<PAGE>   1









                      MILTON FEDERAL FINANCIAL CORPORATION
                                EXHIBIT NO. 99.1

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


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

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS


      Notice is hereby given that the 1998 Annual Meeting of Shareholders of
Milton Federal Financial Corporation ("MFFC") will be held at the offices of
MFFC at 25 Lowry Drive, West Milton, Ohio 45383, on January 21, 1998, at 2:00
p.m., local time (the "Annual Meeting"), for the following purposes, all of
which are more completely set forth in the accompanying Proxy Statement:


      1. To reelect four directors of MFFC for terms expiring in 2000;

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

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


      Only shareholders of MFFC of record at the close of business on December
4, 1997, will be entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments thereof. Whether or not you expect to attend
the Annual Meeting, we urge you to consider the accompanying Proxy Statement
carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM
MAY BE ASSURED. The giving of a Proxy does not affect your right to vote in
person in the event you attend the Annual Meeting.


                                        By Order of the Board of Directors





December 12, 1997                       E. Lynn App, Secretary




                                     -106-
<PAGE>   2




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

                                PROXY STATEMENT

                                    PROXIES

      The enclosed Proxy is being solicited by the Board of Directors of Milton
Federal Financial Corporation ("MFFC") for use at the 1998 Annual Meeting of
Shareholders of MFFC to be held at the offices of MFFC at 25 Lowry Drive, West
Milton, Ohio 45383, on January 21, 1998, at 2:00 p.m., local time, and at any
adjournments thereof (the "Annual Meeting"). Without affecting any vote
previously taken, the Proxy may be revoked by a shareholder executing a later
dated proxy which is received by MFFC before the Proxy is exercised or by
giving notice of revocation to MFFC in writing or in open meeting before the
Proxy is exercised. Attendance at the Annual Meeting will not, of itself,
revoke a Proxy.

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

      FOR the reelection of Messrs. E. Lynn App, Robert E. Hine, Christopher S.
      Long and Cletus G. Minnich, Jr., as directors of MFFC for terms expiring
      in 2000; and

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

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

      Only shareholders of record as of the close of business on December 4,
1997 (the "Voting Record Date"), are eligible to vote at the Annual Meeting.
Each such shareholder will be entitled to cast one vote for each share owned.
MFFC's records disclose that, as of the Voting Record Date, there were
2,266,836 votes entitled to be cast at the Annual Meeting.

      This Proxy Statement is first being mailed to shareholders of MFFC on or
about December 22, 1997.


                                 VOTE REQUIRED

ELECTION OF DIRECTORS

      Under Ohio law and MFFC's Code of Regulations (the "Regulations"), the
four nominees receiving the greatest number of votes will be elected as
directors. Shares as to which the authority to vote is withheld are not counted
toward the election of directors or toward the election of the individual
nominees specified on the form of proxy. If the accompanying Proxy is signed
and dated by the shareholder but no vote is specified thereon, the shares held
by such shareholder will be voted FOR the reelection of the four nominees. No
shareholder may cumulate votes in the election of directors.

RATIFICATION OF SELECTION OF AUDITORS

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




                                     -107-
<PAGE>   3




             VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
                             OWNERS AND MANAGEMENT

      The following table sets forth certain information with respect to the
only persons known to MFFC to own beneficially more than five percent of the
outstanding common shares of MFFC as of November 30, 1997:

<TABLE>
<CAPTION>
                                Amount and Nature of              Percent of
Name and Address               Beneficial Ownership           Shares Outstanding
----------------              --------------------            ------------------
<S>                                    <C>                            <C>
National City Bank                     121,249(1)                     5.35%
6 North Main Street
Dayton, Ohio 45412
</TABLE>

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

      The following table sets forth certain information with respect to the
number of common shares of MFFC beneficially owned by each director of MFFC and
by all directors and executive officers of MFFC as a group as of November 30,
1997:

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

<S>                                    <C>                     <C>                      <C>
Glenn E. Aidt                           36,893(2)               10,000                   2.05
E. Lynn App                              9,518(3)                2,623                    .53
Kenneth J. Faze                          7,218(3)               88,247(4)                4.20
David R. Hayes                           7,218(3)               78,997(4)                3.79
Robert E. Hine                          15,494(3)               79,644(4)                4.19
Christopher S. Long                     17,218(3)               73,247(4)                3.98
Cletus G. Minnich, Jr.                   9,918(3)               10,080                    .88
All directors and executive officers
 of MFFC as a group (8 persons)        138,146(5)              123,197(6)               11.20
</TABLE>

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

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

(2)   This number includes 20,630 shares that may be acquired upon the exercise
      of options awarded pursuant to the Milton Federal Financial Corporation
      1995 Stock Option and Incentive Plan (the "Stock Option Plan") and 9,043
      shares allocated to Mr. Aidt's ESOP account, with respect to which Mr.
      Aidt has voting control.

(3)   This number includes 5,156 shares that may be acquired upon the exercise
      of options awarded pursuant to the Stock Option Plan.

(4)   This number includes 73,247 shares held by the Milton Federal Savings
      Bank Recognition and Retention Plan and Trust (the "RRP"), with respect
      to which Messrs. Hine, Faze, Hayes and Long have shared voting power as
      Trustees of the RRP.

(5)   This number includes 67,038 shares that may be acquired upon the exercise
      of options awarded pursuant to the Stock Option Plan and 14,114 shares
      allocated to the ESOP accounts of executive officers.




                                     -108-
<PAGE>   4


(6)   The 73,247 shares held by the RRP Trust are reflected in each of four
      directors' amounts but counted only once in the total amount beneficially
      owned by all directors and executive officers of MFFC as a group.

                               BOARD OF DIRECTORS

ELECTION OF DIRECTORS

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

      In accordance with Section 2.03 of the Regulations, nominees for election
as directors may be proposed only by the directors or by a shareholder entitled
to vote for directors if such shareholder has submitted a written nomination to
the Secretary of MFFC by the later of the November 30 immediately preceding the
annual meeting of shareholders or the sixtieth day before the first anniversary
of the most recent annual meeting of shareholders held for the election of
directors. Each such written nomination must state the name, age, business or
residence address of the nominee, the principal occupation or employment of the
nominee, the number of common shares of MFFC owned either beneficially or of
record by each such nominee and the length of time such shares have been so
owned.

      The Board of Directors proposes the reelection of the following persons
to terms which will expire in 2000:

<TABLE>
<CAPTION>
                                                                                                 Director
                                                                            Director        of Milton Federal
Name                            Age(1)       Position(s) Held                Since (2)            Since
----                            ---          ----------------               ----------        ------------
<S>                              <C>         <C>                              <C>                   <C>
E. Lynn App                      55          Director and Secretary           1994                  1986
Robert E. Hine                   68          Director and Vice Chairman       1994                  1973
Christopher S. Long              55          Director                         1994                  1989
Cletus G. Minnich, Jr.           73          Director and Chairman            1994                  1957
</TABLE>

-----------------------------
(1)   As of November 30, 1997.

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

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

<TABLE>
<CAPTION>
                                                                           Director
                                                            Director   of Milton Federal
Name               Age(1)   Position(s) Held               Since (2)        Since            Term Expires
----               ---      ----------------------        ---------         -----            ------------
<S>                 <C>     <C>                              <C>            <C>                  <C>
Glenn E. Aidt       57      Director, President and          1994           1989                 1999
                            Chief Executive Officer
Kenneth J. Faze     64      Director                         1994           1985                 1999
David R. Hayes      48      Director                         1994           1986                 1999
</TABLE>

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

(1)   As of November 30, 1997.

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



                                     -109-
<PAGE>   5

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

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

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

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

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

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

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

MEETINGS OF DIRECTORS

        The Board of Directors of MFFC met 17 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1997. Each director
attended at least 75% of the aggregate of such meetings and all meetings of
committees of the Board of Directors of which such director was a member.

        Each director of MFFC is also a director of Milton Federal. The Board
of Directors of Milton Federal met 17 times for regularly scheduled and special
meetings during the fiscal year ended September 30, 1997. Each director
attended at least 75% of the aggregate of such meetings and all meetings of
committees of the Board of Directors of which such director was a member.

COMMITTEES OF DIRECTORS

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

        The Audit Committee recommends audit firms to the full Board of
Directors and reviews and approves the annual independent audit report. Such
Committee also monitors management's responses to Office of Thrift Supervision
("OTS") examination reports. The members of the Audit Committee are Messrs.
Faze, Hine and Minnich. The Audit Committee met four times during fiscal year
1997.

        The ESOP Committee administers the ESOP and presently consists of
Messrs. Hine, Faze, Hayes and Long. The ESOP Committee met twice during the
fiscal year ended September 30, 1997.

        The Stock Option Committee is responsible for administering the Stock
Option Plan, including interpreting the Stock Option Plan and awarding options
pursuant to its terms. Its members are Messrs. Hine, Faze, Long and Hayes. The
Stock Option Committee met twice during the fiscal year ended September 30,
1997.

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




                                     -110-
<PAGE>   6

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

        The Compensation Committee reviews the President's salary and
recommends salary increases to the full Board of Directors for approval. The
Compensation Committee also reviews the President's recommendations with
respect to salary increases for the other executive officers and reports
thereon to the Board of Directors, which makes the final salary determinations.
Messrs. Faze, Hayes, Hine and Long are the members of the Compensation
Committee. The Compensation Committee met four times during fiscal year 1997.

        The RRP Committee administers the RRP. Such Committee consists of
Messrs. Hine, Faze, Hayes and Long. The RRP Committee met twice during fiscal
year 1997.

        The Executive Committee is authorized to act, with certain limitations,
on behalf of the Board of Directors between meetings of the Board of Directors.
Messrs. Aidt, Hine and Minnich are the members of the Executive Committee.  The
Executive Committee met 10 times during fiscal year 1997.

        The Loan Committee reviews the recommendations of Milton Federal's loan
officers and approves or disapproves loans of up to $400,000. Any loans of
amounts exceeding $400,000 are referred to the full Board of Directors. The
members of the Loan Committee are Messrs. Aidt, Hine and Minnich. The Loan
Committee met 52 times during fiscal year 1997.



                               EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
Name                          Age(1)        Position(s) Held
----                          ------        ----------------
<S>                           <C>           <C>
Thomas P. Eyer                43            Treasurer and Chief Financial Officer of MFFC, Senior
                                            Vice President/Financial Operations, Treasurer
                                            and Chief Financial Officer of Milton Federal

Michael J. Hufford            44            Secretary, Senior Vice President/Lending
                                            Operations of Milton Federal

Debbie A. Jones               49            Senior Vice President/Banking Operations of
                                            Milton Federal
--------------------------
</TABLE>

(1)   As of November 30, 1997.

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




                                     -111-
<PAGE>   7

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

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

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


                COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

EXECUTIVE COMPENSATION

      The following table sets forth the compensation paid to Glenn E. Aidt,
the President and Chief Executive Officer of both MFFC and Milton Federal, for
the fiscal years ended September 30, 1997, 1996 and 1995. No other executive
officer of MFFC earned salary and bonus in excess of $100,000 during such
period.

<TABLE>
<CAPTION>
                                                Summary Compensation Table
                                                --------------------------
                                   Annual Compensation                 Long Term Compensation
------------------------------------------------------------------------------------------------------------------------------
 Name And Principal                                                              Awards
      Position           Year      Salary ($)(1)    Bonus($)                                                    All Other
                                                               ------------------ -------------------------   Compensation
                                                               Restricted Stock    Securities Underlying
                                                                    Awards            Options/SARs(#)
------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>      <C>              <C>            <C>                    <C>                   <C>
Glenn E. Aidt            1997     $129,332 (2)     $22,187            --                     --                $41,434(7)
President, Chief         1996     $116,613 (3)     $19,810        $266,267(5)                --                $44,714(8)
Executive Officer        1995     $104,826 (4)     $18,270            --                 51,578(6)             $51,877(9)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

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

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

(5)   Mr. Aidt was awarded 18,052 common shares of MFFC under the RRP on
      October 16, 1995. One-fifth of such awarded shares are earned on each of
      the first five anniversaries of the date the shares were awarded. The
      figure represents the dollar value of such awarded shares based on the
      $14.75 closing sale price per share reported by The Nasdaq Stock Market
      for the shares on October 16, 1995. The aggregate fair market value of
      the 18,052 shares at September 30, 1996, was $243,702 based upon the
      $13.50 per share closing sale price reported by The Nasdaq Stock Market.
      Dividends are paid on all awarded shares at the same rate as they are
      paid to all shareholders.

(6)   Represents the number of common shares of MFFC underlying options granted
      to Mr. Aidt pursuant to the Stock Option Plan.




                                     -112-
<PAGE>   8

(7)   Consists of Milton Federal's matching contribution to Mr. Aidt's defined
      contribution plan account in the amount of $1,323; the $39,894 aggregate
      value at the date of allocation of 2,616 common shares of MFFC allocated
      to Mr. Aidt's account pursuant to the ESOP; and the premium of $217 paid
      by Milton Federal for insurance on the life of Mr. Aidt payable to a
      beneficiary designated by Mr. Aidt.

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

(9)   Consists of Milton Federal's matching contribution to Mr. Aidt's defined
      contribution plan account in the amount of $1,032; the $50,678 aggregate
      value at the date of allocation of 3,218 common shares of MFFC allocated
      to Mr. Aidt's account pursuant to the ESOP; and the premium of $167 paid
      by Milton Federal for insurance on the life of Mr. Aidt payable to a
      beneficiary designated by Mr. Aidt.


STOCK OPTION PLAN

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

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

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

      An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. Termination
for cause, as defined in the Stock Option Plan, will result in the annulment of
any outstanding options. The Stock Option Plan provides that in the event of a
"change in control," as defined in the Stock Option Plan, all options then
outstanding shall become immediately exercisable. A "change in control"
includes approval by the shareholders of the execution of an agreement for a
merger or acquisition, a change in control as defined under OTS regulations or
the acquisition of the beneficial ownership of 25% or more of the voting shares
of MFFC by any person or entity.



                                     -113-
<PAGE>   9




      The following table sets forth information regarding the number and value
of unexercised options held by Mr. Aidt at September 30, 1997:


<TABLE>
<CAPTION>
                     Aggregated Option/SAR Exercises In Last Fiscal Year and 9/30/97 Option/SAR Values
                     ---------------------------------------------------------------------------------
                                                                            Number of
                                                                             Securities              Value of
                                                                            Underlying              Unexercised
                                                                            Unexercised            In-the-Money
                                                                          Options/SARs at         Options/SARs at
                                                                              9/30/97                9/30/97(1)
Name                   Shares Acquired        Value Realized ($)            Exercisable/          Exercisable/
                       on Exercise (#)                                      Unexercisable         Unexercisable
------------------------------------------------------------------------------------------------------------------
<S>                          <C>                   <C>                      <C>                  <C>
Glenn E. Aidt                0                     N/A                      20,630/30,948        $32,183/$48,279
</TABLE>

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

(1)    For purposes of this table, the value of the option was determined by
       multiplying the number of shares subject to the unexercised option by
       the difference between the $13.69 exercise price and the fair market
       value of MFFC's common shares, which was $15.25 on September 30, 1997,
       based on the closing sales price reported by The Nasdaq Stock Market.



RECOGNITION AND RETENTION PLAN AND TRUST

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

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

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

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



                                     -114-
<PAGE>   10




EMPLOYMENT AGREEMENTS

      Milton Federal entered into an employment agreement with Mr. Aidt
effective in November 1994. Such employment agreement provided for an
expiration date of November 28, 1997, although the Board of Directors has
executed a new agreement with an expiration date of November 28, 1998 (the
"Employment Agreement"). A salary and performance review must be conducted by
the Board of Directors not less often than annually. The Employment Agreement
requires the inclusion of Mr. Aidt in any formally established employee
benefit, bonus, pension and profit-sharing plans for which senior management
personnel are eligible. The Employment Agreement also provides for vacation and
sick leave.

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

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


DEFINED BENEFIT PLAN

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

      The normal Pension Plan retirement benefit payable upon retirement at or
after age 65 is the product of (a) 1%, multiplied by (b) years of service,
multiplied by (c) average annual salary for the five consecutive years of
highest salary. Employees become 100% vested in the Pension Plan after five
years of employment. Participants are automatically 100% vested at 65 years of
age regardless of years of service. The Pension Plan also includes provisions
for early retirement, disability retirement and a death benefit. The
compensation covered by the Pension Plan includes only the employee's basic
annual salary, exclusive of bonuses, fees or other special payments.




                                     -115-
<PAGE>   11




                               PENSION PLAN TABLE


<TABLE>
<CAPTION>
       High-5               15 Years             20 Years             25 Years             30 Years            35 Years
       Average               Benefit              Benefit              Benefit             Benefit              Benefit
    Compensation             Service              Service              Service             Service              Service
    ------------             -------              -------              -------             -------              -------
       <S>                   <C>                  <C>                  <C>                  <C>                 <C>
       $15,000               $2,300               $3,000               $3,800               $4,500              $5,300
        30,000                4,500                6,000                7,500                9,000              10,500
        45,000                6,800                9,000               11,300               13,500              15,800
        60,000                9,000               12,000               15,000               18,000              21,000
        75,000               11,300               15,000               18,800               22,500              26,300
        90,000               13,500               18,000               22,500               27,000              31,500
       105,000               15,800               21,000               26,300               31,500              36,800
       120,000               18,000               24,000               30,000               36,000              42,000
       135,000               20,300               27,000               33,800               40,500              47,300
       150,000               22,500               30,000               37,500               45,000              52,500
</TABLE>


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

DIRECTOR COMPENSATION

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

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

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

      The directors of MFFC are also eligible for awards under the Stock Option
Plan and the RRP. During fiscal year 1997, no awards were granted under the
Stock Option Plan and the RRP.



                                     -116-
<PAGE>   12




COMPENSATION COMMITTEE REPORT

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

PROCESS FOR DETERMINING COMPENSATION

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

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

COMPENSATION POLICIES

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

      The objectives of the discretionary officer cash bonuses are to motivate
and reward the executive officers in connection with the accomplishment of
annual objectives of Milton Federal and MFFC, to reinforce a strong performance
orientation with differentiation and variability in individual awards based on
contribution to annual and long-range business results and to provide a
competitive compensation package that will attract, reward and retain
individuals of the highest quality. For executive officers of Milton Federal
and MFFC, including the CEO, bonuses are determined as a percentage of annual
base salary, which percentage is calculated utilizing a corporate goal factor
and an individual performance factor. The corporate goal factor is based upon
the achievement of certain levels of profitability of MFFC and Milton Federal.
The performance factor is based upon the particular executive officer's
performance measured by the attainment of individual and corporate goals during
the preceding year.

      No stock option awards or RRP awards were considered during fiscal year
1997.




                                     -117-
<PAGE>   13




DETERMINATION OF CEO'S COMPENSATION

      The Committee determined the compensation of the CEO in fiscal year 1997
pursuant to the policies described above for executive officers. The corporate
profitability measurements considered were net income, return on assets and
return on equity. Additional corporate goals considered were the implementation
of stock repurchases, the implementation of a strategic plan and the successful
completion of the fiscal 1997 Business Plan. The individual goals considered
were related to the CEO's efforts in Milton Federal's achieving certain
regulatory ratings, the development of branching strategies, the development of
a plan to utilize excess capital, community involvement and industry
involvement.

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

      The Board of Directors of Milton Federal has a Compensation Committee,
the members of which are Messrs. Hine, Faze, Hayes and Long. The Board of
Directors of Milton Federal also has an RRP Committee, composed of Messrs.
Faze, Long, Hayes and Hine, which determines RRP awards and administers the
RRP. During fiscal year 1997, there were no other reportable relationships
between the members of the aforementioned committees and MFFC or Milton
Federal.

PERFORMANCE GRAPH

      The following line graph compares the yearly percentage change in MFFC's
cumulative total shareholder return against the cumulative return of a broad
index of The Nasdaq National Market and an index of savings associations with
assets of less than $250 million for the period from October 7, 1994, the date
on which trading of MFFC's shares commenced, and September 30, 1997. The graph
assumes the investment of $100 on October 7, 1994. Cumulative total shareholder
return is measured by dividing (I) the sum of (A) the cumulative amount of
dividends for the measurement period, assuming dividend reinvestment, and (B)
the difference between the price of MFFC's common shares at the end and at the
beginning of the measurement period; by (ii) the price of MFFC's common shares
at the beginning of the measurement period.


CERTAIN TRANSACTIONS WITH MFFC

      During the fiscal year ended September 30, 1997, certain directors of
MFFC had loans from Milton Federal with balances in excess of $60,000. All of
such loans were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or present other
unfavorable features.





                                     -118-
<PAGE>   14




SELECTION OF AUDITORS

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


PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS

      Any proposals of shareholders intended to be included in MFFC's proxy
statement for the 1999 Annual Meeting of Shareholders should be sent to MFFC by
certified mail and must be received by MFFC not later than August 25, 1998.

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

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



                                        By Order of the Board of Directors




December 12, 1997                       E. Lynn App, Secretary





                                     -119-
<PAGE>   15




                                   SIGNATURES

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

                      MILTON FEDERAL FINANCIAL CORPORATION


                      By _______________________________
                         Glenn E. Aidt
                         President
                         (Principal Executive Officer)

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



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

Date ___________________________       Date _______________________________



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

Date ___________________________       Date _______________________________



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

Date ___________________________       Date _______________________________



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

Date ___________________________       Date _______________________________





                                     -120-