<PAGE>   1


                                                                      EXHIBIT 13





Dear Shareholders:

         It is with great pleasure that I present the first Annual Report to
Shareholders of London Financial Corporation for the fiscal year ended September
30, 1996.

         The year 1996 has been an eventful year for our company. As you are
aware, The Citizens Loan & Savings Company successfully completed its conversion
from the mutual form of organization to the permanent stock form of ownership on
March 29, 1996. A total of 529,000 common shares of London Financial Corporation
were issued in connection with the conversion, resulting in net capital proceeds
of approximately $4.5 million.

         On the legislative front, we witnessed one of the most important events
to occur in the thrift industry in years, as legislation was enacted at the end
of September 1996 to recapitalize the Savings Association Insurance Fund
("SAIF"), through which deposits at Citizens are insured. Because the Bank
Insurance Fund, the fund which insures bank deposits, was fully capitalized,
most commercial banks were paying deposit insurance premiums that were very low
in comparison to thrifts, such as Citizens. As a result, thrifts were at a
competitive disadvantage with banks. The new legislation will significantly
lower deposit insurance premiums in the future for Citizens. In order to
accomplish the SAIF recapitalization, however, a one-time assessment was levied
on most thrifts. Citizens, therefore, paid an assessment of approximately
$200,000 in the fourth quarter of fiscal 1996.

         Net earnings for fiscal 1996 totaled $224,000, an $81,000, or 57%,
increase over the $143,000 in net earnings recorded during fiscal 1995. Assets
grew by $2.7 million, or 7.8%, during fiscal 1996, as a direct result of the
conversion. Although the $200,000 assessment adversely affected our earnings,
the Board of Directors of London Financial Corporation believes that the
recapitalization of the SAIF will be in London Financial's long-term interest as
we strive toward our goal of continuing to serve the mortgage lending needs of
the residents of our communities.

         On behalf of the Board of Directors, management and employees of London
Financial Corporation, I would like to thank you for your confidence and
investment in our company. We can assure you that we are all committed to
maximizing the return on your investment in our common shares.


                                         Sincerely,




                                         John J. Bodle
                                         President



<PAGE>   2



                    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 chartered 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 529,000 common shares of LFC outstanding on September 30, 1996, and
held of record by approximately 499 shareholders. Price information with respect
to LFC's common shares is quoted on The Nasdaq SmallCap Market ("Nasdaq"). The
high and low sales prices for the common shares of LFC for the periods
indicated, as quoted by Nasdaq, were as follows:


<TABLE>
<CAPTION>
                                         Quarter Ended
                         ------------------------------------------------
                         June 30, 1996                 September 30, 1996
                         -------------                 ------------------
<S>                          <C>                             <C>   
High                         $11.37                          $11.25
Low                          $ 9.75                          $10.00
</TABLE>


One cash dividend was declared during fiscal 1996 in the fourth quarter in the
amount of $0.06 per common share of LFC.

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 



                                       1
<PAGE>   3




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.




                                       2
<PAGE>   4


                              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             1996           1995            1994          1993           1992
  AND OTHER DATA:                       --------       --------      --------       --------        -------
                                                               (Dollars in thousands)

Total amount of:
<S>                                     <C>            <C>            <C>            <C>            <C>    
    Assets                              $36,817        $34,152        $31,737        $30,961        $28,414
    Cash and due from banks                 319            835            851            531            373
    Interest-bearing time deposits
     in other financial institutions      2,324          2,009          1,705          3,007          2,587
    Investment securities (1)             2,220            500            500            502              -
    Mortgage-backed securities            4,032          2,009          2,182          1,492              -
    Loans receivable - net               27,031         27,972         25,663         24,622         24,656
    Deposits                             28,195         30,594         28,324         27,792         25,340
    FHLB advances                           300            300            300            300            500
    Shareholders' equity (2)              7,907          3,224          3,080          2,835          2,489
Number of full-service offices                1              1              1              1              1

                                                              Year ended September 30,
                                        -------------------------------------------------------------------
SUMMARY OF EARNINGS:                     1996           1995           1994            1993           1992
                                       --------       --------      ---------        --------        ------
                                                                   (In thousands)

Interest income                         $2,769         $2,334          $2,164         $2,339         $2,781
Interest expense                         1,505          1,396           1,131          1,195          1,565
                                        ------         ------          ------         ------         ------
Net interest income                      1,264            938           1,033          1,144          1,216
Provision for loan losses                    -              -              13             18             29
                                        ------         ------          ------         ------         ------
                                                            
Net interest income after
   provision for loan losses             1,264            938           1,020          1,126          1,187
Other income                                71             74              70             66             68
General, administrative and other
  expense                                1,014            792             722            678            647
                                        ------        -------         -------        -------        -------
Earnings before income taxes               321            220             368            514            608
Federal income taxes                        97             77             122            168            200
                                        ------        -------         -------        -------        -------
Net earnings                            $  224        $   143         $   246        $   346        $   408
                                        ======        =======         =======        =======        =======

----------------------
<FN>
(1)      Includes securities designated as available for sale.

(2)      Consisted solely of retained earnings at September 30, 1992 through
         1995, inclusive.
</TABLE>



                                       3
<PAGE>   5



<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS:                                              At September 30,
                                              ---------------------------------------------------------------------
                                                1996           1995           1994            1993            1992
                                              --------       --------       --------        --------         ------
<S>                                             <C>             <C>            <C>            <C>             <C>  
Performance ratios:
   Return on average assets                     0.62%           0.44%          0.79%          1.18%           1.40%
   Return on average equity                     4.36            4.51           8.24          12.79           18.93
   Interest rate spread                         3.06            2.62           3.19           3.80            4.03
   Net interest margin                          3.67            2.95           3.44           4.06            4.31
   General, administrative and other
     expense to average assets                  2.80            2.42           2.31           2.31            2.22
   Average equity to average assets            14.21            9.68           9.56           9.22            7.41
Asset quality ratios:
   Nonperforming assets to total assets         0.71            0.13           0.24           0.21            0.89
   Nonperforming loans to total loans           0.90            0.15           0.27           0.25            0.99
   Allowance for loan losses to total           0.65            0.65           0.70           0.69            0.63
     loans
   Allowance for loan losses to
     nonperforming loans                       71.65          422.22         254.67         269.70           63.89
   Net (charge-offs) recoveries to
     average loans                              0.01             -              -              -             (0.05)
   Average interest-earning assets to
     average interest-bearing liabilities     113.83          107.52         106.54         106.06          104.96
</TABLE>





                                       4
<PAGE>   6


                      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, 1996 and
                           1995" and "Comparison of Results of Operations for
                           the Years Ended September 30, 1995 and 1994;"

                  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."


                               FINANCIAL CONDITION
-------------------------------------------------------------------------------

The Company's consolidated total assets amounted to $36.8 million at September
30, 1996, an increase of $2.7 million, or 7.8%, over the $34.1 million in total
assets at September 30, 1995. Such increase in assets was funded primarily by
the $4.5 million in net proceeds from the Company's offering of common shares in
connection with the Conversion, and undistributed net earnings of $192,000,
which were partially offset by a $2.4 million decline in deposits.




                                       5
<PAGE>   7





Cash and cash equivalents and investment securities totaled $4.9 million at
September 30, 1996, an increase of $1.5 million, or 45.4%, over September 30,
1995, levels. During the fiscal year ended September 30, 1996, $1.7 million of
investment securities were purchased, which consisted primarily of
intermediate-term U.S. Government and agency obligations totaling $1.5 million
and corporate equity securities totaling $214,000.

Mortgage-backed securities totaled $4.0 million at September 30, 1996, an
increase of $2.0 million over September 30, 1995, levels. Such increase resulted
from purchases totaling $2.3 million, which were partially offset by principal
repayments of $266,000. Such purchases were funded primarily with proceeds from
the Company's offering of common shares and consisted of adjustable-rate
mortgage-backed securities bearing interest at rates ranging from 6.13% to
6.50%.

Loans receivable totaled $27.0 million at September 30, 1996, a decline of
$941,000, or 3.4%, from the $28.0 million total at September 30, 1995. During
fiscal 1996, loan disbursements amounted to $7.2 million. Such disbursements
were offset by principal repayments of $8.2 million.

Citizens' allowance for loan losses totaled $187,000 at September 30, 1996,
which represented 0.65% of total loans and 71.65% of nonperforming loans. At
September 30, 1995, the allowance for loan losses totaled $190,000, which
represented 0.65% of total loans and 422.22% of nonperforming loans.

Nonperforming loans amounted to $261,000 and $45,000 at September 30, 1996 and
1995, respectively, and represented 0.7% and 0.1% of total assets at such dates.
The increase in fiscal 1996 was due primarily to one residential loan account
totaling $192,000 which was in the process of foreclosure. Management
anticipates no loss on such loan account. Although management believes that its
allowance for loan losses at September 30, 1996, was adequate based on facts and
circumstances available to it, 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 $28.2 million at September 30, 1996, a decrease of $2.4
million, or 7.8%, from $30.6 million at September 30, 1995. The decline in
deposits is attributable in part to customers using funds on deposit to purchase
common shares of LFC in the Conversion. Citizens has generally not engaged in
sporadic increases or decreases in interest rates paid or offered the highest
rates available in its deposit market.

                       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 (100
basis points equals one percent) 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.



                                       6
<PAGE>   8



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.

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. 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 as of September 30, 1996,
and therefore a provision for loan losses was not deemed necessary. There can be
no assurance that the allowance will be adequate to cover future losses on
nonperforming assets.

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.

                       COMPARISON OF RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
--------------------------------------------------------------------------------

         GENERAL. Citizens had net earnings of $143,000 for the fiscal year
ended September 30, 1995, compared to $246,000 in fiscal 1994. The decrease in
net earnings was primarily attributable to a decrease of $95,000 in net 




                                       7
<PAGE>   9




interest income and an increase of $70,000 in general, administrative and other
expense. The decrease in net interest income occurred due to a decrease in the
interest rate spread from 3.19% to 2.62%. The decrease in the interest rate
spread was primarily due to a shift in deposits from short-term passbook
accounts to longer-term certificate of deposit accounts. The related increase in
the average maturity of deposits resulted in an increase in the weighted-average
rate paid on deposits from 3.95% for the fiscal year ended September 30, 1994 to
4.68% in fiscal 1995. At the same time, the weighted-average yield on
interest-earning assets increased only from 7.20% in fiscal 1994 to 7.35% in
fiscal 1995, due to the composition of the assets of Citizens, which generally
reprice at a slower pace than the deposits at Citizens. The majority of
interest-earning assets of Citizens are adjustable-rate mortgage loans, which
reprice annually.

         The decrease in net interest income and the increase in general,
administrative and other expense were partially offset by a decrease of $45,000
in the federal income tax expense and a decrease of $13,000 in the provision for
loan losses.

         NET INTEREST INCOME. The net interest income of Citizens decreased
$95,000 for the fiscal year ended September 30, 1995, compared to 1994. Such
decrease was primarily attributable to rates paid on deposits increasing at a
faster rate than yields earned on loans in fiscal 1995 compared to fiscal 1994.

         Total interest income increased $170,000, or 7.9%, in fiscal 1995
compared to fiscal 1994, due primarily to an increase of $1.5 million, or 5.9%,
in the weighted-average loan balance. The weighted-average yield earned on loans
was 7.72% in fiscal 1995 and 1994. Citizens' loan portfolio is composed almost
entirely of cost of funds indexed adjustable-rate loans which reprice annually
upon their anniversary. Thus, Citizens' overall loan yield generally lags behind
the current market interest rates. In 1995, Citizens had many loans which
repriced at higher rates due to the general increase in market interest rates
during the period from March 1994 through February 1995. New loans closed in the
second half of fiscal 1995, however, were made at slightly discounted rates so
that Citizens could remain competitive with other financial institutions in its
market area. In addition to the increase in interest income from loans,
Citizens' interest income on interest-bearing deposits, investment securities,
and mortgage-backed securities increased by $52,000, or 27.5%, in fiscal 1995
compared to fiscal 1994. Such increase is a result of higher short-term interest
rates earned on interest-bearing deposits as well as an increase of $144,000, or
8.6%, in the average balance of interest-bearing deposits in fiscal 1995.

         Total interest expense increased $265,000, or 23.4%, for fiscal 1995
compared to fiscal 1994. Such increase in interest expense was primarily
attributable to a $1.3 million increase in average interest bearing deposits
compared to fiscal 1994, while the weighted average interest rate also increased
to 4.68% in fiscal 1995 from 3.95% in fiscal 1994. The increase in the weighted
average rate can be attributed to an increase in the certificate account rates
to 5.61% from 4.80% in fiscal 1995 compared to fiscal 1994, as a result of
competitive rates offered throughout 1995 and special certificate rates offered
to obtain funds for loans.

         PROVISION FOR LOAN LOSSES. The provision for loan losses declined by
$13,000 for the fiscal year ended September 30, 1995. The ratio of nonperforming
loans to total loans decreased from .27% in fiscal 1994 to .15% in fiscal 1995.
At September 30, 1995 and 1994, Citizens had a ratio of allowance for loan
losses to total loans of .65% and .70%, respectively, and a ratio of allowance
for loan losses to nonperforming loans of 422.22% and 254.67%, respectively. As
a result of the decrease in nonperforming loans to total loans, low historical
charge-offs, and an improving delinquency history, management determined that a
provision for loan losses was not necessary for the fiscal year ended September
30, 1995.

         OTHER INCOME. Other income totaled $74,000 and $70,000 for the fiscal
years ended September 30, 1995 and 1994, respectively. The majority of other
income consisted of service charges on customer accounts of $63,000 and $61,000
in fiscal 1995 and fiscal 1994, respectively. The gradual increase was a result
of an increase in deposit activity.




                                       8
<PAGE>   10




         GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased by $70,000, or 9.7%, in fiscal 1995 compared to fiscal
1994. Employee compensation and benefits increased $26,000, or 7.9%, for 1995
compared to 1994, as a result of normal merit raises ranging from 5% to 10%.
Federal deposit insurance premiums increased $42,000, to $81,000, for the fiscal
year ended September 30, 1995, compared to fiscal 1994, as a result of an
underaccrual in 1994 which was adjusted in 1995.

         FEDERAL INCOME TAXES. Federal income tax expense decreased $45,000, or
37.0%, for 1995 compared to the fiscal year ended September 30, 1994, due to a
decrease of $148,000, or 40.2%, in income before federal income taxes. The
effective tax rate of Citizens increased to 34.9% in fiscal 1995 from 33.2% in
fiscal 1994.




                                       9
<PAGE>   11


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,
                                                                   -----------------------------------------------
                                                                1996                            1995                               
                                                  ------------------------------  ------------------------------                   

                                  Weighted        Average    Interest   Average    Average     Interest  Average  
                              average yield at  outstanding   earned/   yield/   outstanding   earned/   yield/   
                             September 30, 1996   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                     5.28%         $  3,278     $  202    6.16%     $ 1,827    $     99    5.42%   
  Investment securities             6.08               962         53    5.51          730          43    5.89    
  Mortgage-backed securities        6.26             2,620        137    5.23        2,093          99    4.73    
  Loans receivable(1)               8.28            27,567      2,377    8.62       27,094       2,093    7.72    
                                                   -------     ------  ------      -------      ------    ----    
    Total interest-earning          7.71            34,427      2,769    8.04       31,744       2,334    7.35    
    assets

  Non-interest-earning assets                        1,732                             980                        
                                                   -------                         -------                        

    Total assets                                   $36,159                         $32,724                        
                                                   =======                         =======                        

Interest-bearing liabilities:
  NOW accounts                      2.29          $  3,045         61    2.00      $ 2,713          56    2.06    
  Money market accounts             2.74               333          9    2.70          425          12    2.82    
  Passbook savings accounts         3.00             6,297        188    2.99        6,594         206    3.12    
  Certificates of deposit           5.96            20,268      1,219    6.01       19,491       1,094    5.61    
                                                   -------     ------  ------      -------      ------  ------    
    Total deposits                  4.93            29,943      1,477    4.93       29,223       1,368    4.68    
  FHLB advances                     9.25               300         28    9.25          300          28    9.25    
                                                   -------     ------  ------      -------    --------  ------    
    Total interest-bearing          4.97            30,243      1,505    4.98       29,523       1,396    4.73    
    liabilities                                                ------  ------                   ------  ------    

Non-interest-bearing                                   778                              33                        
liabilities                                        -------                         -------                        

    Total liabilities                               31,021                          29,556                        

Shareholders' equity(2)                              5,138                           3,168                        
                                                   -------                         -------                        

    Total liabilities and
     shareholders' equity                          $36,159                         $32,724                        
                                                   =======                         =======                        

Net interest income                                            $1,264                           $  938            
                                                               ======                           ======            
Interest rate spread                                                     3.06%                            2.62%   
                                                                       ======                           ======    
Net interest margin (net
  interest income as a
  percentage of average                                                  3.67%                            2.95%   
  interest-earning assets)                                             ======                           ======    
                          
Average interest-earning
  assets to average                                                    113.83%                          107.52%   
  interest-bearing                                                     ======                           ======    
  liabilities      
                   

<CAPTION>


                                            1994
                              -------------------------------
                               Average    Interest   Average 
                             outstanding  earned/     yield/ 
                               balance     paid        rate  
                              ----------   -------    -------
                                                             
<S>                          <C>          <C>        <C>     
Interest-earning assets:                                     
  Interest-bearing deposits                                  
   in other financial
   institutions               $ 1,683     $   67     3.99%   
  Investment securities           708         36     5.08    
  Mortgage-backed securities    2,077         86     4.14    
  Loans receivable(1)          25,587      1,975     7.72    
                              -------     ------     ----    
    Total interest-earning     30,055      2,164     7.20    
    assets                                                   
                                                             
  Non-interest-earning assets   1,172                        
                              -------                        
                                                             
    Total assets              $31,227                        
                              =======                        
                                                             
Interest-bearing liabilities:                                
  NOW accounts                  2,785         51     1.83    
  Money market accounts           502         14     2.79    
  Passbook savings accounts     9,185        297     3.23    
  Certificates of deposit      15,437        741     4.80    
                              -------     ------   ------    
    Total deposits             27,909      1,103     3.95    
  FHLB advances                   300         28      .25    
                              -------     ------   ------    
    Total interest-bearing     28,209      1,131     4.01    
    liabilities                           ------   ------    
                                                             
                                                             
Non-interest-bearing               34                        
liabilities                   -------                        
                                                             
                                                             
    Total liabilities          28,243                        
                                                             
Shareholders' equity(2)         2,984                        
                              -------                        
                                                             
    Total liabilities and                                    
     shareholders' equity     $31,227                        
                              =======                        
                                                             
Net interest income                       $1,033             
                                          ======             
Interest rate spread                                 3.19%   
                                                   ======    
Net interest margin (net                                     
  interest income as a                                       
  percentage of average                              3.44%   
  interest-earning assets)                         ======    
                                                             
Average interest-earning                                     
  assets to average                                106.54%   
  interest-bearing                                 ======    
  liabilities                
                             


-----------------------------------
<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 $112, $54 and $91 for the fiscal years ended September 30,
         1996, 1995 and 1994, respectively.

(2)      Consisted solely of retained earnings for the fiscal years ended
         September 30, 1995 and 1994.

</TABLE>


                                       10
<PAGE>   12


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 Citizens 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,
                                     ----------------------------------------------------------------------------
                                                   1996 vs. 1995                           1995 vs. 1994
                                     -------------------------------------      ---------------------------------
                                            Increase                                 Increase            
                                        (decrease) due to         Total         (decrease) due to         Total  
                                       -------------------       increase       -----------------       increase 
                                       Volume         Rate      (decrease)      Volume       Rate      (decrease)
                                       ------         ----      ----------      ------       ----      ----------
<S>                                    <C>           <C>           <C>         <C>          <C>           <C>  
Interest income attributable to:
    Interest-bearing deposits          $  85         $  18         $103        $   6        $   26        $  32
    Investment securities                 12            (2)          10            1             6            7
    Mortgage-backed securities            27            11           38            1            12           13
    Loans receivable                      38           246          284          116             2          118
                                        ----          ----         ----         ----       -------         ----

      Total interest income              162           273          435          124            46          170

Interest expense attributable to:
     NOW accounts                          7            (2)           5           (1)            6            5
     Money market accounts                (2)           (1)          (3)          (2)            0           (2)
     Passbook savings accounts            (9)           (9)         (18)         (81)          (10)         (91)
     Certificates of deposit              45            80          125          214           139          353
                                       -----         -----         ----         ----         -----         ----

       Total deposits                     41            68          109          130           135          265

     Advances from FHLB                    -             -            -            -             -            -
                                     -------       -------      -------      -------       -------      -------

       Total interest expense             41            68          109          130           135          265
                                       -----         -----         ----         ----          ----         ----

Increase (decrease) in net
    interest income                     $121           $205        $326        $  (6)        $ (89)       $ (95)
                                        ====           ====        ====        ======        ======       ======
</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.

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 




                                       11
<PAGE>   13




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, 1996, 2% of the present value of Citizens' assets was
approximately $716,000. 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 $291,000 at September 30, 1996, 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, 1996 and 1995, 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, 1996, and September 30, 1995, respectively, the effect that
a particular change in market interest rates would have on the NPV of Citizens.

<TABLE>
<CAPTION>
                                             At September 30, 1996           At September 30, 1995
                                             ----------------------          ---------------------
 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)%         $(316)           (5)%            $295             8%
             +300               (60)            (81)           (1)              367            10
             +200               (40)             63             1               334             9
             +100               (20)             92             2               202             5
                0                 -               -             -                 -             -
             -100               (20)           (150)           (2)             (187)           (5)
             -200               (40)           (291)           (5)             (262)           (7)
             -300               (60)           (275)           (5)             (274)           (7)
             -400               (80)           (162)           (3)             (260)           (7)
</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.

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.



                                       12
<PAGE>   14




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, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                             For the year ended September 30,
                                                  -------------------------------------------------
                                                     1996                1995                1994
                                                  --------            --------             --------
                                                                    (In thousands)

<S>                                               <C>                  <C>                 <C>    
Net earnings                                        $  224             $  143               $  246

Adjustments to reconcile net earnings to
    net cash from operating activities                 216                (15)                 (88)
                                                    ------             ------               ------

Net cash from operating activities                     440                128                  158

Net cash from investing activities                  (2,697)            (2,111)              (1,672)

Net cash from financing activities                   2,056              2,271                  532
                                                    ------             ------               ------

Net change in cash and cash equivalents               (201)               288                 (982)

Cash and cash equivalents at beginning of
    year                                             2,844              2,556                3,538
                                                    ------             ------               ------

Cash and cash equivalents at end of year            $2,643             $2,844               $2,556
                                                    ======             ======               ======
</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.

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 5% 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, 1996, Citizens liquid assets totaled approximately $2.8
million, which exceeded the OTS minimum requirements by $1.4 million. At such
date, Citizens had commitments to originate loans and 



                                       13
<PAGE>   15



loans in process totaling $1.5 million 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 stockholders' equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 3% of 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, 1996.

The following table sets forth the amount and percentage level of regulatory
capital of Citizens at September 30, 1996, and the amount by which it exceeds
the minimum requirements:

<TABLE>
<CAPTION>
                                                                At September 30, 1996
                                                        ---------------------------------------
                                                        Amount                Percent of assets
                                                        ------                -----------------
                                                                   (In thousands)

<S>                                                    <C>                           <C>  
Capital under GAAP before adjustments                  $5,437                        15.7%
                                                       ======                        ====

Tangible capital:
   Capital level                                       $5,437                        15.7%
   Requirement                                            521                         1.5
                                                       ------                        ----
   Excess                                              $4,916                        14.2%
                                                       ======                        ====

Core capital:
   Capital level                                       $5,437                        15.7%
   Requirement                                          1,042                         3.0
                                                       ------                        ----
   Excess                                              $4,395                        12.7%
                                                       ======                        ====

Risk-based capital:
   Capital level                                       $5,624                        30.3%
   Requirement                                          1,487                         8.0
                                                       ------                        ----
   Excess                                              $4,137                        22.3%
                                                       ======                        ====
</TABLE>


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

In December 1991, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair Values of Financial Instruments," which requires the disclosure of the fair
values of financial instruments. SFAS No. 107 became effective for LFC in its
fiscal year ended September 30, 1996. Fair values for the majority of balance
sheet accounts have been disclosed in the accompanying consolidated financial
statements, as a significant portion of the assets and liabilities of LFC, meet
the definition of a financial instrument.




                                       14
<PAGE>   16




In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments," which is
effective for years ending after December 15, 1995. SFAS No. 119 expands the
disclosure requirements for derivative financial instruments, which are defined
to include futures, forwards, swaps or options contracts or other instruments
with similar characteristics. It excludes all such instruments whose financial
effects are recorded on the balance sheet. SFAS No. 119 also makes certain
modifications to SFAS No. 107. At September 30, 1996, and for the period then
ended, LFC had no financial instruments which would require disclosure under
SFAS No. 119.

In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
SFAS No. 121 is effective for financial statements for fiscal years beginning
after December 15, 1995, but earlier application is encouraged. Restatement of
previously issued financial statements is not permitted. SFAS No. 121 will be
applicable to LFC for the fiscal year ending September 30, 1997. LFC does not
anticipate that its impact will be material.

In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities," to require a mortgage banking enterprise to recognize as
separate assets the rights to service mortgage loans for others regardless of
how those servicing rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans and subsequently sells or securitizes those loans with servicing
rights retained should allocate the total cost of the mortgage loans between the
mortgage servicing rights and the loans themselves, based on their relative fair
values, provided it is practicable to estimate those values. When it is not
practicable to estimate those values, then the entire cost of purchasing or
originating the loans should be allocated to the mortgage loans, with no cost
allocated to the mortgage servicing rights. SFAS No. 122 requires a mortgage
banking enterprise to assess its capitalized mortgage servicing rights for
impairment based on the fair value of such rights. A mortgage banking enterprise
should stratify its capitalized mortgage servicing rights upon adoption of SFAS
No. 122 based on one or more of the primary risk characteristics of the
underlying loans. Impairment should be recognized through a valuation allowance
for each category of impaired loans. SFAS No. 122 is to be applied prospectively
in fiscal years beginning after December 15, 1995, to transactions in which an
entity sells or securitizes mortgage loans with servicing rights retained and to
impairment evaluations of all amounts capitalized as mortgage servicing rights,
including those purchased before the adoption of this statement. Earlier
application is encouraged. Retroactive capitalization of mortgage servicing
rights retained in transactions incurred before the adoption of SFAS No. 122 is
prohibited. LFC adopted SFAS No. 122 effective October 1, 1996, as required,
without material effect on consolidated financial position or results of
operations.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
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 LFC will continue to account for stock-




                                       15
<PAGE>   17




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 for 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, known 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. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. SFAS No. 125
supersedes SFAS No. 122. Management does not believe that adoption of SFAS No.
125 will have a material adverse effect on LFC's consolidated financial position
or results of operations.


                     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.




                                       16
<PAGE>   18



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

The deposit accounts of Citizens and other savings associations are insured up
to applicable limits by the FDIC in the Savings Association Insurance Fund
("SAIF"). Legislation to recapitalize the SAIF was enacted on September 30,
1996. The legislation provided that the SAIF will be merged into the Bank
Insurance Fund if there are no more savings associations. It also requires the
Department of Treasury to submit a report to Congress on the development of a
common charter for all financial institutions. In addition, in September, 1996,
a bill was introduced to address this charter unification by eliminating the
federal thrift 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 the federal law as a bank or be required to
change its charter. Such change in regulation or charter would likely change the
range of activities in which Citizens may engage and would probably subject
Citizens to more regulation by the FDIC. In addition, LFC might become subject
to a different scheme of holding company 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's and Citizens'
regulatory requirements or charter. 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.



                                       17
<PAGE>   19




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
London Financial Corporation

We have audited the accompanying consolidated statement of financial condition
of London Financial Corporation as of September 30, 1996, and the related
consolidated statements of earnings, shareholders' equity and cash flows for the
year 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 audit. The consolidated
financial statements as of September 30, 1995, and for the years ended September
30, 1995 and 1994, 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 audit 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 audit provides 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, 1996, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.





GRANT THORNTON LLP

Cincinnati, Ohio
November 22, 1996



                                       18
<PAGE>   20


                          LONDON FINANCIAL CORPORATION

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  September 30,
                        (In thousands, except share data)


<TABLE>
<CAPTION>
         ASSETS                                                                                1996               1995

<S>                                                                                       <C>                 <C>      
Cash and due from banks                                                                   $     319           $     835
Interest-bearing deposits in other financial institutions                                     2,324               2,009
                                                                                           --------            --------
         Cash and cash equivalents                                                            2,643               2,844

Investment securities designated as available
  for sale - at market                                                                          220                   -
Investment securities - at cost, approximate
  market value of $1,991 and $495 as of
  September 30, 1996 and 1995                                                                 2,000                 500
Mortgage-backed securities - at amortized
  cost, approximate market value of $3,944 and
  $1,978 as of September 30, 1996 and 1995                                                    4,032               2,009
Loans receivable - net                                                                       27,031              27,972
Office premises and equipment - at depreciated cost                                             354                 372
Stock in Federal Home Loan Bank - at cost                                                       261                 244
Accrued interest receivable                                                                     178                 139
Prepaid expenses and other assets                                                                21                  34
Prepaid federal income taxes                                                                      -                   5
Deferred federal income taxes                                                                    77                  33
                                                                                            -------             -------

         Total assets                                                                       $36,817             $34,152
                                                                                            =======             =======

         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits $28,195                                                                            $30,594
Advances from the Federal Home Loan Bank                                                        300                 300
Other liabilities                                                                               279                  34
Accrued federal income taxes                                                                    136                   -
                                                                                            -------             -------
         Total liabilities                                                                   28,910              30,928

Commitments                                                                                       -                   -

Shareholders' equity
  Common shares- authorized 5,000,000 shares without par
    value; 529,000 shares issued and outstanding in 1996                                          -                   -
  Additional paid-in capital                                                                  4,910                   -
  Retained earnings - substantially restricted                                                3,416               3,224
  Unrealized gain on securities designated as available
    for sale, net of related tax effects                                                          4                   -
  Shares acquired by employee stock ownership plan                                             (423)                  -
                                                                                            -------             -------
         Total shareholders' equity                                                           7,907               3,224
                                                                                            -------             -------

         Total liabilities and shareholders' equity                                         $36,817             $34,152
                                                                                            =======             =======
</TABLE>




The accompanying notes are an integral part of these statements.





                                       19
<PAGE>   21


                          LONDON FINANCIAL CORPORATION

                       CONSOLIDATED STATEMENTS OF EARNINGS

                            Year ended September 30,
                                 (In thousands)


<TABLE>
<CAPTION>
                                                               1996         1995        1994
<S>                                                          <C>          <C>         <C>    
Interest income
  Loans                                                      $ 2,377      $ 2,093     $ 1,975
  Mortgage-backed securities                                     137           99          86
  Investment securities                                           53           26          26
  Interest-bearing deposits and other                            202          116          77
                                                             -------      -------     -------
         Total interest income                                 2,769        2,334       2,164

Interest expense
  Deposits                                                     1,477        1,368       1,103
  Borrowings                                                      28           28          28
                                                             -------      -------     -------
         Total interest expense                                1,505        1,396       1,131
                                                             -------      -------     -------

         Net interest income before provision
           for loan losses                                     1,264          938       1,033

Provision for loan losses                                       --           --            13
                                                             -------      -------     -------

         Net interest income after provision
           for loan losses                                     1,264          938       1,020

Other operating income                                            71           74          70

General, administrative and other expense
  Employee compensation and benefits                             425          404         378
  Occupancy and equipment                                         55           54          50
  Franchise taxes                                                 45           44          38
  Federal deposit insurance premiums                             262           81          39
  Data processing                                                 57           55          54
  Other operating                                                170          154         163
                                                             -------      -------     -------
         Total general, administrative and other expense       1,014          792         722
                                                             -------      -------     -------

         Earnings before income taxes                            321          220         368

Federal income taxes
  Current                                                        143           52         120
  Deferred                                                       (46)          25           2
                                                             -------      -------     -------
         Total federal income taxes                               97           77         122
                                                             -------      -------     -------

         NET EARNINGS                                        $   224      $   143     $   246
                                                             =======      =======     =======
</TABLE>



The accompanying notes are an integral part of these statements.




                                       20
<PAGE>   22


                          LONDON FINANCIAL CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

              For the years ended September 30, 1996, 1995 and 1994
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                       SHARES      UNREALIZED
                                                                                     ACQUIRED BY    GAIN ON
                                                                                      EMPLOYEE     SECURITIES
                                                                          ADDITIONAL    STOCK      DESIGNATED
                                                              COMMON       PAID-IN    OWNERSHIP   AS AVAILABLE  RETAINED
                                                              STOCK        CAPITAL      PLAN        FOR SALE    EARNINGS     TOTAL

<S>                                                       <C>              <C>         <C>          <C>         <C>         <C>    
Balance at October 1, 1993                                $       --       $  --       $  --        $  --       $ 2,835     $ 2,835

Net earnings for the year ended September 30, 1994                --          --          --           --           246         246
                                                          ------------     -------     -------      -------     -------     -------

Balance at September 30, 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 gain 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
                                                          ============     =======     =======      =======     =======     =======
</TABLE>





The accompanying notes are an integral part of these statements.





                                       21
<PAGE>   23


                          LONDON FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Year ended September 30,
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                        1996        1995          1994
<S>                                                                                  <C>          <C>          <C>    
Cash flows from operating activities:
  Net earnings for the year                                                          $   224      $   143      $   246
  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                                  6            6           10
    Amortization of deferred loan origination fees                                      (112)         (54)         (91)
    Depreciation and amortization                                                         25           24           22
    Provision for loan losses                                                           --           --             13
    Federal Home Loan Bank stock dividends                                               (17)         (15)         (11)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                                        (39)         (31)           1
      Prepaid expenses and other assets                                                   13            7          (29)
      Other liabilities                                                                  245            1            1
      Federal income taxes
        Current                                                                          141           22           (6)
        Deferred                                                                         (46)          25            2
                                                                                     -------      -------      -------
         Net cash provided by operating activities                                       440          128          158

Cash flows provided by (used in) investing activities:
  Purchase of mortgage-backed securities                                              (2,295)        --           (981)
  Principal repayments on mortgage-backed securities                                     266          167          283
  Purchase of investment securities designated as available
    for sale                                                                            (214)        --           --
  Purchase of investment securities designated as
    held to maturity                                                                  (1,500)        --           --
  Loan principal repayments                                                            8,227        4,494        7,567
  Loan disbursements                                                                  (7,174)      (6,763)      (8,535)
  Purchase of office premises and equipment                                               (7)          (9)          (6)
                                                                                     -------      -------      -------
         Net cash used in investing activities                                        (2,697)      (2,111)      (1,672)

Cash flows provided by (used in) financing activities:
  Net increase (decrease) in deposits                                                 (2,399)       2,271          532
  Net proceeds from issuance of common stock                                           4,487         --           --
  Dividends on common stock                                                              (32)        --           --
                                                                                     -------      -------      -------
         Net cash provided by financing activities                                     2,056        2,271          532
                                                                                     -------      -------      -------

Net increase (decrease) in cash and cash equivalents                                    (201)         288         (982)

Cash and cash equivalents at beginning of year                                         2,844        2,556        3,538
                                                                                     -------      -------      -------

Cash and cash equivalents at end of year                                             $ 2,643      $ 2,844      $ 2,556
                                                                                     =======      =======      =======

Supplemental disclosure of cash flow information: 
  Cash paid during the year for:
    Federal income taxes                                                             $    55      $    20      $   126
                                                                                     =======      =======      =======

    Interest on deposits and borrowings                                              $ 1,495      $ 1,393      $ 1,131
                                                                                     =======      =======      =======

Supplemental disclosure of noncash investing activities:
  Unrealized gain on securities designated as
    available for sale, net of applicable tax effects                                $     4      $  --        $  --
                                                                                     =======      =======      =======
</TABLE>


The accompanying notes are an integral part of these statements.


                                       22
<PAGE>   24


                          LONDON FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 1996, 1995 and 1994


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 shares purchased by the ESOP,
    resulted in net capital proceeds of $4.5 million. Condensed financial
    statements of the Corporation are presented in Note L. 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, with the exception of
    the policy described in Note A-2, 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.




                                       23
<PAGE>   25


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    2.  Investment Securities and Mortgage-Backed Securities
        ----------------------------------------------------

    Prior to October 1, 1994, investment securities and mortgage-backed
    securities were carried at cost, adjusted for amortization of premiums and
    accretion of discounts. The investment and mortgage-backed securities were
    carried at cost, as it was management's intent and the Corporation had the
    ability to hold the securities until maturity. Investment securities and
    mortgage-backed securities held for indefinite periods of time, or which
    management utilized as part of its asset/liability management strategy, or
    that would be sold in response to changes in interest rates, prepayment
    risk, or the perceived need to increase regulatory capital were classified
    as held for sale at the point of purchase and carried at the lower of cost
    or market.

    In May 1993, the Financial Accounting Standards Board (the "FASB") issued
    Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
    Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
    that investments be categorized as held-to-maturity, trading, or available
    for sale. Securities classified as held-to-maturity are 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. The
    Corporation adopted SFAS No. 115 effective October 1, 1994, by designating
    all investment and mortgage-backed securities as held to maturity. During
    fiscal 1996, the Corporation purchased certain corporate equity securities
    which are designated as available for sale, and at September 30, 1996, the
    Corporation's shareholders' equity reflected a net unrealized gain on such
    securities totaling $4,000.

    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.







                                       24
<PAGE>   26


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    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.

    5.  Allowance for Loan Losses
        -------------------------

    It is the Company's policy to provide valuation allowances for estimated
    loan losses 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 May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
    Impairment of a Loan". This Statement, which was amended by SFAS No. 118 as
    to certain income recognition and financial statement disclosure provisions,
    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 effective October 1, 1995, 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 impaired nonresidential and multi-family residential real
    estate loans, such loans are generally collateral dependent and, as a
    result, are carried as a practical expedient at the lower of cost or fair
    value.



                                       25
<PAGE>   27




                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Loan Losses (continued)
        -------------------------

    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, 1996, the Company had no loans that would be defined as
    impaired under SFAS No. 114.

    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 income taxes pursuant to 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. In
    accordance with 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.



                                       26
<PAGE>   28





                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    8.  Income Taxes (continued)
        ------------

    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, percentage of
    earnings bad debt deductions and the SAIF recapitalization assessment.
    Additional temporary differences result from depreciation computed using
    accelerated methods for federal income tax purposes.

    9.  Retirement 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 $32,000, $20,000 and $26,000 for the years
    ended September 30, 1996, 1995 and 1994, 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 $21,000
    for the year ended September 30, 1996.

    10.  Earnings Per Share
         ------------------

    The provisions of Accounting Principles Board Opinion No. 15, "Earnings Per
    Share", is not applicable for the fiscal years ended September 30, 1996,
    1995 and 1994, as the Corporation completed its conversion to the stock form
    of ownership in March 1996.

    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.






                                       27
<PAGE>   29


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    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, 1996:

                  CASH AND CASH EQUIVALENTS: The carrying amounts presented in
                  the consolidated statement 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 statement of financial condition is deemed to
                  approximate fair value.

                  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.






                                       28
<PAGE>   30


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)
         -----------------------------------

                  ADVANCES FROM 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, 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, 1996 are
    as follows:

<TABLE>
<CAPTION>
                                              CARRYING        FAIR
                                                 VALUE       VALUE
                                                 (In thousands)
<S>                                            <C>         <C>    
Financial assets
  Cash and cash equivalents                    $ 2,643     $ 2,643
  Investment securities                          2,220       2,211
  Mortgage-backed securities                     4,032       3,944
  Loans receivable                              27,031      27,774
  Federal Home Loan Bank stock                     261         261
                                               -------     -------

                                               $36,187     $36,833
                                               =======     =======

Financial liabilities
  Deposits                                     $28,195     $28,331
  Advances from the Federal Home Loan Bank         300         326
                                               -------     -------

                                               $28,495     $28,657
                                               =======     =======
</TABLE>

    13.  Reclassifications
         -----------------

    Certain prior year amounts have been reclassified to conform to the 1996
    consolidated financial statement presentation.








                                       29
<PAGE>   31


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


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, 1996 and
    1995, are as follows:

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30, 1996
                                                                               GROSS               GROSS      ESTIMATED
                                                            AMORTIZED     UNREALIZED          UNREALIZED           FAIR
                                                                 COST          GAINS              LOSSES          VALUE
                                                                                     (In thousands)
<S>                                                            <C>                <C>              <C>           <C>   
    HELD TO MATURITY:
      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
                                                               ======             ==               =====         ======


                                                                                 SEPTEMBER 30, 1995
                                                                               GROSS               GROSS      ESTIMATED
                                                            AMORTIZED     UNREALIZED          UNREALIZED           FAIR
                                                                 COST          GAINS              LOSSES          VALUE
                                                                                     (In thousands)
    HELD TO MATURITY:
      U.S. Government agency
        obligations                                              $500         $    -               $   5           $495
                                                                 ====         ======               =====           ====
</TABLE>

    The amortized cost and estimated fair value of U. S. Government and agency
    obligations at September 30, 1996, 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                                                                    $1,000            $  996
    Due after one year through three years                                                      1,000               995
                                                                                               ------            ------

                                                                                               $2,000            $1,991
                                                                                               ======            ======
</TABLE>







                                       30
<PAGE>   32


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


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, 1996 and
    1995, are shown below:

<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
                                                               ======           ======               ===         ======


                                                                                         1995
                                                                                 GROSS             GROSS      ESTIMATED
                                                            AMORTIZED       UNREALIZED        UNREALIZED           FAIR
                                                                 COST            GAINS            LOSSES          VALUE
                                                                                    (In thousands)
    HELD TO MATURITY:
      Federal Home Loan Mortgage
        Corporation participation certificates                $   740          $     -              $  9         $  731
      Government National Mortgage
        Association participation certificates                    927                -                11            916
      Federal National Mortgage
        Association participation certificates                    342                -                11            331
                                                               ------          -------               ---         ------

          Total mortgage-backed securities                     $2,009          $     -               $31         $1,978
                                                               ======          =======               ===         ======
</TABLE>







                                       31
<PAGE>   33


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


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

    The amortized cost of mortgage-backed securities by contractual term to
    maturity are shown below. Expected maturities will differ from contractual
    maturities because borrowers may generally prepay obligations without
    prepayment penalties.
<TABLE>
<CAPTION>
                                                                                                     AMORTIZED
                                                                                                          COST
                                                                                                (In thousands)

<S>                                                                                                     <C>   
    Due within one year                                                                                 $   58
    Due after one through five years                                                                       272
    Due after five years                                                                                 3,702
                                                                                                        ------

                                                                                                        $4,032
                                                                                                        ======
</TABLE>


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
                                                                                           1996           1995
                                                                                              (In thousands)
<S>                                                                                     <C>            <C>    
    Residential real estate
      One- to four-family                                                               $21,819        $21,947
      Multi-family                                                                          258            705
      Construction                                                                        1,084          1,351
    Nonresidential real estate                                                            4,831          4,623
    Consumer and other loans                                                                881            831
                                                                                        -------        -------
                                                                                         28,873         29,457
    Less:
      Undisbursed portion of loans in process                                             1,258            885
      Deferred loan origination fees                                                        397            410
      Allowance for loan losses                                                             187            190
                                                                                        -------        -------

                                                                                        $27,031        $27,972
                                                                                        =======        =======
</TABLE>

    The Company's lending efforts have historically focused on one- to
    four-family and multi-family residential real estate loans, which comprise
    approximately $21.3 million, or 79%, of the total loan portfolio at
    September 30, 1996, and approximately $22.5 million, or 81%, at September
    30, 1995. 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.




                                       32
<PAGE>   34


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE C - LOANS RECEIVABLE (continued)

    In the ordinary course of business, the Company has made loans to some of
    its directors, and 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 $473,000 and $679,000 at
    September 30, 1996 and 1995, respectively.


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>
                                                                            1996           1995           1994 
                                                                                        (In thousands)
<S>                                                                         <C>            <C>            <C> 
    Beginning balance                                                       $190           $191           $178
    Provision for loan losses                                                  -              -             13
    Loan charge-offs                                                          (3)            (1)             -
                                                                            ----           ----           ----

    Ending balance                                                          $187           $190           $191
                                                                            ====           ====           ====
</TABLE>

    As of September 30, 1996, 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, 1996, 1995 and 1994,
    totaled $261,000, $45,000 and $75,000, respectively. Interest income that
    would have been recognized had nonaccrual loans performed pursuant to
    contractual terms totaled approximately $15,000, $3,000 and $8,000 for the
    years ended September 30, 1996, 1995 and 1994, respectively.


NOTE E - OFFICE PREMISES AND EQUIPMENT

    Office premises and equipment at September 30 is comprised of the following:

<TABLE>
<CAPTION>
                                                                                           1996           1995
                                                                                              (In thousands)

<S>                                                                                       <C>            <C>  
    Land and improvements                                                                 $  85          $  85
    Building                                                                                471            471
    Furniture and equipment                                                                 186            179
                                                                                           ----           ----
                                                                                            742            735
      Less accumulated depreciation and
        amortization                                                                        388            363
                                                                                           ----           ----

                                                                                           $354           $372
                                                                                           ====           ====
</TABLE>



                                       33
<PAGE>   35


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE F - DEPOSITS

    Deposits consist of the following major classifications at September 30:

<TABLE>
<CAPTION>
    DEPOSIT TYPE AND WEIGHTED-
    AVERAGE INTEREST RATE                                         1996                             1995
                                                          AMOUNT          %                AMOUNT         %
                                                                            (In thousands)
<S>                                                       <C>         <C>                 <C>          <C>
    NOW accounts
      1996 - 2.29%                                       $ 3,198      11.3%
      1995 - 2.29%                                                                        $2,727        8.9%
    Passbook
      1996 - 3.00%                                         5,587      19.8
      1995 - 3.00%                                                                         6,184       20.2
    Money market investment accounts
      1996 - 2.74%                                           278       1.0
      1995 - 2.74%                                                                           387        1.3
                                                         -------      -----                -----     -------
    Total demand, transaction and
      passbook deposits                                    9,063       32.1                9,298       30.4

    Certificates of deposit
      Original maturities of:
        One year or less
          1996 - 5.14%                                     5,669       20.1
          1995 - 5.88%                                                                     7,571       24.7
        12 months to 36 months
          1996 - 6.09%                                     7,968       28.3
          1995 - 5.87%                                                                     8,276       27.1
        Greater than 36 months
          1996 - 6.62%                                     5,495       19.5
          1995 - 4.56%                                                                     5,449       17.8
                                                         -------      -----               ------     ------

    Total certificates of deposit                         19,132       67.9               21,296       69.6
                                                         -------      -----              -------     ------

    Total deposit accounts                               $28,195      100.0%             $30,594     100.0%
                                                         =======      =====              =======     ===== 
</TABLE>

    Interest expense on deposits at September 30 is summarized as follows:

<TABLE>
<CAPTION>
                                        1996          1995         1994
                                                  (In thousands)

<S>                                    <C>          <C>          <C>   
Passbook                               $  188       $  206       $  297
NOW accounts                               61           56           51
Money market investment accounts            9           12           14
Certificates of deposit                 1,219        1,094          741
                                       ------       ------       ------

                                       $1,477       $1,368       $1,103
                                       ======       ======       ======
</TABLE>





                                       34
<PAGE>   36


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE F - DEPOSITS (continued)

    Maturities of outstanding certificates of deposit at September 30 are
    summarized as follows:

<TABLE>
<CAPTION>
                                                                                     1996                1995
                                                                                          (In thousands)

<S>                                                                                <C>                 <C>    
    Less than one year                                                             $11,390             $11,254
    One year to two years                                                            4,130               4,625
    Two years to three years                                                         3,612               5,417
                                                                                   -------             -------

                                                                                   $19,132             $21,296
                                                                                   =======             =======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

    Advances from the Federal Home Loan Bank, collateralized at September 30,
    1996 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,                                     1996                1995
                                                                                            (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 at September 30 as follows: 

<TABLE>
<CAPTION>
                                                                            1996           1995           1994 
                                                                                       (In thousands)
<S>                                                                         <C>             <C>           <C> 
    Federal income taxes at statutory rate                                  $109            $75           $125
    Increase (decrease) in taxes resulting from:
      Other (primarily surtax exemptions in 1996)                            (12)             2             (3)
                                                                           -----           ----           ----
    Federal income taxes per consolidated
      financial statements                                                 $  97            $77           $122
                                                                           =====            ===           ====
                                                                                      
    Effective tax rate                                                      30.2%          34.9%          33.2%
                                                                            ====           ====           ==== 
</TABLE>





                                       35
<PAGE>   37


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE H - FEDERAL INCOME TAXES (continued)

    The composition of the Corporation's net deferred tax asset at September 30
    is as follows:

<TABLE>
<CAPTION>
    Taxes (payable) refundable on temporary           1996         1995
    differences at statutory rate:                      (In thousands)

<S>                                                  <C>          <C>  
Deferred tax assets:
  Deferred loan origination fees                     $ 103        $ 113
  SAIF recapitalization assessment                      66         --
  General loan loss allowance                           64           65
                                                     -----        -----
     Deferred tax assets                               233          178

Deferred tax liabilities:
  Federal Home Loan Bank stock dividends               (43)         (38)
  Difference between book and tax depreciation          (3)          (4)
  Percentage of earnings bad debt deduction            (64)         (65)
  Accrual vs. cash basis of accounting                 (44)         (38)
  Unrealized gains on securities designated
    as available for sale                               (2)        --
                                                     -----        -----
     Deferred tax liabilities                         (156)        (145)
                                                     -----        -----

     Net deferred tax asset                          $  77        $  33
                                                     =====        =====
</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, 1996, include approximately $525,000 for which federal income taxes have
    not been provided. The approximate amount of unrecognized deferred tax
    liability relating to the cumulative bad debt deduction was approximately
    $115,000 at September 30, 1996. See Note K for additional information
    regarding future percentage of earnings bad debt deductions.





                                       36
<PAGE>   38

                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


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, 1996, the Company had outstanding commitments of
    approximately $200,000 to originate loans. In the opinion of management, all
    loan commitments equaled or exceeded prevalent market interest rates as of
    September 30, 1996, and will be funded from normal cash flow from
    operations.


NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL

    The Company is subject to minimum regulatory capital standards promulgated
    by the Office of Thrift Supervision ("OTS"). The minimum capital standards
    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 4.0% to 5.0% of adjusted total
    assets for substantially all savings associations. In the opinion of
    management, the proposed revision to the capital requirement will have no
    material effect on the Company's excess regulatory capital position. The
    risk-based capital requirement 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%.



                                       37
<PAGE>   39


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)

    As of September 30, 1996, the Company's regulatory capital exceeded all
    minimum capital requirements as shown in the following table:

<TABLE>
<CAPTION>
                                                                      REGULATORY CAPITAL
                                                    TANGIBLE                CORE           RISK-BASED
                                                     CAPITAL     %       CAPITAL     %        CAPITAL      %
                                                                          (In thousands)
<S>                                                 <C>         <C>       <C>       <C>      <C>          <C>
    Capital under generally accepted
      accounting principles                         $5,437                $5,437             $5,437
    General valuation allowances                         -                     -                187
                                                    ------                ------             ------

    Regulatory capital computed                      5,437      15.7       5,437    15.7      5,624       30.3
    Minimum capital requirement                        521       1.5       1,042     3.0      1,487        8.0
                                                    ------      ----      ------    ----      -----       ----

    Regulatory capital - excess                     $4,916      14.2      $4,395    12.7     $4,137       22.3
                                                    ======      ====      ======    ====     ======       ====
</TABLE>

    The Company met the regulatory requirements of a "well-capitalized"
    institution; i.e., a risk-based capital ratio of 10.0% or greater, and a
    core capital ratio of 5.0% or greater. The Company's regulatory capital
    exceeded these requirements at September 30, 1996 by $3.8 million and $3.7
    million, respectively.


    NOTE K - RECENT LEGISLATIVE DEVELOPMENTS

    The deposit accounts of the Company and of other savings associations are
    insured by the FDIC in 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 in 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, no BIF assessments
    are required for healthy commercial banks except for a $2,000 minimum fee.

    Legislation was enacted to recapitalize the SAIF that provides 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.






                                       38
<PAGE>   40


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


NOTE K - RECENT LEGISLATIVE DEVELOPMENTS (continued)

    A component of the recapitalization plan provides for the merger of the SAIF
    and BIF on January 1, 1999. However, the SAIF recapitalization legislation
    currently provides for an elimination of the thrift charter or of the
    separate federal regulation of thrifts prior to the merger of the deposit
    insurance funds. As a result, the Company would be regulated as a bank under
    Federal laws which would subject it to the more restrictive activity limits
    imposed on national banks. 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.


NOTE L - CONDENSED FINANCIAL STATEMENTS OF LONDON FINANCIAL CORPORATION

    The following condensed financial statements summarize the financial
    position of London Financial Corporation as of September 30, 1996, and the
    results of its operations for the six month period ended September 30, 1996.

<TABLE>
<CAPTION>
                          LONDON FINANCIAL CORPORATION
                        STATEMENT OF FINANCIAL CONDITION
                               September 30, 1996
                                 (In thousands)
         ASSETS

<S>                                                                                                     <C>   
    Cash and due from banks                                                                             $  345
    Investment securities designated as available for sale - at market                                     220
    Investment securities                                                                                1,500
    Loan receivable from ESOP                                                                              423
    Investment in The Citizens Loan and Savings Company                                                  5,437
    Accrued interest receivable                                                                             31
                                                                                                        ------

         Total assets                                                                                   $7,956
                                                                                                        ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Other liabilities                                                                                 $     49

    Shareholders' equity
      Common stock                                                                                           -
      Additional paid-in capital                                                                         7,832
      Unrealized gain on securities designated as available
        for sale, net of related tax effects                                                                 4
      Retained earnings                                                                                     71
         Total shareholders' equity                                                                      7,907
                                                                                                         -----

                                                                                                         -----

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




                                       39
<PAGE>   41




                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1996, 1995 and 1994


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

                          LONDON FINANCIAL CORPORATION
                              STATEMENT OF EARNINGS
                    Six month period ended September 30, 1996
                                 (In thousands)

<TABLE>
<CAPTION>
<S>                                       <C> 
Revenue
  Interest income                         $ 68
  Equity in earnings of subsidiary          60
                                          ----
     Total revenue                         128

General and administrative expenses         10
                                          ----

     Earnings before income taxes          118

Federal income taxes                        15
                                          ----

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


NOTE M - 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.



                                       40
<PAGE>   42


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

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

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


Donald E. Forrest                                  Director
Owner-Operator
Forest Trucking Company


Edward D. Goodyear                                 Director
Certified Public Accountant


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




                                       41
<PAGE>   43



                              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: Melissa J. Meyer
                             Cincinnati, Ohio 45202
                                 (513) 579-5405


                                 ANNUAL MEETING

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

The 1997 Annual Meeting of Shareholders of London Financial Corporation (the
"Annual Meeting") will be held on January 23, 1997, 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


               CHANGE IN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

On July 11, 1996, LFC, with the approval of its Board of Directors, dismissed
KPMG Peat Marwick ("KPMG") as LFC's independent certified public accountants and
engaged Grant Thornton LLP ("Grant Thornton") to act in such capacity. The
reports of KPMG on the consolidated financial statements of Citizens for the
fiscal years ended September 30, 1994 and 1995, did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the fiscal years ended
September 30, 1994 and 1995, and the interim period through July 11, 1996, there
were no disagreements between LFC or Citizens and KPMG on any matter of
accounting principles or practices, consolidated financial statement disclosure
or audit scope or procedure.

The Board of Directors has selected Grant Thornton as the independent certified
public accountants of LFC and Citizens for the current fiscal year and
recommends that the shareholders ratify the selection. Management expects that a
representative of Grant Thornton will be present at the Annual Meeting, will
have the opportunity to make a statement if e or she so desires and will be
available to respond to appropriate questions.