<PAGE>   1


                      MILTON FEDERAL FINANCIAL CORPORATION
                                EXHIBIT NO. 99.1

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


                      MILTON FEDERAL FINANCIAL CORPORATION
                                 25 LOWRY DRIVE
                             WEST MILTON, OHIO 45383
                                 (513) 698-4168

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

     Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Milton Federal Financial Corporation ("MFFC") will be held at the offices of
MFFC at 25 Lowry Drive, West Milton, Ohio 45383, on January 22, 1997, 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 1999;

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

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

     Only shareholders of MFFC of record at the close of business on December 5,
1996, 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 20, 1996          E. Lynn App, Secretary





                                     -116-
<PAGE>   2


                      MILTON FEDERAL FINANCIAL CORPORATION
                                 25 LOWRY DRIVE
                             WEST MILTON, OHIO 45383
                                 (513) 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 1997
Annual Meeting of Shareholders of MFFC to be held at the offices of MFFC at 25
Lowry Drive, West Milton, Ohio 45383, on January 22, 1997, 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 1999; and

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

     Proxies may be solicited by the directors, officers and other employees of
MFFC and Milton Federal Savings Bank ("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 5, 1996
(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 2,401,432 votes
entitled to be cast at the Annual Meeting.

     This Proxy Statement is first being mailed to shareholders of MFFC on or
about December 20, 1996.


                                  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 are not counted
toward the election of directors or toward the election of the individual
nominees specified on the 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

     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. The effect
of an abstention is the same as a vote against ratification. If the accompanying
Proxy is


                                     -117-
<PAGE>   3


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.

              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, 1996:

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

<S>                                                       <C>                              <C>  
National City Bank                                        152,992                          6.37%
6 North Main Street
Dayton, Ohio 45412
-----------------------------

<FN>
(1)      Consists of shares held by National City Bank as the Trustee for the
         Milton Federal Financial Corporation Employee Stock Ownership Plan (the
         "ESOP") not yet allocated to the accounts of participants, with respect
         to which the Trustee has voting control.
</TABLE>


     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,
1996:

<TABLE>
<CAPTION>
                                                    Amount and Nature
                                                  of Beneficial Ownership
                                          --------------------------------------
                                          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                                 18,943(2)              15,000                      1.41%
E. Lynn App                                    5,909(3)              90,798(4)                   4.02
Kenneth J. Faze                                3,609(3)              15,000                       .77
David R. Hayes                                 3,609(3)              99,698(4)                   4.30
Robert E. Hine                                11,885(3)               6,397                       .76
Christopher S. Long                           13,609(3)              88,198(4)                   4.23
Cletus G. Minnich, Jr.                         6,309(3)              10,080                       .68
All directors and executive officers
 of MFFC as a group (8 persons)               86,508(5)             148,875(6)                   9.67%
----------------------------

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

(2)      This number includes 10,315 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 5,148 shares allocated to Mr. Aidt's ESOP account, with
         respect to which Mr. Aidt has voting control.

(3)      This number includes 2,578 shares that may be acquired upon the
         exercise of options awarded pursuant to the Stock Option Plan.

(4)      This number includes 88,198 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.
</TABLE>



                                     -118-
<PAGE>   4


(5)      This number includes 33,519 shares that may be acquired upon the
         exercise of options awarded pursuant to the Stock Option Plan and 7,984
         shares allocated to the ESOP accounts of executive officers.

(6)      The 88,198 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 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 1999:

<TABLE>
<CAPTION>
                                                                                           Director          Director
                                                                                           of MFFC      of Milton Federal
Name                                       Age(1)         Position(s) Held                 Since (2)           Since
----                                       ---            ----------------                 ---------    -----------------
<S>                                         <C>           <C>                                <C>               <C>
Glenn E. Aidt                               56            Director, President and            1994              1989
                                                          Chief    Executive Officer
Kenneth J. Faze                             63            Director                           1994              1985
David R. Hayes                              47            Director                           1994              1986
-----------------------------

<FN>
(1)      As of November 30, 1996.

(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.
</TABLE>


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

<TABLE>
<CAPTION>
                                                                        Director         Director
                                                                         of MFFC     of Milton Federal
Name                      Age(1)    Position(s) Held                    Since (2)          Since            Term Expires
----                      ---       ----------------                    ---------   -------------------     ------------
<S>                         <C>     <C>                                   <C>              <C>                  <C> 
E. Lynn App                 54      Director and Secretary                1994             1986                 1998
Robert E. Hine              67      Director and Vice Chairman            1994             1973                 1998
Christopher S. Long         54      Director                              1994             1989                 1998
Cletus G. Minnich, Jr.      72      Director and Chairman                 1994             1957                 1998
-----------------------------

<FN>
(1)  As of November 30, 1996.
(2)  Each director became a director of MFFC in connection with the Conversion.
</TABLE>


                                     -119-
<PAGE>   5


     MR. AIDT has served as the President, the Chief Executive Officer and a
director of Milton Federal since November 1989. From 1979 to 1989, Mr. Aidt was
employed by Gem Savings Association, last serving as Group Vice President.

     DR. FAZE has served as a director of Milton Federal since 1985. A
practicing physician since 1961, Dr. Faze has been the Chief Executive Officer
of Milton-Union Medical Center, Inc., in West Milton, Ohio, since 1984. Dr. Faze
has also been the Medical Director of Villa Convalescent Center since 1990.

     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. 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.

     MR. HINE has served as the Vice Chairman of the Board of Directors of
Milton Federal since 1993 and as a director since 1973 and has been a co-owner
and the President of Hine's Hardware, Inc., in Union, Tipp City 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 21 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1996. 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 21 times for regularly scheduled and special
meetings during the fiscal year ended September 30, 1996. 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. The Audit
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 1996.

     The ESOP Committee administers the ESOP and presently consists of Messrs.
Aidt, Hayes and Hine. The ESOP Committee met four times during the fiscal year
ended September 30, 1996.

     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. App, Hayes and Hine. The Stock
Option Committee met four times during the fiscal year ended September 30, 1996.

     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, Benefits, RRP, Executive and Loan Committees.



                                     -120-
<PAGE>   6


     The Compensation Committee reviews the executive officers' compensation and
makes recommendations to the full Board of Directors for approval. Messrs. Faze,
Hayes and Long are the members of the Compensation Committee. The Compensation
Committee met four times during fiscal year 1996.

     The Benefits Committee considers all benefits for employees and directors
and makes recommendations to the full Board of Directors. The members of the
Benefits Committee are Messrs. Aidt, Hayes and Hine. The Benefits Committee met
four times during fiscal year 1996.

     The RRP Committee, which administers the RRP, consists of Messrs. Aidt,
Hayes and Hine. The RRP Committee met four times during fiscal year 1996.

     The Executive Committee 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 seven times during fiscal year 1996.

     The Loan Committee reviews the recommendations of Milton Federal's loan
officers and approves or disapproves loans of up to $300,000. Any loans of
amounts exceeding $300,000 are referred to the full Board of Directors. The
members of the Loan Committee are Messrs. Aidt, Hine and Minnich. The Loan
Committee met 46 times during fiscal year 1996.

                               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                         42                Treasurer and Chief Financial
                                                                  Officer  of MFFC; Senior Vice
                                                                  President/Financial Operations,
                                                                  Treasurer and Chief Financial
                                                                  Officer of Milton Federal

         Michael J. Hufford                     43                Secretary, Senior Vice
                                                                  President/Lending Operations of
                                                                  Milton Federal

         Debbie A. Jones                        48                Senior Vice President/Banking
                                                                  Operations of Milton Federal
-----------------------------

<FN>
(1)      As of November 30, 1996.
</TABLE>

     MR. EYER has served as Senior Vice President/Financial Operations, Chief
Financial Officer and Treasurer of Milton Federal since January 1993. He served
as Vice President, Chief Financial Officer and Treasurer of Milton Federal from
1992 until 1993. From 1991 to 1992, Mr. Eyer was Assistant Controller of First
National Bank, Dayton, and from 1975 to 1991 was employed by Gem Savings
Association, last serving as Controller.

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

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

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



                                     -121-
<PAGE>   7


                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, 1996, 1995 and 1994. No other executive officer
of MFFC earned salary and bonus in excess of $100,000 during such period.

<TABLE>
<CAPTION>
                                                 Summary Compensation Table
                                                 --------------------------

                                        -------------------------------------------------------------
                                             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            1996    $116,613(2)      $19,810       $266,267(5)          --            $52,380(7)
           President, Chief      1995    $104,826(3)      $18,270            --           51,578(6)        $20,740(8)
           Executive Officer     1994    $100,074(4)      $16,372            --              --            $ 1,107(9)
-------------------------                                          

<FN>
(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 $108,373 and directors' fees of $8,240.

(3)      Includes salary of $96,973 and directors' fees of $7,853

(4)      Includes salary of $92,783 and directors' fees of $7,291.

(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, 1996, was $243,702 based
         upon the $13.50 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) Represents the number of common shares of MFFC underlying options granted to
         Mr. Aidt pursuant to the Stock Option Plan.

(7) Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $1,153; the $50,988
         aggregate value at the date of allocation of 3,777 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.

(8) Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $1,032; the $19,541
         aggregate value at the date of allocation of 1,241 common shares of
         MFFC allocated to Mr. Aidt's account pursuant to the ESOP; and the
         premium of $167 paid by Milton Federal for insurance on the life of Mr.
         Aidt payable to a beneficiary designated by Mr. Aidt.
</TABLE>



                                     -122-
<PAGE>   8


(9) Consists of Milton Federal's matching contribution to Mr. Aidt's
         defined contribution plan account in the amount of $928 and the premium
         of $179 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 common
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, permits 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
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; provided, however, 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," 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, 1996:

<TABLE>
<CAPTION>
                  Aggregated Option/SAR Exercises In Last Fiscal Year and 9/30/96 Option/SAR Values
                  ---------------------------------------------------------------------------------

                                                                        Number of Securities
                                                                             Underlying
                                                                             Unexercised      Value of Unexercised
                                                                           Options/SARs at        In-the-Money
                                                                             9/30/96 (#)        Options/SARs at
                                                                                                  9/30/96 ($)
                                                                            Exercisable/
                             Shares Acquired                                Unexercisable         Exercisable/
Name                         on Exercise (#)       Value Realized ($)                            Unexercisable
--------------------------------------------------------------------------------------------------------------------

<S>                                 <C>                     <C>             <C>                       <C>
Glenn E. Aidt                       -0-                     N/A             10,315/41,263             (1)
-----------------------------
</TABLE>


                                     -123-
<PAGE>   9


(1) No value of such options is provided because the $13.69 exercise price
         exceeds the fair market value of MFFC's common shares, which was $13.50
         per share on September 30, 1996, based on the closing sale 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 the RRP shares awarded to a recipient 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.

     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 the members of the RRP Committee.

EMPLOYMENT AGREEMENTS

     Milton Federal entered into an employment agreement with Mr. Aidt effective
in November 1994. Such employment agreement provided for an expiration date of
November 28, 1997, although the Board of Directors has executed a new agreement
with an expiration date of November 28, 1998 (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.



                                     -124-
<PAGE>   10


     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 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.

<TABLE>
<CAPTION>
                                                   PENSION PLAN TABLE

       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 1996 because the
Pension Plan was overfunded. Mr. Aidt has seven years of credited service under
the Pension Plan. The base salary of Mr. Aidt for 1996 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.




                                     -125-
<PAGE>   11


DIRECTOR COMPENSATION

     MFFC pays no directors' fees. Effective January 1, 1996, each director of
Milton Federal receives a fee of $8,560 per year for service as a director of
Milton Federal. Each non-employee director also receives $125 per hour for
attending committee meetings. During fiscal year 1996, a total of $57,680 was
paid in directors' compensation.

     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.
     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 1996, Messrs. App, Faze, Hayes, Hine, Long
and Minnich were each awarded 5,157 common shares, and Mr. Aidt was awarded
18,052 MFFC common shares pursuant to 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 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 the executive officers,
except that directors 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 three elements: a base salary, an officer incentive bonus and a
bonus to all employees. The executive officers of Milton Federal are also


                                     -126-
<PAGE>   12


eligible for discretionary 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 discretionary 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 that 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 utilizing a corporate goal factor and an
individual performance factor. The corporate goal factor is based upon the
achievement of certain levels of profitability of MFFC and Milton Federal. The
performance factor is based upon the particular executive officer's performance
measured by the attainment of individual and corporate goals during the
preceding year.

     No stock option awards were considered during fiscal year 1996. Executive
officers of Milton Federal received discretionary awards under the RRP during
fiscal year 1996 based upon their positions, responsibilities and performance of
duties, among other considerations. The Committee considered such awards in its
determination of total compensation.

     DETERMINATION OF CEO'S COMPENSATION. The Committee determined the
compensation of the CEO in fiscal year 1996 pursuant to the policies described
above for executive officers. The corporate profitability measurements
considered were net income, return on assets and return on equity. Additional
corporate goals considered were the implementation of stock repurchases, the
implementation of a strategic plan and the successful completion of the fiscal
1996 Business Plan. The individual goals considered were related to the CEO's
efforts in Milton Federal's achieving certain regulatory ratings, the
development of branching strategies, the development of a plan to utilize excess
capital, community involvement and industry involvement.

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

David R. Hayes, Chairman
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. Aidt,
Hayes and Hine. Mr. Aidt is the President and Chief Executive Officer of MFFC
and Milton Federal, and Mr. Hine is Vice Chairman of both companies.

     The Board of Directors of Milton Federal has a Compensation Committee, the
members of which are Messrs. 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. Aidt, Hayes and Hine,
which determines RRP awards and administers the RRP. During fiscal year 1996,
there were no other reportable relationships between the members of the
aforementioned committees and MFFC or Milton Federal.

PERFORMANCE GRAPH

     The following 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, 1996. The graph
assumes the


                                     -127-
<PAGE>   13


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.

             [Performance graph represented by the following chart]

<TABLE>
<CAPTION>
                                       10/07/94           03/31/95          09/30/95          03/31/96          09/30/96
                                   ------------------ ----------------- ----------------- ----------------- ------------------
<S>                                    <C>                <C>                <C>               <C>                <C>    
MFFC                                   $100.00            $135.68            $159.82           $171.55            $149.80
Nasdaq Total Return                     100.00             109.79             140.70            149.07             166.97
SNL less than $250 million Thrifts      100.00             104.48             131.68            138.17             154.59
</TABLE>


                         CERTAIN TRANSACTIONS WITH MFFC

     During the fiscal year ended September 30, 1996, 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.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under the federal securities laws, MFFC's directors and executive officers
and persons holding more than ten percent of the common shares of MFFC are
required to report their ownership of common shares and any changes in such
ownership to the Securities and Exchange Commission (the "SEC") and to MFFC.
Based upon a review of such reports, MFFC must disclose any failure to file such
reports timely in Proxy Statements used in connection with annual meetings of
shareholders. The Forms 5 reporting allocations made to the ESOP accounts of
Messrs. Aidt and Eyer for the fiscal year ended September 30, 1995, were not
timely filed.


                              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 AND OTHER MATTERS

     Any proposals of shareholders intended to be included in MFFC's proxy
statement for the 1998 Annual Meeting of Shareholders should be sent to MFFC by
certified mail and must be received by MFFC not later than August 22, 1997.

     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.



                                     -128-
<PAGE>   14


     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 20, 1996                   E. Lynn App, Secretary



                                     -129-