<PAGE>   1
                                                                      Exhibit 13


Dear Shareholder:

     It is with a great deal of pleasure that I present to you the Annual Report
to Shareholders of London Financial Corporation covering the fiscal year ended
September 30, 1998.

     Fiscal 1998 marked your Company's second straight year of record earnings,
despite the payment of $5.24 per share in cash distributions to our shareholders
during the period.

     We were able to exceed our prior year's record results by primarily
increasing loan yields through our entry into the commercial lending markets. On
July 9, 1998, your Board of Directors approved the conversion of Citizens Loan
and Savings Company ("Citizens") to a state-chartered commercial bank. We have
received all requisite regulatory approvals and Citizens will commence
operations on January 4, 1999 under the name of The Citizens Bank of London.

     The investment community has rewarded our efforts with a 40% increase in
stock price since the first quarter of fiscal 1998. While this level of price
appreciation is very satisfying, understandably we can not continue these types
of returns year after year. However, please be assured that we remain committed
to maximizing the return on your investment in London Financial.

     As always, we thank you for your support during the past year.

Sincerely,

LONDON FINANCIAL CORPORATION





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 incorporated under the laws
of the State of Ohio. In March 1996, LFC acquired all of the common shares
issued by Citizens upon its conversion from a mutual savings and loan
association to a stock savings and loan association (the "Conversion"). Since
its formation, LFC's activities have been limited primarily to holding the
common shares of Citizens.

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

On July 9, 1998, the respective Boards of Directors of Citizens and LFC approved
the conversion of Citizens from a state-chartered savings and loan association
to a state-chartered commercial bank (the "Charter Conversion"). Shortly
thereafter, Citizens filed an application with the Division seeking approval of
the Charter Conversion, and Citizens' application was approved by the Division
on December 8, 1998. It is currently anticipated that the Charter Conversion
will be consummated on January 4, 1999. As a result of the Charter Conversion,
Citizens will be permitted to increase its commercial lending activities to
small businesses and to agricultural concerns and to increase its commercial
checking activity. After the Charter Conversion, Citizens will be regulated by
the Division and the Federal Deposit Insurance Corporation (the "FDIC").

Also in connection with the Charter Conversion, LFC filed an application with
the Federal Reserve Board for pre-approval to register as a bank holding
company. The Federal Reserve Board approved LFC's application for pre-approval
to become a bank holding company on October 16, 1998. Consequently, after the
Charter Conversion, LFC will be a bank holding company regulated by the Federal
Reserve Board and will no longer be a unitary savings and loan holding company
regulated by the OTS. As a unitary savings and loan holding company, LFC has
been permitted to engage in more numerous types of commercial, securities and
insurance activities than other financial institution holding companies,
including bank holding companies. However, LFC does not currently engage in any
activities which would be impermissible for it to engage in after the Charter
Conversion is consummated and LFC becomes a bank holding company.


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

There were 479,450 of LFC's common shares outstanding on December 10, 1998, and
held of record by approximately 421 shareholders. Price information with respect
to LFC's common shares was quoted on The Nasdaq SmallCap Market ("Nasdaq") under
the symbol "LONF" from March 1996 through April 1998. Thereafter, LFC's shares
began trading through the OTC Bulletin Board. The table below sets forth the
high and low prices for the common shares of LFC together with the respective
dividends declared per share, for each quarter of fiscal 1998, 1997 and 1996
during which LFC's shares were publicly traded. Price information was obtained
from Nasdaq for the periods through April 1998. Price information subsequent to
April 1998 represents actual trade prices during the respective quarters.

                                        2


<PAGE>   3


<TABLE>
<CAPTION>

                                                                       CASH DIVIDENDS
                                        HIGH                   LOW           DECLARED

<S>                                   <C>                  <C>         <C>
FISCAL 1996
  Quarter ended:
    June 30, 1996                     $11.37               $  9.75                $-- 
    September 30, 1996                 11.25                 10.00                .06

FISCAL 1997
  Quarter ended:
    December 31, 1996                 $14.67                $11.00               $.06
    March 31, 1997                     18.00                 14.00                .06
    June 30, 1997                      17.50                 14.63                .06
    September 30, 1997                 15.75                 14.75                .06

FISCAL 1998
  Quarter ended:
    December 31, 1997                 $21.00                $14.00              $5.06
    March 31, 1998                     16.50                 14.50                .06
    June 30, 1998                      16.50                 14.50                .06
    September 30, 1998                 17.25                 14.50                .06
</TABLE>

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

The income of LFC consists primarily of interest and dividends on investments
and dividends which may periodically be declared and paid by the Board of
Directors of Citizens on the common shares of Citizens held by LFC.

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

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

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


                                        3


<PAGE>   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                          1998         1997         1996         1995         1994
  AND OTHER DATA:                                                      (Dollars in thousands)

<S>                                                <C>          <C>          <C>          <C>          <C>    
Total amount of:
Assets                                             $38,144      $38,210      $36,817      $34,152      $31,737
Cash and due from banks                                507          322          319          835          851
Interest-bearing time deposits
  in other financial institutions                    1,271        3,342        2,324        2,009        1,705
Investment securities (1)                              121          655        2,220          500          500
Mortgage-backed securities                           2,703        3,586        4,032        2,009        2,182
Loans receivable - net                              32,588       29,465       27,031       27,972       25,663
Deposits                                            31,300       29,951       28,195       30,594       28,324
FHLB advances                                        1,800          300          300          300          300
Shareholders' equity (2)                             4,863        7,604        7,907        3,224        3,080

<CAPTION>

                                                                         YEAR ENDED SEPTEMBER 30,
SUMMARY OF EARNINGS:                                  1998         1997         1996         1995         1994
                                                                (In thousands, except per share data)

<S>                                                <C>          <C>          <C>          <C>          <C>    
Interest income                                     $2,956       $2,832       $2,769       $2,334       $2,164
Interest expense                                     1,557        1,468        1,505        1,396        1,131
                                                   -------      -------      -------      -------      -------
Net interest income                                  1,399        1,364        1,264          938        1,033
Provision for loan losses                               22           --           --           --           13
                                                   -------      -------      -------      -------      -------

Net interest income after
 provision for loan losses                           1,377        1,364        1,264          938        1,020
Other income                                           143          107           71           74           70
General, administrative and other
  expense                                              942          887        1,014          792          722
                                                   -------      -------      -------      -------      -------

Earnings before income taxes                           578          584          321          220          368
Federal income taxes                                   192          199           97           77          122
                                                   -------      -------      -------      -------      -------

Net earnings                                       $   386      $   385      $   224      $   143      $   246
                                                   =======      =======      =======      =======      =======

Earnings per share
  Basic                                               $.84         $.81          N/A          N/A          N/A
                                                   =======      =======      =======      =======      =======

  Diluted                                             $.80         $.81          N/A          N/A          N/A
                                                   =======      =======      =======      =======      =======
</TABLE>
----------------------

(1)      Includes securities designated as available for sale.

(2)      Consisted solely of retained earnings at September 30, 1994 and 1995.



                                        4



<PAGE>   5



                              SELECTED CONSOLIDATED
                FINANCIAL INFORMATION AND OTHER DATA (CONTINUED)

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

SELECTED FINANCIAL RATIOS:                                       AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                      1998         1997         1996         1995         1994
<S>                                                 <C>          <C>          <C>          <C>          <C>  
Performance ratios:
Return on average assets                              1.03%        1.01%        0.62%        0.44%        0.79%
Return on average equity                              7.14         5.15         4.36         4.51         8.24
Interest rate spread                                  3.07         2.90         3.06         2.62         3.19
Net interest margin                                   3.76         3.77         3.67         2.95         3.44
General, administrative and
  other expense to average assets                     2.51         2.33         2.80         2.42         2.31
Average equity to average assets                     14.38        19.67        14.21         9.68         9.56
Asset quality ratios:
Nonperforming assets to total assets                    --         0.70         0.71         0.13         0.24
Nonperforming loans to total loans                      --         0.87         0.90         0.15         0.27
Allowance for loan losses to total
  loans                                               0.59         0.60         0.65         0.65         0.70
Allowance for loan losses to
  nonperforming loans                                   --        69.78        71.65       422.22       254.67
Net charge-offs to average loans                      0.03           --         0.01           --           --
Average interest-earning assets to
  average interest-bearing liabilities              116.10       121.39       113.83       107.52       106.54
</TABLE>











                                        5



<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
following 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 and adequacy of the allowance
          for loan losses as set forth under "Financial Condition," "Comparison
          of Results of Operation for the Years Ended September 30, 1998 and
          1997" and "Comparison of Results of Operations for the Years Ended
          September 30, 1997 and 1996;"

     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;"

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

     5.   Management's determination of the effect of the year 2000 on LFC's
          information technology systems as set forth under "Year 2000
          Compliance Issues;" and

     6.   Management's estimate as to the effects of recent accounting
          pronouncements as set forth under "Effects of Recent Accounting
          Pronouncements".



                                        6



<PAGE>   7

                  DISCUSSION OF CHANGES IN FINANCIAL CONDITION
                  FROM SEPTEMBER 30, 1997 TO SEPTEMBER 30, 1998
--------------------------------------------------------------------------------
The Company's consolidated total assets amounted to $38.1 million at September
30, 1998, a decrease of $66,000, or .2%, from the $38.2 million in total assets
at September 30, 1997. The decrease in assets was due primarily to a decline of
$2.7 million in shareholders' equity following the $2.5 million, or $5.00 per
share, special distribution to shareholders paid in November 1997, which was
partially offset by a $1.3 million increase in deposits and a $1.5 million
increase in FHLB advances.

Cash and cash equivalents and investment securities totaled $1.9 million at
September 30, 1998, a decrease of $2.4 million, or 56.0%, from September 30,
1997 levels. During the fiscal year ended September 30, 1998, $500,000 of
investment securities matured and corporate equity securities totaling $196,000
were sold, resulting in a gain of $71,000 during fiscal 1998. LFC purchased
$248,000 of corporate equity securities during fiscal 1998.

Mortgage-backed securities totaled $2.7 million at September 30, 1998, a
decrease of $883,000 from September 30, 1997, levels, due primarily to principal
repayments. The Company's mortgage-backed securities portfolio consists of
adjustable-rate mortgage-backed securities bearing interest at rates ranging
from 6.00% to 6.65% at September 30, 1998. Proceeds from maturity of investment
securities and principal repayments on mortgage-backed securities, as well as
excess liquidity, were redeployed to fund growth in the loan portfolio.

Loans receivable totaled $32.6 million at September 30, 1998, an increase of
$3.1 million, or 10.6%, over the $29.5 million total at September 30, 1997.
During fiscal 1998, loan disbursements amounted to $12.6 million, which were
partially offset by principal repayments of $9.6 million. Loan origination
volume during fiscal 1998 exceeded that of fiscal 1997 by $4.8 million, or
62.0%. Growth in the loan portfolio during fiscal 1998 consisted primarily of
nonresidential and commercial loans, generally secured by real estate and
agricultural equipment, which increased by $3.3 million.

Citizens' allowance for loan losses totaled $201,000 and $187,000 at September
30, 1998 and 1997, which represented .59% and .60% of total loans, respectively.
Citizens had no nonperforming loans at September 30, 1998. Nonperforming loans
amounted to $268,000 at September 30, 1997, representing .7% of total assets.
Although management believes that its allowance for loan losses at September 30,
1998, was adequate based on the available facts and circumstances, there can be
no assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Company's results of operations.

Deposits totaled $31.3 million at September 30, 1998, an increase of $1.3
million, or 4.5%, over the $30.0 million total at September 30, 1997. The
increase in deposits consisted of a $2.4 million, or 25.5%, increase in
transaction accounts, which was partially offset by a $1.1 million, or 5.1%,
decrease in certificates of deposit. The increase resulted primarily from
management's continuing efforts to maintain growth in deposits through marketing
and pricing strategies.

Shareholders' equity totaled $4.9 million at September 30, 1998, a $2.7 million,
or 36.0%, decrease from 1997 levels. The decrease resulted primarily from the
$2.5 million, or $5.00 per share, special distribution to shareholders paid in
November, 1997, coupled with purchases of treasury shares totaling $521,000 and
cash dividends of $123,000, which were partially offset by net earnings of
$386,000.




                                       7


<PAGE>   8



                       COMPARISON OF RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
--------------------------------------------------------------------------------

GENERAL. Net earnings for the fiscal year ended September 30, 1998, amounted to
$386,000, an increase of $1,000, or .3%, over the $385,000 in net earnings
recorded in fiscal 1997. The increase in net earnings resulted primarily from a
$35,000 increase in net interest income, a $36,000 increase in other income, and
a $7,000 decrease in the provision for federal income taxes, which were
partially offset by a $22,000 increase in the provision for losses on loans and
a $55,000 increase in general administrative and other expense.

NET INTEREST INCOME. Net interest income totaled $1.4 million for the fiscal
year ended September 30, 1998, an increase of $35,000, or 2.6%, over the total
recorded in fiscal 1997. Interest income on loans during fiscal 1998 increased
by $221,000, or 9.3%, over fiscal 1997 levels, resulting from the combination of
a $2.6 million increase in the weighted-average balance of loans outstanding and
an increase of 2 basis points (100 basis points equals one percent) in the
average yield, to 8.34%. Interest income on mortgage-backed securities decreased
by $32,000, or 13.8%, due primarily to a $672,000, or 17.8%, decrease in the
weighted-average balance of mortgage-backed securities outstanding, which was
partially offset by an increase in the weighted-average yield year to year, from
6.13% in fiscal 1997 to 6.43% in fiscal 1998. Interest income on investment
securities and interest-bearing deposits decreased by $65,000, or 29.7%, for the
fiscal year ended September 30, 1998, compared to fiscal 1997, as the
weighted-average balance decreased by $1.4 million year to year, due to
maturities and sales, while the related yield increased by 62 basis points, to
6.46% in fiscal 1998.

Interest expense on deposits increased by $70,000, or 4.9%, during fiscal 1998,
compared to fiscal 1997, due primarily to a $1.5 million increase in the
weighted-average balance of deposits outstanding year to year, which was
partially offset by a decline of 2 basis points in the weighted-average cost of
deposits, from 4.88% in fiscal 1997 to 4.86% in fiscal 1998.

As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $35,000, or 2.6%, during fiscal 1998, as
compared to fiscal 1997. The interest rate spread increased by 17 basis points,
to 3.07% for fiscal 1998, as compared to 2.90% for fiscal 1997, while the net
interest margin amounted to 3.76% and 3.77% for the fiscal years ended September
30, 1998 and 1997, respectively.

PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses 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 elected
to record a $22,000 provision for losses on loans during the fiscal year ended
September 30, 1998. The provision was predicated on the growth in the loan
portfolio comprised primarily of loans secured by nonresidential property. There
can be no assurance that the allowance will be adequate to cover losses on
nonperforming assets in the future.


                                        8



<PAGE>   9



OTHER INCOME. Other income totaled $143,000 for the fiscal year ended September
30, 1998, an increase of $36,000, or 33.6%, over the $107,000 recorded in fiscal
1997. The increase resulted primarily from an increase of $31,000, or 77.5%, in
gain on sale of investment securities designated as available for sale.

GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense increased by $55,000, or 6.2%, to a total of $942,000 for the fiscal
year ended September 30, 1998, as compared to fiscal 1997. The increase was due
primarily to a $61,000, or 13.7%, increase in employee compensation and benefits
and a $7,000, or 13.5%, increase in occupancy and equipment, which were
partially offset by a $13,000, or 40.6%, decrease in federal deposit insurance
premiums. The increase in employee compensation and benefits resulted primarily
from costs associated with the stock benefit plans of LFC, an increase in
staffing levels and normal merit increases.

FEDERAL INCOME TAXES. The provision for federal income taxes totaled $192,000
for the fiscal year ended September 30, 1998, a decrease of $7,000, or 3.5%,
from the $199,000 provision recorded in fiscal 1997. The decrease resulted
primarily from a decrease of $6,000, or 1.0%, in pretax earnings year to year
coupled with an increase in nontaxable dividend income. LFC's effective tax
rates were 33.2% and 34.1% for the fiscal years ended September 30, 1998 and
1997, respectively.


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

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

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

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





                                        9



<PAGE>   10



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

PROVISION FOR LOSSES ON LOANS. The amount of the provision for losses on loans
is based on management's regular review of the loan portfolio and consideration
of such factors as historical loss experience, generally prevailing economic
conditions, changes in the size and composition of the loan portfolio and
considerations relating to specific loans, including the ability of the borrower
to repay the loan and the estimated value of the underlying collateral. Although
management utilizes its best judgment and information available, the ultimate
adequacy of the allowance is dependent upon a variety of factors, including the
performance of Citizens' loan portfolio, the economy, changes in real estate
values and interest rates and regulatory requirements regarding asset
classifications. As a result of its analysis, management concluded that the
allowance was adequate during the fiscal year ended September 30, 1997, and
therefore a provision for loan losses was not deemed necessary.

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

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

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







                                       10



<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,
                                                              1998
                                    --------------------------------------------------------
                                         WEIGHTED            AVERAGE     INTEREST    AVERAGE
                                     AVERAGE YIELD AT    OUTSTANDING      EARNED/     YIELD/
                                    SEPTEMBER 30, 1998       BALANCE        PAID        RATE
                                                      (Dollars in thousands)
<S>                                 <C>                  <C>             <C>         <C>  
Interest-earning assets:
Interest-bearing deposits in other
  financial institutions                    4.46%            $ 2,245       $  149         6.64%
Investment securities                       4.95                 138            5         3.62
Mortgage-backed securities                  6.49               3,110          200         6.43
Loans receivable(1)                         8.08              31,198        2,602         8.34
                                                             -------       ------         ----
     Total interest-earning assets                            36,691        2,956         8.06

Non-interest-earning assets                                      891                               
                                                             -------                               

     Total assets                                            $37,582                               
                                                             =======                               

Interest-bearing liabilities:
NOW accounts                                2.27             $ 3,859           76         1.97     
Money market accounts                       4.68                 932           41         4.40     
Passbook savings accounts                   3.00               5,919          180         3.04     
Certificates of deposit                     5.84              20,067        1,199         5.98     
                                                             -------       ------         ----
     Total deposits                                           30,777        1,496         4.86     
FHLB advances and other borrowings                               825           61         7.39     
                                                             -------       ------         ----
     Total interest-bearing liabilities                       31,602        1,557         4.99     
                                                                                                   

Non-interest-bearing liabilities                                 574                               
                                                             -------

     Total liabilities                                        32,176                               

Shareholders' equity                                           5,406                               
                                                             -------                               

     Total liabilities and
       shareholders' equity                                  $37,582                               
                                                             =======                               

Net interest income                                                        $1,399                  
                                                                           ======                  
Interest rate spread                                                                      3.07%    
                                                                                        ======
Net interest margin (net interest
  income as a percentage of average
  interest-earning assets)                                                                3.76%    
                                                                                        ======
Average interest-earning assets to
  average interest-bearing liabilities                                                  116.10%    
                                                                                        ======


<CAPTION>


                                                                   YEAR ENDED SEPTEMBER 30,
                                                        1997                                  1996
                                          ---------------------------------     --------------------------------
                                              AVERAGE   INTEREST    AVERAGE        AVERAGE   INTEREST    AVERAGE
                                          OUTSTANDING    EARNED/     YIELD/    OUTSTANDING    EARNED/     YIELD/
                                              BALANCE       PAID       RATE        BALANCE       PAID       RATE
                                                                    (Dollars in thousands)
<S>                                       <C>           <C>         <C>        <C>           <C>         <C>  
Interest-earning assets:
Interest-bearing deposits in other
  financial institutions                      $ 2,562    $   161        6.28%     $  3,278     $  202       6.16%
Investment securities                           1,188         58        4.88           962         53       5.51
Mortgage-backed securities                      3,782        232        6.13         2,620        137       5.23
Loans receivable(1)                            28,618      2,381        8.32        27,567      2,377       8.62
                                              -------     ------      ------      --------     ------     ------
     Total interest-earning assets             36,150      2,832        7.83        34,427      2,769       8.04

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

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

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

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

     Total liabilities                         30,542                               31,021

Shareholders' equity                            7,478                                5,138
                                              -------                              -------

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

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

-----------------------------------

(1)      Net of deferred loan fees, loan discounts, the allowance for loan
         losses and loans in process. Loan fees included in interest income
         totaled $124,000, $81,000 and $112,000 for the fiscal years ended
         September 30, 1998, 1997 and 1996, respectively.



                                       11



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

<TABLE>
<CAPTION>

                                                                     YEAR ENDED SEPTEMBER 30,
                                                        1998 VS. 1997                            1997 VS. 1996
                                               ---------------------------------      ---------------------------------
                                                     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                     $ (21)    $    9           $ (12)       $ (45)    $    4           $(41)
  Investment securities                           (41)       (12)            (53)          11         (6)             5
  Mortgage-backed securities                      (42)        10             (32)          71         24             95
  Loans receivable                                215          6             221           88        (84)             4
                                                -----     ------           -----        -----     ------           ----
     Total interest income                        111         13             124          125        (62)            63

Interest expense attributable to:
  NOW accounts                                      8          3              11            8         (4)             4
  Money market accounts                            26          9              35           (3)        -              (3)
  Passbook savings accounts                         2          1               3          (14)         3            (11)
  Certificates of deposit                          19          2              21          (33)        (8)           (41)
                                                -----     ------           -----        -----     ------           ----
     Total deposits                                55         15              70          (42)        (9)           (51)

  Advances from FHLB                               22         (3)             19           18         (4)            14
                                                -----     ------           -----        -----     ------           ----

     Total interest expense                        77         12              89          (24)       (13)           (37)
                                                -----     ------           -----        -----     ------           ----

Increase in net interest income                                            $  35                                   $100
                                                                           =====                                   ====
</TABLE>


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

Citizens' interest rate spread is the principal determinant of Citizens' income.
The interest rate spread, and therefore net interest income, can vary
considerably over time because asset and liability repricing do not coincide.
Moreover, the long-term and cumulative effect of interest rate changes can be
substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates. The
management and Board of Directors attempt to manage Citizens' exposure to
interest rate risk in a manner to maintain the projected four-quarter percentage
change in net interest income and the projected change in the market value of
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.

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


                                       12



<PAGE>   13



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

At September 30, 1998, 2% of the present value of Citizens' assets was
approximately $780,000. 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 $217,000 at September 30, 1998, 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, 1998 and 1997, 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 table also 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.

<TABLE>
<CAPTION>

                                                            AT SEPTEMBER 30, 1998         AT SEPTEMBER 30, 1997
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)%                   $937          21%            $ 31            --%
        +300                          (60)                     818          18              213             3
        +200                          (40)                     583          13              277             4
        +100                          (20)                     265           6              197             3
        0                              --                       --          --               --            --
        -100                          (20)                   (160)          (4)            (236)           (4)
        -200                          (40)                   (217)          (5)            (357)           (5)
        -300                          (60)                   (225)          (5)            (374)           (6)
        -400                          (80)                   (210)          (5)            (322)           (5)
</TABLE>

As illustrated by the table, the NPV of Citizens is more sensitive to rising
than declining interest rates. Such 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 differences in sensitivity between
rising and falling rates are generally attributable to the annual repricing of
ARMs compared to the shorter period to repricing of deposits. Assumptions used
in calculating the amounts in the foregoing table are OTS assumptions.








                                       13



<PAGE>   14



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

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


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

The liquidity of Citizens, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized in the following table for the years ended September
30, 1998, 1997 and 1996.

<TABLE>
<CAPTION>

                                                               FOR THE YEAR ENDED SEPTEMBER 30,
                                                         1998                  1997             1996
                                                                          (In thousands)

<S>                                                   <C>                   <C>              <C>    
Net earnings                                          $   386               $   385          $   224
Adjustments to reconcile net earnings
  to net cash from operating activities                  (296)                 (110)             216
                                                      -------               -------          -------

Net cash from operating activities                         90                   275              440

Net cash from investing activities                     (1,648)                 (295)          (2,697)

Net cash from financing activities                       (328)                1,041            2,056
                                                      -------               -------           ------

Net change in cash and cash equivalents                (1,886)                1,021             (201)

Cash and cash equivalents at beginning of year          3,664                 2,643            2,844
                                                      -------               -------           ------

Cash and cash equivalents at end of year               $1,778                $3,664           $2,643
                                                      =======               =======           ======
</TABLE>

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



                                       14



<PAGE>   15



OTS regulations presently require Citizens to maintain an average daily balance
of liquid assets, which may include, but are not limited to, investments in U.
S. Treasury and federal agency obligations and other investments having
maturities of five years or less, in an amount equal to 4% of the sum of
Citizens' average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement, which may be
changed from time to time by the OTS to reflect changing economic conditions, is
intended to provide a source of relatively liquid funds upon which Citizens may
rely if necessary to fund deposit withdrawals or other short-term funding needs.
At September 30, 1998, Citizens liquid assets totaled approximately $2.0
million, which exceeded the OTS minimum requirements by $325,000. At such date,
Citizens had commitments to originate loans and loans in process totaling
$895,000 and $745,000, respectively, and no commitments to purchase or sell
loans. Citizens considers its liquidity and capital reserves sufficient to meet
its outstanding short-term and long-term needs.

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

"Core capital" is comprised of common shareholders' equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 3% of the association's total assets. The OTS
has proposed to increase such requirement to 4% to 5%, except for those
associations with the highest examination rating and acceptable levels of risk.

OTS regulations require that savings associations maintain "risk-based capital"
in an amount not less than 8% of risk-weighted assets. Risk-based capital is
defined as core capital plus certain additional items of capital, which in the
case of Citizens includes a general loan loss allowance of $201,000 at September
30, 1998.

The following table sets forth the amount and percentage level of regulatory
capital of Citizens at September 30, 1998, and the amount by which it exceeds
the minimum requirements:

<TABLE>
<CAPTION>

                                                               AT SEPTEMBER 30, 1998
                                                       AMOUNT           PERCENT OF ASSETS
                                                             (Dollars in thousands)

<S>                                                   <C>               <C>  
Capital under GAAP before adjustments                 $4,273                        11.3%
                                                      ======                        ==== 

Tangible capital:
  Capital level                                       $4,273                        11.3%
  Requirement                                            568                         1.5
                                                      ------                        ----

  Excess                                              $3,705                         9.8%
                                                      ======                        ==== 

Core capital:
  Capital level                                       $4,273                        11.3%
  Requirement                                          1,135                         3.0
                                                      ------                        ----

  Excess                                              $3,138                         8.3%
                                                      ======                        ==== 

Risk-based capital:
  Capital level                                       $4,474                        19.8%
  Requirement                                          1,811                         8.0%
                                                      ------                        ----

  Excess                                              $2,663                        11.8%
                                                      ======                        ==== 
</TABLE>


                                       15


<PAGE>   16



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

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

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

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

SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 during fiscal 1998, as required, without
material effect on LFC's consolidated financial position or results of
operations.

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

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


                                       16



<PAGE>   17



In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on
LFC's financial statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.

The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.

SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No.
133 is not expected to have a material impact on LFC's financial position or
results of operations.


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

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




                                       17



<PAGE>   18





                          YEAR 2000 COMPLIANCE MATTERS
--------------------------------------------------------------------------------

As with most providers of financial services, Citizens' operations are heavily
dependent on information technology systems. Citizens is addressing the
potential problems associated with the possibility that the computers that
control or operate Citizens' information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. Citizens is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.

Citizens' primary data processing applications are handled by a third-party
service bureau, Fiserv. Fiserv has advised Citizens that it has migrated to a
fully Year 2000 compliant processing system that will be fully tested by May 1,
1999. Management has also reviewed Citizens' ancillary equipment and is in the
process of providing the appropriate remedial measures, including requesting
service providers to assure Citizens that their systems and products are fully
year 2000 compliant. Citizens is in the process of upgrading its existing teller
operating system with a capital expense budget of $65,000. No assurance can be
given, however, that significant expense will not be incurred in future periods.
In the unlikely event that Citizens is ultimately required to purchase
replacement computer systems, programs and equipment, or incur substantial
expense to make Citizens' current systems, programs and equipment year 2000
compliant, LFC's net earnings and financial condition could be adversely
affected.

Citizens has developed a contingency plan in case mission-critical systems are
not successfully renovated in a timely manner or if they actually fail at Year
2000 critical dates. The contingency plan states that Citizens deems the
likelihood of failure of the service provider's efforts to implement Year 2000
changes to the on-line core account processing system to be remote; however, a
more likely scenario is that the service provider's system will be down for
several days or weeks upon arrival of Year 2000. The plan, therefore, primarily
addresses action to deal with the latter possibility rather than with a
catastrophic event, including Citizens' ability to process transactions manually
over a short-term period, if necessary, upon arrival of the year 2000. Citizens
does not consider contingency planning to be a static process; therefore, the
plan will be amended to address a catastrophic event if testing results indicate
greater concern.

In addition to possible expense related to its own systems, Citizens could incur
losses if loan payments are delayed due to year 2000 problems affecting any
major borrowers in Citizens' primary market area. Because Citizens' loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and Citizens' primary market area is not significantly dependent upon
one employer or industry, Citizens does not expect any significant or prolonged
difficulties that will affect net earnings or cash flow.

In addition, financial institutions may experience increases in problem loans
and credit losses in the event that borrowers fail to prepare properly for Year
2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. Citizens is assessing such risks among
its customers. LFC could also be materially adversely affected if other third
parties, such as governmental agencies, clearing houses, telephone companies,
utilities and other service providers fail to prepare properly. Citizens is
therefore attempting to assess these risks and take action to minimize their
effect.




                                       18



<PAGE>   19



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
London Financial Corporation

We have audited the accompanying consolidated statements of financial condition
of London Financial Corporation as of September 30, 1998 and 1997, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the years ended September 30, 1998, 1997 and 1996. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of London Financial
Corporation as of September 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the years ended September 30,
1998, 1997 and 1996, in conformity with generally accepted accounting
principles.






Cincinnati, Ohio
November 6, 1998







                                       19


<PAGE>   20



                          LONDON FINANCIAL CORPORATION

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  September 30,
                        (In thousands, except share data)

<TABLE>
<CAPTION>

         ASSETS                                                             1998                1997

<S>                                                                      <C>                 <C>    
Cash and due from banks                                                  $   507             $   322
Interest-bearing deposits in other financial institutions                  1,271               3,342
                                                                         -------             -------
         Cash and cash equivalents                                         1,778               3,664

Investment securities designated as available
  for sale - at market                                                       121                 155
Investment securities - at cost, approximate
  market value of $502 as of September 30, 1997                               --                 500
Mortgage-backed securities - at amortized
  cost, approximate market value of $2,733 and
  $3,613 as of September 30, 1998 and 1997                                 2,703               3,586
Loans receivable - net                                                    32,588              29,465
Office premises and equipment - at depreciated cost                          374                 360
Stock in Federal Home Loan Bank - at cost                                    288                 280
Accrued interest receivable                                                  216                 169
Prepaid expenses and other assets                                             60                  31
Prepaid federal income taxes                                                  16                  --
                                                                         -------             -------

         Total assets                                                    $38,144             $38,210
                                                                         =======             =======

         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                 $31,300             $29,951
Advances from the Federal Home Loan Bank                                   1,800                 300
Other liabilities                                                            155                 162
Accrued federal income taxes                                                  --                 141
Deferred federal income taxes                                                 26                  52
                                                                         -------             -------
         Total liabilities                                                33,281              30,606

Commitments                                                                   --                  --

Shareholders' equity
  Common stock - authorized 5,000,000 shares without par
    value; 529,000 shares issued                                              --                  --
  Additional paid-in capital                                               2,391               4,910
  Retained earnings - substantially restricted                             3,946               3,683
  Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                                     (26)                 31
  Shares acquired by Employee Stock Ownership Plan                          (381)               (423)
  Shares acquired by Management Recognition Plan                            (264)               (315)
  Less 49,550 and 18,840 treasury shares - at cost                          (803)               (282)
                                                                         -------             -------
         Total shareholders' equity                                        4,863               7,604
                                                                         -------             -------

         Total liabilities and shareholders' equity                      $38,144             $38,210
                                                                         =======             =======
</TABLE>



The accompanying notes are an integral part of these statements.

                                       20



<PAGE>   21



                          LONDON FINANCIAL CORPORATION

                       CONSOLIDATED STATEMENTS OF EARNINGS

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

<TABLE>
<CAPTION>

                                                                 1998            1997         1996
<S>                                                            <C>             <C>          <C>   
Interest income
  Loans                                                        $2,602          $2,381       $2,377
  Mortgage-backed securities                                      200             232          137
  Investment securities                                             5              58           53
  Interest-bearing deposits and other                             149             161          202
                                                               ------          ------       ------
         Total interest income                                  2,956           2,832        2,769

Interest expense
  Deposits                                                      1,496           1,426        1,477
  Borrowings                                                       61              42           28
                                                               ------          ------       ------
         Total interest expense                                 1,557           1,468        1,505
                                                               ------          ------       ------

         Net interest income before provision
           for losses on loans                                  1,399           1,364        1,264

Provision for losses on loans                                      22              --           -- 
                                                               ------          ------       ------

         Net interest income after provision for
           losses on loans                                      1,377           1,364        1,264

Other income
  Gain on investment securities transactions                       71              40           -- 
  Other operating                                                  72              67           71
                                                               ------          ------       ------
         Total other income                                       143             107           71


General, administrative and other expense
  Employee compensation and benefits                              506             445          425
  Occupancy and equipment                                          59              52           55
  Franchise taxes                                                  87              88           45
  Federal deposit insurance premiums                               19              32          262
  Data processing                                                  58              56           57
  Other operating                                                 213             214          170
                                                               ------          ------       ------
         Total general, administrative and other expense          942             887        1,014
                                                               ------          ------       ------

         Earnings before income taxes                             578             584          321

Federal income taxes
  Current                                                         190              83          143
  Deferred                                                          2             116          (46)
                                                               ------          ------       ------
         Total federal income taxes                               192             199           97
                                                               ------          ------       ------

         NET EARNINGS                                          $  386          $  385       $  224
                                                               ======          ======       ======

         EARNINGS PER SHARE
           Basic                                               $  .84          $  .81          N/A
                                                               ======          ======       ======

           Diluted                                             $  .80          $  .81          N/A
                                                               ======          ======       ======
</TABLE>



The accompanying notes are an integral part of these statements.

                                       21


<PAGE>   22



                          LONDON FINANCIAL CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

              For the years ended September 30, 1998, 1997 and 1996
                       (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                                                 SHARES
                                                                                            ACQUIRED BY
                                                                            ADDITIONAL            STOCK
                                                                COMMON         PAID-IN          BENEFIT
                                                                 STOCK         CAPITAL            PLANS

<S>                                                             <C>         <C>             <C> 
Balance at October 1, 1995                                        $ --          $   --            $  --

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

Balance at September 30, 1996                                       --           4,910             (423)

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

Balance at September 30, 1997                                       --           4,910             (738)

Net earnings for the year ended September 30, 1998                  --              --               --
Cash distributions of $5.24 per share                               --          (2,533)              --
Amortization of stock benefit plan expense                          --              14               93
Purchase of treasury shares at cost                                 --              --               --
Unrealized losses on securities designated as available
  for sale, net of related tax effects                              --              --               --
                                                                  ----          ------            -----

Balance at September 30, 1998                                     $ --          $2,391            $(645)
                                                                  ====          ======            =====
</TABLE>

<TABLE>
<CAPTION>

                                                                   UNREALIZED
                                                                        GAINS
                                                                  (LOSSES) ON
                                                                   SECURITIES
                                                                   DESIGNATED
                                                                 AS AVAILABLE       RETAINED        TREASURY
                                                                     FOR SALE       EARNINGS           STOCK         TOTAL

<S>                                                              <C>                <C>             <C>             <C>
Balance at October 1, 1995                                               $ --         $3,224           $  --       $ 3,224

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

Balance at September 30, 1996                                               4          3,416              --         7,907

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

Balance at September 30, 1997                                              31          3,683            (282)        7,604

Net earnings for the year ended September 30, 1998                         --            386              --           386
Cash distributions of $5.24 per share                                      --           (123)             --        (2,656)
Amortization of stock benefit plan expense                                 --             --              --           107
Purchase of treasury shares at cost                                        --             --            (521)         (521)
Unrealized losses on securities designated as available
  for sale, net of related tax effects                                    (57)            --              --           (57)
                                                                         ----         ------           -----       -------

Balance at September 30, 1998                                            $(26)        $3,946           $(803)      $ 4,863
                                                                         ====         ======           =====       =======
</TABLE>






The accompanying notes are an integral part of these statements.


                                       22


<PAGE>   23



                          LONDON FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                         1998            1997           1996
<S>                                                                   <C>             <C>            <C>    
Cash flows from operating activities:
  Net earnings for the year                                           $   386         $   385        $   224
  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               7              6
    Amortization of deferred loan origination fees                       (124)            (81)          (112)
    Gain on investment securities transactions                            (71)            (40)            - 
    Depreciation and amortization                                          22              20             25
    Provision for losses on loans                                          22              --             --
    Federal Home Loan Bank stock dividends                                (20)            (19)           (17)
    Amortization expense of stock benefit plans                           107              --             --
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                         (47)              9            (39)
      Prepaid expenses and other assets                                   (45)            (10)            13
      Other liabilities                                                    (7)           (117)           245
      Federal income taxes
        Current                                                          (141)              5            141
        Deferred                                                            2             116            (46)
                                                                      -------          ------         ------ 
         Net cash provided by operating activities                         90             275            440

Cash flows provided by (used in) investing activities:
  Purchase of mortgage-backed securities                                   --              --         (2,295)
  Principal repayments on mortgage-backed securities                      878             439            266
  Purchase of investment securities designated as available
    for sale                                                             (248)             --           (214)
  Purchase of investment securities designated as
    held to maturity                                                       --              --         (1,500)
  Proceeds from sale of investment securities designated
    as available for sale                                                 265             145             --
  Proceeds from maturity of investment securities                         502           1,500             --
  Loan principal repayments                                             9,600           5,438          8,227
  Loan disbursements                                                  (12,621)         (7,791)        (7,174)
  Purchase of office premises and equipment                               (36)            (26)            (7)
  Federal Home Loan Bank stock redemption                                  12              --             --
                                                                      -------          ------         ------ 
         Net cash used in investing activities                         (1,648)           (295)        (2,697)
                                                                      -------          ------         ------ 

         Net cash used in operating and investing
           activities (balance carried forward)                        (1,558)            (20)        (2,257)
                                                                      -------          ------         ------ 
</TABLE>




                                       23


<PAGE>   24



                          LONDON FINANCIAL CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                    1998         1997         1996
<S>                                                              <C>          <C>          <C>     

         Net cash used in operating and investing
           activities (balance brought forward)                  $(1,558)     $   (20)     $(2,257)

Cash flows provided by (used in) financing activities:
  Net increase (decrease) in deposits                              1,349        1,756       (2,399)
  Proceeds from Federal Home Loan Bank advances                    1,500          500           -- 
  Repayment of Federal Home Loan Bank advances                        --         (500)          -- 
  Proceeds from other borrowings                                   1,400           --           -- 
  Repayment of other borrowings                                   (1,400)          --           -- 
  Net proceeds from issuance of common shares                         --           --        4,487
  Purchase of shares for Management Recognition Plan                  --         (315)          -- 
  Distributions paid on common shares                             (2,656)        (118)         (32)
  Purchase of treasury shares                                       (521)        (282)          -- 
                                                                 -------      -------      -------
         Net cash provided by (used in) financing activities        (328)       1,041        2,056
                                                                 -------      -------      -------

Net increase (decrease) in cash and cash equivalents              (1,886)       1,021         (201)

Cash and cash equivalents at beginning of year                     3,664        2,643        2,844
                                                                 -------      -------      -------

Cash and cash equivalents at end of year                         $ 1,778      $ 3,664      $ 2,643
                                                                 =======      =======      =======


Supplemental disclosure of cash flow information
  Cash paid during the year for:
    Federal income taxes                                         $   226      $    85      $    55
                                                                 =======      =======      =======

    Interest paid on deposits and borrowings                     $ 1,550      $ 1,463      $ 1,495
                                                                 =======      =======      =======

Supplemental disclosure of noncash investing activities:
  Unrealized gains (losses) on securities designated as
    available for sale, net of applicable tax effects            $   (57)     $    27      $     4
                                                                 =======      =======      =======
</TABLE>





The accompanying notes are an integral part of these statements.

                                       24


<PAGE>   25



                          LONDON FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

    1.  Principles of Consolidation

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




                                       25


<PAGE>   26



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    2.  Investment Securities and Mortgage-Backed Securities

    The Corporation accounts for investment and mortgage-backed securities in
    accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
    "Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
    115 requires that investments in debt and equity securities be categorized
    as held-to-maturity, trading, or available for sale. Securities classified
    as held-to-maturity are carried at cost only if the Corporation has the
    positive intent and ability to hold these securities to maturity. Trading
    securities and securities designated as available for sale are carried at
    fair value with resulting unrealized gains or losses recorded to operations
    or shareholders' equity, respectively. At September 30, 1998, the
    Corporation's shareholders' equity reflected a net unrealized loss on
    securities designated as available for sale of $26,000, while at September
    30, 1997, shareholders' equity reflected a net unrealized gain of $31,000.

    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.

    4.  Loan Origination Fees

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



                                       26



<PAGE>   27



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Loan Losses

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

    The Company accounts for impaired loans in accordance with SFAS No. 114,
    "Accounting by Creditors for Impairment of a Loan," which 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.

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

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

    At September 30, 1998 and 1997, the Company had no loans that would be
    defined as impaired under SFAS No. 114.






                                       27


<PAGE>   28



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    6.  Real Estate Acquired through Foreclosure

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

    7.  Office Premises and Equipment

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

    8.  Income Taxes

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

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



                                       28


<PAGE>   29



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    9.  Benefit Plans

    The Company has a defined contribution simplified employee plan ("SEP")
    covering substantially all employees who have attained 21 years of age and
    have completed one full year of service. Annual contributions are made to
    the SEP at the discretion of the Board of Directors. No contributions were
    made to the plan during the fiscal year ended September 30, 1998. The
    Company's provision for expense under the SEP totaled $9,000 and $32,000 for
    the years ended September 30, 1997 and 1996, respectively.

    In conjunction with its reorganization to stock form, the Corporation
    implemented an Employee Stock Ownership Plan ("ESOP"). The ESOP provides
    retirement benefits for substantially all employees who have completed one
    year of service and have attained the age of 21. The Corporation accounts
    for the ESOP in accordance with Statement of Position ("SOP") 93-6,
    "Employers' Accounting for Employee Stock Ownership Plans". SOP 93-6
    requires the measure of compensation expense recorded by employers to equal
    the fair value of ESOP shares allocated to participants during a fiscal
    year. Expense recognized related to the ESOP totaled approximately $42,000
    for each of the years ended September 30, 1998 and 1997, and $21,000 for the
    year ended September 30, 1996.

    The Corporation also has a Management Retention Plan ("MRP"). Subsequent to
    the offering the MRP purchased 21,160 shares of the Corporation's common
    stock in the open market. During fiscal 1996, 17,640 shares available under
    the MRP were granted to executive officers and members of the Board of
    Directors of the Corporation effective upon ratification of the MRP by the
    Corporation's shareholders. Common stock granted under the MRP vests ratably
    over a five year period, commencing in January 1997. A provision of $52,000
    and $35,000 related to the MRP was charged to expense for the years ended
    September 30, 1998 and 1997, respectively.

    10.  Earnings Per Share and Dividends Per Share

    Basic earnings per share is computed based upon the weighted-average shares
    outstanding during the period, less shares in the ESOP that are unallocated
    and not committed to be released. Weighted-average common shares
    outstanding, which gives effect to 37,309 and 42,320 unallocated ESOP
    shares, totaled 463,016 and 476,337 for the years ended September 30, 1998
    and 1997, respectively.

    Diluted earnings per share is computed taking into consideration common
    shares outstanding and dilutive potential common shares to be issued under
    the Company's stock option plan. Weighted-average common shares deemed
    outstanding for purposes of computing diluted earnings per share totaled
    481,498 and 476,337 for the years ended September 30, 1998 and 1997,
    respectively.

    Effective during the fiscal year ended September 30, 1998, the Company began
    presenting earnings per share pursuant to the provisions of SFAS No. 128,
    "Earnings Per Share." Accordingly, the fiscal 1997 earnings per share
    presentation has been revised to conform to SFAS No. 128.


                                       29


<PAGE>   30



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    10.  Earnings Per Share and Dividends Per Share (continued)

    The provisions of SFAS No. 128 are not applicable for the fiscal year ended
    September 30, 1996, as the Corporation completed its conversion to the stock
    form of ownership in March 1996.

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

    11.  Cash and Cash Equivalents

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

    12.  Fair Value of Financial Instruments

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

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

    The following methods and assumptions were used by the Corporation in
    estimating its fair value disclosures for financial instruments at September
    30, 1998 and 1997:

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

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



                                       30



<PAGE>   31



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)

                  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 and other. These loan categories
                  were further delineated into fixed-rate and adjustable-rate
                  loans. The fair values for the resultant loan categories were
                  computed via discounted cash flow analysis, using current
                  interest rates offered for loans with similar terms to
                  borrowers of similar credit quality. For loans on deposit
                  accounts and consumer and other loans, fair values were deemed
                  to equal the historic carrying values. The historical carrying
                  amount of accrued interest on loans is deemed to approximate
                  fair value.

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

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

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

                  Commitments to extend credit: For fixed-rate and
                  adjustable-rate loan commitments, the fair value estimate
                  considers the difference between current levels of interest
                  rates and committed rates. The difference between the fair
                  value and notional amount of outstanding loan commitments at
                  September 30, 1998 and 1997 was not material.








                                       31


<PAGE>   32



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)

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

                                             1998                    1997
                                    CARRYING        FAIR    CARRYING        FAIR
                                       VALUE       VALUE       VALUE       VALUE
                                                  (In thousands)
<S>                                 <C>          <C>         <C>         <C>    
Financial assets
  Cash and cash equivalents          $ 1,778     $ 1,778     $ 3,664     $ 3,664
  Investment securities                  121         121         655         657
  Mortgage-backed securities           2,703       2,733       3,586       3,613
  Loans receivable                    32,588      34,747      29,465      30,666
  Federal Home Loan Bank stock           288         288         280         280
                                     -------     -------     -------     -------

                                     $37,478     $39,667     $37,650     $38,880
                                     =======     =======     =======     =======

Financial liabilities
  Deposits                           $31,300     $31,591     $29,951     $30,150
  Advances from the Federal Home
    Loan Bank                          1,800       1,803         300         302
                                     -------     -------     -------     -------

                                     $33,100     $33,394     $30,251     $30,452
                                     =======     =======     =======     =======
</TABLE>

    13.  Reclassifications

    Certain prior year amounts have been reclassified to conform to the 1998
    consolidated financial statement presentation.


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, 1998 and
    1997, are as follows:
<TABLE>
<CAPTION>

                                                           1998
                                                      GROSS          GROSS  ESTIMATED
                                   AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                        COST          GAINS         LOSSES      VALUE
                                                      (In thousands)
<S>                                 <C>          <C>            <C>         <C> 
    AVAILABLE FOR SALE:
      Corporate equity securities        $160          $  -           $39        $121
                                         ====          ====           ===        ====
</TABLE>



                                       32



<PAGE>   33



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>

                                                                      1997
                                                               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          $500           $ 2          $ --           $502

AVAILABLE FOR SALE:
  Corporate equity securities                      109            46            --            155
                                                  ----           ---           ---           ----

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

    The amortized cost, gross unrealized gains, gross unrealized losses and
    estimated fair value of mortgage-backed securities at September 30, 1998 and
    1997, are shown below:

<TABLE>
<CAPTION>

                                                                         1998
                                                                  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                      $1,262          $13          $-          $1,275
  Government National Mortgage Association
    participation certificates                         877           18           -             895
  Federal National Mortgage
    Association participation certificates             564            4           5             563
                                                    ------          ---          --          ------

     Total mortgage-backed securities               $2,703          $35          $5          $2,733
                                                    ======          ===          ==          ======
</TABLE>

<TABLE>
<CAPTION>

                                                                             1997
                                                                      GROSS        GROSS       ESTIMATED
                                                     AMORTIZED   UNREALIZED   UNREALIZED            FAIR
                                                          COST        GAINS       LOSSES           VALUE
                                                                        (In thousands)
<S>                                                  <C>         <C>          <C>             <C> 
    HELD TO MATURITY:
      Federal Home Loan Mortgage Corporation
        participation certificates                      $1,749          $19          $14          $1,754
      Government National Mortgage Association
        participation certificates                       1,197           35           --           1,232
      Federal National Mortgage
        Association participation certificates             640           --           13             627
                                                        ------          ---          ---          ------

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


                                       33


<PAGE>   34



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


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

    At September 30, 1998 and 1997, all mortgage-backed securities maintained by
    London Financial Corporation are contractually due on a ratable basis over
    twenty years. Expected maturities will differ from contractual maturities
    because borrowers may generally prepay obligations without prepayment
    penalties.


NOTE C - LOANS RECEIVABLE

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

                                                      1998             1997
                                                          (In thousands)
<S>                                                <C>              <C>    
Residential real estate
  One- to four-family                              $22,648          $23,489
  Multi-family                                         665              671
  Construction                                       1,224            1,360
Nonresidential real estate                           5,174            4,529
Commercial                                           3,473              166
Consumer and other loans                               749              737
                                                   -------          -------
                                                    33,933           30,952
Less:
  Undisbursed portion of loans in process              745              885
  Deferred loan origination fees                       399              415
  Allowance for losses on loans                        201              187
                                                   -------          -------
                                                   $32,588          $29,465
                                                   =======          =======
</TABLE>

    The Company's lending efforts have historically focused on one- to
    four-family and multi-family residential real estate loans, which comprise
    approximately $23.8 million, or 73%, of the total loan portfolio at
    September 30, 1998, and approximately $24.6 million, or 84%, of the total
    loan portfolio at September 30, 1997. Generally, such loans have been
    underwritten on the basis of no more than an 80% loan-to-value ratio, which
    has historically provided the Company with adequate collateral coverage in
    the event of default. Nevertheless, the Company, as with any lending
    institution, is subject to the risk that real estate values could
    deteriorate in its primary lending area of central Ohio, thereby impairing
    collateral values. However, management is of the belief that real estate
    values in the Company's primary lending area are presently stable.

    In the ordinary course of business, the Company has made loans to some of
    its directors, officers and their related business interests. In the opinion
    of management, such loans are consistent with sound lending practices and
    are within applicable regulatory lending limitations. The balance of such
    loans totaled approximately $193,000 and $388,000 at September 30, 1998 and
    1997, respectively.



                                       34


<PAGE>   35



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


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>
                                        1998           1997           1996 
                                                  (In thousands)

<S>                                    <C>             <C>           <C>  
Beginning balance                      $ 187           $187          $ 190
Provision for losses on loans             22             --             -- 
Loan charge-offs                          (8)            --             (3)
                                       -----           ----          -----

Ending balance                         $ 201           $187          $ 187
                                       =====           ====          =====
</TABLE>

    As of September 30, 1998, 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.

    The Company had no nonperforming and nonaccrual loans at September 30, 1998.
    Nonperforming and nonaccrual loans at September 30, 1997 and 1996, totaled
    $268,000 and $261,000, respectively. Interest income that would have been
    recognized had nonaccrual loans performed pursuant to contractual terms
    totaled approximately $20,000 and $15,000 for the years ended September 30,
    1997 and 1996, respectively.


NOTE E - OFFICE PREMISES AND EQUIPMENT

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

                                             1998          1997
                                                (In thousands)

<S>                                          <C>           <C> 
Land and improvements                        $ 85          $ 85
Building                                      471           471
Furniture and equipment                       248           212
                                             ----          ----
                                              804           768
  Less accumulated depreciation and
    amortization                              430           408
                                             ----          ----

                                             $374          $360
                                             ====          ====
</TABLE>






                                       35

<PAGE>   36



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE F - DEPOSITS

    Deposits consist of the following major classifications at September 30:

<TABLE>
<CAPTION>

    DEPOSIT TYPE AND WEIGHTED-
    AVERAGE INTEREST RATE                             1998                           1997
                                           AMOUNT               %           AMOUNT              %  
                                                              (Dollars in thousands)
<S>                                       <C>                <C>           <C>                <C>   
NOW accounts
  1998 - 2.27%                            $ 3,905             12.5
  1997 - 2.27%                                                             $ 3,370             11.2
Passbook
  1998 - 3.00%                              5,951             19.0
  1997 - 3.00%                                                               5,834             19.5
Money market investment accounts
  1998 - 4.68%                              1,976              6.3
  1997 - 2.71%                                                                 226               .8
                                          -------            -----         -------            ----- 
Total demand, transaction and
  passbook deposits                        11,832             37.8           9,430             31.5

Certificates of deposit
  Original maturities of:
    One year or less
      1998 - 5.22%                          5,429             17.4
      1997 - 5.42%                                                           5,640             18.8
    12 months to 36 months
      1998 - 5.89%                          8,085             25.8
      1997 - 6.01%                                                           8,604             28.7
    Greater than 36 months
      1998 - 6.57%                          5,954             19.0
      1997 - 6.50%                                                           6,277             21.0
                                          -------            -----         -------            ----- 

Total certificates of deposit              19,468             62.2          20,521             68.5
                                          -------            -----         -------            ----- 

Total deposit accounts                    $31,300            100.0%        $29,951            100.0%
                                          =======            =====         =======            ===== 
</TABLE>

    At September 30, 1998 and 1997, the Company had certificate of deposit
    accounts with balances greater than $100,000 totaling $807,000 and $1.1
    million, respectively.

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

                                            1998            1997            1996
                                                      (In thousands)

<S>                                       <C>             <C>             <C>   
Passbook                                  $  180          $  177          $  188
NOW accounts                                  76              65              61
Money market investment accounts              41               6               9
Certificates of deposit                    1,199           1,178           1,219
                                          ------          ------          ------

                                          $1,496          $1,426          $1,477
                                          ======          ======          ======
</TABLE>


                                       36


<PAGE>   37



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE F - DEPOSITS (continued)

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

                                        1998             1997
                                            (In thousands)

<S>                                  <C>              <C>    
    Less than one year               $ 9,518          $11,438
    One year to three years            5,068            5,822
    More than three years              4,882            3,261
                                     -------          -------

                                     $19,468          $20,521
                                     =======          =======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

    Advances from the Federal Home Loan Bank, collateralized at September 30,
    1998 by a pledge of certain residential mortgage loans totaling $2.7 million
    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,                 1998           1997
                                                            (In thousands)

<S>                 <C>                                <C>              <C>
5.64% - 5.69%       1999                               $1,500           $ --
9.25%               2001                                  300            300
                                                       ------           ----

                                                       $1,800           $300
                                                       ======           ====

Weighted-average interest rate                           6.27%          9.25%
                                                       ======           ====
</TABLE>


NOTE H - FEDERAL INCOME TAXES

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

                                                 1998            1997            1996
                                                            (In thousands)

<S>                                             <C>              <C>            <C>  
Federal income taxes at statutory rate          $ 197            $199           $ 109
Decrease in taxes resulting from:
  Other                                            (5)             --             (12)
                                                -----            ----           -----
Federal income taxes per consolidated
  financial statements                          $ 192            $199           $  97
                                                =====            ====           =====

Effective tax rate                               33.2%           34.1%           30.2%
                                                =====            ====           =====
</TABLE>



                                       37



<PAGE>   38



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE H - FEDERAL INCOME TAXES (continued)

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

<TABLE>
<CAPTION>


    Taxes (payable) refundable on temporary               1998            1997
    differences at statutory rate:                            (In thousands)

<S>                                                      <C>             <C>   
Deferred tax assets:
  Deferred loan origination fees                         $  50           $  77
  Difference between book and tax depreciation               3               1
  General loan loss allowance                               71              64
  Retirement plans                                          16              -- 
  Unrealized losses on securities designated as
    available for sale                                      13              -- 
                                                         -----           -----
     Deferred tax assets                                   153             142

Deferred tax liabilities:
  Federal Home Loan Bank stock dividends                   (55)            (50)
  Percentage of earnings bad debt deduction                (53)            (64)
  Accrual vs. cash basis of accounting                     (71)            (65)
  Unrealized gains on securities designated
    as available for sale                                   --             (15)
                                                         -----           -----
     Deferred tax liabilities                             (179)           (194)
                                                         -----           -----

     Net deferred tax liability                          $ (26)          $ (52)
                                                         =====           =====
</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, 1998, include approximately $493,000 for which federal income taxes have
    not been provided. The amount of unrecognized deferred tax liability
    relating to the cumulative bad debt deduction was approximately $115,000 at
    September 30, 1998. See Note L for additional information regarding future
    percentage of earnings bad debt deductions.









                                       38


<PAGE>   39



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


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, 1998, the Company had outstanding commitments of
    approximately $895,000 to originate loans. Additionally, the Company had
    $687,000 of outstanding loan commitments under commercial lines of credit.
    In the opinion of management, all loan commitments equaled or exceeded
    prevalent market interest rates as of September 30, 1998, and will be funded
    from normal cash flow from operations.


NOTE J - REGULATORY CAPITAL

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

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





                                       39



<PAGE>   40



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE J - REGULATORY CAPITAL (continued)

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

    As of September 30, 1998 and 1997, management believes that the Company met
    all capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>

                                                                 AS OF SEPTEMBER 30, 1998
                                                                                                   TO BE "WELL-
                                                                                                 CAPITALIZED" UNDER
                                                                      FOR CAPITAL                PROMPT CORRECTIVE
                                     ACTUAL                        ADEQUACY PURPOSES             ACTION PROVISIONS
                             ----------------------                -----------------             -----------------
                             AMOUNT           RATIO                AMOUNT      RATIO               AMOUNT    RATIO
                                                             (Dollars in thousands)

<S>                         <C>               <C>                  <C>         <C>               <C>         <C> 
Tangible capital            $4,273            11.3%              =>$  568  =>1.5%                =>$1,892  => 5.0%

Core capital                $4,273            11.3%              =>$1,135  =>3.0%                =>$2,270  => 6.0%

Risk-based capital          $4,474            19.8%              =>$1,811  =>8.0%                =>$2,264  =>10.0%

<CAPTION>

                                                                 AS OF SEPTEMBER 30, 1997
                                                                                                   TO BE "WELL-
                                                                                                 CAPITALIZED" UNDER
                                                                      FOR CAPITAL                PROMPT CORRECTIVE
                                     ACTUAL                        ADEQUACY PURPOSES             ACTION PROVISIONS
                             ----------------------                -----------------             -----------------
                             AMOUNT           RATIO                AMOUNT      RATIO               AMOUNT    RATIO
                                                             (Dollars in thousands)

<S>                         <C>               <C>                  <C>         <C>               <C>         <C> 
Tangible capital            $5,824            15.9%                =>$551  =>1.5%                =>$1,838  => 5.0%

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

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


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

                                       40



<PAGE>   41



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE K - STOCK OPTION PLAN

    The Board of Directors adopted a Stock Option Plan during fiscal 1997 that
    provided for the issuance of 52,900 shares of authorized, but unissued
    shares of common stock at fair value at the date of grant. The Plan provides
    for one-fifth of the shares granted to be exercisable on each of the Plan's
    first five anniversaries commencing in January 1997.

    In fiscal 1997, the Corporation adopted SFAS No. 123, "Accounting for
    Stock-Based Compensation," which contains a fair value-based method for
    valuing stock-based compensation that entities may use, which measures
    compensation cost at the grant date based on the fair value of the award.
    Compensation is then recognized over the service period, which is usually
    the vesting period. Alternatively, SFAS No. 123 permits entities to continue
    to account for stock options and similar equity instruments under Accounting
    Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
    Employees." Entities that continue to account for stock options using APB
    Opinion No. 25 are required to make pro forma disclosures of net earnings
    and earnings per share, as if the fair value-based method of accounting
    defined in SFAS No. 123 had been applied.

    The Corporation applies Accounting Principles Board Opinion No. 25 and
    related Interpretations in accounting for its stock option plan.
    Accordingly, no compensation cost has been recognized for the plan. Had
    compensation cost for the Corporation's stock option plan been determined
    based on the fair value at the grant dates for awards under the plan
    consistent with the accounting method utilized in SFAS No. 123, the
    Corporation's net earnings and earnings per share would have been reported
    at the pro forma amounts indicated below for the years ended September 30:

<TABLE>
<CAPTION>

                                                                      1998             1997

<S>                                          <C>                   <C>              <C>    
Net earnings (In thousands)                  As reported           $   386          $   385
                                                                   =======          =======

                                               Pro-forma           $   386          $   377
                                                                   =======          =======

Earnings per share
  Basic                                      As reported           $   .84          $   .81
                                                                   =======          =======

                                               Pro-forma           $   .84          $   .79
                                                                   =======          =======

  Diluted                                    As reported           $   .80          $   .81
                                                                   =======          =======

                                               Pro-forma           $   .80          $   .79
                                                                   =======          =======
</TABLE>

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


                                       41


<PAGE>   42


                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE K - STOCK OPTION PLAN (continued)

    A summary of the status of the Corporation's stock option plan as of
    September 30, 1998 and 1997, and changes during the periods ending on those
    dates is presented below:
<TABLE>
<CAPTION>

                                                                 1998                       1997
                                                                       WEIGHTED-                   WEIGHTED-
                                                                         AVERAGE                    AVERAGE
                                                                        EXERCISE                   EXERCISE
                                                         SHARES            PRICE      SHARES          PRICE

<S>                                                      <C>              <C>         <C>           <C>    
    Outstanding at beginning of year                     52,900           $15.00          --        $   -- 
    Adjustment for return of capital distribution            --           $(5.00)         --        $   -- 
    Granted                                                  --           $   --      52,900        $15.00
    Exercised                                                --           $   --          --        $   -- 
    Forfeited                                                --           $   --          --        $   -- 
                                                         ------           ------      ------        ------

    Outstanding at end of year                           52,900           $10.00      52,900        $15.00
                                                         ======           ======      ======        ======

    Options exercisable at year-end                      10,580           $10.00          --        $   -- 
                                                         ======           ======      ======        ======
    Weighted-average fair value of
      options granted during the year                                        N/A                    $ 1.68
                                                                          ======                    ======
</TABLE>

    The following information applies to options outstanding at September 30,
1998:

    Number outstanding                                    52,900
    Range of exercise prices                              $10.00
    Weighted-average exercise price                       $10.00
    Weighted-average remaining contractual life        8.3 years


NOTE L - LEGISLATIVE MATTERS

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

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


                                       42


<PAGE>   43



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE L - LEGISLATIVE MATTERS (continued)

    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, commencing in fiscal 1998.


NOTE M - CONDENSED FINANCIAL STATEMENTS OF LONDON FINANCIAL CORPORATION

    The following condensed financial statements summarize the financial
    position of London Financial Corporation as of September 30, 1998 and 1997,
    and the results of its operations and its cash flows for the periods ended
    September 30, 1998, 1997 and 1996.

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

         ASSETS                                                              1998            1997

<S>                                                                       <C>             <C>    
Cash and due from banks                                                   $   138         $   801
Investment securities designated as available for sale - at market            121             155
Investment securities - at cost                                                --             500
Loan receivable from ESOP                                                     339             381
Investment in The Citizens Loan and Savings Company                         4,273           5,824
Accrued interest receivable                                                    16              13
Prepaid expenses and other assets                                              40              13
                                                                          -------         -------

     Total assets                                                         $ 4,927         $ 7,687
                                                                          =======         =======

     LIABILITIES AND SHAREHOLDERS' EQUITY

Other liabilities                                                         $    63         $    83

Shareholders' equity
  Common stock                                                                 --              -- 
  Additional paid-in capital                                                5,357           7,832
  Retained earnings                                                           600             338
  Shares acquired by Management Recognition Plan                             (264)           (315)
  Treasury shares - at cost                                                  (803)           (282)
  Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                                      (26)             31
                                                                          -------         -------
     Total shareholders' equity                                             4,863           7,604
                                                                          -------         -------

     Total liabilities and shareholders' equity                           $ 4,927         $ 7,687
                                                                          =======         =======
</TABLE>


                                       43


<PAGE>   44



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


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

                          LONDON FINANCIAL CORPORATION
                              STATEMENT OF EARNINGS
                           Periods ended September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                    1998          1997         1996
Revenue
<S>                                                <C>           <C>           <C> 
  Interest income                                  $  48         $ 108         $ 68
  Equity in earnings of subsidiary                   396           387           60
  Gain on sale of investments                         71            40           -- 
                                                   -----         -----         ----
     Total revenue                                   515           535          128

Expenses
  Interest expense on borrowings                      20            --           -- 
  General and administrative expenses                115           151           10
                                                   -----         -----         ----
     Total expenses                                  135           151           10
                                                   -----         -----         ----

     Earnings before income taxes (credits)          380           384          118

Federal income taxes (credits)                        (6)           (1)          15
                                                   -----         -----         ----

     NET EARNINGS                                  $ 386         $ 385         $103
                                                   =====         =====         ====
</TABLE>










                                       44


<PAGE>   45



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


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

                          LONDON FINANCIAL CORPORATION
                            STATEMENTS OF CASH FLOWS
                           Periods ended September 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                 1998            1997            1996

<S>                                                                           <C>             <C>             <C>    
    Cash provided by (used in) operating activities:
      Net earnings for the period                                             $   386         $   385         $   103
      Adjustments to reconcile net earnings to net
      cash provided by (used in) operating activities
        (Undistributed earnings of) distributions in excess from
          consolidated subsidiary                                               1,551            (387)            (60)
        Gain on investment securities transactions                                (71)            (40)             -- 
        Amortization expense of stock benefit plans                               107              --              -- 
        Increase (decrease) in cash due to changes in:
          Prepaid expenses and other assets                                       (27)            (13)             -- 
          Accrued interest receivable                                              (3)             18             (31)
          Other liabilities                                                         9              21              47
                                                                              -------         -------         -------
          Net cash provided by (used in) operating activities                   1,952             (16)             59

    Cash flows provided by (used in) investing activities:
      Investment in subsidiary                                                     --              --          (2,455)
      Purchase of investment securities designated as available
        for sale                                                                 (248)             --            (214)
      Purchase of investment securities designated as held to maturity             --              --          (1,500)
      Proceeds from repayment of loan to ESOP                                      42              42              -- 
      Proceeds from maturities of investment securities                           502           1,000              -- 
      Proceeds from sale of investment securities                                 266             145              -- 
      Issuance of loan to ESOP                                                     --              --            (423)
                                                                              -------         -------         -------
          Net cash provided by (used in) investing activities                     562           1,187          (4,592)

    Cash flows provided by (used in) financing activities:
      Net proceeds from issuance of common stock                                   --              --           4,910
      Purchase of shares for Management Recognition Plan                           --            (315)             -- 
      Purchase of treasury shares                                                (521)           (282)             -- 
      Distributions paid on common stock                                       (2,656)           (118)            (32)
                                                                              -------         -------         -------
          Net cash provided by (used in) financing activities                  (3,177)           (715)          4,878
                                                                              -------         -------         -------

    Net increase (decrease) in cash and cash equivalents                         (663)            456             345

    Cash and cash equivalents at beginning of period                              801             345              -- 
                                                                              -------         -------         -------

    Cash and cash equivalents at end of period                                $   138         $   801         $   345
                                                                              =======         =======         =======
</TABLE>


                                       45



<PAGE>   46



                          LONDON FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1998, 1997 and 1996


NOTE N - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM

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

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

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

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

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


NOTE O - CHANGE IN CORPORATE CHARTER

    On July 9, 1998, the Corporation's Board of Directors approved the
    conversion of Citizens Loan and Savings Company to a state-chartered
    commercial bank. The Charter conversion is subject to regulatory approval.
    The Company will continue operations under the name of Citizens Bank.








                                       46




<PAGE>   47



                          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

Donovan D. Forrest                                 Director
President
Forest Trucking Company

Edward D. Goodyear                                 Director
Certified Public Accountant

Shirley C. Hansgen                                 Director
Attorney

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

Steven C. Adams                                    Executive Vice President
Executive Vice President
The Citizens Loan & Savings 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







                                       47


<PAGE>   48




                              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
                            Stock Transfer Department
                                Mail Drop 1090F5
                            38 Fountain Square Plaza
                             Cincinnati, Ohio 45263
                                 (513) 579-5320
                                 (513) 837-2755


                                 ANNUAL MEETING
================================================================================

The 1999 Annual Meeting of Shareholders of London Financial Corporation will be
held on January 28, 1999, at 10:00 a.m., Eastern Time, at the office of
Citizens, 2 East High Street, London, Ohio 43140. Shareholders are cordially
invited to attend.


                          ANNUAL REPORT ON FORM 10-KSB
================================================================================

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

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






                                       48