naming  such person or persons)  pursuant to which the  nomination  or
nominations  are to be made  by the  stockholder;  (d)  such  other  information
regarding each nominee  proposed by such  stockholder as would be required to be
included  in a  proxy  statement  filed  pursuant  to  the  proxy  rules  of the
Securities and Exchange Commission ("SEC");  and (e) the consent of each nominee
to serve as a director of the Company, if so elected.

Board of Directors Meetings and Committees of the Company and the Bank

         Regular  meetings  of the Board of  Directors  of the  Company are held
quarterly.  During the year ended June 30,  1998,  the Board of Directors of the
Company held four meetings. No incumbent director attended fewer than 75% of the
aggregate of the total number of Board  meetings held during  his/her  tenure in
office  during the last fiscal year or the total number of all meetings  held by
committees of the Board on which he/she  served  during such year.  The Board of
Directors of the Company has established the following committees:

         The Executive Committee of the Company is empowered to act on behalf of
the Company's Board of Directors when the Board is not in session. The Executive
Committee of the Company meets  intraquarterly.  The Executive Committee members
are Dr. Breeden, Mr. Breeden III, Mr. Cerny, Mr. Giarla, Mr. Harper, Dr. Kon and
Dr. McConnell. The Executive Committee met eight times during fiscal 1998.

         The Audit Committee of the Company recommends  independent  auditors to
the Board annually, reviews the Company's financial statements and the scope and
results  of the audit  performed  by the  Company's  independent  auditors,  and
oversees  compliance and control procedures and processes.  The Audit Committee,
which is comprised of Mr.  Harper,  Mr.  Golaszewski,  and Ms.  Mewkill met four
times during fiscal 1998.

         The Nominating  Committee of the Company makes director nominations for
service on the Board of Directors.  The Nominating  Committee members for fiscal
year 1998 were Mr. Cerny, Mr. Harper and Dr. McConnell. The Nominating Committee
met once during fiscal year 1998. For the director  nominations to be acted upon
at this Annual  Meeting,  the Nominating  Committee  includes Dr.  Breeden,  Mr.
Cerny, and Mr. Eason.

         The Compensation  Committee  reviews the compensation of Mr. Cerny, the
President  of the  Company,  and  recommends  to the  Board  adjustments  in his
compensation.  See "Executive  Compensation - Compensation  Committee Interlocks
and Insider  Participation."  The  Compensation  Committee  of the Company  also
administers  the stock benefit  plans of the Company.  The  Committee,  which is
comprised of Dr.  Breeden,  Mr. Harper and Dr.  McConnell met once during fiscal
1998.

                                       8
<PAGE>
         The Executive  Committee of the Bank reviews the compensation of senior
executive  officers,  other  than the  President,  and  recommends  to the Board
adjustments in such  compensation  based on a number of individual and corporate
related  performance  factors.   See  "Executive   Compensation  -  Compensation
Committee Interlocks and Insider Participation." The Executive Committee is also
empowered to act on behalf of the Bank's  Board of  Directors  when the Board is
not in session.  Messrs.  Cerny,  Kon and Dr.  McConnell  comprise the Executive
Committee, which met once during fiscal 1998.

Executive Officers Who Are Not Directors

         Set forth below is information concerning the executive officers of the
Company and the Bank who do not serve on the Board of  Directors of the Company.
All  executive  officers are elected by the Board of  Directors  and serve until
their successors are elected and qualified.  No executive  officer is related to
any  director or other  executive  officer of the Company by blood,  marriage or
adoption with the exception of Douglas T. Breeden,  Chairman of the Company, and
Russell Breeden III, Director of the Company,  and President and Director of the
Bank, who are brothers.  There are no arrangements or  understandings  between a
director of the Company and any other  person  pursuant to which such person was
elected an executive officer.

         Mark R. Larrabee.  Mr. Larrabee has been President of the Kansas Region
and Chief  Commercial  Lending  Officer of the Bank  since  February  1998.  His
primary  responsibilities  include the  implementation  of the Bank's  expansion
plans in the Kansas City  market and the  development  of the Bank's  commercial
line of business.  Mr. Larrabee is Chairman of the Bank's Loan  Committee.  From
January 1996 to February 1998, Mr.  Larrabee  served as Executive Vice President
for Country Club Bank, Kansas City,  Missouri.  Prior thereto,  Mr. Larrabee was
Senior Vice President for Bank IV Kansas,  National Association,  Overland Park,
Kansas,  from March 1984 to January 1996.  His previous  experience  includes an
extensive  commercial  lending  background,  senior  management  positions  with
various responsibilities including strategic planning and corporate development,
and the start up of a de novo national  bank.  Mr.  Larrabee holds a Bachelor of
Science in Business Administration from the University of Kansas and a Master of
Business Administration from the University of Missouri, graduating with Highest
Distinction.

         Daniel H. Haglund.  Mr. Haglund has been Chief  Investment  Officer and
Treasurer of the Bank since June 1994 and Senior Vice  President  since  October
1995. From September 1988 to June 1994, Mr. Haglund served as Portfolio  Manager
for Hemet Federal Savings and Loan Association,  Hemet, California.  Mr. Haglund
holds a Master of Business Administration in Finance from Indiana University and
a Bachelor of Arts in psychology from Alma College.


                                       9
<PAGE>
         James C. Stapleton. Mr. Stapleton has been Executive Vice President and
Chief  Operating  Officer of the Bank since June 1992.  From August 1989 to June
1992, Mr. Stapleton served as the Bank's Compliance Officer.  Prior thereto, Mr.
Stapleton was a Loan Officer for the Bank from 1986 through July 1989 and served
in various management positions for the Richmond Palladium - Item newspaper from
1976 to 1986.

BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN PERSONS

         The following table sets forth,  as of the Voting Record Date,  certain
information  as to the Common  Stock  beneficially  owned by (i) each person and
entity,  including  any "group" as that term is used in Section  13(d)(3) of the
Securities  Exchange Act of 1934, as amended  ("Exchange Act"), who or which was
known to the Company to be the beneficial owner of more than five percent of the
issued and  outstanding  Common  Stock,  (ii) the  directors and nominees of the
Company,  (iii) those  executive  officers of the Company whose salary and bonus
exceeded $100,000 in fiscal 1998, and (iv) all directors and executive  officers
of the Company and the Bank as a group.
<TABLE>
<CAPTION>
                                                                                               Common Stock
                                                                                         Beneficially Owned as of
                     Name of Beneficial Owner                                               September 8, 1998(1)
                     ------------------------                                        -----------------------------
                                                                                          No.                   %
                                                                                     ------------            -----
<S>                                                                                  <C>                    <C>  
Salem Investment Counselors, Inc.                                                     167,660 (2)             5.19%
P.O. Box 25427
Winston-Salem, North Carolina  27114-5427

  Douglas T. Breeden                                                                 1,519,890(3)             47.04 
  Russell Breeden III                                                                    7,770(4)               .24
  Craig J. Cerny                                                                       206,014(5)              6.38
  Daniel C. Dektar                                                                      52,528(6)              1.63
  Stephen A. Eason, C.F.A.                                                             121,306(7)              3.75
  Michael J. Giarla                                                                    203,194(8)              6.29
  Lawrence E. Golaszewski, C.P.A.                                                       70,664(9)              2.19
  Catherine A. Habschmidt                                                              13,935(10)               .43
  David F. Harper, C.P.A.                                                              17,992(11)               .56
  Stanley J. Kon                                                                       18,824(12)               .58 
  John J. McConnell                                                                    21,992(13)               .68 
  Marianthe S. Mewkill, C.P.A.                                                              1,055               .03
  William F. Quinn, C.F.A.                                                             85,950(14)              2.66

All directors and executive officers of the Company and the Bank                    2,372,479(15)            73.25%
as a group (20 persons)
</TABLE>
                          (Footnotes on following page)

                                       10
<PAGE>
- ------------

(1)      For  purposes of this table,  pursuant to rules  promulgated  under the
         Exchange Act, an individual is considered to beneficially own shares of
         Common  Stock if he or she  directly  or  indirectly  has or shares (i)
         voting power,  which includes the power to vote or to direct the voting
         of the shares;  or (ii) investment  power,  which includes the power to
         dispose or direct  the  disposition  of the  shares.  Unless  otherwise
         indicated,  an  individual  has sole voting  power and sole  investment
         power with respect to the indicated shares. Shares which are subject to
         stock options and which may be exercised within 60 days of September 8,
         1998 are deemed to be  outstanding  for the  purpose of  computing  the
         percentage of Common Stock beneficially owned by such person.

(2)      Based on a Schedule  13G filed  pursuant to the  Exchange Act on May 8,
         1998 by Salem Investment Counselors, Inc.

(3)      Includes 11,400 shares held by Dr. Breeden's spouse,  4,000 shares held
         by Dr.  Breeden's  spouse as custodian for their  children,  600 shares
         which  may be  acquired  by Dr.  Breeden  upon  the  exercise  of stock
         options, and 15,000 shares held by Wyandotte Community  Corporation,  a
         corporation controlled by Dr.
         Breeden.

(4)      Includes 800 shares held by Mr.  Breeden's spouse and 20 shares held by
         Mr. Breeden's son.

(5)      Includes  30,000 shares held by Mr.  Cerny's  spouse,  and 2,981 shares
         held by the Company's  Employee  Stock  Ownership Plan ("ESOP") for the
         account of Mr. Cerny, and 1,000 shares which may be acquired by Mr.
         Cerny upon the exercise of stock options.

(6)      Includes  600  shares  which may be  acquired  by Mr.  Dektar  upon the
         exercise of stock options.

(7)      Includes  18,000  shares held by a profit  sharing plan  maintained  by
         Smith  Breeden and 600 shares  which may be acquired by Mr.  Eason upon
         the exercise of stock options.

(8)      Includes  30,347  shares held by a profit  sharing plan  maintained  by
         Smith Breeden,  9,393 shares held by Mr.  Giarla's  spouse as custodian
         for  their  child,  3,899  shares  held by Mr.  Giarla's  spouse in her
         Individual  Retirement Account, and 79,445 shares held by his spouse in
         trust,  76,550 shares held by Mr. Giarla in trust, 2,960 shares held in
         trust for their child, and 600 shares which may be acquired by Mr.
         Giarla upon the exercise of stock options.

(9)      Includes 600 shares which may be acquired by Mr.  Golaszewski  upon the
         exercise  of  stock  options.  Mr.  Golaszewski  is  not  standing  for
         reelection as a director.

                                         (Footnotes continued on following page)

                                       11
<PAGE>
- ------------
(10)     Includes 2,116 shares held jointly with Ms. Habschmidt's spouse and 935
         shares held by the  Company's  ESOP for the account of Ms.  Habschmidt.
         Ms.  Habschmidt  served as Chief Financial Officer and Treasurer of the
         Company,  and  Senior  Vice  President,  Chief  Financial  Officer  and
         Secretary of the Bank until May 15, 1998.

(11)     Includes  900  shares  which may be  acquired  by Mr.  Harper  upon the
         exercise of stock options.

(12)     Includes 3,536 shares held by Dr. Kon as custodian for his children and
         900 shares  which may be acquired by Dr. Kon upon the exercise of stock
         options.

(13)     Includes 21,092 shares held jointly with Dr. McConnell's spouse and 900
         shares  which may be acquired  by Dr.  McConnell  upon the  exercise of
         stock options.

(14)     Includes 8,105 shares held by a profit sharing plan maintained by Smith
         Breeden  and 600 shares  which may be  acquired  by Mr.  Quinn upon the
         exercise of stock options.

(15)     Includes  8,250  shares  which may be  acquired  by all  directors  and
         executive officers of the Company as a group upon the exercise of stock
         options.  Also  includes  7,451 shares which are held by the  Company's
         ESOP, which have been allocated to the accounts of executive  officers.
         Under the terms of the ESOP,  Craig J. Cerny,  and James C.  Stapleton,
         who act as trustees of the plan, must vote the allocated shares held in
         the ESOP in accordance with the instructions of the executive officers.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the Exchange Act  requires  the  Company's  officers,
directors  and persons who own more than 10% of the  Company's  Common  Stock to
file reports of ownership and changes in ownership with the SEC and the National
Association of Securities  Dealers,  Inc. by certain dates. The Company believes
that in the fiscal year ended June 30, 1998,  all of these  filing  requirements
were  satisfied by its  directors and  executive  officers,  except that Russell
Breeden III was late twice in reporting a total of two  transactions  which were
subsequently filed. In making the foregoing  statements,  the Company has relied
on  representations  of its directors  and executive  officers and copies of the
reports that they have filed with the SEC. The Company knows of no person, other
than Douglas T. Breeden,  the Company's  Chairman of the Board,  who owns 10% or
more of the Company's Common Stock.


                                       12
<PAGE>
EXECUTIVE COMPENSATION

Summary Compensation Table

         The following table includes individual  compensation  information with
respect to the executive officers whose total compensation exceeded $100,000 for
services rendered in all capacities during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>

                                                                              Long-Term
          Name and               Fiscal                                     Compensation       All Other
     Principal Position           Year          Annual Compensation            Awards         Compensation
                                                                             Number of
                                                  Salary(1)      Bonus         Options
- ---------------------------------------------------------------------------------------------------------- 
<S>                               <C>             <C>           <C>             <C>             <C>       
Craig J. Cerny, President         1998            $200,000      $100,000        7,500           $42,000(2)
                                  1997             175,000        50,000        5,000            31,191(2)
                                  1996             152,083        50,000         --              22,119(2)

Catherine A. Habschmidt           1998             $85,615       $15,000        2,000                   --
Former Chief Financial            1997              77,500        11,000        1,500            $9,117(4)
Officer and Treasurer (3)         1996              68,750        14,000         --               8,021(4)
</TABLE>
- -----------
(1)      Does  not  include  amounts  attributable  to  miscellaneous   benefits
         received by the named  executive  officers.  The cost to the Company of
         providing  such  benefits to the named  executive  officers  during the
         indicated  period  did not  exceed  the lesser of $50,000 or 10% of the
         total of annual salary and bonus reported.

(2)      Comprised  of  $12,000,  $11,500  and  $9,000  of Bank  director  fees,
         $15,000,  $12,712  and $3,453 in  contributions  pursuant to the Bank's
         Profit Sharing Plan, and $15,000,  $6,979,  and $9,666, the allocations
         on  behalf of Mr.  Cerny  under the  Company's  ESOP,  in each case for
         fiscal  1998,  1997 and 1996,  respectively.  See "-  Benefits - Profit
         Sharing Plan."

(3)      Ms.  Habschmidt  served as Chief Financial Officer and Treasurer of the
         Company  and  Senior  Vice  President,   Chief  Financial  Officer  and
         Secretary of the Bank until May 15, 1998.

(4)      Comprised of $5,000 and $2,689 in contributions  pursuant to the Bank's
         Profit Sharing Plan, and $4,117 and $5,332,  the  allocations on behalf
         of Ms.  Habschmidt  under the  Company's  ESOP, in each case for fiscal
         1997 and 1996, respectively. See "- Benefits - Profit Sharing Plan".


                                       13
<PAGE>
         The  following  table  discloses  the  total  options  granted  to  the
executive officers named in the Summary Compensation Table during the year ended
June 30, 1998:
<TABLE>
<CAPTION>
                                                    % of Total     
                                    Number of        Options                                            Grant Date 
                                     Options        Granted To       Exercise                            Present  
              Name                   Granted       Employees (1)     Price (2)    Expiration Date        Value (3)
              ----                   -------       -------------     ---------    ---------------        ---------           
<S>                                   <C>             <C>              <C>         <C>                     <C>    
Craig J. Cerny                        7,500           23.47%           $12.50      January 13, 2008        $43,050

Catherine A. Habschmidt               2,000            6.26%           $12.50      January 13, 2008        $11,480
</TABLE>
- ------------
(1)      Percentage of options granted to all employees during fiscal 1998.

(2)      The exercise  price was based on the closing market price of a share of
         the Company's Common Stock on the date of grant.

(3)      Present Value of the grant at the date of grant under the Black-Scholes
         option-pricing model.

         The following table sets forth, with respect to the executive  officers
named  in the  Summary  Compensation  Table,  information  with  respect  to the
aggregate  amount of options  exercised  during the last fiscal year,  any value
realized  thereon,  the number of  unexercised  options at the end of the fiscal
year  (exercisable and  unexercisable)  and the value with respect thereto under
specified assumptions.
<TABLE>
<CAPTION>
                                  Shares                                                       Value of Unexercised
                               Acquired on     Value          Number of Unexercised           in the Money Options at
            Name                 Exercise     Realized     Options at Fiscal Year End              June 30, 1998
            ----                 --------     --------     --------------------------              -------------
                                                          Exercisable    Unexercisable     Exercisable    Unexercisable
                                                          -----------    -------------     -----------    -------------
<S>                             <C>           <C>            <C>           <C>              <C>             <C>   
Craig J. Cerny                  16,000 (1)    $76,000        1,000         11,500 (2)       $1,250           $0 (3)
                                                                                           
Catherine A. Habschmidt          4,000 (4)    $21,480          300 (5)          0           $  375 (6)       N/A
</TABLE>
- ------------
(1)      16,000  shares were  exercised  on January 15, 1998 at $7.50 per share.
         The market  price on this date was $12.25,  less the $7.50 strike price
         for a realized value of $4.75 per share.

(2)      5,000 shares are exercisable at the rate of 20% per year on each annual
         anniversary  of the date the options were granted  (January 9, 1997) at
         $10.00 per share.  7,500 shares are  exercisable at the rate of 20% per
         year on each annual  anniversary  of the date the options  were granted
         (January 13, 1998) at $12.50 per share.

                                         (Footnotes continued on following page)

                                       14
<PAGE>
- ------------
(3)      Value is calculated at the $10.00  exercise  price for 5,000 shares and
         the $12.50 exercise price for the 7,500 shares. Therefore 1,000 options
         exercised  at a $10.00  strike  price with the market at $11.25 have an
         unrealized  value of $1,250 and 11,500  options  exercisable  at $12.50
         with the market at $11.25 have an unrealized value of $0.

(4)      4,000 shares were exercised on January 9, 1998 at $7.50 per share.  The
         market price on this date was $12.875,  less the $7.50 strike price for
         a realized value of $5.37 per share.

(5)      1,500  shares  were  exercisable  at the  rate of 20% per  year on each
         annual  anniversary  of the date the options were  granted  (January 9,
         1997) at $10.00 per share. Ms. Habschmidt's  employment ended as of May
         15, 1998, at which time her 1,200 unvested options terminated.

(6)      Value is  calculated  at the  $10.00  exercise  price  for 300  shares.
         Therefore,  300 options  exercised  at a $10.00  strike  price with the
         market at $11.25 have an unrealized value of $375.00.

Board Fees

         Directors  of the Company  (except  for Messrs.  Breeden III and Cerny)
received  fees of $500  for  each  meeting  attended  during  fiscal  1997.  All
directors of the Bank received fees of $1,000 for each Board meeting attended in
person or by conference call. Company directors (except for Messrs.  Breeden III
and  Cerny  who do not  receive  committee  fees)  received  $500 per  Executive
Committee  meeting  and $300 per Audit  Committee  Meeting.  In  addition,  Bank
directors (except for Messrs. Breeden III and Cerny who do not receive committee
fees)  received  $500 per  Executive  Committee  meeting,  $500  per  Investment
Committee  meeting,  $300  per  Audit  Committee  meeting,  $300  per  Community
Reinvestment  Act  Committee  meeting,  and $200 per  Trust  Services  Committee
meeting.

Benefits

         Employee  Stock  Ownership  Plan.  The Company  maintains  the ESOP for
employees  of the Company and the Bank.  Full-time  employees of the Company and
the Bank who have been  credited  with at least 1,000 hours of service  during a
twelve month period are eligible to participate in the ESOP.

         In connection with the Company's  initial public offering,  the Company
contributed  sufficient funds to the ESOP in order to cause the ESOP to purchase
7,000 shares.  The Company may, in any plan year, make additional  discretionary
contributions  for the benefit of plan  participants in either cash or shares of
Common Stock,  which may be acquired through the purchase of outstanding  shares
of Common Stock in the market or from individual stockholders, upon the original
issuance of additional shares by the Company or

                                       15
<PAGE>
upon the sale of Treasury shares by the Company. Such purchases,  if made, could
be funded  through  borrowing by the ESOP or additional  contributions  from the
Company. The timing,  amount and manner of future contributions to the ESOP will
be affected by various factors,  including prevailing  regulatory policies,  the
requirements of applicable laws and regulations and market conditions.

         Any shares of Common Stock purchased by the ESOP with the proceeds of a
loan are held in a suspense  account  and  released  on a pro rata basis as debt
service  payments are made.  Discretionary  contributions to the ESOP and shares
released from the suspense account are allocated among participants on the basis
of compensation.  Forfeitures will be reallocated among remaining  participating
employees and may reduce any amount the Company might otherwise have contributed
to the ESOP.  Participants  will vest in their  right to receive  their  account
balances  within the ESOP at the rate of 20 percent  per year.  In the case of a
"change in control," as defined in the Stock Option Plan, however,  participants
will become  immediately  fully  vested in their  account  balances,  subject to
certain tax  considerations.  Benefits  may be payable  upon  retirement,  early
retirement, disability or separation from service.

         The ESOP is  subject to the  requirements  of the  Employee  Retirement
Income  Security Act of 1974, as amended,  and the  regulations  of the Internal
Revenue Service and the Department of Labor thereunder.

         Stock Option Plan. The Board of Directors of the Company  maintains the
Stock Option Plan, which is designed to attract and retain  qualified  personnel
in key positions, provide officers and key employees with a proprietary interest
in the Company as an  incentive  to  contribute  to the success of the  Company,
reward key employees for outstanding  performance and the attainment of targeted
goals,  and retain  qualified  directors for the Company and the Bank. The Stock
Option Plan was approved by the Company's  stockholders in March 1996. An amount
of Common Stock equal to 126,500  shares (10% of the shares of Common Stock sold
in the Offering) has been authorized  under the Stock Option Plan,  which may be
filled by authorized but unissued shares, Treasury shares or shares purchased by
the Company on the open market or from  private  sources.  The Stock Option Plan
provides for the grant of incentive  stock  options  intended to comply with the
requirements  of  Section  422  of  the  Code   ("incentive   stock   options"),
non-incentive  or  compensatory  stock  options  and stock  appreciation  rights
(collectively  "Awards").  Awards are  available  for grant to directors and key
employees of the Company and any subsidiaries, except that directors will not be
eligible to receive incentive stock options.

         The Stock Option Plan is administered and interpreted by a committee of
the  Board of  Directors  ("Committee")  which is  "disinterested"  pursuant  to
applicable   regulations  under  the  federal  securities  laws.  Unless  sooner
terminated,  the Stock  Option  Plan will be in effect for a period of ten years
from the adoption by the Board of  Directors.  Under the Stock Option Plan,  the
Committee  will  determine  which  officers  and key  employees  will be granted
options, whether such options will be incentive or compensatory options, the


                                       16
<PAGE>
number of shares  subject to each option,  whether such options may be exercised
by  delivering  other  shares of  Common  Stock  and when  such  options  become
exercisable. The per share exercise price of all stock options shall be required
to be at least equal to the fair market  value of a share of Common Stock on the
date the option is granted.

         Stock  options  shall  become  vested  and  exercisable  in the  manner
specified by the Committee at the rate of 20% per year,  beginning one year from
the date of grant.  Each stock option or portion thereof shall be exercisable at
any time on or after it vests and is exercisable  until ten years after its date
of grant or three  months  after  the date on which  the  optionee's  employment
terminates other than  retirement,  unless extended by the Committee to a period
not to exceed  one year from such  termination.  However,  failure  to  exercise
incentive  stock  options  within  three  months  after  the date on  which  the
optionee's employment terminates,  may result in adverse tax consequences to the
optionee.  Stock  options  are  non-transferable  except  by will or the laws of
descent and distribution.

         Under the Stock Option Plan,  the Committee will be authorized to grant
rights to optionees  ("stock  appreciation  rights") under which an optionee may
surrender any exercisable incentive stock option or compensatory stock option or
part  thereof in return for  payment by the  Company to the  optionee of cash or
Common  Stock in an amount  equal to the excess of the fair market  value of the
shares of Common  Stock  subject to option at the time over the option  price of
such shares,  or a  combination  of cash and Common  Stock.  Stock  appreciation
rights may be granted  concurrently  with the stock options to which they relate
or at any time  thereafter  which is prior to the exercise or expiration of such
options.

         Options  granted to  directors  of the  Company  and the Bank under the
Stock  Option Plan are awarded  under a formula  pursuant to which  non-employee
directors  of  the  Company  and  the  Bank  received   1,000  and  500  shares,
respectively,  upon  commencement  of the Company's  initial public offering and
will receive a similar amount on each annual anniversary  thereafter for as long
as shares  remain  available.  An aggregate of 60,000  shares of Common Stock is
available for non-employee directors of the Company and the Bank under the Stock
Option  Plan.  Such stock  options to directors  will be vested and  exercisable
under the same  terms as  options  granted  by the  Committee  to  officers  and
employees.  During fiscal year 1998, the Company  granted an aggregate of 19,450
incentive stock options and 12,500 compensatory stock options (or 31,950 options
in aggregate) to directors and executive officers under the Stock Option Plan.

         All unvested  options are accelerated in the event of retirement  under
the Bank's retirement policies or a change in control of the Company, as defined
in the Stock Option Plan. In addition, if an optionee dies or terminates service
due to disability,  while serving as an employee or non-employee  director,  all
unvested options are accelerated. Under such circumstances,  the optionee or, as
the  case  may  be,  the  optionee's  executors,  administrators,   legatees  or
distributees,  shall have the right to exercise all  unexercised  options during
the twelve-month period following  termination due to disability,  retirement or
death,  provided no option will be exercisable  within six months after the date
of grant or more than ten years from the date it was granted.

                                       17
<PAGE>
         In the event of a stock split,  reverse stock split or stock  dividend,
the number of shares of Common Stock under the Stock Option Plan,  the number of
shares to which any Award  relates  and the  exercise  price per share under any
option or stock appreciation right shall be adjusted to reflect such increase or
decrease in the total number of shares of the Common Stock outstanding.

         The Company has previously  awarded options on a periodic basis without
a specific  option plan. In October  1993,  the Company had  previously  granted
stock  options to directors and officers of the Company and the Bank and certain
other  affiliates of Smith Breeden to purchase an aggregate of 143,200 shares of
Common Stock at $7.50 per share,  which were  exercisable  between  December 15,
1997 and January 15, 1998.

         Profit  Sharing Plan.  On July 1, 1990,  the Bank adopted the Financial
Institutions  Thrift Plan  ("Profit  Sharing  Plan"),  which is a  tax-qualified
defined contribution plan. Prior to July 1, 1997, all employees were eligible to
participate in the Profit  Sharing Plan on the first day of the month  following
the employee's date of employment. Effective July 1, 1997, employees of the Bank
who have been  employed  by the Bank for at least  one year and  1,000  hours of
service are eligible to participate in the profit sharing plan. Under the Profit
Sharing Plan, a separate account is established for each participating employee,
and the Bank may make  discretionary  contributions  to the Profit Sharing Plan,
which are allocated to the participants' accounts. Participants vest in employer
discretionary  contributions  over a  six-year  period.  Distributions  from the
Profit Sharing Plan are made upon termination of service, death or disability in
a lump sum. The normal retirement age under the plan is age 65.

Transactions With Certain Related Persons

         Under  applicable  federal  law,  loans  or  extensions  of  credit  to
executive  officers and directors must be made on substantially  the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  with the  general  public,  unless  the loans are made
pursuant to a benefit or  compensation  program that (i) is widely  available to
employees of the  institution and (ii) does not give preference to any director,
executive officer or principal  stockholder,  or certain affiliated interests of
either,  over other employees of the savings  institution,  and must not involve
more than the normal risk of repayment or present other unfavorable features.

         The  Bank's  policy  provides  that all  loans  made by the Bank to its
directors  and  officers  are  made  in the  ordinary  course  of  business,  on
substantially the same terms, including interest rates and collateral,  as those
prevailing  at the time for  comparable  transactions  with other  persons.  The
Bank's policy provides that such loans may not involve more than the normal risk
of collectibility or present other  unfavorable  features.  As of June 30, 1998,
mortgage  and  consumer  loans to  employees  in  excess of  $60,000  aggregated
$772,803 or 3.41% of the Company's consolidated  stockholders' equity as of such
date. All such loans were made by the Bank in accordance with the aforementioned
policy.

                                       18
<PAGE>
         The Bank  entered  into an  Investment  Advisory  Agreement  with Smith
Breeden dated April 1, 1992, which was amended on March 1, 1995. Under the terms
of the agreement,  the Bank appointed  Smith Breeden as investment  advisor with
respect to the management of the Bank's  portfolio of investments  and its asset
and liability management strategies (the "Account"). Specifically, Smith Breeden
advises and consults  with the Bank with respect to its  investment  activities,
including the acquisition of mortgage-backed  securities,  the use of repurchase
agreement  transactions  in  funding  and the  acquisition  of  certain  hedging
instruments to reduce the interest rate risk of the Account's investments. Under
the Agreement, Smith Breeden, as agent with respect to the Account, may (i) buy,
sell,  exchange  and  otherwise  trade in  mortgage-backed  securities  or other
investments,  and (ii) arrange for necessary  placement of orders,  execution of
transactions,  purchases,  sales and  conveyances  with or through such brokers,
dealers,  issuers or other persons as Smith  Breeden may select,  subject to the
approval of the Bank,  and establish the price and trade  conditions,  including
brokerage commissions.  For its services,  Smith Breeden receives a monthly fee,
based on its  standard fee  schedule  for such  services,  which is based on the
Bank's total  consolidated  assets plus  unsettled  purchases of securities  and
minus  unsettled sales of securities.  Smith Breeden  received fees of $287,000,
$281,000 and $232,000  during fiscal 1998,  1997 and 1996,  respectively,  under
such agreement.

Compensation Committee Interlocks and Insider Participation

         The  Compensation  Committee of the Company reviews the compensation of
Mr. Cerny, the President of the Company, and recommends to the Board adjustments
in his compensation and reviews the recommendations for compensation adjustments
for the other senior officers of the Company. The Compensation  Committee of the
Company  also   administers  the  stock  benefit  plans  of  the  Company.   The
Compensation  Committee is comprised of Dr. Breeden (Chairman),  Mr. Harper, and
Dr. McConnell.

         The  Executive  Committee of the Bank's Board of Directors  reviews the
compensation of the Bank's senior executive officers,  other than Mr. Cerny, and
recommends to the Board  adjustments in such  compensation.  During fiscal 1998,
the  members  of the  Executive  Committee  were Mr.  Cerny,  Dr.  Kon,  and Dr.
McConnell.

         The report of the  Compensation  Committee and the Executive  Committee
with respect to compensation for Mr. Cerny and all other executive  officers for
the fiscal year ended June 30, 1998 is set forth below:

         During fiscal year 1998, the Executive Committee of the Bank's Board of
Directors was responsible for administering  compensation matters related to the
Bank's senior officers,  other than Mr. Cerny. The Compensation Committee of the
Company,  in  consultation  with the  Company's  and Bank's Boards of Directors,
administered compensation matters with respect to the Chief Executive Officer of
the Bank and President of the Company.

                                       19
<PAGE>
         The purpose of the  Compensation  Committee  is to assist the Boards of
Directors of the Company,  the Bank,  and its  subsidiaries  in  attracting  and
retaining qualified,  competent  management,  motivating executives to achieve a
range of  performance  goals  consistent  with a business  plan  approved by the
Boards of  Directors,  and  ensuring  that  proposed  compensation  and  benefit
programs are  reasonable  and  consistent  with industry  standards,  management
performance and shareholder interests.

         The Committees  consider the following  criteria in annual  performance
reviews prior to making  recommendations  with regard to the compensation of the
Chief  Executive  Officer  and other  executive  officers of the Company and the
Bank:

  1.       The overall financial  performance of the Company and the Bank during
           the fiscal year under  consideration,  relative to stated  management
           objectives and financial goals and budgets.

  2.       Individual  as well as  combined  measures of progress of the Company
           and the Bank including the quality of the loan  portfolio,  execution
           of retail  expansion  programs,  interest  rate  risk and  investment
           management, deposit and loan growth, operating efficiency,  personnel
           development and training,  and other objectives as may be established
           by management and the Boards of Directors.

  3.       The CRA, Compliance, and CAMEL ratings as determined by the Office of
           Thrift Supervision.

  4.       The   performance  of  the  Chief  Executive   Officer   relative  to
           management,  leadership,  professional  involvement,  maintenance  of
           corporate  stature,  and  enhancing  the  image  of  the  Bank  in it
           marketplace.

  5.       The compensation  and benefit levels of comparable  positions at peer
           group financial institutions.

         The  compensation  recommendations  of  the  Committee  include  a base
salary,  with the  possibility  of bonus and  stock  option  components,  if the
Executive's performance is judged to warrant such compensation.

         The base compensation for Craig J. Cerny, Chief Executive Officer,  was
established by the  Compensation  Committee at $200,000 on January 13, 1998. Mr.
Cerny's  compensation  level was  determined  with regard to the  aforementioned
criteria  using as a benchmark  the  executive  compensation  survey for savings
institutions  as published by  America's  Community  Bankers for the Midwest and
other  regions.  In  addition,  during the fiscal year 1998,  Mr. Cerny was paid
bonuses  totaling  $100,000 based on his  performance and the performance of the
Company. Mr. Cerny does not participate in the review of his compensation.

                                       20
<PAGE>
         With  respect to the Bank's other  executive  officers,  the  Executive
Committee of the Bank considered  salary and bonus  recommendations  prepared by
the Chief Executive Officer to establish compensation levels for the fiscal year
ending 1998. Salary and bonus recommendations were based on the individual's and
the  Company's  overall  performance  in the past year as well as an analysis of
competitive   compensation  levels  in  the  financial  services  industry  from
America's Community Bankers surveys.

Performance Graph

         The  following  graph  compares the  cumulative  total  returns for the
Common Stock of the Company, the Nasdaq Financial Index and the Nasdaq Composite
Index since the Company's initial public offering in May 1996.





                 [GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]




TOTAL RETURN ANALYSIS
                                   5/7/96     6/28/96   6/30/97   6/30/98
                                   ------     -------   -------   -------

Harrington Financial Group, Inc.   $100.00    $105.00   $121.56   $113.92
Nasdaq Composite (US)              $100.00    $100.24   $121.88   $160.87
Nasdaq Financial (US)              $100.00    $102.73   $150.27   $194.98
  










         The above  graph  represents  $100  invested in the  Company's  initial
public  offering of Common Stock on May 7, 1996 at $10.00 per share.  The Common
Stock commenced trading on the Nasdaq Stock Market on May 7, 1996.

                                       21
<PAGE>
RATIFICATION OF APPOINTMENT OF AUDITORS

         The Board of Directors of the Company has  appointed  Deloitte & Touche
LLP,  independent  certified  public  accountants,  to perform  the audit of the
Company's  financial  statements  for the year ending June 30, 1999, and further
directed  that the selection of auditors be submitted  for  ratification  by the
stockholders at the Annual Meeting.

         The Company has been advised by Deloitte & Touche LLP that neither that
firm nor any of its  associates  has any  relationship  with the  Company or its
subsidiaries other than the usual  relationship that exists between  independent
certified public accountants and clients. Deloitte & Touche LLP will have one or
more  representatives at the Annual Meeting who will have an opportunity to make
a  statement,  if they so  desire,  and who  will be  available  to  respond  to
appropriate questions.

         The Board of Directors recommends that you vote FOR the ratification of
the appointment of Deloitte & Touche LLP as independent  auditors for the fiscal
year ending June 30, 1999.

STOCKHOLDER PROPOSALS

         Any proposal  which a stockholder  wishes to have included in the proxy
materials of the Company  relating to the next annual meeting of stockholders of
the Company,  which is scheduled to be held in October 1999, must be received at
the principal executive offices of the Company, 722 East Main Street,  Richmond,
Indiana 47375, Attention: Debra L. Dugan, Corporate Secretary, no later than May
25, 1999. If such proposal is in compliance with all of the requirements of Rule
14a-8 under the 1934 Act, it will be  included  in the proxy  statement  and set
forth on the form of proxy issued for such annual meeting of stockholders. It is
urged  that  any  such  proposals  be sent by  certified  mail,  return  receipt
requested.

         Stockholder  proposals  which are not  submitted  for  inclusion in the
Company's  proxy  materials  pursuant  to Rule  14a-8  under the 1934 Act may be
brought  before an annual  meeting  pursuant  to Article  II,  Section 13 of the
Company's Amended and Restated Bylaws, which provides that business at an annual
meeting of stockholders must be (a) properly brought before the meeting by or at
the  direction of the Board of  Directors,  or (b)  otherwise  properly  brought
before the meeting by a stockholder.  For business to be properly brought before
an annual  meeting by a  stockholder,  the  stockholder  must have given  timely
notice  thereof in writing to the  Secretary  of the  Company.  To be timely,  a
stockholder's  notice  must  be  delivered  to or  mailed  and  received  at the
principal  executive  offices of the Company not later than 90 days prior to the
anniversary  date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting of stockholders of the Company, or
not later  than June  24,1999  in  connection  with the 1999  annual  meeting of
stockholders of the Company.  A stockholder's  notice to the Secretary shall set
forth as to each  matter the  stockholder  proposes  to bring  before the annual
meeting:  (a) a brief  description of the business  desired to be brought before
the annual  

                                       22
<PAGE>
meeting, (b) the name and address, as they appear on the Company's books, of the
stockholder  proposing such business,  (c) the class and number of shares of the
Company which are beneficially  owned by the stockholder,  and (d) any financial
interest of the stockholder in such business.

ANNUAL REPORTS

         A copy of the  Company's  Annual  Report to  Stockholders  for the year
ended June 30, 1998 accompanies this Proxy Statement.  Such annual report is not
part of the proxy solicitation materials.

         Upon  receipt of a written  request,  the Company  will  furnish to any
stockholder  without  charge a copy of the Company's  Annual Report on Form 10-K
for fiscal 1998 required to be filed under the 1934 Act.

         Such written  requests should be directed to Debra L. Dugan,  Corporate
Secretary,  Harrington  Financial Group,  Inc., 722 East Main Street,  Richmond,
Indiana 47375. The Form 10-K is not part of the proxy solicitation materials.

OTHER MATTERS

         Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Company to vote the proxy with respect to the approval
of the minutes of the last meeting of  stockholders,  the election of any person
as a  director  if the  nominee  is unable to serve or for good  cause  will not
serve,  matters  incident  to the  conduct of the  meeting,  and upon such other
matters as may properly come before the Annual Meeting.  Management is not aware
of any business that may properly come before the Annual  Meeting other than the
matters described above in this Proxy Statement.  However,  if any other matters
should  properly  come  before the  meeting,  it is  intended  that the  proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.

         The cost of the  solicitation  of proxies will be borne by the Company.
The Company will reimburse  brokerage firms and other  custodians,  nominees and
fiduciaries  for  reasonable  expenses  incurred  by them in  sending  the proxy
materials to the beneficial owners of the Company's Common Stock. In addition to
solicitations  by mail,  directors,  officers  and  employees of the Company may
solicit proxies personally or by telephone without additional compensation.

         YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.


                                       23
<PAGE>
REVOCABLE PROXY


                        HARRINGTON FINANCIAL GROUP, INC.


         THIS  PROXY  IS  SOLICITED  ON  BEHALF  OF THE  BOARD OF  DIRECTORS  OF
HARRINGTON  FINANCIAL GROUP,  INC.  ("COMPANY") FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER 20, 1998 AND AT ANY ADJOURNMENT THEREOF.

     The  undersigned,  being a  stockholder  of the Company as of  September 8,
1998,  hereby authorizes the Board of Directors of the Company or any successors
thereto  as  proxies  with  full  powers  of  substitution,   to  represent  the
undersigned at the Annual Meeting of  Stockholders  of the Company to be held at
the Sheraton Indianapolis North located at 8787 Keystone Crossing, Indianapolis,
Indiana 46240, on Tuesday, October 20, 1998 at 2:00 p.m., Eastern Standard Time,
and at any  adjournment of said meeting,  and thereat to act with respect to all
votes  that the  undersigned  would be  entitled  to  cast,  if then  personally
present, as follows:

1.       ELECTION OF DIRECTORS

Nominee for a one-year term:       Russell Breeden III

Nominees for a three-year term:    Sharon E. Fankhauser, Michael J. Giarla,
                                   David F. Harper, C.P.A. and John J. McConnell
                                        

         [   ] FOR          [   ] WITHHOLD
                                  AUTHORITY


NOTE:    To withhold authority to vote for an individual nominee,  strike a line
         through that nominee's  name.  Unless  authority to vote for all of the
         foregoing  nominees  is  withheld,  this Proxy will be deemed to confer
         authority to vote for each nominee whose name is not struck.


2.       PROPOSAL  to  ratify  the  appointment  by the  Board of  Directors  of
         Deloitte & Touche LLP as the  Company's  independent  auditors  for the
         fiscal year ending June 30, 1999.


         [  ] FOR       [   ] AGAINST        [   ] ABSTAIN


<PAGE>
3.       In their discretion, the proxies are authorized to vote upon such other
         business as may properly come before the meeting.


         SHARES OF THE  COMPANY'S  COMMON STOCK WILL BE VOTED AS  SPECIFIED.  IF
RETURNED BUT NOT OTHERWISE SPECIFIED,  THIS PROXY WILL BE VOTED FOR THE ELECTION
OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS,  FOR RATIFICATION
OF THE COMPANY'S  INDEPENDENT  AUDITORS AND  OTHERWISE AT THE  DISCRETION OF THE
PROXIES.  YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT
THE ANNUAL MEETING.


                                          Date:  ______________________, 1998


                                          ______________________________________
                                                        Signature of Shareholder

                                          ______________________________________
                                                        Signature of Shareholder


                                          NOTE: Please sign this exactly as your
                                          name(s)  appear(s) on this proxy. When
                                          signing in a representative  capacity,
                                          please  give full  title.  When shares
                                          are held jointly, only one holder need
                                          sign.

PLEASE MARK,  SIGN,  DATE AND RETURN THE PROXY CARD PROMPTLY  USING THE ENCLOSED
ENVELOPE.


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