FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(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, 1997

                                       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:  0-23374

                                    MFB CORP.
             (Exact name of registrant as specified in its charter)

             Indiana                                35-1907258
 State or other jurisdiction of                  (I.R.S. Employer
  incorporation or organization               Identification Number)

121 South Church Street, P.O. Box 528, Mishawaka, Indiana           46546
    (Address of principal executive offices)                       Zip Code

Registrant's telephone number, including area code:
                                 (219) 255-3146

Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

Securities Registered Pursuant to Section 12(g) of the Act:
                         Common Stock, without par value
                          Common Share Purchase Rights

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.

                        (1)   Yes   X                    No
                                  -----
                        (2)   Yes   X                    No
                                 -----

Indicate by check mark if disclosure of delinquent  filers persuant to Item 405,
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. ___

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of December 1, 1997, was $29,070,655.00.

The  number of shares of the  registrant's  common  stock,  without  par  value,
outstanding as of December 1, 1997, was 1,627,767 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Annual Report to Shareholders for the fiscal year ended
September 30, 1997 are incorporated by reference into Part II.

Portions of the Proxy Statement for the 1998 Annual Meeting of the  Shareholders
are incorporated into Part I and Part III.


                            Exhibit Index on Page 51
                              Page one of 122 Pages


<PAGE>

                                    MFB CORP.
                                    Form 10-K
                                      INDEX


PART I

Item 1.     Business                                                         1
Item 2.     Properties                                                      42
Item 3.     Legal Proceedings                                               43
Item 4.     Submission of Matters to a Vote of Security Holders             43
Item 4.5    Executive Officers of MFB                                       43

PART II

Item 5.     Market for Registrant's Common Equity and Related
                     Stockholder Matters                                    44
Item 6.     Selected Financial Data                                         45
Item 7.     Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                    46
Item 7a.    Quantitative and Qualitative Disclosures about Market Risk
Item 8.     Financial Statements and Supplementary Data                     47
Item 9.     Changes in and Disagreements with Accountants on
                        Accounting and Financial Disclosure                 47

PART III

Item 10.    Directors and Executive Officers of the Registrant              47
Item 11.    Executive Compensation                                          48
Item 12.    Security Ownership of Certain Beneficial Owners
                       and Management                                       48
Item 13.    Certain Relationships and Related Transactions                  48

PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports
                       on Form 8-K                                          48
Signatures                                                                  50

Item 15.    Exhibit List                                                    51


<PAGE>

                                     PART 1

Item 1.       Business.

General

     MFB Corp.  ("MFB"  or the  "Holding  Company")  is an  Indiana  corporation
organized  in  December,  1993 to  become a  unitary  savings  and loan  holding
company.  MFB  became a  unitary  savings  and  loan  holding  company  upon the
conversion of MFB Financial  (formerly  named  Mishawaka  Federal  Savings,  the
"Bank",  and together with MFB, the "Company") from a federal mutual savings and
loan association to a federal stock savings bank on March 24, 1994.The principal
asset of MFB  consists  of 100% of the issued and  outstanding  shares of common
stock,  $0.01 par value per share,  of the Bank.  The Bank began  operations  in
Mishawaka,   Indiana  in  1889  under  the  name  Mishawaka  Building  and  Loan
Association.

     MFB Financial  directly,  and  indirectly  through its service  corporation
subsidiary, offers a number of consumer and commercial financial services. These
services include: (i) residential real estate loans; (ii) home equity and second
mortgage loans;  (iii)  construction  loans;  (iv) commercial  loans;  (v) loans
secured by deposits; (vi) NOW accounts; (vii) passbook savings accounts;  (viii)
certificates of deposit;  (ix) consumer and commercial  demand deposit accounts;
(x) individual retirement accounts; and (xi) a variety of insurance products and
brokerage  services  through  its  service  corporation  subsidiary,   Mishawaka
Financial Services,  Inc. MFB Financial provides these services through its five
offices, three in Mishawaka,  one in South Bend, and one in Goshen, Indiana. MFB
Financial also operates a mortgage  origination office in Elkhart,  Indiana. MFB
Financial's  market area for loans and deposits primarily consists of St. Joseph
and Elkhart counties.

     The Company's  principal  source of revenue is interest income from lending
activities,  primarily  residential  mortgage  loans,  and, to a lesser  extent,
residential  construction loans. At September 30, 1997, $177.3 million, or 87.7%
of the Company's total loan portfolio,  including loans held for sale, consisted
of mortgage  loans on one-to  four-family  residential  real property  which are
generally  secured by first  mortgages on the property.  A large majority of the
residential  real  estate  loans  originated  by MFB  Financial  are  secured by
properties located in St. Joseph County.

     MFB Financial also makes commercial loans, consumer loans, and multi-family
mortgage loans. Consumer loans include loans secured by deposits and home equity
and second  mortgage loans.  Commercial  loans include term loans and commercial
lines of credit.

     A  significant  portion  of MFB  Financial's  loan  portfolio  consists  of
adjustable  rate loans.  Adjustable  rate loans  permit MFB  Financial to better
match the  interest  it earns on loans with the  interest  it pays on  deposits.
Additionally,   MFB  Financial  attempts  to  lengthen  liability  repricing  by
aggressively  pricing  longer term  certificates  of deposit  during  periods of
relatively low interest rates.


<PAGE>

Lending Activities

     General. MFB Financial historically has concentrated its lending activities
on the  origination  of loans secured by first  mortgage liens for the purchase,
construction  or refinancing of one-to  four-family  residential  real property.
These loans continue to be the major focus of MFB Financial's  loan  origination
activities.  MFB also offers home equity lines of credit and  commercial  loans.
Management is currently  evaluating  other loan  programs  which may be added as
business plans warrant.

     Residential  Loans.  Residential loans consist of one-to four-family loans.
Pursuant to federal  regulations,  such loans must require at least  semi-annual
payments and be for a term of not more than 40 years,  and, if the interest rate
is adjustable, it must be correlated with changes in a readily verifiable index.

     A majority of the loans made by MFB Financial  feature  adjustable rates. A
variety of programs  are offered to  borrowers.  Some loans  adjust  monthly,  a
majority  adjust on an annual basis after  initial terms of one to ten years and
others adjust each three years.  Initial  offering  rates,  adjustment  caps and
margins are  adjusted  periodically  to reflect  market  conditions  and provide
diversity of the loan portfolio.

     MFB Financial  also offers  fixed-rate  loans with a maximum term of thirty
years.  They are  available  for a variety of loan  types,  including  first and
second mortgages and purchases of residential building sites.

     MFB  Financial   normally  requires  private  mortgage   insurance  on  all
conventional residential  single-family mortgage loans with loan-to-value ratios
in excess of 80%. The private  mortgage  insurance  obligation may be eliminated
when the  principal  balance  of the loan is reduced  below 75% of the  original
cost.  MFB  Financial  generally  will not lend more  than 95% of the  lesser of
current cost or appraised value of a residential  single-family  property.  Some
equity lines of credit are  originated at up to 100%  loan-to-value  with higher
yields to compensate for potentially higher risk.

    Substantially  all of the  residential  mortgage  loans  that MFB  Financial
originates include "due-on-sale"  clauses, which give MFB Financial the right to
declare a loan  immediately  due and  payable  in the event  that,  among  other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.

    Residential  mortgage  loans in excess of  $250,000  must be  approved  by a
majority of the members of MFB Financial's Board of Directors.  Loans under that
amount are approved by any two members of MFB Financial's Loan Committee.


<PAGE>

     Construction Loans. MFB Financial offers construction loans with respect to
owner-occupied  residential real estate, to builders or developers  constructing
such properties and to owners who are to occupy the premises.

     Generally,  construction loans are 12-month  adjustable rate mortgage loans
with interest calculated on the amount disbursed under the loan and payable on a
monthly basis.  Interest rates for such loans are generally tied to the National
Prime  Rate.  A  construction  loan fee is also  charged  for these  loans.  MFB
Financial  normally  requires  a 80%  loan-to-value  ratio for its  construction
loans.   Inspections  are  made  in  conjunction  with  disbursements   under  a
construction  loan,  and the  construction  phase is  generally  limited  to six
months.

     Commercial  Loans.  Commercial  real  estate  loans  originated  by federal
savings  associations are limited to 40% of their capital,  and commercial loans
unsecured  by  real  estate  may be  made in  amounts  up to 20% of the  savings
association's  total  assets,  provided  that  amounts in excess of 10% of total
assets may be used only for small business loans.  MFB Financial has established
a commercial  lending department focused on meeting the borrowing needs of small
local  businesses.  Loans may be secured by real estate,  equipment,  inventory,
receivables or other  appropriate  collateral.  Terms vary and  adjustable  rate
loans are generally  indexed to the Wall Street  Journal prime rate.  Loans with
longer  amortization  periods  generally  contain  balloon  payment  provisions.
Personal  guarantees by business  principals are generally  required in order to
manage  risk on  these  loans.  Commercial  lending  activity  has  allowed  MFB
Financial  to diversify  its balance  sheet,  increase  market  penetration  and
improve earnings.

    Consumer Loans.  Federal laws and  regulations  permit  federally  chartered
savings  associations  to  make  secured  and  unsecured  consumer  loans  in an
aggregate amount of up to 35% of the association's total assets. In addition,  a
federally  chartered  savings  association  has lending  authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account  secured  loans.  However,  the  Qualified  Thrift  Lender  test  places
additional  limitations  on a savings  association's  ability  to make  consumer
loans.

    As a  general  rule,  consumer  loans  made by most  financial  institutions
involve a higher  level of risk than  one-to  four-family  residential  mortgage
loans  because  consumer  loans are  generally  made based  upon the  borrower's
ability to repay the loan, which is subject to change,  rather than the value of
the underlying  collateral,  if any.  However,  the relatively higher yields and
shorter  terms to  maturity  of  consumer  loans are  believed  to be helpful in
reducing interest-rate risk. MFB Financial makes only secured consumer loans for
amounts  specifically tied to the value of the collateral,  and, therefore,  has
been successful in managing consumer loan risk.

    Origination,  Purchase and Sale of Loans. MFB Financial currently originates
its loans pursuant to its own underwriting  standards and forms of documentation
which are not in conformity with the standard  criteria of the Federal Home Loan
Mortgage   Corporation   ("FHLMC")  or  Federal  National  Mortgage  Association
("FNMA").  If it  desired  to sell its  loans,  MFB  Financial  might  therefore
experience some difficulty  selling such loans quickly in the secondary  market.
MFB Financial's  adjustable  rate mortgages vary from secondary  market criteria

<PAGE>

because,  among other things, MFB Financial does not use the standard loan form,
does not require current  property surveys in most cases,  permits  borrowers to
make repayments which reduce  subsequent  payment  obligations on loans and does
not permit the  conversion  of those loans to fixed rate loans.  However,  steps
have been taken to  upgrade  the loan  origination  system to allow new loans to
more closely conform to secondary market documentation  standards.  This upgrade
was completed in September  1997. In order to limit interest rate risk,  build a
servicing  fee base and  manage  liquidity,  MFB  Financial  intends  to be in a
position to sell loans in the future.  Such sales will be on a service  retained
basis.

     MFB Financial  confines its loan  origination  activities  primarily in St.
Joseph County and the surrounding area. A loan origination  office was opened in
Elkhart County in the fall of 1996.  MFB's loan  originations are generated from
referrals from builders, developers, real estate brokers and existing customers,
and limited  newspaper and periodical  advertising.  All loan  applications  are
processed and underwritten at MFB Financial's main office.

     A savings association  generally may not make any loan to a borrower or its
related entities if the total of all such loans exceeds 15% of its capital (plus
up to an additional 10% of capital in the case of loans fully  collateralized by
readily marketable  collateral);  provided,  however,  that loans up to $500,000
regardless  of the  percentage  limitations  may be  made  and  certain  housing
development loans of up to $30 million or 30% of capital, whichever is less, are
permitted.  MFB Financial's  portfolio of loans currently contains no loans that
exceed the 15% of capital limitation.

     MFB Financial's  loan approval process is intended to assess the borrower's
ability to repay the loan,  the  viability  of the loan and the  adequacy of the
value of the  property  that will  secure  the loan.  To assess  the  borrower's
ability to repay,  MFB Financial  studies the  employment and credit history and
information  on  the  historical  and  projected  income  and  expenses  of  its
mortgagors.

     MFB Financial  generally  requires  appraisals on all property securing its
loans and  requires  title  insurance  and a valid  lien on its  mortgaged  real
estate.  Appraisals for residential real property are generally  performed by an
in-house appraiser who is a state-certified  residential appraiser. From time to
time,  MFB  Financial  also uses the  services  of other  certified  residential
appraisers  who are not  in-house.  MFB  Financial  requires  fire and  extended
coverage  insurance  in amounts at least  equal to the  principal  amount of the
loan.  It also  requires  flood  insurance to protect the property  securing its
interest if the property is in a flood  plain.  Tax and  insurance  payments are
typically required to be escrowed by MFB Financial on new loans.

     Origination  and  Other  Fees.  MFB  Financial  realizes  income  from late
charges,  checking account service charges,  safety deposit box rental fees, and
fees for other  miscellaneous  services.  MFB Financial charges application fees
for most loan applications, but such are generally credited back to the customer
upon the closing of the loan.  If the loan is denied,  MFB  Financial  retains a
portion of the application  fee. In order to attract  adjustable rate mortgages,
MFB Financial has  originated  most of its  adjustable  rate  mortgages  without
charging  points.  However,  borrowers  from time to time wish to pay points and
management  negotiates rates on an individual  basis. Late charges are generally
assessed if payment is not received  within a specified  number of days after it
is due. The grace period depends on the individual loan documents.


<PAGE>

Non-Performing and Problem Assets

     All loans are reviewed by the Company on a regular  basis and may be placed
on a non-accrual status when the loans become contractually past due ninety days
or more, depending on a case by case evaluation of the circumstances surrounding
each  loan.  At the end of  each  month,  delinquency  notices  are  sent to all
borrowers  from whom  payments  have not been  received.  Contact by phone or in
person is made, if feasible, to all such borrowers.

    When  loans are sixty  days in  default,  personal  contact is made with the
borrower to establish an acceptable  repayment  schedule.  When loans are ninety
days in  default,  contact  is made  with the  borrower  by an  employee  of MFB
Financial  after  consultation  with a  Senior  Loan  Officer  who  attempts  to
establish an acceptable repayment schedule. Management is authorized to commence
foreclosure  proceedings  for any loan upon  making a  determination  that it is
prudent to do so. All loans on which foreclosure proceedings have been commenced
are placed on non-accrual status.

     Non-performing  assets.  At  September  30,  1997,  $261,000 or .10% of the
Company's total assets, were  non-performing  assets (loans delinquent more than
90  days,  non-accrual  loans,  real  estate  owned  (REO")  and  troubled  debt
restructurings).  At September 30, 1997,  the Company had no impaired  loans and
there was no real estate acquired as a result of foreclosure, voluntary deed, or
other  means.  Such real estate is  classified  by the  Company as "real  estate
owned" or "REO" until it is sold. When property is so acquired, the value of the
asset is recorded on the books of the  Company at fair value.  Interest  accrual
ceases when the collection of interest becomes doubtful. All costs incurred from
the date of acquisition in maintaining the property are expensed.

     Classified assets.  Federal regulations and MFB Financial's  Classification
of Assets policy provide for the  classification  of loans and other assets such
as debt and equity  securities  considered  by the Office of Thrift  Supervision
("OTS") to be of lesser quality as  "substandard,"  "doubtful" or "loss" assets.
An asset is  considered  "substandard"  if it is  inadequately  protected by the
current  net worth and  paying  capacity  of the  obligor  or of the  collateral
pledged,  if  any.  "Substandard"  assets  include  those  characterized  by the
"distinct  possibility"  that the  association  will sustain  "some loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard,"   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
which do not currently  expose the insured  institution  to  sufficient  risk to
warrant  classification  in one of the  aforementioned  categories  but  possess
weaknesses are required to be designated "special mention" by management.


<PAGE>

     An insured institution is required to establish general allowances for loan
and lease losses in an amount deemed prudent by management for loans  classified
substandard,  doubtful or impaired,  as well as for other problem loans. General
allowances  represent loss allowances  which have been  established to recognize
the inherent risk associated with lending activities, but which, unlike specific
allowances,  have not been  allocated  to  particular  problem  assets.  When an
insured  institution  classifies problem assets as "loss", it is required either
to establish a specific  allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to  the  classification  of its  assets  and  the  amount  of  its  valuation
allowances is subject to review by the OTS which can order the  establishment of
additional general or specific loss allowances.

     MFB Financial regularly reviews its loan portfolio to determine whether any
loans require  classification  in accordance  with applicable  regulations.  For
reasons  such  as  low   loan-to-value   ratios,   not  all  of  the   Company's
non-performing assets constitute classified assets.

Allowance for Loan Losses

     The allowance for loan and lease losses is maintained through the provision
for loan losses,  which is charged to earnings.  The  provision is determined in
conjunction  with  management's   review  and  evaluation  of  current  economic
conditions  (including  those of MFB Financial's  lending area),  changes in the
character  and size of the  loan and  lease  portfolio,  delinquencies  (current
status  as well as past and  anticipated  trends)  and  adequacy  of  collateral
securing loan delinquencies, historical and estimated net charge-offs, and other
pertinent information derived from a review of the loan and lease portfolio.  In
management's  opinion,  MFB  Financial's  allowance for loan and lease losses is
adequate to absorb anticipated future losses existing at September 30, 1997.

Investments

     General.  Federally  chartered  savings  associations have the authority to
invest in various types of liquid assets,  including U.S. Treasury  obligations,
securities  of various  federal  agencies,  certain  certificates  of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds sold.  Subject to various  restrictions,  federally
chartered  savings  associations  may also  invest a portion of their  assets in
commercial  paper,  corporate debt securities and asset-backed  securities.  The
investment policy of MFB Financial,  which is established and implemented by MFB
Financial's Investment Committee, is designed primarily to maximize the yield on
the  investment  portfolio  subject to minimal  liquidity  risk,  default  risk,
interest rate risk, and prudent asset/liability management.

     The Company's  investment  portfolio  consists of U.S. Treasury Bonds, U.S.
government agency securities,  mortgage-backed securities, equity securities and
Federal Home Loan Bank ("FHLB") stock.


<PAGE>

     Liquidity.  Federal regulations require FHLB-member savings associations to
maintain an average daily balance of liquid assets equal to a quarterly  average
of not less than a specified percentage of its net withdrawable savings deposits
plus short-term  borrowings.  Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related  securities,  and certain first lien residential
mortgage loans.  This liquidity  requirement may be changed from time-to-time by
the OTS to any  amount  within  the  range of 4% to 10%,  and is  currently  4%.
Monetary   penalties  may  be  imposed  for  failure  to  meet  this   liquidity
requirement.  As of September  30, 1997,  the Company had liquid assets of $33.6
million and a regulatory liquidity ratio of 17.0%.

Sources of Funds

     General. Deposits have traditionally been MFB Financial's primary source of
funds for use in lending and investment activities. In addition to deposits, MFB
Financial derives funds from scheduled loan payments, loan prepayments, retained
earnings and income on earning assets.  While scheduled loan payments and income
on earning assets are relatively  stable sources of funds,  deposit  inflows and
outflows can vary widely and are influenced by prevailing interest rates, market
conditions and levels of  competition.  Borrowings from the FHLB of Indianapolis
may be used in the  short-term  to  compensate  for  reductions  in  deposits or
deposit inflows at less than projected levels.  Historically,  MFB Financial has
rarely  borrowed on a  longer-term  basis to support  expanded  activities or to
assist in its asset/liability management.  However, in 1996, the Bank instituted
a capital  leveraging  strategy  that  involved the  purchase of earning  assets
funded  primarily  with FHLB  borrowings.  This strategy has  contributed to net
earnings and helps improve the overall return on equity.

     Deposits.  Deposits are attracted,  principally  from within St. Joseph and
Elkhart  counties,  through  the  offering  of  a  broad  selection  of  deposit
instruments   including   NOW  and  other   transaction   accounts,   fixed-rate
certificates of deposit,  individual retirement accounts,  and savings accounts.
MFB Financial  does not actively  solicit or advertise  for deposits  outside of
these counties. Substantially all of MFB Financial's depositors are residents of
these counties. Deposit account terms vary, with the principal differences being
the minimum balance required, the amount of time the funds remain on deposit and
the  interest  rate.  MFB  Financial  does  not pay a fee for  any  deposits  it
receives.

     Interest rates paid, maturity terms,  service fees and withdrawal penalties
are established by MFB Financial on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors,  growth goals, and federal regulations. MFB Financial relies, in
part, on customer  service and  long-standing  relationships  with  customers to
attract and retain its  deposits,  but also  prices its  deposits in relation to
rates offered by its competitors.

     The flow of  deposits  is  influenced  significantly  by  general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The  variety of deposit  accounts  offered  by MFB  Financial  has
allowed it to be competitive in obtaining funds and to respond with  flexibility
to changes in consumer  demand.  MFB  Financial has become more  susceptible  to
short-term  fluctuations in deposit flows as customers have become more interest
rate  conscious.  MFB  Financial  manages the pricing of its deposits in keeping
with its asset/liability  management and profitability objectives.  Based on its
experience,    MFB   Financial    believes   that   its   passbook,    NOW   and
non-interest-bearing   checking   accounts  are  relatively  stable  sources  of
deposits.  However,  the  ability  of MFB  Financial  to  attract  and  maintain
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions.


<PAGE>

     Borrowings. MFB Financial focuses on generating high quality loans and then
seeks the best  source of funding  from  deposits,  investments  or  borrowings.
Although  deposits are the Bank's primary source of funds, the Bank's policy has
been to utilize  borrowings when they are a less costly source of funds,  can be
invested at a positive interest rate spread or when the Bank desires  additional
capacity to fund loan demand.

    MFB  Financial's  borrowings  consist  mainly of  advances  from the FHLB of
Indianapolis upon the security of a blanket collateral agreement of a percentage
of unemcumbered  loans.  Such advances can be made pursuant to several different
credit  programs,  each  of  which  has its  own  interest  rate  and  range  of
maturities.  There are regulatory restrictions on advances from the Federal Home
Loan Banks,  See  "Regulation--Federal  Home Loan Bank System" and  "--Qualified
Thrift  Lender." At September  30,  1997,  MFB  Financial  had $ 47.5 million in
Federal Home Loan Bank borrowings outstanding. MFB Financial does not anticipate
any difficulty in obtaining advances appropriate to meet its requirements in the
future.

    With selected business  entities,  MFB Financial has entered into repurchase
agreements.  These agreements are all one day retail repurchase agreements,  are
accounted for as borrowings by the Bank,  and are secured by certain  investment
securities  of the  Bank.  At  September  30,  1997,  the Bank had  $389,000  in
repurchase agreements outstanding.

Service Corporation Subsidiary

     OTS  regulations  permit  federal  savings  associations  to  invest in the
capital  stock,   obligations,   or  other  specified  types  of  securities  of
subsidiaries  (referred to as "service  corporations") and to make loans to such
subsidiaries  and joint ventures in which such  subsidiaries are participants in
an  aggregate  amount  not  exceeding  2% of an  association's  assets,  plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city  development  purposes.  In  addition,   federal  regulations  permit
associations to make specified types of loans to such  subsidiaries  (other than
special-purpose  finance subsidiaries),  in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the  association's
regulatory capital if the association's regulatory capital is in compliance with
applicable  regulations.  A savings  association  that  acquires  a  non-savings
association  subsidiary,  or that  elects  to  conduct a new  activity  within a
subsidiary, must give the Federal Deposit Insurance Corporation ("FDIC") and the
OTS at least 30 days advance  written notice.  The FDIC may, after  consultation
with the OTS, prohibit specific activities if it determines such activities pose
a serious threat to the Savings Association Insurance Fund ("SAIF").


<PAGE>

     MFB  Financial's  only  subsidiary,   Mishawaka  Financial  Services,  Inc.
("Mishawaka  Financial"),  was organized in 1975 and currently is engaged in the
sale of credit life, general fire and accident, car, home and life insurance, as
agent to MFB Financial's  customers and the general public. In addition, a range
of investment and insurance  related products is offered to customers  through a
contractual   relationship   established  with  Financial   Network   Investment
Corporation (FNIC), a full service securities brokerage firm. During fiscal year
1997, Mishawaka Financial received  approximately $144,000 in commissions versus
approximately  $113,000 in commissions  received during fiscal year 1996.  Since
Mishawaka  Financial  conducts all of its activities as agent for its customers,
MFB  Financial  is not  required  to deduct from its capital any portion of this
investment.  The  consolidated  statements  of income of MFB included  elsewhere
herein  include the  operation of MFB Financial  and  Mishawaka  Financial.  All
significant  intercompany  balances and transactions have been eliminated in the
consolidation.

Employees

     As of September 30, 1997, MFB Financial  employed 63 persons on a full-time
basis and 23 persons on a part-time basis. None of MFB Financial's employees are
represented by a collective bargaining group.  Management considers its employee
relations to be excellent.

<PAGE>


I.   DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
       INTEREST RATES AND INTEREST DIFFERENTIAL

     A.   The  following  are the average  balance  sheets for the years  ending
          September 30:

<TABLE>
<CAPTION>
                                                         1997            1996          1995
                                                        Average         Average       Average
                                                      Outstanding     Outstanding   Outstanding
                                                        Balance         Balance       Balance
Assets:                                                             (In thousands)
Interest-earning assets:
<S>                                                      <C>          <C>          <C>      
     Interest-bearing deposits                           $   1,856    $   6,709    $   7,995
     Securities (1)                                         30,765       35,392       39,841
     Mortgage-backed securities (1)                         22,222       19,717       12,558
     Loans receivable (2)                                  175,761      133,670      118,735
     Stock in FHLB of Indianapolis                           1,783        1,303        1,223
                                                         ---------    ---------    ---------
         Total interest-earning assets                     232,387      196,791      180,352
Noninterest earning assets, net
  of allowance for loan losses                               4,663        3,792        3,517
                                                         ---------    ---------    ---------
              Total assets                               $ 237,050    $ 200,583    $ 183,869
                                                         =========    =========    =========

Liabilities and shareholders' equity:
Interest-bearing liabilities:
     Savings accounts                                    $  10,359    $   9,746    $   9,774
     NOW and money market accounts                          26,770       26,006       26,672
     Certificates of deposit                               126,202      113,570      106,556
     Borrowings                                             35,057        9,625           --
                                                         ---------    ---------    ---------
         Total interest-bearing liabilities                198,388      158,947      143,002

Other liabilities                                            5,388        4,229        2,838
                                                         ---------    ---------    ---------
     Total liabilities                                     203,776      163,176      145,840

     Shareholders' equity
         Common stock                                       14,015       19,064       20,527
              Treasury stock                                    (3)          --           --
              Retained earnings                             20,309       19,718       19,117
         Less common stock acquired by:
              Employee stock ownership plan                   (790)      (1,007)      (1,208)
              Recognition and retention plans                 (157)        (235)        (407)
              Net unrealized gain (loss) on securities
                available for sale                            (100)        (133)          --
                                                         ---------    ---------    ---------
         Total shareholders' equity                         33,274       37,407       38,029
                                                         ---------    ---------    ---------

         Total liabilities and shareholders' equity      $ 237,050    $ 200,583    $ 183,869
                                                         =========    =========    =========
</TABLE>

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

(1)  Average  outstanding  balance reflects unrealized gain (loss) on securities
     available for sale.

(2)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.


                                       10
<PAGE>

I.   DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
       INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

     B.  The following tables set forth, for the years indicated,  the condensed
         average  balance  of  interest-earning   assets  and   interest-bearing
         liabilities,  the  interest  earned  or paid on such  amounts,  and the
         average interest rates earned or paid thereon.

<TABLE>
<CAPTION>

                                             --------Year Ended September 30, 1997-------
                                                  Average                    Average
                                                  Balance      Interest     Yield/Cost
                                                         (Dollars in thousands)
INTEREST-EARNING ASSETS
<S>                                                <C>         <C>             <C>  
     Interest-bearing deposits                     $  1,856    $     96        5.17%
     Securities (1)                                  30,808       2,112        6.86
     Mortgage-backed securities (1)                  22,246       1,436        6.46
     Loans receivable (2)                           175,761      13,897        7.91
     Stock in FHLB of Indianapolis                    1,783         144        8.08
                                                   --------      ------

         Total interest-earning assets             $232,454      17,685        7.61
                                                   --------  

INTEREST-BEARING LIABILITIES
     Savings accounts                              $ 10,359         278        2.68%
NOW and money market accounts                        26,770         773        2.89
     Certificates of deposit                        126,202       7,134        5.65
        Borrowings                                   35,057       1,972        5.63
                                                   --------      ------
         Total interest-bearing liabilities        $198,388      10,157        5.12
                                                   ========      ------

Net interest earning assets                        $ 34,066
                                                   ========

Net interest income                                            $  7,528
                                                               ========

Interest rate spread (3)                                                       2.49%

Net yield on average interest-earning assets (4)                               3.24%

Average interest-earning assets to
  average interest-bearing liabilities               117.17%

</TABLE>
--------------------------------------------------------------------------------
(1)  Average  balance  does not reflect  unrealized  gain  (loss) on  securities
     available for sale and yield is based on amortized cost.

(2)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.

(3)  Interest  rate spread is calculated by  subtracting  average  interest rate
     cost from average interest rate earned for the period indicated.

(4)  The net yield on average  interest-earning assets is calculated by dividing
     net  interest  income by  average  interest-earning  assets  for the period
     indicated.

                                                        11
<PAGE>
I.      DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
          INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

<TABLE>
<CAPTION>

                                                                      --------Year Ended September 30, 1996-------
                                                                         Average                          Average
                                                                         Balance         Interest       Yield/Cost
                                                                                  (Dollars in thousands)
INTEREST-EARNING ASSETS
<S>                                                                   <C>             <C>                  <C>  
     Interest-bearing deposits                                        $      6,709    $        422         6.29%
     Securities (1)                                                         35,410           2,186         6.17
     Mortgage-backed securities (1)                                         19,920           1,225         6.15
     Loans receivable (2)                                                  133,670          10,246         7.67
     Stock in FHLB of Indianapolis                                           1,303             103         7.90
                                                                      ------------    ------------
         Total interest-earning assets                                $    197,012          14,182         7.20
                                                                      ============

INTEREST-BEARING LIABILITIES
     Savings accounts                                                 $      9,746             270         2.77%
     NOW and money market accounts                                          26,006             811         3.12
     Certificates of deposit                                               113,570           6,447         5.68
       Borrowings                                                            9,625             529         5.50
                                                                      ------------    ------------
         Total interest-bearing liabilities                           $    158,947           8,057         5.07
                                                                      ============    ------------

Net interest earning assets                                           $     38,065
                                                                      ============

Net interest income                                                                   $      6,125
                                                                                      ============

Interest rate spread (3)                                                                                   2.13%

Net yield on average interest-earning assets (4)                                                           3.11%

Average interest-earning assets to
  average interest-bearing liabilities                                      123.95%
</TABLE>
--------------------------------------------------------------------------------
(1)  Average  balance  does not reflect  unrealized  gain  (loss) on  securities
     available for sale and yield is based on amortized cost.

(2)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.

(3)  Interest  rate spread is calculated by  subtracting  average  interest rate
     cost from average interest rate earned for the period indicated.

(4)  The net yield on average  interest-earning assets is calculated by dividing
     net  interest  income by  average  interest-earning  assets  for the period
     indicated.

                                                        12

<PAGE>
I.      DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
          INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

<TABLE>
<CAPTION>
                                                                      --------Year Ended September 30, 1995-------
                                                                         Average                          Average
                                                                         Balance         Interest       Yield/Cost
                                                                                  (Dollars in thousands)
INTEREST-EARNING ASSETS
<S>                                                                   <C>             <C>                  <C>  
     Interest-bearing deposits                                        $      7,995    $        482         6.03%
     Securities                                                             39,841           2,300         5.77
     Mortgage-backed securities                                             12,558             692         5.51
     Loans receivable (1)                                                  118,735           8,816         7.42
     Stock in FHLB of Indianapolis                                           1,223              93         7.60
                                                                      ------------    ------------
         Total interest-earning assets                                $    180,352          12,383         6.87
                                                                      ============

INTEREST-BEARING LIABILITIES
     Savings accounts                                                 $      9,774             274         2.80%
     NOW and money market accounts                                          26,672             863         3.24
     Certificates of deposit                                               106,556           5,651         5.30
                                                                      ------------    ------------
         Total interest-bearing liabilities                           $    143,002           6,788         4.75
                                                                      ============    ------------

Net interest earning assets                                           $     37,350
                                                                      ============

Net interest income                                                                   $      5,595
                                                                                      ============

Interest rate spread (2)                                                                                   2.12%

Net yield on average interest-earning assets (3)                                                           3.10%

Average interest-earning assets to
  average interest-bearing liabilities                                      126.12%

</TABLE>
--------------------------------------------------------------------------------
(1)  Average  balance  does not reflect  unrealized  gain  (loss) on  securities
     available for sale and yield is based on amortized cost.

(2)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.

(3)  Interest  rate spread is calculated by  subtracting  average  interest rate
     cost from average interest rate earned for the period indicated.

(4)  The net yield on average  interest-earning assets is calculated by dividing
     net  interest  income by  average  interest-earning  assets  for the period
     indicated.

                                                        13
<PAGE>
I.      DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
          INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

C.      The following  tables  describes the extent to which changes in interest
        rates and changes in volume of  interest-related  assets and liabilities
        have  affected  MFB  Corp.'s  consolidated  interest  income and expense
        during the periods  indicated.  For each  category  of  interest-earning
        asset and interest-bearing liability, information is provided on changes
        attributable to (1) changes in rate (i.e., changes in rate multiplied by
        old  volume)  and  (2)  changes  in  volume  (i.e.,  changes  in  volume
        multiplied by old rate).  Changes  attributable  to both rate and volume
        have been allocated  proportionally  to the change due to volume and the
        change due to rate.


                                                Increase (Decrease) in
                                                  Net Interest Income
                                          -----------------------------------
                                          Total Net      Due to      Due to
                                           Change         Rate       Volume
                                                      (In thousands)
Year ended September 30, 1997 compared
  to year ended September 30, 1996
      Interest-earning assets
         Interest-bearing deposits         $  (326)     $   (64)     $  (262)
         Securities                            (74)         230         (304)
         Mortgage-backed securities            211           64          147
         Loans receivable                    3,651          332        3,319
         Stock in FHLB of Indianapolis          41            2           39
                                           -------      -------      -------
             Total                           3,503          564        2,939

      Interest-bearing liabilities
         Savings accounts                        8           (9)          17
         NOW and money market accounts         (38)         (61)          23
         Certificates of deposit               687          (27)         714
         Borrowings                          1,443           15        1,428
                                           -------      -------      -------
             Total                           2,100          (82)       2,182
                                           -------      -------      -------

Change in net interest income              $ 1,403      $   646      $   757
                                           =======      =======      =======


--------------------------------------------------------------------------------
                                       14
<PAGE>

I.      DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
          INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)


<TABLE>
<CAPTION>
                                                                              Increase (Decrease) in
                                                                                Net Interest Income
                                                                --------------------------------------------------
                                                                   Total Net           Due to            Due to
                                                                    Change              Rate             Volume
                                                                                   (In thousands)
<S>                                                              <C>               <C>               <C>          
Year ended September 30, 1996 compared
  to year ended September 30, 1995
      Interest-earning assets
         Interest-bearing deposits                               $       (60)      $        20       $        (80)
         Securities                                                     (114)              154               (268)
         Mortgage-backed securities                                      533                97                436
         Loans receivable                                              1,430               293              1,137
         Stock in FHLB of Indianapolis                                    10                 4                  6
                                                                 -----------       -----------       ------------
             Total                                                     1,799               568              1,231

      Interest-bearing liabilities
         Savings accounts                                                 (4)               (3)                (1)
         NOW and money market accounts                                   (52)              (31)               (21)
         Certificates of deposit                                         796               411                385
         FHLB borrowings                                                 529                 -                529
                                                                 -----------       -----------       ------------
             Total                                                     1,269               377                892
                                                                 -----------       -----------       ------------

Change in net interest income                                    $       530       $       191       $        339
                                                                 ===========       ===========       ============
</TABLE>

--------------------------------------------------------------------------------
                                       15
<PAGE>

II.     INVESTMENT PORTFOLIO


     A.   The following  table sets forth the  amortized  cost and fair value of
          securities available for sale:

<TABLE>
<CAPTION>
                                                               At September 30,
                          ---------------------------------------------------------------------------------------
                                      1997                           1996                          1995
                          ---------------------------     --------------------------    -------------------------
                           Amortized          Fair         Amortized        Fair          Amortized        Fair
                             Cost             Value          Cost           Value           Cost           Value
                                                              (In thousands)
<S>                         <C>               <C>           <C>           <C>             <C>              <C>
Debt securities
     U.S. Government
       and federal
       agencies             $23,618           $23,720       $40,160       $40,207         $-               $-
     Mortgage-backed                                                                                     
       securities            15,589            15,579        24,473        24,074               --           --
                                              -------       -------       -------         --------         ----
                             39,207            39,299        64,633        64,281               --           --
                                                                                                         
Marketable equity                                                                                        
  securities                    300               329         2,494         2,482               --           --
                            -------           -------       -------       --------        --------         ----
                                                                                                         
                            $39,507           $39,628       $67,127       $66,763         $-               $-
                            =======           =======       =======       =======         ========         ====
                                                                                                     
</TABLE>

The following  table sets forth the amortized  cost and fair value of securities
held to maturity:

<TABLE>
<CAPTION>
                                                               At September 30,
                          ---------------------------------------------------------------------------------------
                                      1997                           1996                          1995
                          ---------------------------     --------------------------      -----------------------
                           Amortized          Fair         Amortized        Fair          Amortized        Fair
                             Cost             Value          Cost           Value           Cost           Value
                                                              (In thousands)
<S>                           <C>             <C>             <C>            <C>            <C>          <C>    
Debt securities
     U.S. Government
       and federal
  agencies                    $-              $--             $-             $-             $40,117      $40,180
Mortgage-backed                                                                                       
     securities                --              --              -              -              11,905       11,524
                              ---             ---             --             --             -------      -------
                                                                                                      
                              $--             $--             $-             $-             $52,022      $51,704
                              ===             ===             ==             ==             =======      =======
                                                                                                     
</TABLE>

                                       16

<PAGE>

II.     INVESTMENT PORTFOLIO (Continued)

     A.   The following table sets forth the amortized cost and estimated market
          value of Federal Home Loan Bank (FHLB) stock:

<TABLE>
<CAPTION>

                                                           At September 30,
                      -------------------------------------------------------------------------------------------
                                  1997                           1996                              1995
                      --------------------------       --------------------------      --------------------------
                                        Estimated                      Estimated                        Estimated
                         Amortized       Market         Amortized        Market         Amortized        Market
                           Cost           Value           Cost            Value           Cost            Value
                                                              (In thousands)
<S>                     <C>            <C>              <C>             <C>             <C>               <C>   
Other securities
FHLB stock, at
  cost                  $   2,400      $  2,400         $  1,336        $ 1,336         $  1,271          $1,271
                        =========      ========         ========        =======         ========          ======
</TABLE>

     B.   The maturity  distribution and weighted average interest rates of debt
          securities available for sale, excluding  mortgage-backed  securities,
          are as follows:

<TABLE>
<CAPTION>


                                              Amount at September 30, 1997, which matures in
                         -------------------------------------------------------------------------------------------
                                  One                     One to                    Five to
                              Year or Less               Five Years                Ten Years          Totals
                         ----------------------    ------------------------    ----------------  -------------------
                          Amortized    Fair         Amortized      Fair        Amortized  Fair   Amortized    Fair
                            Cost       Value          Cost         Value         Cost     Value    Cost       Value
                         ---------    ---------    ----------    ----------    -------   -------   -------   -------
                                                           (Dollars in thousands)
<S>                      <C>          <C>          <C>           <C>           <C>       <C>       <C>       <C>    
U.S. Government and federal
  agencies               $   4,190    $   4,208    $   16,081    $   16,138    $ 3,347   $ 3,374   $23,618   $23,720
                         =========    =========    ==========    ==========    =======   =======   =======   =======


Weighted average yield        6.68%                      6.81%                    7.24%               6.85%
</TABLE>

     The  weighted  average  interest  rates are  based  upon  coupon  rates for
     securities   purchased  at  par  value  and  on  effective  interest  rates
     considering amortization or accretion if the securities were purchased at a
     premium or discount.

C.   Excluding  those  holdings of the  investment  portfolio  in U.S.  Treasury
     securities  and  other  agencies  of the  U.S.  Government,  there  were no
     investments  in  securities  of any one issuer  which  exceeded  10% of the
     shareholders' equity of the Company at September 30, 1997.


                                       17


<PAGE>

III.     LOAN PORTFOLIO

         A.    The  following  table  sets for the  composition  of MFB  Corp.'s
               consolidated  loan  portfolio and  mortgage-backed  securities by
               loan type as of the dates  indicated,  including a reconciliation
               of  gross  loans   receivable  to  net  loans   receivable  after
               consideration of the allowance for loan losses, deferred net loan
               fees and loans in process:

<TABLE>
<CAPTION>
                                             -----------------------------September 30,----------------------------------
                                                        1997                      1996                      1995           
                                                            Percent                   Percent                     Percent  
                                                              of                        of                          of     
                                               Amount        Total       Amount        Total        Amount         Total   
                                               ------        -----       ------        -----        ------         -----   
                                                                                                   (Dollars in thousands)
<S>                                         <C>              <C>      <C>            <C>         <C>              <C>     
Mortgage loans
     Residential(1)                          $ 177,269        87.73%   $ 143,751      92.87%      $ 119,720        97.60%  
     Multi-family                                  130          .06          163        .10             189          .15   
     Residential construction                    8,245         4.08        5,005       3.23           2,106         1.72   
                                                                                                                           
Consumer and other loans                                                                                                   
     Home equity and second                                                                                                
       mortgage loans                            7,177         3.55        3,790       2.45             375          .30   
       Commercial loans                          8,833         4.37          876        .57             206          .17   
     Financing leases                              325          .16        1,125        .73              --        --      
     Other                                          96          .05           83        .05              74          .06   
                                               -------       ------      -------     ------         -------       ------   
         Gross loans receivable(1)             202,075       100.00%     154,793     100.00%        122,670       100.00%  
                                                             ======                  ======                       ======   
                                                                                                                           
Less                                                                                                                       
     Allowance for loan losses                    (370)                     (340)                      (310)               
     Deferred net loan fees                       (653)                     (440)                      (370)               
     Loans in process                             (117)                   (1,961)                      (809)               
                                                ------                    ------                  ---------      
         Net loans receivable(1)             $ 200,935                 $ 152,052                $   121,181                
                                                                                                                           
Mortgage-backed securities                                                                                                 
     FHLMC certificates                      $   3,508                 $   5,013                $    11,905                
     CMO - REMIC                                12,071                    19,061                         --                
                                                ------                    ------                  ---------     
         Net mortgage-backed securities      $  15,579                 $  24,074                $    11,905                
                                             =========                 =========                  =========        
Mortgage loans                                                                                                             
     Adjustable rate                         $ 139,665        75.23%   $ 130,336      87.01%      $ 113,394        92.78%  
     Fixed rate(1)                              45,980        24.77       19,459      12.99           8,827         7.22   
                                               -------       ------      -------     ------         -------       ------   
         Total(1)                            $ 185,645       100.00%   $ 149,795     100.00%      $ 122,221       100.00%  
                                             =========       ======    =========     ======       =========       ======   
</TABLE>
                                                                
 (1) Includes loans held for sale      


                                       18

<PAGE>
<TABLE>
<CAPTION>
                                             ---------------------September 30,--------------------
                                                         1994                      1993            
                                                               Percent                     Percent 
                                                                 of                          of    
                                                Amount          Total       Amount          Total  
                                                ------          -----       ------          -----  
                                                               (Dollars in thousands)
<S>                                         <C>               <C>       <C>                <C>    
Mortgage loans                                                                                     
     Residential(1)                          $ 113,770         97.25%    $ 107,168          97.87% 
     Multi-family                                  192           .16           625            .57  
     Residential construction                    2,213          1.89           848            .78  
                                                                                                   
Consumer and other loans                                                                           
     Home equity and second                                                                        
       mortgage loans                              298           .26           256            .24  
       Commercial loans                            443           .38           496            .45  
     Financing leases                               --         --               --          --     
     Other                                          69           .06           106            .09  
                                               -------        ------       -------         ------  
         Gross loans receivable(1)             116,985        100.00%      109,499         100.00% 
                                                              ======                       ======  
                                                                                                   
Less                                                                                               
     Allowance for loan losses                    (280)                       (250)                
     Deferred net loan fees                       (447)                       (556)                
     Loans in process                             (961)                       (481)                
                                                  ----                        ----                 
                                                                                                   
         Net loans receivable(1)             $ 115,297                  $  108,212                 
                                             =========                  ==========                 
                                                                                                   
Mortgage-backed securities                                                                         
     FHLMC certificates                      $  13,158                          $-                              
     CMO - REMIC                                    --                          --    
                                             ---------                        ----                         
         Net mortgage-backed securities      $  13,158                        $  -                              
                                             =========                        ====                               
                                                                                                   
Mortgage loans                                                                                     
     Adjustable rate                         $ 110,853         95.06%    $ 102,837          94.23% 
     Fixed rate(1)                               5,765          4.94         6,300           5.77  
                                             ---------         -----     ---------          -----  
         Total(1)                            $ 116,618        100.00%    $ 109,137         100.00% 
                                             =========        ======     =========         ======  
                                             
(1) Includes loans held for sale      

</TABLE>

                                       18

<PAGE>


III.    LOAN PORTFOLIO (Continued)

     B.   Loan Maturity.  The following table sets forth certain  information at
          September 30, 1997,  regarding the dollar amount of loans  maturing in
          MFB Corp.'s  consolidated  loan portfolio based on the date that final
          payment  is due under the terms of the loan.  Demand  loans  having no
          stated  schedule of repayments  and no stated  maturity and overdrafts
          are  reported  as due in one  year or  less.  This  schedule  does not
          reflect  the  effects  of  possible   prepayments  or  enforcement  of
          due-on-sale clauses.  Management expects prepayments will cause actual
          maturities to be shorter.

<TABLE>
<CAPTION>


                                    Balance                     Due during years ended September 30,
                                  Outstanding                                   2001         2003           2008       2013
                               at September 30,                                  and          to             to         and
                                     1997         1998     1999      2000       2002         2007           2012      Following
                                     ----         ----     ----      ----       ----         ----           ----      ---------
                                                                                                     (In thousands)
Mortgage loans
<S>                                 <C>         <C>       <C>       <C>       <C>          <C>           <C>         <C>     
      Residential   (1)              $177,269    $  356    $180      $1,644    $ 4,567      $ 9,517       $36,082     $124,923
      Multi-family                        130         -       -           -          -           88            42            -
      Residential construction          8,245     6,886       -           -          -            -           341        1,018

 Consumer and other loans
      Home equity 
         and second mortgage            7,177        27     105           5      1,007        5,947            30           56
      Commercial loans                  8,833     1,807     234       1,423      4,623          551           195            -
         Financing leases                 325         -       -           -          -          325             -            -
      Other                                96        81       -           -          -            -             -           15
                                     --------    ------    ----      ------    -------      -------       -------     --------


      Total    (1)                   $202,075    $9,157    $519      $3,072    $10,197      $16,428       $36,690     $126,012
                                     ========    ======    ====      ======    =======      =======       =======     ========
</TABLE>


The following  table sets forth, as September 30, 1997, the dollar amount of all
loans due  after one year  which  have  fixed  interest  rates and  floating  or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                     Due After September 30, 1997
                                                               Variable
                                              Fixed Rates        Rates           Total
                                              -----------     -----------       ---------
                                                            (In thousands)
Mortgage loans
<S>                                          <C>             <C>               <C>      
      Residential  (1)                        $    44,408     $   132,505       $ 176,913
      Multi-family                                     17             113             130
      Residential construction                      1,102             257           1,359

Consumer and other loans
      Home equity and second mortgage               1,005           6,145           7,150
         Commercial loans                           6,317             709           7,026
         Financing leases                             325               -             325
      Other                                             -              15              15
                                              -----------     -----------       ---------
      Total  (1)                              $    53,174     $   139,744       $ 192,918
                                              ===========     ===========       =========
</TABLE>

     (1)  Includes loans held for sale

                                       19
<PAGE>


III.     LOAN PORTFOLIO (Continued)

         C.    Risk Elements

              1.  Nonaccrual, Past Due and Restructured Loans

                  The table below sets forth the amounts and  categories  of MFB
                  Corp.'s  consolidated  non-performing  assets  (accruing loans
                  delinquent more than 90 days, non-accrual loans, troubled debt
                  restructurings and real estate owned). It is the policy of MFB
                  Corp. that all earned but uncollected interest on all loans be
                  reviewed  quarterly  to  determine  if any portion  thereof be
                  classified as uncollectible for any loan past due in excess of
                  90 days.

                                             At September 30,
                               1997      1996      1995      1994     1993
                               ----      ----      ----      ----     ----
                                           (Dollars in thousands)

Accruing loans delinquent
  more than 90 days            $261      $198      $308      $107      $223
Non-accruing loans(1)            --        --        --        --        --
Troubled debt                                                        
  restructurings                 --        --        --        --        --
                               ----      ----      ----      ----      ----
      Total non-performing                                           
        loans                   261       198       308       107       223
Real estate owned, net           --        --        18        22        50
                               ----      ----      ----      ----      ----
                                                                     
      Total non-performing                                           
        assets                 $261      $198      $326      $129      $273
                               ====      ====      ====      ====      ====
                                                                     
Non-performing loans to                                              
  total loans, net (2)          .13%      .13%      .25%      .09%      .21%
Non-performing assets to                                             
  total assets                  .10%      .09%      .17%      .07%      .16%
                                                                   
Management  believes that the allowance for loan losses balance at September 30,
1997 is adequate to absorb any losses on  nonperforming  loans, as the allowance
balance is  maintained by  management  at a level  considered  adequate to cover
losses that are currently  anticipated  based on past loss  experience,  general
economic  conditions,  information about specific borrower situations  including
their financial  position and collateral values, and other factors and estimates
which are subject to change over time.



--------------------------------------------------------------------------------
(1)  MFB Corp.  generally  places  mortgage  loans on a  nonaccrual  status when
     serious  doubt exists as to their  collectibility.  At September  30, 1997,
     there were no loans on nonaccrual.

(2)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.

                                       20

<PAGE>

III.     LOAN PORTFOLIO (Continued)

         C.     Risk Elements (Continued)

                2.    Potential Problem Loans

                      As of September  30, 1997,  there are no loans where there
                      are serious  doubts as to the  ability of the  borrower to
                      comply with present loan repayment terms, which may result
                      in  disclosure  of such loans  pursuant  to Item  III.C.1.
                      Consideration was given to loans classified for regulatory
                      purposes  as  loss,  doubtful,   substandard,  or  special
                      mention  that have not been  disclosed in Section 1 above.
                      Management  believes  that these loans do not represent or
                      result  from  trends  or  uncertainties  which  management
                      reasonably expects will materially impact future operating
                      results,  liquidity,  or capital resources,  or management
                      believes  that  these  loans  do  not  represent  material
                      credits about which management is aware of any information
                      which causes  management to have serious  doubts as to the
                      ability  of  such   borrowers  to  comply  with  the  loan
                      repayment terms.

                3.    Foreign Outstandings

                      None

                4.    Loan Concentrations

                      MFB  Corp.   historically  has  concentrated  its  lending
                      activities  on the  origination  of loans secured by first
                      mortgage   liens  for  the   purchase,   construction   or
                      refinancing  of  one-  to  four-family   residential  real
                      property.  These  loans  continue to be the major focus of
                      MFB  Corp.'s  loan  origination  activities,  representing
                      91.81% of MFB  Corp.'s  total  loan  portfolio,  including
                      loans held for sale, at September 30, 1997.


         D.     Other Interest-Earning Assets

                There are no other  interest-earning  assets as of September 30,
1997 which would be required to be  disclosed  under Item III.  C.1 or 2 if such
assets were loans.

                                       21

<PAGE>
     IV.   SUMMARY OF LOAN LOSS EXPERIENCE

           A.   The  allowance  for  loan  losses  is  maintained   through  the
                provision  for loan losses,  which is charged to  earnings.  The
                provision  for loan losses is  determined  in  conjunction  with
                management's   review  and   evaluation   of  current   economic
                conditions  (including  those  of  MFB  Corp.'s  lending  area),
                changes in the  characteristic  and size of the loan  portfolio,
                loan   delinquencies   (current  status  as  well  as  past  and
                anticipated  trends) and adequacy of  collateral  securing  loan
                delinquencies,  historical  and estimated net  charge-offs,  and
                other  pertinent  information  derived from a review of the loan
                portfolio.  In management's  opinion,  MFB Corp.'s allowance for
                loan losses is adequate to absorb anticipated future losses from
                loans at September 30, 1997.

                The  following  table  analyzes   changes  in  the  consolidated
allowance for loan losses during the past five years ended September 30, 1997.

                                             Years Ended September 30,
                                  1997      1996      1995      1994      1993
                                  ----      ----      ----      ----      ----
                                              (Dollars in thousands)
Balance of allowance at
  beginning of period             $340      $310      $280      $250      $ 58
Add
      Recoveries of loans
        previously charged-
        off--residential real
        estate loans                --        --        --        --        --
Less charge offs
      Residential real estate
        loans                       --        --        --        --        --
      Commercial loans              --        --        --        --        --
      Consumer loans                --        --        --        --        --
                                  ----      ----      ----      ----      ----
Net charge-offs                     --        --        --        --        --
Provisions for loan losses          30        30        30        30       192
                                  ----      ----      ----      ----      ----

Balance of allowance at
  end of period                   $370      $340      $310      $280      $250
                                  ====      ====      ====      ====      ====

Net charge-offs to total
  average loans out-
  standing for period               -%        -%        -%        -%        -%
Allowance at end of
  period to total loans, net
  at end of period (1)             .18%      .22%      .26%      .24%      .23%
Allowance to total non-
  performing loans at
  end of period                 141.76%   171.72%   100.65%   261.68%   112.11%


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

(1)  Total loans, including loans held for sale, less deferred net loan fees and
     loans in process.

                                       22

<PAGE>

     IV.   SUMMARY OF LOAN LOSS EXPERIENCE (Continued)

          Allocation of Allowance for Loan Losses.  The following table presents
          an analysis of the allocation of MFB Corp.'s allowance for loan losses
          at the dates indicated.

<TABLE>
<CAPTION>
                                                                       September 30,
                            --------------------------------------------------------------------------------------------------------
                                   1997                 1996                1995                 1994                   1993
                            -------------------  -------------------  ------------------   ------------------   --------------------
                                       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>   
Balance at end of period
  applicable to

Residential(1)                $323      87.73%     $311      92.87%    $281      97.60%       $251     97.25%       $221     97.87%
                                                                                                                            
Commercial loans                19       4.37         1        .57        1        .17           1       .38           1       .45 
                                                                                                                            
Multi-family                     1        .06         1        .10        1        .15           1       .16           1       .57
                                                                                                                            
Residential construction         1       4.08         1       3.23        1       1.72           1      1.89           1       .78
                                                                                                                            
Consumer loans(2)                1       3.76         1       3.23        1        .36           1       .32           1       .33
                                                                                                                            
Unallocated                     25         --        25         --        25        --          25        --                
                              ----     ------      ----     ------      ----    ------        ----    ------        ----    ------ 
    Total                     $370     100.00%     $340     100.00%     $310    100.00%       $280    100.00%       $250    100.00%
                              ====     ======      ====     ======      ====    ======        ====    ======        ====    ====== 
</TABLE>

                                                                
                                                            
--------------------------------------------------------------------------------
(1)  Includes loans held for sale

(2)  Includes home equity and second mortgage loans, financing leases, and other
     loans including, education loans and loans secured by deposits.

                                       23


<PAGE>

V.       DEPOSITS

        The average  amount of deposits and average rates paid are summarized as
follows for the years ended September 30:

<TABLE>
<CAPTION>
                                                            1 9 9 7                     1 9 9 6                       1 9 9 5
                                                   -----------------------    ---------------------------    -----------------------
                                                       Average     Average         Average        Average        Average     Average
                                                       Amount       Rate           Amount          Rate          Amount       Rate
                                                                                   (Dollars in thousands)
<S>                                                <C>              <C>       <C>                   <C>       <C>             <C>  
         Savings accounts                          $    10,359      2.68%     $   9,746             2.77%     $   9,774       2.80%
         Now and money market accounts                  26,770      2.89         26,006             3.12         26,672       3.24
         Certificates of deposit                       126,202      5.65        113,570             5.68        106,556       5.30
         Demand deposits (noninterest-bearing)           1,274                      816                             839
                                                   -----------                  -------                       ---------

                                                   $   164,605                 $150,138                       $ 143,841
                                                   ===========                 ========                       =========
</TABLE>

        Maturities  of time  certificates  of deposit and other time deposits of
$100,000 or more outstanding at September 30, 1997 is summarized as follows:

                                                                 Amount
                                                             (In thousands)

         Three months or less                                $      1,980
         Over three months and through six months                   3,649
         Over six months and through twelve months                  7,485
         Over twelve months                                        11,778
                                                             ------------

                                                             $     24,892
                                                             ============

                                       24
<PAGE>

VI.      RETURN ON EQUITY AND ASSETS

         The  ratio  of  net  income  to  average   total   assets  and  average
shareholders' equity and certain other ratios are as follows:

<TABLE>
<CAPTION>
                                                               September 30,
                                                    ----------------------------------
                                                      1997         1996         1995
                                                      ----         ----         ----
                                                           (Dollars in thousands)

<S>                                                 <C>          <C>          <C>     
        Average total assets                        $237,050     $200,583     $183,869
                                                    ========     ========     ========
        Average shareholders' equity                $ 33,274     $ 37,407     $ 38,029
                                                    ========     ========     ========
        Net income                                  $  2,002     $    975     $  1,236
                                                    ========     ========     ========
        Return on average total assets                   .84%         .49%         .67%
                                                    ========     ========     ========
        Return on average shareholders' equity          6.02%        2.61%        3.25%
                                                    ========     ========     ========
        Dividend payout ratio (dividends
          declared per share divided by net
          income per share)                            27.59%       12.24%           -%
                                                    ========     ========     ========
        Average shareholders' equity
          to average total assets                      14.04%       18.65%       20.68%
                                                    ========     ========     ========
</TABLE>

VII.     SHORT-TERM BORROWINGS
         The  following  table  sets forth the  maximum  month-end  balance  and
         average balance of FHLB advances and securities  sold under  agreements
         to repurchase at the dates indicated.

<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                                          ------------------------------------
                                                            1997          1996           1995
                                                          ------------------------------------
                                                                  (Dollars in Thousands)
  Maximum Balance:
<S>                                                       <C>           <C>                  
  FHLB advances.........................................  $47,500       $29,500           ---
  Securities sold under agreements to repurchase........      389           ---           ---
                                                       
  Average Balance:                                     
  FHLB advances:........................................   34,960         9,625           ---
  Securities sold under agreements to repurchase........       97           ---           ---
                                                       
  Average Rate Paid On:                                
  FHLB advances.........................................     5.64%         5.50%          ---
  Securities sold under agreements to repurchase........     4.25%          ---           ---
                                                   
</TABLE>

The following table sets forth the Bank's borrowings at the dates indicated:

                                                      Year Ended September 30,
                                                   ----------------------------
                                                     1997       1996      1995
                                                   ----------------------------
                                                      (Dollars in Thousands)
Amounts Outstanding
FHLB advances .................................... $47,500     $24,500      --
Securities sold under agreements to repurchase....     389          --      --
                                                
Weighted Average Interest Rate                  
FHLB advances ....................................    5.66%       5.53%     --
Securities sold under agreements to repurchase....    4.25%         --      --
                                              




                                       25




<PAGE>

                                   COMPETITION


     MFB  Financial  originates  most of its  loans to and  accepts  most of its
deposits from residents of St. Joseph and Elkhart counties in Indiana.

     MFB   Financial  is  subject  to   competition   from   various   financial
institutions,  including  state and national  banks,  state and federal  savings
associations,  credit unions,  certain non-banking  consumer lenders,  and other
companies  or firms,  including  brokerage  houses and  mortgage  brokers,  that
provide  similar  services  in St..  Joseph  County  with  significantly  larger
resources  than MFB  Financial.  In total,  there are 15 financial  institutions
located  in  Mishawaka,   Indiana,  including  MFB  Financial.  These  financial
institutions  consist of five  commercial  banks,  three savings banks and seven
credit  unions.   MFB  Financial  must  also  compete  with  banks  and  savings
institutions in Elkhart and South Bend since media advertising from these cities
reaches the Mishawaka  community.  MFB Financial also competes with money market
funds with respect to deposit accounts and with insurance companies with respect
to individual retirement accounts.

     Under current law, bank holding companies may acquire savings associations.
Savings associations may also acquire banks and other savings associations under
federal law and state law. To date, several bank holding company acquisitions of
healthy  savings   associations  in  Indiana  have  been  completed.   Continued
consolidation of financial  institutions  based in Indiana may also increase the
competition faced by the Company.

     In addition,  The Riegle-Neal  Interstate Banking and Branching  Efficiency
Act of 1994 (the  "Riegle-Neal  Act") permits bank holding  companies to acquire
banks  in  other  states  and,   with  state  consent  and  subject  to  certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion.  The State of Indiana passed a law establishing interstate
branching  provisions for Indiana  state-chartered  banks  consistent with those
established by the Riegle-Neal Act (the "Indiana  Branching  Law").  The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion and authorizes  out-of-state  banks meeting  certain  requirements  to
branch  into  Indiana by merger de novo  expansion.  The Indiana  Branching  Law
became effective March 15, 1996 and provided that interstate mergers and de novo
branches are not permitted to  out-of-state  banks unless the laws of their home
states  permit  Indiana  banks to  merge  or  establish  de novo  branches  on a
reciprocal basis. This new legislation may also result in increased  competition
for the Holding Company and the Bank.

     The primary  factors  influencing  competition  for  deposits  are interest
rates,  service and convenience of office locations.  MFB Financial competes for
loan  originations  primarily  through the efficiency and quality of services it
provides  borrowers,  builders and Realtors and through  interest rates and loan
fees it charges.  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 that are not readily predictable.



                                       26
<PAGE>

                                  REGULATION

General

     The Bank is a federally  chartered  savings bank, the deposits of which are
federally  insured and backed by the full faith and credit of the United  States
Government.  Accordingly,  the Bank is subject to broad federal  regulation  and
oversight  extending to all its operations.  The Bank is a member of the FHLB of
Indianapolis  and is  subject  to  certain  limited  regulation  by the Board of
Governors  of the Federal  Reserve  System  ("Federal  Reserve  Board").  As the
savings and loan  holding  company of the Bank,  the Company  also is subject to
federal  regulation and oversight.  The purpose of the regulation of the Company
and other holding companies is to protect subsidiary savings  associations.  The
Bank is a member  of the  Savings  Association  Insurance  Fund  ("SAIF")  which
together with the Bank Insurance Fund (the "BIF") are the two deposit  insurance
funds  administered by the FDIC, and the deposits of the Bank are insured by the
FDIC. As a result,  the FDIC has certain  regulatory and  examination  authority
over the Bank.  Certain of these  regulatory  requirements  and restrictions are
discussed below or elsewhere in this document.

     The  OTS  has   extensive   authority   over  the   operations  of  savings
associations.  As part of this authority,  the Bank is required to file periodic
reports with the OTS and is subject to periodic  examinations by the OTS and the
FDIC.  The last  regular OTS  examination  of the Bank was as of June 10, 1996 .
When these  examinations are conducted by the OTS, the examiners may require the
Company  to provide  for higher  general or  specific  loan loss  reserves.  All
savings  associations  are subject to a semi-annual  assessment,  based upon the
savings  association's  total  assets,  to  fund  the  operations  of  the  OTS.
Currently,  the assessment rates range from .0172761% of assets for associations
with assets of $67 million or less to .0045864% for associations  with assets in
excess of $35  billion.  The Bank's  OTS  assessment  for the fiscal  year ended
September 30, 1997, was approximately $66,000.

     The  OTS  also  has  extensive   enforcement  authority  over  all  savings
institutions  and their holding  companies,  including the Bank and the Company.
This enforcement  authority includes,  among other things, the ability to assess
civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate  injunctive  actions.  In  general,  these  enforcement  actions may be
initiated  for  violations  of  laws  and  regulations  and  unsafe  or  unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,  including  misleading or untimely  reports  filed with the OTS.  Except
under certain  circumstances,  public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws and it is prohibited  from engaging in any activities
not permitted by such laws. For instance,  no savings  institution may invest in
non-investment  grade corporate debt  securities.  In addition,  the permissable
level of investment by federal  associations in loans secured by non-residential
real property may not exceed 400% of total capital,  except with approval of the
OTS. The Bank is in compliance with the noted restrictions.



                                       27
<PAGE>

     The Bank is also subject to federal and state regulation as to such matters
as loans to officers,  directors, or principal shareholders,  required reserves,
limitations as to the nature and amount of its loans and investments, regulatory
approval  of any merger or  consolidation,  issuance or  retirements  of its own
securities,  and  limitations  upon  other  aspects of  banking  operations.  In
addition,  the  activities and operations of the Bank are subject to a number of
additional  detailed,  complex and sometimes  overlapping federal and state laws
and regulations.  These include state usury and consumer credit laws, state laws
relating to fiduciaries,  the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act,  anti-redlining  legislation and anti-trust
laws.

    The United States Congress is considering legislation that would require all
federal savings associations,  such as the Bank, to either convert to a national
bank  or a  state-chartered  financial  institution  by a  specified  date to be
determined. In addition, under the legislation, the Holding Company likely would
not be  regulated as a savings and loan  holding  company,  but rather as a bank
holding company.  The OTS would also be abolished and its functions  transferred
among the other federal banking  regulators.  Certain aspects of the legislation
remain to be resolved and  therefore no assurance  can be given as to whether or
in what form the  legislation  will be  enacted  or its  effect  on the  Holding
Company and the Bank.

Safety and Soundness Standards

     The  OTS,  as well as the  other  federal  banking  agencies,  has  adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  In general the  standards are designed to assist the
federal  banking  agencies in  identifying  and  addressing  problems at insured
institutions  before capital becomes  impaired.  Any institution  which fails to
comply with these standards must submit a compliance  plan.  Failure to submit a
plan or to comply with an approved plan will subject the  institution to further
enforcement action.

Federal Home Loan Bank System

     The Bank is a member of the FHLB  system,  which  consists  of 12  regional
banks.  The federal  Housing  Finance Board  ("FHFB"),  an  independent  agency,
controls the FHLB System  including  the FHLB of  Indianapolis.  The FHLB System
provides a central credit facility primarily for member savings associations and
other  member  financial  institutions.  The Bank is  required to hold shares of
capital  stock in the FHLB of  Indianapolis  in an amount at least  equal to the
greater  of 1% of the  aggregate  principal  amount  of its  unpaid  residential
mortgage loans,  home purchase  contracts and similar  obligations at the end of
each  calendar  year,  .3% of its  assets  or 1/20  (or  such  greater  fraction
established by the FHLB) of outstanding  FHLB  advances,  commitments,  lines of
credit and letters of credit.  The Bank is  currently  in  compliance  with this
requirement.  At September 30, 1997, the Bank's  investment in stock of the FHLB
of Indianapolis was $2.4 million.



                                       28
<PAGE>

     In past years, the Bank received  substantial  dividends on its FHLB stock.
All 12 FHLB's are  required  to provide  funds for the  resolution  of  troubled
savings associations and to establish affordable housing programs through direct
loans or  interest  subsidies  on  advances to members to be used for lending at
subsidized interest rates for low-and  moderate-income,  owner-occupied  housing
projects, affordable rental housing, and certain other community projects. These
contributions  and obligations could adversely affect the value of FHLB stock in
the  future.  A reduction  in value of such stock may result in a  corresponding
reduction in the Bank's capital.

     The FHLB of  Indianapolis  serves as a reserve or  central  bank for member
institutions  within its assigned  region.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members in accordance  with policies and  procedures  established by
the FHLB and the Board of Directors of the FHLB of Indianapolis.

     All FHLB  advances  must be  fully  secured  by  sufficient  collateral  as
determined by the FHLB.  Eligible  collateral includes first mortgage loans less
than 60 days delinquent or securities  evidencing interests therein,  securities
(including  mortgage-backed  securities)  issued,  insured or  guaranteed by the
federal  government  or any agency  thereof,  FHLB  deposits  and,  to a limited
extent,  real  estate  with  readily  ascertainable  value in which a  perfected
security interest may be obtained.  Other forms of collateral may be accepted as
over  collateralization  or, under certain  circumstances,  to renew outstanding
advances.  All long-term  advances are required to provide funds for residential
home financing and the FHLB has established  standards of community service that
members must meet to maintain access to long-term advances.

    Interest rates charged for advances vary  depending upon maturity,  the cost
of funds to the FHLB of  Indianapolis  and the purpose of the  borrowing.  Under
current law, savings associations which cease to be Qualified Thrift Lenders are
ineligible to receive advances from their FHLB.

Insurance of Deposits

    The FDIC administers two separate insurance funds, which are not commingled:
one  primarily  for  federally  insured  banks  ("BIF")  and one  primarily  for
federally  insured  savings  associations  ("SAIF").  As the federal  insurer of
deposits of savings associations, the FDIC determines whether to grant insurance
to  newly-chartered  savings  associations,  has authority to prohibit unsafe or
unsound activities and has enforcement powers over savings associations (usually
in  conjunction  with  the  OTS or on its  own if the  OTS  does  not  undertake
enforcement action).

    Deposit accounts in the Bank are generally  insured by the SAIF to a maximum
of $100,000 for each insured  depositor.  As a condition to such insurance,  the
FDIC is  authorized  to issue  regulations  and,  in  conjunction  with the OTS,
conduct  examinations  and  generally  supervise  the  operations of its insured
members.   This  supervision  extends  to  a  comprehensive   regulatory  scheme
governing, among other things, the form of deposit instruments issued by savings
associations,  and  certain  aspects  of  their  lending  activities,  including
appraisal   requirements,   private  mortgage  insurance  coverage  and  lending
authority.



                                       29
<PAGE>

     The FDIC's  deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well-capitalized (i.e. a core capital ratio of at least 5%, a ratio of Tier 1 or
core capital to risk-weighted  assets ("Tier 1 risk-based  capital") of at least
6% and a risk-based  capital ratio of at least 10%) pay the lowest premium while
institutions  that are less than  adequately  capitalized  (i.e.  core or Tier 1
risk-based  capital ratio of less than 4% or a risk-based  capital ratio of less
than 8%) and  considered  of  substantial  supervisory  concern  pay the highest
premium.  Risk  classification  of all insured  institutions is made by the FDIC
semi-annually.

     The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it  determines  that the  reserve  ratio of the  SAIF  will be less  than the
designated  reserve  ratio of 1.25% of SAIF insured  deposits.  In setting these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FDIC may also impose  special  assessments  on SAIF  members to repay
amounts  borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

     For the first six months of 1995, the  assessment  schedule for BIF members
and SAIF members  ranged from .23% to .31% of deposits.  As is the case with the
SAIF,  the FDIC is authorized  to adjust the  insurance  premium rates for banks
that are insured by the BIF of the FDIC in order to maintain  the reserve  ratio
of the BIF at 1.25% of BIF insured deposits. As a result of the BIF reaching its
statutory  reserve ratio,  the FDIC revised the premium schedule for BIF insured
institutions  to  provide  a range of .04% to .31% of  deposits.  The  revisions
became  effective  in the third  quarter  of 1995.  In  addition  BIF rates were
further revised,  effective January 1996, to provide a range of .0% to .27%. The
SAIF rates,  however,  were not  adjusted.  At the time the FDIC revised the BIF
premium schedule,  it noted that, absent legislative action (as discussed below)
, the SAIF would not attain its designated reserve ratio until the year 2002. As
a result,  SAIF insured members would continue to be generally subject to higher
deposit insurance premiums than BIF insured institutions until, all things being
equal, the SAIF attained its required reserve ratio.

     In order to  eliminate  this  disparity  and any  competitive  disadvantage
between  BIF and SAIF  member  institutions  with  respect to deposit  insurance
premiums,  legislation to recapitalize the SAIF was enacted in September,  1996.
The legislation provided for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to  recapitalize  the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if  no  savings  associations  then  exist.  The  special  assessment  rate  was
established  at  .657% of  assessable  deposits  by the  FDIC and the  resulting
assessment  on the Bank of $955,000  was paid in  November,  1996.  This special
assessment  significantly  increased  noninterest expense and adversely affected
the Company's  results of operations for the year ended  September 30, 1996. See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations.  " As a result of the special assessment,  the Bank's annual deposit
insurance  premium  for the  year  ended  September  30,  1997  was  reduced  to
approximately  $147,000 based upon its current risk  classification  and the new
assessment schedule for SAIF insured institutions. These premiums are subject to
change in future periods.



                                       30
<PAGE>

    Prior to the enactment of the legislation,  a portion of the SAIF assessment
imposed  on  savings  associations  was used to repay  obligations  issued  by a
federally chartered  corporation to provide financing ("FICO") for resolving the
thrift  crisis  in the  1980's.  Although  the FDIC has  proposed  that the SAIF
assessment be equalized with the BIF assessment schedule,  effective, October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing  obligation.  Although the  legislation  also now
requires  assessments  to be made on  BIF-assessable  deposits for this purpose,
effective  January 1, 1997,  that  assessment will be limited to 20% of the rate
imposed on SAIF  assessable  deposits  until the earlier of December 31, 1999 or
when no  savings  association  continues  to exist,  thereby  imposing a greater
burden  on SAIF  member  institutions  such as the  Bank.  Thereafter,  however,
assessments  on  BIF-member  institutions  will  be made on the  same  basis  as
SAIF-member  institutions.  The rates  established by the FDIC to implement this
requirement for all  FDIC-insured  institutions are a 6.3 basis point assessment
on SAIF deposits and a 1.26 basis points  assessment  on BIF deposits  until BIF
insured institutions participate fully in the assessment.

Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  stockholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,  certain minority equity interests in subsidiaries,  purchased mortgage
servicing  rights and purchased  credit card  relationships  (subject to certain
limits), less nonqualifying intangibles. Under the tangible capital requirement,
a savings bank must maintain  tangible capital (core capital less all intangible
assets except  purchased  mortgage  servicing  rights and purchased  credit card
relationships  which may be included subject to certain limits) of at least 1.5%
of total assets. Under the risk-based capital requirements,  a minimum amount of
capital must be maintained  by a savings bank to account for the relative  risks
inherent  in the type  and  amount  of  assets  held by the  savings  bank.  The
risk-based  capital  requirement  requires a savings  bank to  maintain  capital
(defined  generally  for these  purposes as core capital plus general  valuation
allowances and permanent or maturing capital instruments such as preferred stock
and  subordinated  debt less assets  required to be  deducted)  equal to 8.0% of
risk-weighted  assets.  Assets are  ranked as to risk in one of four  categories
(0-100%)  with a credit  risk-free  asset such as cash  requiring no  risk-based
capital and an asset with a significant  credit risk such as a non-accrual  loan
being  assigned a factor of 100%.  At September  30, 1997,  based on the capital
standards then in effect,  the Bank was in compliance  with its fully  phased-in
capital requirements.



                                       31
<PAGE>

    The Comptroller of the Currency requires a minimum leverage ratio of 3% Tier
1  capital-to-total  assets  for  the  highest  rated  national  banks,  with an
additional  requirement of 100 to 200 basis points for all other national banks.
Current law requires that the capital  standards for savings  associations be no
less stringent than those applicable to national banks. Accordingly, the OTS has
proposed revised capital regulations imposing a minimum core capital requirement
of 3% for the highest rated savings associations, with an additional requirement
of 100 to 200 basis points for all other savings associations. These regulations
have not become  effective  and there can be no assurance  as to whether,  or in
what form, such regulations will be adopted.

     The OTS has delayed indefinitely  implementation of a final rule which sets
forth the  methodology  for  calculating  an interest rate risk  component to be
incorporated  into the OTS  regulatory  capital rule.  Under the new rule,  only
savings  associations with "above normal" interest rate risk (institutions whose
portfolio  equity would  decline in value by more than 2% of assets in the event
of a hypothetical  200-basis-point  move in interest  rates) will be required to
maintain  additional capital for interest rate risk under the risk-based capital
framework.  In addition, most institutions with less than $300 million in assets
and a risk-based  capital ratio in excess of 12%, such as the Bank,  are subject
to less stringent  reporting  requirements  and are exempt from the new interest
rate  component  of the  new  rule.  Although  the  OTS  has  decided  to  delay
implementation  of this rule,  it will continue to monitor the level of interest
rate  risk  at  individual  institutions  and it  retains  the  authority,  on a
case-by-case  basis, to impose  additional  capital  requirements for individual
institutions with significant interest rate risk.

     If an association is not in compliance with its capital  requirements,  the
OTS is required to prohibit asset growth and to impose a capital  directive that
may  restrict,  among other  things,  the  payment of  dividends  and  officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement  actions  against a  savings  bank  that  fails to meet its  capital
requirements,  which actions may include  restrictions on operations and banking
activities,  the  imposition of a capital  directive,  a cease and desist order,
civil money penalties or harsher  measures such as the appointment of a receiver
or conservator or a forced merger into another institution.

Prompt Corrective Action

     Certain   regulatory   action  is  mandated  or  recommended   for  savings
associations  that are deemed to be well  capitalized,  adequately  capitalized,
undercapitalized,      significantly     undercapitalized     and     critically
undercapitalized. At each successively lower capital category, an institution 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.  OTS regulations  define these capital
levels as follows: (1) well-capitalized  associations must have total risk-based
capital of at least 10%, core risk-based capital  (consisting only of items that
qualify for inclusion in core capital) of at least 6% and a leverage ratio of at
least 5% and are not  subject  to any order or written  directive  of the OTS to
maintain  a specific  capital  level for any  capital  measure;  (2)  adequately
capitalized  associations  are those that meet the  regulatory  minimum of total
risk-based  capital of 8%, core risk-based capital of 4% and a leverage ratio of
4% (except for institutions  receiving the highest  examination rating, in which
case  the  requirement  is  3%),  but  which  are  not  well  capitalized;   (3)
undercapitalized  associations  are those that do not meet the  requirements for
adequately   capitalized   associations,   but   that   are  not   significantly
undercapitalized;  (4)  significantly  undercapitalized  associations have total


                                       32
<PAGE>

risk-based  capital of less than 6%, core risk-based capital of less than 3% and
a  leverage  ratio  of  less  than  3%;  and  (5)  critically   undercapitalized
associations are those with tangible capital of less than 2% of total assets. In
addition, the OTS can downgrade an association's designation notwithstanding its
capital  level,  based on less than  satisfactory  examination  ratings in areas
other than capital or if the institution is deemed to be in an unsafe or unsound
condition.  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.  Significantly undercapitalized
institutions  must  restrict  the payment of bonuses and raises to their  senior
executive officers.  Furthermore, a critically undercapitalized institution must
be placed in conservatorship or receivership  within 90 days after reaching such
capitalization  level,  except  under  limited  circumstances.  It will  also be
prohibited from making payments on any subordinated debt securities  without the
prior  approval  of the FDIC  and  will be  subject  to  significant  additional
operating  restrictions.  The Bank's  capital at September  30, 1997,  meets the
standards for a well-capitalized association.


    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  which  is
necessary to bring the institution  into  compliance with all capital  standards
applicable to such institution at the time the institution  fails to comply with
its capital restoration plan.


Capital Distributions Regulation

    An OTS regulation  imposes  limitations upon all "capital  distributions" by
savings  associations,  including cash dividends,  payments by an institution to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital.  The regulation  establishes a three-tiered system of regulation,  with
the greatest  flexibility  being afforded to  well-capitalized  institutions.  A
savings  bank which has total  capital  (immediately  prior to and after  giving
effect to the capital distribution) that is a least equal to its fully phased-in
capital  requirements would be a Tier 1 institution  ("Tier 1 Institution").  An
institution  that has  total  capital  at least  equal  to its  minimum  capital
requirements, but less than its fully phased-in capital requirements, would be a
Tier 2 institution  ("Tier 1 Institution").  An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution").  However,  an institution which otherwise qualifies as a
Tier  1  institution  may be  designated  by  the  OTS  as a  Tier  2 or  Tier 3
institution if the OTS determines  that the institution is "in need of more than
normal supervision." The Bank is currently a Tier 1 Institution.



                                       33
<PAGE>

    A Tier 1 Institution  could,  after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year up to the greater of
(a) 100% of its net income to date during the calendar  year plus an amount that
would  reduce by one-half its "surplus  capital  ratio" at the  beginning of the
calendar year (the smallest excess over its capital requirements), or (b) 75% of
its net income over the most recent  four-quarter  period. Any additional amount
of capital distributions would require prior regulatory approval.

     The OTS has  proposed  revisions  to these  regulations  which would permit
savings  associations  to declare  dividends in amounts  which would assure that
they remain adequately  capitalized following the dividend declaration.  Savings
associations  in a holding company system which are rated Camel 1 or 2 and which
are not in  troubled  condition  would need to file a prior  notice with the OTS
concerning such dividend declaration.

Real Estate Lending Standards

     OTS  regulations  require  savings  associations  to establish and maintain
written  internal  real estate  lending  policies.  Each  association's  lending
policies  must  be  consistent  with  safe  and  sound  banking   practices  and
appropriate  to the size of the  association  and the  nature  and  scope of its
operations.   The  policies  must  establish   loan  portfolio   diversification
standards;  establish prudent underwriting  standards,  including  loan-to-value
limits, that are clear and measurable;  establish loan administration procedures
for  the  association's  real  estate  portfolio;  and  establish  documentation
approval,   and  reporting   requirements   to  monitor   compliance   with  the
association's real estate lending policies.

     The association's written real estate lending policies must be reviewed and
approved by the  association's  board of directors at least  annually.  Further,
each association is expected to monitor  conditions in its real estate market to
ensure that its lending  policies  continue to be appropriate for current market
conditions.

Federal Reserve System

     Under FRB  regulations,  the Bank is required to maintain  reserves against
its transaction  accounts (primarily checking and NOW accounts) and non-personal
money market deposit  accounts.  The effect of these reserve  requirements is to
increase the Bank's cost of funds.  The Bank is in  compliance  with its reserve
requirements.



                                       34
<PAGE>

     A federal  savings bank,  like other  depository  institutions  maintaining
reservable accounts, may borrow from the Federal Reserve Bank "discount window,"
but the FRB's  regulations  require the savings bank to exhaust other reasonable
alternative  sources,   including  borrowing  from  its  regional  FHLB,  before
borrowing from the Federal Reserve Bank. Certain  limitations are imposed on the
ability of  undercapitalized  depository  institutions  to borrow  from  Federal
Reserve Banks.

Transactions with Affiliates

     Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal  Reserve Act. An affiliate of a savings bank
is any company or entity which  controls,  is  controlled  by or is under common
control with the savings bank. In a holding company context,  the parent holding
company of a savings  bank (such as MFB) and any  companies  controlled  by such
parent holding company are affiliates of the savings bank. The subsidiaries of a
savings  bank,  however,  are not deemed  affiliates  under Section 23A and 23B;
however,  transactions  between a  subsidiary  of a savings  bank and any of the
affiliates of a savings bank are subject to the  requirements and limitations of
Sections 23A and 23B.

    Generally,  Sections  23A and 23B (i) limit the extent to which the  savings
bank or its  subsidiaries  may  engage in  "covered  transactions"  with any one
affiliate  to an amount  equal to 10% of such  association's  capital  stock and
surplus,  and  contain  an  aggregate  limit on all such  transactions  with all
affiliates  to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such  transactions  be on terms  substantially  the same, or at
least as favorable,  to the  association  or  subsidiary as those  provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.

     In addition to the restrictions imposed by Sections 23A and 23B, no savings
bank may (i) loan or otherwise  extend  credit to an  affiliate,  except for any
affiliate  which  engages  only in  activities  which are  permissible  for bank
holding companies, or (ii) purchase or invest in any stocks, bonds,  debentures,
notes, or similar obligations of any affiliate,  except for affiliates which are
subsidiaries of the savings bank.

    The  restrictions  contained in Section 22(h) of the Federal  Reserve Act on
loans to executive officers,  directors and principal shareholders also apply to
savings associations.  Under Section 22(h), loans to an executive officer and to
a  greater  than  10%  shareholder  of a  savings  bank  (18%  in  the  case  of
institutions  located  in an area  with less than  30,000  in  population),  and
certain  affiliated  entities of either,  may not exceed together with all other
outstanding  loans to such  person and  affiliated  entities  the  association's
loan-to-one-borrower   limit  (generally  equal  to  15%  of  the  institution's
unimpaired capital and surplus and an additional 10% of such capital and surplus
for loans fully secured by certain readily marketable collateral). Section 22(h)
also  prohibits  certain  loans,  above amounts  prescribed  by the  appropriate
federal banking agency,  to directors,  executive  officers and greater than 10%
shareholders  of a savings bank, and their  respective  affiliates,  unless such
loan is  approved  in  advance by a majority  of the board of  directors  of the
association  with any  "interested"  director not  participating  in the voting.
Currently,  the FRB requires  board of director  approval  for certain  loans to
directors, officers, and 10% shareholders (including all other outstanding loans
to such  persons)  above the greater of $25,000 or 5% of capital and surplus (up
to  $500,000).  Further,  the FRB requires  that loans to  directors,  executive
officers and principal  shareholders be made on terms  substantially the same as
offered in comparable transactions to other unaffiliated parties.  Section 22(g)
of the Federal Reserve Act, which imposes limitations on loans made to executive
officers, also applies to savings associations.

                                       35
<PAGE>

Holding Company Regulation

     MFB is regulated  as a  "non-diversified  unitary  savings and loan holding
company"  within the meaning of the Home Owners' Loan Act, as amended  ("HOLA"),
and subject to regulatory  oversight of the Director of the OTS. As such, MFB is
registered  with the OTS and thereby subject to OTS  regulations,  examinations,
supervision  and reporting  requirements.  As a subsidiary of a savings and loan
holding  company,  the Bank is subject to certain  restrictions  in its dealings
with MFB and with other companies affiliated with MFB.

     HOLA  generally  prohibits  a savings  and loan  holding  company  from (i)
acquiring  control of any other savings bank or savings and loan holding company
or controlling  the assets thereof without prior approval of the Director of the
OTS,  or from (ii)  acquiring  or  retaining  more than 5 percent  of the voting
shares of a savings bank or holding  company  thereof which is not a subsidiary.
Additionally,  under certain circumstances a savings and loan holding company is
permitted  to acquire,  with the  approval of the  Director of the OTS, up to 15
percent of previously  unissued  voting shares of an  under-capitalized  savings
bank for cash without that savings bank being deemed  controlled  by the holding
company.  Except with the prior approval of the Director 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.

     MFB's  Board of  Directors  presently  intends to operate  MFB as a unitary
savings and loan holding  company.  There are generally no  restrictions  on the
permissible  business  activities of a unitary savings and loan holding company.
However,  if the Director of 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  bank,  the Director of the OTS may impose
such  restrictions  as deemed  necessary  to address  such risk and limiting (i)
payment of dividends by the savings bank, (ii) transactions  between the savings
bank and its affiliates, and (iii) any activities of the savings bank that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings bank.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings and loan holding  companies,  if the savings bank subsidiary of
such a holding  company fails to meet the Qualified  Thrift Lender ("QTL") test,
then such  unitary  holding  company  would  become  subject  to the  activities
restrictions applicable to multiple holding companies.  (Additional restrictions
on securing advances from the FHLB also apply). See "--Qualified Thrift Lender."
At  September  30,  1997,  the Bank's  asset  composition  was in excess of that
required to qualify the Bank as a Qualified Thrift Lender.



                                       36
<PAGE>

     If MFB were to acquire  control of another savings  institution  other than
through  a merger  or  other  business  combination  with the  Bank,  MFB  would
thereupon become a multiple savings and loan holding company.  Except where such
acquisition   is  pursuant  to  the  authority  to  approve   emergency   thrift
acquisitions  and where each  subsidiary  savings  bank meets the QTL test,  the
activities  of MFB and any of its  subsidiaries  (other  than  the Bank or other
subsidiary  savings   associations)  would  thereafter  be  subject  to  further
restrictions.  HOLA provides that,  among other things,  no multiple savings and
loan holding  company or  subsidiary  thereof  which is not a savings bank 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 bank,  (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 the FSLIC by 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 Director of 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 Director of the OTS prior to being engaged in
by a multiple holding company.

     The  Director of the OTS may also  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
associations  in more than one state,  if the multiple  savings and loan holding
company involved  controls a savings bank which 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).  Also, the Director of 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.

     Indiana law permits  acquisitions of certain federal and state SAIF-insured
savings banks and their holding companies  ("Savings Banks") located in Indiana,
Ohio,  Kentucky,  Illinois,  and Michigan (the  "Region") by other savings banks
located in the Region.  Savings Banks with their  principal place of business in
one of the states in the Region (other than  Indiana) may acquire  Savings Banks
with their  principal  place of business in Indiana if, subject to certain other
conditions,  the state of the acquiring Savings Bank has reciprocal  legislation
permitting the acquisition of savings banks and their holding  companies in that
state by Indiana  Savings Banks.  Each of the states in the Region has, at least
to a certain degree, reciprocal legislation. The Indiana statute also authorizes
Indiana  Savings Banks to acquire  other Savings Banks in the Region.  Following
the acquisition,  an acquired Indiana Savings Bank and any other Indiana Savings
Bank  subsidiary  owned by the acquirer  must hold no more than 15% of the total
Savings Bank deposits in Indiana.



                                       37
<PAGE>

     No  subsidiary  savings  bank 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.


Branching

     The OTS has adopted  regulations which permit  nationwide  branching to the
extent  permitted by federal  statute.  Federal  statutes permit federal savings
associations to branch outside of their home state if the association  meets the
domestic  building and loan test in Section  7701(a)(19) of the Internal Revenue
Code of 1986, as amended (the "Code") or the asset  composition  test of Section
7701(c) of the Code.  Branching that would result in the formation of a multiple
savings and loan holding company controlling  savings  associations in more than
one state is  permitted  if the law of the state in which the savings bank to be
acquired is located specifically  authorizes  acquisition of its state-chartered
associations by  state-chartered  associations or their holding companies in the
state where the acquiring association or holding company is located.

Federal Securities Law

     The  shares of Common  Stock of MFB are  registered  with the SEC under the
1934 Act. MFB is subject to the information, proxy solicitation, insider trading
restrictions  and  other  requirements  of the 1934 Act and the rules of the SEC
thereunder.

     If MFB has fewer than 300 shareholders,  it may deregister its shares under
the 1934 Act and cease to be subject to the foregoing requirements.

     Shares of Common Stock held by persons who are affiliates of MFB may not be
resold  without  registration  or  unless  sold in  accordance  with the  resale
restrictions  of Rule 144 under the 1933 Act.  If MFB meets the  current  public
information requirements under Rule 144, each affiliate of MFB who complies with
the other  conditions of Rule 144  (including  the two-year  holding  period and
those that require the  affiliate's  sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without registration,
a number of shares not to exceed, in any three-month  period, the greater of (i)
1% of the outstanding shares of MFB or (ii) the average weekly volume of trading
in such shares during the preceding four calendar weeks.



                                       38
<PAGE>

Qualified Thrift Lender

    Under  current OTS  regulations,  the QTL test  requires that a savings bank
have at  least  65 % of its  portfolio  assets  invested  in  "qualified  thrift
investments" on a monthly  average basis in 9 out of every 12 months.  Qualified
thrift investments under the QTL test consist primarily of housing related loans
and  investments.  Portfolio  assets  under  the  QTL  test  include  all  of an
association's assets less (i) goodwill and other intangibles,  (ii) the value of
property used by the  association to conduct its business,  and (iii) its liquid
assets as required to be maintained under law up to 20% of total assets.

     A savings  bank which fails to meet the QTL test must  either  convert to a
bank (but its deposit  insurance  assessments  and payments will be those of and
paid to SAIF) or be subject  to the  following  penalties:  (i) it may not enter
into any new activity except for those permissible for a national bank and for a
savings  bank;  (ii) its  branching  activities  shall be  limited to those of a
national  bank;  (iii) it shall not be eligible for any new FHLB  advances;  and
(iv) it shall be bound by regulations  applicable to national  banks  respecting
payment of  dividends.  Three years after  failing the QTL test the  association
must (i) dispose of any  investment or activity not  permissible  for a national
bank and a savings bank and (ii) repay all outstanding FHLB advances.  If such a
savings  bank is  controlled  by a savings and loan holding  company,  then such
holding company must,  within a prescribed time period,  become  registered as a
bank holding company and become subject to all rules and regulations  applicable
to bank holding companies (including restrictions as to the scope of permissible
business activities).

     A savings bank failing to meet the QTL test may  re-qualify  as a QTL if it
thereafter  meets the QTL test. In the event of such  re-qualification  it shall
not  be  subject  to  the  penalties  described  above.  A  savings  bank  which
subsequently  again fails to qualify under the QTL test shall become  subject to
all of the described penalties without application of any waiting period.

     At September 30, 1997, 88.71% of the Bank's portfolio assets (as defined on
that date) were  invested in  qualified  thrift  investment  (as defined on that
date), and therefore the Bank's asset composition was in excess of that required
to qualify the Bank as a QTL.  Also,  the Bank does not expect to  significantly
change its lending or investment  activities  in the near future,  and therefore
expects  to  continue  to  qualify  as a QTL,  although  there  can  be no  such
assurance.

Community Reinvestment Act Matters

     Under current law, ratings of depository  institutions  under the Community
Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure includes both
a  four-unit   descriptive   rating--using   terms  such  as  satisfactory   and
unsatisfactory--and a written evaluation of each institution's performance. 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.
The FHLBs have  established  an  "Affordable  Housing  Program" to subsidize the
interest  rate of  advances  to  member  associations  engaged  in  lending  for
long-term, low-and moderate-income, owner-occupied and affordable rental housing
at subsidized  rates. The Bank is  participating in this program.  The examiners
have  determined  that the Bank has a satisfactory  record of meeting  community
credit needs  governing  the  classification  of assets of insured  institutions
consistent with the requirements.



                                       39
<PAGE>

                                    TAXATION

Federal Taxation

     Historically,  savings associations,  such as the Bank, have been permitted
to compute bad debt deductions  using either the bank  experience  method or the
percentage of taxable income method.
 However, in future years, only the specified  experience formula method will be
allowed as, in August,  1996,  legislation was enacted that repealed the reserve
method of accounting for federal income tax purposes. As a result, the Bank must
recapture  that  portion of the reserve  that exceeds the amount that could have
been taken under the  experience  method for post-1987 tax years.  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.  In addition,  the
pre-1988 reserve, for which no deferred taxes have been recorded,  will not have
to be recaptured  into income unless (i) the Bank no longer  qualifies as a bank
under the Code, or (ii) excess  dividends or  distributions  are paid out by the
Bank. The total amount of bad debt to be recaptured is approximately $1,310,000.

     Depending on the composition of its items of income and expense,  a savings
bank may be subject to the  alternative  minimum tax. A savings bank must pay an
alternative minimum tax equal to the amount (if any) by which 20% of alternative
minimum taxable income ("AMTI"),  as reduced by an exemption  varying with AMTI,
exceeds the regular tax due. AMTI equals  regular  taxable  income  increased or
decreased by certain tax preferences  and  adjustments,  including  depreciation
deductions  in excess of that  allowable for  alternative  minimum tax purposes,
tax-exempt  interest on most private  activity bonds issued after August 7, 1986
(reduced by any related interest  expense  disallowed for regular tax purposes),
the amount of the bad debt reserve  deduction claimed in excess of the deduction
based  on the  experience  method  and 75% of the  excess  of  adjusted  current
earnings over AMTI (before this  adjustment and before any  alternative  tax net
operating  loss).  AMTI  may be  reduced  only up to 90% by net  operating  loss
carryovers, but alternative minimum tax paid can be credited against regular tax
due in later years.

     For federal income tax purposes, MFB reports its income and expenses on the
accrual  method of  accounting.  MFB, the Bank and  Mishawaka  Financial  file a
consolidated federal income tax return for each fiscal year ending September 30.
The federal income tax returns filed by MFB (or previously by the Bank) have not
been audited in the last five years.



                                       40
<PAGE>

     The  consolidated  federal income tax return filed by MFB has the effect of
eliminating intercompany distributions,  including dividends, in the computation
of consolidated taxable income.  Income of MFB generally would not be taken into
account in determining the bad debt deduction allowed to the Bank, regardless of
whether a  consolidated  tax  return is filed.  However,  certain  "functionally
related" losses of MFB would be required to be taken into account in determining
the  permitted  bad  debt  deduction,   which,  depending  upon  the  particular
circumstances, could reduce the bad debt deduction.

State Taxation

    The Bank is subject to Indiana's  new  Financial  Institutions  Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted  gross  income."  "Adjusted
gross  income,"  for purposes of FIT,  begins with taxable  income as defined by
Section 63 of the Code and,  thus,  incorporates  federal  tax law to the extent
that it affects the  computation of taxable  income.  Federal  taxable income is
then adjusted by several Indiana  modifications.  Other  applicable  state taxes
include generally applicable sales and use taxes plus real and personal property
taxes.

     MFB's  state  income  tax  returns  have not been  audited in the last five
years.



                                       41
<PAGE>


Item 2.     Properties.

     At September 30, 1997,  MFB Financial  conducted its business from its main
office at 121 South Church Street,  Mishawaka,  Indiana 46544, four full service
branch  offices and an additional  loan  origination  office The main office and
three  branch  offices in Mishawaka  and South Bend are owned by MFB  Financial,
while the loan  origination  office in Elkhart and the Goshen  branch office are
leased.

     The  following  table  provides  certain  information  with  respect to MFB
Financial's offices as of September 30, 1997:

                                      Year             Approximate
Description and Address              Opened           Square Footage
Main Office
121 S. Church Street
Mishawaka, IN 46544                   1961                13,738

Branch Office
411 W. McKinley Ave.
Mishawaka, IN 46545                   1975                 4,800

Branch Office
402 W. Cleveland Rd.
Mishawaka, IN 46545                   1977                 2,540

Branch Office
2427 Mishawaka Ave.
South Bend, IN 46615                  1978                 2,600

Loan Origination Office
227 S. Main St.
Suite 110
Elkhart, In. 46516                    1996                   600

Branch Office
Wal*Mart Super Store
2304 Lincolnway East
Goshen, In. 46526                     1997                   500

     MFB Financial  operates three automatic teller machines (ATMs),  one at its
McKinley  branch,  one at its Cleveland  Road branch and the other at the Goshen
branch. MFB Financial's ATMs participate in the nationwide CIRRUS ATM network.

     MFB Financial owns computer and data processing equipment which is used for
transaction processing and accounting.



                                       42
<PAGE>

     MFB Financial  also has  contracted  for the date  processing and reporting
services of BISYS,  Inc. in Houston,  Texas.  The cost of these data  processing
services is approximately $24,000 per month.

Item 3.       Legal Proceedings.

     The Bank is involved in various legal actions  arising in the normal course
of its business.  In the opinion of management,  the  resolutions of these legal
actions are in the aggregate not expected to have a material  adverse  effect on
the Company's results of operations.


Item 4.       Submission of Matters to a Vote of Security Holders.

     No matter was submitted to a vote of MFB's shareholders  during the quarter
ended September 30, 1997.


Item 4.5.       Executive Officers of MFB.

     Presented below is certain information  regarding the executive officers of
MFB and MFB Financial:

        Name                                    Position
     ------------------------    ----------------------------------------------
     Charles J. Viater           President and Chief Executive Officer of MFB
                                   and MFB Financial
     M. Gilbert Eberhart         Secretary of MFB and MFB Financial
     Steven F. Rathka            Senior Vice President of MFB Financial
     William L. Stockton, Jr.    Senior Vice President of MFB Financial
     Timothy C. Boenne           Vice President and Controller of MFB Financial
     Michael J. Portolese        Vice President of MFB   Financial



     Charles J.  Viater  (age 43) has served as  President  and Chief  Executive
Officer of MFB Financial since September 1, 1995. Previously, he served as Chief
Financial  Officer of Amity  Bancshares  and Executive  Vice  President of Amity
Federal Savings in Tinley Park, Illinois.

     M. Gilbert Eberhart (age 63) has served as Secretary of MFB Financial since
1987 and of MFB since its organization. He is also a dentist based in Mishawaka.


                                       43
<PAGE>


      Steven F. Rathka (age 55) has been in the banking  business since 1964. He
joined MFB Financial in February,  1997,  as Senior Vice  President in charge of
commercial lending.

     William L.  Stockton,  Jr. (age 50) serves as Senior Vice  President of MFB
Financial  and has been in  charge  of  residential  lending  operations  at MFB
Financial since 1992.

     Timothy C. Boenne (age 51) has served as Vice  President and  Controller of
MFB Financial  since 1992.  Until 1992, he also served as Branch Manager for MFB
Financial's McKinley Branch.

      Michael  J.  Portolese  (age  46)  has  served  as Vice  President  of MFB
Financial  since  1977.  He  also  serves  as  MFB  Financial's  Retail  Banking
Administrator, Security Director and Compliance Coordinator.



                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     The Bank  converted  from a  federally-chartered  mutual  savings  and loan
association to a federally-chartered stock savings bank effective March 24, 1994
(the "Conversion") and simultaneously formed a savings and loan holding company,
MFB. MFB's common stock,  without par value ("Common  Stock"),  is quoted on the
National  Association of Security Dealers Automated Quotation System ("NASDAQ"),
National Market System,  under the symbol "MFBC." The following table sets forth
the high and low bid prices as reported by NASDAQ,  and dividends paid per share
for Common Stock for the quarters indicated.  Such  over-the-counter  quotations
reflect  inter-dealer prices,  without retail mark-up,  mark-down or commission,
and may not necessarily represent actual transactions.

     Quarter                                             Dividends
      Ended                 High Trade   Low Trade       Declared
-------------------         ----------   ---------      -----------
December 31, 1995            $16.25       $14.75           None
March 31, 1996                15.25        13.75           None
June 30, 1996                 14.75        13.75           None
September 30, 1996            19.00        13.75        $ .06/share
December 31, 1996             19.25        15.50        $ .08/share
March 31, 1997                19.75        16.63        $ .08/share
June 30, 1997                 19.75        18.75        $ .08/share
September 30, 1997            23.50        19.13        $ .08/share
                                      
     As of September 30, 1997,  there were  approximately  667  shareholders  of
record of MFB's Common Stock.



                                       44
<PAGE>

     Since MFB has no independent  operations or other  subsidiaries to generate
income, its ability to accumulate  earnings for the payment of cash dividends to
its  shareholders  is directly  dependent  upon the  earnings on its  investment
securities and ability of the Bank to pay dividends to MFB.

    Under OTS  regulations,  a converted  savings  bank may not declare or pay a
cash  dividend  if the  effect  would be to reduce  net worth  below the  amount
required  for the  liquidation  account  created  at the time it  converted.  In
addition,  under OTS regulations,  the extent to which a savings bank may make a
"capital distribution," which includes, among other things, cash dividends, will
depend upon which one of three categories,  based upon levels of capital, that a
savings  bank is  classified.  The Bank is now and  expects to  continue to be a
"tier one  institution" and therefore would be able to pay cash dividends to MFB
during any calendar  year up to 100% of its net income during that calendar year
plus the amount that would reduce by one-half its "surplus  capital  ratio" (the
excess over its fully phased-end  capital  requirements) at the beginning of the
calendar year.  Prior notice of any dividend to be paid by the Bank will have to
be given to the OTS.

     Under current federal income tax law, dividend  distributions  with respect
to the Common Stock, to the extent that such dividends paid are from the current
or  accumulated  earnings  and  profits of the Bank (as  calculated  for federal
income tax  purposes),  will be taxable as ordinary  income to the recipient and
will not be  deductible  by the Bank.  Any dividend  distributions  in excess of
current or  accumulated  earnings and profits will be treated for federal income
tax purposes as a distribution  from the Bank's  accumulated  bad debt reserves,
which could result in increased federal income tax liability for the Bank.

         Unlike the Bank,  generally  there is no  restriction on the payment of
dividends by MFB,  subject to the  determination of the director of the OTS that
there is reasonable cause to believe that the payment of dividends constitutes a
serious  risk to the  financial  safety,  soundness  or  stability  of the Bank.
Indiana law, however, would prohibit MFB from paying a dividend if, after giving
effect to the payment of that  dividend,  MFB would not be able to pay its debts
as they become due in the ordinary course of business,  or if MFB's total assets
would be less than the sum of its total liabilities plus preferential  rights of
holders of preferred stock, if any.

         On October 1,  1996,  the Board of  Directors  of the  Holding  Company
declared a dividend of one common share  purchase  right (a "Right" or "Rights")
for  each  outstanding   share  of  Common  Stock.  The  dividend  was  paid  to
shareholders  of record as of October 21,  1996.  If and when the Rights  become
exercisable,  each Right will entitle the registered holder to purchase from the
Holding  Company  one share of Common  Stock at a purchase  price of $46.00 (the
"Purchase  Price"),  subject to adjustment as described in the Rights  Agreement
between the Holding  Company and  Registrar  and  Transfer  Company (the "Rights
Agreement")  which  specifies  the  terms  of the  Rights.  The  Rights  will be
represented by the outstanding  Common Stock  certificates and the Rights cannot
be bought,  sold or otherwise traded  separately from the Common Stock until the
"Distribution  Date,"  which is the  earliest to occur of (i) 10  calendar  days
following a public  announcement that a person or group (an "Acquiring  Person")
has (a) acquired  beneficial  ownership of 12% or more of the outstanding Common
Stock or (b) become the beneficial owner of an amount of the outstanding  Common
Stock  (but not less than 10%)  which the Board of  Directors  determines  to be
substantial and which ownership the Board of Directors determines is intended or
may be reasonably anticipated,  in general, to cause the Holding Company to take
actions  determined by the Board of Directors to be not in the Holding Company's
best  long-term  interests  (an  "Adverse  Person"),  or (ii) 10  business  days
following  the  commencement  or  announcement  of an intention to make a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 30% or more of such outstanding Common Stock.



                                       45
<PAGE>

         The Rights have  certain  anti-takeover  effects.  The Rights may cause
substantial  dilution to a person or group that  attempts to acquire the Holding
Company  or over 15% of the  outstanding  shares  of the  Company  on terms  not
approved by the Board of Directors or the Holding Company, except pursuant to an
offer conditioned on a substantial  number of Rights being acquired.  The Rights
should not interfere with any merger or other business  combination  approved by
the Board of Directors  since the Rights may be redeemed by the Holding  Company
at $.01 per  Right  prior  to the time  that a  person  or  group  has  acquired
beneficial ownership of 12% or more of the Common Shares.


Item 6.       Selected Financial Data.

     The  information  required by this item is incorporated by reference to the
material under the heading  "Selected  Consolidated  Financial Data of MFB Corp.
and Subsidiary" on page 2 of MFB's Annual Report to Shareholders  for its fiscal
year ended September 30, 1997 (the "Annual Report").



Item 7. Management's Discussion and Analysis of Financial Conditions and Results
        of Operations.

    The information  required by this item is incorporated by reference to pages
3 through 14 of the Annual Report.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risks

    The  OTS  provides  a  Net   Portfolio   Value   ("NPV")   approach  to  the
quantification  of  interest  rate  risk  for  thrift  institutions  such as MFB
Financial,  (the "Bank").  This approach  calculates the difference  between the
present  value of  expected  cash flows from  assets  and the  present  value of
expected  cash flows from  liabilities,  as well as cash flows from  off-balance
sheets contracts.

    The OTS issued a  regulation  which uses a net market value  methodology  to
measure  the  interest  rate risk  exposure  of thrift  institutions.  Under OTS
regulations,  an institution's "normal" level of interest rate risk in the event
of an assumed  200 basis  point  change in  interest  rates is a decrease in the
institution's NPV in an amount not to exceed two percent of the present value of
its assets.  Thrift  institutions  with greater than "normal" interest rate risk
exposure must take a deduction from their total capital  available to meet their
risk-based capital requirement.  The amount of that deduction is one half of the
difference  between (a) the institution's  actual  calculated  exposure to a 200
basis  point  interest  rate or decrease  (whichever  results in the greater pro
forma  decrease in NPV) and (b) its "normal' level of exposure which is 2.00% of
the  present  value of its  assets.  The  regulation,  however,  will not become
effective until the OTS evaluates the process by which thrift  institutions  may
appeal an interest rate risk deduction determination. It is uncertain as to when
this evaluation may be completed.



                                       46
<PAGE>

    Presented  below,  as of September  30,  1997,  is an analysis of the Bank's
interest  rate risk as  measured  by  changes  in NPV for an  instantaneous  and
sustained  parallel shift in the yield curve, in 100 basis point increments,  up
and down 400 basis points, in accordance with OTS regulations. As illustrated in
the table,  the  Bank's  interest  rate risk is more  sensitive  to rising  rate
changes than declining rates. This occurs primarily because,  as rates rise, the
market value of  fixed-rate  loans  declines due to both the rate  increases and
slowing  prepayments.  When  rates  decline,  the  Bank  does not  experience  a
significant  rise in market value for these loans  because  borrowers  prepay at
relatively  higher rates. The value of the Bank's deposits and borrowings change
in approximately the same proportion in rising and falling rate scenarios.

    Management  reviews  the OTS  measurements  and  related  peer  reports on a
quarterly basis. In addition to monitoring  selected measures of NPV, management
also  monitors  effects on net  interest  income  resulting  from  increases  or
decreases  in  interest  rates.  This  measure is used in  conjunction  with NPV
measures to identify excessive interest rate risk.


                              At September 30, 1997

                             (Dollars in thousands)

               Change in
            Interest Rates
            (Basis Points)       $ Change          % Change

                 + 400 bp        $ (20,637)             (54)%
                 + 300 bp          (15,081)             (40)
                 + 200 bp           (9,528)             (25)
                 + 100 bp           (4,321)             (11)
                     0 bp                -                -
                 - 100 bp            2,638                7
                 - 200 bp            3,971               10
                 - 300 bp            5,424               14
                 - 400 bp            7,454               20


Item 8.       Financial Statements and Supplementary Data.

     MFB's  Consolidated  Financial  Statements  and Notes thereto  contained on
pages 15 through 45 of the Annual Report are incorporated by reference.


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  required  by this  item  with  respect  to  directors  is
incorporated  by reference to pages 2 through 4 of MFB's Proxy Statement for its
1998 Annual Shareholder Meeting (the "Proxy Statement").  Information concerning
MFB's  executive  officers  is  included  in Item 4.5 in Part 1 of this  report.
Information concerning compliance by such persons with Section 16(a) of the 1934
Act is incorporated by reference to page 11 of the Proxy Statement.



                                       47
<PAGE>

Item 11.      Executive Compensation

     The   information   required  by  this  item  with   respect  to  executive
compensation  is  incorporated  by  reference  to pages 5 through 6 of the Proxy
Statement.


Item 12.       Security Ownership of Certain Beneficial Owners and Management.

     The information required by this item is incorporated by reference to pages
1 through 3 of the Proxy Statement.


Item 13.       Certain Relationships and Related Transactions.

     The information  required by this item is incorporated by reference to page
6 of the Proxy Statement.


                                     PART IV


Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)  The following financial statements are incorporated by reference as part of
     this report:

                                                                   Pages in the
                                                                  Annual Report
                                                                 to Shareholders
     Financial Statements                                    
      Report of Independent Auditors                                   15

     Consolidated Balance Sheets at September 30, 1997 and 1996        17

     Consolidated Statements of Income for the years ended             18
          September 30, 1997, 1996 and 1995

     Consolidated Statements of  Shareholders' Equity                  19
          for the years ended September 30, 1997, 1996 and 1995

     Consolidated Statements of Cash Flows for the years ended         20
          September 30, 1997, 1996 and 1995

     Notes to Consolidated Financial Statements                        22





                                       48
<PAGE>

(b)  MFB filed five Form 8-K reports during the year ended September 30, 1997.

 Date of report:      June 16, 1997

 Item  reported :     News   release   dated  June  16,   1997   regarding   the
                      announcement of its third quarter earnings and declaration
                      of an $ .08 per share cash dividend, payable on August 12,
                      1997 to shareholders of record on July 29, 1997.

 Date of report:      April 18, 1997
 Item reported :      News release dated April 18, 1997 regarding second quarter
                      earnings  and the  declaration  of a $ .08 per share  cash
                      dividend  payable on May 13,  1997 to holders of record on
                      April 29, 1997.

 Date of report:      January 17, 1997
 Item reported :      News  release  dated   January  17,  1997   regarding  the
                      announcement of first quarter earnings.

 Date of report:      October 15, 1996
 Item reported :      News release  dated  October 15, 1996,  announcing  fourth
                      quarter earnings and dividend declaration.

Date of report:       October 8, 1996
Item reported:        The Corporation's 5% stock repurchase program, adoption of
                      a shareholders rights plan and SAIF assessment.

(c)  The exhibits filed  herewith or  incorporated  by reference  herein are set
     forth on the Exhibit Index on page 51.

(d)  All  schedules  are  omitted  as the  required  information  either  is not
     applicable  or is  included in the  consolidated  Financial  Statements  or
     related notes.


                                       49
<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirement  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, as amended,  the Registrant had duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.

                                    MFB CORP.

     Date: December 23, 1997             By: /s/ Charles J. Viater
                                             ---------------------------------
                                             Charles J. Viater, President and
                                             Chief Executive Officer


     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  the report has been signed below by the following persons on behalf of
the  Registrant  and in the  capacities  indicated on this 23rd day of December,
1997.


/s/ Charles J. Viater                        /s/ M. Gilbert Eberhart
--------------------------                   --------------------------
Charles J. Viater                            M. Gilbert Eberhart, Director
President, Chief Executive Officer
and Director
(Principal Executive Officer)              
                                                                       
                                             /s/ Thomas F. Hums
                                             --------------------------
                                             Thomas F. Hums, Director


/s/ Timothy C. Boenne                        /s/ Jonathan E. Kintner
--------------------------                   --------------------------
Timothy C. Boenne                            Jonathan E. Kintner, Director
Vice President and Controller
(Principal Financial and Accounting
Officer)              


                                             /s/ Michael J. Marien
                                             --------------------------
                                             Michael J. Marien, Director



                                             /s/ Marian K. Torian
                                             --------------------------
                                             Marian K. Torian,
                                             Chairman of the Board


                       
                                             /s/ Reginald H. Wagle
                                             --------------------------
                                             Reginald H. Wagle, Director





                                       50
<PAGE>

                                  EXHIBIT LIST
Exhibit
Index
Page

 3(1)    The Articles of  Incorporation  of the  Registrant is  incorporated  by
         Reference  to Exhibit  3(1) to the  Registration  Statement on Form S-1
         (Registration No. 33-73098).

 3(2)    The Code of By-Laws of  Registration  is  incorporated  by reference to
         Item  7-Exhibit  3 of the  October 15,  1995  Securities  and  Exchange
         Commission Form 8-K Report.

10(1)    MFB Corp.  Stock Option Plan is  incorporated by reference to Exhibit A
         to the  Registrant's  definitive Proxy Statement in respect of its 1996
         Annual Shareholder Meeting.*

10(2)    Mishawaka  Federal  Savings  Recognition and Retention Plans and Trusts
         are  incorporated  by  reference  to  Exhibit  B  to  the  Registrant's
         definitive  Proxy  Statement in respect of its 1996 Annual  Shareholder
         Meeting.*

10(3)    Employment Agreement between Mishawaka Federal Savings and
         Charles J. Viater is attached hereto.

10(4)    Employment  Agreement  between Mishawaka Federal Savings and Timothy C.
         Boenne  is   incorporated   by  reference  to  Exhibit   10(8)  to  the
         Registration on Form S-1 (Registration No. 33-73098).*

10(5)    Employment  Agreement  between Mishawaka Federal Savings and Michael J.
         Portolese  is  incorporated  by  reference  to  Exhibit  10(10)  to the
         Registration Statement on Form S-1 (Registration No. 33-73098).*

10(6)    Employment  Agreement  between Mishawaka Federal Savings and William L.
         Stockton,  Jr. is  incorporated  by reference to Exhibit  10(11) to the
         Registration Statement on Form S-1 (Registration No. 33-73098).*

10(7)    MFB Corp.  1997 Stock  Option  Plan is  incorporated  by  reference  to
         Exhibit A to the Registrant's  definitive Proxy Statement in respect of
         its January, 1998 Annual Shareholder Meeting.*

11       Statement regarding computation of earnings per share (**)

13       Shareholder Annual Report, incorporated by reference.


                                       51
<PAGE>

                                                                           Page

21       Subsidiaries  of the Registrant is incorporated by reference to Exhibit
         22  to  the  Registration  Statement  on  Form  S-1  (Registration  No.
         33-73098).

23       Consent of Crowe, Chizek and Company LLP.

27       Financial Data Schedule













*    Management  contracts  and  plans  required  to be  filed as  exhibits  are
     included as Exhibits 10(1)-10(6).

**   See Note 1 of Notes to Consolidated  Financial Statements,  incorporated by
     reference. Shareholder Annual Report, included as Exhibit 13.


                                       52