<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended September 30, 1998
                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ______________to___________________

     Commission File Number:    0-24834
                                -------

                      MILTON FEDERAL FINANCIAL CORPORATION
             -------------------------------------------------------
                (Name of registrant as specified in its charter)

                  Ohio                                          31-1412064
         ---------------------                           ----------------------
      (State or other jurisdiction of                       (I.R.S. Employer
      incorporation or organization)                     Identification Number)

                     25 Lowry Drive, West Milton, Ohio 45383
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                  Registrant's telephone number: (937) 698-4168
                                                 --------------

      Securities registered pursuant to Section 12(b) of the Exchange Act:
                                      None
                 ----------------------------------------------

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                        Common Shares, without par value
                 ----------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]

Based upon the last sale price provided by The NASDAQ Stock Market, the
aggregate market value of the voting stock held by nonaffiliates of the issuer
on November 30, 1998, was $31,265,616.

2,213,495 of the issuer's common shares were issued and outstanding on November
30, 1998.



<PAGE>   2


                       DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders of Milton Federal Financial Corporation are incorporated
by reference into Part III of this Form 10-K:

1.    Board of Directors;

2.    Executive Officers;

3.    Compensation of Executive Officers and Directors;

4.    Voting Securities and Ownership of Certain Beneficial Owners and 
      Management;

5.    Certain Transactions with Milton Federal Financial Corporation




<PAGE>   3


                                     PART I

ITEM 1.  BUSINESS

Milton Federal Financial Corporation, an Ohio corporation (the "Corporation"),
is a unitary savings and loan holding company which owns all of the issued and
outstanding common shares of Milton Federal Savings Bank (the "Bank"), a federal
savings bank chartered under the laws of the United States. On October 6, 1994,
the Corporation acquired all of the common shares issued by the Bank upon its
conversion from a mutual savings and loan association to a stock savings bank
(the "Conversion"). Prior to the Conversion, the Bank's name was Milton Federal
Savings and Loan Association.


GENERAL

The Bank is principally engaged in the business of making permanent first
mortgage loans secured by 1-4 family residential real estate located in the
Bank's designated lending area. The Bank also originates loans for the
construction of 1-4 family residential real estate and loans secured by
multifamily real estate (over four units) and nonresidential real estate. The
origination of consumer loans, including unsecured loans and loans secured by
deposits, automobiles, recreational vehicles and boats, and home improvement and
commercial loans constitutes a small portion of the Bank's lending activities.
Loan funds are obtained primarily from savings deposits, which are insured up to
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"),
borrowings from the Federal Home Loan Bank (the "FHLB"), and loan and security
repayments. In addition to originating loans, the Bank invests in U.S.
Government and agency obligations, interest-bearing deposits in other financial
institutions, mortgage-backed securities which include collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").

The Bank conducts business from its main office in West Milton, Ohio, and from
its full-service branch offices located in Englewood, Brookville and Tipp City,
Ohio. The Bank's designated lending area consists of portions of Miami,
Montgomery and Darke Counties, Ohio. The Bank's primary market area for savings
deposits consists of Miami and Montgomery Counties and all contiguous counties.

As a savings and loan holding company, the Corporation is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings bank chartered under
the laws of the United States, the Bank is subject to regulation, supervision
and examination by the OTS and the FDIC. Deposits in the Bank are insured up to
applicable limits by the FDIC. The Bank is also a member of the FHLB of
Cincinnati.

Other than investing excess funds from the Conversion in securities, the
Corporation's activities have been limited primarily to holding the common stock
of the Bank since acquiring such common stock in connection with the Conversion.
Consequently, the following discussion focuses primarily on the business of the
Bank.

FORWARD LOOKING STATEMENTS. When used in this Form 10-K, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including changes in economic conditions in the Bank's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Bank's market area and competition, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. Factors listed above could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from any statements expressed
with respect to future periods.


                                      -3-
<PAGE>   4


The Corporation does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.


LENDING ACTIVITIES

GENERAL. The Bank's primary lending activity is the origination of conventional
mortgage loans secured by 1-4 family residential real estate located in the
Bank's designated lending area. Loans for the construction of 1-4 family homes
and mortgage loans on multifamily properties containing five units or more and
nonresidential properties are also offered by the Bank. The Bank does not
originate loans insured by the Federal Housing Authority or loans guaranteed by
the Veterans Administration. In addition to mortgage lending, the Bank
originates consumer loans including some unsecured and some secured by deposits,
automobiles, boats and recreational vehicles, as well as, commercial loans.

LOAN PORTFOLIO COMPOSITION. The following table presents certain information
with respect to the composition of the Bank's loan portfolio at the dates
indicated:


                                      -4-
<PAGE>   5

<TABLE>
<CAPTION>
                                                                                At September 30,
                                     ----------------------------------------------------------------------------------------------
                                             1998                 1997              1996              1995              1994
                                     ------------------- ------------------- ------------------- ----------------- ----------------
                                                Percent             Percent             Percent            Percent         Percent
                                               of Total            of Total            of Total           of Total        of Total
                                     Amount      Loans    Amount     Loans   Amount      Loans   Amount    Loans   Amount    Loans
                                     ------      -----    ------     -----   ------      -----   ------    -----   ------    -----
                                                                           (Dollars in thousands)

<S>                                  <C>       <C>       <C>       <C>      <C>        <C>      <C>         <C>    <C>       <C>   
Residential real estate loans:
    1-4 family (first mortgage)      $138,515     78.03% $108,941    81.62% $102,393     83.02% $ 88,899    84.45% $80,894   86.36%
    Home equity (1-4 family
      second mortgage)                  4,244      2.39     4,051     3.04     2,929      2.38     1,129     1.07      959    1.02
    Multifamily                         2,670      1.50     1,457     1.09     2,249      1.82     1,986     1.89    2,153    2.30
    Nonresidential real estate loans    8,805      4.96     6,215     4.66     4,425      3.59     4,750     4.51    4,026    4.29
    Construction loans                 16,413      9.25     9,400     7.04     9,083      7.36     6,353     6.04    4,030    4.30
                                     --------   -------  --------   ------  --------    ------  --------   ------  -------  ------
       Total real estate loans        170,647     96.13   130,064    97.45   121,079     98.17   103,117    97.96   92,152   98.27

Consumer loans:
    Automobile loans                    3,480      1.96     2,305     1.73     1,929      1.56     1,847     1.75    1,356    1.44
    Loans on deposits                     291       .16       281     0.21       199      0.16       193     0.18      190    0.20
    Other consumer loans                  344       .20       246     0.18       130      0.11       115     0.11       81    0.09
                                     --------   -------  --------   ------  --------    ------  --------   ------  -------  ------
       Total consumer loans             4,115      2.32     2,832     2.12     2,258      1.83     2,155     2.04    1,627    1.73

Commercial loans                        2,753      1.55       575     0.43        --        --        --       --       --      --
                                     --------   -------  --------   ------  --------    ------  --------   ------  -------  ------

Total loans                           177,515    100.00%  133,471   100.00%  123,337    100.00%  105,272   100.00%  93,779  100.00%
                                     --------   =======  --------   ======  --------    ======  --------   ======  ------- =======
Less:
Net deferred loan fees                   (605)               (536)              (627)               (647)             (647)
Loans in process                       (4,888)             (4,977)            (5,474)             (3,534)           (1,617)
Allowance for loan losses                (676)               (562)              (487)               (333)             (269)
                                     --------            --------           --------            --------           --------

    Net loans                        $171,346            $127,396           $116,749            $100,758           $91,246
                                     ========            ========           ========            ========           =======
</TABLE>


                                      -5-
<PAGE>   6


LOAN MATURITY SCHEDULE. The following table sets forth certain information as of
September 30, 1998, regarding the dollar amount of loans, excluding residential
real estate loans, home equity loans and consumer loans, maturing in the Bank's
portfolio based on their contractual terms to maturity. Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less.
<TABLE>
<CAPTION>
                                                                 ---------------------Maturing ------------------
                                                                   One Year    One Through   After Five
                                                                    or Less    Five Years       Years        Total
                                                                    -------    ----------       -----        -----
                                                                                   (In thousands)

<S>                                                              <C>          <C>           <C>          <C>       
           Nonresidential real estate loans                      $      962   $      828    $   7,015    $    8,805
           Real estate construction                                      --        1,506       14,907        16,413
           Commercial loans                                           1,719          396          638         2,753
                                                                 ----------   ----------    ---------    ----------

                Total                                            $    2,681   $    2,730    $  22,560    $   27,971
                                                                 ==========   ==========    =========    ==========
</TABLE>

The following table sets forth at September 30, 1998, the dollar amount of all
loans before net items, due after one year from September 30, 1998, which have
predetermined interest rates and floating or variable interest rates:
<TABLE>
<CAPTION>
                                                                                                  Floating or
                                                                             Predetermined         Variable
                                                                                 Rates               Rates
                                                                                 -----               -----
                                                                                     (In thousands)

<S>                                                                         <C>                <C>        
         Nonresidential real estate loans                                   $      7,451       $       392
         Construction loans                                                       11,325             5,088
         Commercial loans                                                            861               173
                                                                            ------------       -----------
              Total loans                                                   $     19,637       $     5,653
                                                                            ============       ===========
</TABLE>

1-4 FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending activity of the
Bank has been the origination of permanent conventional loans secured by 1-4
family residences, primarily single-family residences, located within the Bank's
designated lending area. The Bank also originates loans for the construction of
1-4 family residences and home equity loans secured by second mortgages on 1-4
family residential real estate. Each of such loans is secured by a mortgage on
the underlying real estate and improvements thereon, if any.

OTS regulations limit the amount which the Bank may lend in relationship to the
appraised value of the real estate and improvements at the time of loan
origination. In accordance with such regulations, the Bank makes fixed-rate
loans on 1-4 family residences up to 95% of the value of the real estate and
improvements (the "Loan-to-Value Ratio" or "LTV"). The Bank requires private
mortgage insurance for such loans in excess of 90% of the value of the real
estate securing such loans. Residential real estate loans are offered by the
Bank for terms of up to 30 years.

While the majority of the Bank's loans have fixed rates of interest, the Bank
began originating adjustable rate mortgage loans ("ARMs") in fiscal year 1995.
ARMs are offered by the Bank for terms of up to 30 years. The interest rate
adjustment periods on the ARMs are either one year, three years or five years.
The interest rate adjustments on ARMs presently originated by the Bank are tied
to changes in the weekly average yield on the one-, three- and five-year U.S.
Treasury constant maturities index. Rate adjustments are computed by adding a
stated margin, typically 3%, to the index. The maximum allowable adjustment at
each adjustment date is usually 2% with a maximum adjustment of 6% over the term
of the loan. The initial rate is dependent, in part, on how often the rate can
be adjusted. The Bank originates ARMs which have initial interest rates lower
than the sum of the index plus the margin. Such loans are subject to increased
risk of 

                                      -6-
<PAGE>   7

delinquency or default due to increasing monthly payments as the interest rates
on such loans increase to the fully-indexed level, although such increase is
considered in the Bank's underwriting of such loans.

The aggregate amount of the Bank's 1-4 family residential real estate loans
equaled approximately $138.5 million at September 30, 1998, and represented
78.0% of loans at such date. At such date, loans secured by 1-4 family
residential real estate with outstanding balances of $727,000, or 0.5% of its
1-4 family residential real estate loan balance, were more than 90 days
delinquent or nonaccruing. See "Delinquent Loans, Nonperforming Assets and
Classified Assets."

MULTIFAMILY RESIDENTIAL REAL ESTATE LOANS. In addition to loans on 1-4 family
properties, the Bank makes loans secured by multifamily properties containing
over four units. Such loans are made with fixed and adjustable interest rates
and a maximum LTV of 75%. ARMs on multifamily properties are offered with the
same adjustment periods and index as ARMs on 1-4 family properties and typically
with a margin of 4% over the index.

Multifamily lending is generally considered to involve a higher degree of risk
because the loan amounts are larger and the borrower typically depends upon
income generated by the project to cover operating expenses and debt service.
The profitability of a project can be affected by economic conditions,
government policies and other factors beyond the control of the borrower. The
Bank attempts to reduce the risk associated with multifamily lending by
evaluating the credit-worthiness of the borrower and the projected income from
the project and by obtaining personal guarantees on loans made to corporations
and partnerships. The Bank currently requires that borrowers agree to submit
financial statements and tax returns annually to enable the Bank to monitor the
loan.

At September 30, 1998, loans secured by multifamily properties totaled
approximately $2.7 million, or 1.5% of total loans, all of which were secured by
property located in Miami and Montgomery Counties, Ohio. At such date, there
were no loans secured by multifamily residential real estate which were more
than 90 days delinquent or nonaccruing. See "Delinquent Loans, Nonperforming
Assets and Classified Assets."

NONRESIDENTIAL REAL ESTATE LOANS. The Bank also makes loans secured by
nonresidential real estate consisting primarily of retail stores, office
buildings and churches. Such loans are originated with a 21-year amortization
schedule, but with the balance due in a lump sum after seven years. The Bank
will extend such loans for two seven-year periods, if warranted upon review of
the Bank's underwriting criteria, and the interest rate on the loan is adjusted
at each such extension. Such loans have a maximum LTV of 75%.

Nonresidential real estate lending is generally considered to involve a higher
degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. If the cash flow on the property is
reduced, such as if leases are not obtained or renewed, the borrower's ability
to repay may be impaired. The Bank has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals supporting the property's
valuation.

At September 30, 1998, the Bank had a total of $8.8 million invested in
nonresidential real estate loans, all of which were secured by property located
in Miami and Montgomery Counties, Ohio. Such loans comprised 5.0% of the Bank's
total loans at such date. At such date loans secured by nonresidential real
estate with outstanding balances of $174,000, or 2.0% of the Bank's
nonresidential real estate loan portfolio, were 90 days delinquent or
nonaccruing. See "Delinquent Loans, Nonperforming Assets and Classified Assets."

Federal regulations limit the amount of nonresidential mortgage loans which an
association may make to 400% of its capital. At September 30, 1998, the Bank's
nonresidential mortgage loans totaled 40.6% of the Bank's capital.

                                      -7-
<PAGE>   8

CONSTRUCTION LOANS. The Bank makes loans for the construction of residential and
nonresidential real estate. Such loans are structured as permanent loans with
fixed and adjustable rates of interest and for terms of up to 30 years. Almost
all of the construction loans originated by the Bank are made to owner-occupants
for the construction of single-family homes by a general contractor. The
remainder are made to builders for small projects, some of which have not been
pre-sold.

Construction loans generally involve greater underwriting and default risks than
do loans secured by mortgages on existing properties due to the concentration of
principal in a limited number of loans and borrowers and the effects of general
economic conditions on real estate developments, developers, managers and
builders. In addition, such loans are more difficult to evaluate and monitor.
Loan funds are advanced based upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTVs
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, the Bank must take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project.

At September 30, 1998, a total of $16.4 million, 9.3% of the Bank's total loans,
consisted of construction loans. At such date, there were no construction loans
which were more than 90 days delinquent or nonaccruing. The majority of the
Bank's construction loans are secured by property in Miami and Montgomery
Counties and the economy of such lending area has been relatively stable.

CONSUMER LOANS. The Bank makes various types of consumer loans, including
unsecured loans and loans secured by deposits, automobiles, boats and
recreational vehicles. Such loans are made at fixed rates of interest only.

Consumer loans may entail greater risk than do residential mortgage loans. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions. Although the Bank has not
had significant delinquencies on consumer loans, no assurance can be provided
that delinquencies will not increase.

At September 30, 1998, the Bank had approximately $4.1 million, or 2.3% of its
total loans, invested in consumer loans. At such date, consumer loans with
outstanding balances of $164,000, or 4.0% of its consumer loan balance, were
more than 90 days delinquent. See "Delinquent Loans, Nonperforming Assets and
Classified Assets."

COMMERCIAL LOANS. Federal law authorizes federally-chartered thrift
institutions, such as the Bank, to make secured or unsecured loans for
commercial, corporate, business and agricultural purposes, up to a maximum of
20% of total assets, so long as the amount above 10% of total assets is for
small business purposes.

In fiscal 1997, the Bank implemented a commercial loan program, which includes
extending letters of credit and commercial loans to finance commercial and
industrial business activities including equipment financing, commercial lines
of credit and working capital.

Unlike residential mortgage loans, which generally are granted on the basis of
the borrower's ability to repay the debt from employment and other income and
which are secured by real property, the value of which tends to be more easily
ascertainable, business loans are of higher risk and typically are granted on
the basis of the borrower's ability to repay the debt from the cash flows of the
underlying business. In addition, it is generally the practice of the Bank to
request additional collateral in the form of personal guarantees. Additional
collateral may include, on occasion, a lien on the business owner's personal
residence. Nonetheless, the availability of funds for the repayment of business
loans generally is dependent on the success of the business itself.

                                      -8-

<PAGE>   9


At September 30, 1998, the Bank had approximately $2.8 million, or 1.6% of its
total loans, invested in commercial loans. At September 30, 1998, the Bank had
one commercial loan totaling $36,000 which was more than 90 days delinquent or
nonaccruing. See "Delinquent Loans, Nonperforming Assets and Classified Assets."

LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a number
of sources, including continuing business with depositors, borrowers and real
estate developers, periodic newspaper and radio advertisements, solicitations by
the Bank's lending staff and walk-in customers.

Loan applications for permanent mortgage loans are taken by loan personnel. The
Bank obtains a credit report, verification of employment and other documentation
concerning the credit-worthiness of the borrower. An appraisal of the fair
market value of the real estate on which the Bank will be granted a mortgage to
secure the loan is prepared by an independent fee appraiser approved by the
Board of Directors. An environmental study is conducted for all business
properties and for other real estate only if the appraiser or the loan committee
has reason to believe that an environmental problem may exist.
Commencing in 1992, the Bank required a survey of the property for every real
estate loan.

For multifamily and nonresidential mortgage loans, a personal guarantee of the
borrower's obligation to repay the loan is required. The Bank also obtains
information with respect to prior projects completed by the borrower. Upon the
completion of the appraisal and the receipt of information on the borrower, the
application for a loan is submitted to the Loan Committee for approval or
rejection if the loan does not exceed $300,000. If the loan amount exceeds
$300,000, the application is approved or rejected by the full Board of
Directors.

If a mortgage loan application is approved, title insurance is obtained on the
title to the real estate which will secure the mortgage loan. Prior to September
1990, the Bank did not require title insurance but did obtain an attorney's
opinion of title. Borrowers are required to carry fire and casualty insurance
and flood insurance, if applicable, and to name the Bank as an insured
mortgagee.

The procedure for approval of construction loans is the same as for permanent
mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. The Bank also
evaluates the feasibility of the proposed construction project and the
experience and financial status of the builder.

Consumer loans are underwritten on the basis of the borrower's credit history
and an analysis of the borrower's income and expenses, ability to repay the loan
and the value of the collateral, if any.

The Bank's loans carry no pre-payment penalties but do provide that the entire
balance of the loan is due upon sale of the property securing the loan. The Bank
generally enforces such due-on-sale provisions.

LOAN ORIGINATIONS, PURCHASES AND SALES. Prior to 1995, the Bank had been
actively originating only new fixed-rate loans. In fiscal 1995, the Bank began
to originate variable-rate loans in addition to fixed-rate loans. In fiscal 1998
and 1997, the Bank sold pools of 1-4 family first mortgage loans with carrying
values of $8.2 million and $10.3 million. The loans were sold as a means to
manage interest rate risk by reducing the the Bank's investment in various
lower-yielding or longer-term fixed rate loans. Management intends to continue,
in the future, to originate, fixed-rate loans in a manner which permits their
sale into the secondary mortgage market. The Bank intends to retain the
servicing of loans sold in the secondary mortgage market. There were no mortgage
loans classified as held for sale at September 30, 1998. The Bank occasionally
participates in loans originated by other institutions.

                                      -9-

<PAGE>   10


The following table presents the Bank's loan origination and sale activity for
the periods indicated:
<TABLE>
<CAPTION>
                                                                           Year ended September 30,
                                                            1998         1997        1996        1995        1994
                                                            ----         ----        ----        ----        ----
                                                                                        (In thousands)
<S>                                                       <C>         <C>         <C>         <C>         <C>      
Loans originated
    1-4 family residential                                $ 64,280    $ 27,150    $ 29,774    $  17,026   $  25,511
    Multifamily residential                                  1,804          --          71           86         332
    Nonresidential                                           1,171       2,263         150           33         781
    Construction                                            19,617       8,915       7,912        7,555       3,922
    Consumer                                                 3,435       2,286       1,717        1,857       1,142
    Commercial                                               3,350         608          --           --          --
                                                          --------    --------    --------    ---------   ---------
       Total loans originated                               93,657      41,222      39,624       26,557      31,688
                                                          --------    --------    --------    ---------   ---------

Loan participations purchased                                   --          --          --           --          --
                                                          --------    --------    --------    ---------   ---------

Reductions:
    Principal repayments                                   (41,342)    (20,316)    (23,633)     (16,905)    (22,251)
    Sales                                                   (8,226)    (10,259)         --           --          --
    Transfers from loans to real estate owned and
      repossessed assets                                        --          --          --          (70)         (9)
                                                          --------    --------    --------    ---------   ----------
       Total reductions                                    (49,568)    (30,575)    (23,633)     (16,975)    (22,260)
Increase (decrease) in other items, net (1)                    (69)        (22)         21          (42)       (161)
                                                          --------    --------    --------    ---------   ---------
Net increase                                              $ 44,020    $ 10,625    $ 16,012    $   9,540   $   9,267
                                                          ========    ========    ========    =========   =========
</TABLE>

(1)  Consists of amortization of deferred loan origination fees and provision
     for loan losses.

OTS regulations generally limit the aggregate amount that a savings association
may lend to any one borrower to an amount equal to 15% of the association's
total capital for regulatory capital purposes plus any additional loan reserves
not included in total capital (collectively, "Lending Limit Capital"). A savings
association may lend to one borrower an additional amount not to exceed 10% of
the association's Lending Limit Capital if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." In addition, the regulations require
that loans to certain related or affiliated borrowers be aggregated for purposes
of such limits. An exception to these limits permits loans to one borrower of up
to $500,000 "for any purpose."

Based on such limits, the Bank was able to lend approximately $3.3 million to
any one borrower at September 30, 1998. The largest amount the Bank had
outstanding to one borrower was $1.1 million. Such loans were secured by 1-4
family and multifamily residential real estate and were current at September 30,
1998.

LOAN ORIGINATION AND OTHER FEES. The Bank realizes loan origination fees and
other fee income from its lending activities. In addition, the Bank also
realizes income from late payment charges, application fees, and fees for other
miscellaneous services.

Loan origination fees and other fees are a volatile source of income, varying
with the volume of lending, loan repayments and general economic conditions. All
nonrefundable loan origination fees and certain direct loan origination costs
are deferred and recognized as an adjustment to yield over the life of the
related loan.

DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. When a borrower
fails to make a required payment on a loan, the Bank attempts to cause the
deficiency to be cured by contacting the borrower. In most cases, deficiencies
are cured promptly.

                                      -10-

<PAGE>   11


When a real estate loan is fifteen days or more delinquent, the borrower is sent
a delinquency notice. When a loan is thirty days delinquent, the Bank sends a
letter to the borrower and may telephone the borrower. Depending upon the
circumstances, the Bank may also inspect the property and inform the borrower of
the availability of credit counseling from the Bank and counseling agencies.
When a loan becomes 90 days delinquent, it is generally referred to an attorney
for foreclosure, unless the Board of Directors deems appropriate alternative
payment arrangements to eliminate the arrearage. A decision as to whether and
when to initiate foreclosure proceedings is based on such factors as the amount
of the outstanding loan in relation to the original indebtedness, the extent of
the delinquency and the borrower's ability and willingness to cooperate in
curing delinquencies. If a foreclosure occurs, the real estate is sold at public
sale and may be purchased by the Bank.

Real estate acquired, or deemed acquired, by the Bank as a result of foreclosure
proceedings is classified as real estate owned ("REO") until it is sold. When
property is so acquired, or deemed to have been acquired, it is initially
recorded by the Bank at the fair value of the real estate, less estimated costs
to sell. Interest accrual, if any, ceases no later than the date of acquisition
of the real estate. Any reduction in fair value is reflected in a valuation
allowance account established by a charge to income. Costs incurred to carry
other real estate are charged to expense. The Bank held no REO property at
September 30, 1998.

In the case of delinquencies on consumer loans, a notice is sent to the borrower
when payment is not received by the tenth business day after the payment due
date. When a payment is fifteen days past due, a letter is sent or the borrower
is contacted by telephone. If no payment or satisfactory promise is made by the
second due date, a collection officer makes a personal visit to the borrower's
residence. If an account is ninety days delinquent, the borrower is provided a
written notice that legal action will be taken if the account is not brought
current within ten days, and the failure to bring the account current generally
results in repossession of the collateral, if any.

The Bank places a loan on nonaccrual status when the loan is delinquent 90 days
or more, unless the value of the collateral provides sufficient equity to
warrant the continued accrual of interest.


                                      -11-
<PAGE>   12


The following table reflects the number and amount of loans in a delinquent
status as of the dates indicated:
<TABLE>
<CAPTION>
                                                                            At September 30,
                         -----------------------------------------------------------------------------------------------------------
                                  1998                  1997                    1996             1995                   1994
                         ------------------- ---------------------- -------------------- --------------------- ---------------------
                                                                        (Dollars in thousands)
                                  Percent of           Percent of             Percent of        Percent of           Percent of
                                     Total                Total                  Total                 Total                Total
                          No. Amt.   Loans   No. Amt.     Loans      No.  Amt.   Loans    No.     Amt  Loans    No.  Amt    Loans
                          --- ----   -----   --- ----     -----      ---  ----   -----    ---     ---  -----    ---  ---    -----
<S>                       <C> <C>    <C>     <C> <C>      <C>        <C>  <C>    <C>      <C>  <C>     <C>      <C>  <C>    <C>
Loans delinquent for (1):
   30-59 days             15     893   0.50%  6 $  268      0.20%    13  $  337   0.27%    9   $  413  0.39%    13  $  436   0.46%
   60-89 days              3      22   0.01   5    212      0.16      3     124   0.10     5      170  0.16      7     407   0.43
   90 days and over       19   1,101   0.62  18    624      0.47     10     597   0.49    11      520  0.50     10     286   0.31
                          --  ------ ------  -- ------     -----     --- ------   ----    --   ------  -----    --  ------   ----
Total delinquent loans    37  $2,016   1.13% 29 $1,104      0.83%    26  $1,058   0.86%   25   $1,103  1.05%    30  $1,129   1.20%
                          ==  ====== ======  == ======    ======     === ======   =====   ==    =====  =====    ==  ======   ====
</TABLE>

(1)  The number of days a loan is delinquent is measured from the day the
     payment was due under the terms of the loan agreement.

                                      -12-

<PAGE>   13


The following table sets forth information with respect to the accrual and
nonaccrual status of the Bank's loans which are 90 days or more past due and
other nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
                                                                             At September 30,
                                                    ---------------------------------------------------------------
                                                         1998          1997         1996          1995      1994
                                                         ----          ----         ----          ----      ----
                                                                           (Dollars in thousands)
<S>                                                  <C>          <C>           <C>          <C>          <C>
Accruing loans delinquent more than 90 days          $     742    $     276     $    285     $    367     $     226

Loans accounted for on a nonaccrual basis:
   Real estate:
     1-4 Family                                            185          348          312          153            60
     Nonresidential                                        174           --           --           --            --
                                                     ---------    ---------     --------     --------     ---------

Total nonaccrual loans                                     359          348          312          153            60

Other nonperforming assets (1)                              --           --           32           32            41
                                                     ---------    ---------     --------     --------     ---------

   Total nonperforming assets                        $   1,101    $     624     $    629     $    552     $     327
                                                     =========    =========     ========     ========     =========

   Total loan loss allowance                         $     676    $     562     $    487     $    333     $     269

   Total nonperforming assets as a percentage of
     total assets                                         0.47%        0.30%        0.35%        0.34%        0.22%

   Loan loss allowance as a percent of
     nonperforming loans                                 61.40%       90.06%       81.57%       64.04%       94.06%
</TABLE>

(1)  Other nonperforming assets represent real estate acquired by the Bank in
     settlement of loans, which is initially reported at estimated fair value at
     acquisition. After acquisition, a valuation allowance reduces the reported
     amount to the lower of the initial amount of fair value less costs to sell.

Loans considered impaired within the scope of Statement of Financial Accounting
Standards ("SFAS") No. 114 were not significant in 1998. During 1998, $52,000
would have been recorded on nonaccruing loans had such loans been accruing
pursuant to contractual terms. During such period, no interest income was
recorded on such loans. Management believes that no loans, other than loans
which are currently classified as nonaccrual or more than 90 days past due, may
be so classified in the near future due to concerns as to the ability of the
borrowers to comply with repayment terms.

OTS regulations require that each thrift institution classify its own assets on
a regular basis. Problem assets are classified as "substandard," "doubtful" or
"loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (i) the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable and (ii) there is a
high possibility of loss. An asset classified "loss" is considered uncollectible
and of such little value that its continuance as an asset of the institution is
not warranted. The regulations also contain a "special mention" category,
consisting of assets which do not currently expose an institution to a
sufficient degree of risk to warrant classification but which possess credit
deficiencies or potential weaknesses deserving management's close attention.

Generally, the Bank classifies as "substandard" all loans that are delinquent
more than 60 days, unless management believes the delinquency status is
short-term due to unusual circumstances. Loans delinquent fewer than 60 days may
also be classified if the loans have the characteristics described above
rendering classification appropriate.

                                     -13-
<PAGE>   14


The aggregate amounts of the Bank's classified assets at the dates indicated
were as follows:
<TABLE>
<CAPTION>
                                                                     At September 30,
                                            --------------------------------------------------------------
                                                1998          1997         1996         1995         1994
                                                ----          ----         ----         ----         ----
                                                                     (In thousands)
<S>                                         <C>           <C>          <C>          <C>          <C>
         Substandard                        $     765     $    790     $     714    $     370    $     791
         Doubtful                                 177           10            --           38          149
         Loss                                      36          149           149          148           --
                                            ---------     --------     ---------    ---------    ---------
             Total classified assets        $     978     $    949     $     863    $     556    $     940
                                            =========     ========     =========    =========    =========
</TABLE>

Federal examiners are authorized to classify an association's assets. If an
association does not agree with an examiner's classification of an asset, it may
appeal this determination to the District Director of the OTS. The Bank had no
disagreements with the examiners regarding the classification of assets at the
time of the last examination.

OTS regulations require that the Bank establish prudent general allowances for
loan losses for any loan classified as substandard or doubtful. If an asset, or
portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.

ALLOWANCE FOR LOAN LOSSES. The Bank maintains an allowance for loan losses based
upon a number of relevant factors, including, but not limited to, trends in the
level of nonperforming assets and classified loans, current and anticipated
economic conditions in the primary lending area, past loss experience, possible
losses arising from specific problem assets and changes in the composition of
the loan portfolio.

The single largest component of the Bank's loan portfolio consists of 1-4 family
residential real estate loans. Substantially all of these loans are secured by
residential real estate and generally require a down payment of at least 10% of
the lower of the sales price or appraised value of the real estate. Private
mortgage insurance is required for such loans with less than a 10% down payment.
In addition, these loans are secured by property in the Bank's designated
lending area consisting of portions of Miami, Montgomery and Darke Counties in
Ohio. The Bank's practice of making the majority of its loans in its designated
lending area and requiring a 10% down payment have contributed to a low
historical charge-off rate. In 1998, the Bank experienced a charge-off of
$100,000 related to one loan relationship. Management feels the charge-off was
due to extenuating circumstances and not related to any underwriting weakness.
The Bank also incurred charge-offs of $15,000 related to consumer loans.

In addition to 1-4 family residential real estate loans, the Bank makes
additional real estate loans, including home equity, multifamily residential
real estate, nonresidential real estate and construction loans. These real
estate loans are secured by property in the Bank's designated lending area and
also require the borrower to provide a down payment. The Bank has not
experienced any charge-offs from these other real estate loan categories.

A small portion of the Bank's total loans consists of consumer loans, primarily
automobile loans. These loans typically have a lower down payment and are
secured by collateral that declines in value. Such loans therefore carry a
higher degree of risk than the real estate loans. Aside from the $15,000 in
charge-offs experienced in 1998, the Bank has not had any significant
charge-offs on consumer loans since these loans have been offered.

In fiscal 1997, the Bank began originating commercial loans and letters of
credit to finance commercial and industrial business activities unrelated to
real estate. As such loans are granted on the basis of the borrowers ability to
repay the debt from cash flows of the underlying business, the Bank is subject
to higher credit risk. Despite the fact the Bank has not experienced any
charge-offs related to such loans, 

                                      -14-

<PAGE>   15

management feels it is prudent to increase the allowance for losses on loans
through increased provisions as the volume of commercial loans increases.

The allowance for loan losses is reviewed quarterly by management's Asset
Classification Committee and the Board of Directors. While the Board of
Directors believes that it uses the best information available to determine the
allowance for loan losses, unforeseen market conditions could result in material
adjustments, and net earnings could be significantly adversely affected, if
circumstances differ substantially from the assumptions used in making the final
determination.

The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                         Year ended September 30,
                                                     ---------------------------------------------------------------
                                                        1998         1997          1996         1995        1994
                                                        ----         ----          ----         ----        ----
                                                                          (Dollars in thousands)

<S>                                                  <C>          <C>           <C>          <C>          <C>      
Balance at beginning of period                       $     562    $     487     $    333     $    269     $     227
Charge-offs:
     Residential real estate loans                        (100)          --           --           --            --
     Consumer loans                                        (15)          --           --           --            --
                                                     ---------    ---------     --------     --------     ---------
       Total charge-offs                                  (115)          --           --           --            --
Recoveries                                                  --           --           --           --            --
Provision for loan losses (charged to
  operations)                                              229           75          154           64            42
                                                     ---------    ---------     --------     --------     ---------
Balance at end of period                             $     676    $     562     $    487     $    333     $     269
                                                     =========    =========     ========     ========     =========
Ratio of net charge-offs (recoveries) to average
  loans outstanding during the period                     0.08%        0.00%        0.00%        0.00%        0.00%
Ratio of allowance for loan losses to total loans         0.38         0.42         0.40         0.32         0.29
</TABLE>


                                      -15-


<PAGE>   16


The following schedule is a breakdown of the allowance for loan losses allocated
by type of loan and related ratios.
<TABLE>
<CAPTION>
                                                                     At September 30,
                      ------------------------------------------------------------------------------------------------------
                               1998                   1997                1996               1995                1994
                      ---------------------  -------------------- -------------------  -----------------    ----------------
                                   Percent              Percent             Percent             Percent             Percent
                                  of Loans              of Loans            of Loans            of Loans            of Loans
                                   in Each              in Each             in Each             in Each             in Each
                                  Category              Category            Category            Category            Category
                                  to Total              to Total            to Total            to Total            to Total
                         Amount     Loans    Amount      Loans    Amount     Loans     Amount     Loans     Amount    Loans
                         ------     -----    ------      -----    ------     -----     ------     -----     ------    -----
                                                                   (Dollars in thousands)
<S>                    <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>        <C>   
Real estate and
  construction loans   $   317     96.13%   $   339     97.45%   $   321     98.17%   $   298     97.96%   $   218     98.27%
Consumer loans               6      2.32          8      2.12          3      1.83          2      2.04          2      1.73
Commercial loans            38      1.55       --        0.43       --        --         --        --         --        --
Unallocated                315      --          215      --          163      --           33      --           49      --
                       -------   -------    -------   -------    -------   -------    -------   -------    -------   -------
     Total             $   676    100.00%   $   562    100.00%   $   487    100.00%   $   333    100.00%   $   269    100.00%
                       =======   =======    =======   =======    =======   =======    =======   =======    =======   =======
</TABLE>

While management's periodic analysis of the adequacy of the allowance for loan
losses may allocate portions of the allowance for specific problem loan
situations, the entire allowance is available for any loan charge-offs that may
occur.


                                     -16-

<PAGE>   17


MORTGAGE-BACKED SECURITIES

The Corporation maintains a significant portfolio of mortgage-backed securities
in the form of Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA") participation certificates. Mortgage-backed securities
generally entitle the Corporation to receive a portion of the cash flows from an
identified pool of mortgages, and FHLMC, FNMA and GNMA securities are each
guaranteed by their respective agencies as to principal and interest.

The Corporation has also invested significant amounts in collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
which are included in mortgage-backed securities. CMOs and REMICs are mortgage
derivative products, secured by an underlying pool of mortgages. The Corporation
has no ownership interest in the mortgages, except to the extent they serve as
collateral. Payment streams from the mortgages serving as collateral are
reconfigured with varying terms and time of payment to the investor. Though they
can be used for hedging and investment, CMOs and REMICs can expose investors to
higher risk of loss than direct investments in mortgage-backed pass-through
securities, particularly with respect to price volatility and lack of a broad
secondary market in such securities. The OTS has deemed certain CMOs and other
mortgage derivative products to be "high-risk." None of the Corporation's CMOs
or REMICs are in such "high-risk" category.

Although mortgage-backed securities generally yield less than individual loans
originated by the Bank, they present less credit risk, because mortgage-backed
securities are guaranteed as to principal repayment by the issuing agency and
CMOs and REMICs are secured by the underlying collateral. All of the
Corporation's CMOs and REMICs are backed by pools of mortgages that are insured
or guaranteed by FNMA and FHLMC. Although certain mortgage-backed securities
designated as available for sale are a potential source of liquid funds for loan
originations and deposit withdrawals, the prospect of a loss on the sale of such
securities limits the usefulness for liquidity purposes.

In addition, the Corporation has purchased adjustable-rate mortgage-baked
securities as part of its effort to reduce its interest rate risk. In a period
of declining interest rates, the Corporation is subject to prepayment risk on
such adjustable-rate mortgage-backed securities. The Corporation attempts to
mitigate this prepayment risk by purchasing mortgage-backed securities at or
near par. If interest rates rise in general, the interest rates on the loans
backing the mortgage-backed securities will also adjust upward, subject to the
interest rate caps in the underlying adjustable-rate mortgage loans. However,
the Corporation is still subject to interest rate risk on such securities if
interest rates rise faster than the 1% to 2% maximum annual interest rate
adjustments on the underlying loans.

At September 30, 1998, almost all of the $51.5 million of the Corporation's
mortgage-backed securities had adjustable rates.

The following table sets forth information regarding the carrying value of the
Corporation's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                At September 30,
                                        1998                          1997                         1996
                             ------------------------     ---------------------------   ---------------------------
                               Available      Held to       Available        Held to       Available      Held to
                               For Sale      Maturity       For Sale        Maturity       For Sale      Maturity
                               --------      --------       --------        --------       --------      --------
                                                                    (In thousands)
<S>                          <C>           <C>            <C>            <C>            <C>             <C>        
FNMA certificates            $    1,899    $    4,177     $     2,851          5,191    $       524     $     5,904
GNMA certificates                 2,709           588              --            810             --             918
FHLMC certificates                2,296         5,139           2,863          6,124          2,659           7,180
Collateralized mortgage
  obligations and REMICs         29,993         4,656          42,128             --         30,826              --
                             ----------    ----------     -----------    -----------    -----------     -----------

     Total                   $   36,897    $   14,560     $    47,842    $    12,125    $    34,009     $    14,002
                             ==========    ==========     ===========    ===========    ===========     ===========
</TABLE>


                                      -17-
<PAGE>   18



The following table sets forth information regarding scheduled maturities,
carrying value, fair value and weighted average yields of the Corporation's
mortgage-backed securities at September 30, 1998. Actual maturities will differ
from contractual maturities due to scheduled repayments and because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments. The weighted
average yield has been computed using the historical amortized cost for
available-for-sale securities.
<TABLE>
<CAPTION>
                                                                          At September 30, 1998
                             -------------------------------------------------------------------------------------------------------
                                                          After             After                                   Total
                               One Year or Less    One to Five Years  Five to Ten Years  After Ten Years   Mortgage-Backed Portfolio
                               ----------------    -----------------  -----------------  ---------------   -------------------------
                             Carrying    Average  Carrying   Average  Carrying Average  Carrying Average  Carrying  Fair    Average
                               Value      Yield     Value     Yield    Value    Yield    Value    Yield    Value    Value    Yield
                               -----      -----     -----     -----    -----    -----    -----   -----     -----    -----    -----
                                                                           (Dollars in thousands)
<S>                             <C>           <C>                     <C>       <C>     <C>       <C>     <C>       <C>       <C>  
Securities available for sale
    FNMA certificates           $  --        --%   $     --     --%   $  --       --%   $ 1,899   6.89%   $ 1,899   $ 1,899   6.89%
    GNMA certificates              --        --          --     --       --       --      2,709   5.99      2,709     2,709   5.99
    FHLMC certificates             --        --          --     --       --       --      2,296   7.08      2,296     2,296   7.08
    CMOs and REMICs                --        --          --     --      2,255   6.23     27,738   5.52     29,993    29,993   5.57
                                -------   -----    ----------   ---   -------   ----    -------   ----    -------   -------   ----

       Total                    $  --        --%   $     --     --%   $ 2,255   6.23%   $34,642   5.74%   $36,897   $36,897   5.76%
                                =======   =====    ==========   ===   =======   ====    =======   ====    =======   =======   ====

Securities held to maturity
    FNMA certificates           $  --        --%   $     --     --%   $  --       --%   $ 4,177   6.67%   $ 4,177   $ 4,140   6.67%
    GNMA certificates              --        --          --     --         11   8.50        577   7.31        588       617   7.33
    FHLMC certificates                1   12.00          --     --       --       --      5,138   6.80      5,139     5,113   6.80
    CMOs and REMICs                --                    --     --       --       --      4,656   7.13      4,656     4,658   7.13
                                -------   -----    ----------   ---   -------   ----    -------   ----    -------   -------   ----

       Total                    $     1   12.00%   $     --     --%   $    11   8.50%   $14,548   6.89%   $14,560   $14,528  6.89%
                                =======   =====    ==========   ===   =======   ====    =======   ====    =======   =======   ====
</TABLE>


For additional information, see Note 2 of the Notes to Consolidated Financial
Statements.


                                     -18-
<PAGE>   19







INVESTMENT ACTIVITIES

OTS regulations require that the Bank maintain a minimum amount of liquid
assets, which may be invested in U. S. Treasury obligations, securities of
various federal agencies, certificates of deposit at insured banks, bankers'
acceptances and federal funds. The Bank is also permitted to make investments in
certain commercial paper, corporate debt securities rated in one of the four
highest rating categories by one or more nationally recognized statistical
rating organizations, and mutual funds, as well as other investments permitted
by federal regulations. See "REGULATION."

The following table sets forth the composition of the Corporation's
interest-bearing deposits and securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
                                                                         At September 30,
                               ----------------------------------------------------------------------------------------------------
                                               1998                             1997                              1996
                                -------------------------------  --------------------------------- --------------------------------
                                Carrying  % of   Market   % of    Carrying  % of    Market   % of  Carrying   % of   Market   % of
                                  Value   Total   Value   Total    Value    Total    Value   Total   Value    Total   Value   Total
                                  -----   -----   -----   -----    -----    -----    -----   -----   -----    -----   -----   -----
                                                                                       (Dollars in thousands)
<S>                              <C>      <C>    <C>       <C>    <C>       <C>    <C>       <C>    <C>       <C>     <C>    <C>   
Interest-bearing deposits in 
  other financial institutions   $2,528   99.4% $ 2,528    99.4% $ 4,936    36.0% $ 4,936    36.0%  $   854      8.6% $  854    8.7%
Securities available for sale:
   U.S. Government and federal
     agency securities             --     --        --      --     5,505    40.2    5,505    40.1     8,507     86.1   8,507   86.2
   Equity securities                 15    0.6       15     0.6       15     0.1       15     0.1        15      0.2      15    0.2
Securities held to maturity:
   U.S. Government and federal
     agency securities             --     --        --      --     3,254    23.7    3,260    23.8       500      5.1     484    4.9
                                 ------  -----   ------   -----  -------  ------ -------   ------    ------   ------  ------  ------

Total                            $2,543  100.0% $ 2,543   100.0% $13,710   100.0% $13,716   100.0%   $9,876    100.0% $9,860  100.0%
                                 ======  =====  =======   =====  =======   =====  =======   =====    ======    =====  ======  =====
</TABLE>

                                      -19-

<PAGE>   20





The following table sets forth the contractual maturities, carrying values,
market values and average yields for the Corporation's interest-bearing deposits
in other financial institutions and investment securities at September 30, 1998.
The weighted average yield has been computed using the historical amortized cost
for available-for-sale securities.
<TABLE>
<CAPTION>
                                                                  At September 30, 1998
                                     -----------------------------------------------------------------------------
                                                                          After                    After
                                          One Year or Less          One to Five Years        Five to Ten Years
                                          ----------------          -----------------        -----------------
                                       Carrying     Average       Carrying      Average     Carrying     Average
                                         Value       Yield          Value        Yield        Value       Yield
                                         -----       -----          -----        -----        -----       -----
                                                                 (Dollars in thousands)
<S>                                  <C>              <C>       <C>           <C>           <C>           <C>     
Interest-bearing deposits in
  other financial institutions       $    2,528       5.45%     $       --          --%     $      --          --%
Securities available for sale:
     Equity securities (1)                   15          --             --          --             --          --
                                     ----------    --------     ----------    --------      ---------     --------

     Total                           $    2,543       5.45%     $       --          --%     $      --          --%
                                     ==========    =======      ==========    ========      =========     =======
</TABLE>
<TABLE>
<CAPTION>
                                                                                At September 30, 1998
                                                                 --------------------------------------------------
                                                                      Total Interest-Bearing Deposits in Other
                                                                        Financial Institutions and Securities
                                                                        -------------------------------------
                                                                  Average                                 Weighted
                                                                   Life         Carrying       Market      Average
                                                                 In Years         Value         Value       Yield
                                                                 --------         -----         -----       -----
                                                                               (Dollars in thousands)
<S>                                                              <C>         <C>            <C>           <C>
Interest-bearing deposits in other financial
  institutions                                                       .01     $    2,528     $   2,528        5.45%
Securities available for sale:
     Equity securities (1)                                           N/A             15            15           --
                                                                --------     ----------     ---------     --------

     Total                                                           .01     $    2,543     $   2,543        5.45%
                                                                ========     ==========     =========     =======
</TABLE>

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

(1) Comprised of Intrieve, Incorporated ("Intrieve"), stock, which is reported
at the fair value and approximates cost.


                                      -20-
<PAGE>   21


DEPOSITS AND BORROWINGS

GENERAL. Deposits have traditionally been the primary source of the Bank's funds
for use in lending and other investment activities. In addition to deposits, the
Bank derives funds from interest payments and principal repayments on loans and
mortgage-backed securities, income on earning assets, service charges and gains
on the sale of assets. Loan payments are a relatively stable source of funds,
while deposit inflows and outflows fluctuate more in response to general
interest rates and money market conditions.

DEPOSITS. Deposits are attracted principally from within the Bank's primary
market area through the offering of a broad selection of deposit instruments,
including negotiable order of withdrawal ("NOW") accounts, money market
accounts, passbook savings accounts, term certificate accounts, individual
retirement accounts ("IRAs") and Keogh retirement accounts ("Keoghs"). Interest
rates paid, maturity terms, service fees and withdrawal penalties for the
various types of accounts are established periodically by the management of the
Bank based on the Bank's liquidity requirements, growth goals and interest rates
paid by competitors. The Bank does not use brokers to attract deposits.

At September 30, 1998, the Bank's certificates of deposit totaled $116.9
million, or 75.6% of total deposits. Of such amount, approximately $62.5 million
in certificates of deposit mature within one year. Based on past experience and
the Bank's prevailing pricing strategies, management believes that a substantial
percentage of such certificates will renew with the Bank at maturity. If there
is a significant deviation from historical experience, the Bank can utilize
borrowings from the FHLB as an alternative to this source of funds.

The following table sets forth the dollar amount of deposits in the various
types of savings programs offered by the Bank at the dates indicated:
<TABLE>
<CAPTION>
                                                                  As of September 30,
                                 ---------------------------------------------------------------------------------
                                             1998                        1997                        1996
                                 --------------------------   ------------------------      ----------------------
                                                                (Dollars in thousands)
<S>                              <C>             <C>          <C>            <C>          <C>             <C>
Transaction accounts:
NOW accounts (1)                 $    10,729        6.94%     $     8,795        6.16%    $     9,202        7.16%
Money market accounts (2)             10,441        6.75            7,065        4.95           6,744        5.24
Passbook savings
  accounts (3)                        16,618       10.75           16,461       11.52          16,760       13.04
                                 -----------     -------      -----------    --------     -----------     -------
    Total transaction
      accounts                        37,788       24.44           32,321       22.63          32,706       25.44

Certificates of deposit (4):         116,859       75.56          110,511       77.37          95,848       74.56
                                 -----------     -------      -----------    --------     -----------     -------

Total deposits (5)               $   154,647      100.00%     $   142,832      100.00%    $   128,554      100.00%
                                 ===========     =======      ===========      ======     ===========    ========
</TABLE>

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

(1)  The Bank's weighted average interest rate paid on NOW accounts fluctuates
     with the general movement of interest rates. At September 30, 1998, 1997
     and 1996, the weighted average rates on NOW accounts were 2.74%, 2.13% and
     2.40%, respectively.

(2)  The Bank's weighted average interest rate paid on money market accounts
     fluctuates with the general movement of interest rates. At September 30,
     1998, 1997 and 1996, the weighted average rates on money market accounts
     were 4.05%, 2.89% and 3.00%, respectively.

(Footnotes continued on next page)

                                      -21-
<PAGE>   22


(3)  The Bank's weighted average rate on passbook savings accounts fluctuates
     with the general movement of interest rates. The weighted average interest
     rate on passbook accounts was 2.52% at September 30, 1998, 1997 and 1996.

(4)  The interest rate on individual certificates of deposit remains fixed until
     maturity. At September 30, 1998, 1997 and 1996 the weighted average rates
     on certificates of deposit were 5.76%, 5.91% and 5.82%.

(5)  IRAs and Keoghs are included in the various certificates of deposit
     balances. IRAs and Keoghs totaled $23.0 million, $21.0 million and $18.5
     million as of September 30, 1998, 1997 and 1996.

At September 30, 1998, scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<CAPTION>
         Year Ended September 30,                                 Amount
         ------------------------                                 ------
                                                              (In thousands)
<S>                                                           <C>
                  1999                                        $  62,454
                  2000                                           34,929
                  2001                                            8,694
                  2002                                            5,560
                  2003                                            5,222
                                                              ---------
                                                              $ 116,859
                                                              =========

</TABLE>

The following table presents the amount of the Bank's certificates of deposit of
$100,000 or more by the time remaining until maturity as of September 30, 1998:
<TABLE>
<CAPTION>
                               Maturity                    Amount
                               --------                    ------
                                                       (In thousands)

<S>                                                    <C>        
                  Three months or less                 $       150
                  Over 3 months to 6 months                    927
                  Over 6 months to 12 months                   851
                  Over 12 months                             3,548
                                                       -----------

                      Total                            $     5,476
                                                       ===========
</TABLE>

The following table sets forth the Bank's deposit account balance activity for
the periods indicated:
<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                      ----------------------------------------------
                                                                           1998             1997            1996
                                                                           ----             ----            ----
                                                                                       (In thousands)

<S>                                                                   <C>             <C>              <C>         
Beginning balance                                                     $    142,832    $    128,554     $    117,898
Deposits                                                                   206,263         180,052          160,602
Withdrawals                                                               (200,871)       (171,487)        (155,225)
                                                                      ------------    ------------     ------------
Net increases (decreases) before interest credited                           5,392           8,565            5,377
Interest credited                                                            6,423           5,713            5,279
                                                                      ------------    ------------     ------------
Ending balance                                                        $    154,647    $    142,832     $    128,554
                                                                      ============    ============     ============

     Net increase                                                     $     11,815    $     14,278     $     10,656

     Percent increase                                                         8.27%          11.11%            9.04%
</TABLE>

                                      -22-

<PAGE>   23


BORROWINGS. The FHLB System functions as a central reserve bank providing credit
for its member institutions and certain other financial institutions. See
"REGULATION - Federal Home Loan Banks." As a member in good standing of the FHLB
of Cincinnati, the Bank is authorized to apply for advances from the FHLB of
Cincinnati, provided certain standards of creditworthiness have been met. The
extent to which an association is eligible for such advances will depend upon
whether it meets the Qualified Thrift Lender Test (the "QTL Test"). See
"REGULATION - OTS Regulations -- Qualified Thrift Lender Test." If an
association meets the QTL Test, it will be eligible for 100% of the advances it
would otherwise be eligible to receive. If an association does not meet the QTL
Test, it will be eligible for such advances only to the extent it holds
specified QTL Test assets. At September 30, 1998, the Bank was in compliance
with the QTL Test. As of September 30, 1998, 1997 and 1996, the Bank had
borrowed $52.4 million, $39.6 million and $17.5 million. In addition to
providing funding for loan growth, a portion of the borrowed funds are invested
in mortgage-backed securities to leverage the Corporation's excess capital.

The following table sets forth certain information regarding FHLB advances for
the periods indicated:
<TABLE>
<CAPTION>
                                                                                Year ended September 30,
                                                                  --------------------------------------------------
                                                                       1998               1997              1996
                                                                       ----               ----              ----
                                                                              (Dollars in thousands)
<S>                                                               <C>                <C>                <C>        
Maximum amount of FHLB advances
  outstanding at any month end during year                        $    55,251        $    39,570        $    17,826

Average amount of FHLB advances outstanding
  during year                                                          48,744             24,179             10,751

Weighted average interest rate of FHLB advances
  outstanding during year                                                5.69%              5.79%             5.77%

Amount of FHLB advances outstanding at
  end of year                                                     $    52,430        $    39,570        $    17,489

Weighted average interest rate of FHLB advances
  outstanding at end of year                                             5.48%              5.76%             5.70%
</TABLE>


YIELDS EARNED AND RATES PAID

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for an analysis of yields earned and rates paid on the Corporation's
interest-earning assets and interest-bearing liabilities and the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Corporation's interest income and
expense.

                                      -23-
<PAGE>   24


COMPETITION

The Bank competes for deposits with other savings associations, commercial banks
and credit unions and with the issuers of commercial paper and other securities,
such as shares in money market mutual funds. The primary factors in competing
for deposits are interest rates and convenience of office location. In making
loans, the Bank competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage companies
and other lenders. The Bank competes for loan originations primarily through the
interest rates and loan fees offered and through the efficiency and quality of
services provided. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable.

The size of financial institutions competing with the Bank is likely to increase
as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon the Bank.


SUBSIDIARIES

The Bank owns all of the outstanding shares of Milton Financial Service
Corporation ("Milton Financial"), the only asset of which is stock of Intrieve,
Inc., a data service provider. The net book value of the Bank's investment in
Milton Financial at September 30, 1998, was $15,000.


PERSONNEL

As of September 30, 1998, the Bank had 52 full-time employees and 6 part-time
employees. The Bank believes that relations with its employees are good. The
Bank offers health, disability and life insurance benefits. None of the
employees of the Bank are represented by a collective bargaining unit. The
Corporation has no full-time employees.


                                      -24-

<PAGE>   25


                                   REGULATION

GENERAL

As a savings bank organized under the laws of the United States, the Bank is
subject to regulation, examination and oversight by the OTS. Because the Bank's
deposits are insured by the FDIC, the Bank is also subject to regulatory
oversight by the FDIC. The Bank must file periodic reports with the OTS
concerning its activities and financial condition. Examinations are conducted
periodically by the OTS to determine whether the Bank is in compliance with
various regulatory requirements and is operating in a safe and manner. The Bank
is a member of the FHLB of Cincinnati.

The Corporation is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, the Corporation is
subject to regulation, examination and oversight by the OTS and must submit
periodic reports thereto. Because the Corporation is a corporation organized
under Ohio law, it is subject to provisions of the Ohio Revised Code applicable
to corporations generally.

Congress is considering legislation which may eliminate the OTS and may require
that the Bank be regulated under federal law as a bank. As a result, the Bank
may become subject to additional regulation, examination and oversight by the
FDIC. In addition, the Corporation might become a bank holding company subject
to examination, regulation and oversight by the Board of Governors of the
Federal Reserve Board ("FRB"), including greater activity and capital
requirements than imposed on it by the OTS. Although such legislation, if
enacted, may change the activities in which the Corporation or the Bank are
authorized to engage, it is not anticipated that the current activities of
either the Corporation or the Bank will be materially affected by those activity
levels.


OHIO CORPORATION LAW

MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code regulates
certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.

After the initial three-year moratorium, such a business combination may not
occur unless (1) one of the specified exceptions applies, (2) the holders of at
least two-thirds of the voting shares, and of at least a majority of the voting
shares not beneficially owned by the Interested Shareholder, approve the
business combination at a meeting called for such purpose, or (3) the business
combination meets certain statutory criteria designed to ensure that the issuing
public corporation's remaining shareholders receive fair consideration for their
shares.

An Ohio corporation may, under certain circumstances, "opt out" of the statute
by specifically providing in its articles of incorporation that the statute does
not apply to any business combination of such corporation. However, the statute
still prohibits for twelve months any business combination that would have been
prohibited but for the adoption of such an opt-out amendment. The statute also
provides that it will continue to apply to any business combination between a
person who became an Interested Shareholder prior to the adoption of such an
amendment as if the amendment had not been adopted. Neither the Articles of
Incorporation of the Corporation nor the Bank opt out of the protection afforded
by Chapter 1704.


                                      -25-
<PAGE>   26


CONTROL SHARE ACQUISITION. Section 1701.831 of the Ohio Revised Code (the
"Control Share Acquisition Statute") requires that certain acquisitions of
voting securities which would result in the acquiring shareholder owning 20%,
33-1/3%, or 50% of the outstanding voting securities of the Corporation (a
"Control Share Acquisition") must be approved in advance by the holders of at
least a majority of the outstanding voting shares represented at a meeting at
which a quorum is present and a majority of the portion of the outstanding
voting shares represented at such a meeting, excluding the voting shares owned
by the acquiring shareholder, by certain other persons who acquire or transfer
voting shares after public announcement of the acquisition or by certain
officers or directors of the corporation who are employees of the corporation.
The Control Share Acquisition Statute was intended, in part, to protect
shareholders of Ohio corporations from coercive tender offers.

TAKEOVER BID STATUTE. Ohio law provides that an offeror may not make a tender
offer or request an invitation for tenders that would result in the offeror
beneficially owning more than ten percent of any class of the target company's
equity securities unless such offeror files certain information with the Ohio
Division of Securities (the "Securities Division") and provides such information
to the target company and the offerees within Ohio. The Securities Division may
suspend the continuation of the control bid if the Securities Division
determines that the offeror's filed information does not provide full disclosure
to the offerees of all material information concerning the control bid. The
statute also provides that an offeror may not acquire any equity security of a
target company within two years of the offeror's previous acquisition of any
equity security of the same target company pursuant to a control bid unless the
Ohio offerees may sell such security to the offeror on substantially the same
terms as provided by the previous control bid. The statute does not apply to a
transaction if either the offeror or the target company is a savings and loan
holding company and the proposed transaction requires federal regulatory
approval.


OFFICE OF THRIFT SUPERVISION

GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all savings associations.
Deposits of federally chartered savings institutions are insured by the Savings
Association Insurance Fund (the "SAIF") of the FDIC. The OTS issues regulations
governing the operation of savings associations, regularly examines such
associations and imposes assessments on savings associations based on their
asset size to cover the cost of general supervision and examination. The OTS
charters federally chartered associations, such as the Bank, and prescribes
their permissible investments and activities, including the types of loans and
investments in real estate, subsidiaries and securities they may make. The OTS
has authority over mergers and acquisitions of control of federally chartered
savings and loan associations. The OTS also may initiate enforcement actions
against savings associations and certain persons affiliated with them for
violations of laws or regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.

Savings associations are subject to regulatory oversight under various consumer
protection and fair lending laws. These laws govern, among other things,
truth-in-lending disclosure, equal credit opportunity, fair credit reporting and
community reinvestment. Failure to abide by federal laws and regulations
governing community reinvestment could limit the ability of an association to
open a new branch or engage in a merger. Community reinvestment regulations
evaluate how well and to what extent an institution lends and invests in its
designated service area, with particular emphasis on low- to moderate-income
areas. The Bank received an "Outstanding" rating under these regulations.

REGULATORY CAPITAL REQUIREMENTS. The Bank is required by OTS regulations to meet
certain minimum capital requirements. Such requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which for the Bank
consist solely of tangible capital) of 3.0% of adjusted total assets and
risk-based capital (which for the Bank consist of core capital and general
valuation allowances) of 8% of risk-weighted assets (assets and certain off
balance sheet items are weighted at percentage levels ranging from 0% to 100%
depending on their relative risk). The OTS has proposed to amend the core
capital 

                                      -26-
<PAGE>   27

requirement so that those associations that do not have the highest examination
rating and an acceptable level of risk will be required to maintain core capital
of from 4% to 5%, depending on the association's examination rating and overall
risk. The Bank does not anticipate that it will be adversely affected if the
core capital requirements regulations is amended as proposed.

The OTS has adopted regulations governing prompt corrective action to resolve
the problems of capital deficient and otherwise troubled savings associations.
At each successively lower defined capital category, an association is subject
to more restrictive and numerous mandatory or discretionary regulatory actions
or limits, and the OTS has less flexibility in determining how to resolve the
problems of the institution. In addition, the OTS generally can downgrade an
association's capital category, notwithstanding its capital level, based on less
than satisfactory examination ratings in areas other than capital or, after
notice and opportunity for hearing, if the association is deemed to be in an
unsafe or unsound condition or to be engaging in an unsafe or unsound practice.
Each undercapitalized association must submit a capital restoration plan to the
OTS within 45 days after it becomes undercapitalized. Such institution will be
subject to increased monitoring and asset growth restrictions and will be
required to obtain prior approval for acquisitions, branching and engaging in
new lines of business. Furthermore, critically undercapitalized institutions
must be placed in conservatorship or receivership within 90 days of reaching
that capitalization level, except under limited circumstances. The Bank's
capital at September 30, 1998, meets the standards for the highest category, a
"well-capitalized" institution.

Federal law prohibits an insured institution from making a capital distribution
to anyone or paying management fees to any person having control of the
institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
plan until the institution has been adequately capitalized on an average during
each of four consecutive calendar quarters and must provide adequate assurances
of performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized or (b) the amount that is necessary
to bring the institution into compliance with all capital standards applicable
to such association at the time the institution fails to comply with its capital
restoration plan.

LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions or
requirements on the ability of associations, including the Bank, to make capital
distributions, including dividend payments. OTS regulations also establish a
system limiting capital distributions according to ratings of associations based
on their capital level and supervisory condition.

Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, or 75% of its net income over
the most recent four-quarter period. A Tier 1 association deemed to be in need
of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier
3 association. The Bank meets the requirements for a Tier 1 association and has
not been notified of any need for more than normal supervision.

Tier 2 associations consist of associations that meet current, but not fully
phased-in, capital requirements, may make capital distributions of up to 75% of
net income over the most recent four quarters. Tier 3 associations do not meet
current minimum capital requirements and must obtain OTS approval of any capital
distribution. Tier 2 associations that propose to make a capital distribution in
excess of the noted safe harbor provisions must also obtain OTS approval. Tier 2
associations proposing to make a capital distribution within the safe harbor
provisions and Tier 1 associations proposing to make any capital distribution
need only submit written notice to the OTS 30 days prior to such distribution.
The OTS may object to the distribution during that 30 day period based on safety
and soundness concerns.


                                      -27-

<PAGE>   28

LIQUIDITY. OTS regulations require that savings associations maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States Government, state or federal agency
obligations) equal to a monthly average of not less than 4% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Monetary penalties may be imposed upon associations failing to meet these
liquidity requirements.

QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet the QTL
Test. Prior to September 30, 1996, the QTL Test required savings associations to
maintain a specified amount of investments in assets that are designated as
qualifying thrift investments ("QTI"), which are generally related to domestic
residential real estate and manufactured housing and include stock issued by any
FHLB, the FHLMC or the FNMA. Under this test, 65% of an institution's "portfolio
assets" (total assets less goodwill and other intangibles, property used to
conduct business and 20% of liquid assets) must consist of QTI on a monthly
average basis in 9 out of every 12 months. Congress created a second QTL Test,
effective September 30, 1997, pursuant to which a savings association may also
meet the QTL Test if at least 60% of the institution's assets ( on a tax basis)
consist of specified assets (generally loans secured by residential real estate
or deposits, educational loans, cash and certain governmental obligations). The
OTS may grant exceptions to the QTL Test under certain circumstances. If a
savings association fails to meet the QTL Test, the association and its holding
company become subject to certain operating and regulatory restrictions. A
savings association that fails to meet the QTL Test will not be eligible for new
FHLB advances. At September 30, 1998, the Bank met the QTL Test.

LENDING LIMIT. OTS regulations generally limit the aggregate amount that a
savings association can lend to one borrower or a group of related borrowers to
an amount equal to 15% of the association's Lending Limit Capital. A savings
association may loan to one borrower an additional amount not to exceed 10% of
the association's Lending Limit Capital, if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." Certain types of loans are not
subject to these limits. Notwithstanding the specified limits, an association
may lend to one borrower up to $500,000 for any purpose. In applying these
limits, the regulations require that loans to certain related borrowers be
aggregated. At September 30, 1998, the Bank was in compliance with these lending
limits, with its largest aggregate extension of credit to one borrower being
$1.1 million. Such loans were secured by 1-4 family and multifamily residential
real estate and were current at September 30, 1998. See "THE BUSINESS OF THE
BANK - Lending Activities -- Loan Originations, Purchases and Sales."

TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
limits on loans to one borrower, and the total of such loans to executive
officers, directors, principal shareholders and their related interests cannot
exceed the association's Lending Limit Capital (200% of total capital for
eligible, adequately capitalized institutions with less than $100 million in
assets). Most loans to directors, executive officers and principal shareholders
must be approved in advance by a majority of the "disinterested" members of the
board of directors of the association with any "interested" director not
participating. All loans to directors, executive officers and principal
shareholders must be made on terms substantially the same as offered to all
employees of the Bank. In addition, no loan may be made to an executive officer,
except loans for specific authorized purposes such as financing the education of
the executive officer's children or financing the purchase of the executive
officer's primary residence. The Bank was in compliance with such restrictions
at September 30, 1998.

Savings associations must comply with Sections 23A and 23B of the Federal
Reserve Act (the "FRA") pertaining to transactions with affiliates. An affiliate
of a savings association is any company or entity that controls, is controlled
by or is under common control with the savings association. The Corporation is
an affiliate of the Bank. Generally, Sections 23A and 23B of the FRA (i) limit
the extent to which a savings association or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus for any one affiliate and 20% of such
capital stock and surplus for the aggregate of such transactions with all
affiliates and (ii) require that all such 

                                      -28-
<PAGE>   29

transactions be on terms substantially the same, or at least as favorable to the
association, as those provided in transactions with a nonaffiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and other similar types of transactions. In addition to limits in
Sections 23A and 23B, the Bank may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate, except for shares of a subsidiary. Exemptions from
Section 23A or 23B of the FRA may be granted only by the Federal Reserve Board.
The Bank was in compliance with these requirements at September 30, 1998.

HOLDING COMPANY REGULATION. The Corporation is a savings and loan holding
company within the meaning of the HOLA. The HOLA generally prohibits a savings
and loan holding company from controlling any other savings association or
savings and loan holding company, without prior approval of the OTS, or from
acquiring or retaining more than 5% of the voting shares of a savings
association or holding company thereof, which is not a subsidiary. Under certain
circumstances, a savings and loan holding company is permitted to acquire, with
the approval of the OTS, up to 15% of the previously unissued voting shares of
an undercapitalized savings association for cash without such savings
association being deemed to be controlled by the holding company. Except with
the prior approval of the OTS, no director or officer of a savings and loan
holding company or person owning or controlling by proxy or otherwise more than
25% of such company's stock may also acquire control of any savings institution,
other than a subsidiary institution, or any other savings and loan holding
company.

The Corporation is a unitary savings and loan holding company. Under current
law, there are generally no restrictions on the activities of a unitary savings
and loan holding company and such companies are the only financial institution
holding companies that may engage in commercial, securities and insurance
activities without limitation. The broad latitude to engage in activities under
current law can be restricted if the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL Test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At September 30, 1998, the Bank met the QTL Test.

If the Corporation were to acquire control of another savings institution, other
than through a merger or other business combination with the Bank, the
Corporation would become a multiple savings and loan holding company. Unless the
acquisition is an emergency thrift acquisition and each subsidiary savings
association meets the QTL Test, the activities of the Corporation and any of its
subsidiaries (other than the Bank or other subsidiary savings associations)
would thereafter be subject to activity restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof that is not a savings institution shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing or
liquidating assets owned by or acquired from a subsidiary savings institution,
(iv) holding or managing properties used or occupied by a subsidiary savings
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by federal regulation as of March 5, 1987, to be
engaged in by multiple holding companies, or (vii) those activities authorized
by the FRB as permissible for bank holding companies, unless the OTS by
regulation prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above must also be approved by
the OTS prior to being engaged in by a multiple holding company.


                                      -29-
<PAGE>   30

The OTS may approve acquisitions resulting in the formation of a multiple
savings and loan holding company that controls savings associations in more than
one state only if the multiple savings and loan holding company involved
controls a savings association that operated a home or branch office in the
state of the association to be acquired as of March 5, 1987, or if the laws of
the state in which the institution to be acquired is located specifically permit
institutions to be acquired by state-chartered institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).
As under prior law, the OTS may approve an acquisition resulting in a multiple
savings and loan holding company controlling savings associations in more than
one state in the case of certain emergency thrift acquisitions.

Federal legislative proposals have been introduced or are under consideration
that would either limit unitary savings and loan holding companies to the same
activities as multiple savings and loan holding companies and other financial
institutions holding companies or would permit certain bank holding companies to
engage in commercial activities. The Corporation cannot predict when, and in
what form, these proposals might become law.

No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend on its permanent or nonwithdrawable stock unless it
first gives the Director of the OTS 30 days advance notice of such declaration
and payment. Any dividend declared during such period or without the giving of
such notice shall be invalid.

Congress is considering legislation which may require that the Corporation
become a bank holding company regulated by the FRB. Bank holding companies with
more than $150 million in assets are subject to capital requirements similar to
those imposed on the Bank and have more extensive interstate acquisition
authority than savings and loan holding companies. They are also subject to more
restrictive activity and investment limits than savings and loan holding
companies. No assurances can be given that such legislation will be enacted, and
the Corporation cannot be certain of the legislation's impact on its future
operations until it is enacted.

FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF THE CORPORATION AND THE BANK.
In addition to the Ohio law limitations on the merger and acquisition of the
Corporation previously discussed, federal limitations generally require
regulatory approval of acquisitions at specified levels. Under pertinent federal
law and regulations, no person, directly or indirectly, or acting in concert
with others, may acquire control of the Bank or the Corporation without 60 days
prior notice to the OTS. "Control" is generally defined as having more than 25%
ownership or voting power; however, ownership or voting power of more than 10%
may be deemed "control" if certain factors are in place. If the acquisition of
control is by a company, the acquirer must obtain approval, rather than give
notice, of the acquisition as a savings and loan holding company.

In addition, any merger of the Bank or of the Corporation in which the
Corporation is not the resulting company must also be approved by the OTS.


FEDERAL DEPOSIT INSURANCE CORPORATION

DEPOSIT INSURANCE. The FDIC is an independent federal agency that insures the
deposits, up to prescribed statutory limits, of federally insured banks and
thrifts and safeguards the safety and soundness of the banking and thrift
industries. The FDIC administers two separate insurance funds, the Bank
Insurance Fund ("BIF") for commercial banks and state savings banks and the SAIF
for savings associations. The Bank is a member of the SAIF and its deposit
accounts are insured by the FDIC, up to the prescribed limits. The FDIC has
examination authority over all insured depository institutions, including the
Bank, and has authority to initiate enforcement actions against federally
insured savings associations, if the FDIC does not believe the OTS has taken
appropriate action to safeguard safety and soundness and the deposit insurance
fund.

                                      -30-
<PAGE>   31

ASSESSMENTS. The FDIC is required to maintain designated levels of reserves in
each fund. The FDIC may increase assessment rates for either fund if necessary
to restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such assessment rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. This risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.

Prior to September 1996, the SAIF's ratio of reserves to insured deposits was
significantly below the level required by law, while the BIF's ratio was above
the required level. As a result, institutions with SAIF-insured deposits were
paying higher deposit insurance assessments than institutions with BIF-insured
deposits. Federal legislation providing for the recapitalization of the SAIF
became effective in September 1996 and included a special assessment of $.657
per $100 of SAIF-insured deposits held at March 31, 1995. The Bank had
approximately $110.8 million in deposits at March 31, 1995, and paid on November
27, 1996 a pre-tax assessment of $728,000.

In addition, the Corporation might become subject to more restrictive holding
company requirements, including activity limits and capital requirements similar
to those imposed on the Bank. The Corporation cannot predict the impact of the
conversion of the Bank to, or regulation of the Bank as, a bank until the
legislation requiring such change is enacted.


FEDERAL RESERVE BOARD

Effective December 1, 1998, FRB regulations require savings associations to
maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up
to $46.5 million (subject to an exemption of up to $4.9 million) and of 10% of
net transaction accounts in excess of $46.5 million. At September 30, 1998, the
Bank was in compliance with the reserve requirements then in effect as well as
the new requirements.


FEDERAL HOME LOAN BANKS

The FHLBs, under the regulatory oversight of the Federal Housing Financing
Board, provide credit to their members in the form of advances. The Bank is a
member of the FHLB of Cincinnati and must maintain an investment in the capital
stock of that FHLB in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of the Bank's residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances from the FHLB. The Bank is in compliance with this requirement
with an investment in stock of the FHLB of Cincinnati of $2.8 million at
September 30, 1998.

Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the United States
government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.

Each FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances from
the FHLBs. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by each FHLB must be made only to provide funds for
residential housing finance.

                                      -31-

<PAGE>   32

                                    TAXATION

FEDERAL TAXATION

The Corporation and the Bank are subject to the federal tax laws and regulations
which apply to corporations generally. However, certain thrift institutions such
as the Bank were, prior to the enactment of the Small Business Jobs Protection
Act, which was signed into law on August 21, 1996, allowed deductions for bad
debts under methods more favorable than those granted to other taxpayers.
Qualified thrift institutions could compute deductions for bad debts using
either the specific charge-off method of Section 166 of the Code, or the reserve
method of Section 593 of the Code.

Under Section 593, a thrift institution annually could elect to deduct bad debts
under either (i) the "percentage of taxable income" method applicable only to
thrift institutions, or (ii) the "experience" method that also was available to
small banks. Under the "percentage of taxable income" method, a thrift
institution generally was allowed a deduction for an addition to its bad debt
reserve equal to 8% of its taxable income (determined without regard to this
deduction and with additional adjustments). Under the "experience" method, a
thrift institution was generally allowed a deduction for an addition to its bad
debt reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the "experience"
method or the "percentage of taxable income" method.

Section 1616(a) of the Small Business Job Protection Act repealed the Section
593 reserve method of accounting for bad debts by thrift institutions, effective
for taxable years beginning after 1995. Thrift institutions that would be
treated as small banks are allowed to utilize the "experience" method applicable
to such institutions, while thrift institutions that are treated as large banks
are required to use the specific charge-off method. The "percentage of taxable
income" method of accounting for bad debts is no longer available for any
financial institution.

A thrift institution required to change its method of computing reserves for bad
debt treated such change as a change in the method of accounting, initiated by
the taxpayer, and having been made with the consent of the Secretary of the
Treasury. Any adjustments under Section 481(a) of the Code required to be
recaptured with respect to such change generally were be determined solely with
respect to the "applicable excess reserves" of the taxpayer. The amount of the
"applicable excess reserves" are being taken into account ratably over a
six-taxable-year period, beginning with the first taxable year beginning after
1995, subject to the residential loan requirement described below. In the case
of a thrift institution that becomes a large bank, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans (generally
loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
becomes a small bank, like the Bank, the amount of the institution's "applicable
excess reserves" generally is the excess of (i) the balances of its reserve for
loan losses on qualifying real property loans and its reserve for losses on
nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater balance of (a) its "pre-1988 reserves" or
(b) what the thrift's reserves would have been at the close of its last year
beginning before January 1, 1997, had the thrift always used the "experience"
method.

For taxable years that begin after December 31, 1995, and before January 1,
1998, if a thrift meets the residential loan requirement for a tax year, the
recapture of the "applicable excess reserves" otherwise required to be taken
into account as a Code Section 481(a) adjustment for the year will be suspended.
A thrift meets the residential loan requirement if, for the tax year, the
principal amount of residential loans made by the thrift during the year is not
less than its "base amount." The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. 

                                      -32-
<PAGE>   33

A residential loan is a loan as described in Section 7701(a)(19)(C)(v)
(generally a loan secured by residential real and church property and certain
mobile homes), but only to the extent that the loan is made to the owner of the
property to acquire, construct or improve the property.

The balance of the "pre-1988 reserves" is subject to the provisions of Section
593(e) as modified by the Small Business Job Protection Act which requires
recapture in the case of certain excessive distributions to shareholders. The
"pre-1988 reserves" may not be utilized for payment of cash dividends or other
distributions to a shareholder (including distributions in dissolution or
liquidation) or for any other purpose (except to absorb bad debt losses).
Distribution of a cash dividend by a thrift institution to a shareholder is
treated as made: First, out of the institution's post-1951 accumulated earnings
and profits; second, out of the "pre-1988 reserves"; and, third, out of such
other accounts as may be proper. To the extent a distribution by the Bank to the
Corporation is deemed paid out of its "pre-1988 reserves" under these rules, the
"pre-1988 reserves" would be reduced and the Bank's gross income for tax
purposes would be increased by the amount which, when reduced by the income tax,
if any, attributable to the inclusion of such amount in its gross income, equals
the amount deemed paid out of the "pre-1988 reserves." As of September 30, 1998,
the Bank's "pre-1988 reserves" subject to potential recapture for tax purposes
totaled approximately $3.4 million. The Bank believes it has approximately $4.8
million of accumulated earnings and profits for tax purposes as of September 30,
1998, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether the Bank will have current or accumulated earnings and
profits in subsequent years.

In addition to the regular income tax, the Corporation and the Bank may be
subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax
rate of 20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its "alternative minimum taxable income" computed without regard to this
preference item and prior to reduction by net operating losses, is included in
"alternative minimum taxable income." Net operating losses can offset no more
than 90% of "alternative minimum taxable income." The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. In addition, for taxable years after 1986 and
before 1997, the Corporation and the Bank are also subject to an environmental
tax equal to 0.12% of the excess of "alternative minimum taxable income" for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2.0 million.

The tax returns of the Bank have been audited or closed without audit through
1994. In the opinion of management, any examination of open returns would not
result in a deficiency which could have a material adverse effect on the
financial condition of the Bank.


OHIO TAXATION

The Corporation is subject to the Ohio corporation franchise tax, which, as
applied to the Corporation, is a tax measured by both net earnings and net
worth. The rate of tax is the greater of (i) 5.1% on the first $50,000 of
computed Ohio taxable income and 8.9% of computed Ohio taxable income in excess
of $50,000 or (ii) 0.582% times taxable net worth. For tax years beginning after
December 31, 1998, the tax rate is the greater of (i) 5.1% on the first $50,000
of computed Ohio taxable income and 8.5% of computed Ohio taxable income in
excess of $50,000 or (ii) .400% times taxable net worth; however, the
Corporation may be exempt from the net worth tax if various conditions are
satisfied.

In computing its tax under the net worth method, the Corporation may exclude
100% of its investment in the capital stock of the Bank, as reflected on the
balance sheet of the Corporation, in computing its taxable net worth as long as
it owns at least 25% of the issued and outstanding capital stock of the Bank.
The 

                                      -33-
<PAGE>   34

calculation of the exclusion from net worth is based on the ratio of the
excludable investment (net of any appreciation or goodwill included in such
investment) to total assets multiplied by the net value of the stock. As a
holding company, the Corporation may be entitled to various other deductions in
computing taxable net worth that are not generally available to operating
companies.

A special litter tax is also applicable to all corporations, including the
Corporation, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
 .22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.

The Bank is a "financial institution" for State of Ohio tax purposes. As such,
it is subject to the Ohio corporate franchise tax on "financial institutions,"
which is imposed annually at a rate of 1.5% of the Bank's book net worth
determined in accordance with generally accepted accounting principles. For the
tax year 1999, however, the franchise tax on financial institutions will be 1.4%
of book net worth and for the tax year 2000 and years thereafter, the tax will
be 1.3% of book net worth. As a "financial institution," The Bank is not subject
to any tax based upon net income or net profits imposed by the State of Ohio.


ITEM 2.  PROPERTIES

The following table sets forth certain information at September 30, 1998,
regarding the properties on which the main office and the branch offices of the
Bank are located:
<TABLE>
<CAPTION>
                                               Owned           Date                Square             Net
Location                                     or leased       acquired              footage        book value (1)
--------                                     ---------       --------              -------        ----------
<S>                                         <C>              <C>                   <C>         <C>
25 Lowry Drive
West Milton, Ohio  45383                    Owned             1966                  7,606      $     805,903

415 West National Road
Englewood, Ohio  45322                      Owned             1972                  3,249            221,906

709 Arlington Road
Brookville, Ohio  45309                     Owned             1996                  3,750          1,196,936

22 South Tippecanoe Drive
Tipp City, Ohio  45371                      Leased            1998                  1,880             62,407
</TABLE>

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

(1)  At September 30, 1998, the Bank's office premises and equipment had a total
     net book value of $2,739,778. For additional information regarding the
     Bank's office premises and equipment, see Notes 1 and 4 to Consolidated
     Financial Statements.

The management of the Corporation believes that its properties are adequately
insured.


ITEM 3.  LEGAL PROCEEDINGS

Neither the Corporation nor the Bank is presently involved in any legal
proceedings of a material nature. From time to time, the Bank is a party to
legal proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by the Bank.


                                      -34-
<PAGE>   35


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No items were brought to a vote of security holders during the fourth quarter of
the Corporation's fiscal year ending September 30, 1998.



                                      -35-
<PAGE>   36



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Corporation had 2,213,495 common shares outstanding on November 30, 1998,
held of record by approximately 1,037 shareholders. Price information with
respect to the Corporation's common shares is quoted on The Nasdaq National
Market System ("Nasdaq"). The high and low trading prices for the common shares
of the Corporation, as quoted by Nasdaq, by quarter, are shown below.
<TABLE>
<CAPTION>
                                            DECEMBER 31,       MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                                1997             1998              1998              1998

                                            ------------       ---------         --------        -------------
<S>                                       <C>                <C>              <C>              <C>           
              High                        $        15.94     $       17.00    $      16.44     $        15.00

              Low                                  14.50             15.13           15.00              12.31

                                            DECEMBER 31,       MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                                1996             1997              1997              1997
                                            ------------       ---------         --------        -------------

              High                        $        16.50     $       14.75    $      14.25     $        15.25

              Low                                  12.75             13.50           13.25              13.75
</TABLE>

For the fiscal year ended September 30, 1998, the Corporation paid regular
quarterly dividends per common share of $.15 on November 15, 1997, $.15 on
February 16, 1998, $.15 on May 15, 1998 and $.15 on August 15, 1998. For the
fiscal year ended September 30, 1997, the Corporation paid regular quarterly
dividends per common share of $.14 on November 15, 1996, $.15 on February 14,
1997, $.15 on May 15, 1997 and $.15 on August 15, 1997. The Corporation also
paid a special dividend of $2.50 per common share on November 15, 1996. Income
of the Corporation primarily consists of interest on mortgage-backed securities
and other securities and dividends which were periodically declared and paid by
the Board of Directors of the Bank on common shares of the Bank held by the
Corporation.

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

Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, or 75% of its net income over
the most recent four-quarter period. A Tier 1 association deemed to be in need
of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier
3 association. The Bank meets the requirements for a Tier 1 association and has
not been notified of any need for more than normal supervision.


                                      -36-
<PAGE>   37


ITEM 6.  SELECTED FINANCIAL DATA

The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Corporation at the
dates and for the periods indicated. As the Conversion was completed on October
6, 1994, information prior to the year ended September 30, 1995 is for the Bank.
<TABLE>
<CAPTION>
Selected financial condition                                         At September 30,
  data:                                  ----------------------------------------------------------------------
                                            1998          1997            1996            1995           1994
                                         ------------   -------------    -----------   ------------    --------
                                                                       (In thousands)
<S>                                      <C>            <C>             <C>            <C>             <C>         
Total amount of:
     Assets                              $    235,276   $     209,958   $    180,831   $    161,680    $    149,927
     Cash and cash equivalents (1)              3,578           5,633          1,301          1,701          25,604
     Securities available for sale                 15           5,520             --             --           8,522
     Securities held to maturity                   --           3,254            500             --           3,015
     Mortgage-backed securities
       available for sale                      36,897          47,842         34,009         17,110              --
     Mortgage-backed securities
       held to maturity                        14,560          12,125         14,002         25,974          25,183
     FHLB stock - at cost                       2,814           2,013          1,182          1,099           1,029
     Loans receivable - net                   171,346         127,396        116,749        100,758          91,246
     Deposits                                 154,647         142,832        128,554        117,898         134,790
     Borrowings                                52,430          39,570         17,489          5,260              --
     Shareholders' equity (2)                  26,283          26,388         33,479         37,502          14,394

                                                                 Year ended September 30,
Summary of earnings:                          1998          1997            1996            1995           1994
                                         ------------   -------------    -----------   ------------    --------
                                                         (In thousands except per share data)
Interest and dividend income             $     16,219   $      13,773   $     12,665   $     11,139    $      9,239
Interest expense                               10,348           8,149          6,819          5,236           4,631
                                         ------------   -------------   ------------   ------------    ------------
Net interest income                             5,871           5,624          5,846          5,903           4,608
Provision for loan losses                         229              75            154             64              42
                                         ------------   -------------   ------------   ------------    ------------
Net interest income after
  provision for loan losses                     5,642           5,549          5,692          5,839           4,566
Noninterest income                                796             497            457            257             247
Noninterest expense                             4,146           3,959          4,410          3,300           2,751
                                         ------------   -------------   ------------   ------------    ------------
Income before income tax                        2,292           2,087          1,739          2,796           2,062
Income tax expense                                790             709            595            947             680
                                         ------------   -------------   ------------   ------------    ------------
Net income                               $      1,502   $       1,378   $      1,144   $      1,849    $      1,382
                                         ============   =============   ============   ============    ============

Earnings per common share (3)
     Basic                               $        .72   $        .65    $        .51   $        .77
                                         ============   ============    ============   ============
     Diluted                             $        .71   $        .65    $        .50   $        .77
                                         ============   ============    ============   ============

Dividends declared per share (3)         $        .60   $       3.09    $       1.43   $        .19
                                         ============   ============    ============   ============
------------------------
</TABLE>

(1)  Includes cash and amounts due from depository institutions, overnight
     deposits and interest-bearing deposits in other financial institutions.

(2)  Retained earnings only prior to September 30, 1995.

(3)  Earnings and dividends per share for the Corporation is not applicable for
     any of the periods presented prior to September 30, 1995, due to its mutual
     form of ownership prior to October 6, 1994.

                                      -37-
<PAGE>   38

<TABLE>
<CAPTION>
                                                          At or for the year ended September 30,
                                         -----------------------------------------------------------------------
                                              1998          1997            1996            1995           1994
                                         ------------   -------------    -----------   ------------    --------
<S>                                      <C>            <C>              <C>           <C>             <C> 
Selected financial ratios:
Interest rate spread
(difference between average yield
  on interest-earning assets and
  average cost of interest-
  bearing liabilities)                         2.16%         2.42%           2.55%           2.95%         3.37%
Net interest margin (net
  interest income as a
  percentage of average
  interest-earning assets)                     2.68          3.08            3.50            4.01          3.74
Return on equity (net earnings
  divided by average equity)                   5.82          5.08            3.28            5.01         10.13
Return on assets (net earnings
  divided by average total assets)             0.67          0.73            0.67            1.22          1.09
Equity-to-assets ratio (average
  equity divided by average total
  assets)                                     11.47         14.46           20.36           24.36         10.74
Allowance for loan losses as a
  percentage of nonperforming
  loans                                       61.40         90.06           81.57           64.04         94.14
</TABLE>


QUARTERLY FINANCIAL DATA

The following table is a summary of selected quarterly results of operations for
the years ended September 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                                Three months ended
                                                                                ------------------
September 30, 1998                                  December 31,      March 31,         June 30,       September 30,
                                                    ------------      ---------         --------       -------------
                                                                        (In thousands except per share data)

<S>                                                <C>               <C>              <C>               <C>        
Interest and dividend income                       $     3,926       $     3,979      $     4,157       $     4,157
Interest expense                                         2,470             2,520            2,657             2,701
                                                   -----------       -----------      -----------       -----------
Net interest income                                      1,456             1,459            1,500             1,456
Provision for loan losses                                   24                60              110                35
                                                   -----------       -----------      -----------       -----------
Net interest income after
  provision for loan losses                              1,432             1,399            1,390             1,421
Noninterest income                                          79               254              311               152
Noninterest expense                                      1,065             1,020            1,014             1,047
                                                   -----------       -----------      -----------       -----------
Income before income tax                                   446               633              687               526
Income tax expense                                         155               219              238               178
                                                   -----------       -----------      -----------       -----------
Net income                                         $       291       $       414      $       449       $       348
                                                   ===========       ===========      ===========       ===========

Earnings per share
  Basic                                            $       .14       $      .20       $       .21       $      .17
                                                   ===========       ==========       ===========       ==========
  Diluted                                          $       .14       $      .20       $       .21       $      .16
                                                   ===========       ==========       ===========       ==========

Dividends declared per share                       $       .15       $      .15       $       .15       $      .15
                                                   ===========       ==========       ===========       ==========
</TABLE>

                                      -38-

<PAGE>   39

<TABLE>
<CAPTION>
                                                                        Three months ended
                                                                        ------------------
September 30, 1997                                  December 31,      March 31,         June 30,       September 30,
                                                    ------------      ---------         --------       -------------
                                                                  (In thousands except per share data)

<S>                                                <C>               <C>              <C>               <C>        
Interest and dividend income                       $     3,301       $     3,223      $     3,516       $     3,733
Interest expense                                         1,883             1,871            2,086             2,309
                                                   -----------       -----------      -----------       -----------
Net interest income                                      1,418             1,352            1,430             1,424
Provision for loan losses                                   20                21               32                 2
                                                   -----------       -----------      -----------       -----------
Net interest income after
  provision for loan losses                              1,398             1,331            1,398             1,422
Noninterest income                                         211                67              102               117
Noninterest expense                                      1,010               971              961             1,017
                                                   -----------       -----------      -----------       -----------
Income before income tax                                   599               427              539               522
Income tax expense                                         204               144              183               178
                                                   -----------       -----------      -----------       -----------
Net income                                         $       395       $       283      $       356       $       344
                                                   ===========       ===========      ===========       ===========

Earnings per share
  Basic                                            $       .18       $      .13       $       .17       $      .17
                                                   ===========       ==========       ===========       ==========
  Diluted                                          $       .18       $      .13       $       .17       $      .17
                                                   ===========       ==========       ===========       ==========

Dividends declared per share                       $      2.64       $      .15       $       .15       $      .15
                                                   ===========       ===========      ===========       ==========
</TABLE>

<PAGE>   40


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

INTRODUCTION

In the following pages, management presents an analysis of the Corporation's
financial condition and results of operations as of and for the year ended
September 30, 1998, compared to prior years. This discussion is designed to
provide shareholders with a more comprehensive review of the operating results
and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
financial statements and related footnotes and the selected financial data
included elsewhere in this report.

The Bank is principally engaged in the business of making permanent first
mortgage loans secured by 1-4 family residential real estate located in the
Bank's designated lending area. The Bank also originates loans for the
construction of 1-4 family residential real estate and loans secured by
multifamily real estate (over four units) and nonresidential real estate. The
origination of consumer loans, including unsecured loans and loans secured by
deposits, automobiles, recreational vehicles and boats, and home improvement and
commercial loans constitutes a small portion of the Bank's lending activities.
Loan funds are obtained primarily from savings deposits, which are insured up to
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"),
borrowings from the Federal Home Loan Bank (the "FHLB"), and loan and security
repayments. In addition to originating loans, the Bank invests in U.S.
Government and agency obligations, interest-bearing deposits in other financial
institutions, mortgage-backed securities which include collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").

FORWARD-LOOKING STATEMENTS

When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Bank's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Bank's market
area and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Factors listed
above could affect the Corporation's financial performance and could cause the
Corporation's actual results for future periods to differ materially from any
statements expressed with respect to future periods.

The Corportation does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.

ANALYSIS OF FINANCIAL CONDITION

The Corporation's assets totaled $235.3 million, at September 30, 1998, an
increase of $25.3 million, or 12.1%, from $210.0 million at September 30, 1997
The growth in assets was primarily in loans. Such growth was funded with
proceeds from securities sales and maturities and increased deposits and
borrowed funds.

Total securities and FHLB stock decreased $16.5 million from $70.8 million at
September 30, 1997, to $54.3 million at September 30, 1998. The decrease was due
to $17.8 million in maturities and principal repayments combined with $15.3
million in sales of mortgage-backed securities available for sale. The sales
were primarily made for interest rate risk strategy purposes. The decline was
partly offset by $15.4 million in purchases as the majority of the proceeds from
the aforementioned maturities, principal repayments and sales were reinvested in
loans. Mortgage-backed securities include Federal Home Loan Mortgage Corporation
("FHLMC"), Government National Mortgage Association ("GNMA") and Federal


                                      -40-
<PAGE>   41

National Mortgage Association ("FNMA") participation certificates and CMOs and
REMICs. The majority of securities are classified as available for sale to
provide the Corporation with the flexibility to move funds into loans as demand
warrants. The mortgage-backed securities also provide the Corporation with a
constant cash flow stream from principal repayments.

Management's strategy emphasizes investment in securities guaranteed by the U.S.
Government and its agencies as a means to mediate credit risk. The investment
strategy also includes purchasing variable-rate mortgage-backed security
products with monthly payments and interest rates that adjust annually or more
frequently to mediate interest rate risk.

The Corporation's investment policy limits investments in U.S. Treasury and
government agency securities to securities with terms of ten years or less for
fixed-rate investments and thirty years or less for variable-rate investments.
Mortgage-backed securities guaranteed by FHLMC, GNMA or FNMA may have terms of
up to forty years. Substantially all CMOs and REMICs are collateralized with
FHLMC, GNMA or FNMA securities and may have terms of up to forty years. CMOs and
REMICs must meet OTS guidelines and not be "high risk" at the time of purchase
as defined by Thrift Bulletin No. 52. The Corporation has not invested in any
derivative securities other than CMOs and REMICs.

Net loans receivable increased 34.5% from $127.4 million at September 30, 1997,
to $171.3 million at September 30, 1998. The Corporation experienced increases
in all loan types; however, the majority of the increase was in the real estate
loan categories.

Loans secured by 1-4 family first mortgages increased from $108.9 million at
September 30, 1997, to $138.5 million at September 30, 1998, as a result of a
high volume of loan originations. Despite the high volume of originations,
overall growth was partly constrained by the sale of a pool of 1-4 family first
mortgage loans with a carrying value of $8.2 million. The loans were sold as a
means to manage interest rate risk by reducing the Corporation's investment in
various lower-yielding or longer-term, fixed-rate loans. The Corporation
retained the right to service the loans for a fixed spread to provide an
additional source of fee income. Construction and nonresidential real estate
loans increased from $9.4 million and $6.2 million at September 30, 1997 to
$16.4 million and $8.8 million at September 30, 1998. Changes in other types of
real estate loans were not as significant. As interest rates have decreased
slightly since September 30, 1997, the growth in real estate loans is primarily
the result of customers refinancing their higher-rate loans from the
Corporation's competitors. Additionally, continued economic expansion in the
Corporation's market area has contributed to the net increase in loans. The
Corporation has not changed its philosophy regarding pricing or underwriting
standards during the period.

There were no loans classified as held for sale at September 30, 1998 and 1997.

The Corporation's consumer loan portfolio increased $1.3 million between
September 30, 1997 and September 30, 1998. Consumer loans remain a small portion
of the entire loan portfolio and represented only 2.3% and 2.1% of total loans
at September 30, 1998 and 1997.

During the third quarter of fiscal 1997, the Corporation began originating
commercial-purpose business loans secured by collateral other than real estate.
At September 30, 1998 and 1997, commercial loans totaled $2.8 million and
$575,000 and represented 1.6% and .4% of the Corporation's overall loan
portfolio.

Total deposits increased $11.8 million, or 8.3%, from $142.8 million at
September 30, 1997, to $154.6 million at September 30, 1998. The Corporation
experienced a slight increase in passbook savings accounts even though, as a
percentage of total deposits, such accounts have decreased from 11.5% at
September 30, 1997, to 10.7% at September 30, 1998. Negotiable order of
withdrawal ("NOW") and money market accounts have increased from $8.8 million
and $7.1 million at September 30, 1997, to $10.7 million and $10.4 million at
September 30, 1998. The increase in NOW and money market accounts was a result
of an increase in the rates paid on such deposit types as management began to
offer more 


                                      -41-
<PAGE>   42

attractive rates in comparison to its competitors in the latter part of fiscal
1998. Certificates of deposit increased $6.3 million, or 5.7%, and accounted for
the majority of the overall deposit growth. Despite the increase in volume, the
certificate of deposit portfolio slightly decreased from 77.4% of total deposits
at September 30, 1997, to 75.6% at September 30, 1998. All of the certificates
of deposit held at the Bank mature in less than five years. The overall growth
in certificates of deposit has been due to normal operating procedures as the
Corporation has not used special promotions to attract the increased volume.

Borrowed funds increased $12.8 million from $39.6 million at September 30, 1997,
to $52.4 million at September 30, 1998. The increase due to new long term
advances of $54.3 million was partially offset by principal repayments of $39.9
million and a net decrease in short-term advances under the Bank's cash
management line of credit of $1.6 million. The Corporation used the increased
borrowings to provide funding for its significant loan growth discussed above.


COMPARISON OF RESULTS OF OPERATIONS

NET INCOME. The operating results of the Corporation are affected by general
economic conditions, the monetary and fiscal policies of federal agencies and
the regulatory policies of agencies that regulate financial institutions. The
Corporation's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
in turn is affected by the interest rates at which such loans are made, general
economic conditions and the availability of funds for lending activities.

The Corporation's net income is primarily dependent upon its net interest
income, which is the difference between interest income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net income is also affected by provisions for loan losses, service
charges, gains on the sale of assets and other income, noninterest expense and
income taxes.

The Corporation's net income of $1,502,000 for 1998 represented a $124,000
increase from the $1,378,000 in net income for 1997. Similarly, basic earnings
per share increased by $.07 per share from $.65 per share for 1997 to $.72 per
share for 1998. Also, diluted earnings per share increased by $.06 per share
from $.65 per share for 1997 to $.71 per share for 1998. The increase in
earnings was primarily due to increases in net interest income and noninterest
income partly offset by increases in the provision for loan losses and
noninterest expense.

The Corporation's net income of $1,378,000 for 1997 represented a $234,000
increase from the $1,144,000 in net income for 1996. Similarly, basic earnings
per share increased by $.14 per share from $.51 per share for 1996 to $.65 per
share for 1997. Also, diluted earnings per share increased $.15 per share from
$.50 per share for 1996 to $.65 per share for 1997. The increase in earnings was
primarily due to the combination of a decrease in noninterest expense and a
slight increase in noninterest income partially offset by a decrease in net
interest income.

NET INTEREST INCOME. Net interest income is the largest component of the
Corporation's income and is affected by the interest rate environment and the
volume and composition of interest-earning assets and interest-bearing
liabilities.

Historically, the Corporation had only fixed-rate loans in its loan portfolio.
Consequently in periods of rising interest rates, the Corporation's net interest
spread is negatively affected because the interest rates paid on deposits
increase at a faster pace than the rates earned on loans. As part of the
Corporation's overall strategy to manage interest rate risk, management began to
originate variable-rate mortgage loans in the latter quarters of fiscal 1995. As
of September 30, 1998 and 1997, the Corporation had $26.2 million and $7.3
million in adjustable-rate mortgages. Additionally, the mortgage-backed
securities portfolio has been structured so that substantially all of the
mortgage-backed securities reprice on at least an annual basis.



                                      -42-
<PAGE>   43

The net interest income of the Corporation increased by $247,000 for 1998
compared to 1997. The increase in net interest income resulted from the
Corporation's growth in assets. Additionally, the Corporation had a larger
proportion of funds invested in higher-yielding loans as opposed to securities
and interest-bearing deposits in other financial institutions. The increase in
net interest income was mitigated by a higher cost of funds. The cost of funds
increased due to an increase in the average level of borrowings and certificates
of deposit. Management has employed strategies such as large, special dividends
and common stock repurchase programs to reduce the excess capital position of
the Corporation in an effort to improve its return on equity. As a result,
deposits and borrowed funds have increased in order to continue funding the
Corporation's growth. See "Yields Earned and Rates Paid."

The net interest income of the Corporation decreased by $223,000 for 1997
compared to 1996. The decrease in net interest income is primarily attributable
to a decline in the ratio of average interest-earning assets to average
interest-bearing liabilities combined with a decrease in the average interest
rate spread from 2.55% in 1996 to 2.42% in 1997.

Interest and fees on loans totaled $11,937,000 for 1998 compared to $9,579,000
and $8,859,000 for 1997 and 1996. The increase in interest and fees on loans was
due to higher average loans receivable balances, despite selling a pool of loans
in 1998 and 1997, partially offset by a decrease in the average yield earned to
7.95% in 1998 from 8.17% in 1997and 8.25% in 1996.

Interest on mortgage-backed securities totaled $3,814,000 for 1998 compared to
$3,528,000 and $2,995,000 for 1997 and 1996. The increases were due to increases
in the average balance of mortgage-backed securities over the comparable
periods, partially offset by a decrease in the average yield on mortgage-backed
securities from 6.50% in 1996 to 6.45% in 1997 and 6.19% in 1998. The decrease
in the yield is the result of most mortgage-backed securities repricing to lower
yield levels due to declining market rates. Despite the negative effects in a
declining interest rate environment, the variable-rate feature of these
securities helps mitigate the Corporation's exposure to upward interest rate
movements due to its primarily fixed-rate loan portfolio.

Interest on other securities totaled $230,000 for 1998 compared to $505,000 for
1997 and $629,000 for 1996. The decreases were the result of lower average
balances of securities combined with decreases in the overall portfolio yield to
6.30% in 1998 from 6.40% in 1997 and 6.44% in 1996.

Interest paid on deposits totaled $7,574,000 in 1998 compared to $6,749,000 in
1997 and $6,199,000 in 1996. The increases resulted from higher average deposit
balances over the comparable periods combined with an overall increase in the
average cost of deposits to 5.09% in 1998 from 5.00% in 1997 and 4.99% in 1996.
The increase in the average cost of deposits was a result of a larger percentage
of average deposits being in high-yielding certificates of deposit as well as an
increase in the yield on money market accounts from 2.94% in 1997 to 3.56% in
1998.

Interest on borrowed funds totaled $2,774,000 in 1998 compared to $1,400,000 in
1997 and $620,000 in 1996. The increase is the result of higher average balances
of borrowed funds over each of the comparable periods. The Corporation uses the
borrowings to provide for loan growth and long-term liquidity needs.
Additionally, a portion of the funds are invested in mortgage-backed securities
to leverage excess capital. The Corporation may make additional borrowings, as
needed, to fund loan demand and mortgage-backed securities purchases.

PROVISION FOR LOAN LOSSES. The Corporation maintains an allowance for losses on
loans in an amount which, in management's judgment, is adequate to absorb
probable losses inherent in the loan portfolio. While management utilizes its
best judgment and information available, the ultimate adequacy of the allowance
is dependent upon a variety of factors, including the performance of the
Corporation's loan portfolio, the economy, changes in real estate values and
interest rates and the view of the regulatory authorities toward loan
classifications. The provision for loan losses is determined by management as
the 



                                      -43-
<PAGE>   44

amount to be added to the allowance for loan losses after net charge-offs have
been deducted to bring the allowance to a level which is considered adequate to
absorb losses inherent in the loan portfolio. The amount of the provision is
based on management's regular review of the loan portfolio and consideration of
such factors as historical loss experience, general prevailing economic
conditions, changes in the size and composition of the loan portfolio and
specific borrower considerations, including the ability of the borrower to repay
the loan and the estimated value of the underlying collateral.

Other than $115,000 in charge-offs during 1998, the Corporation has not
experienced any significant charge-offs for the past several years. The majority
of these charge-offs was related to a single loan relationship for which the
Corporation maintained a specific valuation allowance. The Corporation's low
historical charge-off history is the product of a variety of factors, including
the Corporation's underwriting guidelines, which generally require a down
payment of 20% of the lower of the sales price or appraised value of 1-4 family
residential real estate loans, established income information and defined ratios
of debt to income. Loans secured by real estate make up 96.1% of the
Corporation's loan portfolio and loans secured by first mortgages on 1-4 family
residential real estate constituted 78.0% of total loans at September 30, 1998.
Notwithstanding the historical charge-off history, management believes that
continuing to increase the allowance for losses on loans is prudent as total
loans, particularly consumer and commercial loans, increase. Accordingly,
management anticipates that it will continue its provisions to the allowance for
losses on loans at current levels for the foreseeable future, provided the
volume of nonperforming loans remains insignificant. The provision for loan
losses totaled $229,000, $75,000 and $154,000 in 1998, 1997 and 1996. The
increase in the provision in 1998 was primarily the result of the growth in
loans and to replenish the allowance for losses on loans after the charge-off
discussed above.

NONINTEREST INCOME. Noninterest income totaled $796,000 in 1998 compared to
$498,000 in 1997 and $457,000 in 1996. The increase in 1998 over 1997 was due to
increases in service charges and other fees and increased gains on the sales of
loans and available-for-sale securities. The increase in 1997 over 1996 was due
to increases in service charges and other fees as well as other income while the
effect of a $118,000 gain on the sale of loans was offset by a decrease in
realized gains on the sales of available-for-sale securities. The increase in
service charges and other fees has been due to growth in the Corporation's
customer and deposit base as well as increases in various fees charged. The loan
sales were primarily made for interest-rate risk strategy purposes while the
securities sales were made for similar reasons as well as to provide funding for
loan growth. Other changes in noninterest income were insignificant.

NONINTEREST EXPENSE. Noninterest expense totaled $4,146,000 in 1998 compared to
$3,959,000 in 1997 and $4,410,000 in 1996. Federal deposit insurance premiums
were the primary cause of the spike in non-interest expense in 1996. The Bank
recognized an additional expense of $728,000 due to a special one-time
assessment in September 1996, as a result of legislation passed to recapitalize
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). Since the SAIF was recapitalized, the Bank has paid
significantly lower deposit insurance premiums.

Absent the effect of the special, one-time deposit insurance assessment,
occupancy expense and salaries and employee benefits made up the remainder of
the general increase over the comparable periods. Occupancy expense increased as
a result of the new branch office in Brookville, Ohio, which opened during the
latter part of fiscal 1997. Salaries and employee benefits increased due to
annual merit increases, additional personnel to staff the new Brookville office
and increased compensation expense related to the ESOP. Other changes in
noninterest expense were not significant.

INCOME TAX EXPENSE. The volatility of income tax expense is primarily
attributable to the change in income before income taxes. See Note 8 of the
Notes to Consolidated Financial Statements. Income tax expense totaled $790,000
in 1998, $709,000 in 1997 and $595,000 in 1996 resulting in effective tax rates
of 34.5%, 34.0% and 34.2%, respectively.

Prior to the enactment of legislation discussed below, thrifts which met certain
tests relating to the composition of assets had been permitted to establish
reserves for bad debts and to make annual 



                                      -44-
<PAGE>   45

additions thereto which could, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "nonqualifying loans" was computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" could be computed under either the experience
method or the percentage of taxable income method, based on an annual election.

In August 1996, legislation was enacted that repealed the percentage of taxable
income method of accounting used by many thrifts to calculate their bad debt
reserve for federal income tax purposes. As a result, small thrifts, such as the
Bank, are required to recapture that portion of the reserve that exceeds the
amount that could have been taken under the experience method for tax years
beginning after December 31, 1987. The legislation also required thrifts to
account for bad debts for federal income tax purposes on the same basis as
commercial banks for tax years beginning after December 31, 1995. The recapture
will occur over a six-year period, the commencement of which has been delayed
until the fiscal 1999 tax year as the Corporation meets certain residential
lending requirements. At September 30, 1998, the Bank had $1.1 million in bad
debt reserves subject to recapture for federal income tax purposes. The deferred
tax liability related to the recapture has been previously established.


YIELDS EARNED AND RATES PAID. The following table sets forth certain information
relating to the Corporation's average balance sheet information and reflects the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average monthly balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
periods presented. Average balances are derived from daily balances, which
include nonaccruing loans in the loan portfolio, net of the allowance for loan
losses.



                                      -45-
<PAGE>   46
<TABLE>
<CAPTION>
                                                             Year ended September 30,
                                ----------------------------------------------------------------------------------
                                           1998                        1997                       1996
                                -------------------------- -------------------------- ----------------------------
                                   Average   Interest         Average    Interest           Average  Interest
                                 outstanding  earned/ Yield/ outstanding earned/ Yield/   outstanding earned/ Yield/
                                   balance    paid   rate %    balance    paid   rate %     balance    paid   rate %
                                 ----------- ------  -----   ----------- ------- ------   ----------  -----  ------
                                                               (Dollars in thousands)
<S>                             <C>         <C>      <C>    <C>         <C>      <C>   <C>         <C>      <C>  
Interest-earning assets:
   Interest-bearing deposits in 
     other financial 
     institutions               $   1,166   $    58  4.97%  $   1,516   $   59   3.89% $   2,429   $   104   4.28%
   Securities available for                                                                                  
   sale (1)                         1,772       108  6.10       5,440      340   6.24      9,404       600   6.42
   Securities held to maturity      1,881       122  6.49       2,435      165   6.78        422        29   6.87
   Mortgage-backed securities
     available for sale (1)        45,950     2,816  6.13      41,535    2,716   6.52     30,797     1,991   6.48
   Mortgage-backed securities
     held to maturity              15,696       998  6.36      13,043      812   6.23     15,318     1,004   6.55
   Loans receivable (2)           150,186    11,937  7.95     117,194    9,579   8.17    107,321     8,859   8.25
   Federal Home Loan Bank stock     2,481       180  7.26       1,428      102   7.14      1,130        79   6.99
                                ---------   -------         ---------   ------         ---------   -------
     Total interest-earning
     assets                       219,312    16,219  7.40%    182,591   13,773   7.54%   166,821    12,666   7.60%
                                             ------                     ------                     -------

Noninterest-earning assets:         5,744                       5,205                      4,319
                                ---------                   ---------                  ---------

     Total assets               $ 225,056                   $ 187,796                  $ 171,140
                                =========                   =========                  =========

Interest-bearing liabilities:
   NOW accounts                 $  10,467   $   179  1.71%  $   9,101      166   1.82% $   8,451       160   1.89%
   Money market accounts            7,593       270  3.56       6,909      203   2.94      7,396       220   2.97
   Passbook savings accounts       16,529       420  2.54      16,804      419   2.49     17,498       439   2.51
   Certificates of deposit        114,326     6,705  5.86     102,270    5,961   5.83     90,873     5,380   5.92
                                ---------   -------         ---------   ------         ---------   -------
     Total deposits               148,915     7,574  5.09     135,084    6,749   5.00    124,218     6,199   4.99

   Borrowings                      48,744     2,774  5.69      24,179    1,400   5.79     10,751       620   5.77
                                ---------   -------         ---------   ------         ---------   -------

     Total interest-bearing 
     liabilities                  197,659  10,348    5.24%    159,263    8,149   5.12%   134,969     6,819   5.05%
                                           ------                        -----                      -----

   Noninterest-bearing 
     liabilities                    1,584                       1,386                      1,321
                                 --------                    --------                   --------

     Total liabilities            199,243                     160,649                    136,290

   Shareholders' equity            25,813                      27,147                     34,850
                                ---------                   ---------                  ---------

     Total liabilities &
       shareholders' equity     $ 225,056                   $ 187,796                  $ 171,140
                                =========                   =========                  =========

Net interest income;
  interest rate spread                      $ 5,871  2.16%              $5,624   2.42%             $ 5,847   2.55%
                                            =======  ====               ======   ====              =======   ====

Net interest margin (3)                              2.68%                       3.08%                       3.50%
                                                     ====                        ====                        ====

Average interest-earning assets to
  average interest-bearing
  liabilities                                      110.95%                     114.74%                     123.60%
                                                   ======                      ======                      ======
------------------------
</TABLE>

(1)  Average balance includes unrealized gains and losses while yield is based
     on amortized cost.

(2)  Calculated net of deferred loan fees, loan discounts, loans in process and
     allowance for loan losses.

(3)  Net interest income as a percent of average interest-earnings assets.

                                      -46-

<PAGE>   47


The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Corporation's interest income and expense during the years
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (multiplied by prior year rate), (2) changes in rate (multiplied by prior
year volume) and (3) total changes in rate and volume. The combined effects of
changes in both volume and rate, that are not separately identified, have been
allocated proportionately to the change due to volume and change due to rate:
<TABLE>
<CAPTION>
                                                                         Year ended September 30,
                                                     --------------------------------------------------------------
                                                                1998 vs. 1997                  1997 vs. 1996
                                                     -------------------------------   ----------------------------
                                                          Increase                         Increase
                                                         (decrease)                       (decrease)
                                                           due to                           due to
                                                     -----------------                 ---------------
                                                     Volume      Rate       Total      Volume     Rate       Total
                                                     ------      ----       -----      ------     ----       -----
                                                                              (In thousands)

<S>                                                <C>         <C>        <C>         <C>       <C>         <C>     
Interest income attributable to:
     Interest-bearing deposits in
       other financial institutions                $     (15)  $     14   $      (1)  $   (36)  $     (9)   $   (45)
     Securities available for sale                      (225)        (7)       (232)     (244)       (16)      (260)
     Securities held to maturity                         (36)        (7)        (43)      136         --        136
     Mortgage-backed securities
       available for sale                                269       (169)        100       713         12        725
     Mortgage-backed securities
       held to maturity                                  168         18         186      (144)       (48)      (192)
     Loans receivable                                  2,629       (271)      2,358       808        (88)       720
     Federal Home Loan Bank stock                         76          2          78        21          2         23
                                                   ---------   --------   ---------   -------   --------    -------

         Total interest income                         2,866       (420)      2,446     1,254       (147)     1,107
                                                   ---------   --------   ---------   -------   --------    -------

Interest expense attributable to:
     NOW accounts                                         24        (11)         13        12         (6)         6
     Money market accounts                                21         46          67       (14)        (3)       (17)
     Passbook savings accounts                            (7)         8           1       (17)        (3)       (20)
     Certificates of deposit                             707         37         744       665        (84)       581
     Borrowings                                        1,398        (24)      1,374       777          3        780
                                                   ---------   --------   ---------   -------   --------    -------

         Total interest expense                        2,143         56       2,199     1,423        (93)     1,330
                                                   ---------   --------   ---------   -------   --------    -------

Increase (decrease) in net
  interest income                                  $     723   $   (476)  $     247   $  (169)  $    (54)   $  (223)
                                                   =========   ========   =========   =======   ========    =======
</TABLE>


ASSET AND LIABILITY MANAGEMENT AND MARKET RISK

The Bank's primary market risk exposure is interest rate risk and, to a lesser
extent, liquidity risk. Interest rate risk is the risk that the Bank's financial
condition will be adversely affected due to movements in interest rates. The
income of financial institutions is primarily derived from the excess of
interest earned on interest-earning assets over the interest paid on
interest-bearing liabilities. Accordingly, the Bank places great importance on
monitoring and controlling interest rate risk.

As part of its effort to monitor and manage interest rate risk, the Bank uses
the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its
capital regulations. Although the Bank is not currently subject to NPV
regulation because such regulation does not apply to institutions with less than

                                      -47-

<PAGE>   48

$300 million in assets and risk-based capital in excess of 12%, application of
NPV methodology may illustrate the Bank's interest rate risk.

Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV that would
result from a theoretical 200 basis point (1 basis point equals 0.01%) change in
market interest rates. Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are considered. If the
NPV would decrease by more than 2% of the present value of the institution's
assets with either an increase or a decrease in market rates, the institution
must deduct 50% of the amount of decrease in excess of such 2% in the
calculation of the institution's risk-based capital. See "Liquidity and Capital
Resources."

As of September 30, 1998, 2% of the present value of the Bank's assets was
approximately $4,768,000. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $7,777,000 at September 30, 1998, the Bank
would have been required to deduct approximately $1,505,000 (50% of the
approximate $3,009,000 difference) from its capital in determining whether the
Bank met its risk-based capital requirement. Regardless of such reduction,
however, the Bank's risk-based capital at September 30, 1998, would still have
exceeded the regulatory requirement by approximately $11,183,000.

Presented below, as of September 30, 1998 and 1997, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates. The table also
contains policy limits set by the Board of Directors of the Bank as the maximum
change in NPV that the Board of Directors deems advisable in the event of
various changes in interest rates. Such limits are established with
consideration of the dollar impact of various rate changes and the Bank's strong
capital position.

As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment,
because the Bank has predominantly fixed-rate loans in its loan portfolio, the
amount of interest the Bank would receive on its loans would increase relatively
slowly as loans are slowly prepaid and new loans at higher rates are made.
Moreover, the interest the Bank would pay on its deposits would increase rapidly
because the Bank's deposits generally have shorter periods to repricing.
Assumptions used in calculating the amounts in this table are OTS assumptions.
<TABLE>
<CAPTION>
                                                         September 30, 1998               September 30, 1997
                                                   -----------------------------    ------------------------
    Change in Interest Rate       Board limit         $ change        % change        $ change          % change
        (Basis Points)             % change            in NPV          in NPV          in NPV            in NPV
    -----------------------       -----------         --------        -------        ---------          --------
                                               (Dollars in thousands)
<S>                               <C>                 <C>             <C>            <C>                <C>
            +300                     (40)%             (13,003)         (53)%       $   (15,466)         (60)%
            +200                     (30)               (7,777)         (31)             (9,964)         (39)
            +100                     (15)               (3,220)         (13)             (4,682)         (18)
               0                       0                     0            0                   0            0
            -100                      15                 1,581            6               3,337           13
            -200                      20                 2,841           11               4,946           19
            -300                      25                 4,369           18               6,163           24
</TABLE>

As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, 

                                      -48-
<PAGE>   49

while interest rates on other types may lag behind changes in market rates.
Further, in the event of a change in interest rates, expected rates of
prepayment on loans and mortgage-backed securities and early withdrawal levels
from certificates of deposit, would likely deviate significantly from those
assumed in making risk calculations.

At September 30, 1998 and 1997, the Bank exceeded the Board limit percentage
change for an increase in interest rates of 200 and 300 basis points. As part of
management's overall strategy to manage interest rate risk, the mortgage-backed
security portfolio was structured so that substantially all of the
mortgage-backed securities reprice on at least an annual basis. In addition,
management has increased consumer and commercial lending although such loans
still remain a small percentage of the overall loan portfolio. Consumer loans
typically have a significantly shorter weighted average maturity and offer less
exposure to interest rate risk while commercial loans primarily carry variable
interest rates which are tied to a market index. In addition, management is
continuing to originate variable-rate mortgage loans as an additional tool to
manage interest rate risk. Variable-rate loans increased from $7.3 million at
September 30, 1997 to $26.2 million at September 30, 1998. Additionally, during
1998 and 1997, the Bank sold pools of fixed-rate mortgage loans and invested the
funds in shorter-term fixed-rate loans, variable-rate loans and adjustable-rate
mortgage-backed securities which have less exposure to interest rate risk.


LIQUIDITY AND CAPITAL RESOURCES

The Corporation's liquidity, primarily represented by cash equivalents, is a
result of its operating, investing and financing activities. These activities
are summarized below for the years ended September 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
                                                                                 Year Ended September 30,
                                                                   ------------------------------------------------
                                                                        1998              1997             1996
                                                                   -------------     ------------      ------------
                                                                                      (In thousands)

<S>                                                                <C>               <C>               <C>         
Net income                                                         $       1,502     $      1,378      $      1,144
Adjustments to reconcile net income to net cash from
  operating activities                                                       961             (323)              392
                                                                   -------------     ------------      ------------

Net cash from operating activities                                         2,463            1,055             1,536
Net cash from investment activities                                      (26,921)         (24,074)          (19,350)
Net cash from financing activities                                        22,403           27,351            17,414
                                                                   -------------     ------------      ------------

Net change in cash and cash equivalents                                   (2,055)           4,332              (400)
Cash and cash equivalents at beginning of period                           5,633            1,301             1,701
                                                                   -------------     ------------      ------------

Cash and cash equivalents at end of period                         $       3,578     $      5,633      $      1,301
                                                                   =============     ============      ============
</TABLE>

The Corporation's principal sources of funds are deposits, loan and securities
repayments, maturities of securities, sales of securities available for sale and
other funds provided by operations. The Bank also has the ability to borrow from
the FHLB. While scheduled loan repayments and maturing securities are relatively
predictable, deposit flows and early loan and mortgage-backed security
prepayments are more influenced by interest rates, general economic conditions,
and competition. The Corporation maintains investments in liquid assets based
upon management's assessment of (1) need for funds, (2) expected deposit flows,
(3) yields available on short-term liquid assets and (4) objectives of the
asset/liability management program.

OTS regulations presently require the Bank to maintain an average daily balance
of investments in United States Treasury, federal agency obligations and other
investments having maturities of five years or less in an amount equal to 4% of
the sum of the Bank's average daily balance of net withdrawable deposit 

                                      -49-
<PAGE>   50

accounts and borrowings payable in one year or less. The liquidity requirement,
which may be changed from time to time by the OTS to reflect changing economic
conditions, is intended to provide a source of relatively liquid funds upon
which the Bank may rely, if necessary, to fund deposit withdrawals or other
short-term funding needs. At September 30, 1998, the Bank's regulatory liquidity
ratio was 36.9%. At such date, the Bank had commitments to originate fixed-rate
loans totaling $1,516,000. The Bank had no commitments to originate
variable-rate loans and no commitments to purchase or sell loans. The
Corporation considers its liquidity and capital reserves sufficient to meet its
outstanding short- and long-term needs.

The Bank is required by OTS regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for commercial banks. Current capital requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which for the Bank
consists solely of tangible capital) of 3.0% of adjusted total assets and
risk-based capital (which for the Bank consists of core capital and general
valuation allowances) of 8% of risk-weighted assets (assets are weighted at
percentage levels ranging from 0% to 100% depending on their relative risk). The
following table indicates the requirement for core capital is 4.0% because that
is the level that the OTS prompt corrective action regulations require to be
considered adequately capitalized.

The following table summarizes the Bank's regulatory capital requirements and
actual capital at September 30, 1998.
<TABLE>
<CAPTION>
                                                                                  Excess of Actual
                                                                                Capital Over Current
                              Actual capital          Current requirement            Requirement         Applicable
                           Amount      Percent      Amount        Percent        Amount     Percent      Asset Total
                           ------      -------      ------        -------        ------     -------      -----------
                                                       (Dollars in thousands)
<S>                      <C>           <C>         <C>            <C>           <C>          <C>        <C>        
Tangible Capital         $   21,681      9.3%      $   3,500      1.5%          $  18,181     7.8%      $   233,311
Core Capital                 21,681      9.3           9,332      4.0              12,349     5.3           233,311
Risk-based Capital           22,323     18.5           9,635      8.0              12,688    10.5           120,434
</TABLE>

At September 30, 1998, the Corporation had no material commitments for capital
expenditures.

In October 1998, the Board of Directors of the Corporation authorized the
purchase of up to 5% of the Corporation's outstanding common shares over a
twelve-month period. The shares will be purchased in the over-the-counter
market. The number of shares to be purchased and the price to be paid will
depend upon the availability of shares, the prevailing market prices and any
other considerations which may, in the opinion of the Corporation's Board of
Directors or management, affect the advisability of purchasing shares.


YEAR 2000 ISSUE

The Banks lending and deposit activities are almost entirely dependent upon
computer systems which process and record transactions, although the Bank can
effectively operate with manual systems for brief periods when its electronic
systems malfunction or cannot be accessed. The Bank utilizes the services of a
nationally-recognized data processing service bureau which specializes in data
processing for financial institutions. In addition to its basic operating
activities, the Bank's facilities and infrastructure, such as security systems
and communications equipment, are dependent, to varying degrees, upon computer
systems.

The Bank is aware of the potential Year 2000 related problems that may affect
the computers which control or operate Bank's operating systems, facilities and
infrastructure. In 1997, the Bank began a process of identifying any Year 2000
related problems that may be experienced by its computer-operated 

                                      -50-
<PAGE>   51

or computer-dependent systems. The Bank has contacted the companies that supply
or service the Bank's computer-operated or computer-dependent systems to obtain
confirmation that each system that is material to the operations of the Bank is
either currently Year 2000 compliant or is expected to be Year 2000 compliant.
With respect to systems that cannot presently be confirmed as Year 2000
compliant, the Bank will continue to work with the appropriate supplier or
servicer to ensure all such systems will be rendered compliant in a timely
manner, with minimal expense or disruption of the Bank's operations. All of the
identified computer systems affected by the Year 2000 issue are currently in the
renovation, validation or implementation phase of the process of becoming Year
2000 compliant. The Bank has identified various companies whose services are
deemed critical to the mission of the Bank and received assurances that such
companies will be Year 2000 compliant.

As a contingency plan, the Bank has determined that if such service providers
were to have their systems fail, the Bank would implement manual systems until
such systems could be re-established. The Bank does not anticipate that such
short-term manual systems would have a material adverse effect on the Bank's
operations. The expense of any change in suppliers or servicers is not expected
to be material to the Bank. The Bank has examined its computer hardware and
software and determined it will cost approximately $55,000 to make such systems
Year 2000 compliant. Of that amount, the Bank has already spent $13,000. At this
time, however, any additional expense that may be incurred by the Bank in
connection with Year 2000 issues cannot be determined.

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


IMPACT OF NEW ACCOUNTING STANDARDS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 130, "REPORTING
COMPREHENSIVE INCOME" - SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.

SFAS 130 requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS 130 will be effective in fiscal 1999 and is not expected to have
a significant impact on the Corporation's financial statements.

SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION" - SFAS 131 significantly changes the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
reportable segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 uses a "management approach" to
disclose financial and descriptive information about an enterprise's reportable
operating segments which is based on reporting information the way that
management organizes the segments within the enterprise for making operating
decisions and assessing performance. For many enterprises, the management
approach will likely result in more segments being reported. In addition, SFAS
131 requires significantly more information to be disclosed for each

                                      -52-
<PAGE>   52

reportable segment than is presently being reported in annual financial
statements. SFAS 131 also requires selected information to be reported in
interim financial statements. SFAS 131 will be effective in fiscal 1999 and is
not expected to have a significant impact on the Corporation's financial
statements.

SFAS NO. 132, "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS" - SFAS 132 amends the disclosure requirements of previous pension and
other postretirement benefit accounting standards by requiring additional
disclosures about such plans as well as eliminating some disclosures no longer
considered useful. SFAS 132 also allows greater aggregation of disclosures for
employers with multiple defined benefit plans. Non-public companies are subject
to reduced disclosure requirements, however, such entities may elect to follow
the full disclosure requirements of SFAS 132. SFAS 132 will be effective in
fiscal 1999 and is not expected to have a significant impact on the
Corporation's financial statements.

SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" -
SFAS 133 requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS 133
does not allow hedging of a security which is classified as held to maturity,
accordingly, upon adoption of SFAS 133, companies may reclassify any security
from held to maturity to available for sale if they wish to be able to hedge the
security in the future. SFAS 133 is effective for fiscal years beginning after
June 15, 1999 with early adoption encouraged for any fiscal quarter beginning
July 1, 1998 or later, with no retroactive application. Management does not
expect the adoption SFAS 133 to have a significant impact on the Corporation's
financial statements.

SFAS NO. 134 "ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE
SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE"
- SFAS 134 changes the way companies involved in mortgage banking account for
certain securities and other interests they retain after securitizing mortgage
loans that were held for sale. SFAS 134 allows any retained mortgage-backed
securities after a securitization of mortgage loans held for sale to be
classified based on holding intent in accordance with SFAS 115 except in cases
where the retained mortgage-backed security is committed to be sold before or
during the securitization process in which case it must be classified as
trading. Previously, all retained mortgage-backed securities were required to be
classified as trading. SFAS 134 will be effective on January 1, 1999 and is not
expected to have a significant impact on the Corporation's financial statements.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes included herein have been
prepared in accordance with generally accepted accounting principles ("GAAP").
Presently, GAAP requires the Corporation to measure financial position and
operating results primarily in terms of historic dollars. Changes in the
relative value of money due to inflation or recession are generally not
considered.

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is included under the heading "Asset and Liability Management
and Market Risk" in Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on pages 47 through 49 of this document.


                                      -52-
<PAGE>   53


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Milton Federal Financial Corporation
West Milton, Ohio

We have audited the accompanying consolidated balance sheets of Milton Federal
Financial Corporation as of September 30, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

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




                                                   Crowe, Chizek and Company LLP

Columbus, Ohio
October 16, 1998

                                      -53-
<PAGE>   54


                      MILTON FEDERAL FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 1998 and 1997

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                     1998                 1997
                                                                                     ----                 ----
<S>                                                                           <C>                  <C>             
ASSETS
Cash and amounts due from depository institutions                             $      1,049,982     $        696,629
Overnight deposits in other financial institutions                                   2,200,000            3,500,000
Interest-bearing deposits in other financial institutions                              327,941            1,436,490
                                                                              ----------------     ----------------
     Total cash and cash equivalents                                                 3,577,923            5,633,119
Securities available for sale                                                           15,000            5,519,885
Securities held to maturity (Estimated fair value of $3,260,087 in 1997)                    --            3,254,385
Mortgage-backed securities available for sale                                       36,897,196           47,842,476
Mortgage-backed securities held to maturity (Estimated fair value
  of $14,528,202 in 1998 and $12,055,248 in 1997)                                   14,559,907           12,125,253
Federal Home Loan Bank stock                                                         2,814,200            2,013,200
Loans, net                                                                         171,346,497          127,395,541
Premises and equipment, net                                                          2,739,778            2,734,708
Cash surrender value of life insurance                                               1,593,383            1,524,502
Accrued interest receivable                                                          1,225,037            1,184,122
Other assets                                                                           506,702              730,547
                                                                              ----------------     ----------------
         Total assets                                                         $    235,275,623     $    209,957,738
                                                                              ================     ================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits                                                                      $    154,647,142     $    142,831,783
Borrowed funds                                                                      52,430,023           39,569,906
Advance payments by borrowers for taxes and insurance                                  258,357              165,805
Accrued interest payable                                                               284,706              192,195
Other liabilities                                                                    1,372,169              810,179
                                                                              ----------------     ----------------
         Total liabilities                                                         208,992,397          183,569,868

Shareholders' equity
Preferred stock, no par value, 1,000,000 shares authorized,
  none outstanding
Common stock, no par value, 9,000,000 shares authorized,
  2,578,875 shares issued
Additional paid-in capital                                                          25,143,563           25,017,419
Retained earnings                                                                    8,167,236            7,975,535
Treasury stock, 342,039 shares in 1998 and 274,039 shares in 1997,
  at cost                                                                           (5,104,494)          (4,050,307)
Unearned employee stock ownership plan shares                                       (1,199,087)          (1,444,169)
Unearned recognition and retention plan shares                                        (839,194)          (1,054,575)
Unrealized gain (loss) on securities available for sale, net of tax                    115,202              (56,033)
                                                                              ----------------     ----------------
     Total shareholders' equity                                                     26,283,226           26,387,870
                                                                              ----------------     ----------------
         Total liabilities and shareholders' equity                           $    235,275,623     $    209,957,738
                                                                              ================     ================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -54-
<PAGE>   55


                      MILTON FEDERAL FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   1998               1997                1996
                                                                   ----               ----                ----
<S>                                                          <C>                 <C>                <C>            
INTEREST AND DIVIDEND INCOME
     Loans, including fees                                   $   11,937,278      $    9,578,767     $     8,858,805
     Mortgage-backed securities                                   3,813,971           3,528,348           2,995,124
     Other securities                                               229,994             505,254             628,619
     Interest-bearing deposits and overnight funds                   57,703              58,696             103,790
     Dividends on Federal Home Loan Bank
       stock                                                        179,692             101,880              79,152
                                                             --------------      --------------     ---------------
         Total interest income                                   16,218,638          13,772,945          12,665,490

INTEREST EXPENSE
     Deposits                                                     7,574,249           6,749,161           6,199,016
     Borrowed funds                                               2,773,629           1,399,995             619,790
                                                             --------------      --------------     ---------------
         Total interest expense                                  10,347,878           8,149,156           6,818,806
                                                             --------------      --------------     ---------------

NET INTEREST INCOME                                               5,870,760           5,623,789           5,846,684

Provision for loan losses                                           229,000              75,000             154,300
                                                             --------------      --------------     ---------------

NET INTEREST INCOME AFTER PROVISION FOR
  LOAN LOSSES                                                     5,641,760           5,548,789           5,692,384

NONINTEREST INCOME
     Service charges and other fees                                 215,542             147,232             131,696
     Net gain on sale of loans                                      207,662             118,281                  --
     Net realized gain on sale of available for sale
       securities                                                   247,996             115,072             225,797
     Other income                                                   125,110             117,209              99,498
                                                             --------------      --------------     ---------------
         Total noninterest income                                   796,310             497,794             456,991

NONINTEREST EXPENSE
     Salaries and employee benefits                               2,419,868           2,295,007           1,958,788
     Occupancy                                                      387,626             289,902             283,422
     Data processing services                                       220,504             179,096             158,180
     Federal deposit insurance premiums                              89,547             121,044           1,003,897
     State franchise taxes                                          350,175             371,575             372,980
     Advertising                                                     67,782              57,541              42,472
     Other expenses                                                 610,071             644,980             590,658
                                                             --------------      --------------     ---------------
         Total noninterest expense                                4,145,573           3,959,145           4,410,397
                                                             --------------      --------------     ---------------

INCOME BEFORE INCOME TAX                                          2,292,497           2,087,438           1,738,978

Income tax expense                                                  790,000             709,000             595,000
                                                             --------------      --------------     ---------------

NET INCOME                                                   $    1,502,497      $    1,378,438     $     1,143,978
                                                             ==============      ==============     ===============

Earnings per common share - Basic                            $          .72      $          .65     $           .51
                                                             ==============      ==============     ===============
Earnings per common share - Diluted                          $          .71      $          .65     $           .50
                                                             ==============      ==============     ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -55-

<PAGE>   56



                      MILTON FEDERAL FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 Years ended September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                          Unrealized
                                                                                        Gain (Loss) on
                                 Additional                                 Unearned      Securities
                                   Paid-In       Retained   Treasury    Employee Benefit   Available
                                   Capital       Earnings     Stock        Plan Shares     for Sale        Total
                                   -------       --------     -----        -----------     --------        -----

<S>                            <C>             <C>          <C>            <C>           <C>           <C>         
Balance, October 1, 1995       $ 24,880,297    $15,787,634  $         --   $ (3,341,075) $   175,601   $ 37,502,457

Net income for the year
  ended September 30, 1996                       1,143,978                                                1,143,978

Cash dividends -
  $1.43 per share                               (3,396,332)                                              (3,396,332)

Commitment to release
  19,124  employee stock
  ownership plan shares              71,394                                     205,257                     276,651

14,957 shares earned under
  recognition and retention
  plan                                                                          215,382                     215,382

Purchase 128,943 shares
  of treasury stock at cost                                   (1,997,640)                                (1,997,640)

Change in unrealized gain
  (loss) on securities
  available for sale                                                                        (265,093)      (265,093)
                              -------------    -----------  ------------   ------------  -----------   ------------

Balance, September 30, 1996      24,951,691     13,535,280    (1,997,640)    (2,920,436)     (89,492)    33,479,403

Net income for the year
  ended September 30, 1997                       1,378,438                                                1,378,438

Cash dividends -
  $3.09 per share                               (6,938,183)                                              (6,938,183)

Commitment to release
  19,124  employee stock
  ownership plan shares              62,719                                     206,310                     269,029

14,957 shares earned under
  recognition and retention
  plan                                                                          215,382                     215,382

Tax benefit realized on
  vesting of recognition and
  retention plan shares               3,009                                                                   3,009

Purchase 145,096 shares
  of treasury stock at cost                                   (2,052,667)                                (2,052,667)

Change in unrealized gain
  (loss) on securities
  available for sale                                                                          33,459         33,459
                              -------------    -----------  ------------   ------------  -----------   ------------

Balance, September 30, 1997      25,017,419      7,975,535    (4,050,307)    (2,498,744)     (56,033)    26,387,870
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)

                                      -56-
<PAGE>   57


                      MILTON FEDERAL FINANCIAL CORPORATION
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
                 Years ended September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                          Unrealized
                                                                                        Gain (Loss) on
                                 Additional                                 Unearned      Securities
                                   Paid-In       Retained   Treasury    Employee Benefit   Available
                                   Capital       Earnings     Stock        Plan Shares     for Sale        Total
                                   -------       --------     -----        -----------     --------        -----

<S>                            <C>             <C>          <C>            <C>           <C>           <C>         
Balance, September 30, 1997    $ 25,017,419    $ 7,975,535  $ (4,050,307)  $ (2,498,744) $   (56,033)  $ 26,387,870

Net income for the year
  ended September 30, 1998                       1,502,497                                                1,502,497

Cash dividends -
  $.60 per share                                (1,310,796)                                              (1,310,796)

Commitment to release
  20,931  employee stock
  ownership plan shares              94,333                                     245,082                     339,415

14,957 shares earned under
  recognition and retention
  plan                                                                          215,381                     215,381

Tax benefit realized on
  vesting of recognition and
  retention plan shares              31,811                                                                  31,811

Purchase 68,000 shares
  of treasury stock at cost                                   (1,054,187)                                (1,054,187)

Change in unrealized gain
  (loss) on securities
  available for sale                                                                         171,235        171,235
                              -------------    -----------  ------------   ------------  -----------   ------------

Balance, September 30, 1998   $  25,143,563    $ 8,167,236  $ (5,104,494)  $ (2,038,281) $   115,202   $ 26,283,226
                              =============    ===========  ============   ============  ===========   ============
</TABLE>
--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                      -57-
<PAGE>   58

                      MILTON FEDERAL FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     1998               1997               1996
                                                                     ----               ----               ----
<S>                                                           <C>                 <C>                <C>           
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                               $    1,502,497      $    1,378,438     $    1,143,978
     Adjustments to reconcile net income to net
       cash from operating activities
         Amortization of deferred loan
           origination fees                                         (160,278)            (97,093)          (133,449)
         Amortization of premiums, accretion
           of discounts, net                                          45,205              24,759             43,407
         Amortization of mortgage servicing rights                    29,019               6,894                 --
         Provision for loan losses                                   229,000              75,000            154,300
         Depreciation                                                214,952             151,028            145,234
         Increase in cash value of life insurance                    (68,881)            (69,009)           (66,638)
         Net realized gain on sale of available for sale
           securities                                               (247,996)           (115,072)          (225,797)
         Net gain on sale of loans                                  (207,662)           (118,281)                --
         Federal Home Loan Bank stock dividend                      (179,600)           (101,700)           (78,900)
         Compensation expense on ESOP shares                         339,415             269,029            276,651
         Compensation expense on RRP shares                          215,381             215,382            215,382
         Tax benefit realized on vesting of RRP shares                31,811               3,009                 --
         Deferred tax expense (benefit)                               52,035             284,289           (304,334)
         Net change in accrued interest receivable
           and other assets                                          153,911            (385,058)          (440,672)
         Net change in accrued interest payable
           and other liabilities                                     514,255            (466,500)           806,505
                                                              --------------      ---------------    --------------
              Net cash from operating activities                   2,463,064           1,055,115          1,535,667

CASH FLOWS FROM INVESTING ACTIVITIES
     Securities available for sale
         Purchases                                                        --          (5,000,000)        (4,503,769)
         Proceeds from maturities                                  5,500,000           6,000,000          7,000,000
         Proceeds from sales                                              --           2,000,000                 --
     Securities held to maturity
         Purchases                                                (1,000,000)         (4,006,975)          (500,000)
         Proceeds from maturities                                  4,250,000           1,250,000                 --
     Mortgage-backed securities available for sale
         Purchases                                                (9,693,205)        (31,287,712)       (21,889,791)
         Proceeds from principal payments                          5,836,810             855,042          2,182,385
         Proceeds from sales                                      15,321,317          16,785,046         11,788,658
     Mortgage-backed securities held to maturity
         Purchases                                                (4,661,533)                 --                 --
         Proceeds from principal payments                          2,178,744           1,836,696          2,831,653
     Purchase of Federal Home Loan Bank stock                       (621,400)           (730,000)            (3,200)
     Increase in loans, net                                      (52,246,154)        (20,883,830)       (16,012,093)
     Proceeds from sale of loans                                   8,434,138          10,377,554                 --
     Premises and equipment expenditures                            (220,022)         (1,344,060)          (243,364)
     Proceeds from sale of real estate owned                              --              74,710                 --
                                                              --------------      --------------     --------------
         Net cash from investing activities                      (26,921,305)       (24,073,529)        (19,349,521)
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)

                                      -58-
<PAGE>   59


                      MILTON FEDERAL FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                  Years ended September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     1998              1997                1996
                                                                     ----              ----                ----
<S>                                                           <C>                 <C>                <C>           
CASH FLOWS FROM FINANCING ACTIVITIES
     Net change in deposits                                   $   11,815,359      $  14,277,676      $   10,656,199
     Net change in advance payments by
       borrowers for taxes and insurance                              92,552            (17,005)            (77,307)
     Net change in short-term borrowings                          (1,600,000)        (1,600,000)          2,200,000
     Long-term advances from Federal Home
       Loan Bank                                                  54,320,000         24,975,000          10,120,000
     Principal payments on long-term Federal
       Home Loan Bank advances                                   (39,859,883)        (1,294,297)            (90,797)
     Cash dividends paid                                          (1,310,796)        (6,938,183)         (3,396,332)
     Purchase of treasury stock                                   (1,054,187)        (2,052,667)         (1,997,640)
                                                              --------------      --------------     --------------
         Net cash from financing activities                       22,403,045         27,350,524          17,414,123
                                                              --------------      -------------      --------------

Net change in cash and cash equivalents                           (2,055,196)         4,332,110            (399,731)

Cash and cash equivalents at beginning
  of year                                                          5,633,119          1,301,009           1,700,740
                                                              ---------------    ---------------     --------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                      $    3,577,923      $   5,633,119      $    1,301,009
                                                              ==============      =============      ==============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
     Cash paid during the year for
         Interest                                             $   10,255,367      $   8,061,779      $    6,741,178
         Income taxes                                                858,317            398,000             932,000
     Noncash activities
         Transfers of mortgage-backed securities
           from held to maturity to available for
           sale as allowed by the SFAS No. 115
           implementation guide                                           --                 --           9,090,701
</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                      -59-
<PAGE>   60


                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Milton Federal Financial Corporation (the "Corporation") and its
wholly-owned subsidiary, Milton Federal Savings Bank (the "Bank"), a federal
stock savings bank. The financial statements of the Bank include the accounts of
its wholly-owned subsidiary, Milton Financial Service Corporation. Milton
Financial Service Corporation holds stock in Intrieve, Inc., which is the data
processing center utilized by the Bank. All significant intercompany accounts
and transactions have been eliminated.

NATURE OF OPERATIONS: The Corporation is a thrift holding company and through
its subsidiary Bank, is engaged in the business of commercial and retail banking
services with operations conducted through its main office in West Milton, Ohio
and its full-service branch offices located in Englewood, Brookville and Tipp
City, Ohio. Miami, Montgomery and Darke Counties provide the source of
substantially all of the Bank's deposit and lending activities.

USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided and future
results could differ. The allowance for losses on loans, fair values of
financial instruments and status of contingencies are particularly subject to
change.

SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are classified as trading when held for
short-term periods in anticipation of market gains and are carried at fair
value. Securities are written down to fair value when a decline in fair value is
not considered temporary.

Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.

LOANS: Loans are reported at the principal balance outstanding, net of deferred
loan fees and costs, loans in process and the allowance for losses on loans.
Interest income is reported on the interest method and includes the amortization
of net deferred loan fees and costs over the loan term.

Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days (180 days for residential mortgages).
Payments received on such loans are reported as principal reductions.

ALLOWANCE FOR LOSSES ON LOANS: The allowance for losses on loans is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.

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

                                      -60-
<PAGE>   61
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loan impairment is reported when full payment under the loan terms is not
expected. The carrying values of impaired loans are reduced to the present value
of expected future cash flows, or to the fair value of collateral if the loan is
collateral dependent, by allocating a portion of the allowance for loan losses
to such loans. If these allocations cause the allowance for loan losses to
require an increase, such increase is reported as part of the provision for loan
losses.

Loan impairment is evaluated in total for smaller-balance loans of similar
nature such as residential first mortgage loans secured by 1-4 family
residences, residential construction loans, automobile, home equity and second
mortgage loans. Commercial loans and mortgage loans secured by other properties
are evaluated individually for impairment. Loans are evaluated for impairment
when payments are delayed, typically 90 days or more, or when the internal
grading system indicates a doubtful classification. The carrying values of
impaired loans are periodically adjusted to reflect cash payments, revised
estimates of future cash flows and increases in the present value of expected
cash flows due to the passage of time. Cash payments representing interest
income are reported as such. Other cash payments are reported as reductions in
carrying value, while increases or decreases due to changes in future payments
and due to the passage of time are reported as part of the provision for loan
losses.

PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation expense is calculated using a straight line method based on the
estimated useful lives of the assets. These assets are reviewed for impairment
when events indicate the carrying amount may not be recoverable.
Maintenance and repairs are charged to expense as incurred and improvements are
capitalized.

REAL ESTATE OWNED: Real estate acquired in settlement of a loan is initially
reported at estimated fair value at acquisition. Any reduction to fair value
from the carrying value of the related loan at the time the property is acquired
is accounted for as a loan charge-off. After acquisition, a valuation allowance
reduces the reported amount to the lower of the initial amount or fair value
less costs to sell. Expenses, gains and losses on disposition, and changes in
the valuation allowance are reported in the net gain or loss on other real
estate included in "Other income" on the accompanying consolidated statements of
income.

MORTGAGE SERVICING RIGHTS: The Corporation adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights," (superseded by SFAS No. 125) on October 1, 1996.
Mortgage servicing rights represent the allocated value of servicing rights
retained on loans sold. Mortgage servicing rights are expensed in proportion to,
and over the period of, estimated servicing revenues. Impairment is evaluated
based on the fair value of the rights, using groupings of the underlying loans
as to interest rates and then, secondarily, as to geographic and prepayment
characteristics. Any impairment of a grouping is reported as a valuation
allowance.

INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.


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

                                      -61-
<PAGE>   62
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

CONCENTRATIONS OF CREDIT RISK: The Bank grants loans to customers located
primarily in Miami, Montgomery and Darke Counties. At year-end 1998 and 1997,
approximately 85.2% and 94.3% of the loans in the Bank's loan portfolio had
interest rates fixed until the maturity of the loans.

At year-end 1998 and 1997, the Bank had interest-bearing deposits and overnight
deposits in the Federal Home Loan Bank ("FHLB") of Cincinnati totaling
$2,527,941 and $3,682,264 and owned stock in the FHLB with a carrying value of
$2,814,200 and $2,013,200.

CASH FLOW REPORTING: For the purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from depository institutions,
federal funds sold and interest-bearing deposits in other financial institutions
with original maturities of 90 days or less. The Corporation reports net cash
flows for customer loan and deposit transactions, as well as short-term
borrowings under its cash management line of credit with the FHLB.

EARNINGS PER COMMON SHARE: The Corporation adopted SFAS No. 128, "Earnings Per
Share," on December 31, 1997. SFAS No. 128 requires dual presentation of basic
and diluted earnings per share ("EPS") for entities with complex capital
structures. All prior EPS data has been restated to conform to the new method.
Basic EPS is based on net income divided by the weighted average number of
shares outstanding during the period. Diluted EPS includes the dilutive effect
of stock options granted and unearned recognition and retention plan ("RRP")
shares using the treasury stock method. Unreleased ESOP shares are not
considered to be outstanding shares for the purpose of determining the weighted
average number of shares used in the earnings per common share calculation.

The weighted average number of common shares outstanding for basic and diluted
earnings per share computations were as follows:
<TABLE>
<CAPTION>
                                                                              1998           1997           1996
                                                                              ----           ----           ----
<S>                                                                     <C>            <C>             <C>         
NUMERATOR:
     Net income                                                         $  1,502,497   $  1,378,438    $  1,143,978

DENOMINATOR:
     Weighted-average common shares outstanding (Basic)                    2,074,146      2,118,442       2,248,980
     Effect of stock options                                                  20,575          4,272          12,238
     Effect of unearned RRP shares                                            10,992          5,822           8,848
                                                                        ------------   ------------    ------------
     Weighted-average common shares outstanding (Diluted)                  2,105,713      2,128,536       2,270,066
                                                                        ============   ============    ============
</TABLE>

RECLASSIFICATIONS: Some items in prior financial statements have been
reclassified to conform with the current presentation.


--------------------------------------------------------------------------------
                                      -62-

<PAGE>   63
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 2 - SECURITIES

Year-end securities were as follows:
<TABLE>
<CAPTION>
                                                                       September 30, 1998
                                               --------------------------------------------------------------------
                                                                      Gross            Gross
                                                  Amortized        Unrealized       Unrealized            Fair
                                                    Cost              Gains           Losses              Value
                                                    ----              -----           ------              -----
<S>                                            <C>                <C>             <C>              <C>             
SECURITIES AVAILABLE FOR SALE
Securities
     Equity securities                         $        15,000    $         -     $          --    $         15,000
                                               ===============    ===========     =============    ================
Mortgage-backed securities
     FNMA certificates                         $     1,866,456    $    32,980     $          --    $      1,899,436
     GNMA certificates                               2,698,194         10,504                --           2,708,698
     FHLMC certificates                              2,267,393         28,878                --           2,296,271
     Collateralized mortgage
       obligations and REMICs                       29,890,607        231,747          (129,563)         29,992,791
                                               ---------------    -----------     -------------    ----------------
         Total mortgage-backed
           securities                          $    36,722,650    $   304,109     $    (129,563)   $     36,897,196
                                               ===============    ===========     =============-   ================

SECURITIES HELD TO MATURITY
Mortgage-backed securities
     FNMA certificates                         $     4,177,284    $    18,398     $     (55,637)   $      4,140,045
     GNMA certificates                                 587,678         29,927                --             617,605
     FHLMC certificates                              5,139,115         31,108           (57,340)          5,112,883
     Collateralized mortgage
       obligations and REMICs                        4,655,830          5,704            (3,865)          4,657,669
                                               ---------------    -----------     -------------    ----------------
         Total mortgage-backed
           securities                          $    14,559,907    $    85,137     $    (116,842)   $     14,528,202
                                               ===============    ===========     =============    ================
</TABLE>

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

                                      -63-
<PAGE>   64
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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

NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
                                                                       September 30, 1997
                                               --------------------------------------------------------------------
                                                                      Gross            Gross
                                                  Amortized        Unrealized       Unrealized            Fair
                                                    Cost              Gains           Losses              Value
                                                    ----              -----           ------              -----
<S>                                            <C>                <C>             <C>              <C>             
SECURITIES AVAILABLE FOR SALE
Securities
     U.S. Government and federal
       agency securities                       $     5,500,575    $     6,319     $      (2,009)   $      5,504,885
     Equity securities                                  15,000             --                --              15,000
                                               ---------------    -----------     -------------    ----------------
         Total securities                      $     5,515,575    $     6,319     $      (2,009)   $      5,519,885
                                               ===============    ===========     =============    ================
Mortgage-backed securities
     FNMA certificates                         $     2,819,302    $    32,045     $          --    $      2,851,347
     FHLMC certificates                              2,821,791         41,355                --           2,863,146
     Collateralized mortgage
       obligations and REMICs                       42,290,593        318,118          (480,728)         42,127,983
                                               ---------------    -----------     -------------    ----------------
         Total mortgage-backed
           securities                          $    47,931,686    $   391,518     $    (480,728)   $     47,842,476
                                               ===============    ===========     =============    ================

SECURITIES HELD TO MATURITY
Securities
     U.S. Government and federal
       agency securities                       $     3,254,385    $    11,274     $      (5,572)   $      3,260,087
                                               ===============    ===========     =============    ================
Mortgage-backed securities
     FNMA certificates                         $     5,191,291    $    41,591     $     (88,830)   $      5,144,052
     GNMA certificates                                 810,348         41,570                --             851,918
     FHLMC certificates                              6,123,614         53,307          (117,643)          6,059,278
                                               ---------------    -----------     -------------    ----------------
         Total mortgage-backed
           securities                          $    12,125,253    $   136,468     $    (206,473)   $     12,055,248
                                               ===============    ===========     =============    ================
</TABLE>

Substantially all collateralized mortgage obligations and REMICs (real estate
mortgage investment conduits) are backed by pools of mortgages that are insured
or guaranteed by the Federal National Mortgage Association ("FNMA"), the
Government National Mortgage Association ("GNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC").

During 1997, proceeds from the sales of securities available for sale were
$2,000,000 with gross gains of $119 included in earnings. No securities were
sold during 1998 and 1996.

During 1998, proceeds from the sales of mortgage-backed securities available for
sale were $15,321,317 with gross gains of $247,996 included in earnings. During
1997, proceeds from the sales of mortgage-backed securities available for sale
were $16,785,046 with gross gains of $115,743 and gross losses of $790 included
in earnings. During 1996, proceeds from the sales of mortgage-backed securities
available for sale were $11,788,658 with gross gains of $252,907 and gross
losses of $27,110 included in earnings.


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

                                      -64-
<PAGE>   65

                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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

NOTE 3 - LOANS

Year-end loans were as follows:
<TABLE>
<CAPTION>
                                                                           1998                 1997
                                                                           ----                 ----
<S>                                                                  <C>                 <C>              
     Residential real estate loans
        1-4 family (first mortgage)                                  $    138,514,548    $     108,941,460
        Home equity (1-4 family second mortgage)                            4,244,314            4,051,527
        Multi-family                                                        2,670,477            1,456,604
     Nonresidential real estate loans                                       8,804,909            6,214,622
     Construction loans                                                    16,412,903            9,399,848
                                                                     ----------------    -----------------
        Total real estate loans                                           170,647,151          130,064,061
     Consumer
        Automobile loans                                                    3,480,341            2,305,331
        Loans on deposits                                                     290,640              280,542
        Other consumer loans                                                  344,244              246,543
                                                                     ----------------    -----------------
           Total consumer loans                                             4,115,225            2,832,416
     Commercial loans                                                       2,753,493              574,819
                                                                     ----------------    -----------------

        Total loans                                                       177,515,869          133,471,296
     Less:
        Net deferred loan fees                                               (605,224)            (536,713)
        Loans in process                                                   (4,887,733)          (4,976,840)
        Allowance for losses on loans                                        (676,415)            (562,202)
                                                                     ----------------    -----------------

        Net loans                                                    $    171,346,497    $     127,395,541
                                                                     ================    =================
</TABLE>

The Corporation, through the Bank, is an authorized seller/servicer for FHLMC
and FNMA. The Corporation has sold various loans to other financial
intermediaries while retaining the servicing rights. Gains and losses on loan
sales are recorded at the time of the sale. Loans sold for which the Corporation
has retained servicing totaled $15,615,077 and $9,843,149 at year-end 1998 and
1997. Mortgage servicing rights totaled $189,345 and $109,473 at year-end 1998
and 1997 and are included in "Other assets," in the consolidated balance sheets.
Amortization expense of mortgage servicing rights totaled $29,019 and $6,894 for
1998 and 1997. Proceeds from the sale of loans during 1998 and 1997 were
$8,434,138 and $10,377,554 with net realized gains of $207,662 and $118,281
included earnings. No loans were sold during 1996. There were no loans
classified as held for sale at year-end 1998 or 1997.

Activity in the allowance for losses on loans was as follows:
<TABLE>
<CAPTION>
                                                                 1998             1997           1996
                                                                 ----             ----           ----

<S>                                                          <C>             <C>              <C>         
         Beginning balance                                   $    562,202    $    487,202     $    332,902
         Provision for loan losses                                229,000          75,000          154,300
         Loans charged-off                                       (115,090)             --               --
         Recoveries of previous charge-offs                           303              --               --
                                                             ------------    ------------     ------------

         Ending balance                                      $    676,415    $    562,202     $    487,202
                                                             ============    ============     ============
</TABLE>


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

                                      -65-
<PAGE>   66
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 3 - LOANS (Continued)

Nonaccrual loans for which interest has been suspended totaled $359,000 and
$348,000 at year-end 1998 and 1997. Loans considered impaired within the scope
of SFAS No. 114 were not significant in 1998, 1997 or 1996.

Certain directors and executive officers of the Corporation and the Bank and
their related interests were loan customers of the Bank. A summary of activity
on related party loans during 1998 is as follows:
<TABLE>
<S>                                                       <C>
         Beginning balance - October 1, 1997              $      962,501
         New loans                                               130,339
         Repayments                                             (368,775)
         Other changes                                          (156,785)
                                                          --------------

         Ending balance - September 30, 1998              $      567,280
                                                          ==============
</TABLE>

Other changes represent loans reportable at the end of one period that are
excludable from the other period due to changes in borrowers or other
circumstances.


NOTE 4 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
                                                                              1998               1997
                                                                              ----               ----
<S>                                                                      <C>                 <C>          
         Land                                                            $     282,031       $     274,035
         Buildings and improvements                                          2,685,146           2,657,784
         Leasehold improvements                                                 62,879                  --
         Furniture and equipment                                             1,311,416           1,206,176
                                                                         -------------       -------------
              Total cost                                                     4,341,472           4,137,995
         Accumulated depreciation                                           (1,601,694)         (1,403,287)
                                                                         -------------       -------------

                                                                         $   2,739,778       $   2,734,708
                                                                         =============       =============
</TABLE>


NOTE 5 - DEFERRED COMPENSATION

The Corporation provides a deferred compensation plan for its Board of
Directors. Under the terms of the plan, directors may elect to defer a portion
of their fees which would be retained by the Corporation, with interest being
credited to the participant's deferred balance. Upon retirement, the participant
would be entitled to receive the accumulated deferred balance, paid over a
specified number of years. The Corporation accrued deferred compensation expense
of $53,472, $49,866 and $48,736 for 1998, 1997 and 1996.

The Corporation has purchased insurance contracts on the lives of the
participants in the deferred compensation plan and has named the Corporation as
beneficiary. While no direct contract exists between the deferred compensation
plan and the life insurance contracts, it is management's current intent that
the revenue from the insurance contracts be used as a funding source for the
deferred compensation plan.

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

                                      -66-
<PAGE>   67
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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

NOTE 6 - ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consisted of the following at year-end:
<TABLE>
<CAPTION>
                                                                              1998              1997
                                                                              ----              ----

<S>                                                                    <C>                <C>             
         Securities                                                    $             --   $        163,712
         Mortgage-backed securities                                             275,990            330,978
         Loans receivable                                                       949,047            689,432
                                                                       ----------------   ----------------

                                                                       $      1,225,037   $      1,184,122
                                                                       ================   ================
</TABLE>


NOTE 7 - DEPOSITS

Year-end deposits were as follows:
<TABLE>
<CAPTION>
                                                                              1998              1997
                                                                              ----              ----
<S>                                                                    <C>                <C>
         NOW accounts, including
           noninterest-bearing deposits
           of $1,922,658 and $802,124                                  $   10,728,700     $      8,795,378
         Money market accounts                                             10,441,306            7,064,858
         Passbook savings accounts                                         16,618,056           16,460,814
         Certificates of deposit                                          116,859,080          110,510,733
                                                                       --------------     ----------------

                                                                       $  154,647,142     $    142,831,783
                                                                       ==============     ================
</TABLE>

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $5,476,000 and $5,155,000 at year-end 1998 and 1997. Deposits in
excess of $100,000 are not insured by the FDIC.

At year-end 1998, scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<CAPTION>
                       Year ending September 30:
<S>                                                                      <C>
                               1999                                      $    62,453,832
                               2000                                           34,928,847
                               2001                                            8,694,595
                               2002                                            5,560,043
                               2003                                            5,221,763
                                                                         ---------------

                                                                         $   116,859,080
                                                                         ===============
</TABLE>

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

                                      -67-
<PAGE>   68
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 8 - INCOME TAXES

Income tax expense consisted of the following:
<TABLE>
<CAPTION>
                                                                 1998            1997             1996
                                                                 ----            ----             ----
<S>                                                          <C>             <C>              <C>         
        Current                                              $    706,154    $    421,702     $    899,334
        Tax effect of vesting RRP shares                           31,811           3,009               --
        Deferred                                                   52,035         284,289         (304,334)
                                                             ------------    ------------     ------------

                                                             $    790,000    $    709,000     $    595,000
                                                             ============    ============     ============
</TABLE>

The sources of year-end gross deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
                                                                                1998             1997
                                                                                ----             ----
<S>                                                                        <C>               <C>          
         Deferred tax assets
              Deferred compensation                                        $      95,460     $     103,709
              Recognition and retention plan                                      73,231            73,231
              Unrealized loss on securities available for sale                        --            28,866
              Other                                                                6,589                --
                                                                           -------------     -------------
                                                                                 175,280           205,806
         Deferred tax liabilities
              Allowance for losses on loans                                      149,102           192,951
              Federal Home Loan Bank stock dividends                             300,261           239,197
              Depreciation                                                        40,031            34,744
              Mortgage servicing rights                                           64,377            37,221
              Unrealized gain on securities available for sale                    59,346                --
              Other                                                                5,016             4,299
                                                                           -------------     -------------
                                                                                 618,133           508,412
                                                                           -------------     -------------

              Net deferred tax liability                                   $     442,853     $     302,606
                                                                           =============     =============
</TABLE>

The difference between the financial statement income tax expense and amounts
computed by applying the statutory federal income tax rate of 34% to income
before income tax is primarily because of the difference between the cost and
market value of employee stock ownership plan ("ESOP") shares released and
nontaxable earnings on life insurance contracts. A reconciliation of the
financial statement income tax expense and the amounts computed by using the
statutory rate follows:
<TABLE>
<CAPTION>
                                                              1998              1997             1996
                                                              ----              ----             ----
<S>                                                       <C>              <C>               <C>          
         Income tax computed at the
           statutory rate                                 $     779,449    $     709,729     $     591,253
         Tax effect of
              Officer's life insurance                          (23,420)         (23,463)          (22,657)
              ESOP                                               38,669           21,359            24,309
              Other                                              (4,698)           1,375             2,095
                                                          -------------    -------------     -------------
                                                          $     790,000    $     709,000     $     595,000
                                                          =============    =============     =============

         Statutory tax rate                                        34.0%            34.0%             34.0%
                                                          =============    =============     =============
         Effective tax rate                                        34.5%            34.0%             34.2%
                                                          =============    =============     =============
</TABLE>

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

                                      -68-
<PAGE>   69
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 8 - INCOME TAXES (Continued)

Prior to the enactment of legislation discussed below, thrifts which met certain
tests relating to the composition of assets had been permitted to establish
reserves for bad debts and to make annual additions thereto which could, within
specified formula limits, be taken as a deduction in computing taxable income
for federal income tax purposes. The amount of the bad debt reserve deduction
for "nonqualifying loans" was computed under the experience method. The amount
of the bad debt reserve deduction for "qualifying real property loans" could be
computed under either the experience method or the percentage of taxable income
method, based on an annual election.

In August 1996, legislation was enacted that repeals the percentage of taxable
income method of accounting used by many thrifts to calculate their bad debt
reserve for federal income tax purposes. As a result, thrifts such as the Bank
must recapture that portion of the reserve that exceeds the amount that could
have been taken under the experience method for tax years beginning after
December 31, 1987. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. The recapture will occur over a
six-year period, the commencement of which will be delayed until the first
taxable year beginning after December 31, 1997, provided the institution meets
certain residential lending requirements. At September 30, 1998, the Bank had
$1,130,000 in bad debt reserves subject to recapture for federal income tax
purposes. The deferred tax liability related to the recapture has been
previously established. In fiscal 1998, no bad debt reserves were recaptured as
the Bank met the residential lending requirements.

Retained earnings at September 30, 1998 and 1997, includes $3,436,000 for which
no provision for federal income taxes has been made. This amount represents the
qualifying and nonqualifying tax bad debt reserve as of December 31, 1987 which
is the Corporation's base year for purposes of calculating the bad debt
deduction for tax purposes. The related amount of unrecognized deferred tax
liability was $1,168,000 at September 30, 1998 and 1997. If this portion of
retained earnings is used in the future for any purpose other than to absorb bad
debts, it will be added to future taxable income.


NOTE 9 - BORROWED FUNDS

At September 30, 1998, the Bank had a cash management line of credit enabling it
to borrow up to $10,800,000 with the FHLB. The line of credit must be renewed on
an annual basis. The next renewal date is April 16, 1999. There were no
borrowings outstanding on this line of credit at year-end 1998 while borrowings
totaled $1,600,000, with an interest rate of 5.90%, at year-end 1997. As a
member of the FHLB system, the Bank has the ability to obtain additional
borrowings up to a maximum total of 50% of Bank assets subject to the level of
qualified, pledgable 1-4 family residential real estate loans. The Bank had
variable-rate borrowings totaling $4,000,000 and $32,805,000 at year-end 1998
and 1997. The interest rates on the borrowings adjust monthly. At year-end 1998,
the interest rate was 5.54% while at year-end 1997 the interest rates ranged
from 5.61% to 6.20%. The Bank had fixed rate borrowings totaling $12,430,023 and
$5,164,906 at year-end 1998 and 1997. The interest rates on these borrowings
ranged from 5.80% to 6.42% at year-end 1998 and 1997. The Bank also had
$36,000,000 in convertible advances at year-end 1998 whereby the interest rates
are fixed for a specified period of time and then change to variable for the
remaining term of the advance. The interest rates on these advances ranged from
4.66% to 5.65% at year-end 1998.

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

                                      -69-

<PAGE>   70
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 9 - BORROWED FUNDS (Continued)

The maximum month-end balance of FHLB advances outstanding was $55,251,000 in
1998 and $39,570,000 in 1997. Average balances of borrowings outstanding during
1998 and 1997 were $48,744,000 and $24,179,000. Advances under the borrowing
agreements are collateralized by a blanket pledge of the Bank's residential
mortgage loan portfolio and FHLB stock.

At September 30, 1998, required annual principal payments were as follows:
<TABLE>
<CAPTION>
                Year ending September 30:
<S>                                                                      <C>
                         1999                                            $     1,146,560
                         2000                                                  5,415,031
                         2001                                                  2,910,033
                         2002                                                  2,226,352
                         2003                                                  2,259,852
                         Thereafter                                           38,472,195
                                                                         ---------------

                                                                         $    52,430,023
                                                                         ===============
</TABLE>

NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES

Various contingent liabilities are not reflected in the consolidated financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.

Some financial instruments are used in the normal course of business to meet
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These involve, to varying degrees,
credit and interest rate risk in excess of amounts reported in the financial
statements.

Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based on
management's credit evaluation and generally consists of residential or
commercial real estate. Lines of credit are primarily home equity lines
collateralized by second mortgages on one- to-four-family residential real
estate and commercial lines of credit collateralized by business assets.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.


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

                                      -70-
<PAGE>   71
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES (Continued)

As of year-end 1998 and 1997, the Corporation had commitments to make fixed-rate
1-4 family residential real estate loans at current market rates totaling
$1,516,000 and $1,780,000. Loan commitments are generally for thirty days. The
interest rate on the fixed-rate commitments ranged from 6.38% to 8.50% at
year-end 1998 and from 6.25% to 9.25% at year-end 1997. The Corporation had
commitments to make variable-rate 1-4 family residential real estate loans
totaling $75,000, at 6.00%, at year-end 1997, while there were no such
commitments at year-end 1998. At year-end 1998 and 1997, the Corporation also
had $4,711,000 and $3,617,000 in unused variable-rate home equity lines of
credit and $820,000 and $239,000 in unused variable-rate commercial lines of
credit.

At September 30, 1998 and 1997, the Corporation had standby letter of credit
commitments totaling $150,000 and $301,000.

At year-end 1998 and 1997, compensating balances of $518,000 and $352,000 were
required as deposits with the FHLB. These balances do not earn interest.

The Corporation and the Bank have employment agreements with certain officers of
the Corporation and Bank. The agreements provide for a term of three years and a
salary and performance review by the Board of Directors not less often than
annually, as well as inclusion of the employee in any formally established
employee benefit, bonus, pension and profit-sharing plans for which management
personnel are eligible. The employment agreements also provide for vacation and
sick leave. The employment agreements also contain provisions with respect to
payment should a change in control occur.


NOTE 11 - REGULATORY CAPITAL REQUIREMENTS

MILTON FEDERAL SAVINGS BANK: The Bank is subject to various regulatory capital
requirements administered by the federal regulatory agencies. Failure to meet
minimum capital requirements can initiate certain mandatory actions that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about the Bank's components, risk weightings and
other factors. At September 30, 1998 and 1997, management believes the Bank is
in compliance with all regulatory capital requirements. Based upon the computed
regulatory capital ratios, the Bank is considered well capitalized under the
Federal Deposit Insurance Act at September 30, 1998 and 1997. Management is not
aware of any matters subsequent to September 30, 1998 that would cause the
Bank's capital category to change.


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

                                      -71-
<PAGE>   72
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 11 - REGULATORY CAPITAL REQUIREMENTS (Continued)

At year-end 1998 and 1997, the Bank's actual capital level and minimum required
levels were:
<TABLE>
<CAPTION>
                                                                             Minimum
                                                                         Required To Be               Minimum
                                                                     Adequately Capitalized       Required To Be
                                                                          Under Prompt           Well Capitalized
                                                                           Corrective         Under Prompt Corrective
                                                   Actual              Action Regulations       Action Regulations
                                                   ------              ------------------       ------------------
                                               Amount    Ratio          Amount     Ratio         Amount      Ratio
                                               ------    -----          ------     -----         ------      -----
                             (Dollars in thousands)
<S>                                          <C>           <C>         <C>           <C>        <C>          <C>  
SEPTEMBER 30, 1998
Total capital (to risk-weighted assets)      $  22,323     18.5%       $   9,635     8.0%       $  12,043    10.0%
Tier 1 (core) capital (to
  risk-weighted assets)                         21,681     18.0            4,817     4.0            7,226     6.0
Tier 1 (core) capital (to adjusted
  total assets)                                 21,681      9.3            9,332     4.0           11,666     5.0
Tangible capital (to adjusted total assets)     21,681      9.3            3,500     1.5              N/A

SEPTEMBER 30, 1997
Total capital (to risk-weighted assets)      $  21,799     22.8%       $   7,637     8.0%       $   9,547    10.0%
Tier 1 (core) capital (to
  risk-weighted assets)                         21,385     22.4            3,819     4.0            5,728     6.0
Tier 1 (core) capital (to adjusted
  total assets)                                 21,385     10.3            6,206     3.0           10,344     5.0
Tangible capital (to adjusted total assets)     21,385     10.3            3,103     1.5              N/A
</TABLE>

In addition to certain federal income tax considerations, the Office of Thrift
Supervision ("OTS") regulations impose limitations on the payment of dividends
and other capital distributions by savings associations. Under OTS regulations
applicable to converted savings banks, the Bank is not permitted to pay a cash
dividend on its common shares if its regulatory capital would, as a result of
payment of such dividends, be reduced below the amount required for the
Liquidation Account, or below applicable regulatory capital requirements
prescribed by the OTS.

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


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

                                      -72-
<PAGE>   73
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 11 - REGULATORY CAPITAL REQUIREMENTS (Continued)

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

MILTON FEDERAL FINANCIAL CORPORATION: In October 1998, the Board of Directors of
the Corporation authorized the purchase of up to 5% of the Corporation's
outstanding common shares over a twelve-month period. The shares will be
purchased in the over-the-counter market. The number of shares to be purchased
and the price to be paid will depend upon the availability of shares, the
prevailing market prices and any other considerations which may, in the opinion
of the Corporation's Board of Directors or management, affect the advisability
of purchasing shares.


NOTE 12 - EMPLOYEE PENSION AND PROFIT INCENTIVE PLANS

The Corporation is part of a qualified noncontributory multiple-employer defined
benefit pension plan covering substantially all of its employees. The plan is
administered by the trustees of the Financial Institutions Retirement Fund
("Retirement Fund").

The cost of the plan is set annually as an established percentage of wages.
During 1996, the Corporation reduced the defined benefit annual payment from 2%
to 1% of the average salary for the participant's highest five years of service
multiplied by the participant's years of service. As a result of the benefit
reduction, the accrued contribution of $38,211 at year-end 1995 was reversed as
no contributions were required for 1998, 1997 or 1996. The Corporation did not
recognize any pension expense in 1998 or 1997, while the pension expense
recognized in 1996 was $(38,211) as a result of the reversal of the prior year
accrual.

The Corporation offers a 401(k) profit sharing plan covering substantially all
employees. The annual expense of the plan is based on a partial matching of
voluntary employee contributions of up to 4% of individual compensation. The
matching percentage was 25% for 1998, 1997 and 1996. Employee contributions are
vested at all times and the Corporation's matching contributions become fully
vested after an individual has completed three years of service. The
contribution expense included in salaries and employee benefits was $11,509,
$9,484 and $7,500 for 1998, 1997 and 1996.


NOTE 13 - STOCK OPTION PLAN

On March 20, 1995, the Stock Option Committee of the Board of Directors granted
options to purchase 238,545 common shares at an exercise price of $13.69 to
certain officers and directors of the Bank and Corporation. One-fifth of the
options awarded become first exercisable on each of the first five anniversaries
of the date of grant. The option period expires 10 years from the date of grant.
Options to purchase 143,127 and 95,418 shares were exercisable at year-end 1998
and 1997. No options were exercised during 1998, 1997 or 1996. In addition,
19,342 shares of authorized but unissued common stock are reserved for which no
options have been granted.


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

                                      -73-
<PAGE>   74
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 13 - STOCK OPTION PLAN (Continued)

On October 1, 1996 the Corporation adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting encouraged by SFAS No. 123 is
not adopted, entities must still disclose the pro forma effect on net income and
on earnings per share had the fair value accounting been adopted. The fair value
of a stock option is estimated using an option pricing model which considers the
current price of the stock, expected price volatility, expected dividends on the
stock and the risk-free interest rate. Once estimated, the fair value of an
option is not later changed. Currently, the Corporation does not have any
options subject to the new accounting or disclosure requirements.


NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation offers an ESOP for the benefit of substantially all employees of
the Corporation and the Bank. The ESOP has received a favorable determination
letter from the Internal Revenue Service on the qualified status of the ESOP
under applicable provisions of the Internal Revenue Code.

The ESOP borrowed funds from the Corporation with which to acquire common shares
of the Corporation. The loan is secured by the shares purchased with the loan
proceeds and will be repaid by the ESOP with funds from the Bank's discretionary
contributions to the ESOP and earnings on ESOP assets. All dividends on
unallocated shares received by the ESOP are used to pay debt service. The shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. As payments are made and the shares
are released from the suspense account, such shares will be validly issued,
fully paid and nonassessable.

Shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. As shares are released from collateral, the
Corporation reports compensation expense equal to the current market price of
the shares and the shares become outstanding for earnings-per-share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings while dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest. ESOP compensation expense was $339,415,
$269,029 and $276,651 for 1998, 1997 and 1996. The ESOP shares at year-end 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
                                                                              1998               1997
                                                                              ----               ----
<S>                                                                              <C>                <C>   
         Allocated shares                                                        69,991             38,248
         Shares released for allocation                                          20,931             19,124
         Unreleased shares                                                      100,318            133,868
                                                                         --------------     --------------
              Total ESOP shares                                                 191,240            191,240
                                                                         ==============     ==============

         Fair value of unreleased shares                                 $    1,279,055     $    2,041,487
                                                                         ==============     ==============
</TABLE>

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

                                      -74-
<PAGE>   75
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 15 - RECOGNITION AND RETENTION PLAN

The Corporation maintains a recognition and retention plan ("RRP") for the
benefit of directors and certain key employees of the Bank and Corporation. The
RRP is used to provide such individuals ownership interest in the Corporation in
a manner designed to compensate such directors and key employees for services to
the Bank. The Bank contributed sufficient funds to enable the RRP to purchase a
number of common shares in the open market equal to 4% of the common shares sold
in connection with the Bank's conversion from a mutual savings and loan
association to a stock savings bank.

On October 16, 1995, the RRP Committee of the Board of Directors awarded 74,784
shares to certain directors and officers of the Bank and the Corporation. No
shares had been previously awarded. One-fifth of such shares will be earned and
nonforfeitable on each of the first five anniversaries of the date of the
awards. In the event of the death or disability of a participant or a change in
control of the Corporation, however, the participant's shares will be deemed to
be earned and nonforfeitable upon such date. There were 28,371 shares at
year-end 1998 and 1997 reserved for future awards. Compensation expense, which
is based upon the cost of the shares, was $215,381 for 1998 and $215,382 for
1997 and 1996.


NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of financial instruments at
year-end were:
<TABLE>
<CAPTION>
                                                                   1998                            1997
                                                                   ----                            ----
                                                                         Estimated                        Estimated
                                                         Carrying          Fair          Carrying           Fair
                                                           Value           Value           Value            Value
                                                           -----           -----           -----            -----
<S>                                                  <C>              <C>             <C>              <C>         
FINANCIAL ASSETS                                                              (In thousands)
     Cash and cash equivalents                       $      3,578     $      3,578    $      5,633     $      5,633
     Securities and mortgage-backed securities
       available for sale                                  36,912           36,912          53,362           53,362
     Securities and mortgage-backed securities
       held to maturity                                    14,560           14,528          15,380           15,315
     FHLB stock                                             2,814            2,814           2,013            2,013
     Loans, receivable net                                171,346          174,776         127,396          128,173
     Cash surrender value of life insurance                 1,593            1,593           1,525            1,525
     Accrued interest receivable                            1,225            1,225           1,184            1,184
     Mortgage servicing rights                                189              189             109              109

FINANCIAL LIABILITIES
     Deposits                                        $   (154,647)    $   (155,366)   $   (142,832)    $   (143,016)
     Borrowed funds                                       (52,430)         (52,646)        (39,570)         (39,535)
     Advance payments by borrowers
       for taxes and insurance                               (258)            (258)           (166)            (166)
     Accrued interest payable                                (285)            (285)           (192)            (192)
</TABLE>

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

                                      -75-
<PAGE>   76
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount is considered to estimate fair value
for cash and short-term instruments, demand deposits, short-term borrowings,
accrued interest, cash surrender value of life insurance contracts, mortgage
servicing rights and variable rate loans or deposits that reprice frequently and
fully. The fair values of securities are based on quoted market prices or, if no
quotes are available, on the rate and term of the security and on information
about the issuer. For fixed-rate loans or deposits and for variable-rate loans
or deposits with infrequent repricing or repricing limits, the fair value is
estimated by discounted cash flow analysis using current market rates for the
estimated life and credit risk. Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying collateral values, where
applicable. Fair value of loans held for sale is based on market estimates. The
fair value of debt is based on currently available rates for similar financing.
The fair value of off-balance-sheet items is based on the fees or cost that
would currently be charged to enter into or terminate such arrangements and such
amounts are not material.


NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

Condensed financial information of the Corporation is as follows:
<TABLE>
<CAPTION>
                                                                   Condensed Balance Sheets
                                                                  September 30, 1998 and 1997

                                                                            1998                1997
                                                                            ----                ----
<S>                                                                    <C>                <C>             
         ASSETS
         Cash and cash equivalents                                     $     2,045,724    $      1,340,416
         Securities and mortgage-backed
           securities available for sale                                       625,427           1,389,264
         Investment in subsidiary                                           21,822,890          21,314,566
         Loan receivable from ESOP                                           1,444,170           1,650,480
         Accrued interest receivable and other assets                          350,895             698,817
                                                                       ---------------    ----------------

              Total assets                                             $    26,289,106    $     26,393,543
                                                                       ===============    ================

         LIABILITIES AND EQUITY
         Other liabilities                                             $         5,880    $          5,673
         Shareholders' equity                                               26,283,226          26,387,870
                                                                       ---------------    ----------------

              Total liabilities and shareholders' equity               $    26,289,106    $     26,393,543
                                                                       ===============    ================
</TABLE>


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

                                      -76-
<PAGE>   77
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS (Continued)

                         Condensed Statements of Income
                  Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                      1998              1997               1996
                                                                      ----              ----               ----
<S>                                                            <C>                <C>               <C>            
INTEREST AND DIVIDEND INCOME
     Dividends from subsidiary                                 $    1,700,000     $    1,000,000    $     5,000,000
     Securities and mortgage-backed
       securities                                                      71,650            175,512            470,893
     Loan to ESOP                                                     139,428            157,263            177,581
     Other                                                             26,422             46,310             40,811
                                                               --------------     --------------    ---------------
         Total interest and dividend income                         1,937,500          1,379,085          5,689,285

Gain on sale of securities and  mortgage-backed
  securities                                                            1,023             34,621            131,459

Operating expenses                                                     80,033             99,322             88,428
                                                               --------------     --------------    ---------------

INCOME BEFORE TAXES AND EQUITY IN UNDISTRIBUTED
  EARNINGS OF SUBSIDIARY                                            1,858,490          1,314,384          5,732,316

Income tax expense                                                     54,000            104,348            247,321
                                                               --------------     --------------    ---------------

INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
  SUBSIDIARY                                                        1,804,490          1,210,036          5,484,995

(Distributions in excess of earnings) equity in
  undistributed earnings of subsidiary                               (301,993)           168,402         (4,341,017)
                                                               --------------     --------------    ---------------

NET INCOME                                                     $    1,502,497     $    1,378,438    $     1,143,978
                                                               ==============     ==============    ===============
</TABLE>


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

                                      -77-
<PAGE>   78
                      MILTON FEDERAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1998, 1997 and 1996

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


NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS  (Continued)

                        Condensed Statement of Cash Flows
                  Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                     1998              1997                1996
                                                                     ----              ----                ----
<S>                                                           <C>                <C>               <C>             
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                    $    1,502,497     $    1,378,438    $      1,143,978
Adjustments to reconcile net income to cash
  provided by operations:
     (Equity in undistributed income) distributions
       in excess of earnings of subsidiary                           301,993           (168,402)          4,341,017
     Gain on sale of securities and mortgage-backed
       securities                                                     (1,023)           (34,621)           (131,459)
     Amortization of premiums,  accretion of
       discount (net)                                                  1,723                391               1,626
     Net change in other assets                                      352,955           (326,345)            (87,440)
     Net change in other liabilities                                     207            (62,206)             65,363
                                                              --------------     --------------    ----------------
         Net cash from operating activities                        2,158,352            787,255           5,333,085

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities and mortgage-backed
  securities available for sale                                           --           (994,145)                 --
Proceeds from principal payments on mortgage-
  backed securities available for sale                               463,375            259,633           1,228,387
Proceeds from principal payments on mortgage-
  backed securities held to maturity                                      --                 --             114,531
Proceeds from sales of securities and mortgage-
  backed securities available for sale                               284,960          5,136,692           2,742,918
Proceeds from principal payments on loan to ESOP                     206,310            206,310             206,310
                                                              --------------     --------------    ----------------
     Net cash from investing activities                              954,645          4,608,490           4,292,146

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock                                        (1,054,187)        (2,052,667)         (1,997,640)
Cash dividends paid                                               (1,310,796)        (6,938,183)         (3,396,332)
Dividends on unallocated ESOP shares                                 (42,706)          (472,745)           (259,836)
                                                              --------------     --------------    ----------------
     Net cash from financing activities                           (2,407,689)        (9,463,595)         (5,653,808)
                                                              --------------     --------------    ----------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                              705,308         (4,067,850)          3,971,423

Cash and cash equivalents at beginning of year                     1,340,416          5,408,266           1,436,843
                                                              --------------     --------------    ----------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                      $    2,045,724     $    1,340,416    $      5,408,266
                                                              ==============     ==============    ================
</TABLE>


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

                                      -78-
<PAGE>   79

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

Not applicable.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders of Milton Federal Financial Corporation (the "Proxy
Statement") under the captions "Board of Directors," "Executive Officers,"
"Voting Securities and Ownership of Certain Beneficial Owners and Management"
and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated
herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

The information contained in the Proxy Statement under the caption "Compensation
of Executive Officers and Directors" is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the Proxy Statement under the caption "Voting
Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the Proxy Statement under the caption "Certain
Transactions with the Corporation" is incorporated herein by reference.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

2     FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are 
not applicable or the required information is shown in the financial statements
or notes thereto.

3     EXHIBITS.

3.1      Articles of Incorporation
3.2      Code of Regulations
10.1     Employment Agreement with Mr. Aidt
10.2     Employment Agreement with Mr. Eyer
10.3     Milton Federal Savings Bank Recognition and Retention Plan and Trust 
         Agreement
10.4     Milton Federal Financial Corporation 1995 Stock Option and Incentive 
         Plan
11       Statement Regarding Computation of Earnings Per Share
21       Subsidiaries of Milton Federal Financial Corporation
27       Financial Data Schedule
99.1     Proxy Statement
99.2     Safe Harbor Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------

                                      -79-
<PAGE>   80


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


Date   December 18, 1998                 Date   December 18, 1998
     -------------------------------          ----------------------------------



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


Date   December 18, 1998                 Date   December 18, 1998
     -------------------------------          ----------------------------------



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


Date   December 18, 1998                 Date   December 18, 1998
     -------------------------------          ----------------------------------



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


Date   December 18, 1998                 Date   December 18, 1998
     -------------------------------          ----------------------------------


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

                                      -80-
<PAGE>   81

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER          DESCRIPTION                                                  PAGE NUMBER
------          -----------                                                  -----------

<S>             <C>                                                          <C>
     3.1        Articles of Incorporation of Milton Federal Financial        Incorporated  by reference to Annual Report
                Corporation                                                  on Form  10-KSB  for the  Fiscal  Year Ended 
                                                                             September 30, 1994 (the "1994 10-KSB"), Exhibit 3.1.

     3.2        Code of Regulations of Milton Federal Financial Corporation  Incorporated by reference to the 1994 10-KSB, 
                                                                             Exhibit 3.2.

     10.1       Employment Agreement with Mr. Aidt                           Incorporated by reference to the 1997 10-K,
                                                                             Exhibit 10.1

     10.2       Employment Agreement with Mr. Eyer                           Incorporated  by reference to the 1997 10-K,
                                                                             Exhibit 10.2

     10.3       Milton Federal Savings Bank Recognition and Retention Plan   Incorporated by reference to annual report 
                and Trust Agreement                                          on Form 10-KSB for the fiscal year ended September 30,
                                                                             1995 (the "1995 10-KSB"), Exhibit 10.3.

     10.4       Milton Federal Financial Corporation 1995 Stock Option and   Incorporated by reference to the 1995 10-KSB, 
                Incentive Plan                                               Exhibit 10.4.

     11         Statement Regarding Computation of Earnings Per Share        Reference is hereby made to Consolidated Statements
                                                                             of Income on Page 55 and Note 1 of Notes to
                                                                             Consolidated Financial Statements on page 62, hereof.

     21         Subsidiaries of Milton Federal Financial Corporation         Incorporated by reference to the 1995 10-KSB, 
                                                                             Exhibit 21.

     27         Financial Data Schedule                                      82

     99.1       Proxy Statement                                              84

     99.2       Safe Harbor Under the Private Securities  Litigation Reform  Incorporated by reference to the 1997 Form 10-K, 
                Act of 1995                                                  Exhibit 99.2
</TABLE>
--------------------------------------------------------------------------------

                                      -81-