UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   FORM 10-KSB



[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934  For the fiscal year ended September 30, 1997

                                       OR

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

        For the transition period from______________to___________________

                         Commission File Number: 0-28012

                          LONDON FINANCIAL CORPORATION
                 (Name of small business issuer in its charter)

               Ohio                                           34-1800830
   (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                        Identification Number)

   2 East High Street, London, Ohio                             43140
 (Address of principal executive offices)                     (Zip Code)

                    Issuer's telephone number: (614) 852-0787

           Securities registered pursuant to Section 12(b)of the Act:

                                      None

           Securities registered pursuant to Section 12(g)of the Act:

             None                           Common Stock, no par value per share
(Name of each exchange on which registered)           (Title of Class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the issuer was required to file such  reports),  and (2) has
been subject to such requirements for the past 90 days. Yes X No

         Check if there is no disclosure of delinquent  filers  pursuant to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by  reference  to the average of the bid and asked
prices of such stock on The Nasdaq  SmallCap  Market as of December 5, 1997, was
$2,848,625.  (The  exclusion  from such amount of the market value of the shares
owned by any person shall not be deemed an admission by the registrant that such
person is an affiliate of the registrant).

         As of December 5, 1997, there were 510,160 of the  Registrant's  common
shares issued and outstanding.




<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE


         The  following  portions  of the London  Financial  Corporation  Annual
Report to  Shareholders  for the  fiscal  year ended  September  30,  1997,  are
incorporated by reference into Part II of this Form 10-KSB:

         1.   Market Price of LFC's Common Shares and Related Shareholder
              Matters;

         2.   Management's Discussion and Analysis of Financial Condition and 
              Results of Operations; and

         3.   Consolidated Financial Statements.

         The following  portions of the definitive  Proxy Statement for the 1998
Annual Meeting of Shareholders of London Financial  Corporation are incorporated
by reference into Part III of this Form 10-KSB:

         1.   Voting Securities and Ownership of Certain Beneficial Owners and
              Management; and

         2.   Compensation of Executive Officers and Directors.



<PAGE>


                                      
                                     PART I

Item 1.    Description of Business

General

         London Financial Corporation ("LFC") was incorporated under Ohio law in
October  1995  at  the  direction  of  The  Citizens  Loan  &  Savings   Company
("Citizens")  for the purpose of purchasing all of the capital stock of Citizens
to be issued in connection  with the conversion of Citizens from mutual to stock
form  (the  "Conversion").  On  March  29,  1996,  the  effective  date  of  the
Conversion,  LFC acquired 100 common shares of Citizens.  The principal business
of LFC since the effective  date of the  Conversion  has been holding all of the
issued and  outstanding  shares of Citizens  and 50% of the net  proceeds of the
sale of 529,000 common shares of LFC in connection with the Conversion.

         Citizens is a savings and loan  association  which was organized  under
Ohio law in 1891. As an Ohio savings and loan  association,  Citizens is subject
to supervision  and regulation by the Office of Thrift  Supervision  (the "OTS")
and the Ohio  Department of Commerce,  Division of Financial  Institutions  (the
"Division").  Citizens is a member of the Federal Home Loan Bank (the "FHLB") of
Cincinnati,  and the deposit  accounts of Citizens are insured up to  applicable
limits by the  Federal  Deposit  Insurance  Corporation  ("FDIC") in the Savings
Association Insurance Fund (the "SAIF").

         Citizens  conducts  business  from its  office  located  at 2 East High
Street in London, Ohio. The principal business of Citizens is the origination of
permanent and construction  mortgage loans secured by first mortgages on one- to
four-family residential real estate located in Madison County, Ohio, the primary
market area of Citizens.  Citizens also  originates  permanent and  construction
mortgage  loans  secured  by  multifamily  real  estate  (over  four  units) and
nonresidential  real  estate in its market  area.  In  addition  to real  estate
lending,  Citizens  originates a limited number of commercial  loans and secured
and unsecured  consumer  loans.  For liquidity and interest rate risk management
purposes,  Citizens  invests in  interest-bearing  deposits  in other  financial
institutions, U.S. Government and agency obligations, mortgage-backed securities
and other  investments  permitted by applicable law. Funds for lending and other
investment  activities are obtained  primarily from savings deposits,  which are
insured up to applicable  limits by the FDIC and principal  repayments on loans.
Advances from the FHLB of  Cincinnati  are utilized from time to time when other
sources of funds are inadequate to fund loan demand.

         In  addition  to  the  historical  information  contained  herein,  the
following discussion contains forward-looking  statements, the accuracy of which
is necessarily  subject to present and future risks and uncertainties.  Economic
circumstances,  the operations of Citizens and LFC's actual results could differ
significantly from those discussed in the  forward-looking  statements.  Some of
the factors that could cause or contribute to such  differences are discussed in
Exhibit 99.2, "Safe Harbor Under the Private Securities Litigation Reform Act of
1995," which should be read in conjunction with such forward-looking statements.

         Without  limiting  the  generality  of  the  foregoing,  the  following
statements  in the  referenced  sections of this  discussion  and  analysis  are
forward looking and are, therefore, subject to such risks and uncertainties:

     1.   The discussion of interest rate risk associated  with  adjustable-rate
          mortgage  lending as set forth  under  "Lending  Activities  - One- to
          Four-Family Residences;"

     2.   The  discussion  of the  risk  associated  with  multifamily  mortgage
          lending as set forth  under  "Lending  Activities  - Loans  Secured by
          Multifamily Residences;"

     3.   The discussion of the risk  associated  with  nonresidential  mortgage
          lending as set forth  under  "Lending  Activities  - Loans  Secured by
          Nonresidential Real Estate;"

     4.   The discussion of the risk associated with construction lending as set
          forth under "Lending Activities - Construction Loans;"

     5.   The  discussion of the risk  associated  with consumer  lending as set
          forth under "Lending Activities - Consumer Loans;"

     6.   The discussion of the risk of loss associated with nonperforming loans
          as  set  forth  under   "Lending   Activities  -   Delinquent   Loans,
          Nonperforming Assets and Classified Assets;"

                                       1
<PAGE>
     7.   The  discussion  of the adequacy of the amount of Citizens'  allowance
          for loan losses as set forth under "Lending Activities - Allowance for
          Loan Losses;"

     8.   The discussion of the maturity of  certificates of deposit at Citizens
          as set forth under "Deposits and Borrowings - Deposits;" and

     9.   The  discussion of the effect of  legislation  which may be enacted as
          set forth under "Regulation."

Market Area

         The primary market area of Citizens for lending and deposit activity is
Madison County,  Ohio.  Madison County is primarily a suburban  commuter economy
and has experienced growth in population and households in the 1990s at a higher
rate than the State of Ohio and the  United  States.  There are  relatively  few
major  employers  and a lower  number  of  residents  employed  in the  finance,
insurance and real estate  industries  compared to persons employed in state and
local government, as the London Correctional Facility is the largest employer in
the county.  Madison County is characterized by lower  unemployment  levels than
state or national averages and a median household income level similar to levels
in Ohio and the United States.

Lending Activities

         General.  The principal lending activity of Citizens is the origination
of permanent and  construction  mortgage  loans  secured by one- to  four-family
homes located in Madison County. Loans secured by multifamily  properties and by
nonresidential  real  estate and loans for the  construction  of  nonresidential
properties  are also  offered by Citizens.  In addition to real estate  lending,
Citizens  originates a limited  number of commercial  loans and consumer  loans,
including  loans  secured by deposit  accounts,  automobile  loans and a limited
number of other secured and unsecured loans.





                                       2
<PAGE>

     Loan  Portfolio   Composition.   The  following   table  presents   certain
information  in respect of the  composition of the loan portfolio of Citizens at
the dates indicated:
<TABLE>
<CAPTION>

                                                      At September 30,

                                          1997                               1996
                                          ------                             ----
                                                  Percent                             Percent
                                                  of total                           of total
                                 Amount             loans            Amount            loans
                                                              (Dollars in thousands)
<S>                                 <C>             <C>                <C>               <C>
Real estate loans:
   One- to four-family          $23,489           75.89%             $21,819            75.57%
   Multifamily                      671            2.17                  258             0.90
   Nonresidential                 4,529           14.63                4,831            16.73
   Construction                   1,360            4.34                1,084             3.75
                               --------          ------            ---------           ------

      Total real estate          30,049           97.08               27,992            96.95
     loans

Commercial loans                    166             .54                  190             0.66

Consumer loans:
   Automobile loans                 186             .60                  152             0.53
   Loans on deposits                 70             .23                  147             0.51
   Other consumer loans             481            1.55                  392             1.35
                              ---------          ------            ---------           ------

      Total consumer loans          737            2.38                  691             2.39
                              ---------          ------            ---------           ------

Total loans                      30,952           100.00%             28,873           100.00%
                                                  ======                               ======
  Less:
   Undisbursed portion of
     loans in process              (885)                              (1,258)
   Unearned and deferred
     income                        (415)                                (397)
   Allowance for loan losses
                                   (187)                                (187)
                              ---------                            ---------
     Net loans                  $29,465                              $27,031
                                =======                              =======
</TABLE>


     Loan  Maturity.  The following  table sets forth certain  information as of
September  30,  1997,  regarding  the  dollar  amount of loans  maturing  in the
portfolio  of Citizens  based on their  contractual  terms to  maturity.  Demand
loans, home equity loans and other loans having no stated schedule of repayments
or no stated maturity are reported as due in one year or less.
<TABLE>
<CAPTION>

                                                                          Due 4-5     Due 6-10    Due 11-20
                                        Due during the year ending         years       years        years
                                              September 30,                after       after        after
                                        1998        1999       2000       9/30/97     9/30/97      9/30/97        Total
                                      --------    --------    -------   ---------   ---------    ---------       -------
<S>                                      <C>         <C>        <C>         <C>            <C>         <C>          <C>
Real estate loans:
   One- to four-family               $   717        $649        $704       $1,539       $4,355      $15,525       $23,489
   Multifamily and nonresidential      2,964       1,499         737            -            -            -         5,200
   Construction                          998         362           -            -            -            -         1,360
Commercial loans                          86          65          15            -            -            -           166
Consumer loans                           444         165         128            -            -            -           737
                                    --------    --------    --------   -----------  ----------- ------------   ----------
Total                                 $5,209      $2,740      $1,584       $1,539       $4,355      $15,525       $30,952
                                      ======      ======      ======       ======       ======      =======       =======
</TABLE>
                                       3

<PAGE>
         The table  below sets  forth the  dollar  amount of all loans due after
September 30, 1998, which have predetermined interest rates and have floating or
adjustable interest rates:
<TABLE>
<CAPTION>

                                          Due after
                                     September 30, 1998
                                       (In thousands)
<S>                                              <C>
Fixed rates of interest                      $  1,764
Adjustable rates of interest                  $23,979
</TABLE>


         Loans Secured by One- to Four-Family Residences.  The principal lending
activity of Citizens is the  origination of permanent  mortgage loans secured by
one- to  four-family  residences,  primarily  single-family  residences  located
within Madison County.  At September 30, 1997,  one- to four-family  residential
loans totaled approximately $235 million, or 75.9% of total loans. Citizens also
offers home equity lines of credit secured by second  mortgages on properties on
which  Citizens  holds the first  mortgage.  Of the total of one- to four-family
residential loans,  approximately  $23.3 million were secured by first mortgages
and  approximately  $194,000  were secured by second  mortgages at September 30,
1997.

         OTS  regulations  and Ohio law limit the amount which Citizens may lend
in relationship  to the appraised  value at the time of loan  origination of the
real  estate  and  improvements  which  will  secure  the loan (the  "LTV").  In
accordance with such regulations and laws, and as a matter of policy established
by the Board of Directors of Citizens,  Citizens  makes loans secured by one- to
four-family residences for not more than an 80% LTV.

         Adjustable-rate  mortgage  loans  ("ARMs")  are offered by Citizens for
terms of up to 25 years.  The interest rate  adjustment  periods on ARMs are one
year,  and the rates are adjusted in accordance  with  published  changes in the
cost of funds of the Federal Home Loan Bank of San  Francisco.  The new interest
rate at each  change  date is  determined  by  adding a  margin  of 3.00% to the
prevailing index. The maximum allowable adjustment at each adjustment date is 2%
and the maximum allowable adjustment over the term of a loan is 6%. Citizens has
originated no fixed-rate residential real estate loans in approximately the past
10 years.

         Although  origination of ARMs decreases  interest rate risk, such loans
involve  other risks.  As interest  rates rise,  for  example,  the payment by a
borrower  increases  to the  extent  permitted  by the terms of his  loan.  Such
increase in the payment may increase the  potential for default.  Moreover,  the
marketability of the underlying  property may be adversely affected by a general
increase in interest  rates.  Citizens  believes  that such risks have not had a
material  adverse  effect on Citizens to date.  See Exhibit  99.2,  "Safe Harbor
Under the  Private  Securities  Litigation  Reform Act of 1995 -  Interest  Rate
Risk."

         Loans Secured by Multifamily  Residences.  In addition to loans on one-
to  four-family  properties,  Citizens  originates  loans secured by multifamily
properties  (more than four units).  At September 30, 1997, the multifamily loan
portfolio  consisted of three loans, which totaled  approximately  $671,000,  or
2.2% of total loans,  and which were  performing in accordance with their terms.
Multifamily  loans are offered with adjustable rates for terms of up to 25 years
and have LTVs up to 80%.

         Multifamily lending is generally  considered to involve a higher degree
of risk  than one- to  four-family  residential  lending  because  the  borrower
typically  depends  upon income  generated  by the  property to cover  operating
expenses and debt service.  The  profitability  of a property can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower.  Citizens  attempts to reduce the risk associated with multifamily
lending by  evaluating  the  creditworthiness  of the borrower and the projected
income from the property and by obtaining  personal  guarantees on loans made to
corporations and  partnerships.  Citizens  requires  financial  statements to be
submitted  annually by borrowers whose  outstanding loan balances are considered
by the Board of  Directors to be  substantial.  See Exhibit  99.2,  "Safe Harbor
Under the  Private  Securities  Litigation  Reform Act of 1995 -  Interest  Rate
Risk."

         Loans Secured by Nonresidential  Real Estate.  Citizens also originates
loans for the  purchase of  nonresidential  real  estate.  Among the  properties
securing the  nonresidential  real estate loans in the portfolio of Citizens are
office  buildings and retail  properties  located in the primary  market area of
Citizens.  At September 30, 1997,  approximately $4.5 million,  or 14.6%, of the
total loans of  Citizens,  were  secured by  mortgages  on  nonresidential  real
estate.  At such date,  the largest single loan secured by  nonresidential  real
estate had a balance of  $519,000  and was  performing  in  accordance  with its
terms.  The  nonresidential  real estate loans made by Citizens have  adjustable
rates,  terms of up to 25 years and LTVs of up to 75%. Citizens also makes loans
for the construction of nonresidential properties.

                                       4
<PAGE>
         Although  loans  secured by  nonresidential  real  estate  have  higher
interest  rates  than  one-  to  four-family   residential  real  estate  loans,
nonresidential  real estate lending is generally  considered to involve a higher
degree  of risk than  residential  lending  due to the  relatively  larger  loan
amounts  and the  effects  of  general  economic  conditions  on the  successful
operation of income-producing properties. Citizens has endeavored to reduce such
risk by evaluating the credit history and past performance of the borrower,  the
location of the real  estate,  the  financial  condition  of the  borrower,  the
quality and  characteristics  of the income stream generated by the property and
appraisals supporting the property's  valuation.  See Exhibit 99.2, "Safe Harbor
Under the Private Securities Litigation Reform Act of 1995 Interest Rate Risk."

         Construction  Loans.  Citizens  makes  loans  for the  construction  of
single-family  houses,  multifamily  properties and  nonresidential  real estate
projects.  Of the loans  made by  Citizens  for  construction  of  single-family
residences, all are made to owner-occupants or to professional builders. Some of
the homes for which  construction  loans are made to professional  builders have
not been pre-sold and, therefore, involve greater risk to Citizens.

         Construction loans are offered with adjustable rates for terms of up to
25 years.  At September 30, 1997, the loan  portfolio of Citizens  included $1.4
million in  construction  loans, or 4.4% of total loans,  including  undisbursed
proceeds  of  approximately  $885,000.  All of  the  construction  loans  in the
portfolio of Citizens are for construction of residential  properties in Madison
County  and  contiguous  counties  and  all of such  loans  were  performing  in
accordance with their terms at September 30, 1997.

         Construction  loans,  particularly loans involving  nonresidential real
estate,  generally involve greater  underwriting and default risks than do loans
secured by mortgages on existing  properties.  Loan funds are advanced  upon the
security of the project  under  construction,  which is more  difficult to value
before the completion of construction.  Moreover,  because of the  uncertainties
inherent  in  estimating  construction  costs,  it is  relatively  difficult  to
evaluate  accurately  the LTV and the total loan funds  required  to  complete a
project.  In the event a default on a construction  loan occurs and  foreclosure
follows,  Citizens  would have to take control of the project and attempt either
to arrange for completion of construction or dispose of the unfinished  project.
See Exhibit 99.2, "Safe Harbor Under the Private  Securities  Litigation  Reform
Act of 1995 - Interest Rate Risk."

         Commercial  Loans.  Citizens  occasionally  makes  commercial  loans to
businesses in its primary  market area.  Such loans are  typically  secured by a
security  interest in equipment,  nonresidential  real estate or other assets of
the borrower.  At September 30, 1997, the commercial  loan portfolio of Citizens
totaled $166,000, less than 1% of total loans.

         Commercial lending entails significant risks. Such loans are subject to
greater risk of default during periods of adverse economic  conditions.  Because
such loans are secured by equipment,  inventory,  accounts  receivable and other
non-real  estate  assets,  the  collateral  may not be sufficient to ensure full
payment of the loan in the event of a default.  See Exhibit  99.2,  "Safe Harbor
Under the  Private  Securities  Litigation  Reform Act of 1995 -  Interest  Rate
Risk."

         Consumer  Loans.  Citizens  makes  various  types  of  consumer  loans,
including  loans made to depositors  on the security of their deposit  accounts,
automobile  loans,  home improvement loans and other secured loans and unsecured
personal  loans.  Consumer  loans are made at varying  rates of interest and for
varying  terms based on the type of loan.  At September  30, 1997,  Citizens had
approximately  $737,000, or 2.4% of total loans, invested in consumer loans, all
of which were performing in accordance with their terms.

         Consumer loans,  particularly consumer loans which are unsecured or are
secured by depreciating assets such as automobiles, may entail greater risk than
residential real estate loans.  Repossessed  collateral for a defaulted consumer
loan may not provide an adequate  source of  repayment of the  outstanding  loan
balance.  The risk of default on  consumer  loans  increases  during  periods of
recession, high unemployment and other adverse economic conditions.  See Exhibit
99.2, "Safe Harbor Under the Private Securities  Litigation Reform Act of 1995 -
Interest Rate Risk."

         Loan Solicitation and Processing.  Loan originations are developed from
a number of  sources,  including  continuing  business  with  depositors,  other
borrowers  and real estate  developers,  solicitations  by the lending  staff of
Citizens and walk-in customers.

         Loan  applications  for  permanent  real estate loans are taken by loan
personnel at the office of Citizens. Citizens typically obtains a credit report,
verification   of   employment   and   other   documentation    concerning   the
creditworthiness  of the borrower.  An appraisal of the fair market value of the
real  estate  which will be given as  security  for the loan is  prepared  by an

                                       5
<PAGE>

appraiser  approved  by the  Board  of  Directors.  Upon the  completion  of the
appraisal and the receipt of  information on the credit history of the borrower,
the  application  for a loan is  submitted  for  review in  accordance  with the
underwriting guidelines of Citizens.  Loans of amounts less than $100,000 may be
approved by the  President of Citizens.  Loans of amounts  between  $100,000 and
$150,000 may be approved by the  Executive  Committee of the Board of Directors.
Loans in excess of $150,000  require  approval of the full Board of Directors of
Citizens.

         If a mortgage loan application is approved,  Citizens typically obtains
an  attorney's  opinion  of title.  Citizens  obtains  title  insurance  on only
approximately 10% of its loans secured by real estate. Borrowers are required to
carry  satisfactory  fire  and  casualty  insurance  and  flood  insurance,   if
applicable, and to name Citizens as an insured mortgagee.

         The  procedure  for approval of  construction  loans is the same as for
permanent  real estate  loans,  except that an appraiser  evaluates the building
plans, construction specifications and estimates of construction costs. Citizens
also  evaluates the  feasibility  of the proposed  construction  project and the
experience and record of the builder.  Once approved,  the construction  loan is
disbursed in portions based upon periodic inspections of construction progress.

         Consumer loans are  underwritten on the basis of the borrower's  credit
history and an analysis of the borrower's income and expenses,  ability to repay
the loan and the value of the collateral, if any.

         Loan   Originations   and   Participations.   Currently,   Citizens  is
originating  only ARMs and has no intention to sell such loans in the  secondary
market. Citizens does not service loans for other financial institutions.

         The following table presents the loan origination  activity of Citizens
for the periods indicated:
<TABLE>
<CAPTION>

                                                      Year ended September 30,

                                                     1997                1996
                                                 ---------             -------
                                                          (In thousands)
<S>                                                   <C>                <C>
Loans originated:
  One- to four-family residential                   $3,709              $3,399
  Multifamily residential                              434                   -
  Nonresidential                                       864               1,180
  Construction                                       1,939               1,782
  Commercial                                           172                 156
  Consumer                                             673                 657
                                                   -------             -------
    Total loans originated                           7,791               7,174

Principal repayments                                (5,438)             (8,227)

Increase in other items, net (1)                        81                 112
                                                  --------             -------

Net increase (decrease)                             $2,434              $ (941)
                                                    ======              ======
-----------------------------
<FN>

(1)  Other items  consist of deferred  loan fees,  allowance for loan losses and
     the undisbursed portion of construction loans.
</FN>
</TABLE>

        Federal  Lending Limit.  OTS  regulations  impose a lending limit on the
aggregate  amount  that a savings  association  can lend to one  borrower  to an
amount equal to 15% of the  association's  total capital for risk-based  capital
purposes  plus  any  loan  reserves  not  already   included  in  total  capital
(collectively,  "Lending Limit Capital").  A savings association may lend to one
borrower an  additional  amount not to exceed 10% of the  association's  Lending
Limit  Capital,  if the  additional  amount is fully secured by certain forms of
"readily  marketable   collateral."  Real  estate  is  not  considered  "readily
marketable  collateral." In applying this limit,  the  regulations  require that
loans to certain related or affiliated borrowers be aggregated.

         Based  on the 15%  limit,  Citizens  was  able  to  lend  approximately
$900,000 to one borrower at September 30, 1997. The largest amount  Citizens had
outstanding  to one  borrower and related  persons or entities at September  30,
1997, was $519,000,  consisting of one loan, which is secured by real estate and
was performing in accordance with its terms on September 30, 1997.

         Loan  Origination and Other Fees.  Citizens  realizes loan  origination
fees and other fee income from its lending  activities and also realizes  income
from late payment  charges,  application  fees and fees for other  miscellaneous
services.

                                       6
<PAGE>
         Loan  origination  fees and other fees are a volatile source of income,
varying  with the  volume of  lending,  loan  repayments  and  general  economic
conditions.  All  nonrefundable  loan  origination  fees and certain direct loan
origination  costs are deferred and  recognized in accordance  with Statement of
Financial  Accounting  Standards  ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.

         Delinquent Loans,  Nonperforming Assets and Classified Assets. Payments
on  loans  made by  Citizens  are due on the  first  day of the  month  with the
interest portion of the payment  applicable to interest accrued during the prior
month.  When a loan payment has not been made by the  fifteenth of the month,  a
late notice is sent. If payment is not received by the  thirtieth  day, a second
notice is sent. Telephone calls are made to the borrower in connection with both
the 15- and 30-day notices. Each of the loans bears a late payment penalty which
is  assessed  as soon as such  loan is more  than 15 days  delinquent.  The late
penalty is the greater of 5% of the payment due or $20.

         When  a  loan  secured  by  real  estate  becomes  more  than  90  days
delinquent,  the loan is placed in nonaccrual status and a letter is sent to the
borrower by Citizens to inform the borrower that  foreclosure  proceedings  will
begin if the loan is not  brought  current  within 30 days.  If the loan has not
been brought current within such 30-day period,  the Board of Directors normally
refers the loan to an attorney to commence foreclosure proceedings.


         The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>

                                                                At September 30,

                                                  1997                                 1996
                                                 -----                                 ----
                                                             Percent                              Percent
                                                             of total                             of total
                                     Number      Amount        loans      Number       Amount       loans
                                                            (Dollars in thousands)
<S>                                   <C>          <C>         <C>          <C>           <C>         <C>
Loans delinquent for:
  30 - 59 days                          4       $  49          .16%          3         $  51         .18%
  60 - 89 days                          2          40          .13           1             8         .03
  90 days and over                      5         268          .87           4           261         .90
                                      ---       -----        -----           -         -----       -----
   Total delinquent loans              11        $357         1.16%          8          $320        1.11%
                                       ==        ====         ====           =          ====        ====
</TABLE>

         Nonperforming assets include nonaccruing loans, real estate acquired by
foreclosure or by deed-in-lieu  thereof and repossessed assets.  Citizens ceases
to accrue interest on real estate loans if the collateral value is not adequate,
in the opinion of management,  to cover the outstanding  principal and interest.
Generally,  however,  Citizens  ceases to accrue such  interest on a loan at any
time the loan is 90 days or more delinquent.



                                       7


<PAGE>
         The following table sets forth  information with respect to the accrual
and nonaccrual status of the loans and other nonperforming assets of Citizens at
the dates indicated:

<TABLE>
<CAPTION>
                                                      At September 30,
                                                 1997                 1996
                                                 (Dollars in thousands)
<S>                                               <C>                 <C> 
Accruing loans delinquent 90+ days             $    7              $     -

Loans accounted for on a
   nonaccrual basis:
   Real estate
     One- to four-family                          237                  237
     Multifamily                                    -                    -
     Nonresidential                                24                   24
   Consumer                                         -                    -
                                              -------             --------
     Total nonaccrual loans                       261                  261
                                                  ---                -----

     Total nonperforming loans                    268                  261

   Real estate owned                                -                    -
                                               ------              -------

     Total nonperforming assets                  $268                 $261
                                                 ====                 ====

     Allowance for loan losses                   $187                 $187

     Nonperforming assets as a percent
       of total assets                           .70%                  .71%

     Nonperforming loans as a percent
       of total loans                            .87%                  .90%

     Allowance for loan losses as a
       percent of nonperforming loans          69.78%                71.65%
</TABLE>

         For the year ended  September  30, 1997,  gross  interest  income which
would have been recorded had  nonaccruing  loans been current in accordance with
their original terms was $20,000.  Interest collected on such loans and included
in net earnings was approximately $2,000.

         Real estate acquired by Citizens as a result of foreclosure proceedings
is classified as real estate owned ("REO") until it is sold. When property is so
acquired,  such  property  is  recorded  by Citizens at the lower of cost or the
estimated fair value of the real estate, less estimated selling expenses, at the
date of  acquisition  and any write-down  resulting  therefrom is charged to the
allowance for loan losses.  All costs incurred in  maintaining  REO property are
expensed  from  the  date  the  property  is  acquired.  Costs  relating  to the
development  and  improvement  of the property are  capitalized to the extent of
fair value. At September 30, 1997, Citizens had no REO properties.

         Citizens  classifies  its own assets on a monthly  basis in  accordance
with  federal  regulations.  Problem  assets are  classified  as  "substandard,"
"doubtful" or "loss."  "Substandard"  assets have one or more defined weaknesses
and are  characterized  by the distinct  possibility  that Citizens will sustain
some loss if the deficiencies are not corrected. "Doubtful" assets have the same
weaknesses as "substandard" assets, with the additional characteristics that (i)
the weaknesses make collection or liquidation in full, on the basis of currently
existing  facts,  conditions and values,  questionable  and (ii) there is a high
possibility of loss. An asset classified "loss" is considered  uncollectible and
of such  little  value  that its  continuance  as an asset  of  Citizens  is not
warranted.

                                       8

<PAGE>
         The  aggregate  amounts of  classified  assets of Citizens at the dates
indicated were as follows:
<TABLE>
<CAPTION>

                                             At September 30,
                                       1997                     1996
                                              (In thousands)
<S>                                      <C>                     <C>
Classified assets:
   Substandard                         $305                      $261
   Doubtful                               -                         -
   Loss                                   -                         -
                                    -------                   -------
    Total classified assets            $305                      $261
                                       ====                      ====
</TABLE>


         Citizens  establishes  general  allowances for loan losses for any loan
classified as  substandard  or doubtful.  If an asset,  or portion  thereof,  is
classified as loss, Citizens  establishes  specific allowances for losses in the
amount of 100% of the portion of the asset classified loss. Generally,  Citizens
charges off the portion of any real estate loan deemed to be uncollectible.

         Citizens analyzes each classified asset on a monthly basis to determine
whether changes in the  classifications are appropriate under the circumstances.
Such  analysis  focuses on a variety  of  factors,  including  the amount of any
delinquency  and the reasons for the  delinquency,  if any,  the use of the real
estate  securing the loan, the status of the borrower and the appraised value of
the real estate.  As such factors change,  the  classification of the asset will
change accordingly.  See Exhibit 99.2, "Safe Harbor Under the Private Securities
Litigation  Reform Act of 1995 - Possible  Inadequacy  of the Allowance for Loan
Losses."

         Allowance for Loan Losses.  Senior  management,  with  oversight by the
Board of Directors,  reviews on a monthly basis the allowance for loan losses as
it relates to a number of  relevant  factors,  including,  but not  limited  to,
trends in the level of delinquent and nonperforming assets and classified loans,
current and  anticipated  economic  conditions in the primary lending area, past
loss experience and possible losses arising from specific  problem assets.  To a
lesser extent, management also considers loan concentrations to single borrowers
and changes in the composition of the loan portfolio.  While management believes
that it uses the best information  available to determine the allowance for loan
losses,  unforeseen  market  conditions  could  result  in  adjustments  and net
earnings could be significantly  affected if circumstances  differ substantially
from the assumptions used in making the final determination.  The amounts in the
provision  for loan losses  shown in the table  below for fiscal  years 1997 and
1996 were  determined  based upon past loan  experience,  a review of individual
specific problem loans, if any, the estimated value of the underlying collateral
and the prevailing economic conditions. See Exhibit 99.2, "Safe Harbor Under the
Private  Securities  Litigation Reform Act of 1995 - Possible  Inadequacy of the
Allowance for Loan Losses."

         The  following  table sets forth an analysis of the  allowance for loan
losses of Citizens for the periods indicated:
<TABLE>
<CAPTION>

                                                       Year ended September 30,
                                                       1997               1996
                                                        (Dollars in thousands)
<S>                                                     <C>                <C>
Balance at beginning of period                          $187              $190

Charge-offs                                                -                (3)
Recoveries                                                 -                 -
                                                    --------           -------
Net charge-offs                                            -                (3)

Provision for loan losses                                  -                 -
                                                    --------           -------

Balance at end of year                                  $187              $187
                                                        ====              ====

Ratio of net charge-offs
   to average loans outstanding
   during the period                                      -%              .01%

Ratio of allowance for loan losses
   to total loans                                       .60%              .65%
</TABLE>

                                       9

<PAGE>

         The following table sets forth the allocation of the allowance for loan
losses of Citizens by type of loan at the dates indicated:
<TABLE>
<CAPTION>

                                                    At September 30,

                                    1997                               1996
                                    ------                             ----
                                           Percent of                        Percent of
                                         loans in each                      loans in each
                                          category to                        category to
                            Amount         total loans       Amount          total loans

                                                  (Dollars in thousands)
<S>                           <C>                <C>              <C>             <C>
Balance at year end
applicable to:
  Real estate loans         $182              97.08%              $181           96.95%
  Commercial loans             1                .54                  1            0.66
  Consumer loans               4               2.38                  5            2.39
  Unallocated                  -               2.38                  -               -
                         -------           --------            -------      ----------
    Total                   $187             100.00%              $187          100.00%
                            ====             ======               ====          ======
</TABLE>


         The allowance for loan losses is based on estimates and is,  therefore,
monitored monthly and adjusted as necessary to provide an adequate allowance.


Investment Activities

         OTS  regulations  require that  Citizens  maintain a minimum  amount of
liquid  assets,  which may be  invested  in  interest-bearing  deposits in other
financial  institutions,  U.S. Treasury and agency obligations,  mortgage-backed
securities and certain other  specified  investments.  The Board of Directors of
Citizens has adopted an investment  policy which  authorizes  management to make
investments  in U.S.  Government  and agency  securities,  deposits in the FHLB,
certificates  of  deposit  in  federally-insured   financial   institutions  and
mortgage-backed  securities. John J. Bodle, the President of Citizens, and Joyce
E. Bauerle, its Treasurer, have primary responsibility for implementation of the
investment  policy.  The investment policy of Citizens is designed  primarily to
provide and  maintain  liquidity  within  regulatory  guidelines,  to maintain a
balance of high  quality  investments  to minimize  risk and to maximize  return
without  sacrificing  liquidity and safety.  Such  investment  policy  currently
provides that all investment securities are held to maturity.


                                       10

<PAGE>

         The  following  table sets forth the  composition  of  interest-bearing
deposits,  investment  securities and mortgage-backed  securities of Citizens at
the dates indicated:

<TABLE>
<CAPTION>

                                                                        At September 30,

                                                       1997                                          1996
                                                       ------                                        ----
                                     Carrying     % of        Fair       % of      Carrying     % of        Fair       % of
                                      value      total       value      total       value      total       value      total
                                                                      (Dollars in thousands)
<S>                                      <C>       <C>         <C>         <C>         <C>        <C>        <C>        <C>
Interest-bearing deposits:
   Demand deposits                     $3,342     44.07%     $3,342       43.91%    $1,674      19.52%     $1,674      19.74%
   Overnight deposits                       -         -           -           -        650       7.58         650       7.67
                                     --------  --------    --------    --------   --------     ------     -------    -------
     Total interest-bearing deposits    3,342     44.07       3,342       43.91      2,324      27.10       2,324      27.41

Investment securities:
   Held to maturity:
     U.S. Government and agency
       securities                         500      6.59         502        6.59      2,000      23.32       1,991      23.48
   Available for sale:
     Corporate equity securities          155      2.05         155        2.04        220       2.57         220       2.59

Mortgage-backed securities
   held to maturity                     3,586     47.29       3,613       47.46      4,032      47.01       3,944      46.52
                                      -------   -------     -------     -------    -------    -------     --------   -------
Total investments                      $7,583    100.00%     $7,612      100.00%    $8,576     100.00%     $8,479     100.00%
                                       ======    ======      ======      ======     ======     ======      ======     ======
</TABLE>

         The maturities of the  interest-bearing  deposits,  U.S. Government and
agency obligations and  mortgage-backed  securities of Citizens at September 30,
1997, are indicated in the following table:
<TABLE>
<CAPTION>

                                                                 At September 30, 1997
                                            After one through     After five        After ten
                           One year or less      five years    through ten years      years                 Total
                         Carrying  Average Carrying  Average Carrying  Average Carrying  Average Carrying Market     Weighted
                           value    yield    value    yield    value  yield    value    yield     value   value   average yield
                                                              (Dollars in thousands)
<S>                          <C>     <C>       <C>      <C>      <C>      <C>     <C>      <C>     <C>      <C>        <C>
Interest-bearing
  deposits in other       $3,342    4.79%       -       -         -       -        -       -    $3,342    $3,342      4.79%
  financial institutions
U.S. Government and
  agency obligations         500    6.13        -       -         -      -         -       -       500       502      6.13%
Mortgage-backed               53    6.28      251     6.28      416    6.28    2,866     6.28    3,586     3,613      6.28
                        --------    ----    -----     ----    -----    ----    -----     ----   ------    ------      ----
  securities

     Total                $3,895    4.99%    $251     6.28%    $416    6.28%  $2,866     6.28%  $7,428    $7,457      5.63%
                          ======    ====     ====     ====     ====    ====   ======     ====   ======    ======      ====
</TABLE>


Deposits and Borrowings

         General.  Deposits have  traditionally been the primary source of funds
used by  Citizens  in lending and other  investment  activities.  In addition to
deposits, Citizens derives funds from interest payments and principal repayments
on loans and income on earning  assets.  Loan  payments are a relatively  stable
source of funds,  while  deposit  inflows and outflows  fluctuate in response to
general interest rates and money market conditions.  Citizens also utilizes FHLB
advances as an alternative source of funds.

         Deposits.  Deposits are  attracted  principally  from within the market
area  of  Citizens  through  the  offering  of  a  broad  selection  of  deposit
instruments,  including  NOW accounts,  demand  deposit  accounts,  money market
accounts,  regular passbook  savings  accounts,  term  certificate  accounts and
Individual  Retirement  Accounts ("IRAs").  Interest rates paid, maturity terms,
service  fees and  withdrawal  penalties  for the various  types of accounts are
established  periodically  by  management  of  Citizens  based on the  liquidity
requirements   and  growth  goals  of  Citizens  and  interest   rates  paid  by
competitors.  Citizens does not use brokers to attract  deposits.  The amount of
deposits received by Citizens from outside its market area is not significant.

                                       11

<PAGE>

         At September  30,  1997,  certificates  of deposit at Citizens  totaled
approximately  $20.5  million,  or  68.5%  of total  deposits.  Of such  amount,
approximately  $11.4 million in  certificates of deposit mature within one year.
Based on past  experience  and the  prevailing  pricing  strategies of Citizens,
management  believes that a substantial  percentage of such certificates will be
renewed with  Citizens at maturity.  If there is a  significant  deviation  from
historical  experience,  Citizens  can  utilize  borrowings  from  the  FHLB  of
Cincinnati as an alternative source of funds.

         The  following  table sets forth the dollar  amount of  deposits in the
various types of accounts offered by Citizens at the dates indicated:

<TABLE>
<CAPTION>
                                                                  At September 30,

                                                          1997                       1996
                                                          ------                     ----
                                                                Percent                     Percent
                                                               of total                    of total
                                                   Amount      deposits       Amount       deposits
                                                                (Dollars in thousands)
<S>                                                   <C>          <C>           <C>           <C>
Transaction accounts:
 NOW accounts (1)                                  $3,092        10.32%      $  2,963        10.51%
 Super NOW accounts (2)                               278          .94            235         0.83
 Passbook savings accounts (3)                      5,834        19.47          5,587        19.82
 Money market accounts (4)                            226          .75            278          .98
                                                ----------     -------      ---------     --------

  Total transaction accounts                        9,430        31.48          9,063        32.14

Certificates of deposit:
   6.00% or less                                   15,616        52.14         13,482        47.82
   Over 6.01%                                       4,905        16.38          5,650        20.04
                                                ---------       ------      ---------      -------

   Total certificates of deposit (5)               20,512        68.52         19,132        67.86
                                                 ---------      ------       --------      -------

   Total deposits                                 $29,951       100.00%       $28,195       100.00%
                                                  =======       ======        =======       ======
-----------------------------
<FN>

(1)  The weighted  average rate on NOW accounts at September  30, 1997 and 1996,
     was 2.27% and 2.29%, respectively.

(2)  The weighted  average rate on Super NOW accounts at September  30, 1997 and
     1996, was 2.50% and 2.49%, respectively.

(3)  The weighted  average rate on passbook  savings  accounts at September  30,
     1997 and 1996, was 3.00%.

(4)  The weighted  average rate on money market  accounts at September  30, 1997
     and 1996, was 2.71% and 2.74%, respectively.

(5)  The weighted  average rate on all  certificates  of deposit,  including IRA
     accounts,   at  September   30,  1997  and  1996,   was  6.00%  and  5.96%,
     respectively.
</FN>
</TABLE>

         Citizens bids on public funds from entities in its primary market area.
The amount of such deposits was approximately $90,000 at September 30, 1997.

                                       12

<PAGE>
         The   following   table  shows  rate  and  maturity   information   for
certificates of deposit at Citizens at September 30, 1997:
<TABLE>
<CAPTION>

                                                         Amount Due
                                              Over          Over
                                Up to       1 year to    2 years to       Over
       Rate                    one year      2 years      3 years       3 years         Total
       ----                   ----------  -----------   -----------   -----------     -------
                                 (In thousands)
<S>                                 <C>         <C>            <C>          <C>            <C>     
4.01% to 6.00%                   $10,939       $3,465        $  824      $   388        $15,616
6.01% to 8.00%                       499           92         1,441        2,873          4,905
                              ----------    ---------         -----        -----      ---------
  Total certificates
    of deposit                   $11,438       $3,557        $2,265       $3,261        $20,521
                                 =======       ======        ======       ======        =======
</TABLE>


         The following  table presents the amount of  certificates of deposit of
$100,000 or more at Citizens by the time  remaining  until maturity at September
30, 1997:
<TABLE>
<CAPTION>

           Maturity                                     Amount
                                                   (In thousands)
<S>                                                       <C>
Three months or less                                   $  251
Over 3 months to 6 months                                 100
Over 6 months to 12 months                                537
Over 12 months                                            716
                                                       ------

    Total                                              $1,604
                                                       ======

</TABLE>


         The following table sets forth the deposit account balance  activity at
Citizens for the periods indicated:
<TABLE>
<CAPTION>

                                                  Year ended September 30,
                                                 1997                   1996
                                                 (Dollars in thousands)
<S>                                               <C>                 <C>
Beginning balance                              $28,195               $30,594
Deposits                                        51,086                51,564
Withdrawals                                     (50,447)              (55,118)
                                                -------               -------
Net deposits before interest
  credited                                      28,834                27,040
Interest credited                                1,117                 1,155
                                               --------               -------
Ending balance                                  29,951                28,195
                                                -------               -------

  Net increase (decrease)                      $  1,756               $(2,399)
                                               ========               =======

</TABLE>

         Borrowings.  The  FHLB  system  functions  as a  central  reserve  bank
providing  credit  for its  member  institutions  and  certain  other  financial
institutions.  As a member in good standing of the FHLB of Cincinnati,  Citizens
is  authorized  to apply  for  advances  from the FHLB of  Cincinnati,  provided
certain standards of creditworthiness  have been met. Under current regulations,
an  association  must  meet  certain  qualifications  to be  eligible  for  FHLB
advances.  The extent to which an association is eligible for such advances will
depend upon whether it meets the Qualified  Thrift Lender Test (the "QTL test").
If an association meets the QTL test, such association will be eligible for 100%
of the  advances it would  otherwise be eligible to receive.  If an  association
does not meet the QTL test, such  association will be eligible for such advances
only to the extent it holds  specified  QTL test assets.  At September 30, 1997,
Citizens was in  compliance  with the QTL test and had $300,000 in advances from
the FHLB, bearing interest at the rate of 9.25% and with a maturity date of June
2001.


                                       13

<PAGE>

Competition

         Citizens   competes   for   deposits   with  other   savings  and  loan
associations, savings banks, commercial banks and credit unions and with issuers
of  commercial  paper and other  securities,  including  shares in money  market
mutual  funds.  The primary  factors in  competition  for  deposits are customer
service and convenience of office location.  In making loans,  Citizens competes
with other  savings  banks,  savings and loan  associations,  commercial  banks,
mortgage brokers,  consumer finance companies,  credit unions, leasing companies
and other lenders. Citizens competes for loan originations primarily through the
interest  rates and loan fees it charges and through the  efficiency and quality
of services it provides to borrowers. Competition is intense and is affected by,
among other things,  the general  availability  of lendable  funds,  general and
local economic conditions,  current interest rate levels and other factors which
are not readily  predictable.  Citizens  does not offer all of the  products and
services  offered by some of its  competitors,  particularly  commercial  banks.
Citizens monitors the product offerings of its competitors and adds new products
when it can do so competitively  and cost  effectively.  See Exhibit 99.2, "Safe
Harbor  Under  the  Private   Securities   Litigation   Reform  Act  of  1995  -
Competition."

Employees

         As of September 30, 1997,  Citizens had eight  full-time  employees and
three part-time employees.


                                   REGULATION

General

         LFC is a savings  and loan  holding  company  within the meaning of the
Home Owners Loan Act, as amended (the "HOLA").  Consequently,  LFC is subject to
regulation,  examination  and  oversight  by the OTS and  must  submit  periodic
reports  to the OTS  concerning  its  activities  and  financial  condition.  In
addition,  as a  corporation  organized  under  Ohio  law,  LFC  is  subject  to
provisions of the Ohio Revised Code applicable to corporations generally.

         As a savings  and loan  association  chartered  under the laws of Ohio,
Citizens  is  subject  to   regulation,   examination   and   oversight  by  the
Superintendent  of the Division (the "Ohio  Superintendent").  Because  Citizens
deposits  are  insured  by the FDIC,  Citizens  also is  subject  to  regulatory
oversight  by the  FDIC.  Citizens  must  file  periodic  reports  with  the OTS
concerning its activities and financial  condition.  Examinations  are conducted
periodically by federal and state regulators to determine whether Citizens is in
compliance with various  regulatory  requirements and is operating in a safe and
sound  manner.  Citizens  is a  member  of the FHLB and is  subject  to  certain
regulations  promulgated by the Board of Governors of the Federal Reserve System
(the "FRB").

         Congress is considering  legislation  to eliminate the federal  savings
and loan  charter  and the  separate  federal  regulation  of  savings  and loan
associations,  and the  Department  of the  Treasury  is  preparing a report for
Congress on the  development  of a common  charter  for all  federally-chartered
financial institutions. Pursuant to such legislation, Congress may eliminate the
OTS and Citizens may be regulated  under federal law as a bank or be required to
change its charter. Such change in regulation or charter would likely change the
range of  activities  in which  Citizens may engage and would  probably  subject
Citizens to more  regulation by the FDIC. In addition,  LFC might become subject
to a different set of holding  company  regulations  limiting the  activities in
which LFC may engage and subjecting LFC to additional  regulatory  requirements,
including separate capital  requirements.  At this time, LFC cannot predict when
or whether Congress may actually pass legislation  regarding LFC's and Citizens'
regulatory requirements or charter.  Although such legislation,  if enacted, may
change the activities in which LFC or Citizens are  authorized to engage,  it is
not  anticipated  that the current  activities of either LFC or Citizens will be
materially affected by those activity limits.

Ohio Corporation Law

         Merger  Moratorium  Statute.  Chapter  1704 of the  Ohio  Revised  Code
regulates certain takeover bids affecting certain public corporations which have
significant  ties to Ohio. This statute  prohibits,  with some  exceptions,  any
merger,  combination or  consolidation  and any of certain other sales,  leases,
distributions,  dividends,  exchanges,  mortgages or  transfers  between an Ohio
corporation and any person who has the right to exercise,  alone or with others,
10%  or  more  of  the  voting  power  of  such   corporation   (an  "Interested
Shareholder"),  for three years  following  the date on which such person  first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested  Shareholder,  the

                                       14

<PAGE>
Board of  Directors  of the issuing  corporation  has  approved  the purchase of
shares which resulted in such person first becoming an Interested Shareholder.

         After the initial three-year  moratorium,  such a business  combination
may not  occur  unless  (1) one of the  specified  exceptions  applies,  (2) the
holders of at least two-thirds of the voting shares,  and of at least a majority
of the  voting  shares not  beneficially  owned by the  Interested  Shareholder,
approve the business  combination at a meeting  called for such purpose,  or (3)
the business  combination  meets certain  statutory  criteria designed to ensure
that the  issuing  public  corporation's  remaining  shareholders  receive  fair
consideration for their shares.

         An Ohio corporation may, under certain circumstances,  "opt out" of the
statute by  specifically  providing  in its articles of  incorporation  that the
statute does not apply to any business combination of such corporation. However,
the statute  still  prohibits for twelve  months any business  combination  that
would have been  prohibited  but for the adoption of such an opt-out  amendment.
The  statute  also  provides  that it will  continue  to apply  to any  business
combination  between a person who became an Interested  Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted.  Neither
LFC nor Citizens has opted out of the protection afforded by Chapter 1704.

         Control Share  Acquisition.  Section  1701.831 of the Ohio Revised Code
(the  "Control  Share   Acquisition   Statute")   requires  that,  with  certain
exceptions,  acquisitions  of  voting  securities  which  would  result  in  the
acquiring  shareholder  owning  20%,  33-1/3% or 50% of the  outstanding  voting
securities  of an Ohio  corporation  (a  "Control  Share  Acquisition")  must be
approved  in advance by the  holders of at least a majority  of the  outstanding
voting shares of such corporation  represented at a meeting at which a quorum is
present  and a  majority  of  the  portion  of  the  outstanding  voting  shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder,  by certain  other  persons who acquire or transfer  voting  shares
after  public  announcement  of the  acquisition  or by certain  officers of the
corporation  or  directors  of  the   corporation   who  are  employees  of  the
corporation.  The Control Share  Acquisition  Statute was intended,  in part, to
protect shareholders of Ohio corporations from coercive tender offers.

         Takeover Bid Statute.  Ohio law provides that an offeror may not make a
tender  offer or request or  invitation  for  tenders  that would  result in the
offeror  beneficially  owning  more than ten  percent of any class of the target
company's equity securities  unless such offeror files certain  information with
the Ohio Division of Securities  (the  "Securities  Division") and provides such
information to the target  company and the offerees  within Ohio. The Securities
Division  may suspend  the  continuation  of the  control bid if the  Securities
Division  determines that the offeror's filed  information does not provide full
disclosure to the offerees of all material  information  concerning  the control
bid.  The  statute  also  provides  that an offeror  may not  acquire any equity
security  of a  target  company  within  two  years  of the  offeror's  previous
acquisition  of any equity  security  of the same target  company  pursuant to a
control bid unless the Ohio  offerees  may sell such  security to the offeror on
substantially  the same terms as  provided  by the  previous  control  bid.  The
statute  does not apply to a  transaction  if either  the  offeror or the target
company is a savings  and loan  holding  company  and the  proposed  transaction
requires federal regulatory approval.

Ohio Savings and Loan Regulation

         The  Ohio   Superintendent   is  responsible  for  the  regulation  and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio and imposes  assessments on Ohio  associations  based on their
asset  size to  cover  the  costs  of  supervision  and  examination.  Ohio  law
prescribes the  permissible  investments and activities of Ohio savings and loan
associations,  including the types of lending that such  associations may engage
in and the investments in real estate,  subsidiaries and corporate or government
securities that such  associations may make. The ability of Ohio associations to
engage in these  state-authorized  investments  and  activities  is  subject  to
oversight and approval by the FDIC, if such  investments  or activities  are not
permissible   for  a   federally-chartered   savings   association.   The   Ohio
Superintendent  also has  approval  authority  over any  mergers  involving,  or
acquisitions  of  control  of,  Ohio  savings  and loan  associations.  The Ohio
Superintendent may initiate certain  supervisory  measures or formal enforcement
actions against Ohio  associations.  Ultimately,  if the grounds provided by law
exist, the  Superintendent  may place an Ohio association in  conservatorship or
receivership.

         In  addition  to  being  governed  by the  laws  of  Ohio  specifically
governing  savings  and loan  associations,  Citizens  is also  governed by Ohio
corporate  law,  to the  extent  such  law  does  not  conflict  with  the  laws
specifically governing savings and loan associations.


                                       15

<PAGE>

Office of Thrift Supervision

         General.  The OTS is an office of the Department of the Treasury and is
responsible  for  the  regulation  and  supervision  of all  federally-chartered
savings  associations  and all other savings  associations the deposits of which
are insured by the FDIC in the SAIF.  The OTS issues  regulations  governing the
operation of savings  associations,  regularly  examines such  associations  and
imposes  assessments on savings  associations based on their asset size to cover
the costs of general  supervision  and  examination.  The OTS also may  initiate
enforcement actions against savings  associations and certain persons affiliated
with them for  violations  of laws or  regulations  or for engaging in unsafe or
unsound  practices.  If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.

         Savings  associations are subject to regulatory oversight under various
consumer  protection  and fair  lending  laws.  These laws  govern,  among other
things,  truth-in-lending  disclosures,  equal credit  opportunity,  fair credit
reporting  and  community  reinvestment.  Failure to abide by  federal  laws and
regulations  governing  community  reinvestment  could  limit the  ability of an
association to open a new branch or engage in a merger.  Community  reinvestment
regulations  evaluate  how well and to what  extent  an  institution  lends  and
invests in its  designated  service area,  with  particular  emphasis on low- to
moderate-income communities and borrowers in that area.

         Regulatory   Capital   Requirements.   Citizens   is  required  by  OTS
regulations to meet certain minimum capital  requirements.  The tangible capital
requirement  requires savings associations to maintain "tangible capital" of not
less than 1.5% of their  adjusted total assets.  Tangible  capital is defined in
OTS regulations as core capital minus any intangible assets.

         "Core capital" is comprised of common  stockholders'  equity (including
retained earnings),  noncumulative preferred stock and related surplus, minority
interests in consolidated  subsidiaries,  certain  nonwithdrawable  accounts and
pledged  deposits  of  mutual  associations.  OTS  regulations  require  savings
associations to maintain core capital of at least 3% of their total assets.  The
OTS  has  proposed  to  amend  the  core  capital   requirement  so  that  those
associations  that do not have the  highest  examination  rating  and  exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. Citizens
does not  anticipate  that it will be  adversely  affected  if the core  capital
requirement regulation is amended as proposed.

         OTS regulations require that savings associations  maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core  capital plus  certain  additional  items of capital,
which in the case of Citizens includes a general loan loss allowance of $187,000
at September 30, 1997.

         The OTS has adopted an interest rate risk  component to the  risk-based
capital  requirement,  though  the  implementation  of that  component  has been
delayed.  Pursuant to the interest rate risk  component,  a savings  association
will have to  measure  the  effect of an  immediate  200 basis  point  change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured  interest rate risk is above the level deemed normal
under the  regulation,  the  association  will be required to deduct one-half of
such excess  exposure from its total  capital when  determining  its  risk-based
capital.  In general, an association with less than $300 million in assets and a
risk-based  capital  ratio in excess of 12% will not be subject to the  interest
rate risk component. Pending implementation of the interest rate risk component,
the OTS has the authority to impose a higher individualized  capital requirement
on any savings  association it deems to have excess  interest rate risk. The OTS
also may adjust the risk-based capital requirement on an individualized basis to
take into  account  risks due to  concentrations  of credit and  non-traditional
activities.

         The OTS has adopted  regulations  governing prompt corrective action to
resolve  the  problems  of capital  deficient  and  otherwise  troubled  savings
associations.   At  each  successively   lower  defined  capital  category,   an
association  is subject  to more  restrictive  and more  numerous  mandatory  or
discretionary  regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution.  The OTS has defined
these capital levels as follows:  (1)  well-capitalized  associations  are those
that have total  risk-based  capital of at least 10%,  core  risk-based  capital
(consisting  only of items that  qualify for  inclusion  in core  capital) of at
least  6%  and  core  capital  of  at  least  5%;  (2)  adequately   capitalized
associations  are those that meet the  regulatory  minimum  of total  risk-based
capital of 8%, core risk-based  capital of 4% and core capital of 4% (except for
associations  receiving the highest  examination rating, in which case the level
is 3%) but are not well-capitalized; (3) undercapitalized associations are those
that  do  not  meet   regulatory   limits,   but  that  are  not   significantly
undercapitalized;  (4)  significantly  undercapitalized  associations have total
risk-based  capital of less than 6%, core risk-based  capital of less than 3% or
core capital of less than 3%; and (5) critically  undercapitalized  associations
are those with tangible capital of 2% or less of total assets. In addition,  the


                                       16

<PAGE>

OTS generally can downgrade an association's  capital category,  notwithstanding
its capital level, if, after notice and opportunity for hearing, the association
is deemed to be  engaging  in an unsafe or unsound  practice  because it has not
corrected  deficiencies  that resulted in it receiving a less than  satisfactory
examination  rating on matters  other  than  capital or it is deemed to be in an
unsafe or unsound  condition.  All  undercapitalized  associations must submit a
capital   restoration   plan  to  the  OTS   within  45  days   after   becoming
undercapitalized.  Such associations will be subject to increased monitoring and
asset  growth  restrictions  and will be required to obtain  prior  approval for
acquisitions,  branching  and  engaging in new lines of  business.  Furthermore,
critically  undercapitalized  institutions must be placed in  conservatorship or
receivership within 90 days of reaching that capitalization  level, except under
limited  circumstances.  Citizens'  capital  at  September  30,  1997,  met  the
standards for a well-capitalized institution.

         Federal  law  prohibits  a savings  association  from  making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized.  In addition,  each company  controlling  an  undercapitalized
association  must  guarantee that the  association  will comply with its capital
plan until the association has been adequately  capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance.  The aggregate  liability  pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time  the  institution  became  undercapitalized  and  (b)  the  amount  that is
necessary to bring the association  into  compliance with all capital  standards
applicable to such association at the time the association  fails to comply with
its capital restoration plan.

         Liquidity.  OTS regulations require that a savings association maintain
an average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances  and specified  United States  government,  state or federal  agency
obligations)  equal  to a  monthly  average  of not  less  than  4% of  its  net
withdrawable  savings  deposits  plus  borrowings  payable  in one year or less.
Monetary  penalties  may be  imposed  upon  associations  failing  to meet these
liquidity  requirements.  The eligible  liquidity  of Citizens at September  30,
1997, was approximately $3.0 million, or 10.2%, and exceeded the then applicable
5% liquidity requirement by approximately $1.5 million.

         Qualified Thrift Lender Test. Savings associations are required to meet
the QTL  test.  Prior to  September  30,  1996,  the QTL test  required  savings
associations  to maintain a specified  level of  investments  in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic  residential real estate and manufactured housing and include credit
card,  student and small  business loans and stock issued by any FHLB, the FHLMC
or the FNMA. Under such test, 65% of an institution's  "portfolio assets" (total
assets less goodwill and other  intangibles,  property used to conduct  business
and 20% of liquid assets) must consist of QTI on a monthly average basis in nine
out of every 12 months.  Effective September 30, 1996, a savings association may
also qualify as a QTL by meeting the  definition of "domestic  building and loan
association"  under the Internal  Revenue Code of 1986, as amended (the "Code").
In order for an institution  to meet the definition of a "domestic  building and
loan association" under the Code, at least 60% of such institution's assets must
consist  of  specified  types of  property,  including  cash  loans  secured  by
residential real estate or deposits,  educational loans and certain governmental
obligations.  The  OTS  may  grant  exceptions  to the QTL  test  under  certain
circumstances.  If a  savings  association  fails  to  meet  the QTL  test,  the
association  and its holding  company  become  subject to certain  operating and
regulatory  restrictions.  A savings association that fails to meet the QTL test
will not be eligible for new FHLB advances.  At September 30, 1997, Citizens met
the QTL test.

         Lending Limit.  OTS regulations  generally  limit the aggregate  amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's  Lending Limit Capital. A savings  association may lend to one
borrower an  additional  amount not to exceed 10% of the  association's  Lending
Limit  Capital,  if the  additional  amount is fully secured by certain forms of
"readily  marketable   collateral."  Real  estate  is  not  considered  "readily
marketable  collateral."  Certain  types of loans are not subject to the lending
limit. A general  exception to the 15% limit  provides that an  association  may
lend to one borrower up to $500,000,  for any purpose.  In applying the limit on
loans to one borrower,  the  regulations  require that loans to certain  related
borrowers be aggregated.  At September 30, 1997, Citizens was in compliance with
this lending limit.

                                       17

<PAGE>
         Transactions with Insiders and Affiliates. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the  lending  limit on loans to one  borrower,  and the  total of such  loans to
executive  officers,   directors,   principal  shareholders  and  their  related
interests  cannot  exceed the  association's  Lending  Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits).   Most  loans  to   directors,   executive   officers  and  principal
shareholders  must be approved  in advance by a majority of the  "disinterested"
members of the board of  directors  of the  association,  with any  "interested"
director  not  participating.  All loans to  directors,  executive  officers and
principal  shareholders must be made on terms  substantially the same as offered
in  comparable  transactions  with  the  general  public  or as  offered  to all
employees in a company-wide benefit program, and loans to executive officers are
subject  to  additional  limitations.  Citizens  was  in  compliance  with  such
restrictions at September 30, 1997.

         All transactions between savings associations and their affiliates must
comply with  Sections  23A and 23B of the Federal  Reserve Act (the  "FRA").  An
affiliate of a savings  association is any company or entity that  controls,  is
controlled by or is under common control with the savings association. LFC is an
affiliate of Citizens.  Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions"  with  any  one  affiliate  to an  amount  equal  to 10%  of  such
institution's  capital  stock and surplus,  (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and  surplus,  and  (iii)  require  that  all  such  transactions  be  on  terms
substantially  the same, or at least as favorable to the  association,  as those
provided in transactions  with a non-affiliate.  The term "covered  transaction"
includes the making of loans,  purchasing of assets, issuance of a guarantee and
other similar types of  transactions.  In addition to the limits in Sections 23A
and 23B,  a  savings  association  may not make any loan or other  extension  of
credit to an  affiliate  unless  the  affiliate  is engaged  only in  activities
permissible  for a bank  holding  company  and may not  purchase  or  invest  in
securities  of any  affiliate  except  shares of a  subsidiary.  Citizens was in
compliance with these requirements and restrictions at September 30, 1997.

         Limitations  on  Capital   Distributions.   The  OTS  imposes   various
restrictions  or  requirements  on the ability of  associations  to make capital
distributions,  including dividend payments.  An association which has converted
from mutual to stock form is prohibited  from  declaring or paying any dividends
or from  repurchasing  any of its stock  if,  as a result,  the net worth of the
association  would be reduced below the amount required to be maintained for the
liquidation   account  established  in  connection  with  its  mutual  to  stock
conversion.  OTS regulations also establish a three-tier system limiting capital
distributions  according to ratings of associations based on their capital level
and supervisory condition.

         Tier 1 consists of  associations  that,  before and after the  proposed
distribution,  meet their fully phased-in capital requirements.  Associations in
this category may make capital  distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date,  plus 50% of the amount
by which the lesser of the association's  tangible,  core or risk-based  capital
exceeds its fully phased-in capital  requirement for such capital component,  as
measured at the beginning of the calendar year,  and (ii) the amount  authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal  supervision  by  the  OTS  may  be  downgraded  to a  Tier  2 or  Tier 3
association.  Citizens meets the  requirements  for a Tier 1 association and has
not been notified of any need for more than normal supervision.

         Tier 2 consists of  associations  that,  before and after the  proposed
distribution,  meet their  current  minimum,  but not fully  phased-in,  capital
requirements. Associations in this category may make capital distributions of up
to 75% of net income over the most recent four quarters.  Tier 3 associations do
not meet current  minimum capital  requirements  and must obtain OTS approval of
any capital  distribution.  Tier 2  associations  that propose to make a capital
distribution  in excess of the noted  safe  harbor  level  must also  obtain OTS
approval.  Tier 2 associations  proposing to make a capital  distribution within
the safe harbor provisions and Tier 1 associations proposing to make any capital
distribution  need only submit  written  notice to the OTS 30 days prior to such
distribution.

         As a subsidiary  of LFC,  Citizens is required to give the OTS 30 days'
notice prior to declaring  any dividend on its stock.  The OTS may object to the
distribution during such 30-day period based on safety and soundness concerns.
Citizens paid no dividends to LFC during fiscal 1997.

         Holding Company  Regulation.  LFC is a savings and loan holding company
within the meaning of the HOLA. As such, LFC has registered  with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.

                                       18
<PAGE>

         The HOLA  generally  prohibits a savings and loan holding  company from
controlling any other savings  association or savings and loan holding  company,
without prior  approval of the OTS, or from  acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof,  which
is not a  subsidiary.  Under certain  circumstances,  a savings and loan holding
company is permitted to acquire,  with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without  such savings  association  being deemed to be  controlled  by LFC.
Except  with the prior  approval of the OTS, no director or officer of a savings
and loan holding  company or person owning or  controlling by proxy or otherwise
more than 25% of such holding  company's  stock may also acquire  control of any
savings institution,  other than a subsidiary institution,  or any other savings
and loan holding company.

         As a unitary  savings and loan holding  company,  LFC  generally has no
restrictions  on  its   activities.   Such  companies  are  the  only  financial
institution holding companies which may engage in any commercial, securities and
insurance  activities without restriction.  Congress is considering  legislation
which may limit  LFC's  ability  to  engage  in these  activities.  It cannot be
predicted  whether and in what form these proposals  might become law.  However,
such limits would not impact LFC's current  activities,  which consist solely of
holding  stock of Citizens.  The broad  latitude to engage in  activities  under
current law can be restricted.  If the OTS  determines  that there is reasonable
cause to believe that the  continuation by a savings and loan holding company of
an activity  constitutes  a serious risk to the financial  safety,  soundness or
stability  of its  subsidiary  savings  association,  the  OTS may  impose  such
restrictions as deemed  necessary to address such risk,  including  limiting (i)
payment of dividends by the savings  association,  (ii) transactions between the
savings association and its affiliates,  and (iii) any activities of the savings
association that might create a serious risk that the liabilities of LFC and its
affiliates  may be  imposed  on the  savings  association.  Notwithstanding  the
foregoing rules as to permissible  business  activities of a unitary savings and
loan holding company, if the savings association subsidiary of a holding company
fails to meet the QTL test,  then such  unitary  holding  company  would  become
subject to the activities restrictions applicable to multiple holding companies.
At September 30, 1997, Citizens met both those tests.

         If LFC  acquired  control of another  savings  institution,  other than
through a merger or other business combination with Citizens, LFC would become a
multiple  savings  and loan  holding  company.  Unless  the  acquisition  was an
emergency thrift acquisition and each subsidiary savings association met the QTL
test, the activities of LFC and any of its subsidiaries  (other than Citizens or
other subsidiary savings  associations)  would thereafter be subject to activity
restrictions.  The HOLA provides that,  among other things,  no multiple savings
and loan holding company or subsidiary thereof that is not a savings institution
shall  commence  or  continue  for a limited  period of time  after  becoming  a
multiple  savings and loan holding company or subsidiary  thereof,  any business
activity  other than (i)  furnishing  or  performing  management  services for a
subsidiary  savings  institution,  (ii) conducting an insurance agency or escrow
business,  (iii) holding,  managing or  liquidating  assets owned by or acquired
from a subsidiary savings institution,  (iv) holding or managing properties used
or occupied by a subsidiary  savings  institution,  (v) acting as trustee  under
deeds of trust, (vi) those activities  previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding  companies,
or (vii) those activities  authorized by the FRB as permissible for bank holding
companies,  unless the OTS by regulation prohibits or limits such activities for
savings and loan holding  companies.  Those activities  described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.

         The  OTS may  approve  acquisitions  resulting  in the  formation  of a
multiple savings and loan holding company that controls savings  associations in
more  than one state  only if the  multiple  savings  and loan  holding  company
involved controls a savings association that operated a home or branch office in
the state of the  association to be acquired as of March 5, 1987, or if the laws
of the state in which the  institution  to be acquired  is located  specifically
permit  institutions to be acquired by  state-chartered  institutions or savings
and loan holding  companies  located in the state where the acquiring  entity is
located (or by a holding  company that  controls  such  state-chartered  savings
institutions).  As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings  associations
in more than one state in the case of  certain  emergency  thrift  acquisitions.
Bank holding  companies  have had more  expansive  authority to make  interstate
acquisitions than savings and loan holding companies since August 1995.

         Federal  Regulation of Acquisitions of Control of LFC and Citizens.  In
addition to the Ohio law  limitations on the merger and  acquisition of Citizens
and  LFC,  federal   limitations   generally  require  regulatory   approval  of
acquisitions at specified  levels.  Under pertinent federal law and regulations,
no person, directly or indirectly, or acting in concert with others, may acquire
control of Citizens or LFC without 60 days' prior  notice to the OTS.  "Control"
is generally defined as having more than 25% ownership or voting power; however,
ownership  or voting  power of more than 10% may be deemed  "control" if certain
factors  are in place.  If the  acquisition  of  control  is by a  company,  the
acquiror must obtain approval,  rather than give notice, of the acquisition as a
savings and loan holding company.
   

                                       19

<PAGE>

     In addition,  any merger of Citizens must be approved by the OTS as well as
the Superintendent. Further, any merger of LFC in which LFC is not the resulting
company  must also be approved by both the OTS and the  Superintendent.  Federal
Deposit Insurance Corporation

         Deposit Insurance and Assessments.  The FDIC is an independent  federal
agency  that  insures  the  deposits,  up to  prescribed  statutory  limits,  of
federally  insured banks and savings and loan  associations  and  safeguards the
safety and  soundness of the banking and savings and loan  industries.  The FDIC
administers two separate  insurance  funds,  the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings  associations.
Citizens  is a member of the SAIF and its  deposit  accounts  are insured by the
FDIC up to the prescribed  limits.  The FDIC has examination  authority over all
insured  depository  institutions,  including  Citizens,  and has  authority  to
initiate enforcement actions against  federally-insured  savings associations if
the FDIC does not  believe  the OTS has taken  appropriate  action to  safeguard
safety and soundness and the deposit insurance fund.

         The FDIC is required to maintain  designated  levels of reserves in the
SAIF and in the BIF. The FDIC may increase  assessment  rates for either fund if
necessary  to restore the fund's  ratio of  reserves to insured  deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based  assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the  institution  poses  to its  deposit  insurance  fund.  The  risk  level  is
determined  based on the  institution's  capital  level and the FDIC's  level of
supervisory concern about the institution.

         Prior to  September  1996,  the  SAIF's  ratio of  reserves  to insured
deposits  was  significantly  below the level  required by law,  while the BIF's
ratio was above the required level. As a result,  institutions with SAIF-insured
deposits were paying higher deposit insurance assessments than institutions with
BIF-insured deposits.  Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of  SAIF-insured  deposits  held at March 31, 1995.  Citizens had
approximately  $29.7  million in deposits at March 31, 1995,  and paid a special
assessment of $193,000, or $127,000, net of tax effects.

         State-Chartered  Association Activities. The ability of state-chartered
associations  to  engage  in  any   state-authorized   activities  or  make  any
state-authorized  investments  is  limited  if such  activity  is  conducted  or
investment is made in a manner  different than that permitted for, or subject to
different  terms and  conditions  than those  imposed  on,  federally  chartered
savings associations. Engaging as a principal in any such activity or investment
not  permissible  for a federal  association is subject to approval by the FDIC.
Such approval will not be granted unless certain  capital  requirements  are met
and there is not a significant risk to the FDIC insurance fund. All of Citizens'
activities and investments at September 30, 1997, were permissible for a federal
association.

FRB Reserve Requirements

         FRB  regulations  currently  require  savings  associations to maintain
reserves of 3% of net transaction  accounts (primarily NOW accounts) up to $49.3
million  (subject  to an  exemption  of up to $4.4  million),  and of 10% of net
transaction accounts in excess of $49.3 million. At September 30, 1997, Citizens
was in compliance with its reserve requirements.

Federal Home Loan Banks

         The Federal Home Loan Banks provide credit to their members in the form
of advances. Citizens is a member of the FHLB of Cincinnati and must maintain an
investment  in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate  outstanding  principal amount of Citizens'
residential  mortgage loans, home purchase contracts and similar  obligations at
the beginning of each year,  or 5% of its advances from the FHLB of  Cincinnati.
Citizens was in compliance with this  requirement with an investment in stock of
the FHLB of Cincinnati of $280,000 at September 30, 1997.

         FHLB  advances  to  member  institutions  who  meet  the QTL  Test  are
generally  limited  to the  lower of (i) 25% of the  member's  assets or (ii) 20
times the member's  investment in FHLB stock.  At September 30, 1997,  Citizens'
maximum  limit on advances  was  approximately  $5.6  million.  The  granting of
advances  is also  subject to the  FHLB's  collateral  and  credit  underwriting
guidelines.

                                       20

<PAGE>
         Upon the  origination  or  renewal  of a loan or  advance,  the FHLB is
required by law to obtain and maintain a security  interest in collateral in one
or more of the following categories: fully-disbursed, whole first mortgage loans
on improved residential property or securities  representing a whole interest in
such  loans;  securities  issued,  insured or  guaranteed  by the United  States
Government  or an agency  thereof;  deposits  in any FHLB;  or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily  ascertainable value and the FHLB can
perfect its security interest in the collateral.

         The FHLB is required to establish standards of community  investment or
service  that its  members  must  maintain  for  continued  access to  long-term
advances.  The  standards  take into  account a member's  performance  under the
Community  Reinvestment Act and its record of lending to first-time home buyers.
All  long-term  advances  by the FHLB  must be made  only to  provide  funds for
residential housing finance.


                                    TAXATION

Federal Taxation

         LFC  and  Citizens  are  both  subject  to the  federal  tax  laws  and
regulations  which apply to corporations  generally.  In addition to the regular
income tax, LFC and Citizens may be subject to the alternative minimum tax which
is imposed at a minimum tax rate of 20% on "alternative  minimum taxable income"
(which  is the sum of a  corporation's  regular  taxable  income,  with  certain
adjustments,  and tax preference items), less any available exemption.  Such tax
preference  items  include  interest on certain  tax-exempt  bonds  issued after
August  7,  1986.  In  addition,  75% of the  amount  by  which a  corporation's
"adjusted  current  earnings"  exceeds its  alternative  minimum  taxable income
computed  without regard to this  preference  item and prior to reduction by net
operating  losses,  is included  in  alternative  minimum  taxable  income.  Net
operating  losses can  offset no more than 90% of  alternative  minimum  taxable
income.  The  alternative  minimum  tax is imposed to the extent it exceeds  the
corporation's  regular income tax.  Payments of  alternative  minimum tax may be
used as credits against regular tax  liabilities in future years.  However,  the
Taxpayer  Relief Act of 1997  repealed the  alternative  minimum tax for certain
"small  corporations"  for tax  years  beginning  after  December  31,  1997.  A
corporation  initially  qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning  after  December 31, 1996.  Once a corporation is recognized as a
small  corporation,  it will continue to be exempt from the alternative  minimum
tax for as long as its average gross  receipts for the prior  three-year  period
does  not  exceed  $7,500,000.  In  determining  if  a  corporation  meets  this
requirement,  the first year that it achieved  small  corporation  status is not
taken into consideration.

         Prior to the enactment of the Small  Business Jobs  Protection Act (the
"Act"),   which  was  signed  into  law  on  August  21,  1996,  certain  thrift
institutions,  such as  Citizens,  were allowed  deductions  for bad debts under
methods more favorable than those granted to other  taxpayers.  Qualified thrift
institutions  could compute  deductions  for bad debts using either the specific
charge-off  method of Section 166 of the Code or one of two  reserve  methods of
Section  593 of the Code.  The  reserve  methods  under  Section 593 of the Code
permitted  a thrift  institution  annually  to elect to deduct  bad debts  under
either (i) the "percentage of taxable  income" method  applicable only to thrift
institutions,  or (ii) the "experience"  method that also was available to small
banks.  Under the "percentage of taxable income"  method,  a thrift  institution
generally  was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable  income  (determined  without  regard to this deduction and
with  additional   adjustments).   Under  the  "experience"   method,  a  thrift
institution  was  generally  allowed a deduction for an addition to its bad debt
reserve  equal to the  greater  of (i) an  amount  based on its  actual  average
experience for losses in the current and five preceding  taxable years,  or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift  institution  could elect  annually to compute its allowable
addition to bad debt reserves for  qualifying  loans either under the experience
method or the percentage of taxable income method.  For tax years 1994, 1993 and
1992,  Citizens used the percentage of taxable income method because such method
provided a higher bad debt deduction than the experience method.

         The  Act   eliminated  the  percentage  of  taxable  income  method  of
accounting  for bad debts by thrift  institutions,  effective  for taxable years
beginning after 1995.  Thrift  institutions  that are treated as small banks are
allowed to utilize the experience method applicable to such institutions,  while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.

         A thrift  institution  required  to  change  its  method  of  computing
reserves  for bad debt will  treat  such  change  as a change  in the  method of
accounting,  initiated  by the taxpayer and having been made with the consent of
the  Secretary of the  Treasury.  Section  481(a) of the Code  requires  certain
amounts to be recaptured with respect to such change.  Generally, the amounts to


                                       21

<PAGE>

be recaptured will be determined  solely with respect to the "applicable  excess
reserves" of the taxpayer.  The amount of the applicable excess reserves will be
taken into account  ratably over a six-taxable  year period,  beginning with the
first  taxable  year  beginning  after  1995,  subject to the  residential  loan
requirement described below. In the case of a thrift institution that is treated
as a large bank,  the amount of the  institution's  applicable  excess  reserves
generally  is the  excess  of (i) the  balances  of its  reserve  for  losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying  loans (all other types of loans) as
of the close of its last taxable year  beginning  before  January 1, 1996,  over
(ii) the  balances  of such  reserves as of the close of its last  taxable  year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like Citizens,  the amount
of the institution's  applicable excess reserves  generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans and its
reserve for losses on  nonqualifying  loans as of the close of its last  taxable
year beginning  before January 1, 1996,  over (ii) the greater of the balance of
(a) its pre-1988  reserves or (b) what the thrift's  reserves would have been at
the close of its last year  beginning  before  January 1,  1996,  had the thrift
always used the experience method.

         For  taxable  years that begin  after  December  31,  1995,  and before
January 1, 1998, if a thrift meets the  residential  loan  requirement for a tax
year, the recapture of the applicable excess reserves  otherwise  required to be
taken into  account as a Code  Section  481(a)  adjustment  for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential  loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal  amounts of the  residential  loans made by the thrift  during the six
most recent tax years beginning  before January 1, 1996. A residential loan is a
loan as  described  in Section  7701(a)(19)(C)(v)  (generally  a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.

         The balance of the pre-1988  reserves is subject to the  provisions  of
Section 593(e),  as modified by the Act, which require  recapture in the case of
certain excessive  distributions to shareholders.  The pre-1988 reserves may not
be  utilized  for  payment  of  cash  dividends  or  other  distributions  to  a
shareholder  (including  distributions in dissolution or liquidation) or for any
other  purpose  (except  to  absorb  bad debt  losses).  Distribution  of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits;  second, out of
the pre-1988  reserves;  and third, out of such other accounts as may be proper.
To the  extent a  distribution  by  Citizens  to LFC is  deemed  paid out of its
pre-1988  reserves under these rules, the pre-1988 reserves would be reduced and
the gross income of Citizens  for tax purposes  would be increased by the amount
which, when reduced by the income tax, if any,  attributable to the inclusion of
such  amount in its gross  income,  equals  the  amount  deemed  paid out of the
pre-1988  reserves.  As of September 30, 1997, the pre-1988 reserves of Citizens
for tax  purposes  totaled  approximately  $340,000.  Citizens  believes  it had
approximately $3.3 million of accumulated  earnings and profits for tax purposes
as of September 30, 1997,  which would be available for dividend  distributions,
provided regulatory restrictions applicable to the payment of dividends are met.
No  representation  can be made as to  whether  Citizens  will have  current  or
accumulated earnings and profits in subsequent years.

         The tax returns of Citizens  have been audited or closed  without audit
through fiscal year 1993. In the opinion of management,  any examination of open
returns  would not result in a  deficiency  which could have a material  adverse
effect on the financial condition of Citizens.

Ohio Taxation

         LFC is subject to the Ohio corporation franchise tax, which, as applied
to LFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable  income in excess of $50,000 and (ii) 0.582% times
taxable net worth. Under these alternative  measures of computing tax liability,
the states to which a taxpayer's  adjusted  total net income and adjusted  total
net worth are apportioned or allocated are determined by complex  formulas.  The
minimum tax is $50 per year.

    

                                       22

<PAGE>

  A special litter tax is also applicable to all corporations,  including
LFC,  subject  to the Ohio  corporation  franchise  tax  other  than  "financial
institutions."  If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first  $50,000 of computed  Ohio taxable  income and
 .22% of computed Ohio taxable income in excess of $50,000.  If the franchise tax
is paid on the net worth basis,  the litter tax is equal to .014% times  taxable
net worth.

         Ohio corporation franchise tax law is scheduled to change markedly as a
consequence of legislative reforms enacted July 1, 1997. Tax liability, however,
continues  to be  measured  by both net income and net worth.  In  general,  tax
liability  will be the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable  income and 8.5% of computed Ohio taxable income in excess of $50,000 or
(ii) 0.40% of taxable net worth.  Under these alternative  measures of computing
tax liability,  the states to which total net income and total net worth will be
apportioned or allocated will continue to be determined by complex formulas, but
the formulas change.  The minimum tax will still be $50 per year and maximum tax
liability  as measured by net worth will be limited to  $150,000  per year.  The
special litter taxes remain in effect.  Various other changes in the tax law may
affect LFC.

         Citizens is a "financial  institution"  for State of Ohio tax purposes.
As  such,  it is  subject  to the Ohio  corporate  franchise  tax on  "financial
institutions,"  which  is  imposed  annually  at a rate  of  1.5%  of  Citizens'
apportioned  book net  worth,  determined  in  accordance  with  GAAP,  less any
statutory  deduction.  This rate of tax is  scheduled to decrease in each of the
years 1990 and 2000.  As a "financial  institution,"  Citizens is not subject to
any tax based upon net income or net profits imposed by the State of Ohio.

Item 2.    Description of Property

         The  following  table sets forth certain  information  at September 30,
1997, regarding the office facilities of Citizens:
<TABLE>
<CAPTION>

                                        Owned or         Date        Net book
      Location                           leased       acquired        value
<S>                                        <C>           <C>           <C>
2 East High Street, London, Ohio          Owned          1977        $247,000
</TABLE>


Item 3.    Legal Proceedings

         Neither LFC nor  Citizens is presently  involved in any material  legal
proceedings.  From  time to  time,  Citizens  is a party  to  legal  proceedings
incidental  to its  business to enforce  its  security  interest  in  collateral
pledged to secure loans made by Citizens.


Item 4.    Submission of Matters to a Vote of Security Holders

        Not applicable.


                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Shareholder Matters

        The information contained in the 1997 Annual Report to Shareholders (the
"Annual  Report") under the caption  "Common Stock and Related  Information"  is
incorporated herein by reference.


Item 6.    Management's  Discussion  and  Analysis of  Financial  Condition and 
           Results of Operations

        The  information  contained  in the  Annual  Report  under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" is incorporated herein by reference.


                                       23

<PAGE>

Item 7.    Financial Statements

        The Consolidated Financial Statements appearing in the Annual Report and
the report of Grant Thornton LLP ("Grant Thornton") dated November 14, 1997, are
incorporated herein by reference.


Item 8.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure

         On July 11, 1996, the Board of Directors approved the recommendation of
its Audit Committee to change its independent  accountant from KPMG Peat Marwick
("KPMG")  to  Grant  Thornton  LLP  ("Grant  Thornton").   No  adverse  opinion,
disclaimer  or  qualification  was  contained in KPMG's report for either of the
last two fiscal years for which KPMG  completed an audit of Citizens'  financial
statements,  nor were such reports  modified as to  uncertainty,  audit scope or
accounting  principles.  Further,  there was no  disagreement  between  KPMG and
Citizens or Grant Thornton on any matter of accounting  principles or practices,
financial statement disclosure or auditing scope or procedure.


                                    PART III


Item 9.    Directors,  Executive  Officers,  Promoters  and  Control  Persons;
           Compliance with Section 16(a) of the Exchange Act

        The information contained in the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders of LFC (the "Proxy  Statement"),  a copy of which
is attached as Exhibit  99.1  hereto,  under the caption  "Election of Directors
-Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein
by reference.


Item 10.   Executive Compensation

        The  information  contained in the Proxy  Statement  under the caption "
Election of Directors --  Compensation  of Executive  Officers and Directors" is
incorporated herein by reference.


Item 11.   Security Ownership of Certain Beneficial Owners and Management

        The  information  contained in the Proxy  Statement  under the caption 
"Election of Directors -- Voting Securities and Ownership of Certain Beneficial
Owners and Management" is incorporated herein by reference.


Item 12.   Certain Relationships and Related Transactions

        The  information  contained in the Proxy  Statement  under the caption 
"Election of  Directors  --  Certain Transactions" is  incorporated  herein by
reference.


                                       24

<PAGE>

Item 13.   Exhibits and Reports on Form 8-K

(a)     Exhibits

<TABLE>
<CAPTION>

     Exhibit
<S>                          <C>                                                <C>
      3(a)                                                    Articles  of  Incorporation  Incorporated  by  reference  to  the
                                                              Registration  Statement  on Form S-1 filed by LFC on  December 8,
                                                              1995,  and amended on January 31 and  February 8, 1996 (the "Form
                                                              S-1"), Exhibit 3.1

      3(b)     Certificate of Amendment to Articles of        Incorporated by reference to LFC's Form 10-KSB for the
               Incorporation                                  fiscal year ended September 30, 1996

      3(c)     Code of Regulations                            Incorporated by reference to the Form S-1, Exhibit 3.2

      10.1     London Financial Corporation 1996 Stock        Incorporated by reference to the Form S-1, Exhibit 10.1
               Option and Incentive Plan

      10.2     The Citizens Loan & Savings Company            Incorporated by reference to the Form S-1, Exhibit 10.2
               Management Recognition Plan and Trust
               Agreement

      10.3     London Financial Corporation Employee          Incorporated by reference to the Form S-1, Exhibit 10.4
               Stock Ownership Plan

      10.4     Employment Agreement between The Citizens      Incorporated by reference to the Form S-1, Exhibit 10.5
               Loan & Savings Company and John J. Bodle

       13      Annual Report to Shareholders

       21      Subsidiaries of the Registrant

       27      Financial Data Schedule

      99.1     Proxy Statement

      99.2     Reissued Report of
               KPMG Peat Marwick LLP

      99.3     Safe Harbor Under the Private Securities
               Litigation Reform Act of 1995
</TABLE>

(b)     Reports on Form 8-K

        No reports on Form 8-K were filed by the Registrant  during the fiscal
        year ended September 30, 1997.


                                       25

<PAGE>


                                   SIGNATURES

       Pursuant to the requirements of Section 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                          LONDON FINANCIAL CORPORATION

                          By: John J. Bodle, President
                        (Duly Authorized Representative)

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated.



   John I. Andrix                                   Rodney A. Bell
   Director                                         Director

   Date:  December 11, 1997                         Date:  December 11, 1997




   John J. Bodle                                    Donovan D. Forrest
   Chief Executive Officer, Principal               Director
   Financial Officer, Principal Accounting
   Officer and Director

   Date:  December 11, 1997                         Date:  December 11, 1997




   Edward D. Goodyear                               Shirley G. Hansgen
   Director                                         Director

   Date:  December 11, 1997                         Date:  December 11, 1997



   Kennison A. Sims
   Director

   Date:  December 11, 1997




                                       26