Dear Shareholder,

     It is with a  great  deal  of  pleasure  that I  present  London  Financial
Corporation's Annual Report to Shareholders for the fiscal year ending September
30, 1997.

     Net earnings for fiscal 1997 totaled a record $385,000,  or $.81 per share,
representing an increase of $161,000,  or 72%, over the $224,000 of net earnings
reported in fiscal 1996. The growth in fiscal 1997 earnings  resulted  primarily
from a solid $100,000,  or 7.9%,  increase in net interest income and a $127,000
reduction in general,  administrative  and other expenses,  which were partially
offset by a $102,000 increase in the provision for federal income taxes.

     The value of your investment in London  Financial  increased  during fiscal
1997 as well.  Specifically,  the price of our common  shares  increased  by 40%
during the current  fiscal  year.  Moreover,  our shares  continued  to trade at
$15.25 per share on December 5, 1997,  notwithstanding  prior payment of a $5.00
return of  capital  distribution.  This  $5.00  distribution,  coupled  with the
capital appreciation of $4.00 per share since September 1996,  represents growth
of 90% in the value of your investment over the last fourteen months.

     Our primary  goals for fiscal 1998 are far simpler.  We wish to continue to
grow your  franchise  while  maintaining an acceptable  level of  profitability.
Additionally,  we will carefully  monitor and manage our capital levels so as to
strive to maximize our return on equity.

     As we enter  fiscal  1998 with a great  deal of  enthusiasm  and  optimism,
please be assured that we are totally  committed to enhancing  the value of your
investment  in London  Financial  Corporation.  On  behalf of all the  officers,
directors and  employees,  we wish to thank you for your support during the past
year and look forward to your continued support in the future.

Very truly yours,

LONDON FINANCIAL CORPORATION


John J. Bodle
President


                                       1

<PAGE>
 
   

                    BUSINESS OF LONDON FINANCIAL CORPORATION

===============================================================================

London  Financial  Corporation  ("LFC" or the "Company"),  a unitary savings and
loan holding company  incorporated under the laws of the State of Ohio, owns all
of the issued  and  outstanding  common  shares of The  Citizens  Loan & Savings
Company ("Citizens"), a savings and loan association incorporated under the laws
of the State of Ohio.  In March  1996,  LFC  acquired  all of the common  shares
issued  by  Citizens  upon  its  conversion  from  a  mutual  savings  and  loan
association to a stock savings and loan  association (the  "Conversion").  Since
its  formation,  LFC's  activities  have been  limited  primarily to holding the
common shares of Citizens.

As a savings and loan holding company, LFC is subject to regulation, supervision
and  examination  by the  Office  of Thrift  Supervision  of the  United  States
Department  of the  Treasury  (the  "OTS").  As a savings  and loan  association
incorporated  under  the  laws of  Ohio,  Citizens  is  subject  to  regulation,
supervision  and  examination  by the OTS and the Ohio  Department  of Commerce,
Division of Financial  Institutions (the "Division").  Citizens is also a member
of the Federal Home Loan Bank (the "FHLB") of Cincinnati.


                              MARKET PRICE OF LFC'S
                  COMMON SHARES AND RELATED SHAREHOLDER MATTERS
===============================================================================

===============================================================================

There were 510,160 of LFC's common shares outstanding on September 30, 1997, and
held of record by approximately 191 shareholders. Price information with respect
to LFC's common shares is quoted on The Nasdaq SmallCap Market  ("Nasdaq") under
the symbol  "LONF".  The table  below sets forth the high and low bid prices for
the common shares of London Financial  Corporation,  together with the dividends
declared per share, for each quarter of fiscal 1997 and the two full quarters of
fiscal 1996 during which LFC's shares were  publicly  traded.  Price  quotations
reflect  inter-dealer prices,  without retail mark-up,  mark-down or commission,
and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                            Cash dividends
                               High Bid        Low Bid            declared
<S>                               <C>            <C>                  <C>
Fiscal 1996
  Quarter ended:
    June 30, 1996                $11.37         $ 9.75               $   -
    September 30, 1996            11.25          10.00                 .06

Fiscal 1997
  Quarter ended:
    December 31, 1996             14.67          11.00                 .06
    March 31, 1997                18.00          14.00                 .06
    June 30, 1997                 17.50          14.63                 .06
    September 30, 1997            15.75          14.75                 .06
</TABLE>

Dividends are subject to determination and declaration by the Board of Directors
of  LFC,  which  takes  into  account  LFC's  financial  condition,  results  of
operations,  tax  considerations,   industry  standards,   economic  conditions,
regulatory restrictions and other factors which affect the payment of dividends.



                                        2



<PAGE>


The income of LFC consists of dividends  which may  periodically be declared and
paid by the Board of Directors of Citizens on the common shares of Citizens held
by LFC and earnings on the approximately  $2.46 million in net proceeds retained
by LFC from the sale of LFC's common shares in connection with the Conversion.

In addition to certain federal income tax considerations, OTS regulations impose
limitations  on the payment of  dividends  and other  capital  distributions  by
savings  associations.  Under OTS  regulations  applicable to converted  savings
associations,  Citizens is not  permitted  to pay a cash  dividend on its common
shares if its  regulatory  capital  would,  as a result of the  payment  of such
dividend,  be reduced  below the amount  required  for the  liquidation  account
(which was established  for the purpose of granting a limited  priority claim on
the assets of Citizens, in the event of a complete liquidation, to those members
of Citizens  before the  Conversion  who maintain a savings  account at Citizens
after the Conversion) or applicable  regulatory capital requirements  prescribed
by the OTS.

OTS regulations  applicable to all savings  associations  provide that a savings
association  which  immediately  prior to, and on a pro forma basis after giving
effect to, a proposed  capital  distribution  (including  a dividend)  has total
capital (as  defined by OTS  regulations)  that is equal to or greater  than the
amount of its capital  requirements is generally  permitted without OTS approval
(but  subsequent  to  30  days'  prior  notice  to  the  OTS)  to  make  capital
distributions,  including dividends,  during a calendar year in an amount not to
exceed the greater of (1) 100% of such association's net earnings to date during
the  calendar  year,  plus an amount  equal to one-half  the amount by which its
total capital to assets ratio  exceeded its required  capital to assets ratio at
the beginning of the calendar  year, or (2) 75% of its net earnings for the most
recent  four-quarter  period.  Savings  associations which have total capital in
excess of the capital requirements, but which have been notified by the OTS that
they  are  in  need  of  more  than  normal  supervision,  will  be  subject  to
restrictions  on  dividends.  A savings  association  that fails to meet current
minimum capital requirements is prohibited from making any capital distributions
without the prior approval of the OTS.

Citizens currently meets all of its regulatory capital  requirements and, unless
the OTS determines  that Citizens is an  institution  requiring more than normal
supervision,  Citizens  may pay  dividends  in  accordance  with  the  foregoing
provisions of the OTS regulations.






















                                        3



<PAGE>


                              SELECTED CONSOLIDATED
                      FINANCIAL INFORMATION AND OTHER DATA

===============================================================================

The following table sets forth certain  information  concerning the consolidated
financial condition,  earnings and other data regarding LFC at the dates and for
the periods indicated.
<TABLE>
<CAPTION>

                                                                     At September 30,
Selected financial condition                 1997         1996         1995         1994         1993
  and other data:                                                (Dollars in thousands)

Total amount of:
<S>                                       <C>          <C>          <C>          <C>          <C>    
Assets .................................  $38,210      $36,817      $34,152      $31,737      $30,961
Cash and due from banks                       322          319          835          851          531
Interest-bearing time deposits
  in other financial institutions ......    3,342        2,324        2,009        1,705        3,007
Investment securities (1) ..............      655        2,220          500          500          502
Mortgage-backed securities .............    3,586        4,032        2,009        2,182        1,492
Loans receivable - net .................   29,465       27,031       27,972       25,663       24,622
Deposits ...............................   29,951       28,195       30,594       28,324       27,792
FHLB advances ..........................      300          300          300          300          300
Shareholders' equity (2) ...............    7,604        7,907        3,224        3,080        2,835

</TABLE>

<TABLE>
<CAPTION>
                                                                  Year ended September 30,
Summary of earnings:                           1997         1996         1995         1994         1993
                                                                     (In thousands)

<S>                                          <C>          <C>          <C>          <C>          <C>   
Interest income ........................     $2,832       $2,769       $2,334       $2,164       $2,339
Interest expense .......................      1,468        1,505        1,396        1,131        1,195
                                              -----        -----        -----        -----        -----
Net interest income ....................      1,364        1,264          938        1,033        1,144
Provision for loan losses ..............         -            -            -            13           18
                                              -----        -----        -----      -------      -------

Net interest income after
 provision for loan losses .............      1,364        1,264          938        1,020        1,126
Other income ...........................        107           71           74           70           66
General, administrative and other
  expense ..............................        887        1,014          792          722          678
                                             ------        -----       ------       ------       ------
Earnings before income taxes ...........        584          321          220          368          514
Federal income taxes ...................        199           97           77          122          168
                                             ------      -------      -------       ------       ------

Net earnings ...........................    $   385      $   224      $   143      $   246      $   346
                                             ======       ======       ======       ======       ======
----------------------
<FN>

(1)      Includes securities designated as available for sale.

(2)      Consisted solely of retained earnings at September 30, 1993 through 
         1995, inclusive.
</FN>
</TABLE>






                                        4



<PAGE>


                              SELECTED CONSOLIDATED
                FINANCIAL INFORMATION AND OTHER DATA (CONTINUED)

===============================================================================
<TABLE>
<CAPTION>


Selected financial ratios:                                          At September 30,
                                                1997         1996         1995        1994          1993
Performance ratios:
<S>                                             <C>          <C>          <C>          <C>          <C>  
Return on average assets ...................    1.01%        0.62%        0.44%        0.79%        1.18%
Return on average equity ...................    5.15         4.36         4.51         8.24        12.79
Interest rate spread .......................    2.90         3.06         2.62         3.19         3.80
Net interest margin ........................    3.77         3.67         2.95         3.44         4.06
General, administrative and
  other expense to average assets ..........    2.33         2.80         2.42         2.31         2.31
Average equity to average assets ...........   19.67        14.21         9.68         9.56         9.22
Asset quality ratios:
Nonperforming assets to total assets .......    0.70         0.71         0.13         0.24         0.21
Nonperforming loans to total loans .........    0.87         0.90         0.15         0.27         0.25
Allowance for loan losses to total
  loans ....................................    0.60         0.65         0.65         0.70         0.69
Allowance for loan losses to
  nonperforming loans ......................   69.78        71.65       422.22       254.67       269.70
Net charge-offs to average loans ...........      -          0.01           -            -            -
Average interest-earning assets to
  average interest-bearing liabilities .....  121.39       113.83       107.52       106.54       106.06

</TABLE>



























                                        5



<PAGE>


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

===============================================================================

                                     GENERAL
 ------------------------------------------------------------------------------

The following  discussion and analysis of the financial condition and results of
operations  of LFC and  Citizens  should  be read in  conjunction  with and with
reference  to the  consolidated  financial  statements,  and the notes  thereto,
presented in this Annual Report.

LFC was  incorporated  for the purpose of owning all of the  outstanding  common
shares of Citizens  following the  Conversion.  As a result,  the discussion and
analysis that follows pertains primarily to the financial  condition of LFC on a
consolidated basis and to the results of operations of Citizens.

In  addition to the  historical  information  contained  herein,  the  following
discussion   contains   forward-looking   statements   that  involve  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  herein,  but also  include  changes in the
economy  and changes in interest  rates in the nation and LFC's  primary  market
area.

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

                  1.  Management's  determination of the amount of the allowance
                  for loan  losses as set  forth  under  "Financial  Condition,"
                  "Comparison  of  Results  of  Operation  for the  Years  Ended
                  September  30,  1997 and 1996" and  "Comparison  of Results of
                  Operations for the Years Ended September 30, 1996 and 1995;"

                  2. Management's analysis of the interest rate risk of Citizens
                  as set forth under "Asset and Liability Management;"

                  3.  Management's  discussion  of the  liquidity  of  Citizens'
                  assets and the  regulatory  capital of  Citizens  as set forth
                  under "Liquidity and Capital Resources;" and

                  4. The  discussion of the  anticipated  effect of  legislation
                  which may be enacted as set forth under  "Charter  Unification
                  Legislation."


                  DISCUSSION OF CHANGES IN FINANCIAL CONDITION
                  FROM SEPTEMBER 30, 1996 TO SEPTEMBER 30, 1997
 ------------------------------------------------------------------------------

The Company's  consolidated  total assets amounted to $38.2 million at September
30, 1997, an increase of $1.4 million,  or 3.8%, over the $36.8 million in total
assets at September 30, 1996.  The increase in assets was funded  primarily by a
$1.8 million  increase in deposits,  which was partially  offset by a decline of
$303,000 in shareholders' equity.



                                        6



<PAGE>


Cash and cash  equivalents  and  investment  securities  totaled $4.3 million at
September 30, 1997, a decrease of $544,000,  or 11.2%,  from  September 30, 1996
levels.  During the fiscal  year  ended  September  30,  1997,  $1.5  million of
investment  securities matured,  which consisted primarily of  intermediate-term
U.S.  Government and agency  obligations.  Corporate equity securities  totaling
$145,000 were sold, resulting in a gain of $40,000 during fiscal 1997.

Mortgage-backed  securities  totaled  $3.6  million at  September  30,  1997,  a
decrease of $446,000 from  September  30, 1996,  levels.  The decrease  resulted
primarily from principal repayments of $439,000.  The Company's  mortgage-backed
securities  portfolio  consists of  adjustable-rate  mortgage-backed  securities
bearing interest at rates ranging from 6.13% to 6.50% at September 30, 1997.

Loans  receivable  totaled  $29.5  million at September 30, 1997, an increase of
$2.4  million,  or 9.0%,  over the $27.0  million  total at September  30, 1996.
During fiscal 1997,  loan  disbursements  amounted to $7.8  million,  which were
partially  offset by principal  repayments of $5.4  million.  Growth in the loan
portfolio   consisted   primarily  of  loans  secured  by  one-  to  four-family
residential  real estate,  which  increased by $1.7 million,  or 7.7%, and loans
secured by multi-family residential real estate, which increased by $413,000, or
160.1%.

Citizens'  allowance for loan losses totaled  $187,000 at September 30, 1997 and
1996, which  represented 0.60% and 0.65% of total loans and 69.78% and 71.65% of
nonperforming loans, respectively.  Nonperforming loans amounted to $268,000 and
$261,000 at  September  30, 1997 and 1996,  respectively,  representing  0.7% of
total  assets at each of those  dates.  Although  management  believes  that its
allowance  for loan losses at  September  30, 1997,  was  adequate  based on the
available facts and  circumstances,  there can be no assurance that additions to
such allowance will not be necessary in future  periods,  which could  adversely
affect the Company's results of operations.

Deposits  totaled  $30.0  million at  September  30,  1997,  an increase of $1.8
million,  or 6.2%,  over the $28.2  million  total at September  30,  1996.  The
increase  resulted  primarily from management's  continuing  efforts to maintain
growth in deposits through marketing and pricing strategies.

The  increase  in  deposits  consisted  of a  $367,000,  or  4.0%,  increase  in
transaction  accounts and a $1.4 million,  or 7.3%,  increase in certificates of
deposit.

Shareholders' equity totaled $7.6 million at September 30, 1997, a $303,000,  or
3.8%, decrease from 1996 levels. The decrease resulted primarily from a $282,000
purchase  of  treasury  shares,  a $315,000  purchase  of shares to fund a stock
benefit plan and cash dividends of $118,000,  which were partially offset by net
earnings of $385,000.


                       COMPARISON OF RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
 ------------------------------------------------------------------------------

General.  Net earnings for the fiscal year ended September 30, 1997, amounted to
$385,000,  an increase of $161,000,  or 71.9%, over the $224,000 in net earnings
recorded in fiscal 1996. The increase in net earnings resulted  primarily from a
$127,000  decline in  general  administrative  and other  expense,  including  a
one-time charge to recapitalize the Savings Association  Insurance Fund ("SAIF")
totaling  $193,000  which was recorded in fiscal  1996,  coupled with a $100,000
increase in net interest  income and a $36,000  increase in other income,  which
were partially offset by a $102,000 increase in the provision for federal income
taxes.



                                        7


<PAGE>


Net Interest  Income.  Net interest  income  totaled $1.4 million for the fiscal
year ended  September 30, 1997, an increase of $100,000,  or 7.9%, over the $1.3
million  recorded in fiscal 1996.  Interest  income on loans during fiscal 1997,
increased  by $4,000,  or .2%,  over  fiscal  1996  levels,  resulting  from the
combination of a $1.1 million increase in the weighted-average  balance of loans
outstanding  and a decrease  of 30 basis  points  (100 basis  points  equals one
percent) in the average  yield,  to 8.32%.  Interest  income on  mortgage-backed
securities  increased by $95,000,  or 69.3%, due primarily to a $1.2 million, or
44.4%,  increase in the weighted-average  balance of mortgage-backed  securities
outstanding,  coupled  with an  increase in the  weighted-average  yield year to
year,  from 5.23% in fiscal  1996 to 6.13% in fiscal  1997.  Interest  income on
investment  securities and  interest-bearing  deposits decreased by $36,000,  or
14.1%, for the fiscal year ended September 30, 1997, compared to fiscal 1996, as
the  weighted-average  balance  decreased  by  $490,000  year  to  year,  due to
maturities  and sales,  and the related yield  decreased by 17 basis points,  to
5.84% in fiscal 1997.

Interest expense on deposits decreased by $51,000,  or 3.5%, during fiscal 1997,
compared to fiscal  1996,  due  primarily  to a decline of 5 basis points in the
weighted-average cost of deposits,  from 4.93% in fiscal 1996 to 4.88% in fiscal
1997,  coupled  with a  $693,000  decrease  in the  weighted-average  balance of
deposits outstanding year to year.

As a result of the foregoing  changes in interest  income and interest  expense,
net interest  income  increased by $100,000,  or 7.9%,  during  fiscal 1997,  as
compared to fiscal 1996. The interest rate spread  decreased by 16 basis points,
to 2.90% for fiscal 1997,  as compared to 3.06% for fiscal  1996,  while the net
interest margin increased by 10 basis points, to 3.77% for the fiscal year ended
September 30, 1997.

Provision for Loan Losses. Citizens maintains an allowance for loan losses in an
amount  which,  in  management's  judgment,  is  adequate  to absorb  reasonably
foreseeable losses inherent in the loan portfolio. The provision for loan losses
is  determined by management as the amount to be added to the allowance for loan
losses,  after net charge-offs  have been deducted,  to bring the allowance to a
level  which is  considered  adequate  to  absorb  losses  inherent  in the loan
portfolio in accordance with generally accepted accounting  principles ("GAAP").
The amount of the provision is based on management's  regular review of the loan
portfolio  and  consideration  of such factors as  historical  loss  experience,
generally prevailing economic conditions, changes in the size and composition of
the loan portfolio and considerations  relating to specific loans, including the
ability  of the  borrower  to  repay  the loan  and the  estimated  value of the
underlying  collateral.  Although  management  utilizes  its best  judgment  and
information available,  the ultimate adequacy of the allowance is dependent upon
a variety of factors, including the performance of Citizens' loan portfolio, the
economy,  changes  in real  estate  values  and  interest  rates and  regulatory
requirements  regarding  asset  classifications.  As a result  of its  analysis,
management  concluded  that the  allowance  was adequate  during the fiscal year
ended  September  30, 1997,  and  therefore a provision  for loan losses was not
deemed necessary.  There can be no assurance that the allowance will be adequate
to cover losses on nonperforming assets in the future.

Other Income.  Other income totaled $107,000 for the fiscal year ended September
30, 1997, an increase of $36,000,  or 50.7%, over the $71,000 recorded in fiscal
1996.  The  increase  resulted  primarily  from the  $40,000  gain  recorded  in
connection  with the sale of investment  securities  designated as available for
sale.






                                        8



<PAGE>


General,  Administrative  and Other Expense.  General,  administrative and other
expense  decreased by $127,000,  or 12.5%, to a total of $887,000 for the fiscal
year ended September 30, 1997, as compared to fiscal 1996. The decrease resulted
primarily from a $193,000 charge recorded as a result of legislation  enacted to
recapitalize  the SAIF  during  fiscal  1996,  which was  partially  offset by a
$20,000, or 4.7%, increase in employee  compensation and benefits and a $44,000,
or 25.9%,  increase  in other  operating  expenses.  The  increase  in  employee
compensation  and benefits  resulted  primarily from costs  associated  with the
stock  benefit plans of LFC and normal merit  increases for existing  employees.
The increase in other operating expense was due primarily to professional  fees,
printing and other expenses  related to the reporting  requirements  of a public
stock company.

Federal Income Taxes.  The provision for federal  income taxes totaled  $199,000
for the fiscal year ended  September  30,  1997,  an increase  of  $102,000,  or
105.2%,  over the  $97,000  provision  recorded  in fiscal  1996.  The  increase
resulted  primarily from an increase of $263,000,  or 81.9%,  in pretax earnings
year to year.  Citizens' effective tax rates were 34.1% and 30.2% for the fiscal
years ended September 30, 1997 and 1996, respectively.


                       COMPARISON OF RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
 ------------------------------------------------------------------------------

General.  Net earnings for the fiscal year ended September 30, 1996, amounted to
$224,000,  an increase of $81,000,  or 56.6%,  over the $143,000 in net earnings
recorded in fiscal 1995. The increase in net earnings resulted  primarily from a
$326,000 increase in net interest income, which was partially offset by a $3,000
decrease in other income,  a $222,000  increase in general,  administrative  and
other expense and a $20,000 increase in the provision for federal income taxes.

Net Interest  Income.  Net interest  income  totaled $1.3 million for the fiscal
year ended  September  30,  1996,  an increase of $326,000,  or 34.8%,  over the
$938,000  recorded  in  fiscal  1995.  Interest  income  on loans  increased  by
$284,000,  or 13.6%,  during  fiscal  1996,  due  primarily  to a 90 basis point
increase in yield,  from 7.72% in fiscal 1995 to 8.62% in fiscal  1996,  coupled
with a $473,000 increase in the  weighted-average  balance of loans outstanding.
Interest income on mortgage-backed  securities  increased by $38,000,  or 38.4%,
due primarily to a $527,000, or 25.2%, increase in the weighted-average  balance
of  mortgage-backed  securities  outstanding,  coupled  with an  increase in the
weighted-average  yield  year to year,  from  4.73% in  fiscal  1995 to 5.23% in
fiscal 1996.  Interest  income on  investment  securities  and  interest-bearing
deposits  increased by $113,000,  or 79.6%,  for the fiscal year ended September
30, 1996, compared to fiscal 1995, as the weighted-average  balance increased by
$1.7 million year to year and the related yield  increased by 46 basis points to
6.01% in fiscal 1996.

Interest expense on deposits increased by $109,000, or 8.0%, during fiscal 1996,
due primarily to an increase of 25 basis points in the weighted-average  cost of
deposits,  from 4.68% in fiscal  1995 to 4.93% in fiscal  1996,  coupled  with a
$720,000 increase in the  weighted-average  balance of deposits outstanding year
to year. Although deposits were $2.4 million less at September 30, 1996, than at
September  30,  1995,  the  weighted-average  balance  of  deposits  outstanding
increased by $720,000 due to increases in deposit balances at the time of and in
connection with the Conversion.






                                        9



<PAGE>


As a result of the foregoing  changes in interest  income and interest  expense,
net interest  income  increased by $326,000,  or 34.8%,  during  fiscal 1996, as
compared to fiscal 1995. The interest rate spread  increased by 44 basis points,
to 3.06% for fiscal 1996,  as compared to 2.62% for fiscal  1995,  while the net
interest margin increased by 72 basis points, to 3.67% for the fiscal year ended
September  30,  1996.  The overall  increase  in net  interest  income  reflects
management's deployment of the net proceeds of the Conversion.

Provision  for Loan  Losses.  Based on  management's  review of  Citizens'  loan
portfolio  and  consideration  of such factors as  historical  loss  experience,
generally prevailing economic conditions, changes in the size and composition of
the loan portfolio and considerations  relating to specific loans, Citizens made
no provision  for loan losses for the fiscal years ended  September 30, 1996 and
1995.

Other Income.  Other income totaled  $71,000 for the fiscal year ended September
30, 1996,  a decrease of $3,000,  or 4.1%,  from the $74,000  recorded in fiscal
1995. The decrease resulted primarily from a decline in service fees and charges
on deposits and loan accounts.

General,  Administrative  and Other Expense.  General,  administrative and other
expense  increased  by  $222,000,  or 28.0%,  to a total of $1.0 million for the
fiscal year ended  September 30, 1996, as compared to fiscal 1995.  The increase
resulted  primarily from a $193,000  charge  recorded as a result of legislation
enacted to recapitalize the Savings  Association  Insurance Fund, coupled with a
$21,000, or 5.2%, increase in employee  compensation and benefits and a $16,000,
or 10.4%,  increase  in other  operating  expenses.  The  increase  in  employee
compensation  and benefits  resulted  primarily from costs  associated  with the
London  Financial  Corporation  Employee  Stock  Ownership Plan and normal merit
increases for existing  employees.  The increase in other operating  expense was
due primarily to professional  fees,  printing and other expenses related to the
reporting requirements of public companies.

Federal Income Taxes. The provision for federal income taxes totaled $97,000 for
the fiscal year ended September 30, 1996, an increase of $20,000, or 26.0%, over
the $77,000 provision  recorded in fiscal 1995. The increase resulted  primarily
from an  increase  of  $101,000,  or  45.9%,  in pretax  earnings  year to year.
Citizens'  effective  tax rates were 30.2% and 34.9% for the fiscal  years ended
September 30, 1996 and 1995, respectively.




















                                       10



<PAGE>


The  following  table sets forth  certain  average  balance  sheet  information,
including the average yield on  interest-earning  assets and the average cost of
interest-bearing  liabilities for the years indicated. Such yields and costs are
derived  by  dividing  income or  expense  by the  average  monthly  balance  of
interest-earning assets or interest-bearing liabilities,  respectively,  for the
years  presented.  Average  balances are derived from  monthly  balances,  which
include nonaccruing loans in the loan portfolio.

<TABLE>
<CAPTION>

                                                                                          Year ended September 30,
                                                                 1997                                          1996  
                                      --------------------------------------------------       ------------------------------- 
                                         Weighted          Average   Interest    Average         Average   Interest    Average  
                                   average yield at    outstanding    earned/     yield/     outstanding    earned/     yield/  
                                    September 30, 1997     balance       paid       rate         balance       paid       rate  
                                                                           (Dollars in thousands)
<S>                                         <C>                <C>        <C>         <C>           <C>         <C>        <C>  
Interest-earning assets:
Interest-bearing deposits in other
  financial institutions .................. 4.79%         $  2,562    $   161         6.28%     $  3,278    $   202        6.16%
Investment securities ..................... 6.13             1,188         58         4.88           962         53        5.51 
Mortgage-backed securities ................ 6.30             3,782        232         6.13         2,620        137        5.23 
Loans receivable(1) ....................... 8.28            28,618      2,381         8.32        27,567      2,377        8.62 
                                                            ------      -----     --------        ------      -----    -------- 
     Total interest-earning assets ......................   36,150      2,832         7.83        34,427      2,769        8.04 

Non-interest-earning assets .............................    1,870                                 1,732                        
                                                           -------                               -------                        

     Total assets .......................................  $38,020                               $36,159                        
                                                            ======                                ======                        

Interest-bearing liabilities:
NOW accounts .............................. 2.27          $  3,450         65         1.88      $  3,045         61        2.00 
Money market accounts ..................... 2.71               233          6         2.58           333          9        2.70 
Passbook savings accounts ................. 3.00             5,843        177         3.03         6,297        188        2.99 
Certificates of deposit ................... 5.92            19,724      1,178         5.97        20,268      1,219        6.01 
                                                            ------      -----     --------        ------      -----    -------- 
     Total deposits ....................... 4.92            29,250      1,426         4.88        29,943      1,477        4.93 
FHLB advances ............................. 9.25               531         42         7.91           300         28        9.25 
                                                          --------    -------     --------      --------    -------    -------- 
    Total interest-bearing liabilities .... 4.96            29,781      1,468         4.93        30,243      1,505        4.98 
                                                                        -----     --------                    -----    -------- 

Non-interest-bearing liabilities .......................       761                                   778                        
                                                          --------                              --------                        

     Total liabilities .................................    30,542                                31,021                        

Shareholders' equity(2) ................................     7,478                                 5,138                        
                                                           -------                               -------                        

     Total liabilities and
       shareholders' equity ............................   $38,020                               $36,159                        
                                                            ======                                ======                        

Net interest income .................................................. $1,364                                $1,264             
                                                                        =====                                 =====             
Interest rate spread ...........................................................      2.90%                                3.06%
                                                                                  ========                             ======== 
Net interest margin (net interest
  income as a percentage of average
  interest-earning assets) .....................................................      3.77%                                3.67%
                                                                                  ========                             ======== 
Average interest-earning assets to
  average interest-bearing liabilities .........................................  121.39%                              113.83%  
                                                                                  ======                               ======   


<CAPTION>
                                        
                                                           1995
                                          ------------------------------------
                                             Average   Interest    Average
                                         outstanding    earned/     yield/
                                             balance       paid       rate
                                                 (Dollars in thousands)
<S>                                           <C>            <C>       <C>   
Interest-earning assets:
Interest-bearing deposits in other
  financial institutions ................   $  1,827   $     99        5.42%
Investment securities .....................      730         43        5.89
Mortgage-backed securities ................    2,093         99        4.73
Loans receivable(1) .......................   27,094      2,093        7.72
                                              ------      -----    --------
     Total interest-earning assets .......... 31,744      2,334        7.35

Non-interest-earning assets .................    980
                                            --------

     Total assets .........................  $32,724
                                              ======

Interest-bearing liabilities:
NOW accounts .............................. $  2,713         56        2.06
Money market accounts .....................      425         12        2.82
Passbook savings accounts .................    6,594        206        3.12
Certificates of deposit ...................   19,491      1,094        5.61
                                              ------      -----    --------
     Total deposits .......................   29,223      1,368        4.68
FHLB advances .............................      300         28        9.25
                                            --------    -------    --------
    Total interest-bearing liabilities ....   29,523      1,396        4.73
                                                        -------    --------

Non-interest-bearing liabilities ...........      33
                                           ---------

     Total liabilities .....................  29,556

Shareholders' equity(2) ....................   3,168
                                             -------

     Total liabilities and
       shareholders' equity ................ $32,724
                                              ======

Net interest income ........................           $   938
                                                        ======
Interest rate spread .......................                            2.62%
                                                                       ====== 
Net interest margin (net interest
  income as a percentage of average
  interest-earning assets) ................                             2.95%
                                                                       ====== 
Average interest-earning assets to
  average interest-bearing liabilities ........                       107.52%
                                                                      ====== 
-----------------------------------
<FN>

(1)  Net of deferred loan fees,  loan  discounts,  the allowance for loan losses
     and loans in process.  Loan fees included in interest  income  totaled $81,
     $112,  and $54 for the fiscal years ended  September  30, 1997,  1996,  and
     1995, respectively.

(2)  Consisted  solely of retained  earnings for the fiscal year ended September
     30, 1995.
</FN>
</TABLE>

                                       11



<PAGE>


The table below  describes  the extent to which  changes in  interest  rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the interest  income and interest  expense of LFC during the years
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided for changes  attributable to (i) increases
and decreases in volume (change in volume  multiplied by prior year rate),  (ii)
increases and decreases in rate (change in rate multiplied by prior year volume)
and (iii) total increases and decreases in rate and volume. The combined effects
of changes in both volume and rate, which cannot be separately identified,  have
been allocated proportionately to the change due to volume and the change due to
rate.

<TABLE>
<CAPTION>

                            Year ended September 30,
                                                          1997 vs. 1996                            1996 vs. 1995
                                            ------------------------------------         ----------------------------
                                                     Increase              Total            Increase              Total
                                               (decrease) due to        increase       (decrease) due to       increase
                                               Volume       Rate      (decrease)       Volume       Rate     (decrease)
Interest income attributable to:
<S>                                             <C>       <C>               <C>         <C>        <C>             <C> 
  Interest-bearing deposits ................    $ (45)    $    4            $(41)       $  85      $  18           $103
  Investment securities ....................       11         (6)              5           12         (2)            10
  Mortgage-backed securities ...............       71         24              95           27         11             38
  Loans receivable .........................       88        (84)              4           38        246            284
                                                 ----       ----            ----         ----        ---            ---
     Total interest income .................      125        (62)             63          162        273            435

Interest expense attributable to:
  NOW accounts .............................        8         (4)              4            7         (2)             5
  Money market accounts ....................       (3)        -               (3)          (2)        (1)            (3)
  Passbook savings accounts ................      (14)         3             (11)          (9)        (9)           (18)
  Certificates of deposit ..................      (33)        (8)            (41)          45         80            125
                                                 ----      -----             ---         ----       ----            ---
     Total deposits ........................      (42)        (9)            (51)          41         68            109

  Advances from FHLB .......................       18         (4)             14           -          -              -
                                                 ----      -----             ---           --         --             -

     Total interest expense ................      (24)       (13)            (37)          41         68            109
                                                 ----       ----             ---         ----       ----            ---

Increase in net interest income ..........................................  $100                                   $326
                                                                             ===                                    ===
</TABLE>


                         ASSET AND LIABILITY MANAGEMENT
 -------------------------------------------------------------------------------

As a part of its effort to monitor its interest rate risk,  Citizens reviews the
reports of the OTS which set forth the application of the "net portfolio  value"
("NPV") methodology,  adopted by the OTS as part of its capital regulations,  to
the assets and  liabilities of Citizens.  Implementation  of the NPV regulations
has been delayed by the OTS.  Although  Citizens would not be subject to the NPV
regulation  because  it has less than $300  million  in  assets  and  risk-based
capital  in  excess  of 12%,  the  application  of the NPV  methodology  assists
Citizens in monitoring its level of interest rate risk.








                                       12



<PAGE>


Generally,  NPV is the  discounted  present  value  of  the  difference  between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing  liabilities. The application of the methodology attempts to
quantify  interest  rate risk as the change in the NPV which would result from a
theoretical  200 basis  point  (100  basis  point  equals  1%)  change in market
interest  rates.  Both a 200 basis point increase in market interest rates and a
200 basis point  decrease in market  interest rates are  considered.  If the NPV
would  decrease  more than 2% of the present value of the  institution's  assets
with either an increase or a decrease in market  rates,  the  institution  would
have to deduct  50% of the  amount of the  decrease  in excess of such 2% in the
calculation of the institution's  risk-based capital, if the regulations were in
effect.  Even before the regulation is in effect,  OTS could increase  Citizens'
risk-based  capital  requirement  on an  individualized  basis to address excess
interest rate risk.

At  September  30,  1997,  2% of the  present  value  of  Citizens'  assets  was
approximately  $760,000.  Because  the  interest  rate risk of a 200 basis point
decrease in market interest rates (which was greater than the interest rate risk
of a 200 basis point  increase)  was  $357,000 at September  30, 1997,  Citizens
would  not  have  been  required  to  deduct  any  amount  from its  capital  in
determining  whether  Citizens met its  risk-based  capital  requirement  if the
regulation had been in effect for Citizens at such date.

The following table presents,  as of September 30, 1997 and 1996, an analysis of
the  interest  rate  risk  of  Citizens  as  measured  by  changes  in  NPV  for
instantaneous  and sustained  parallel  shifts of 100 basis point  increments in
market  interest  rates.  The first column of the table consists of hypothetical
incremental  changes in such  interest  rates.  The second  column  contains the
policy limits set by the Board of Directors of Citizens as the maximum change in
NPV that the Board of Directors  deems advisable in the event of various changes
in interest rates.  Such limits have been established with  consideration of the
dollar  impact of various  rate  changes  and the  strong  capital  position  of
Citizens.  The third and fourth columns and the remaining two columns set forth,
as of September 30, 1997, and September 30, 1996, respectively,  the effect that
a particular change in market interest rates would have on the NPV of Citizens.
<TABLE>
<CAPTION>

                                                             At September 30, 1997         At September 30, 1996
Change in interest rate          Board limit              $ change        % change       $ change       % change
      (basis points)                % change                in NPV          in NPV         in NPV         in NPV
                             (Dollars in thousands)
          <S>                          <C>                    <C>             <C>            <C>            <C>
        +400                          (80)%                  $  31             -%          $(316)           (5)%
        +300                          (60)                     213             3             (81)           (1)
        +200                          (40)                     277             4               63            1
        +100                          (20)                     197             3               92            2
        0                                -                      -              -                -            -
        -100                          (20)                   (236)           (4)            (150)          (2)
        -200                          (40)                   (357)           (5)            (291)          (5)
        -300                          (60)                   (374)           (6)            (275)          (5)
        -400                          (80)                   (322)           (5)            (162)          (3)
</TABLE>

As illustrated by the table, the NPV of Citizens is nearly equally  sensitive to
rising and declining rates. Such similarity in sensitivity occurs principally as
a result of the maintenance by Citizens of a loan portfolio consisting primarily
of  adjustable-rate  residential real estate loans ("ARMs").  Both the amount of
interest Citizens would receive on its loans and the interest Citizens would pay
on its deposits would either increase or decrease  depending on the direction of
a change in the market  interest  rate.  The  relatively  slight  differences in
sensitivity  between rising and falling rates are generally  attributable to the
annual  repricing  of ARMs  compared  to the  shorter  period  to  repricing  of
deposits. Assumptions used in calculating the amounts in the foregoing table are
OTS assumptions.




                                       13



<PAGE>


As with any method of measuring  interest rate risk,  certain  shortcomings  are
inherent  in  the  NPV  approach.  For  example,  although  certain  assets  and
liabilities may have similar maturities or periods of repricing,  they may react
in different  degrees to changes in market  interest  rates.  Also, the interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind  changes in market rates.  Further,  in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed  securities and
early  withdrawal  levels from  certificates  of deposit  would  likely  deviate
significantly from those assumed in making the risk calculations.

A decrease or a  significant  increase in interest  rates from the recent levels
could be expected to affect  negatively  the net  interest  income of  Citizens.
Moreover, rising interest rates could negatively affect the earnings of Citizens
due to diminished loan demand.  Citizens attempts to mitigate interest rate risk
by originating adjustable-rate loans.


                         LIQUIDITY AND CAPITAL RESOURCES
 -------------------------------------------------------------------------------

The liquidity of Citizens,  primarily  represented by cash and cash equivalents,
is a  result  of  its  operating,  investing  and  financing  activities.  These
activities are summarized in the following  table for the years ended  September
30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>

                                                         For the year ended September 30,
                                                        1997          1996             1995
                                                                 (In thousands)

<S>                                                  <C>           <C>              <C>    
Net earnings ......................................  $   385       $   224          $   143
Adjustments to reconcile net earnings
  to net cash from operating activities ...........     (110)          216              (15)
                                                      ------        ------          -------

Net cash from operating activities ................      275           440              128

Net cash from investing activities ................     (295)       (2,697)          (2,111)

Net cash from financing activities ................    1,041         2,056            2,271
                                                       -----         -----            -----

Net change in cash and cash equivalents ...........    1,021          (201)             288

Cash and cash equivalents at beginning of year ....    2,643         2,844            2,556
                                                       -----         -----            -----

Cash and cash equivalents at end of year ..........   $3,664        $2,643           $2,844
                                                       =====         =====            =====
</TABLE>

The   principal   sources  of  funds  for  Citizens  are   deposits,   loan  and
mortgage-backed  security  repayments,  maturities of investment  securities and
funds generated through operations. Citizens also has the ability to borrow from
the FHLB of Cincinnati. While scheduled loan repayments and maturing investments
are  relatively  predictable,  deposit  flows and loan  prepayments  are heavily
influenced by interest  rates,  general  economic  conditions  and  competition.
Citizens  maintains a level of  investment  in liquid assets which is based upon
management's  assessment of (i) the need for funds, (ii) expected deposit flows,
(iii) the yields  available on short-term  liquid assets and (iv) the objectives
of the asset and liability management program of Citizens.



                                       14



<PAGE>


OTS regulations  presently require Citizens to maintain an average daily balance
of liquid assets,  which may include,  but are not limited to, investments in U.
S.  Treasury  and  federal  agency  obligations  and  other  investments  having
maturities  of five  years  or  less,  in an  amount  equal  to 4% of the sum of
Citizens'  average  daily  balance  of net  withdrawable  deposit  accounts  and
borrowings payable in one year or less. The liquidity requirement,  which may be
changed from time to time by the OTS to reflect changing economic conditions, is
intended to provide a source of relatively  liquid funds upon which Citizens may
rely if necessary to fund deposit withdrawals or other short-term funding needs.
At  September  30, 1997,  Citizens  liquid  assets  totaled  approximately  $3.0
million,  which exceeded the OTS minimum  requirements by $1.5 million.  At such
date,  Citizens had commitments to originate loans and loans in process totaling
$463,000 and  $885,000,  respectively,  and no  commitments  to purchase or sell
loans.  Citizens considers its liquidity and capital reserves sufficient to meet
its outstanding short-term and long-term needs.

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 the association's  adjusted
total assets.  Tangible  capital is defined in OTS  regulations  as core capital
minus any intangible assets.

"Core capital" is comprised of common  shareholders'  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 the association's  total assets. The OTS
has  proposed  to  increase  such  requirement  to 4% to 5%,  except  for  those
associations with the highest examination rating and acceptable levels of risk.

OTS regulations require that savings associations  maintain "risk-based capital"
in an amount not less than 8% of  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  following  table sets forth the amount and  percentage  level of regulatory
capital of Citizens at September  30,  1997,  and the amount by which it exceeds
the minimum requirements:
<TABLE>
<CAPTION>

                                                        At September 30, 1997
                                                                     Percent of
                                                     Amount              assets
                                                       (Dollars in thousands)

<S>                                                    <C>                 <C>  
Capital under GAAP before adjustments .............  $5,824               15.9%
                                                      =====               ==== 

Tangible capital:
  Capital level ...................................  $5,824               15.9%
  Requirement .....................................     551                1.5
                                                     ------              -----

  Excess ..........................................  $5,273               14.4%
                                                      =====               ==== 

Core capital:
  Capital level ...................................  $5,824               15.9%
  Requirement .....................................   1,102                3.0
                                                      -----              -----

  Excess ..........................................  $4,722               12.9%
                                                      =====               ==== 

Risk-based capital:
  Capital level ...................................  $6,011               30.8%
  Requirement .....................................   1,563                8.0
                                                      -----              -----

  Excess ..........................................  $4,448               22.8%
                                                      =====               ==== 
</TABLE>


                                       15



<PAGE>


                   EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
 -------------------------------------------------------------------------------

In October 1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation",  establishing  financial  accounting  and  reporting
standards  for  stock-based  compensation  plans.  SFAS No. 123  encourages  all
entities to adopt a new method of accounting to measure compensation cost of all
stock  compensation  plans based on the estimated fair value of the award at the
date it is  granted.  Companies  are,  however,  allowed to  continue to measure
compensation  cost for those plans  using the  intrinsic  value based  method of
accounting,  which generally does not result in compensation expense recognition
for most plans.  Companies that elect to remain with the existing accounting are
required to disclose in a footnote  to the  financial  statements  pro forma net
earnings  and, if  presented,  earnings  per share,  as if SFAS No. 123 had been
adopted.  The  accounting  requirements  of  SFAS  No.  123  are  effective  for
transactions  entered  into during  fiscal  years that begin after  December 15,
1995; however, companies are required to disclose information for awards granted
in their first fiscal year  beginning  after  December 15, 1994.  Management has
determined  that the  Corporation  will  continue  to  account  for  stock-based
compensation  pursuant  to  Accounting  Principles  Board  Opinion  No.  25, and
therefore the  disclosure  provisions of SFAS No. 123 will have no effect on its
consolidated financial condition or results of operations.

In June 1996,  the FASB  issued  SFAS No.  125,  "Accounting  for  Transfers  of
Financial Assets,  Servicing Rights,  and  Extinguishment of Liabilities",  that
provides  accounting  guidance on transfers of  financial  assets,  servicing of
financial assets, and extinguishment of liabilities.  SFAS No. 125 introduces an
approach to accounting  for transfers of financial  assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial  interest in the assets,  retains  rights or  obligations,  makes use of
special  purpose  entities  in the  transaction,  or  otherwise  has  continuing
involvement with the transferred assets. The new accounting method,  referred to
as the financial components  approach,  provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values.  SFAS No. 125 provides  criteria for  determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer  does not qualify as a sale,  it is  accounted  for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements,  securitizations of financial
assets,  loan   participations,   factoring   arrangements,   and  transfers  of
receivables with recourse.

An entity that undertakes an obligation to service  financial assets  recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets,  and all the securitized  assets are retained and
classified  as  held-to-maturity).  A  servicing  asset  or  liability  that  is
purchased or assumed is initially recognized at its fair value. Servicing assets
and  liabilities are amortized in proportion to and over the period of estimated
net  servicing  income  or net  servicing  loss and are  subject  to  subsequent
assessments for impairment based on fair value.

SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor  either pays the creditor and is relieved of its  obligation  for the
liability or is legally released from being the primary obligor.






                                       16



<PAGE>


SFAS No. 125 is effective for  transfers  and servicing of financial  assets and
extinguishment  of liabilities  occurring  after December 31, 1997, and is to be
applied  prospectively.  Earlier or  retroactive  application  is not permitted.
Management  does not believe that  adoption of SFAS No. 125 will have a material
adverse effect on the Corporation's  consolidated  financial position or results
of operations.

In February  1997,  the FASB issued SFAS No. 128,  "Earnings  Per Share",  which
requires  companies  to present  basic  earnings  per share and, if  applicable,
diluted  earnings per share,  instead of primary and fully diluted  earnings per
share,  respectively.  Basic  earnings per share is computed  without  including
potential common shares, i.e., no dilutive effect. Diluted earnings per share is
computed  taking into  consideration  common  shares  outstanding  and  dilutive
potential common shares, including options, warrants, convertible securities and
contingent stock agreements.  SFAS No. 128 is effective for periods ending after
December 15, 1997. Early application is not permitted. Based upon the provisions
of SFAS No. 128, the Corporation's  basic and diluted earnings per share for the
year ended September 30, 1997, would have each been $.81.

In February  1997,  the FASB issued SFAS No. 129,  "Disclosures  of  Information
about Capital Structure." SFAS No. 129 consolidated existing accounting guidance
relating to  disclosure  about a company's  capital  structure.  SFAS No. 129 is
effective for financial  statements  for periods ending after December 15, 1997.
SFAS No.  129 is not  expected  to have a material  impact on the  Corporation's
financial statements.

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income."
SFAS No. 130  establishes  standards for reporting and display of  comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of general-purpose  financial  statements.  SFAS No. 130 requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence  as other  financial  statements.  It does  not  require  a
specific  format for that  financial  statement  but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.

SFAS  No.  130  requires  that  an  enterprise   (a)  classify  items  of  other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997.  Reclassification of financial statements for earlier periods
provided for comparative  purposes is required.  SFAS No. 130 is not expected to
have a material impact on the Corporation's financial statements.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information." SFAS No. 131 significantly changes the way
that public business  enterprises report information about operating segments in
annual financial  statements and requires that those enterprises report selected
information  about reportable  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas and major customers. SFAS No. 131 uses a







                                       17



<PAGE>


"management  approach" to disclose  financial and descriptive  information about
the way that management  organizes the segments within the enterprise for making
operating  decisions  and  assessing  performance.  For  many  enterprises,  the
management  approach  will likely  result in more segments  being  reported.  In
addition,  SFAS No. 131 requires  significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements  and also requires that selected  information  be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on the
Corporation's financial statements.


                     IMPACT OF INFLATION AND CHANGING PRICES
 -------------------------------------------------------------------------------

The  consolidated  financial  statements and notes thereto  included herein have
been prepared in accordance with GAAP,  which requires LFC to measure  financial
position  and  operating  results  in  terms  of  historical  dollars,  with the
exception of investment securities available-for-sale, which are carried at fair
value.  Changes in the relative value of money due to inflation or recession are
generally not considered.

In  management's  opinion,  changes  in  interest  rates  affect  the  financial
condition of a financial institution to a far greater degree than changes in the
rate of inflation. While interest rates are greatly influenced by changes in the
rate of inflation,  they do not change at the same rate or in the same magnitude
as the rate of inflation.  Rather,  interest rate volatility is based on changes
in the  expected  rate of  inflation,  as well as changes in monetary and fiscal
policies.


                         CHARTER UNIFICATION LEGISLATION
 -------------------------------------------------------------------------------

Congress is considering  legislation  to eliminate the federal  savings and loan
charter and the separate  federal  regulation of savings and loan  associations.
Pursuant to such  legislation,  Congress may eliminate the OTS, and Citizens may
be regulated under federal law as a bank. Such change in regulation 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 form of holding company  regulation,  which may limit the
activities  in  which  LFC may  engage,  and  subject  LFC to  other  additional
regulatory requirements,  including separate capital requirements. At this time,
LFC cannot  predict  when or whether  Congress  may  actually  pass  legislation
regarding LFC and Citizens  regulatory  requirements.  Although such legislation
may change the activities in which either LFC and Citizens may engage, it is not
anticipated  that  the  current  activities  of both  LFC and  Citizens  will be
materially affected by those activity limits.











                                       18



<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
London Financial Corporation

We have audited the accompanying  consolidated statements of financial condition
of London  Financial  Corporation  as of  September  30, 1997 and 1996,  and the
related consolidated statements of earnings, shareholders' equity and cash flows
for the years  then  ended.  These  consolidated  financial  statements  are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated  financial  statements based on our audits. The
consolidated  financial  statements as of September  30, 1995,  and for the year
then ended,  were audited by other auditors,  whose report thereon dated October
27, 1995,  expressed an unqualified  opinion on those statements and included an
explanatory  paragraph  relative  to a change in the  method of  accounting  for
certain debt and equity securities.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of London Financial
Corporation as of September 30, 1997 and 1996, and the  consolidated  results of
its operations and its cash flows for the years then ended,  in conformity  with
generally accepted accounting principles.






Cincinnati, Ohio
November 14, 1997





                                       19



<PAGE>


                          London Financial Corporation

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  September 30,
                        (In thousands, except share data)
<TABLE>
<CAPTION>


         ASSETS                                                                                1997                1996

<S>                                                                                       <C>                 <C>      
Cash and due from banks ............................................................... . $     322           $     319
Interest-bearing deposits in other financial institutions ............................. .     3,342               2,324
                                                                                            -------             -------
         Cash and cash equivalents .................................................... .     3,664               2,643

Investment securities designated as available
  for sale - at market ................................................................ .       155                 220
Investment securities - at cost, approximate
  market value of $502 and $1,991 as of
  September 30, 1997 and 1996 ......................................................... .       500               2,000
Mortgage-backed securities - at amortized
  cost, approximate market value of $3,613 and
  $3,944 as of September 30, 1997 and 1996 ............................................ .     3,586               4,032
Loans receivable - net ................................................................ .    29,465              27,031
Office premises and equipment - at depreciated cost .....................................       360                 354
Stock in Federal Home Loan Bank - at cost ...............................................       280                 261
Accrued interest receivable .............................................................       169                 178
Prepaid expenses and other assets .......................................................        31                  21
Deferred federal income taxes ...........................................................        -                   77
                                                                                            -------           ---------

         Total assets ...................................................................   $38,210             $36,817
                                                                                             ======              ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits ................................................................................   $29,951             $28,195
Advances from the Federal Home Loan Bank ................................................       300                 300
Other liabilities .......................................................................       162                 279
Accrued federal income taxes ............................................................       141                 136
Deferred federal income taxes ...........................................................        52                  -
                                                                                          ---------             ------
         Total liabilities ..............................................................    30,606              28,910

Commitments .............................................................................        -                   -

Shareholders' equity
  Common stock - authorized 5,000,000 shares without par
    value; 529,000 shares issued ........................................................        -                   -
  Additional paid-in capital ............................................................     4,910               4,910
  Retained earnings - substantially restricted ..........................................     3,683               3,416
  Unrealized gains on securities designated as available
    for sale, net of related tax effects ................................................        31                   4
  Shares acquired by Employee Stock Ownership Plan ......................................      (423)               (423)
  Shares acquired by Management Recognition Plan ........................................      (315)                 -
  Less 18,840 treasury shares - at cost .................................................      (282)                 -
                                                                                           --------              ------
         Total shareholders' equity .....................................................     7,604               7,907
                                                                                            -------             -------

         Total liabilities and shareholders' equity .....................................   $38,210             $36,817
                                                                                             ======              ======

</TABLE>




The accompanying notes are an integral part of these statements.

                                       20



<PAGE>


                          London Financial Corporation

                       CONSOLIDATED STATEMENTS OF EARNINGS

                            Year ended September 30,
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                       1997            1996         1995
Interest income
<S>                                                                  <C>             <C>          <C>   
  Loans ...........................................................  $2,381          $2,377       $2,093
  Mortgage-backed securities ......................................     232             137           99
  Investment securities ...........................................      58              53           26
  Interest-bearing deposits and other .............................     161             202          116
                                                                     ------          ------       ------
         Total interest income ....................................   2,832           2,769        2,334

Interest expense
  Deposits ........................................................   1,426           1,477        1,368
  Borrowings ......................................................      42              28           28
                                                                    -------         -------      -------
         Total interest expense ...................................   1,468           1,505        1,396
                                                                      -----           -----        -----

         Net interest income ......................................   1,364           1,264          938

Other income
  Gain on sale of investment securities designated
    as available for sale .........................................      40              -            -
  Other operating .................................................      67              71           74
                                                                    -------         -------      -------
         Total other income .......................................     107              71           74


General, administrative and other expense
  Employee compensation and benefits ..............................     445             425          404
  Occupancy and equipment .........................................      52              55           54
  Franchise taxes .................................................      88              45           44
  Federal deposit insurance premiums ..............................      32             262           81
  Data processing .................................................      56              57           55
  Other operating .................................................     214             170          154
                                                                     ------          ------       ------
         Total general, administrative and other expense ..........     887           1,014          792
                                                                     ------           -----       ------

         Earnings before income taxes .............................     584             321          220

Federal income taxes
  Current .........................................................      83             143           52
  Deferred ........................................................     116             (46)          25
                                                                     ------         -------      -------
         Total federal income taxes ...............................     199              97           77
                                                                     ------         -------      -------

         NET EARNINGS ............................................. $   385         $   224      $   143
                                                                     ======          ======       ======

         EARNINGS PER SHARE .......................................    $.81             N/A          N/A
                                                                        ===             ===          ===

</TABLE>



The accompanying notes are an integral part of these statements.

                                       21



<PAGE>


                          London Financial Corporation

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

              For the years ended September 30, 1997, 1996 and 1995
                        (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                                          Unrealized
                                                                               Shares       gains on
                                                                          acquired by     securities
                                                               Additional       stock     designated
                                                        Common    paid-in     benefit   as available    Retained  Treasury
                                                         stock    capital       plans       for sale    earnings     stock    Total
<S>                                                         <C>       <C>        <C>             <C>         <C>        <C>     <C>
Balance at October 1, 1994 ..............................  $-      $   -         $ -             $-       $3,081      $ -    $3,081

Net earnings for the year ended September 30, 1995 ......   -          -           -              -          143        -       143
 ........................................................   --      -----         ---            --       ------       ---    -----

Balance at September 30, 1995 ...........................   -          -           -              -        3,224        -     3,224

Reorganization to common stock form and issuance
  of shares in connection therewith - net ...............   -       4,910        (423)            -            -        -     4,487
Net earnings for the year ended September 30, 1996 ......   -          -           -              -          224        -       224
Dividends of $.06 per share .............................   -          -           -              -          (32)       -       (32)
Unrealized gains on securities designated as 
  available for sale, net of related tax effects ........   -          -           -              4            -        -         4
                                                            --      -----         ---         -----        -----      ---   -------

Balance at September 30, 1996 ...........................   -       4,910        (423)            4        3,416        -     7,907

Net earnings for the year ended September 30, 1997 ......   -          -           -              -          385        -       385
Dividends of $.24 per share .............................   -          -           -              -         (118)       -      (118)
Purchase of treasury shares at cost .....................   -          -           -              -            -     (282)    (282)
Purchase of shares for Management Recognition Plan ......   -          -         (315)            -            -        -      (315)
Unrealized gains on securities designated as
  available for sale, net of related tax effects ........   -          -           -             27            -        -        27
                                                            --      -----         ---          ----        -----      ---   -------

Balance at September 30, 1997 ...........................  $-      $4,910       $(738)        $  31       $3,683    $(282)   $7,604
                                                            ==      =====        ====          ====        =====     ====     =====
</TABLE>




The accompanying notes are an integral part of these statements.

                                       22



<PAGE>


                          London Financial Corporation

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    1997            1996           1995
Cash flows from operating activities:
<S>                                                                              <C>             <C>            <C>    
  Net earnings for the year .................................................... $   385         $   224        $   143
  Adjustments to reconcile net earnings to net cash
  provided by (used in) operating activities:
    Amortization of premiums and discounts
      on investments and mortgage-backed securities - net ......................       7               6              6
    Amortization of deferred loan origination fees .............................     (81)           (112)           (54)
    Gain on sale of investment securities designated as
      available for sale .......................................................     (40)             -              -
    Depreciation and amortization ..............................................      20              25             24
    Federal Home Loan Bank stock dividends .....................................     (19)            (17)           (15)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable ..............................................       9             (39)           (31)
      Prepaid expenses and other assets ........................................     (10)             13              7
      Other liabilities ........................................................    (117)            245              1
      Federal income taxes
        Current ................................................................       5             141             22
        Deferred ...............................................................     116             (46)            25
                                                                                  ------         -------        -------
         Net cash provided by operating activities .............................     275             440            128

Cash flows provided by (used in) investing activities:
  Purchase of mortgage-backed securities .......................................      -           (2,295)            -
  Principal repayments on mortgage-backed securities ...........................     439             266            167
  Purchase of investment securities designated as available
    for sale ...................................................................      -             (214)            -
  Purchase of investment securities designated as
    held to maturity ...........................................................      -           (1,500)            -
  Proceeds from sale of investment securities designated
    as available for sale ......................................................     145              -              -
  Proceeds from maturity of investment securities ..............................   1,500              -              -
  Loan principal repayments ....................................................   5,438           8,227          4,494
  Loan disbursements ...........................................................  (7,791)         (7,174)        (6,763)
  Purchase of office premises and equipment ....................................     (26)             (7)            (9)
                                                                                 -------        --------       --------
         Net cash used in investing activities .................................    (295)         (2,697)        (2,111)

Cash flows provided by (used in) financing activities:
  Net increase (decrease) in deposits ..........................................   1,756          (2,399)         2,271
  Proceeds from Federal Home Loan Bank advances ................................     500              -              -
  Repayment of Federal Home Loan Bank advances .................................    (500)             -              -
  Net proceeds from issuance of common shares ..................................      -            4,487             -
  Purchase of shares for Management Recognition Plan ...........................    (315)             -              -
  Dividends on common shares ...................................................    (118)            (32)            -
  Purchase of treasury shares ..................................................    (282)             -              -
                                                                                  ------           -----          ----
         Net cash provided by financing activities .............................   1,041           2,056          2,271
                                                                                   -----           -----          -----

Net increase (decrease) in cash and cash equivalents ...........................   1,021            (201)           288

Cash and cash equivalents at beginning of year .................................   2,643           2,844          2,556
                                                                                   -----           -----          -----

Cash and cash equivalents at end of year .......................................  $3,664          $2,643         $2,844
                                                                                   =====           =====          =====
</TABLE>

                                       23


<PAGE>


                          London Financial Corporation

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                    1997            1996           1995

Supplemental disclosure of cash flow information: Cash paid during the year for:
<S>                                                                                 <C>             <C>            <C>     
    Federal income taxes ...................................................... $     85        $     55       $     20
                                                                                 =======         =======        =======

    Interest paid on deposits and borrowings ..................................   $1,463          $1,495         $1,393
                                                                                   =====           =====          =====

Supplemental disclosure of noncash investing activities:
  Unrealized gains on securities designated as
    available for sale, net of applicable tax effects ......................... $     27       $       4         $   -
                                                                                 =======        ========          ====


</TABLE>






























The accompanying notes are an integral part of these statements.

                                       24


<PAGE>


                          London Financial Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    In October  1995,  the Board of Directors  of The Citizens  Loan and Savings
    Company (the  "Company")  adopted a Plan of Conversion  (the "Plan") whereby
    the Company would  convert to the stock form of  ownership,  followed by the
    issuance of all of the Company's outstanding stock to a newly formed holding
    company,  London Financial Corporation (the "Corporation").  Pursuant to the
    Plan, the Corporation  offered common shares for sale to certain  depositors
    of the Company and members of the community. The conversion was completed on
    March 29, 1996, and resulted in the issuance of 529,000 common shares of the
    Corporation  which,  after   consideration  of  offering  expenses  totaling
    approximately  $380,000,  and  $423,000 in share  purchases  by the Employee
    Stock  Ownership  Plan  ("ESOP"),  resulted in net capital  proceeds of $4.5
    million.  Condensed financial statements of the Corporation are presented in
    Note M. Future  references are made either to the Corporation or the Company
    as applicable.

    The Corporation is a savings and loan holding  company whose  activities are
    primarily limited to holding the stock of the Company.  The Company conducts
    a general  banking  business in central  Ohio which  consists of  attracting
    deposits from the general public and applying those funds to the origination
    of  loans  for  residential,   consumer  and  nonresidential  purposes.  The
    Company's  profitability is significantly  dependent on net interest income,
    which  is  the   difference   between   interest   income   generated   from
    interest-earning  assets  (i.e.  loans  and  investments)  and the  interest
    expense paid on  interest-bearing  liabilities  (i.e.  customer deposits and
    borrowed  funds).  Net interest income is affected by the relative amount of
    interest-earning  assets and  interest-bearing  liabilities and the interest
    received  or paid on these  balances.  The level of  interest  rates paid or
    received  by the  Company  can be  significantly  influenced  by a number of
    environmental  factors,  such as  governmental  monetary  policy,  that  are
    outside of management's control.

    The consolidated financial information presented herein has been prepared in
    accordance  with  generally  accepted  accounting  principles  ("GAAP")  and
    general  accounting  practices within the financial  services  industry.  In
    preparing   consolidated  financial  statements  in  accordance  with  GAAP,
    management  is required to make  estimates and  assumptions  that affect the
    reported  amounts of assets and liabilities and the disclosure of contingent
    assets and liabilities at the date of the financial  statements and revenues
    and expenses during the reporting  period.  Actual results could differ from
    such estimates.

    A summary of significant  accounting  policies which have been  consistently
applied in the preparation of the accompanying consolidated financial statements
follows:

    1.  Principles of Consolidation

    The  consolidated   financial   statements   include  the  accounts  of  the
    Corporation and the Company. All intercompany balances and transactions have
    been eliminated in the accompanying consolidated financial statements.




                                       25


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    2.  Investment Securities and Mortgage-Backed Securities

    The Corporation  accounts for investment and  mortgage-backed  securities in
    accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
    "Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
    115 requires that  investments in debt and equity  securities be categorized
    as held-to-maturity,  trading, or available for sale.  Securities classified
    as  held-to-maturity  are to be carried at cost only if the  Corporation has
    the  positive  intent  and  ability to hold these  securities  to  maturity.
    Trading  securities  and  securities  designated  as available  for sale are
    carried at fair value with resulting  unrealized gains or losses recorded to
    operations or shareholders' equity, respectively.  At September 30, 1997 and
    1996, the Corporation's shareholders' equity reflected a net unrealized gain
    on  securities  designated  as  available  for sale of $31,000  and  $4,000,
    respectively.

    Realized gains and losses on sales of securities  are recognized  using the
    specific identification method.

    3.  Loans Receivable

    Loans receivable are stated at the principal balance outstanding, reduced by
    deferred loan origination  fees and the allowance for loan losses.  Interest
    is accrued  as earned  unless  the  collectibility  of the loan is in doubt.
    Interest  on loans that are  contractually  past due is charged  off,  or an
    allowance is established  based on  management's  periodic  evaluation.  The
    allowance  is  established  by a  charge  to  interest  income  equal to all
    interest previously accrued,  and income is subsequently  recognized only to
    the extent that cash payments are received until, in management's  judgment,
    the borrower's  ability to make periodic interest and principal payments has
    returned to normal, in which case the loan is returned to accrual status. If
    the ultimate  collectibility  of the loan is in doubt,  in whole or in part,
    all payments  received on nonaccrual  loans are applied to reduce  principal
    until such doubt is eliminated.

    4.  Loan Origination Fees

    The Company  accounts for loan  origination fees in accordance with SFAS No.
    91 "Accounting for Nonrefundable  Fees and Costs Associated with Originating
    or  Acquiring  Loans and Initial  Direct  Costs of Leases".  Pursuant to the
    provisions of SFAS No. 91,  origination  fees  received  from loans,  net of
    certain  direct  origination  costs,  are deferred and amortized to interest
    income  using  the  level-yield   method,   giving  effect  to  actual  loan
    prepayments.  Additionally,  SFAS No. 91 generally  limits the definition of
    loan  origination  costs to the direct costs  attributable  to originating a
    loan,  i.e.,  principally  actual  personnel  costs.  Fees received for loan
    commitments  that are  expected  to be drawn  upon,  based on the  Company's
    experience  with similar  commitments,  are deferred and amortized  over the
    life  of the  loan  using  the  level-yield  method.  Fees  for  other  loan
    commitments are deferred and amortized over the loan commitment  period on a
    straight-line basis.



                                       26



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Loan Losses

    It is the Company's  policy to provide  valuation  allowances  for estimated
    losses  on  loans  based  on  past  loan  loss  experience,  changes  in the
    composition  of the loan  portfolio,  trends in the level of delinquent  and
    problem loans,  adverse situations that may affect the borrower's ability to
    repay,  the estimated  value of any  underlying  collateral  and current and
    anticipated  economic conditions in the Company's primary lending area. When
    the  collection  of a loan  becomes  doubtful,  or otherwise  troubled,  the
    Company records a charge-off equal to the difference  between the fair value
    of the property securing the loan and the loan's carrying value. Major loans
    and major lending  areas are reviewed  periodically  to determine  potential
    problems at an early date.  The  allowance  for loan losses is  increased by
    charges to earnings and decreased by charge-offs (net of recoveries).

    In June 1993, the Financial  Accounting  Standards Board (the "FASB") issued
    SFAS No. 114,  "Accounting  by Creditors  for  Impairment  of a Loan".  This
    promulgation,  which  was  amended  by SFAS  No.  118 as to  certain  income
    recognition and financial statement disclosure  provisions and was effective
    as to the  Corporation  in fiscal  1996,  requires  that  impaired  loans be
    measured  based  upon  the  present  value of  expected  future  cash  flows
    discounted at the loan's effective  interest rate or, as an alternative,  at
    the loan's  observable  market price or fair value of the  collateral if the
    loan  is  collateral  dependent.  The  Company  adopted  SFAS  No.  114,  as
    subsequently  amended,  without  material effect on  consolidated  financial
    condition or results of operations.

    A loan is  defined  under SFAS No. 114 as  impaired  when,  based on current
    information  and events,  it is probable  that a creditor  will be unable to
    collect all  amounts  due  according  to the  contractual  terms of the loan
    agreement. In applying the provisions of SFAS No. 114, the Company considers
    its  investment  in one-  to  four-family  residential  loans  and  consumer
    installment  loans to be  homogeneous  and therefore  excluded from separate
    identification  for evaluation of impairment.  With respect to the Company's
    investment in nonresidential and multi-family residential real estate loans,
    and  its  evaluation  of  impairment  thereof,   such  loans  are  generally
    collateral  dependent and, as a result, are carried as a practical expedient
    at the lower of cost or fair value.

    Collateral  dependent  loans which are more than ninety days  delinquent are
    considered  to  constitute  more than a minimum  delay in repayment  and are
    evaluated for impairment under SFAS No. 114 at that time.

    At  September  30,  1997 and 1996,  the  Company had no loans that would be
    defined as impaired under SFAS No. 114.





                                       27


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    6.  Real Estate Acquired through Foreclosure

    Real  estate  acquired  through  foreclosure  is carried at the lower of the
    loan's unpaid principal  balance (cost) or fair value less estimated selling
    expenses  at the  date of  acquisition.  Real  estate  loss  provisions  are
    recorded if the properties' fair value subsequently declines below the value
    determined at the recording  date. In determining  the lower of cost or fair
    value at  acquisition,  costs  relating to  development  and  improvement of
    property are  capitalized.  Costs  relating to holding real estate  acquired
    through  foreclosure,  net of rental income, are charged against earnings as
    incurred.

    7.  Office Premises and Equipment

    Office  premises and equipment are carried at cost and include  expenditures
    which extend the useful lives of existing assets.  Maintenance,  repairs and
    minor   renewals  are  expensed  as  incurred.   For  financial   reporting,
    depreciation and amortization are provided on the straight-line  method over
    the  useful  lives of the  assets,  estimated  to be  thirty  years  for the
    building,  ten to thirty  years for  building  improvements  and five to ten
    years for furniture and  equipment.  An  accelerated  method is used for tax
    reporting purposes.

    8.  Income Taxes

    The  Corporation  accounts for federal  income taxes in accordance  with the
    provisions  of SFAS No. 109,  "Accounting  for Income  Taxes".  SFAS No. 109
    established  financial accounting and reporting standards for the effects of
    income  taxes  that  result  from the  Corporation's  activities  within the
    current and previous  years.  Pursuant to the  provisions of SFAS No. 109, a
    deferred  tax  liability  or deferred  tax asset is computed by applying the
    current  statutory  tax  rates  to  net  taxable  or  deductible   temporary
    differences  between the tax basis of an asset or liability and its reported
    amount in the  consolidated  financial  statements  that will  result in net
    taxable or  deductible  amounts in future  periods.  Deferred tax assets are
    recorded  only to the  extent  that the amount of net  deductible  temporary
    differences  or  carryforward  attributes  may be utilized  against  current
    period earnings,  carried back against prior years' earnings, offset against
    taxable temporary  differences  reversing in future periods,  or utilized to
    the extent of management's  estimate of future taxable  income.  A valuation
    allowance  is provided  for deferred tax assets to the extent that the value
    of net deductible temporary differences and carryforward  attributes exceeds
    management's  estimates of taxes payable on future taxable income.  Deferred
    tax   liabilities  are  provided  on  the  total  amount  of  net  temporary
    differences taxable in the future.

    The Corporation's  principal temporary  differences between pretax financial
    income  and  taxable  income  result  primarily  from  the  cash  method  of
    accounting  used to  prepare  the  federal  income  tax  return and from the
    different methods of accounting for deferred loan origination fees,  Federal
    Home Loan Bank stock dividends,  general loan loss allowances and percentage
    of earnings bad debt deductions.  Additional  temporary  differences  result
    from depreciation  computed using accelerated methods for federal income tax
    purposes.


                                       28


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    9.  Benefit Plans

    The Company has a defined  contribution  simplified  employee  plan  ("SEP")
    covering  substantially  all employees who have attained 21 years of age and
    have completed one full year of service.  Annual  contributions  are made to
    the SEP at the discretion of the Board of Directors. The Company's provision
    for  expense  under the SEP was  $9,000,  $32,000  and $20,000 for the years
    ended September 30, 1997, 1996 and 1995, respectively.

    In  conjunction  with its  reorganization  to stock  form,  the  Corporation
    implemented  an Employee Stock  Ownership  Plan ("ESOP").  The ESOP provides
    retirement  benefits for  substantially all employees who have completed one
    year of service and have  attained the age of 21. The  Corporation  accounts
    for the  ESOP  in  accordance  with  Statement  of  Position  ("SOP")  93-6,
    "Employers'  Accounting  for  Employee  Stock  Ownership  Plans".  SOP  93-6
    requires the measure of compensation  expense recorded by employers to equal
    the fair value of ESOP  shares  allocated  to  participants  during a fiscal
    year. Expense recognized related to the ESOP totaled  approximately  $42,000
    and $21,000 for the years ended September 30, 1997 and 1996, respectively.

    The Corporation also has a Management Retention Plan ("MRP").  Subsequent to
    the offering the MRP  purchased  21,160 shares of the  Corporation's  common
    stock in the open market.  During fiscal 1996, 17,640 shares available under
    the MRP were  granted  to  executive  officers  and  members of the Board of
    Directors of the Corporation  effective upon  ratification of the MRP by the
    Corporation's shareholders. Common stock granted under the MRP vests ratably
    over a five year period,  commencing in January 1997. A provision of $35,000
    related to the MRP was charged to expense for the year ended  September  30,
    1997.

    10.  Earnings Per Share and Per Share Capital Distributions

    Earnings per share for the year ended  September 30, 1997, is based upon the
    weighted-average shares outstanding during the period, less 42,320 shares in
    the  ESOP  that  are   unallocated   and  not   committed  to  be  released.
    Weighted-average  common shares deemed  outstanding  totaled 476,337 for the
    year ended September 30, 1997. There was no material dilutive effect related
    to the Corporation's stock option plan for fiscal 1997.

    The provisions of Accounting  Principles Board Opinion No. 15, "Earnings Per
    Share", are not applicable for the fiscal years ended September 30, 1996 and
    1995,  as the  Corporation  completed  its  conversion  to the stock form of
    ownership in March 1996.

    During fiscal 1997,  the  Corporation  received a Private Letter Ruling from
    the  Internal   Revenue   Service   which  stated  that  the   Corporation's
    distributions  on common  shares are deemed a tax-free  return of capital to
    the  extent  that  such  capital   distributions  exceed  the  Corporation's
    accumulated  earnings and profits.  The  Corporation  paid $.24 in dividends
    during the year ended  September 30, 1997, and declared an additional  $5.00
    cash distribution on October 10, 1997, payable on November 6, 1997. Of these
    amounts,   management  estimates  that  at  least  $5.00  of  the  $5.24  in
    distributions will be considered a tax-free return of capital.

                                       29


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    11.  Cash and Cash Equivalents

    For purposes of reporting cash flows, cash and cash equivalents include cash
    and  due  from  banks  and  interest-bearing  deposits  in  other  financial
    institutions with original terms to maturity of less than ninety days.

    12.  Fair Value of Financial Instruments

    SFAS No.  107,  "Disclosures  about  Fair Value of  Financial  Instruments",
    requires disclosure of fair value of financial instruments,  both assets and
    liabilities,  whether or not  recognized  in the  consolidated  statement of
    financial condition, for which it is practicable to estimate that value. For
    financial  instruments  where quoted market prices are not  available,  fair
    values  are based on  estimates  using  present  value  and other  valuation
    methods.

    The methods used are greatly affected by the assumptions applied,  including
    the discount  rate and estimates of future cash flows.  Therefore,  the fair
    values  presented  may not  represent  amounts  that could be realized in an
    exchange for certain financial instruments.

    The  following  methods and  assumptions  were used by the  Corporation  in
    estimating  its  fair  value  disclosures  for  financial   instruments  at
    September 30, 1997 and 1996:

                  Cash and cash  equivalents:  The carrying amounts presented in
                  the  consolidated  statements of financial  condition for cash
                  and cash equivalents are deemed to approximate fair value.

                  Investment and  mortgage-backed  securities:  For investment
                  and  mortgage-backed  securities,  fair  value is  deemed to
                  equal the quoted market price.

                  Loans receivable:  The loan portfolio has been segregated into
                  categories  with  similar  characteristics,  such  as  one- to
                  four-family   residential,    multi-family   residential   and
                  nonresidential real estate. These loan categories were further
                  delineated into fixed-rate and adjustable-rate loans. The fair
                  values for the  resultant  loan  categories  were computed via
                  discounted  cash flow analysis,  using current  interest rates
                  offered for loans with  similar  terms to borrowers of similar
                  credit quality. For loans on deposit accounts and consumer and
                  other  loans,  fair values  were deemed to equal the  historic
                  carrying  values.  The historical  carrying  amount of accrued
                  interest on loans is deemed to approximate fair value.

                  Federal Home Loan Bank stock:  The carrying amount presented
                  in the  consolidated  statements  of financial  condition is
                  deemed to approximate fair value.



                                       30



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)

                  Deposits:  The fair value of NOW accounts,  passbook accounts,
                  and money market  deposits is deemed to approximate the amount
                  payable on demand. Fair values for fixed-rate  certificates of
                  deposit  have  been  estimated  using a  discounted  cash flow
                  calculation  using the interest  rates  currently  offered for
                  deposits of similar remaining maturities.

                  Advances  from the Federal  Home Loan Bank:  The fair value of
                  these advances is estimated using the rates currently  offered
                  for similar advances of similar remaining  maturities or, when
                  available, quoted market prices.

                  Commitments   to   extend    credit:    For   fixed-rate   and
                  adjustable-rate  loan  commitments,  the fair  value  estimate
                  considers the  difference  between  current levels of interest
                  rates and committed  rates.  The  difference  between the fair
                  value and notional amount of outstanding  loan  commitments at
                  September 30, 1997 and 1996 was not material.

    Based on the foregoing methods and assumptions,  the carrying value and fair
value  of the  Corporation's  financial  instruments  at  September  30,  are as
follows:
<TABLE>
<CAPTION>

                                                                 1997                              1996
                                                    Carrying           Fair            Carrying           Fair
                                                       value          value               value          value
                                                                            (In thousands)
    Financial assets
<S>                                                 <C>            <C>                 <C>            <C>     
      Cash and cash equivalents ..................  $  3,664       $  3,664            $  2,643       $  2,643
      Investment securities ......................       655            657               2,220          2,211
      Mortgage-backed securities .................     3,586          3,613               4,032          3,944
      Loans receivable ...........................    29,465         30,666              27,031         27,774
      Federal Home Loan Bank stock ...............       280            280                 261            261
                                                    --------       --------            --------       --------

                                                     $37,650        $38,880             $36,187        $36,833
                                                      ======         ======              ======         ======

    Financial liabilities
      Deposits ...................................   $29,951        $30,150             $28,195        $28,331
      Advances from the Federal Home
        Loan Bank ................................       300            302                 300            326
                                                    --------       --------            --------       --------

                                                     $30,251        $30,452             $28,495        $28,657
                                                      ======         ======              ======         ======
</TABLE>

    13.  Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 1997
     consolidated financial statement presentation.



                                       31


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

    The amortized cost, gross unrealized  gains,  gross unrealized  losses,  and
estimated  fair values of investment  securities at September 30, 1997 and 1996,
are as follows:

<TABLE>
<CAPTION>
                                                                                         1997
                                                                               Gross               Gross      Estimated
                                                            Amortized     unrealized          unrealized           fair
                                                                 cost          gains              losses          value
                                                                                    (In thousands)
    Held to maturity:
<S>                                                              <C>            <C>                  <C>           <C> 
      U.S. Government and agency obligations .................   $500           $  2                 $-            $502

    Available for sale:
      Corporate equity securities ............................    109             46                  -             155
                                                                  ---             --                  --            ---

         Total investment securities .........................   $609            $48                 $-            $657
                                                                  ===             ==                  ==            ===
</TABLE>

<TABLE>
<CAPTION>

                                                                                         1996
                                                                               Gross               Gross      Estimated
                                                            Amortized     unrealized          unrealized           fair
                                                                 cost          gains              losses          value
                                                                                    (In thousands)
    Held to maturity:
<S>                                                            <C>                <C>              <C>           <C>   
      U.S. Government and agency obligations ................. $2,000             $1               $  10         $1,991

    Available for sale:
      Corporate equity securities ............................    214              6                  -             220
                                                               ------              -                  --         ------

         Total investment securities ......................... $2,214             $7               $  10         $2,211
                                                                =====              =                ====          =====
</TABLE>

     The amortized cost and estimated fair value of U. S.  Government and agency
obligations at September 30, 1997, by term to maturity are shown below.
<TABLE>
<CAPTION>

                                                            Estimated
                                          Amortized              fair
                                               cost             value
                                                    (In thousands)

<S>                                            <C>               <C> 
    Due in one year or less .................. $500              $502
                                                ===               ===

</TABLE>




                                       32



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)

    The amortized cost, gross  unrealized  gains,  gross  unrealized  losses and
estimated  fair value of  mortgage-backed  securities  at September 30, 1997 and
1996, are shown below:
<TABLE>
<CAPTION>

                                                                                          1997
                                                                                 Gross             Gross      Estimated
                                                            Amortized       unrealized        unrealized           fair
                                                                 cost            gains            losses          value
                                                                                   (In thousands)
            <S>                                                   <C>            <C>                <C>             <C>       
    Held to maturity:
      Federal Home Loan Mortgage Corporation
        participation certificates ..........................  $1,749            $  19             $  14         $1,754
      Government National Mortgage Association
        participation certificates ..........................   1,197               35                -           1,232
      Federal National Mortgage
        Association participation certificates ..............     640               -                 13            627
                                                               ------               --              ----         ------

         Total mortgage-backed securities ...................  $3,586            $  54             $  27         $3,613
                                                                =====             ====              ====          =====
</TABLE>
<TABLE>
<CAPTION>

                                                                                          1996
                                                                                 Gross             Gross      Estimated
                                                            Amortized       unrealized        unrealized           fair
                                                                 cost            gains            losses          value
                                                                                     (In thousands)
           <S>                                                    <C>            <C>                 <C>            <C>
    Held to maturity:
      Federal Home Loan Mortgage Corporation
        participation certificates ..........................  $1,853              $-                $57         $1,796
      Government National Mortgage Association
        participation certificates ..........................   1,388                8                 5          1,391
      Federal National Mortgage
        Association participation certificates ..............     791               -                 34            757
                                                               ------               --                --         ------

         Total mortgage-backed securities ...................  $4,032           $    8               $96         $3,944
                                                                =====            =====                ==          =====
</TABLE>

    At September 30, 1997, all mortgage-backed  securities  maintained by London
    Financial  Corporation are  contractually due on a ratable basis over twenty
    years.  Expected maturities will differ from contractual  maturities because
    borrowers may generally prepay obligations without prepayment penalties.







                                       33


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>

                                                       1997           1996
                                                          (In thousands)
             <S>                                    <C>                <C>
    Residential real estate
      One- to four-family ......................... $23,489        $21,819
      Multi-family ................................     671            258
      Construction ................................   1,360          1,084
    Nonresidential real estate ....................   4,529          4,831
    Consumer and other loans ......................     903            881
                                                   --------       --------
 ..................................................  30,952         28,873
    Less:
      Undisbursed portion of loans in process .....     885          1,258
      Deferred loan origination fees ..............     415            397
      Allowance for losses on loans ...............     187            187
                                                   --------       --------

                                                    $29,465        $27,031
                                                   ========       ========

</TABLE>

    The  Company's  lending  efforts  have  historically   focused  on  one-  to
    four-family and multi-family  residential real estate loans,  which comprise
    approximately  $24.0  million,  or 82 %,  of the  total  loan  portfolio  at
    September 30, 1997, and  approximately  $21.3 million,  or 79%, at September
    30, 1996.  Generally,  such loans have been  underwritten on the basis of no
    more than an 80% loan-to-value  ratio,  which has historically  provided the
    Company  with  adequate   collateral  coverage  in  the  event  of  default.
    Nevertheless,  the Company, as with any lending  institution,  is subject to
    the risk that real estate values could  deteriorate  in its primary  lending
    area  of  central  Ohio,  thereby  impairing  collateral  values.   However,
    management is of the belief that real estate values in the Company's primary
    lending area are presently stable.

    In the ordinary  course of  business,  the Company has made loans to some of
    its directors, officers and their related business interests. In the opinion
    of management,  such loans are consistent  with sound lending  practices and
    are within applicable  regulatory lending  limitations.  The balance of such
    loans totaled approximately  $388,000 and $473,000 at September 30, 1997 and
    1996, respectively.











                                       34


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE D - ALLOWANCE FOR LOAN LOSSES

     The activity in the  allowance for loan losses is summarized as follows for
     the years ended September 30:
<TABLE>
<CAPTION>

                                           1997            1996           1995
                                                       (In thousands)

<S>                                         <C>            <C>            <C> 
    Beginning balance ..................... $187           $190           $191
    Provision for losses on loans .........   -              -              -
    Loan charge-offs ......................   -              (3)            (1)
                                              --          -----          -----

    Ending balance ........................ $187           $187           $190
                                             ===            ===            ===
</TABLE>

     As of  September  30, 1997,  the  Company's  allowance  for loan losses was
     comprised solely of a general loan loss allowance, which is includible as a
     component of regulatory risk-based capital.

    Nonperforming  and  nonaccrual  loans at September 30, 1997,  1996 and 1995,
    totaled $268,000, $261,000 and $45,000,  respectively.  Interest income that
    would have been  recognized  had  nonaccrual  loans  performed  pursuant  to
    contractual terms totaled approximately $20,000,  $15,000 and $3,000 for the
    years ended September 30, 1997, 1996 and 1995, respectively.


NOTE E - OFFICE PREMISES AND EQUIPMENT

    Office premises and equipment at September 30 is comprised of the following:
<TABLE>
<CAPTION>

                                                       1997           1996
                                                          (In thousands)

<S>                                                   <C>            <C>  
    Land and improvements ..........................  $  85          $  85
    Building .......................................    471            471
    Furniture and equipment ........................    212            186
                                                        ---            ---
                                                        768            742
      Less accumulated depreciation and
        amortization ...............................    408            388
                                                        ---            ---

                                                       $360           $354
                                                        ===            ===
</TABLE>






                                       35

<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE F - DEPOSITS

    Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>

    Deposit type and weighted-
    average interest rate                                     1997                             1996
                                                     Amount          %                  Amount         %
                                                                    (Dollars in thousands)
<S>                                                    <C>            <C>                <C>          <C>
    NOW accounts
      1997 - 2.27% ..............................  $  3,370          11.2
      1996 - 2.29% .................................................................. $  3,198        11.3%
    Passbook
      1997 - 3.00% ..............................     5,834          19.5
      1996 - 3.00% ..................................................................    5,587        19.8
    Money market investment accounts
      1997 - 2.71% ..............................       226            .8
      1996 - 2.74% ..................................................................      278         1.0
                                                  ---------       --------            --------      ------
    Total demand, transaction and
      passbook deposits .........................     9,430          31.5                9,063        32.1

    Certificates of deposit
      Original maturities of:
        One year or less
          1997 - 5.42% ..........................     5,640          18.8
          1996 - 5.14% ..............................................................    5,669        20.1
        12 months to 36 months
          1997 - 6.01% ..........................     8,604          28.7
          1996 - 6.09% ..............................................................    7,968        28.3
        Greater than 36 months
          1997 - 6.50% ..........................     6,277          21.0
          1996 - 6.62% ..............................................................    5,495        19.5
                                                   --------        -------             -------      ------

    Total certificates of deposit ...............    20,521          68.5               19,132        67.9
                                                     ------        ------               ------      ------

    Total deposit accounts ......................   $29,951         100.0%             $28,195      100.0%
                                                     ======         =====               ======      ===== 
</TABLE>

    At  September  30, 1997 and 1996,  the Company  had  deposit  accounts  with
balances  greater  than  $100,000   totaling  $1.8  million  and  $2.1  million,
respectively.

    Interest  expense on  deposits  for the fiscal  year ended  September  30 is
summarized as follows:
<TABLE>
<CAPTION>

                                           1997            1996           1995
                                                     (In thousands)
<S>                                          <C>            <C>            <C>
    Passbook .......................... $   177         $   188        $   206
    NOW accounts ......................      65              61             56
    Money market investment accounts ..       6               9             12
    Certificates of deposit ...........   1,178           1,219          1,094
                                          -----           -----          -----

 ......................................  $1,426          $1,477         $1,368
                                          =====           =====          =====

</TABLE>

                                       36


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE F - DEPOSITS (continued)

    Maturities  of  outstanding  certificates  of  deposit at  September  30 are
summarized as follows:
<TABLE>
<CAPTION>

                                                    1997                1996
                                                         (In thousands)
<S>                                                  <C>                  <C>
    Less than one year ......................... $11,438             $11,390
    One year to three years ....................   5,822               4,130
    More than three years ......................   3,261               3,612
                                                 -------             -------

 ............................................... $20,521             $19,132
                                                  ======              ======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

     Advances from the Federal Home Loan Bank,  collateralized  at September 30,
1997 by a pledge of certain residential mortgage loans totaling $450,000 and the
Company's investment in Federal Home Loan Bank stock, are summarized as follows:
<TABLE>
<CAPTION>

    Interest            Maturing in year
    rate                ending September 30,         1997                1996
                                                           (In thousands)
<S>                      <C>                           <C>                 <C>
    9.25%               2001                         $300                $300
                                                      ===                 ===
</TABLE>


NOTE H - FEDERAL INCOME TAXES

     Federal  income  taxes  differ from the amounts  computed at the  statutory
corporate tax rate for the fiscal year ended September 30 as follows:
<TABLE>
<CAPTION>

                                                      1997       1996      1995 
                                                            (In thousands)
<S>                                                    <C>        <C>       <C>
    Federal income taxes at statutory rate .........  $199       $109       $75
    Increase (decrease) in taxes resulting from:
      Other (primarily surtax exemptions in 1996) ..    -         (12)        2
                                                        --       ----       ---
    Federal income taxes per consolidated
      financial statements .........................  $199      $  97       $77
                                                       ===       ====        ==

    Effective tax rate ............................. 34.1%       30.2%     35.0%
                                                     ====        ====      ==== 

</TABLE>




                                       37



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE H - FEDERAL INCOME TAXES (continued)

    The composition of the  Corporation's  net deferred tax asset (liability) at
September 30 is as follows:
<TABLE>
<CAPTION>

    Taxes (payable) refundable on temporary                  1997         1996
    differences at statutory rate:                            (In thousands)
<S>                                                           <C>          <C>
    Deferred tax assets:
      Deferred loan origination fees ...................... $  77         $103
      SAIF recapitalization assessment ....................    -            66
      Difference between book and tax depreciation ........     1           -
      General loan loss allowance .........................    64           64
                                                             ----         ----
         Deferred tax assets ..............................   142          233

    Deferred tax liabilities:
      Federal Home Loan Bank stock dividends ..............   (50)         (43)
      Difference between book and tax depreciation ........    -            (3)
      Percentage of earnings bad debt deduction ...........   (64)         (64)
      Accrual vs. cash basis of accounting ................   (65)         (44)
      Unrealized gains on securities designated
        as available for sale .............................   (15)          (2)
                                                             ----        -----
         Deferred tax liabilities .........................  (194)        (156)
                                                              ---          ---

         Net deferred tax asset (liability) ............... $ (52)       $  77
                                                             ====         ====
</TABLE>

    The Company was allowed a special bad debt deduction generally limited to 8%
    of  otherwise  taxable  income and subject to certain  limitations  based on
    aggregate loans and deposit account  balances at the end of the year. If the
    amounts that qualify as deductions  for federal  income taxes are later used
    for  purposes  other  than  bad  debt  losses,  including  distributions  in
    liquidation,  such  distributions will be subject to federal income taxes at
    the then current  corporate income tax rate.  Retained earnings at September
    30, 1997, include approximately $525,000 for which federal income taxes have
    not been  provided.  The  amount  of  unrecognized  deferred  tax  liability
    relating to the cumulative bad debt deduction was approximately  $115,000 at
    September 30, 1997. See Note L for additional  information  regarding future
    percentage of earnings bad debt deductions.











                                       38


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE I - LOAN COMMITMENTS

    The Company is a party to financial instruments with  off-balance-sheet risk
    in the  normal  course  of  business  to meet  the  financing  needs  of its
    customers including  commitments to extend credit. Such commitments involve,
    to varying degrees,  elements of credit and interest-rate  risk in excess of
    the amount recognized in the consolidated  statement of financial condition.
    The contract or notional  amounts of the  commitments  reflect the extent of
    the Company's involvement in such financial instruments.

    The Company's  exposure to credit loss in the event of nonperformance by the
    other party to the financial  instrument for commitments to extend credit is
    represented by the  contractual  notional amount of those  instruments.  The
    Company uses the same credit policies in making  commitments and conditional
    obligations as those utilized for on-balance-sheet instruments.

    At  September  30,  1997,  the  Company  had   outstanding   commitments  of
    approximately $463,000 to originate loans. In the opinion of management, all
    loan commitments  equaled or exceeded  prevalent market interest rates as of
    September  30,  1997,  and  will  be  funded  from  normal  cash  flow  from
    operations.


NOTE J - REGULATORY CAPITAL

    The Company is subject to minimum regulatory  capital standards  promulgated
    by the Office of Thrift  Supervision  (the  "OTS").  Failure to meet minimum
    capital   requirements  can  initiate  certain  mandatory  --  and  possibly
    additional discretionary -- actions by regulators that, if undertaken, could
    have a direct  material  effect on the  consolidated  financial  statements.
    Under capital  adequacy  guidelines and the regulatory  framework for prompt
    corrective  action,  the Company must meet specific capital  guidelines that
    involve  quantitative  measures of the Company's  assets,  liabilities,  and
    certain  off-balance-sheet  items as calculated under regulatory  accounting
    practices. The Company's capital amounts and classification are also subject
    to  qualitative   judgments  by  the  regulators  about   components,   risk
    weightings, and other factors.

    The minimum capital  standards of the OTS generally  require the maintenance
    of regulatory  capital  sufficient to meet each of three tests,  hereinafter
    described as the tangible capital requirement,  the core capital requirement
    and the risk-based  capital  requirement.  The tangible capital  requirement
    provides for minimum tangible capital (defined as shareholders'  equity less
    all  intangible  assets) equal to 1.5% of adjusted  total  assets.  The core
    capital requirement provides for minimum core capital (tangible capital plus
    certain  forms of  supervisory  goodwill  and  other  qualifying  intangible
    assets) equal to 3.0% of adjusted total assets. An OTS proposal,  if adopted
    in present form, would increase the core capital requirement to a range of





                                       39



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE J - REGULATORY CAPITAL (continued)

    4.0%  -  5.0%  of  adjusted  total  assets  for  substantially  all  savings
    associations.  Management  anticipates  no material  change to the Company's
    excess  regulatory  capital  position as a result of this proposed change in
    the  regulatory  capital  requirement.  The risk-based  capital  requirement
    currently  provides  for the  maintenance  of core capital plus general loss
    allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted
    assets,  the Company  multiplies the value of each asset on its statement of
    financial  condition  by a  defined  risk-weighting  factor,  e.g.,  one- to
    four-family residential loans carry a risk-weighted factor of 50%.

     As of September  30,  1997,  management  believes  that the Company met all
     capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>
                                                             As of September 30, 1997
                                                                                        To be "well-
                                                                                    capitalized" under
                                                           For capital               prompt corrective
                                  Actual                adequacy purposes          action provisions
                              Amount    Ratio           Amount    Ratio             Amount     Ratio
                                                       (Dollars in thousands)
<S>                            <C>       <C>             <C>        <C>               <C>           <C> 
    Tangible capital          $5,824    15.9%        =>$   551    =>1.5%          =>$1,838     =>  5.0%

    Core capital              $5,824    15.9%         =>$1,102    =>3.0%          =>$2,206     =>  6.0%

    Risk-based capital        $6,011    30.8%         =>$1,563    =>8.0%          =>$1,953     =>10.0%
</TABLE>

    The Company's management believes that, under the current regulatory capital
    regulations,   the  Company  will  continue  to  meet  its  minimum  capital
    requirements in the foreseeable future.  However,  events beyond the control
    of the  Company,  such as  increased  interest  rates or a  downturn  in the
    economy in the Company's market area, could adversely affect future earnings
    and,  consequently,  the ability to meet future minimum  regulatory  capital
    requirements.


NOTE K - STOCK OPTION PLAN

    The Board of Directors  adopted a Stock Option Plan during  fiscal 1997 that
    provided  for the  issuance of 52,900  shares of  authorized,  but  unissued
    shares of common  stock at fair value at the date of grant.  As of September
    30, 1997, none of the stock options granted had been exercised.






                                       40



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE K - STOCK OPTION PLAN (continued)

    The  Corporation  applies  Accounting  Principles  Board  Opinion No. 25 and
    related   Interpretations   in   accounting   for  its  stock  option  plan.
    Accordingly,  no  compensation  cost has been  recognized  for the plan. Had
    compensation  cost for the  Corporation's  stock option plan been determined
    based on the  fair  value at the  grant  dates  for  awards  under  the plan
    consistent  with  the  accounting  method  utilized  in SFAS  No.  123,  the
    Corporation's net earnings and earnings per share would have been reduced to
    the pro forma amounts indicated below at September 30, 1997.
<TABLE>
<CAPTION>
<S>                                      <C>                              <C>
    Net earnings                    As reported                          $385

                                      Pro-forma                          $377

    Earnings per share              As reported                          $.81

                                      Pro-forma                          $.81
</TABLE>

    The fair value of each option  grant is estimated on the date of grant using
    the  modified   Black-Scholes   options-pricing  model  with  the  following
    weighted-average  assumptions used for grants in fiscal 1997: dividend yield
    of 7.0%, expected volatility of 20.0%, a risk-free interest rate of 6.5% and
    expected lives of ten years.

     A  summary  of the  status of the  Corporation's  stock  option  plan as of
     September 30, 1997, and changes during the periods ending on those dates is
     presented below:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                                                      average
                                                                     exercise
                                                      Shares            price
<S>                                                     <C>              <C> 
    Outstanding at beginning of year                      -            $    -
    Granted ......................................... 52,900           $15.00
    Exercised .......................................     -            $    -
    Forfeited .......................................     -            $    -
                                                     -------            -----

    Outstanding at end of year ...................... 52,900           $15.00
                                                      ======            =====

    Options exercisable at year-end .................     -            $    -
                                                     =======            =====
    Weighted-average fair value of
      options granted during the year ............................... $  1.68
                                                                       ======
</TABLE>





                                       41


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE K - STOCK OPTION PLAN (continued)

    The following  information  applies to options  outstanding at September 30,
1997:
<TABLE>
<CAPTION>
<S>                                                                    <C>
    Number outstanding ............................................. 52,900
    Range of exercise prices ....................................... $15.00
    Weighted-average exercise price ................................ $15.00
    Weighted-average remaining contractual life ................ 9.30 years
</TABLE>


NOTE L - RECENT LEGISLATIVE DEVELOPMENTS

    The deposit  accounts of the Company and of other savings  associations  are
    insured by the  Federal  Deposit  Insurance  Company  ("FDIC")  through  the
    Savings Association  Insurance Fund ("SAIF").  The reserves of the SAIF were
    below the  level  required  by law,  because a  significant  portion  of the
    assessments  paid into the fund  were  used to pay the cost of prior  thrift
    failures.  The deposit  accounts of commercial banks are insured by the FDIC
    through the Bank  Insurance  Fund  ("BIF"),  except to the extent such banks
    have acquired SAIF deposits.  The reserves of the BIF met the level required
    by law in May 1995.  As a result  of the  respective  reserve  levels of the
    funds,  deposit insurance  assessments paid by healthy savings  associations
    exceeded those paid by healthy  commercial banks by  approximately  $.19 per
    $100 in deposits in 1995. In 1996 and 1997, no BIF  assessments are required
    for healthy commercial banks except for a $2,000 minimum fee.

    Legislation was enacted to recapitalize the SAIF that provided for a special
    assessment  totaling $.657 per $100 of SAIF deposits held at March 31, 1995,
    in order to increase SAIF reserves to the level required by law. The Company
    had $29.7 million in deposits at March 31, 1995,  resulting in an assessment
    of  approximately  $193,000,  or  $127,000  after-tax,  which was charged to
    operations in fiscal 1996.

    Under separate legislation related to the recapitalization plan, the Company
    is required to recapture as taxable income approximately $190,000 of its bad
    debt reserve,  which represents the post-1987 additions to the reserve,  and
    will be unable to utilize the  percentage of earnings  method to compute its
    reserve in the  future.  The Company has  provided  deferred  taxes for this
    amount and will be  permitted  to  amortize  the  recapture  of its bad debt
    reserve over six years.










                                       42


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE M - CONDENSED FINANCIAL STATEMENTS OF LONDON FINANCIAL CORPORATION

     The  following  condensed  financial  statements  summarize  the  financial
     position of London Financial Corporation as of September 30, 1997 and 1996,
     and the results of its  operations and its cash flows for the periods ended
     September 30, 1997 and 1996.

                          London Financial Corporation
                        STATEMENTS OF FINANCIAL CONDITION
                                  September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

         ASSETS                                                                            1997           1996
<S>                                                                                          <C>          <C>
    Cash and due from banks ........................................................... $   801        $   345
    Investment securities designated as available for sale - at market ................     155            220
    Investment securities - at cost ...................................................     500          1,500
    Loan receivable from ESOP .........................................................     381            423
    Investment in The Citizens Loan and Savings Company ...............................   5,824          5,437
    Accrued interest receivable .......................................................      13             31
    Prepaid expenses and other assets .................................................      13             -
                                                                                        -------          ----

         Total assets .................................................................  $7,687         $7,956
                                                                                          =====          =====

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Other liabilities .................................................................  $   83       $     49

    Shareholders' equity
      Common stock ....................................................................      -              -
      Additional paid-in capital ......................................................   7,832          7,832
      Unrealized gains on securities designated as available
        for sale, net of related tax effects ..........................................      31              4
      Retained earnings ...............................................................     338             71
      Shares acquired by Management Recognition Plan ..................................    (315)            -
      Treasury shares - at cost .......................................................    (282)            -
                                                                                         ------          ----
         Total shareholders' equity ...................................................   7,604          7,907
                                                                                          -----          -----

         Total liabilities and shareholders' equity ...................................  $7,687         $7,956
                                                                                          =====          =====
</TABLE>








                                       43



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE M - CONDENSED FINANCIAL STATEMENTS OF LONDON FINANCIAL CORPORATION 
  (continued)

                          London Financial Corporation
                             STATEMENTS OF EARNINGS
                           Periods ended September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                          1997           1996
<S>                                                         <C>            <C>
    Revenue
      Interest income ................................... $108          $  68
      Equity in earnings of subsidiary ..................  387             60
      Gain on sale of investments .......................   40             -
                                                          ----             -
         Total revenue ..................................  535            128

    General and administrative expenses .................  151             10
                                                           ---           ----

         Earnings before income taxes ...................  384            118

    Federal income taxes (credits) ......................   (1)            15
                                                         -----           ----

         NET EARNINGS ................................... $385           $103
                                                           ===            ===
</TABLE>
























                                       44


<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE M - CONDENSED FINANCIAL STATEMENTS OF LONDON FINANCIAL CORPORATION
  (continued)

                          London Financial Corporation
                            STATEMENTS OF CASH FLOWS
                           Periods ended September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    1997                1996
<S>                                                                                 <C>                   <C>
    Cash provided by (used in) operating activities:
      Net earnings for the period .............................................. $   385             $   103
      Adjustments to reconcile net earnings to net
      cash provided by (used in) operating activities
        Undistributed earnings of consolidated subsidiary ......................    (387)                (60)
        Gain on sale of investment securities ..................................     (40)                 -
        Increase (decrease) in cash due to changes in:
          Prepaid expenses and other assets ....................................     (13)                 -
          Accrued interest receivable ..........................................      18                 (31)
          Other liabilities ....................................................      21                  47
                                                                                 -------             -------
          Net cash provided by (used in) operating activities ..................     (16)                 59

    Cash flows provided by (used in) investing activities:
      Investment in subsidiary .................................................      -               (2,455)
      Purchase of investment securities designated as available
        for sale ...............................................................      -                 (214)
      Purchase of investment securities designated as held to maturity .........      -               (1,500)
      Proceeds from repayment of loan to ESOP ..................................      42                  -
      Proceeds from maturities of investment securities ........................   1,000                  -
      Proceeds from sale of investment securities ..............................     145                  -
      Issuance of loan to ESOP .................................................      -                 (423)
                                                                                   -----              ------
          Net cash provided by (used in) investing activities ..................   1,187              (4,592)

    Cash flows provided by (used in) financing activities:
      Net proceeds from issuance of common stock ...............................      -                4,910
      Purchase of shares for Management Recognition Plan .......................    (315)                 -
      Purchase of treasury shares ..............................................    (282)                 -
      Payment of dividends on common stock .....................................    (118)                (32)
                                                                                  ------             -------
          Net cash provided by (used in) financing activities ..................    (715)              4,878
                                                                                  ------               -----

    Net increase in cash and cash equivalents ..................................     456                 345

    Cash and cash equivalents at beginning of period ...........................     345                  -
                                                                                  ------               ----

    Cash and cash equivalents at end of period ................................. $   801             $   345
                                                                                  ======              ======

</TABLE>

                                       45



<PAGE>


                          London Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1997, 1996 and 1995


NOTE N - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM

    In  October  1995,  the  Company's  Board  of  Directors  adopted  a Plan of
    Conversion whereby the Company would convert to the stock form of ownership,
    followed by the issuance of all of the Company's outstanding common stock to
    a newly formed holding company, London Financial Corporation.

     On March 29, 1996,  the Company  completed its conversion to the stock form
     of ownership,  and issued all of the Company's outstanding common shares to
     the Corporation.

    In connection with the conversion,  the Corporation sold 529,000 shares at a
    price of $10.00 per share which,  after  consideration of offering  expenses
    totaling  approximately  $380,000,  and shares purchased by employee benefit
    plans totaling $423,000, resulted in net cash proceeds of approximately $4.5
    million.

    At the date of the conversion, the Company established a liquidation account
    in an amount  equal to  retained  earnings  reflected  in the  statement  of
    financial   condition  used  in  the  conversion   offering  circular.   The
    liquidation  account will be maintained for the benefit of eligible  savings
    account  holders  who  maintained  deposit  accounts  in the  Company  after
    conversion.

    In the  event of a  complete  liquidation  (and  only in such  event),  each
    eligible  savings  account  holder will be entitled to receive a liquidation
    distribution from the liquidation  account in the amount of the then current
    adjusted   balance  of  deposit   accounts  held,   before  any  liquidation
    distribution  may be made with  respect  to  common  stock.  Except  for the
    repurchase  of stock and payment of dividends by the Company,  the existence
    of the liquidation  account will not restrict the use or application of such
    retained earnings.  The Company may not declare,  pay a cash dividend on, or
    repurchase  any of its common  stock,  if the  effect  thereof  would  cause
    retained  earnings to be reduced  below  either the amount  required for the
    liquidation account or the regulatory capital  requirements for SAIF insured
    institutions.
















                                       46



<PAGE>


                          LONDON FINANCIAL CORPORATION
                                       AND
                       THE CITIZENS LOAN & SAVINGS COMPANY
                             DIRECTORS AND OFFICERS

===============================================================================
<TABLE>
<CAPTION>
<S>                                                    <C>
John J. Bodle                                     President
President
The Citizens Loan & Savings Company

John I. Andrix                                    Director
President
Andrix Insurance Agency

Rodney A. Bell                                    Director
Salesman
Buckeye Ford

Donovan A. Forrest                                Director
President
Forest Trucking Company

Edward D. Goodyear                                Director
Certified Public Accountant

Shirley C. Hansgen                                Director
Attorney

Kennison A. Sims                                  Director
Owner-Operator
The Sims Construction Company

Joyce E. Bauerle                                  Vice President and Treasurer
Vice President
The Citizens Loan & Savings Company

Rebecca A. Lohr                                   Secretary
Secretary
The Citizens Loan & Savings Company

</TABLE>













                                       47

<PAGE>



                              SHAREHOLDER SERVICES

===============================================================================

The Fifth Third Bank serves as transfer  agent and dividend  distributing  agent
for LFC's  shares.  Communications  regarding  change of  address,  transfer  of
shares, lost certificates and dividends should be sent to:

                              The Fifth Third Bank
                               Fifth Third Center
                            Attention: Rick Grzymajlo
                             Cincinnati, Ohio 45202
                                 (513) 579-5405


                                 ANNUAL MEETING

===============================================================================

The 1998 Annual Meeting of Shareholders  of London  Financial  Corporation  (the
"Annual Meeting") will be held on January 22, 1998, at 10:00 a.m., Eastern Time,
at the office of Citizens, 2 East High Street, London, Ohio 43140.  Shareholders
are cordially invited to attend.


                          ANNUAL REPORT ON FORM 10-KSB

===============================================================================

A copy of LFC's Annual Report on Form 10-KSB,  as filed with the  Securities and
Exchange Commission, will be available at no charge to shareholders upon request
to:

                          London Financial Corporation
                               2 East High Street
                               London, Ohio 43140
                       Attention: John J. Bodle, President





















                                       48