<PAGE>   1

                      MILTON FEDERAL FINANCIAL CORPORATION
                                EXHIBIT NO. 99.1

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

                      MILTON FEDERAL FINANCIAL CORPORATION
                                 25 LOWRY DRIVE
                             WEST MILTON, OHIO 45383
                                 (937) 698-4168

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS



         Notice is hereby given that the 1999 Annual Meeting of Shareholders of
Milton Federal Financial Corporation ("MFFC") will be held at the American
Legion building at 2334 South Miami Street, West Milton, Ohio, 45383, on January
20, 1999, at 2:00 p.m., local time (the "Annual Meeting"), for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:

          1.   To reelect three directors of MFFC for terms expiring in 2001;

          2.   To ratify the selection of Crowe, Chizek and Company LLP as the
               auditors of MFFC for the current fiscal year;

          3.   To consider and vote upon a shareholder proposal regarding the
               sale or merger of MFFC; and

          4.   To transact such other business as may properly come before the
               Annual Meeting or any adjournments thereof.

         Only shareholders of MFFC of record at the close of business on
December 4, 1998, will be entitled to receive notice of and to vote at the
Annual Meeting and at any adjournments thereof. Whether or not you expect to
attend the Annual Meeting, we urge you to consider the accompanying Proxy
Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF
A QUORUM MAY BE ASSURED. The giving of a Proxy does not affect your right to
vote in person in the event you attend the Annual Meeting.

                                              By Order of the Board of Directors




December 18, 1998                             E. Lynn App, Secretary

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                                      -84-

<PAGE>   2


                      MILTON FEDERAL FINANCIAL CORPORATION
                                 25 LOWRY DRIVE
                             WEST MILTON, OHIO 45383
                                 (937) 698-4168

                                 PROXY STATEMENT

                                     PROXIES

         The enclosed Proxy is being solicited by the Board of Directors of
Milton Federal Financial Corporation, an Ohio corporation ("MFFC"), for use at
the 1999 Annual Meeting of Shareholders of MFFC to be held at the American
Legion building at 2334 South Miami Street, West Milton, Ohio, 45383, on January
20, 1999, at 2:00 p.m., local time, and at any adjournments thereof (the "Annual
Meeting"). Without affecting any vote previously taken, the Proxy may be revoked
by a shareholder executing a later dated proxy which is received by MFFC before
the Proxy is exercised or by giving notice of revocation to MFFC in writing or
in open meeting before the Proxy is exercised. Attendance at the Annual Meeting
will not, of itself, revoke a Proxy.

         Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:

         FOR the reelection of Messrs. Glenn E. Aidt, Kenneth J. Faze and David
R. Hayes, as directors of MFFC for terms expiring in 2001;

         FOR the ratification of the selection of Crowe, Chizek and Company LLP
("Crowe Chizek") as the auditors of MFFC for the current fiscal year; and

         AGAINST the approval of the shareholder proposal regarding the sale or
merger of MFFC (the "Shareholder Proposal").

         Proxies may be solicited by the directors, officers and other employees
of MFFC and Milton Federal Savings Bank, a wholly-owned subsidiary of MFFC,
("Milton Federal"), in person or by telephone, telegraph or mail only for use at
the Annual Meeting. Such Proxies will not be used for any other meeting. The
cost of soliciting Proxies will be borne by MFFC.

         Only shareholders of record as of the close of business on December 4,
1998 (the "Voting Record Date"), are eligible to vote at the Annual Meeting.
Each such shareholder will be entitled to cast one vote for each share owned.
MFFC's records disclose that, as of the Voting Record Date, there were 2,213,495
votes entitled to be cast at the Annual Meeting.

         This Proxy Statement is first being mailed to shareholders of MFFC on
or about December 18, 1998.


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                                      -85-
<PAGE>   3

                                  VOTE REQUIRED

ELECTION OF DIRECTORS

         Under Ohio law and MFFC's Code of Regulations (the "Regulations"), the
three nominees receiving the greatest number of votes will be elected as
directors. Shares as to which the authority to vote is withheld and shares held
by a nominee for a beneficial owner which are represented in person or by proxy
but not voted ("non-votes") with respect to the election of directors are not
counted toward the election of directors or toward the election of the
individual nominees specified on the form of proxy. If the accompanying Proxy is
signed and dated by the shareholder but no vote is specified thereon, the shares
held by such shareholder will be voted FOR the reelection of the three nominees.

RATIFICATION OF SELECTION OF AUDITORS AND APPROVAL OF THE SHAREHOLDER PROPOSAL

         The affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Annual Meeting is necessary to ratify
the selection of Crowe Chizek as the auditors of MFFC for the current fiscal
year and to approve the Shareholder Proposal. The effect of an abstention or a
non-vote is the same as a vote against ratification or approval. If the
accompanying Proxy is signed and dated by the shareholder but no vote is
specified thereon, the shares held by such shareholder will be voted FOR the
ratification of the selection of Crowe Chizek as auditors and AGAINST the
Shareholder Proposal.


              VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
                              OWNERS AND MANAGEMENT

         The following table sets forth certain information with respect to the
only person known to MFFC to own beneficially more than five percent of the
outstanding common shares of MFFC as of November 30, 1998:

<TABLE>
<CAPTION>
                                                    Amount and Nature of                  Percent of
Name and Address                                   Beneficial Ownership              Shares Outstanding
----------------                                   --------------------              ------------------

<S>                                                     <C>                                <C>  
United National Bank & Trust                            189,989 (1)                        8.58%
220 Market Avenue South
Canton, Ohio 44702
</TABLE>

(1)      Consists of shares held by United National Bank & Trust as the Trustee
         for the Milton Federal Financial Corporation Employee Stock Ownership
         Plan (the "ESOP").


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                                      -86-
<PAGE>   4


         The following table sets forth certain information with respect to the
number of common shares of MFFC beneficially owned by each director of MFFC and
by all directors and executive officers of MFFC as a group as of November 30,
1998:


                                Amount and Nature
                             of Beneficial Ownership
                             -----------------------
<TABLE>
<CAPTION>
                                          Sole Voting and      Shared Voting and              Percent of
Name and Address(1)                       Investment Power      Investment Power          Shares Outstanding
-------------------                       ----------------      ----------------          ------------------

<S>                                          <C>                     <C>                          <C>   
Glenn E. Aidt                                46,796 (2)              10,000                       2.53 %
E. Lynn App                                  10,827 (3)              60,893 (4)                   3.23 %
Kenneth J. Faze                              10,845 (3)              15,000                       1.16 %
David R. Hayes                               10,827 (3)              64,043 (4)                   3.37 %
Robert E. Hine                               17,041 (3)                   0                        .77 %
Christopher S. Long                          20,827 (3)              58,293 (4)                   3.56 %
Cletus G. Minnich, Jr.                       13,527 (3)               7,300                        .94 %
All directors and executive officers
 of MFFC as a group (8 persons)             177,027 (5)              99,043 (6)                  11.93 %
-------------
</TABLE>


(1)      Each of the persons listed in this table may be contacted at the
         address of MFFC.

(2)      This number includes 30,945 shares that may be acquired upon the
         exercise of options awarded pursuant to the Milton Federal Financial
         Corporation 1995 Stock Option and Incentive Plan (the "Stock Option
         Plan") and 12,241 shares allocated to Mr. Aidt's ESOP account, with
         respect to which Mr. Aidt has voting control.

(3)      This number includes 7,734 shares that may be acquired upon the
         exercise of options awarded pursuant to the Stock Option Plan.

(4)      This number includes 58,293 shares held by the Milton Federal Savings
         Bank Recognition and Retention Plan and Trust (the "RRP"), with respect
         to which Messrs. App, Hayes and Long have shared voting power as
         Trustees of the RRP.

(5)      This number includes 100,557 shares that may be acquired upon the
         exercise of options awarded pursuant to the Stock Option Plan and
         19,181 shares allocated to the ESOP accounts of executive officers.

(6)      The 58,293 shares held by the RRP Trust are reflected in each of three
         directors' amounts but counted only once in the total amount
         beneficially owned by all directors and executive officers of MFFC as a
         group.


                               BOARD OF DIRECTORS

ELECTION OF DIRECTORS

         The Regulations provide for a Board of Directors consisting of seven
persons. Each of the directors of MFFC is also a director of Milton Federal.

         In accordance with Section 2.03 of the Regulations, nominees for
election as directors may be proposed only by the directors or by a shareholder
entitled to vote for directors if such shareholder has submitted a written
nomination to the Secretary of MFFC by the later of the November 30 immediately
preceding the annual meeting 

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                                      -87-
<PAGE>   5

of shareholders or the sixtieth day before the first anniversary of the most
recent annual meeting of shareholders held for the election of directors. Each
such written nomination must state the name, age, business or residence address
of the nominee, the principal occupation or employment of the nominee, the
number of common shares of MFFC owned either beneficially or of record by each
such nominee and the length of time such shares have been so owned.

         The Board of Directors proposes the reelection of the following persons
to terms which will expire in 2001:

<TABLE>
<CAPTION>
                                                                                          Director
                                                                         Director    of Milton Federal
Name                       Age (1)   Position(s) Held                    Since (2)         Since
----                       -------   ----------------                    ---------         -----
<S>                        <C>       <C>                                 <C>                <C>
Glenn E. Aidt              58        Director, President and Chief         1994             1989
                                     Executive Officer
Kenneth J. Faze            65        Director                              1994             1985

David R. Hayes             49        Director                              1994             1986

----------------
</TABLE>

(1)      As of November 30, 1998.

(2)      Each director nominee became a director of MFFC in connection with the
         conversion of Milton Federal from mutual to stock form (the
         "Conversion") and the formation of MFFC as the holding company for
         Milton Federal.


         The following directors will continue to serve after the Annual Meeting
         for the terms indicated:

<TABLE>
<CAPTION>
                                                                                          Director
                                                                      Director        of Milton Federal
Name                      Age (1)    Position(s) Held                 Since (2)             Since          Term Expires
----                      ----       ----------------                 ---------             -----          ------------
<S>                       <C>        <C>                              <C>                  <C>             <C>
E. Lynn App               56         Director and Secretary             1994                1986                   2000
Robert E. Hine            69         Director and Vice Chairman         1994                1973                   2000
Christopher S. Long       56         Director                           1994                1989                   2000
Cletus G. Minnich, Jr.    74         Director and Chairman              1994                1957                   2000
-----------------------------
</TABLE>

(1)      As of November 30, 1998.

(2)      Each director became a director of MFFC in connection with the
         Conversion.



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                                      -88-
<PAGE>   6


         MR. AIDT has served as the President, the Chief Executive Officer and a
director of Milton Federal since November 1989.

         MR. APP has served as a director of Milton Federal since 1986 and is
the principal shareholder and President of E Lynn App, Inc., Architects, in
Englewood, Ohio.

         DR. FAZE has served as a director of Milton Federal since 1985. Dr.
Faze was the Chief Executive Officer of Milton Union Medical Center, Inc., in
West Milton, Ohio, from 1984 to March 1, 1998, when he retired from the active
practice of medicine.

         DR. HAYES has served as a director of Milton Federal since 1986 and has
been the President of West Milton Veterinary Clinic, Inc., West Milton, Ohio,
since 1984.

         MR. HINE has served as the Vice Chairman of the Board of Directors of
Milton Federal since 1993 and as a director since 1973. Mr. Hine has been
co-owner and Chief Executive Officer of Hine's, Inc. in Union and Troy, Ohio,
since 1954.

         MR. LONG, who has served as a director of Milton Federal since 1989,
has been the President and co-owner of Long & Associates, Inc., an association
management firm in West Milton, Ohio, since 1984.

         MR. MINNICH has served as the Chairman of the Board of Directors of
Milton Federal since 1978. From 1958 to 1988, Mr. Minnich served as the
President and a director of Milton Federal.

MEETINGS OF DIRECTORS

         The Board of Directors of MFFC met 17 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1998. Each director
attended at least 75% of the aggregate of such meetings and all meetings of
committees of the Board of Directors of which such director was a member.

         Each director of MFFC is also a director of Milton Federal. The Board
of Directors of Milton Federal met 17 times for regularly scheduled and special
meetings during the fiscal year ended September 30, 1998. Each director attended
at least 75% of the aggregate of such meetings and all meetings of committees of
the Board of Directors of which such director was a member.

COMMITTEES OF DIRECTORS

         The Board of Directors of MFFC has an Audit Committee, an ESOP
Committee and a Stock Option Committee.

         The Audit Committee recommends audit firms to the full Board of
Directors and reviews and approves the annual independent audit report. Such
committee also monitors management's responses to Office of Thrift Supervision
("OTS") examination reports. The members of the Audit Committee are Messrs.
Faze, Hine and Minnich.
The Audit Committee met four times during fiscal year 1998.

         The ESOP Committee administers the ESOP and presently consists of
Messrs. Hayes, Long, Hine and Faze. The ESOP Committee met seven times during
the fiscal year ended September 30, 1998.

         The Stock Option Committee is responsible for administering the Stock
Option Plan, including interpreting the Stock Option Plan and awarding options
pursuant to its terms. Its members are Messrs. Hayes, Long, Hine and Faze. The
Stock Option Committee met seven times during the fiscal year ended September
30, 1998.

         The Board of Directors of MFFC does not have a nominating committee or
a compensation committee. Nominees for election to the Board of Directors are
selected by the entire Board of Directors.

         The Board of Directors of Milton Federal has several committees,
including Compensation, RRP, Executive and Loan Committees.


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                                      -89-
<PAGE>   7

         The Compensation Committee of Milton Federal reviews the President's
salary and recommends salary increases to the full Board of Directors for
approval. The Compensation Committee also reviews the President's
recommendations with respect to salary increases for the other executive
officers and reports thereon to the Board of Directors, which makes the final
salary determinations. Messrs. Hayes, Long, Hine and Faze are the members of the
Compensation Committee. Such Committee met seven times during fiscal year 1998.

         The RRP Committee of Milton Federal administers the RRP. Such Committee
consists of Messrs. Hayes, Long, Hine and Faze. The RRP Committee met seven
during fiscal year 1998.

         The Executive Committee of Milton Federal is authorized to act, with
certain limitations, on behalf of the Board of Directors between meetings of the
Board of Directors. Messrs. Aidt, Hine and Minnich are the members of the
Executive Committee. The Executive Committee met ten times during fiscal year
1998.

         The Loan Committee reviews the recommendations of Milton Federal's loan
officers and approves or disapproves loans of up to $400,000. Any loans of
amounts exceeding $400,000 are referred to the full Board of Directors. The
members of the Loan Committee are Messrs. Aidt, Hine and Minnich. The Loan
Committee met fifty four times during fiscal year 1998.


                               EXECUTIVE OFFICERS

         In addition to Mr. Aidt, the President of both MFFC and Milton Federal,
and Mr. App, the Secretary of MFFC, the following persons are executive officers
of MFFC and Milton Federal and hold the designated positions:

<TABLE>
<CAPTION>
         Name                                      Age(1)         Position(s) Held
         ----                                      ------         ----------------
<S>                                                <C>            <C>
         Thomas P. Eyer                              44           Treasurer and Chief Financial
                                                                  Officer of MFFC, Senior Vice
                                                                  President/Financial Operations,
                                                                  Treasurer and Chief Financial
                                                                  Officer of Milton Federal,
                                                                  Executive Vice
                                                                  President/Administration

         Michael J. Hufford                          45           Secretary, Senior Vice
                                                                  President/Lending Operations of
                                                                  Milton Federal

         Debbie A. Jones                             50           Executive Vice President/Banking
                                                                  Operations of Milton Federal
-----------------------------
</TABLE>

(1)      As of November 30, 1998.


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                                      -90-
<PAGE>   8


         MR. EYER has served as Executive Vice President of Administration of
Milton Federal since July 1998 and as Senior Vice President/Financial
Operations, Chief Financial Officer and Treasurer of Milton Federal since
January 1994. Mr. Eyer has also served as the Treasurer and Chief Financial
Officer of MFFC since 1994. He served as Vice President, Chief Financial Officer
and Treasurer of Milton Federal from 1992 until 1993.

         MR. HUFFORD has served as Senior Vice President/Lending Operations for
Milton Federal since January 1993 and Secretary of Milton Federal since 1993. He
has worked for Milton Federal since 1974.

         MRS. JONES has served as Executive Vice President of Banking Operations
since July 1998 and has served as Senior Vice President/Banking Operations for
Milton Federal since January 1994. She has worked for Milton Federal since 1979.

         Mr. Hufford is the brother of Mr. Minnich's daughter-in-law.


                COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

EXECUTIVE COMPENSATION

         The following table sets forth the compensation paid to Glenn E. Aidt,
the President and Chief Executive Officer of both MFFC and Milton Federal, for
the fiscal years ended September 30, 1998, 1997 and 1996. No other executive
officer of MFFC earned salary and bonus in excess of $100,000 during such
period.

                           Summary Compensation Table
                           --------------------------
<TABLE>
<CAPTION>
                                              Annual Compensation         Long Term Compensation
                                          ---------------------------- ---------------------------
                                                                                   Awards
                                                                       ----------------------------
         Name and Principal      Year     Salary ($)(1)    Bonus ($)     Restricted     Securities        All Other
         Position                                                       Stock Awards    Underlying       Compensation
                                                                             ($)         Options/
                                                                                          SARs(#)
         -----------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>                <C>       <C>            <C>                   <C>
         Glenn E. Aidt           1998       $137,035 (2)       $24,628       --             --                $40,949 (6)
         President, Chief        1997       $129,332 (3)       $22,187       --             --                $43,049 (7)
         Executive Officer       1996       $116,613 (4)       $19,810   $266,267(5)        --                $44,714 (8)
-------------------------
</TABLE>

(1)      Does not include amounts attributable to other miscellaneous benefits
         received by executive officers. The cost to Milton Federal of providing
         such benefits to Mr. Aidt was less than 10% of his cash compensation.

(2)      Includes salary of $127,876 and directors' fees of $9,159.

(3)      Includes salary of $120,323 and directors' fees of $9,009.

(4)      Includes salary of $108,373 and directors' fees of $8,240.


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                                      -91-
<PAGE>   9


(5)      Mr. Aidt was awarded 18,052 common shares of MFFC under the RRP on
         October 16, 1995. One-fifth of such awarded shares are earned on each
         of the first five anniversaries of the date the shares were awarded.
         The figure represents the dollar value of such awarded shares based on
         the $14.75 closing sale price per share reported by The Nasdaq Stock
         Market for the shares on October 16, 1995. The aggregate fair market
         value of the 18,052 shares at September 30, 1998, was $230,163 based
         upon the $12.75 per share closing sale price reported by The Nasdaq
         Stock Market. Dividends are paid on all awarded shares at the same rate
         as they are paid to all shareholders.

(6)      Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $1,416; the $39,429
         aggregate value at the date of allocation of 3,092 common shares of
         MFFC allocated to Mr. Aidt's account pursuant to the ESOP; and the
         premium of $104 paid by Milton Federal for insurance on the life of Mr.
         Aidt payable to a beneficiary designated by Mr. Aidt.

(7)      Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $1,323; the $41,509
         aggregate value at the date of allocation of 2,721 common shares of
         MFFC allocated to Mr. Aidt's account pursuant to the ESOP; and the
         premium of $217 paid by Milton Federal for insurance on the life of Mr.
         Aidt payable to a beneficiary designated by Mr. Aidt.

(8)      Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $1,153; the $43,322
         aggregate value at the date of allocation of 3,209 common shares of
         MFFC allocated to Mr. Aidt's account pursuant to the ESOP; and the
         premium of $239 paid by Milton Federal for insurance on the life of Mr.
         Aidt payable to a beneficiary designated by Mr. Aidt.


STOCK OPTION PLAN

         At the 1995 Annual Meeting of the Shareholders of MFFC, the
shareholders approved the Stock Option Plan. The Board of MFFC reserved 257,887
commons shares, which is equal to 10% of the common shares issued in connection
with the Conversion, for issuance by MFFC upon the exercise of options to be
granted to certain directors, officers and employees of Milton Federal and MFFC
from time-to-time under the Stock Option Plan. Options to purchase 225,651
common shares of MFFC have been awarded pursuant to the Stock Option Plan.

         The Stock Option Committee may grant options under the Stock Option
Plan at such times as it deems most beneficial to Milton Federal and MFFC on the
basis of the individual participant's responsibility, tenure and future
potential to Milton Federal and MFFC. Options granted to the officers and
employees under the Stock Option Plan may be "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), which, if certain conditions are met, permit the optionees
to delay the recognition of federal taxable income on the shares received upon
the exercise of the options. Options granted under the Stock Option Plan to
directors who are not employees of MFFC or Milton Federal will not qualify under
the Code and thus will not be ISOs ("Non-qualified Stock Options").

         Each option is exercisable commencing on the first anniversary of the
grant of the option with respect to no more than one-fifth of the shares subject
to the option on each anniversary of the date of grant of the option. The option
exercise price for ISOs and Non-qualified Stock Options is determined by the
Stock Option Committee at the time of option grant. The exercise price for an
option, however, must not be less than 100% of the fair market value of the
shares on the date of the grant. Moreover, for an employee who owns more than
10% of MFFC's outstanding common shares, the exercise price of an ISO may not be
less than 110% of the fair market value of the shares on the date of the grant,
and the ISO shall not be exercisable after the expiration of five years from the
date it is granted. No stock option will be exercisable after the expiration of
ten years from the date of grant.

         An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. Termination for
cause, as defined in the Stock Option Plan, will result in the annulment of any
outstanding options. The Stock Option Plan provides that in the event of a
"change in control," 

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                                      -92-

<PAGE>   10

as defined in the Stock Option Plan, all options then outstanding shall become
immediately exercisable. A "change in control" includes approval by the
shareholders of the execution of an agreement for a merger or acquisition, a
change in control as defined under OTS regulations or the acquisition of the
beneficial ownership of 25% or more of the voting shares of MFFC by any person
or entity.

         The following table sets forth information regarding the number and
value of unexercised options held by Mr. Aidt at September 30, 1998:


 Aggregated Option/SAR Exercises In Last Fiscal Year and 9/30/98 Option/SAR 
---------------------------------------------------------------------------
                                     Values
                                     ------


<TABLE>
<CAPTION>
                                                                           Number of 
                                                                           Securities              Value of
                                                                            Underlying            Unexercised
                                                                           Unexercised           In-the-Money
                                                                         Options/SARs at        Options/SARs at
                                                                           9/30/98 (#)          9/30/98 ($)(1)
                           Shares Acquired                                 Exercisable/          Exercisable/
Name                       on Exercise (#)      Value Realized ($)        Unexercisable          Unexercisable
--------------------------------------------------------------------------------------------------------------------

<S>                        <C>                   <C>                     <C>                     <C>
Glenn E. Aidt                     -                    N/A                30,946/20,632               -/-
-----------------------------
</TABLE>

(1)      For purposes of this table, the value of the option was determined by
         multiplying the number of shares subject to the unexercised option by
         the difference between the $13.69 exercise price and the fair market
         value of MFFC's common shares, which was $12.75 on September 30, 1998,
         based on the closing sales price reported by The Nasdaq Stock Market.

RECOGNITION AND RETENTION PLAN AND TRUST

         At the 1995 Annual Meeting of the Shareholders of MFFC, the
shareholders of MFFC approved the RRP. With funds contributed by Milton Federal,
the RRP purchased 103,155 shares of MFFC, 74,784 of which were awarded to
directors and executive officers of Milton Federal in October 1995.

         The RRP is administered by the RRP Committee. Subject to express
provisions of the RRP and to review and acceptance or rejection by the Board of
Directors, the RRP Committee determines which directors and employees of Milton
Federal are eligible to receive awards of MFFC common shares under the RRP,
which eligible persons will be awarded shares under the RRP and the number of
shares awarded.

         One-fifth of such shares will be earned and non-forfeitable on each of
the first five anniversaries of the date of the awards. Until shares awarded are
earned by the participant, such shares will be forfeited in the event that the
employment of the employee is terminated. In the event of the death or
disability of a participant, however, the participant's shares will be deemed to
be earned and nonforfeitable upon such date. In addition, all shares awarded
pursuant to the RRP become earned and nonforfeitable if, within one year
following a "change in control" of MFFC or Milton Federal, (i) the participant's
employment is involuntarily terminated for any reason other than just cause or
(ii) a material adverse change occurs in the capacity, conditions or
circumstances of the participant's employment. Change of control for such
purpose means the acquisition of voting or investment control of 25% or more of
the voting securities of MFFC by any person or persons acting as a group.




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                                      -93-
<PAGE>   11

         RRP shares will be distributed as soon as practicable after they are
earned. Each participant granted shares under the RRP will be entitled to the
benefit of any dividends or other distributions paid on such shares prior to
such shares being earned, although the dividends or other distributions will be
retained by the RRP until the shares are earned. All plan shares which have not
been earned and distributed will be voted by the Trustees of the RRP, who are
currently Messrs. App, Hayes and Long.


EMPLOYMENT AGREEMENTS

         Milton Federal and Mr. Aidt are parties to an employment agreement with
an expiration date of November 28, 2000 (the "Employment Agreement"). A salary
and performance review must be conducted by the Board of Directors not less
often than annually. The Employment Agreement requires the inclusion of Mr. Aidt
in any formally established employee benefit, bonus, pension and profit-sharing
plans for which senior management personnel are eligible. The Employment
Agreement also provides for vacation and sick leave.

         The Employment Agreement is terminable by Milton Federal at any time.
In the event of termination by Milton Federal for "just cause," as defined in
the Employment Agreement, Mr. Aidt will have no right to receive any
compensation or other benefits for any period after such termination. In the
event of termination by Milton Federal other than for just cause, at the end of
the term of the Employment Agreement or in connection with a "change of
control," as defined in the Employment Agreement, Mr. Aidt will be entitled to a
continuation of salary payments for a period of time equal to the term of the
Employment Agreement and a continuation of benefits substantially equal to those
being provided at the date of termination of employment until the end of the
term of the Employment Agreement or the date Mr. Aidt becomes employed full-time
by another employer, whichever occurs first.

         The Employment Agreement also contains provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
employment for any reason other than just cause, retirement or termination at
the end of the term of the agreement, (2) a change in the capacity or
circumstances in which Mr. Aidt is employed or (3) a material reduction in Mr.
Aidt's responsibilities, authority, compensation or other benefits provided
under the Employment Agreement without Mr. Aidt's written consent. In the event
of any such occurrence, Mr. Aidt will be entitled to payment of an amount equal
to three times his average annual compensation for the three taxable years
immediately preceding the termination of employment. In addition, Mr. Aidt will
be entitled to continued coverage under all benefit plans until the earliest of
the end of the term of the Employment Agreement or the date on which Mr. Aidt is
included in another employer's benefit plans as a full-time employee. The
maximum which Mr. Aidt may receive, however, is limited to an amount which will
not result in the imposition of a penalty tax pursuant to Section 280G(b)(3) of
the Code. "Control," as defined in the Employment Agreement, generally refers to
the acquisition by any person or entity of the ownership or power to vote 10% or
more of the voting stock of Milton Federal or MFFC, the control of the election
of a majority of Milton Federal's or MFFC's directors or the exercise of a
controlling influence over the management or policies of Milton Federal or MFFC.

DEFINED BENEFIT PLAN

         Milton Federal sponsors a defined benefit pension plan (the "Pension
Plan") covering all employees age 21 or older who have completed at least one
year of service to Milton Federal.

         The normal Pension Plan retirement benefit payable upon retirement at
or after age 65 is the product of (a) 1%, multiplied by (b) years of service,
multiplied by (c) average annual salary for the five consecutive years of
highest salary. Employees become 100% vested in the Pension Plan after five
years of employment. Participants are automatically 100% vested at 65 years of
age regardless of years of service. The Pension Plan also includes

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                                      -94-
<PAGE>   12

provisions for early retirement, disability retirement and a death benefit. The
compensation covered by the Pension Plan includes only the employee's basic
annual salary, exclusive of bonuses, fees or other special payments.


         The following table presents information regarding annual payments to
be made to employees pursuant to the Pension Plan.

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>
       HIGH-5               15 YEARS             20 YEARS             25 YEARS             30 YEARS             35 YEARS
       AVERAGE               BENEFIT              BENEFIT              BENEFIT              BENEFIT              BENEFIT
    COMPENSATION             SERVICE              SERVICE              SERVICE              SERVICE              SERVICE
---------------------- -------------------- -------------------- -------------------- -------------------- --------------------

<S>                          <C>                  <C>                  <C>                  <C>                  <C>     
     $  15,000               $  2,300             $  3,000             $  3,800             $  4,500             $  5,300
        30,000                  4,500                6,000                7,500                9,000               10,500
        45,000                  6,800                9,000               11,300               13,500               15,800
        60,000                  9,000               12,000               15,000               18,000               21,000
        75,000                 11,300               15,000               18,800               22,500               26,300
        90,000                 13,500               18,000               22,500               27,000               31,500
       105,000                 15,800               21,000               26,300               31,500               36,800
       120,000                 18,000               24,000               30,000               36,000               42,000
       135,000                 20,300               27,000               33,800               40,500               47,300
       150,000                 22,500               30,000               37,500               45,000               52,500
</TABLE>

         Milton Federal had no Pension Plan expense for fiscal year 1997 because
the Pension Plan was overfunded. Mr. Aidt has nine years of credited service
under the Pension Plan. The base salary of Mr. Aidt for 1998 is set forth in the
Summary Compensation Table under the "Salary" heading. Benefits under the
Pension Plan are computed based on the straight life annuity method and are not
subject to deduction for social security or any other offset amount.

DIRECTOR COMPENSATION

         MFFC pays no directors' fees. Effective January 1, 1997, each director
of Milton Federal receives a fee of $9,009 per year for service as a director of
Milton Federal. Each non-employee director also receives $125 per hour for
attending committee meetings.

         In October 1993, Milton Federal instituted a deferred compensation
program for its directors pursuant to which the directors may defer payment of
their directors' fees. Under an agreement between each of six of the directors
and Milton Federal, such fees are credited to an account for the director. The
amount credited bears interest at a rate determined by the Board of Directors,
currently an annual rate of seven percent. The deferred amounts plus interest
will be paid from the general assets of Milton Federal to the director at the
time of his termination of board service. If the director dies while serving as
a director of Milton Federal, an annual payment will be made for five years to
the director's beneficiary. Such death benefit payments will total the amount
which would have accrued to the director's account assuming deferral of $7,000
per year until age 70. The plan may be amended or terminated by Milton Federal
at any time.

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                                      -95-
<PAGE>   13

         Milton Federal has purchased insurance contracts on the lives of the
participants in the deferred compensation plan and named Milton Federal as the
beneficiary. While the insurance contracts are not committed to fund the
deferred compensation plan and the plan is an unsecured obligation of Milton
Federal, management currently intends to use the insurance for such purpose.

         The directors of MFFC are also eligible for awards under the Stock
Option Plan and the RRP. During fiscal year 1998, no awards were granted under
the Stock Option Plan and the RRP.

COMPENSATION COMMITTEE REPORT

         As a unitary savings and loan holding company, the business of MFFC
consists principally of holding the stock of Milton Federal. The functions of
the executive officers of MFFC, who are also the executive officers of Milton
Federal, pertain primarily to the operations of Milton Federal. The executive
officers receive their compensation, therefore, from Milton Federal, rather than
from MFFC. The Compensation Committee of the Milton Federal Board of Directors
(the "Committee") has furnished the following report concerning executive
compensation.

PROCESS FOR DETERMINING COMPENSATION

         MFFC has not paid any cash compensation to its executive officers since
its formation. All executive officers of MFFC also currently hold positions with
Milton Federal and receive cash compensation from Milton Federal.

         The compensation levels of the executive officers, including the Chief
Executive Officer/President (the "CEO"), are reviewed each year by the
Committee. The Committee reviews independent surveys of compensation of officers
in the thrift industry. In addition, it assesses each executive officer's
contribution to MFFC and Milton Federal, the skills and experiences required by
such officer's position and the potential of the officer to contribute to MFFC
and Milton Federal in the future. Based on the foregoing assessment, the
Committee makes recommendations to the full Board of Directors of Milton
Federal. The Board of Directors reviews such recommendations and makes final
determinations with respect to the compensation of executive officers, except
that Board members who are also executive officers do not participate in
discussions regarding their own respective compensation.

COMPENSATION POLICIES

         The Committee's executive compensation policies are designed to provide
competitive levels of compensation that will assist Milton Federal and MFFC in
attracting and retaining qualified executives and that will also integrate
compensation with the short and long-term performance goals of Milton Federal
and MFFC and reward individual performance, initiative and achievements. The
cash compensation program for executive officers consists of the following two
elements: a base salary and an officer incentive bonus. The executive officers
of Milton Federal are also eligible for awards under the Stock Option Plan and
the RRP. The combination of base salary, bonus, and stock benefit plan awards is
designed to relate total compensation levels to the performance of Milton
Federal and MFFC and each individual executive officer's contribution thereto.

         The objectives of the officer cash bonuses are to motivate and reward
the executive officers in connection with the accomplishment of annual
objectives of Milton Federal and MFFC, to reinforce a strong performance
orientation with differentiation and variability in individual awards based on
contribution to annual and long-range business results and to provide a
competitive compensation package which will attract, reward and retain
individuals of the highest quality. For executive officers of Milton Federal and
MFFC, including the CEO, bonuses are determined as a percentage of annual base
salary, which percentage is calculated based upon the 



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                                      -96-
<PAGE>   14

achievement of certain goals which relate to levels of profitability of MFFC and
Milton Federal. The corporate profitability measurements used were return on
assets, return on equity, efficiency ratio, and net income.

         No stock option awards or RRP awards were considered during fiscal year
1998.

DETERMINATION OF CEO'S COMPENSATION

         The Committee determined the compensation of the CEO in fiscal year
1998 pursuant to the policies described above for executive officers. The
corporate profitability measurements considered were return on assets, return on
equity, the efficiency ratio, and net income. Additional corporate goals
considered were implementation of stock repurchases, implementation of a
strategic plan, and successful completion of the fiscal 1998 Business Plan. The
individual goals considered were related to the CEO's efforts in Milton Federal
achieving certain regulatory ratings, development of branching strategies, the
development of a plan to use excess capital, community involvement, and industry
involvement.

Submitted by the Compensation Committee of Milton Federal's Board of Directors:

Robert E. Hine, Chairman
David R. Hayes
Kenneth J. Faze
Christopher S. Long


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         MFFC pays no cash compensation to officers or employees of MFFC or
Milton Federal and therefore has no compensation committee. The Board of
Directors does, however, have a Stock Option Committee, whose members are
Messrs. Faze, Long, Hayes and Hine. Mr. Hine is Vice Chairman of MFFC and Milton
Federal.

         The Board of Directors of Milton Federal has a Compensation Committee,
the members of which are Messrs. Hine, Faze, Hayes and Long, none of whom are or
ever have been officers of MFFC or Milton Federal. The Board of Directors of
Milton Federal also has an RRP Committee, composed of Messrs. Faze, Long, Hayes
and Hine, which determines RRP awards and administers the RRP. During fiscal
year 1997, there were no other reportable relationships between the members of
the aforementioned committees and MFFC or Milton Federal.

PERFORMANCE GRAPH

         The line graph compares the yearly percentage change in MFFC's
cumulative total shareholder return against the cumulative return of a broad
index of The Nasdaq National Market and an index of savings associations with
assets of less than $250 million for the period from October 7, 1994, the date
on which trading of MFFC's shares commenced, and September 30, 1998. The graph
assumes the investment of $100 on October 7, 1994. Cumulative total shareholder
return is measured by dividing (I) the sum of (A) the cumulative amount of
dividends for the measurement period, assuming dividend reinvestment, and (B)
the difference between the price of MFFC's common shares at the end and at the
beginning of the measurement period; by (ii) the price of MFFC's common shares
at the beginning of the measurement period.


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                                      -97-

<PAGE>   15

                         CERTAIN TRANSACTIONS WITH MFFC

         During the fiscal year ended September 30, 1998, certain directors of
MFFC had loans from Milton Federal with balances in excess of $60,000. All of
such loans were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or present other
unfavorable features.


                              SELECTION OF AUDITORS

         The Board of Directors has selected Crowe Chizek as the auditors of
MFFC and Milton Federal for the current fiscal year and recommends that the
shareholders ratify the selection. Management expects that a representative of
Crowe Chizek will be present at the Annual Meeting, will have the opportunity to
make a statement if he or she so desires and will be available to respond to
appropriate questions.


                            PROPOSALS OF SHAREHOLDERS

         Any proposals of qualified shareholders intended to be included in the
proxy statement for the 2000 Annual Meeting of Shareholders of MFFC should be
sent to MFFC by certified mail and must be received by MFFC not later than
August 20, 1999. In addition, if a shareholder intends to present a proposal at
the 2000 Annual Meeting without including the proposal in the proxy materials
related to that meeting, and if the proposal is not received by November 4,
1999, then the proxies designated by the Board of Directors of MFFC for the 2000
Annual Meeting Shareholders of MFFC may vote in their discretion on any such
proposal any shares for which they have been appointed proxies without mention
of such matter in the proxy statement or on the proxy card for such meeting.

         The following shareholder proposal has been submitted for inclusion in
the 1999 proxy statement. The Board of Directors of MFFC recommends that
shareholders vote "against" the following shareholder proposal.

              SHAREHOLDER PROPOSAL REGARDING SALE OR MERGER OF MFFC

         Gregory J. Iammarino, 1797 Normandy Lane, Troy, Ohio 45373, claiming
that he has owned for more than one year common shares of MFFC with a market
value in excess of $2,000 and that he will continue to hold such shares through
the date of the Annual Meeting, has submitted the following resolution and
supporting statement for inclusion in this Proxy Statement and has stated his
intention to present same at the Annual Meeting. THE MFFC BOARD OF DIRECTORS
OPPOSES THIS RESOLUTION FOR THE REASONS STATED BELOW.

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

                            MAXIMIZE VALUE RESOLUTION
                                       OF
                              GREGORY J. IAMMARINO

         Resolved that the shareholders of MFFC urge the Board of Directors to
arrange for the prompt sale of MFFC to the highest bidder.

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                                      -98-
<PAGE>   16

                              SUPPORTING STATEMENT
                                       OF
                              GREGORY J. IAMMARINO

                  "The purpose of the Maximize Value Resolution is to give all
         MFFC shareholders the opportunity to send a message to the MFFC Board
         that they support the prompt sale of MFFC to the highest bidder. A
         strong and or majority vote by the shareholders would indicate to the
         Board the displeasure felt by the shareholders with the financial
         performance of MFFC and the drastic action that should be taken. Even
         if it is approved by the majority of the MFFC shares represented and
         entitled to vote at the Annual Meeting, the Maximize Value Resolution
         will not be binding on the MFFC Board. The proponent, however, believes
         that if this resolution receives substantial support from the
         shareholders, the Board may choose to carry out the request set forth
         in the resolution."

                  "The prompt auction of MFFC should be accomplished by any
         appropriate process the Board chooses to adopt including a sale to the
         highest bidder whether in cash, stock or a combination of both. It is
         expected that the Board will uphold its fiduciary duties to the utmost
         during the process."

                  "The proponent further believes that if the resolution is
         adopted, the management and the Board will interpret such adoption as a
         message from MFFC's shareholders that it is no longer acceptable for
         the Board to continue with its current management plan and strategies."

                 "I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
                 -----------------------------------------------

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

                     RESPONSE OF THE MFFC BOARD OF DIRECTORS

                YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
           THE "MAXIMIZE VALUE RESOLUTION" FOR THE FOLLOWING REASONS:

         The subject of shareholder value is considered often by the Board of
Directors and management of MFFC. For several reasons, the Board of Directors
strongly believes that the implementation of the "Maximize Value Resolution"
will not be in the best interests of shareholders of MFFC and, contrary to the
title of the resolution, will not maximize value to the shareholders of MFFC.

         As you know, the Board of Directors of MFFC is elected by the
shareholders of MFFC to direct the management of the business and affairs of
MFFC. Consistent with its fiduciary duties and responsibilities to the
shareholders of MFFC, the Board of Directors continually reviews and monitors
the business and progress of MFFC, including the development of MFFC's products
and services. In addition, the Board of Directors keeps apprised of developments
in the financial institutions industry, including the material terms and
conditions of mergers and acquisitions involving thrifts and community banks.
Accordingly, the Board of Directors strongly believes that it is in the best and
most informed position to evaluate and consider whether MFFC should remain
independent or should pursue the sale of your company.

         The consideration of a possible sale of your company involves an
examination of a complex array of factors, including, but not limited to, a
subjective evaluation of the future of MFFC in a changing competitive
environment and the performance of MFFC in such environment; the desires and
expectations of shareholders of MFFC; the needs of our customers, community and
employees; and the impact of the economy on the timing of 

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

                                      -99-

<PAGE>   17

any such possible sale. Acting hastily to force a sale of MFFC in an auction or
otherwise to the highest bidder would obstruct the ability of the Board of
Directors to examine carefully such complex array of factors; would restrict the
ability of the Board of Directors to examine all other strategic future
alternatives; and could force a sale of MFFC at a time and in economic
conditions which would not be conducive to the generation of the highest and
best price. As a result of the foregoing, the adoption of the "Maximum Value
Resolution" would weaken the ability of Board of Directors to maximize
shareholder value and could seriously prejudice and jeopardize the financial
interests of shareholders in your company.

         The success of MFFC is highly dependent on its ability to maintain
strong relationships with, and the confidence of, its employees, customers and
shareholders. Although the "Maximum Value Resolution" only requests and does not
obligate the Board of Directors to take certain action, the Board believes that
the approval of the resolution would make our shareholders, customers,
employees, and community uncertain about MFFC's future. Such uncertainty would
undermine confidence in MFFC and would adversely affect MFFC's relationship with
employees and customers. As a result, the ability of MFFC to compete effectively
in the short and long term would be adversely affected, causing a potential
decline in revenues, profits and shareholder value.

         In summary, the Board of Directors remains committed to maximizing the
value of MFFC for all shareholders. Such commitment has been demonstrated in
part by our stock repurchases and by our declaration of special dividends. The
Board of Directors will continue to work toward enhancing shareholder value by
focusing on steps to increase MFFC's results of operations, already begun by our
opening of branches in Brookville and Tipp City, achieving record mortgage loan
volumes, controlling of expenses, start-up of new products, and provision of
blue ribbon service to the communities we serve. BECAUSE THE BOARD OF DIRECTORS
DOES NOT BELIEVE THAT THE SHAREHOLDER PROPOSAL DESCRIBED ABOVE IS IN THE BEST
INTERESTS OF ALL OF THE SHAREHOLDERS OF MFFC, THE BOARD VIGOROUSLY OPPOSES THE
SHAREHOLDER PROPOSAL DESCRIBED ABOVE.

         THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "AGAINST" THE ADOPTION OF THIS SHAREHOLDER PROPOSAL.

                                  OTHER MATTERS

         Management knows of no other business which may be brought before the
Annual Meeting. It is the intention of the persons named in the enclosed Proxy
to vote such Proxy in accordance with their best judgment on any other matters
which may be brought before the Annual Meeting.

         IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.

                                         By Order of the Board of Directors




December 18, 1998                        E. Lynn App, Secretary



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                                     -100-

<PAGE>   18



                           PROXY STATEMENT SUPPLEMENT
                           --------------------------

         This Proxy Statement Supplement constitutes a part of the Proxy
Statement of Milton Federal Financial Corporation ("MFFC") being mailed on or
about December 18, 1998, for use in connection with the January 20, 1999, Annual
Meeting of the Shareholders of MFFC.

         MFFC has retained D. F. King & CO., Inc., a professional solicitation
firm, to assist in the solicitation of proxies. MFFC will pay such a firm a fee
of $3,000 plus $3.00 for each shareholder contacted and reimbursement for
out-of-pocket expenses.



December 14, 1998


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                                     -101-
<PAGE>   19


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                      MILTON FEDERAL FINANCIAL CORPORATION


                      By____________________________________
                         Glenn E. Aidt
                         President
                         (Principal Executive Officer)

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



By                                       By
  -----------------------------             ------------------------------------
    Glenn E. Aidt                                Thomas P. Eyer
    President and Director                       Treasurer
                                                 (Principal Financial Officer)

Date                                     Date
    ---------------------------              -----------------------------------



By                                       By
  -----------------------------             ------------------------------------
     E. Lynn App                               Kenneth J. Faze, M.D.
     Director                                  Director

Date                                     Date
    ---------------------------              -----------------------------------



By                                       By
  -----------------------------             ------------------------------------
     David R. Hayes, D.V.M.                      Robert E. Hine
     Director                                    Director/Vice Chairman

Date                                     Date
    ---------------------------              -----------------------------------



By                                       By
  -----------------------------             ------------------------------------
     Christopher S. Long                          Cletus G. Minnich, Jr.
     Director                                     Director/Chairman

Date                                     Date
    ---------------------------              -----------------------------------


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                                     -102-