ANNUAL REPORT
                               TO SHAREHOLDERS



                              TABLE OF CONTENTS
                                                                           Page

Message to Our Shareholders ...............................................   1
Selected Consolidated Financial Data ........................................ 3
Management's Discussion and Analysis .........................................4
Report of Independent Registered Public Accounting Firm .....................20
Consolidated Balance Sheets .................................................21
Consolidated Statements of Income ...........................................22
Consolidated Statements of Shareholders' Equity .............................23
Consolidated Statements of Cash Flows ...................................... 24
Notes to Consolidated Financial Statements ..................................26
Directors and Executive Officers ............................................58
Shareholder Information .....................................................59


DESCRIPTION OF BUSINESS

MFB Corp. is an Indiana  unitary  savings and loan holding company  organized in
1993, and parent company of its  wholly-owned  savings bank  subsidiary,
MFB Financial (the "Bank").  MFB Corp. and the Bank  (collectively  referred to
as the "Company")  conduct  business from their  corporate and main office
located in Mishawaka,  Indiana and the Bank's eleven  financial  centers in
St. Joseph,  Elkhart, and Hamilton  Counties of Indiana,  and also has a
mortgage loan office located in New Buffalo in Berrien  County,  Michigan.  The
Bank offers a variety of lending,  deposit,  trust,  investment,  broker
advisory,  private  banking,  retirement  plan and other financial services to
its retail and business customers.  The Bank's wholly-owned  subsidiary,
Mishawaka Financial Services, Inc., is engaged in the sale of life and health
insurance to customers in the Bank's market area. The Bank's  wholly-owned
subsidiaries,  MFB Investments I, Inc., MFB  Investments II, Inc. and
MFB  Investments,  LP are Nevada  corporations  and a Nevada limited
partnership  that manage a portion of the Bank's investment  portfolio.
The Bank's  wholly-owned  subsidiary,  Community Wealth Management Group,  Inc.,
is based out of Hamilton and  Montgomery  counties in Indiana,  and attracts
high  net-worth  clients and offers trust,  investment,  insurance,
broker  advisory,  retirement  plan and private  banking  services in the Bank's
market  area.  MFBC  Statutory  Trust I is MFB Corp's wholly-owned trust
preferred security subsidiary.




MESSAGE TO OUR SHAREHOLDERS

On behalf of the Board of Directors,  our management team and all the employees
of MFB Corp.  (the  "Company") and its subsidiary,  MFB Financial, it is my
pleasure to provide you with our Annual Report for the fiscal year ended
September 30, 2007.

First and  foremost,  it is my pleasure to report to you that in the Company's
118 years of history,  the fiscal year ended  September 30, 2007 was our most
profitable  year ever with earnings in excess of $3.2 million.  The Company
easily  surpassed the previous most profitable fiscal year- ended
September 30, 2000- with earnings of $2.8 million.  This year's excellent
performance is attributable to the outstanding  effort of a dedicated,
hard-working  team which,  among other things,  helped us recover $1.6 million
of a previously reserved  loan.  Remarkably,  this  success  was  achieved
during a  turbulent  time  that  finds  many of our  competitors  recording
significant additional provisions or losses related to the sub-prime mortgage
business.

The turmoil in the  subprime  mortgage  loan market was well  documented  and
well  publicized  this past year and has created a ripple effect of  uncertainty
and anxiety for  homeowners,  investors  and our economy in general.  It is
important to note that our company remains largely  unaffected by these events.
Our commitment to asset quality means an unwavering  commitment to lending
standards that have stood the test of time.  We continue  to operate  and
underwrite  to those  standards.  As a result,  our asset  quality  remains
strong and has, in fact,  improved  significantly  in the past year.
Non-performing  assets as a percent of total loans decreased from
2.18% at September 30, 2006 to 1.28% at September 30, 2007.

On  September  28,  2007,  we  completed a strategic  acquisition  that is
intended to create  critical  mass in our wealth  management business
immediately.  The  acquisition  involved  over $270  million  of trust  and
asset  management  client  relationships  in the Indianapolis  and
Crawfordsville  markets.  The revenue stream and operating  profit  potential of
this book of business is strong and management  will work  diligently  to
integrate  this  business and maximize its  contribution  to future  earnings of
the Company.  In addition,  we entered  the  retirement  plan  services
business  to  complement  and  support  our  efforts  to create new  sources of
non-interest revenue in the future.

Reduced consumer  confidence and a slowing economy  prompted an easing of
monetary policy in the last half of the year.  Although lower short-term
interest rates may put pressure on near-term  earnings,  the long-term
prospects are good. The Company  expects  reduced funding costs in the next
12 to 18 months should the current rate environment remain steady.

Our earnings  success this past year is attributable in large measure to a
negative  provision for loan losses of $1.3 million.  During the year we
collected  over $1.6  million of a fully  reserved  credit  facility  and over
$400,000 in  settlement  proceeds  from an investment  security that had been
written down during 2002. We continue to pursue the  collection  of  additional
amounts  related to these assets.

The Company  experienced  strong  balance sheet growth  during the year.  Total
assets at September  30, 2007 were $510.4  million,  an increase of
$14.3 million from the prior year.  The increase  reflects loan  portfolio
growth of $28.6 million  funded in part through repayments and  maturities of
investment  securities  during the year.  These funds were  supplemented  by
additional  borrowings  that replaced high rate  certificates  of deposits that
were not retained.  As a result,  borrowed funds increased $27.2 million while
total deposits  decreased  $12.4 million during the year.  Our book value per
common share  outstanding  increased to $31.25 at year-end,  up from $29.48 a
year ago. In October of 2007,  the Company  approved an increase in the
quarterly  dividend to $0.190 per share,  a 15.2% increase over the dividend
paid in the prior quarter.  This increase reflects the Company's  continued
commitment to improve long term value for our shareholders.



                                        Charles J. Viater
                                        President and Chief Executive Officer
<page>
                           MFB CORP. AND SUBSIDIARY
--------------------------------------------------------------------------------

                     SELECTED CONSOLIDATED FINANCIAL DATA
The following  selected  consolidated  financial  data of MFB Corp.  and its
subsidiary is qualified in its entirety by, and should be read in conjunction
with the consolidated financial statements, including notes thereto, included
elsewhere in this Annual Report.
<table>
<caption>
                                                                               At September 30,
                                                                (Dollars in thousands, except for supplemental data)


                                                    <c>             <c>           <c>            <c>             <c>
                                                           2007           2006            2005           2004           2003
Summary of Financial Condition:
Total assets                                           $ 510,448       $  496,072    $   554,877    $   541,222     $   428,624
Loans receivable                                         407,756          379,222        390,695        399,925         318,155
Allowance for loan losses                                  5,298            7,230          6,388          6,074           5,198
Loans held for sale, net                                     612                -            407          1,034           6,626
Cash and cash equivalents                                 23,470           16,289         54,209         28,595          40,357
Securities available for sale, including FHLB stock       41,126           66,545         72,563         74,820          46,499
Goodwill and other intangible assets                       3,892            3,669          4,557          5,056               -
Deposits                                                 333,803          346,243        374,364        357,893         292,106
FHLB advances                                            124,258           97,053        125,854        133,443          98,790
Shareholders' equity                                      41,057           38,939         38,673         35,906          34,251
</table>

<table>
<caption>
                                                                                Years Ended September 30,
                                                                  (Dollars in thousands, except for supplemental data)
                                                           2007           2006            2005           2004           2003
Summary of Operating Results:


                                                    <c>             <c>            <c>            <c>             <c>
Interest income                                        $   29,299      $   28,607    $   27,947    $     22,792     $    23,326
Interest expense                                           15,930          15,145        13,277          11,089          12,244
     Net interest income                                   13,369          13,462        14,670          11,703          11,082
Provision for loan losses                                  (1,257)          1,032           723             800           1,110
     Net interest income after provision                   14,626          12,430        13,947          10,903           9,972
         for loan losses
Noninterest income                                          5,863           6,273         4,989           5,680           4,981
Noninterest expense                                        16,278          16,327        15,829          14,558          11,882
Income before income taxes                                  4,211           2,376         3,107           2,025           3,071
Income tax expense                                            979             210           611             235             671
     Net income                                        $    3,232       $   2,166     $   2,496     $     1,790     $     2,400

Supplemental Data:
Basic earnings per common share                        $     2.45      $    1.61      $     1.85     $     1.36      $    1.87
Diluted earnings per common share                            2.37           1.56            1.81           1.30           1.80
Dividends declared per common share                         0.660          0.530            0.495         0.470          0.435
Book value per common share                                 31.25          29.48           28.52          27.02          26.60
Return on assets                                             0.64%          0.42%           0.47%          0.40%          0.56%
Return on equity                                             8.08           5.69            6.82           5.05           7.14
Interest rate spread                                         2.63           2.51            2.79           2.53           2.41
Net yield on average interest-earning assets                 2.94           2.79            2.97           2.81           2.73
Dividend pay-out ratio                                      26.94          32.92           26.73          34.56          23.26
Equity-to-assets                                             8.04           7.85            6.97           6.63           7.99
Non-performing assets to total loans                         1.28           2.18            0.80           1.07           1.43
Allowance for loan losses to total loans                     1.30           1.91            1.63           1.52           1.63

</table>

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS

The  principal  business of the Bank has  historically  consisted  of
attracting  deposits  from the general  public and the  business community  and
making loans secured by various types of  collateral,  including  real estate
and general  business  assets.  The Bank's Wealth Management Group attracts high
net worth clients and offers trust, investment,  insurance, broker advisory,
retirement plan and private banking  services.  The Bank is significantly
affected by prevailing  economic  conditions as well as government  policies and
regulations  concerning,  among other  things,  monetary and fiscal  affairs,
housing and  financial  institutions.  Deposit flows are influenced by a number
of factors,  including interest rates paid on competing  investments,  account
maturities,  fee structures,  and level of personal  income and savings.
Lending  activities are influenced by the demand for funds,  the number and
quality of lenders, and regional  economic cycles.  Sources of funds for lending
activities of the Bank include deposits,  borrowings,  payments on loans,
sale of loans and income  provided  from  operations.  The  Company's  earnings
are  primarily  dependent  upon the Bank's net interest income, the difference
between interest income and interest expense.

Interest  income is a function of the  balances of loans and  investments
outstanding  during a given  period and the yield earned on such loans and
investments.  Interest  expense is a function  of the amount of deposits  and
borrowings  outstanding  during the same period and interest  rates paid on such
deposits and  borrowings.  The Company's  earnings are also affected by the
Bank's  provisions for loan losses,  mortgage servicing rights valuation
adjustments,  service charges, fee income,  gains from sales of loans,  mortgage
loan servicing fees, income from subsidiary activities, operating expenses
and income taxes.

The Company's  operations are managed and financial  performance is evaluated on
a company-wide  basis and,  accordingly,  considered a single operating segment.

CRITICAL ACCOUNTING POLICIES

Certain of the Company's  accounting policies are important to the portrayal of
the Company's financial  condition,  since they require management to make
difficult,  complex or subjective  judgments,  some of which may relate to
matters that are  inherently  uncertain. Estimates  associated  with these
policies  are  susceptible  to material  changes as a result of changes in facts
and  circumstances. Facts and circumstances  that could affect these judgments
include,  but are not limited to; changes in interest rates,  performance of
the economy or the financial  condition of borrowers.  Management  believes that
its critical  accounting  policies include determining the allowance for loan
losses,  determining  the fair value of  securities  available for sale and the
valuation of mortgage  servicing rights.

Allowance for Loan Losses:  The allowance for loan losses is a valuation
allowance for probable  incurred credit losses,  increased by the  provision
for loan losses and  decreased by  charge-offs,  less  recoveries.  Management
estimates the allowance for loan losses balance required by evaluating  current
economic  conditions,  changes in character and size of the loan portfolio,
delinquencies  and adequacy of loan collateral securing loan delinquencies,
historical and estimated charge offs and other pertinent  information derived
from a review of the loan  portfolio.  Allocations  to the  allowance  for loan
losses may be made for specific  loans,  but the entire allowance for loan
losses is available for any loan that, in  management's  judgment,  should be
charged-off.  Loan losses are charged against the allowance for loan losses when
management believes the loan balance is uncollectible.



A loan is impaired  when the full payment of principal and interest is not
expected to be paid in  accordance  with the original  terms of the loan.
Impairment is evaluated in total for  small-balance  loans of similar  nature
such as  residential  mortgage and consumer loans,  and on an individual  loan
basis for  commercial  loans.  If a loan is impaired,  a portion of the
allowance for loan losses is allocated  so that the loan is reported on a net
basis at the present  value of estimated  future cash flows using the loan's
existing rate or at the fair value of  collateral  if repayment is expected
solely from the  collateral.  Thus,  changes in estimates of future cash flows
or collateral values for individual loans could significantly impact the
allowance for loan losses and provision expense.

Fair Value of Securities  Available for Sale:  Securities  available for sale
are carried at fair value, with unrealized  holding gains and losses reported
separately in accumulated other  comprehensive  income (loss),  net of tax. The
Company obtains market values from a third party on a monthly basis in order to
adjust the  securities  to fair value.  As a result of changes in the fair
market value of the Company's available for sale securities  portfolio,  other
comprehensive income (loss), net of tax, totaled $33,000,  ($30,000) and
$481,000 for 2007, 2006, and 2005,  respectively.  Additionally,  securities
available for sale are required to be written down to fair value  when a decline
in fair  value is not  temporary;  therefore,  future  changes  in the fair
value of  securities  could  have a significant  impact on the  Company's
operating  results.  In  determining  whether a market  value  decline is other
than  temporary, management  considers  the reason for the decline,  the extent
of the decline and the duration of the decline as well as the intent and
ability of the company to retain its investment for a period of time sufficient
to allow for the anticipated recovery in fair value.

Mortgage  Servicing  Rights:  Servicing  rights represent both purchased rights
and the allocated value of servicing rights retained on loans sold.  Servicing
rights are expensed in proportion to, and over the period of, estimated net
servicing  revenues.  Impairment is evaluated  based on the fair  value of the
rights,  determined  using  prices for  similar  assets  with  similar
characteristics  or discounted cash flows using market based  assumptions.  Any
impairment of a grouping is reported as a valuation  allowance.  Changes in
interest rates and the level of refinance  activity can have volatile  effects
on the carrying value of servicing  rights.  The Company obtains an outside
appraisal  on a quarterly  basis from a national  firm that  specializes  in
mortgage  servicing  valuation.  This valuation is used to evaluate the
Company's  mortgage servicing rights asset for impairment.
At September 30, 2007 and 2006,  mortgage servicing rights had a carrying value
of $2.3 million and $2.4 million, respectively.



COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2007 AND 2006

RESULTS OF OPERATIONS

Consolidated  net income for the Company for the year ended  September 30, 2007
was $3.2 million or $2.37 diluted net income per common share  compared to $2.2
million or $1.56  diluted net income per common  share for the same period in
2006.  The increase in net income was primarily attributable to a negative
provision for loan loss.

Net interest  income  totaled  $13.4  million for the year ended
September  30, 2007 compared to $13.5 million for the same period one year ago.
Interest  income  increased  $700,000 and interest  expense  increased  $800,000
during the year ended  September 30, 2007, compared to the same period in 2006.
Interest rates  continued to increase  during fiscal year 2007,  reflected in
the Company's yield earned on  interest-earning  assets,  which  increased  52
basis  points,  rising from 5.93% in fiscal year 2006 to 6.45% in 2007.  The
average interest rate paid on interest-bearing  liabilities  increased 40 basis
points, from 3.42% to 3.82% during the same period, due largely to increases in
the cost of deposits,  as rates on various  savings  accounts  continued to rise
from record lows. As a result, the interest rate spread increased 12 basis
points from 2.51% in 2006 to 2.63% in 2007.

The provision for loan losses is determined in conjunction  with  management's
review and evaluation of current  economic  conditions, changes in the
character and size of the loan  portfolio,  loan  delinquencies  (current
status as well as past trends),  adequacy of collateral  securing  impaired and
delinquent  loans,  historical and estimated net charge-offs and other
pertinent  information.  The provision for loan losses  decreased  from
$1.0 million of provision  expense for the year ended  September 30, 2006 to
$1.3 million of income  (negative  provision  for loan losses) for the year
ended  September 30, 2007.  The negative  provision for loan losses for the
year ending September 30, 2007 was primarily  related to one impaired
commercial loan discussed  further in Note 4 to the consolidated financial
statements.  Specific  reserves on commercial  loans decreased $2.2 million
from 2006 to 2007 and were offset by an increase in general reserves on
commercial  loans of $227,000 due to an increase in overall  commercial loan
balances.  Net charge-offs  totaled $190,000 and $675,000 for the years ended
September 30, 2006 and 2007  respectively.  The Bank continues to enhance its
loan review and risk assessment  procedures giving particular  attention to the
risks related to the commercial loan portfolio and the risk of loss for
the $3.7 million of commercial  loans  classified as impaired at the end of this
year.  Impaired  loans  decreased to $3.7 million from $6.9 million last year
predominantly  due to the payments received on an outstanding loan referred to
above and discussed in Note 4 to the consolidated  financial  statements and the
improved  financial  condition of another  commercial loan customer.  Management
of the Bank is continually monitoring these impaired loans for any changes
necessary in the provision for loan losses.

Noninterest  income  decreased  from $6.3 million for fiscal year 2006 to $5.9
million for the same period  ended  September  30, 2007. Included in noninterest
income for fiscal year 2006 were two  nonrecurring  items, a gain of $238,000
related to a called FHLB advance and a gain of  $200,000  from a sale  of the
Company's  insurance  subsidiary  property  and  casualty  line.  In  fiscal
year  2007, noninterest income included a $402,000 gain on securities from a
settlement of an investment written down in fiscal year 2002.

Noninterest  expense  remained  constant at $16.3 million for the twelve
months ended  September 30, 2006 and  September 30,  2007. The largest  increase
was for salaries and employee  benefits,  which  increased  $438,000.  Occupancy
and  equipment  expenses  decreased $212,000; loss on sale of fixed assets
decreased $162,000 primarily due to a $189,000 loss on the sale of a branch
building in 2006.

Income tax expense  increased  from  $210,000 last year to $979,000 this year
primarily  due to increased  income before tax.  Federal income tax expense
increased  from $264,000 to $876,000 and state income tax expense  (benefit)
increased from ($54,000) to $103,000. The overall  effective  income tax
expense  rate  increased  from 8.8% last year to 23.3% this year  primarily
due to  maintaining  a comparable level of low income housing income tax credits
and non-taxable income on an increased amount of taxable income.

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2006 AND 2005

RESULTS OF OPERATIONS

Consolidated  net income for the Company for the year ended  September 30, 2006
was $2.2 million or $1.56 diluted net income per common share  compared to $2.5
million or $1.81  diluted net income per common  share for the same period in
2005.  The decrease in net income was  primarily  attributable  to a decrease
in net  interest  income and an increase in  noninterest  expense  offset by an
increase in noninterest income.

Net interest  income  totaled  $13.5  million for the year ended
September  30, 2006 compared to $14.7 million for the same period one year ago.
Interest income  increased  $660,000 and interest  expense  increased
$1.9 million during the year ended September 30, 2006, compared to the same
period in 2005.  Interest  rates  continued  to increase  during  fiscal year
2006 and this was  reflected  in the Company's  yield earned on
interest-bearing  assets which increased 26 basis points from the prior year of
5.67% to 5.93% in 2006. The average  interest rate paid on  interest-bearing
liabilities,  however,  increased 54 basis points from 2.88% to 3.42% during the
same period,  due largely to increases in the cost of deposits,  as rates on
various  savings  accounts  rose from record lows. As a result, the interest
rate spread decreased 28 basis points from 2.79% to 2.51% in 2006.

The provision for loan losses is determined in conjunction  with  management's
review and evaluation of current  economic  conditions, changes in the
character and size of the loan  portfolio,  loan  delinquencies  (current
status as well as past trends),  adequacy of collateral  securing impaired and
delinquent  loans,  historical and estimated net charge-offs and other pertinent
information.  Based on the factors above,  the provision for loan losses
increased from $723,000 for the year ended September 30, 2005 to $1.0 million
for the year ended  September 30, 2006. The provision for loan losses for the
year ending  September 30, 2006 was primarily  related to one impaired
commercial loan discussed further in Note 4 to the consolidated  financial
statements.  Specific reserves on commercial loans increased  $1.5 million from
2005 to 2006 and were offset by a decrease in general  reserves on  commercial
loans of $690,000 due to a reduction in overall  commercial loan balances.  Net
charge-offs  totaled  $409,000 and $190,000 for the years ended
September 30, 2005 and 2006  respectively.  The Bank continues to enhance its
loan review and risk assessment  procedures giving  particular  attention to
the risks  related to the  commercial  loan  portfolio  and the risk of loss for
the $6.9 million of  commercial  loans  classified  as impaired at the end of
this year.  Impaired loans decreased from $8.7 million last year  predominantly
due to the payments received on an outstanding debt from one loan relationship
referred to above and discussed in Note 4 to the consolidated  financial
statements and the improved  financial  condition of another  commercial
customer.  Management of the Bank is continually  monitoring  these impaired
loans for any changes necessary in the provision for loan losses.

Noninterest  income  increased  from $5.0 million for the twelve  months ended
September  30, 2005 to $6.3 million for the same period ended
September  30,  2006.  The  increase  was  predominantly  the  result of a write
down of equity  securities  held by MFB Corp of $948,000  ($626,000  net of tax)
in fiscal year 2005.  The  Company  had no losses on  securities  in fiscal
year 2006.  In  addition, rental  income  from lease of space in the  Company's
corporate  headquarters  increased  by $443,000  over fiscal 2005 as  additional
tenants  occupied the building during 2006. Also, two nonrecurring  items
affected  noninterest  income during 2006; a gain of $238,000 related to a
called FHLB advance and a gain of $200,000 from a sale of the Company's
insurance subsidiary property and casualty line.


Noninterest  expense  increased from $15.8 million for the twelve months ended
September 30, 2005 to $16.3 million for the same period ending
September 30,  2006. The largest  increase was for salaries and employee
benefits,  which  increased  $404,000.  Occupancy and equipment  expenses
increased  $313,000;  loss on sale of fixed assets increased $221,000
primarily due to a $189,000 loss on the sale of a branch building; and other
expenses decreased $182,000 from 2005 to 2006.

Income tax expense  decreased  from  $611,000 last year to $210,000 this year
primarily  due to decreased  income before tax.  Federal income tax expense
decreased  from $511,000 to $264,000 and state income tax expense  (benefit)
decreased from $100,000 to ($54,000). The overall  effective  income tax expense
rate  decreased from 19.7% in 2005 to 8.8% in 2006 primarily due to maintaining
a comparable level of low income housing income tax credits and non-taxable
income on a decreased amount of taxable income.

BALANCE SHEET COMPOSITION

The Company's  cash and cash  equivalents  increased  $7.2 million,  from $16.3
million as of September 30, 2006 to $23.5 million as of September 30, 2007.
Net cash from  operating  activities  was $6.0 million in 2007 compared to $2.5
million net cash provided in 2006. The net cash  provided from  investing
activities  was $19.5  million in 2006 to a use of funds of $9.6 million in
2007.  The net cash from  financing  activities  provided a source of funds of
$10.8  million  in 2007  compared  to an  outflow of $60.0  million in 2006.
Primary  sources of cash came from net  borrowings  from the
Federal  Home Loan Bank  (FHLB) of $27.5  million  and from  payments  and
maturities of investments of $25.0  million.  Outlays of cash funded an increase
in the Company's loan portfolio of $31.1 million,  and a decrease in deposits
of $12.4 million.

As of September  30, 2007,  the  securities  available  for sale  portfolio  was
$33.4  million,  a decline of $25.0 million from $58.4 million at
September  30,  2006.  Securities  portfolio  activity  included  maturities
of $17.0  million and  principal  payments on mortgage-backed and related
securities of $8.0 million.  The Company made no purchases of investments in
fiscal year 2007.

As of September 30, 2007,  loans  receivable were $407.8 million,  an increase
of $28.6 million from $379.2 million as of September 30, 2006.  Residential
mortgage loans  increased $2.0 million from $199.2 million at September 30, 2006
to $201.2 million at September 30, 2007.  Commercial  loans  outstanding
increased  by $19.5  million  from $134.4  million at  September  30, 2006 to
$153.9  million at September 30, 2007.  Consumer loan  receivables,  which
include home equity term loans and lines of credit,  increased  $7.0 million to
$52.6 million.  Diversification  of the asset mix in the balance sheet will
continue to be a focus to improve profit  margins, to control margin  volatility
and to appeal to a broader  range of  customers  and  potential  customers.
The Company  continues to build on its reputation as a quality local lender
satisfying the market's desire for local service and local decision making.

During the year ended September 30, 2007, the Company  completed  secondary
market mortgage loan sales totaling $14.4 million,  and the net gains realized
on these loan sales were $306,000,  including  $179,000 related to recording
mortgage loan servicing  rights.  Loan sales in 2006 were $12.1  million,  and
the net gains  realized on these  loans  sales were  $261,000,  including
$150,000  related to recording  mortgage loan servicing  rights.  The loans sold
during the year ended September 30, 2007 were primarily fixed rate mortgage
loans  with  maturities  of fifteen  years or  longer.  The sale of  mortgage
loans  serves as a source of  additional  liquidity  and management  anticipates
that the Company will continue to deliver fixed rate loans to the  secondary
market to meet consumer  demand, manage  interest rate risk,  and diversify the
asset mix of the Company.  Adjustable  rate loans often provide rates of return
that are generally  superior to other  investments that carry similar terms to
repricing.  The Company  anticipates these loans will continue to be originated
and retained in the Bank's  portfolio.  Also, as part of its efforts to manage
the Company's  current  interest rate risk position,  the Company  originated
and held in its portfolio $11.9 million of fixed rate mortgage loans originated
during 2007, with a weighted  average  interest rate of 6.72%.  At
September 30, 2006, no loans were classified as loans held for sale compared
to $612,000 at September  30, 2007.  Mortgage  loans  serviced for others by the
Company  declined  from $196.0  million last fiscal year to $186.6
million at the end of this fiscal year.

The Company's  allowance  for loan losses at September  30, 2007 was $5.3
million or 1.30% of loans,  comparable to the $7.2 million or 1.91% of loans at
the end of last year.  The ratio of  non-performing  loans to loans was 1.85% at
September 30, 2006 compared to 1.25% at  September 30,  2007.  A negative
provision of $1.3 million was  recorded to the  allowance  for loan losses
during the year ended September  30, 2007  compared to a provision  of $1.0
million  recorded to the  allowance  for loan losses  during the prior year
ended September 30, 2006.  The change in the allowance for loan losses was due
predominantly  to payments  received on impaired loans during the year ended
September 30, 2007, which were previously  reserved for in the allowance for
loan losses.  As discussed  further in Note 4,  management's  increased
attention to and the Company's  subsequent  increase in  non-performing  loans
was offset by a decrease in commercial  impaired  loans.  Net charge offs
deducted from the allowance for loan losses was $675,000 for the year ended
September 30, 2007 compared to $190,000 for the prior year. In management's
opinion,  the Company's  allowance for loan losses at September 30, 2007
and loan loss provision for the year is appropriate for the loan portfolio.

The decrease in premises and  equipment  from $19.5  million at
September 30, 2006 to $18.5 million at September 30, 2007 was primarily
due to annual  depreciation  expense.  The corporate  headquarters  consists of
approximately  114,300 square feet with  approximately 44.00% of the space
utilized by the Company.  At September 30, 2007,  tenants  occupied
approximately  56,000 square feet of rentable space under  leases with  various
terms that extend 15 years.  At September  30, 2007 the Company had leased
approximately  87.00% of available lease space.

Goodwill  and other  intangible  assets  totaling  $5.2 million were  recorded
at the  acquisition  date as a result of the purchase of certain assets and
liabilities of Sobieski Bank in August 2004. Trust customer  relationship
intangible  assets totaling $610,000 were recorded at the  acquisition  date as
a result of the purchase of  Community  Trust and  Investment  Company,  Inc.
in  September  2007 (discussed  further in Note 16). These  intangibles
represent the difference  between the purchase price and the value of the
tangible assets  purchased  and the value of the  liabilities  assumed.  At
September  30, 2007 the balance of goodwill was $2.0 million and the
balance of the other  intangible  assets was $1.9  million.  The  Company
assesses  goodwill  for  impairment  at least  annually  and determined  there
was no impairment as of September 30, 2007. The other  intangible  assets
included the identified  value of the core deposits  acquired and the value of
customer  relationships  and trust customer  relationships  obtained in the
acquisitions.  The two intangible  assets relating to the Sobieski Bank
acquisition are amortized to expense over a ten year period with  approximately
seven years remaining,  and the one intangible asset relating to the Community
Trust and Investment  Company,  Inc.  acquisition is amortized to expense over a
ten year period with approximately ten years remaining.

Total  deposits  decreased by $12.4 million to $333.8  million as of
September 30, 2007 from $346.2 million as of September 30, 2006 in part due to
the reduction of high cost deposit products.  Deposits consisting of demand,
NOW, savings,  repurchase  agreements and MMDA accounts  increased  from $159.3
million to $163.3  million from  September  30, 2006 to  September 30,  2007.
Federal Home Loan Bank ("FHLB") advances increased from $97.1 million as of
September 30, 2006 to $124.3 million as of September 30, 2007.

Total  shareholders'  equity  increased  from $38.9 million as of
September  30, 2006 to $41.1  million as of September  30, 2007.  The
increases to equity  resulted  from net income of $3.2 million and $216,000
generated  from the exercise of stock  options,  partially offset by cash
dividend  payments of $870,000 and purchases of treasury  stock of $576,000.
The book value of MFB Corp.  common stock, based on the actual number of shares
outstanding, increased from $29.48 as of September 30, 2006 to $31.25 at
September 30, 2007.

ASSET/LIABILITY MANAGEMENT

The Company is subject to interest rate risk to the extent that its
interest-bearing  liabilities,  primarily deposits and Federal Home Loan Bank
("FHLB") advances, reprice more rapidly or at different rates than its
interest-earning assets.

A key element of the Company's  asset/liability  plan is to protect net earnings
by managing the maturity or repricing mismatch between its interest-earning
assets and rate-sensitive  liabilities.  Historically,  the Company has sought
to reduce exposure to its earnings through the use of adjustable  rate loans
and through the sale of fixed rate loans in the secondary  market,  and by
extending  funding maturities through the use of FHLB advances.

As part of its efforts to monitor  and manage  interest  rate risk,  the
Company  uses the Net  Portfolio  Value  ("NPV")  methodology utilized by the
Office of Thrift  Supervision (OTS). In essence,  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-sheet  contracts.  The difference is the NPV
which was 10.88% as of September 30, 2007, a decrease from 11.16% at September
30, 2006. The decrease is primarily the result of the change in investment
securities and FHLB  advances.  As referenced  above in the Balance Sheet
Composition  section,  an increase in cash,  commercial loans, and mortgage
loans, was offset in part with a decrease in investment  securities,  and
corresponds to an increase in FHLB advances and a decrease in savings,  NOW and
MMDA deposits.  Management and the Board of Directors review the OTS
measurements on a quarterly basis to determine  whether the Company's  interest
rate exposure is within the limits established by the Board of Directors in the
Company's interest rate risk policy.

The Company's  asset/liability  management strategy dictates acceptable limits
on the amounts of change in NPV given certain changes in interest rates. The
tables presented here, as of  September 30,  2007 and 2006, are an analysis of
the Company's  interest rate risk as measured by changes in NPV for
instantaneous and sustained  parallel shifts in the yield curve, in 100 basis
point increments,  up 300 basis points and down 200 basis points.

As  illustrated  in the September 30, 2007 table below,  the Company's  interest
rate risk is sensitive to rising rates and  positively impacted by  declining
rates.  The decline in NPV with a rate  increase is due to the  relative  volume
of mortgage  assets with fixed rate characteristics over the volume of
liabilities with fixed rate characteristics.



                                             September 30, 2007
                                          (Dollars in thousands)
<table>
<caption>


   Change in
  Interest Rates                                                                    NPV as % of Portfolio
    In Basis                             Net Portfolio Value                             Value of Assets
     Points                                                                     NPV
(Rate Shock) (1)              Amount              Change         Change        Ratio              Change (1)

                        <c>              <c>                 <c>            <c>                <c>
          +300             $  42,694        $    (14,466)         (25)%         8.50%               (238) bp
          +200                48,537              (8,623)         (15)          9.51                (137) bp
          +100                53,335              (3,825)          (7)          10.29                (59) bp
             0                57,160                   -             -          10.88                 -   bp
          (100)               57,366                 206             -          10.84                 (4) bp
          (200)               56,923                (237)            -          10.69                (19) bp

 (1)   Expressed in basis points ("bp")
</Table>
Specifically,  the  September  30, 2007 table  indicates  that the  Company's
NPV was $57.2  million or 10.88% of the market  value of portfolio  assets.
Based upon the  assumptions  utilized,  an immediate 200 basis point increase
in market interest rates would result in a $8.6 million or 15% decrease in the
Company's  NPV and would result in a 137 basis point  decrease in the  Company's
NPV ratio to 9.51%.  Also,  an  immediate  200 basis  point  decrease  in market
interest  rates  would  result in a $237,000 or 0% decrease in the Company's
NPV, and a 19 basis point decrease in the Company's NPV ratio to 10.69%.

As  illustrated  in the September 30, 2006 table below,  the Company's  interest
rate risk was sensitive to rising rates and positively impacted by declining
rates.  The decline in NPV with a rate  increase was due to the  relative
volume of mortgage  assets with fixed rate characteristics over the volume of
liabilities with fixed rate characteristics.

                                              September 30, 2006
                                            (Dollars in thousands)
<table>
<caption>


    Change in
  Interest Rates                                                                    NPV as % of Portfolio
    In Basis                             Net Portfolio Value                             Value of Assets
     Points                                                                     NPV
(Rate Shock) (1)             Amount               Change        Change          Ratio             Change (1)

                          <c>              <c>               <c>            <c>                 <c>
          +300               $   39,710       $  (16,488)         (29)%          8.24%              (290) bp
          +200                   45,865          (10,333)         (18)           9.36               (178) bp
          +100                   51,391           (4,807)          (9)          10.33                (81) bp
             0                   56,198                -            -           11.14                  -
          (100)                  58,682            2,484            4           11.51                  37 bp
          (200)                  59,723            3,524            6           11.62                  48 bp

 (1)   Expressed in basis points ("bp")
</table>
Specifically,  the  September  30, 2006 table  indicates  that the  Company's
NPV was $56.2  million or 11.14% of the market  value of portfolio  assets.
Based upon the  assumptions  utilized,  an immediate 200 basis point increase in
market interest rates would result in a $10.3 million or 18% decrease in the
Company's  NPV and would result in a 178 basis point  decrease in the Company's
NPV ratio to 9.36%.  Also,  an  immediate  200 basis point  decrease in market
interest  rates would result in a $3.5 million or 6% increase in the Company's
NPV, and a 48 basis point increase in the Company's NPV ratio to 11.62%.

In addition to monitoring  selected  measures of NPV,  management also monitors
effects on net interest income resulting from increases or decreases in rates.
This process is used in  conjunction  with NPV measures to identify  excessive
interest rate risk. In managing its asset/liability  mix, the Company,
depending on the relationship between long and short term interest rates, market
conditions and consumer  preference,  may place somewhat greater emphasis on
maximizing its net interest margin than on strictly matching the interest rate
sensitivity  of its  assets and  liabilities.  Management  believes  that the
increased  net  income  which may  result  from an acceptable  mismatch in the
actual  maturity or repricing of its asset and liability  portfolios  can,
during  periods of declining or stable interest rates,  provide  sufficient
returns to justify the increased  exposure to sudden and unexpected  increases
in interest rates which may result from such a mismatch.  Management  believes
that the Company's  level of interest rate risk is acceptable  under this
approach as well.

In evaluating the Company's exposure to interest rate movements,  certain
shortcomings  inherent in the method of analysis presented in the  foregoing
tables must be  considered.  For example,  although  certain  assets and
liabilities  may have similar  maturities  or repricing  periods,  they may
react in different  degrees to changes in market  interest  rates.  Also,  the
interest  rates on certain types of assets and liabilities  may fluctuate in
advance of changes in market interest rates,  while interest rates on other
types may lag behind changes in interest rates.  Additionally,  certain assets,
such as adjustable rate mortgages  (ARM's),  have features which restrict
changes in  interest  rates on a  short-term  basis and over the life of the
asset.  Further,  in the event of a  significant change in interest  rates,
prepayment  and early  withdrawal  levels would likely  deviate  significantly
from those  assumed  above. Finally,  the ability of many  borrowers to service
their debt may  decrease in the event of an interest  rate  increase.  The
Company considers all of these factors in monitoring its exposure to interest
rate risk.

The Board of  Directors  and  management  of the  Company  believe  that
certain  factors  afford the  Company  the ability to operate successfully
despite its exposure to interest rate risk.  Typically,  the Company  manages
its interest rate risk by  originating  and retaining  adjustable rate
residential  mortgage loans for its portfolio and selling currently  originated
fixed rate loans. There were $612,000 in loans  classified as held for sale as
of September 30, 2007 that were to be sold in October 2007.  The Company
retains the servicing on loans sold in the  secondary  market and, at
September  30, 2007,  $186.6  million of such loans were being  serviced for
others.  To further manage this risk, the Company's  commercial  loan portfolio
consists  predominantly  of adjustable  rate loans and fixed rate loans that
reprice in five years or less.

The  Company's  investment  strategy is to maintain a  diversified  portfolio
of high quality  investments  that  balances the goals of minimizing  interest
rate and credit  risks while  striving to maximize  investment  return and
provide  liquidity  necessary  to meet funding needs.

The Company  offers a range of  maturities  on its deposit  products at
competitive  rates and monitors the  maturities  on an ongoing basis.  The
Company's cost of  interest-bearing  funds has increased from 3.42% for the
year ended  September 30, 2006 to 3.82% for the year ended
September  30,  2007.  The Company has also  experienced  an increase in the
percentage  of low  interest  cost demand and savings  deposits to total
interest-bearing  liabilities as well as an increase in other  borrowings and
FHLB advances which increases its sensitivity to a decrease in rates.

AVERAGE BALANCE SHEETS

The following are the average balance sheets for the years ended September 30:
<table>
<caption>

                                                                2007               2006            2005
                                                               Average            Average         Average
                                                             Outstanding        Outstanding     Outstanding
                                                               Balance            Balance         Balance
                                                                          (Dollars in thousands)
Assets:
Interest earning assets:

                                                         <c>                 <c>             <c>
     Interest-earning deposits                              $      6,132        $     26,337    $     22,157
     Mortgage-backed securities (1)                               29,032              37,554          39,021
     Other securities available for sale (1)                      21,126              28,436          22,429
     FHLB stock                                                    7,796               8,809           8,952
     Loans held for sale                                             254                 802           1,105
     Loans receivable (2)                                        389,758             379,568         399,469
     Total interest-earning assets                               454,098             481,506         493,133
Noninterest-earning assets, net
         of allowance for loan losses                             43,924              38,734          39,057
     Total assets                                              $ 498,022        $    520,240    $    532,190

Liabilities and shareholders' equity:
Interest-bearing liabilities:
     Savings accounts                                         $   52,966        $     58,887    $     47,071
     NOW and money market accounts                                74,098              77,428          89,443
     Certificates of deposit                                     179,219             186,109         185,268
     Securities sold under agreements to repurchase                   74                   -               -
     Federal Home Loan Bank advances                             104,197             108,815         131,101
     Other borrowings                                              1,849               6,330           6,500
     Subordinated debentures                                       5,000               5,000             875
     Total interest-bearing liabilities                          417,403             442,569         460,258
Other liabilities                                                 40,632              39,634          35,345
     Total liabilities                                           458,035             482,203         495,603
Shareholders' equity:
     Common stock                                                 12,256              11,731          12,413
     Retained earnings                                            36,650              34,629          32,222
     Net unrealized gain (loss) on
         securities available for sale                              (110)               (506)           (418)
     Treasury stock                                               (8,809)             (7,817)         (7,630)
     Total shareholders' equity                                   39,987              38,037          36,587
Total liabilities and
  shareholders' equity                                      $    498,022        $    520,240    $    532,190


(1)  Average outstanding balances reflect unrealized gain (loss) on securities
     available for sale.
(2)  Total loans less deferred net loan fees and loans in process and including
     non accrual loans.

</table>
INTEREST RATE SPREAD

The following  table sets forth the average  effective  interest  rate earned by
the Company on its  consolidated  loan and  investment portfolios,  the average
effective cost of the Company's  consolidated  deposits and FHLB borrowings,
the interest rate spread of the Company, and the net yield on average
interest-earning  assets for the periods presented.  Average balances are based
on daily average balances.

<table>
<caption>

                                                                             Year ended September 30,
                                                                       2007            2006             2005
Average interest rate earned on:

                                                                    <c>             <c>              <c>
     Interest-earning deposits                                          5.01%           3.31%            1.82%
     Mortgage-backed securities (1)                                     4.42            4.28             3.89
     Other securities available for sale (1)                            4.66            4.21             3.26
     FHLB stock                                                         4.56            4.79             4.30
     Loans held for Sale                                                6.76            6.43             6.22
     Loans receivable (2)                                               6.76            6.43             6.22
         Total interest-earning assets                                  6.45            5.93             5.67

Average interest rate of:
     Savings accounts                                                   1.96%           1.79%            0.89%
     NOW and money market accounts                                      2.00            1.65             1.01
     Certificates of deposit                                            4.25            3.60             2.87
     Securities sold under agreements to repurchase                     3.33            -                   -
     Federal Home Loan Bank advances                                    5.13            4.98             4.81
     Other borrowings                                                   7.07            6.31             4.38
     Subordinated debentures                                            6.22            6.22             6.02
         Total interest-bearing liabilities                             3.82            3.42             2.88

Interest rate spread (3)                                                2.63            2.51             2.79
Net yield on interest-earning assets (4)                                2.94            2.79             2.97
</table>

(1)      Yield is based on amortized cost without adjustment for unrealized gain
         (loss) on securities available for sale.

(2)      Including non accrual loans.

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


The  following  table  describes  the extent to which changes in interest  rates
and changes in volume of  interest-related  assets and liabilities have affected
the Company's  consolidated  interest income and expense during the periods
indicated.  For each category of interest-earning  assets and  interest-bearing
liabilities,  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 new rate).  Changes not solely
attributable to rate or volume have been allocated proportionately to the change
due to volume and the change due to rate.
<table>
<caption>

Year ending September 30, 2007
compared to year ended                                        Total Net         Due to          Due to
September 30, 2006                                             Change            Rate           Volume
                                                                        (Dollars in thousands)
Interest-earning assets:

                                                          <c>             <c>              <c>
     Interest-earning deposits                               $       (563)   $        449     $     (1,012)
     Securities                                                      (334)             56             (390)
     Mortgage-backed securities                                      (231)            129             (360)
     FHLB stock                                                       (67)            (21)             (46)
     Loans held for sale                                              (34)              3              (37)
     Loans receivable                                               1,921           1,232              689
         Total                                                        692           1,848           (1,156)
Interest-bearing liabilities:
     Savings accounts                                                 (14)            102             (116)
     NOW and money market accounts                                    208             275              (67)
     Certificates of deposit                                          930           1,223             (293)
     Securities sold under agreements
         to repurchase                                                  2               -                2
     Federal Home Loan Bank advances                                  (72)            164             (236)
     Other borrowings                                                (269)             48             (317)
     Subordinated debentures                                            -               -                -
         Total                                                        785           1,812           (1,027)
Change in net interest income                                $        (93)   $         36     $       (129)


Year ending September 30, 2006
compared to year ended                                        Total Net         Due to             Due to
September 30, 2005                                             Change            Rate              Volume
                                                                        (Dollars in thousands)
Interest-earning assets:
     Interest-earning deposits                               $        468    $        330     $         138
     Securities                                                       117             152              (35)
     Mortgage-backed securities                                       468             212               256
     FHLB stock                                                        37              44               (7)
     Loans held for sale                                              (17)              2              (19)
     Loans receivable                                                (413)            867           (1,280)
         Total                                                        660           1,607             (947)
Interest-bearing liabilities:
     Savings accounts                                                 632             421               211
     NOW and money market accounts                                    373             571             (198)
     Certificates of deposit                                        1,385           1,355                30
     Federal Home Loan advances                                      (894)            215           (1,109)
     Other borrowings                                                 114             125              (11)
     Subordinated debentures                                          258               2               256
         Total                                                      1,868           2,689             (821)
Change in net interest income                                $     (1,208)   $     (1,082)    $       (126)

</table>
LIQUIDITY AND CAPITAL RESOURCES

Liquidity relates primarily to the Company's ability to fund loan demand, meet
deposit customers'  withdrawal  requirements and provide for operating
expenses.  Assets used to satisfy these needs consist of cash,  deposits with
other financial  institutions,  over night interest-earning  deposits in other
financial  institutions,  and securities  available for sale. These assets are
commonly referred to as liquid assets.

Liquid  assets were $57.4  million as of  September  30, 2007  compared to $75.6
million as of  September  30,  2006.  The decrease is primarily  the result of
the  continued  liquidation  of the  Company's  lower  interest-earning
investment  portfolio  to fund higher interest-earning  loan growth. Long and
short term borrowings from the FHLB have provided adequate  additional
liquidity as needed for the  fluctuations  in deposit  balances.  Management
believes the Company's  liquidity level as of September 30, 2007 is sufficient
to meet future liquidity needs.

The cash flow  statements  provide an indication  of the Company's  sources and
uses of cash as well as an indication of the ability of the Company to maintain
an adequate  level of liquidity.  A discussion of the changes in the cash flow
statements  for the years ended September 30, 2007, 2006 and 2005 follows.

During the year ended  September 30, 2007,  net cash and cash  equivalents
increased by $7.2 million,  from $16.3 million at September 30, 2006 to $23.5
million at year end.

The Company  experienced a net increase in cash from operating  activities of
$6.0 million  during the year,  primarily from net income of $3.2 million,  net
proceeds from the sale of mortgage loans of $2.2 million,  adjustments for
depreciation and amortization of $1.3 million,  and an increase in accrued
interest and other  liabilities of $579,000.  The Bank  originates,  sells and
delivers its fixed rate,  owner-occupied  residential  mortgage loans on either
FHLMC "Best Efforts" delivery basis or with "Mandatory Delivery" programs.
The "Best  Efforts"  program  allows the Bank to commit loans for delivery to
investors  at prices that are  determined  prior to loan approval.  In the event
that loans are not closed and  therefore  not  delivered,  the Bank incurs no
penalty.  This  strategy  reduces interest  rate risk  exposure  by  minimizing
the  amount  of loans  held for sale in the loan  portfolio.  Under  mandatory
delivery programs,  loans are committed to be delivered at predetermined  prices
and penalties could be assessed if delivery commitments are not met. Loans
determined to be held for sale at the time they are  originated  are not
committed for delivery.  As of September 30, 2007, the Company had $612,000 in
loans held for sale, which are subject to market price fluctuations until sold.

Investing  activities  decreased  cash by $9.6 million during fiscal year 2007.
Funds were used to increase loans  receivable by $31.2 million and to purchase
additional  bank owned life insurance of $4.0 million.  These were partially
offset by maturities,  calls and payments from the  Company's
available-for-sale  investment  portfolio of $25.0  million.  Proceeds  from
other  investments  provided $947,000.

Financing  activities  provided net cash of $10.8 million for the year ended
September 30, 2007.  The source of cash came  principally from net borrowings
from the FHLB in the amount of $27.5  million.  In part,  those funds were used
to fund a $12.4 million  reduction in deposits and the repayment of the
Company's loan with a correspondent bank of $4.5 million.






The following  table  reflects,  as of September 30, 2007,  the company's
estimated  significant  fixed and  determinable  contractual obligations by
payment date:
<table>
<caption>

Contractual Obligations                                                        Payments due by period
                                                                                (Dollars in thousands)
                                                     Less than                                            More than
                                                       1 Year          1-3 Years         3-5 Years         5 Years           Total

                                                  <c>               <c>               <c>              <c>             <c>
Deposits without a stated maturity                   $ 162,761          $      -          $      -        $       -       $  162,761
Certificates of deposit                                 97,733            48,731            22,142            2,436          171,042
Long-term debt obligations                              69,134            36,238            18,250                -          123,622
Subordinated debentures                                      -                 -                 -            5,000            5,000
Purchase obligations                                       851             1,249                 -                -            2,100
Securities sold under agreement to repurchase              540                 -                 -                -              540
</table>
OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report,  the Company does not have any off-balance
sheet  arrangements that have or are reasonably likely to have a current or
future  effect on the  Company's  financial  condition,  changes in  financial
condition,  revenues or  expenses, results of operations,  liquidity,  capital
expenditures or capital  resources that are material to investors.  The term
"off-balance sheet arrangement"  generally means any transaction,  agreement,
or other contractual  arrangement to which any entity  unconsolidated
with the  Company is a party and under  which the  Company  has (i) any
obligation  arising  under a  guarantee  contract,  derivative instrument  or
variable  interest;  or (ii) a  retained  or  contingent  interest  in assets
transferred  to such  entity or  similar arrangement that serves as credit,
liquidity or market risk support for such assets.

See Note 14 to the consolidated financial statements regarding off-balance sheet
commitments and contingencies.

NEW ACCOUNTING PRONOUNCEMENTS

The  "Effect  of Newly  Issued But Not Yet  Effective  Accounting  Standards"
is  discussed  in Note 1 to the  consolidated  financial statements.

IMPACT OF INFLATION

The  audited  consolidated  financial  statements  presented  herein have been
prepared in  accordance  with U.S.  generally  accepted accounting  principles.
These  principles  require  measurement  of financial  position and  operating
results in terms of historical dollars  (except for  securities  available for
sale which are reported at fair market value and loans held for sale which are
reported at the lower of cost or estimated  market value in the aggregate),
without  considering  changes in the relative  purchasing  power of money over
time due to inflation.

The primary assets and liabilities of the Bank are monetary in nature.  As a
result,  interest rates have a more significant  impact on the Company's
performance  than the effects of general  levels of  inflation.  Interest  rates
can be affected by inflation.  However, they do not necessarily move in the same
direction or with the same magnitude as the indexes that measure inflation.

In periods of rapidly  changing  interest  rates,  the liquidity and maturity
structures of the Company's  assets and  liabilities are critical to the
maintenance  of acceptable  performance  levels.  For a discussion of the
Company's  continuing  efforts to reduce its vulnerability to changes in
interest rates, see "Asset/Liability Management."

The  principal  effect of inflation,  as distinct from levels of interest
rates,  on earnings is in the area of  noninterest  expense. Such expense items
as employee  compensation,  employee  benefits,  and occupancy and equipment
costs may be subject to increases as a result of inflation.  Although difficult
to measure,  an additional effect of inflation is the possible increase in the
dollar value of the collateral securing loans made by the Bank.

QUARTERLY RESULTS OF OPERATION

Selected unaudited quarterly financial data for fiscal years 2007 and 2006
appear in Note 20 to the consolidated financial statements.


FORWARD LOOKING STATEMENTS

When used in this filing and in future  filings by the Company with the
Securities  and Exchange  Commission,  in the Company's  press releases or other
public or  shareholder  communications,  or in oral  statements  made with the
approval of an  authorized  executive officer,  the words or phrases,
"anticipate,"  "would be," "will allow,"  "intends to," "will likely  result,"
"are expected to," will continue," "is  anticipated,"  "estimated,"  "project,"
or similar  expressions are intended to identify  "forward looking  statements"
within the meaning of the Private  Securities  Litigation  Reform Act of 1995.
Such statements are subject to risks and  uncertainties, including but not
limited to changes in economic  conditions in the Company's market area, changes
in policies by regulatory  agencies, fluctuations in interest rates,  demand for
loans in the Company's  market area,  changes in the position of banking
regulators on the adequacy of our allowance  for loan losses,  changes in the
fair value of  securities  available for sale,  changes in the value of the
Company's  mortgage  servicing  rights,  and  competition,  all or some of which
could cause actual results to differ  materially  from historical earnings and
those presently anticipated or projected.

The Company wishes to caution readers not to place undue reliance on any such
forward-looking  statements,  which speak only as of the date made, and advise
readers that various  factors,  including  regional and national  economic
conditions,  substantial  changes in levels of market interest rates,  credit
and other risks of lending and investing  activities,  and competitive and
regulatory factors, could affect the Company's  financial  performance and could
cause the Company's actual results for future periods to differ materially
from those anticipated or projected.

The Company does not  undertake,  and  specifically  disclaims  any  obligation,
to update any forward  looking  statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.











             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Shareholders
MFB Corp.
Mishawaka, Indiana


We have audited the  accompanying  consolidated  balance  sheets of MFB Corp.
and Subsidiary as of September 30, 2007 and 2006, and the related consolidated
statements of income,  changes in shareholders'  equity, and cash flows for each
of the three years in the period ended  September 30, 2007.  These  consolidated
financial  statements are the  responsibility  of the  Corporation's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion,  the  consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial position of MFB Corp.
and  Subsidiary as of September 30, 2007 and 2006,  and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2007, in conformity with U.S. generally accepted accounting
principles.


Crowe Chizek and Company LLC
South Bend, Indiana
December 7, 2007
<page>
                         MFB CORP. AND SUBSIDIARY
--------------------------------------------------------------------------------

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



                        CONSOLIDATED BALANCE SHEETS
                        September 30, 2007 and 2006

-------------------------------------------------------------------------------
<table>
<caption>
                                                                                       2007                   2006
                                                                                          (Dollars in thousands)
ASSETS

                                                                           <c>                   <c>
     Cash and due from financial institutions                                 $          7,546      $         6,726
     Interest-earning deposits in other financial
         institutions - short-term                                                      15,924                9,563
              Total cash and cash equivalents                                           23,470               16,289

     Securities available for sale                                                      33,409               58,383
     FHLB Stock and other investments                                                    9,718               10,939

     Loans held for sale                                                                   612                    -

     Mortgage loans                                                                    201,233              199,196
     Commercial loans                                                                  153,945              134,412
     Consumer loans                                                                     52,578               45,614
         Loans receivable                                                              407,756              379,222
     Less:  allowance for loan losses                                                   (5,298)             (7,230)
         Loans receivable, net                                                         402,458              371,992

     Premises and equipment, net                                                        18,506               19,477
     Mortgage servicing rights, net                                                      2,253                2,366
     Cash surrender value of life insurance                                             10,565                6,237
     Goodwill                                                                            1,970                1,970
     Other intangible assets                                                             1,922                1,699
     Other assets                                                                        5,565                6,720
     Total assets                                                            $         510,448      $       496,072

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
     Deposits
      Noninterest-bearing demand deposits                                    $          39,043    $          30,031
      Savings, NOW and MMDA deposits                                                   123,718              129,233
      Time deposits                                                                    171,042              186,979
         Total deposits                                                                333,803              346,243

     Securities sold under agreements to repurchase                                        540                    -
     Federal Home Loan Bank advances                                                   124,258               97,053
     Other borrowings                                                                        -                4,500
     Subordinated debentures                                                             5,000                5,000
     Accrued expenses and other liabilities                                              5,790                4,337
         Total liabilities                                                             469,391              457,133
Shareholders' equity
     Common stock, 5,000,000 shares authorized;
         shares issued:  1,689,417 - 2007 and 2006, shares
         outstanding: 1,313,671 - 2007; 1,320,844 - 2006                                12,500               12,421
     Retained earnings - substantially restricted                                       37,841               35,479
     Accumulated other comprehensive loss,
         net of tax of $(159) in 2007 and $(176) in 2006                                 (308)                (341)
     Treasury stock, 375,746 common shares - 2007;
         368,573 common shares - 2006, at cost                                          (8,976)             (8,620)
              Total shareholders' equity                                                41,057               38,939

     Total liabilities and shareholders' equity                              $         510,448      $       496,072
</table>

<page>
<table>
<caption>
                             CONSOLIDATED STATEMENTS OF INCOME
                       Years ended September 30, 2007, 2006 and 2005

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

                                                                 2007                2006                2005
                                                                   (Dollars in thousands, except per share data)
Interest income

                                                         <c>               <c>                  <c>
     Loans receivable, including fees                       $        26,361   $          24,474    $         24,904
     Securities - taxable                                             2,599               3,214               2,594
     Other interest-earning assets                                      339                 919                 449
         Total interest income                                       29,299              28,607              27,947

Interest expense
     Deposits                                                        10,144               9,020               6,631
     Securities sold under agreements
       to repurchase                                                      2                   -                   -
     FHLB advances and other borrowings                               5,784               6,125               6,646
         Total interest expense                                      15,930              15,145              13,277

Net interest income                                                  13,369              13,462              14,670

Provision for loan losses                                            (1,257)              1,032                 723

Net interest income after provision
  for loan losses                                                    14,626              12,430              13,947

Noninterest income
     Service charges on deposit accounts                              3,265               3,318               3,363
     Trust and brokerage fee income                                     562                 414                 385
     Insurance commissions                                               29                 151                 211
     Net realized gains from sales of loans                             306                 261                 835
     Mortgage servicing right recovery                                   (8)                178                 181
     Net gain (loss) on securities available for sale                   402                   -                (948)
     Gain on call of FHLB advance                                         -                 238                   -
     Gain on sale of property and casualty insurance                      -                 200                   -
     Earnings on life insurance                                         296                 237                 220
     Other income                                                     1,011               1,276                 742
         Total noninterest income                                     5,863               6,273               4,989

Noninterest expense
     Salaries and employee benefits                                   8,361               7,923               7,519
     Occupancy and equipment expense                                  3,104               3,316               3,064
     Professional and consulting fees                                   797                 803               1,067
     Data processing expense                                            793                 838                 754
     Loss on sales of premises and equipment                             68                 230                   9
     Business development and marketing                                 591                 466                 500
     Supplies and communications                                        563                 669                 692
     Amortization of intangibles                                        387                 435                 559
     Other expense                                                    1,614               1,647               1,665
         Total noninterest expense                                   16,278              16,327              15,829

Income before income taxes                                            4,211               2,376               3,107

Income tax expense                                                      979                 210                 611

Net income                                                  $         3,232     $         2,166       $       2,496

Basic earnings per common share                             $          2.45     $          1.61        $       1.85
Diluted earnings per common share                                      2.37                1.56                1.81

</table>
<page>
--------------------------------------------------------------------------------

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

                              MFB CORP. AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    Years ended September 30, 2007, 2006 and 2005

--------------------------------------------------------------------------------
<table>
<caption>
-------------------------------------------------------------------------- ----
                                                                                             Accumulated
                                                                                                Other
                                                                                            Comprehensive                  Total
                                                                      Common    Retained    Income (Loss),   Treasury  Shareholders'
                                                                      Stock     Earnings      Net of Tax       Stock      Equity
                                                                                (Dollars in thousands, except per share data)

                                                                 <c>        <c>            <c>             <c>         <c>
Balance at September 30, 2004                                       $  12,486  $ 32,195       $   (792)       $ (7,983)   $   35,906

Stock option exercise-issuance of 26,800 shares of treasury stock       (124)                                      563           439
Tax benefit related to employee stock plan                                15                                                      15
Cash dividends declared - $0.495 per share                                        (664)                                        (664)
Comprehensive income:
   Net income for the year ended September 30, 2005                               2,496                                        2,496
   Other comprehensive income (loss), net of tax                                                   481                           481
     Total comprehensive income                                                                                                2,977

Balance at September 30, 2005                                       $ 12,377   $ 34,027       $   (311)       $ (7,420)   $   38,673

Balance at September 30, 2005                                       $ 12,377   $ 34,027       $   (311)       $ (7,420)   $   38,673
Stock-based compensation                                                 103          -               -              -           103
Purchase of 48,206 shares of treasury stock                                -          -               -         (1,486)      (1,486)
Stock option exercise-issuance of 13,190 shares of treasury stock       (68)          -               -            286           218
Tax benefit related to employee stock plan                                 9          -               -              -             9
Cash dividends declared - $0.530 per share                                 -      (714)               -              -         (714)
Comprehensive income:
   Net income for the year ended September 30, 2006                        -      2,166               -              -         2,166
   Other comprehensive income (loss), net of tax                           -          -             (30)             -          (30)
     Total comprehensive income                                            -          -               -              -         2,136

Balance at September 30, 2006                                       $ 12,421   $ 35,479       $    (341)      $ (8,620)   $   38,939

</table>
--------------------------------------------------------------------------------

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



          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
           Years ended September 30, 2007, 2006 and 2005

-------------------------------------------------------------------------------
<table>
<caption>
-------------------------------------------------------------------------------
                                                                                             Accumulated
                                                                                                Other
                                                                                            Comprehensive                  Total
                                                                                  Retained   Income (Loss)   Treasury  Shareholders'
                                                                   Common Stock   Earnings    Net of Tax       Stock       Equity
                                                                                 (Dollars in thousands, except per share data)


                                                              <c>            <c>         <c>         <c>            <c>
Balance at September 30, 2006                                    $      12,421  $   35,479  $     (341) $      (8,620) $   38,939
Stock-based compensation                                                    35           -           -              -          35
Purchase of 17,073 shares of treasury stock                                  -           -           -           (576)      (576)
Stock option exercise-issuance of 9,900 shares of treasury stock            (4)          -           -            220         216
Tax benefit related to employee stock plan                                  48           -           -              -          48
Cash dividends declared - $0.660 per share                                   -       (870)           -              -       (870)
Comprehensive income:
   Net income for the year ended September 30, 2007                          -       3,232           -              -       3,232
   Other comprehensive income (loss), net of tax                             -           -          33              -          33
     Total comprehensive income                                              -           -           -              -       3,265

Balance at September 30, 2007                                     $      12,500 $   37,841  $     (308) $      (8,976) $   41,057

</table>
 <page>

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



                            MFB CORP. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                Years ended September 30, 2007, 2006 and 2005
<table>
<caption>
-------------------------------------------------------------------------------

                                                                     2007               2006                2005
                                                                              (Dollars in thousands)
Cash flows from operating activities

                                                         <c>                 <c>                <c>
     Net income                                             $         3,232     $         2,166    $          2,496
     Adjustments to reconcile net income
       to net cash from operating activities
         Depreciation and amortization, net of
           accretion                                                  1,325               1,442               1,445
         Provision for loan losses                                   (1,257)              1,032                 723
         Net losses on securities available for sale                      -                   -                 948
         Net realized gains from sales of loans                        (306)               (261)              (835)
         Amortization of mortgage servicing rights                      284                 304                 395
         Amortization/(accretion) of intangible assets
           and purchase adjustments                                     361                 448               (344)
         Gain on call of FHLB advance                                     -                (238)                  -
         Origination of loans held for sale                         (12,180)            (14,256)           (32,259)
         Expense (Recovery) of mortgage servicing rights                  8                (178)              (181)
         Proceeds from sales of loans held for sale                  14,416              12,096              38,486
         (Gain) loss sale of premises and equipment                      33                 227                (40)
         Equity in loss of investment in limited
           Partnership                                                  274                 249                 303
         Stock dividend paid by FHLB                                      -                   -               (188)
         Stock-based compensation                                        35                 103                   -
         Appreciation in cash surrender value of
           life insurance                                              (296)               (237)              (220)
         Net change in:
              Accrued interest receivable                               119                (196)              (106)
              Other assets                                               20                 152                 620
              Accrued expenses and other liabilities                    (31)               (313)            (1,651)
Net cash provided in operating activities                             6,037               2,540               9,592

Cash flows from investing activities
     Net change in interest-earning time
       deposits in other financial institutions                         501                 500                   -
     Net change in loans receivable                                 (31,174)             13,372               2,900
     Net cash received (paid) in acquisition/settlement                   -                 453                (60)
      Stock repurchase by FHLB                                          446                 825                   -
     Proceeds from:
         Principal payments of mortgage-backed
          and related securities                                      7,971              11,503              12,979
         Maturities and calls of securities available
           for sale                                                  17,011               8,500               4,945
         Sales of fixed assets                                           35               1,211                  42
     Purchase of:
         Securities available for sale                                    -             (14,958)           (16,352)
         Life Insurance                                              (4,032)                (37)               (37)
         Premises and equipment, net                                   (395)             (1,917)            (2,217)
Net cash provided (used) in investing activities                     (9,637)             19,452               2,200
</table>
<page>

                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Years ended September 30, 2007, 2006 and 2005

-------------------------------------------------------------------------------
<table>
<caption>
                                                                     2007               2006                2005
                                                                              (Dollars in thousands)
Cash flows from financing activities

                                                         <c>                 <c>                <c>
     Purchase of treasury stock                             $          (576)    $        (1,486)   $              -
     Net change in deposits                                         (12,440)            (28,004)             17,176
     Net change in securities sold under
       agreements to repurchase                                         540                   -                   -
     Proceeds from FHLB borrowings                                  138,143              15,268              74,100
     Repayment of FHLB borrowings                                  (110,606)            (43,358)            (80,885)
     Proceeds from subordinated debentures                                -                   -               5,000
     Repayment of other borrowings                                   (4,500)             (2,000)                  -
     Proceeds from exercise of stock options, including
       tax benefit                                                      216                 218                 439
     Net change in advances from
       borrowers for taxes and insurance                                874                 164              (1,343)
     Cash dividends paid                                               (870)               (714)               (664)
Net cash from (used in) financing activities                         10,781             (59,912)             13,823

Net change in cash and cash equivalents                               7,181             (37,920)             25,614

Cash and cash equivalents at beginning of year                       16,289              54,209              28,595

Cash and cash equivalents at end of year                    $        23,470     $        16,289    $         54,209

Supplemental disclosures of cash flow information
     Cash paid during the year for:
         Interest                                           $        16,210     $        15,794    $         13,326
         Income taxes                                                   569                 738                 199

Supplemental schedule of noncash investing
  activities:
     Transfer from:
         Loans receivable to loans held for sale            $         2,721     $         2,678    $          5,228
         Loans receivable to real estate owned                           65                   -                  99
            Loan made to facilitate sale of real estate owned           900                   -                   -
</table>
<page>
                     MFB CORP. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  September 30, 2007, 2006 and 2005

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


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

                          (continued)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles  of  Consolidation:  The  accompanying  consolidated  financial
statements  include  the  accounts  of MFB  Corp.,  and its wholly-owned
subsidiary  MFB Financial  (the "Bank"),  a federal stock savings bank, and the
wholly-owned  subsidiaries  of the Bank, Mishawaka  Financial  Services,  Inc.,
MFB  Investments I, Inc., MFB Investments II, Inc., MFB  Investments,  LP, and
Community  Wealth Management Group, Inc.  (together  referred to as "the
Company").  Mishawaka  Financial  Services,  Inc. is engaged in the sale of life
and health  insurance to customers in the Bank's  market  area.  The Company
sold the property and casualty  book of business  owned by Mishawaka  Financial
Services,  Inc.  during the 2006  fiscal  year.  MFB  Investments  I, Inc.,  MFB
Investments  II,  Inc.  and MFB Investments,  LP are Nevada  corporations and a
Nevada limited  partnership that manage a portion of the Bank's  investment
portfolio. Community  Wealth  Management  Group,  Inc., is based out of Hamilton
and Montgomery  counties in Indiana,  and attracts high net worth clients and
offers trust,  investment,  insurance,  broker advisory,  retirement plan and
private banking services in the Bank's market area.  All significant
intercompany transactions and balances are eliminated in consolidation.

Nature of Business and  Concentrations  of Credit Risk: The primary source of
income for the Company results from granting  commercial, consumer  and
residential  real estate loans in  St. Joseph  and Elkhart  counties  and the
surrounding  area.  The Company  operates primarily in the banking industry
which accounts for more than 95% of its revenues, operating income and assets.

Use of Estimates In Preparing  Financial  Statements:  The  preparation of
consolidated  financial  statements in conformity with U.S. generally  accepted
accounting  principles  requires  management to make estimates and assumptions
that affect the reported amounts of assets,  liabilities  and  disclosure of
contingent  assets and  liabilities  at the date of the financial  statements
and the reported amounts of revenue  and  expenses  during the  reporting
period,  as well as the  disclosures  provided.  Areas  involving  the use of
estimates and assumptions in the accompanying  financial  statements  include
the allowance for loan losses,  fair values of securities and other  financial
instruments,  determination  and  carrying  value of loans held for sale,
determination  and  carrying  value of impaired loans and other real estate
owned, the value of mortgage servicing rights,  the value of investments in
limited  partnerships, the value of stock options,  the  realization of deferred
tax assets,  the purchase  accounting  valuations for assets and  liabilities
acquired and the  determination  of depreciation of premises and equipment
recognized in the Company's  financial  statements.  Actual results  could
differ  from  those  estimates.  Estimates  associated  with the  allowance
for loan  losses,  and the fair  values of securities and other financial
instruments and mortgage  servicing rights are particularly  susceptible to
material change in the near term.

Cash and Cash  Equivalents:  For purposes of reporting cash flows,  cash and
cash  equivalents is defined to include the Company's cash on hand,  due from
financial  institutions  and  short-term  interest-bearing  deposits in other
financial  institutions.  The Company reports net cash flows for customer loan
transactions,  deposit  transactions,  short term borrowings having an original
maturity of 90 days or less, advances from borrowers for taxes and insurance,
and interest-bearing time deposits in other financial institutions.


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

                        (continued)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Securities:  Securities are  classified as available for sale when they might be
sold before  maturity.  Securities  available for sale are carried at fair
value,  with unrealized  holding gains and losses reported  separately in
accumulated  other  comprehensive  income (loss),  net of tax.  Declines in the
fair value of securities below their cost that are other than temporary are
reflected as realized losses. In estimating  other-than-temporary  losses,
management considers:  (1) the length of time and extent that fair value has
been less than cost,  (2) the financial  condition and near term prospects of
the issuer,  and (3) the Company's  ability and intent to hold the security for
a period sufficient to allow for any anticipated recovery in fair value.

Gains and losses on the sale of securities  are  determined  using the specific
identification  method based on amortized cost and are reflected in the results
of  operations  at the time of sale.  Interest  and  dividend  income,  adjusted
by  amortization  of purchase premium or discount over the estimated life of the
security using the level yield method, is included in earnings.

Mortgage  Banking  Activities:  Mortgage loans  originated and intended for sale
in the secondary market are reported as loans held for sale and are carried at
the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses are  recognized  in a valuation allowance by charges to
income.


Loans  Receivable:  Loans  receivable that  management has the intent and
ability to hold for the foreseeable  future or until maturity or pay-off are
reported at their  outstanding  principal  balances  adjusted for any
charge-offs,  the allowance for loan losses,  any deferred fees or costs on
originated  loans,  and unamortized  premiums or discounts on purchased  loans.
Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost is  recognized  as an adjustment to interest  income using the
interest method.

Because some loans may not be repaid in full,  an allowance  for loan losses is
recorded.  An allowance  for loan losses is a valuation allowance for probable
incurred  credit  losses.  The allowance for loan losses is increased by a
provision for loan losses charged to expense  and  decreased  by  charge-offs
(net of  recoveries).  Estimating  the  risk of loss  and the  amount  of loss
on any loan is necessarily  subjective.  Accordingly,  the allowance is
maintained by management at a level  considered  adequate to cover losses that
are currently  anticipated.  Management's  periodic  evaluation  of the adequacy
of the  allowance is based on the Company's  past loan loss experience,  known
and inherent risks in the portfolio,  adverse  situations that may affect the
borrower's  ability to repay, the estimated value of any underlying  collateral,
and current economic  conditions.  While management may periodically  allocate
portions of the allowance for specific  problem loan  situations,  the whole
allowance is available for any loan  charge-offs  that occur.  Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed.

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

                         (continued)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Smaller-balance  homogeneous loans are evaluated for impairment in total.  Such
loans include  residential first mortgage loans secured by one-to-four family
residences,  residential construction loans, automobile,  manufactured homes,
and home equity and second mortgage loans.  Commercial  loans and  mortgage
loans  secured by other  properties  are  evaluated  individually  for
impairment.  Loans are considered  impaired if full  principal  or interest
payments are not  anticipated  in  accordance  with the  contractual  loan
terms. Impaired loans are carried at the present value of expected future cash
flows discounted at the loan's  effective  interest rate, or at the fair value
of the  collateral  if the loan is  collateral  dependent.  A portion of the
allowance  for loan losses is allocated to impaired loans if the value of such
loans is deemed to be less than the unpaid balance.  If these  allocations
cause the allowance for loan losses to require an increase, such increase is
reported as a component of the provision for loan losses.

Interest  income on loans is accrued  over the term of the loans  based upon the
principal  outstanding.  The  accrual of  interest on loans is  discontinued
when, in  management's  opinion,  the borrower may be unable to meet payments
as they become due. When interest accrual is discontinued,  all unpaid accrued
interest is reversed.  Interest income is subsequently  recognized only to the
extent that cash payments are received until, in management's  judgment,  the
borrower has the ability to make  contractual  interest and principal payments,
in which case the loan is returned to accrual status.

Servicing  Rights:  Servicing  rights are recognized  separately when they are
acquired  through sales of loans.  For sales of mortgage loans  prior to
January 1, 2007,  a portion  of the cost of the loan was  allocated  to the
servicing  right  based on  relative  fair values.  The Company adopted SFAS
No. 156 on January 1, 2007, and for sales of mortgage loans beginning in 2007,
servicing  rights are initially  recorded at fair value with the income
statement  effect recorded in gains on sales of loans.  Fair value is based on
market prices for comparable mortgage servicing  contracts,  when available,
or alternatively,  is based on a valuation model that calculates the present
value of estimated future net servicing  income.  The valuation model
incorporates  assumptions  that market  participants would use in estimating
future let servicing income,  such as the cost to service,  the discount rate,
the custodial  earnings rate, an inflation rate,  ancillary  income,
prepayment  speeds and default rates and losses.  The valuation model is
provided by a third party that  specializes in providing  estimated fair values
of mortgage  servicing  rights,  and the Company believes the utilization of
this third party provides  assurance that the valuation  model provides  valid
results.  Additionally,  the Company  compares the valuation model  inputs  and
results to  published  industry  data in order to  validate  the model  results
and  assumptions.  All  classes of servicing  assets are  subsequently  measured
using the  amortization  method which  requires  servicing  rights to be
amortized  into non-interest income in proportion to, and over the period of,
the estimated future net servicing income of the underlying loans.

Servicing  assets are evaluated for impairment  based upon the fair value of the
rights as compared to carrying  amount.  Impairment is determined by
stratifying  rights into groupings  based on  predominant  risk
characteristics,  such as interest rate,  loan type and investor type.
Impairment is recognized  through a valuation  allowance for an individual
grouping,  to the extent that fair value is less than the  carrying  amount.
If the  Company  later  determines  that all or a portion of the  impairment
no longer  exists for a particular  grouping,  a reduction  of the  allowance
may be recorded as an increase to income.  Changes in valuation  allowances  are
reported  separately as mortgage  servicing  rights recovery on the income
statement.  The fair values of servicing rights are subject to significant
fluctuations as  a  result  of  changes  in  estimated  and actual prepayment
speeds and default rates  and  losses.

Servicing fee income is included with other income on the income  statement for
fees earned for servicing  loans. The fees are based on a  contractual
percentage  of the  outstanding  principal;  or a fixed  amount per loan and are
recorded as income when  earned.  The amortization of mortgage  servicing rights
is netted against loan servicing fee income.  Servicing fees totaled $193,000,
$213,000 and $126,000 for the years ended  September 30, 2007, 2006 and 2005,
respectively.  Late fees and ancillary fees related to loan servicing were not
material.

Foreclosed Real Estate:  Real estate properties  acquired through,  or in lieu
of, loan foreclosure are initially recorded at the lower of carrying  amount or
fair value at the date of  acquisition,  establishing  a new cost basis.  Any
reduction  to fair value from the carrying  amount of the related loan at the
time of acquisition  is accounted for as a loan loss and charged  against the
allowance for loan losses.  Valuations  are  periodically  performed by
management and valuation  allowances are adjusted  through a charge to income
for changes in fair value or estimated  selling costs.  The carrying value of
foreclosed  real estate,  included in other assets on the consolidated  balance
sheet,  was $1.2 million at September 30, 2006 and $144,000 at
September 30, 2007. No valuation  allowances  were deemed  necessary at
September  30, 2006 and 2007,  respectively.  At September  30,  2006,  the
Company  re-classified  a $1.2 million property as held and used.  This property
was previously  accounted for as held for sale. This change in  classification
was driven by the longer than expected  holding  period and resulted in the
recognition  of  depreciation  expense of $80,000 during the year ending
September  30, 2006.  During the first  quarter of fiscal year 2007,  the
respective  property was sold.  The cash proceeds and a loan financed by the
Bank resulted in a loss after sales costs of $9,700.

Income Taxes:  Deferred tax assets and  liabilities  are reflected at currently
enacted  income tax rates  applicable to the period in which the  deferred  tax
assets or  liabilities  are  expected to be realized or settled.  As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through income tax expense.  A valuation  allowance,  if needed,  reduces
deferred tax assets to the amount expected to be realized.

Premises and Equipment:  Land is carried at cost.  Buildings and  improvements,
and furniture and equipment are carried at cost,  less accumulated  depreciation
and amortization  computed  principally by using the straight-line  method over
the estimated useful lives of the assets.

Useful life of buildings and  improvements  is 39 years and the range for
furniture and equipment is 3 years to 15 years.  These assets are reviewed for
impairment when events indicate the carrying amount is significantly less than
the fair value.


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Home Loan Bank (FHLB)  stock:  The Bank is a member of the FHLB system.
Members are required to own a certain  amount of stock based on the level of
borrowings and other factors,  and may invest in additional  amounts.  FHLB
stock is carried at cost,  classified as a restricted  security,  and
periodically  evaluated for impairment  based on ultimate  recovery of par
value.  Both cash and stock dividends are reported as income.

Financial  Instruments with  Off-Balance-Sheet  Risk: The Company,  in the
normal course of business,  makes  commitments to make loans which are not
reflected in the consolidated financial statements.  A summary of these
commitments is disclosed in Note 14.

Goodwill and Other  Intangible  Assets:  Goodwill  results from business
acquisitions  and represents the excess of the purchase price over the fair
value of acquired  tangible assets and liabilities and  identifiable  intangible
assets.  Goodwill is assessed  annually for impairment and any such impairment
will be recognized in the period identified.

Other intangible assets consist of core deposit  intangible assets and acquired
customer  relationship  intangible assets arising from the  acquisition of
certain assets and assumption of certain  liabilities  previously  discussed.
They are initially  measured at fair value and then are amortized on an
accelerated method over their estimated useful lives.

Investments in Limited  Partnerships:  Investments in limited  partnerships
represent the Company's  investments in affordable housing projects for the
primary  purpose of available tax benefits.  The Company is a limited  partner
in these  investments  and as such, the Company is not involved in the
management  or operation of such  investments.  These  investments  are
accounted for using the equity method of accounting.  Under the equity method of
accounting,  the Company records its share of the  partnership's  earnings or
losses in its income  statement and adjusts the carrying  amount of the
investments on the balance sheet.  These  investments are reviewed for
impairment when events indicate their carrying amounts may not be recoverable
from future  undiscounted  cash flows. If impaired,  the investments are
reported at fair value.  Related tax credits are recognized as allocated to
investors.

Cash Surrender  Value of Life  Insurance:  The Company has purchased life
insurance  policies on certain key employees.  Company owned life insurance is
recorded at its cash surrender value, or the amount that can be realized.

Securities Sold Under Agreements to Repurchase:  Securities sold under
agreements to repurchase  consist of obligations of the Company to other
parties.  These  arrangements  are all one-day retail  repurchase  agreements
and are secured by investment  securities.  Such collateral is held by
safekeeping agents of the Company.

During the year ended September 30, 2007, the average daily balance was $74,000,
the average  interest rate was 3.33%, and the maximum month end balance was
$594,000.  The balance was  $540,000 at September  30, 2007 and the fair value
of  securities  underlying  these agreements was $758,000 at September 30, 2007.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings  Per Common  Share:  Basic  earnings per common share is based on the
net income  divided by the  weighted  average  number of common shares
outstanding  during the period.  Diluted  earnings per common share shows the
dilutive  effect of  additional  potential common shares issuable under stock
option plans.

Stock Based  Compensation:  Effective October 1, 2005, the Company adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 123(R),  Share-based
Payment,  using the modified  prospective  transition  method.  Prior to
October 1, 2005,  employee  compensation expense under stock options was
reported using the intrinsic value method;  therefore,  no stock-based
compensation  cost is reflected in net income for the year ending
September  30,  2005,  as all options  granted  had an exercise  price equal to
or greater  than the market price of the underlying common stock at date of
grant.

The  following  table  illustrates  the effect on net income  and  earnings  per
share if  expense  was  measured  using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation,
for the year ending September 30, 2005.
<table>
<caption>
                                                                         2005
                                                                   (Dollars in thousands,
                                                                   except per share date)

                                                              <c>
Net income as reported                                           $         2,496

Deduct: Stock-based compensation expense
  determined under the fair value based method                               627

Pro forma net income                                             $         1,869

Basic earnings per share as reported                             $          1.85
Pro forma basic earnings per share                                          1.39

Diluted earnings per share as reported                           $          1.81
Pro forma diluted earnings per share                                        1.36
</table>
Comprehensive  Income:  Comprehensive  income consists of net income and other
comprehensive  income (loss). Other comprehensive income (loss)  includes  the
net  change in net  unrealized  gains and  losses  on  securities  available
for sale,  net of  reclassification adjustments and tax effects, and is also
recognized as a separate component of shareholders' equity.




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Segments:  MFB Corp. and its subsidiary,  MFB Financial and its subsidiary
Mishawaka Financial Services,  Inc. provide a broad range of financial  services
to individuals  and companies in Mishawaka and the  surrounding  area.  These
services  include  demand,  time and savings deposits;  lending;  insurance;
trust and other financial services. While the Company's management monitors the
revenue streams of the various Company products and services,  operations are
managed and financial  performance is evaluated on a Company-wide  basis.
Accordingly,  all of the Company's  banking  operations  are  considered by
management  to be aggregated in one  reportable  operating segment.

Restriction  on Cash:  Cash on hand or on  deposit  with  correspondent  banks
of $5.3  million  and $3.9  million,  respectively,  was required to meet
regulatory reserve and clearing requirements at year end 2007 and 2006.

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

Effect of Newly Issued But Not Yet Effective  Accounting  Standards:  In
September 2006, the Securities and Exchange  Commission  (SEC) released Staff
Accounting  Bulletin No. 108,  Considering the Effects of Prior Year
Misstatements  when  Quantifying  Misstatements in Current  Year  Financial
Statements  (SAB 108).  SAB 108  provides  guidance on how the effects of
prior-year  uncorrected  financial statement  misstatements  should be
considered  in  quantifying  a current year  misstatement.  SAB 108 requires
public  companies to quantify  misstatements  using both an income  statement
(rollover) and balance sheet ("iron  curtain")  approach and evaluate whether
either approach results in a misstatement  that, when all relevant  quantitative
and qualitative  factors are considered,  is material. If prior year  errors
that had been  previously  considered  immaterial  now are  considered  material
based on either  approach,  no restatement is required so long as management
properly  applied its previous  approach and all relevant facts and
circumstances  were considered.  If prior years are not restated,  the
cumulative  effect  adjustment is recorded in opening  retained  earnings as of
the beginning of the fiscal year of  adoption.  SAB 108 is effective  for fiscal
years ending on or after  November 15, 2006.  The adoption of this pronouncement
did not have a material impact on the Company's consolidated financial
statements.

In March 2006,  the Financial  Accounting  Standards  Board (FASB)  issued
Statement  No. 156,  Accounting  for Servicing of Financial Assets-an  amendment
of FASB Statement No. 140. This Statement  provides the following:  1) revised
guidance on when a servicing asset and servicing liability should be recognized;
2) requires all separately  recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable;  3) permits
an entity to elect to measure servicing assets and servicing  liabilities at
fair value each  reporting  date and report  changes in fair value in  earnings
in the period in which the  changes  occur;  4) upon initial adoption,  permits
a onetime  reclassification of available-for-sale  securities to trading
securities for securities which are identified as offsetting the entity's
exposure to changes in the fair value of servicing  assets or liabilities that a
servicer elects to  subsequently  measure  at fair  value;  and 5)  requires
separate  presentation  of  servicing  assets and  servicing  liabilities
subsequently measured at fair value in the statement of financial position and
additional footnote disclosures.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

This  standard is effective as of the  beginning of an entity's  first  fiscal
year that begins after  September  15, 2006.  Management does not  intend to
carry  servicing  rights at fair value and  the  adoption  of this  statement
did not have a material  impact on its  consolidated financial  position  or
results of  operations  as the  Company  intends to continue  using the
amortization method under FASB No. 156.

In September  2006,  the FASB issued  Statement No. 157, Fair Value
Measurements.  This  Statement  defines fair value,  establishes a framework for
measuring fair value and expands  disclosures  about fair value  measurements.
This  Statement  establishes a fair value hierarchy  about the  assumptions
used to measure fair value and clarifies  assumptions  about risk and the effect
of a restriction on the sale or use of an asset.  The  standard is effective
for fiscal  years  beginning  after  November  15, 2007.  The Company has not
completed its evaluation of the impact of adoption of this issue.

In July 2006, the FASB issued FASB  Interpretation  No. 48,  Accounting for
Uncertainty  in Income Taxes - an  interpretation  of FASB Statement  No.  109
(FIN 48),  which  prescribes  a  recognition  threshold  and  measurement
attribute  for the  financial  statement recognition  and  measurement  of a tax
position  taken or  expected  to be taken in a tax return.  FIN 48 also
provides  guidance on derecognition,  classification,  interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal  years  beginning  after  December  15,  2006.  The Company does not
believe the adoption of this issue will have a material impact on our financial
statements.

In September 2006, the FASB Emerging  Issues Task Force ("EITF")  finalized
Issue No. 06-4,  Accounting for Deferred  Compensation  and Postretirement
Benefit  Aspects of  Endorsement  Split-Dollar  Life  Insurance  Arrangements.
This issue requires that a liability be recorded  during the service  period
when a  split-dollar  life  insurance  agreement  continues  after
participants'  employment  or retirement.  The  required  accrued  liability
will be based on  either  the  post-employment  benefit  cost for the
continuing  life insurance  or based on the  future  death  benefit  depending
on the  contractual  terms of the  underlying  agreement.  This issue is
effective for fiscal years  beginning  after  December 15, 2007. The Company
does not believe the adoption of EITF No. 06-4 will have a material effect on
the financial statements.

In September  2006,  the FASB  Emerging  Issues Task Force  finalized  Issue
No. 06-5,  Accounting  for  Purchases of Life  Insurance - Determining  the
Amount That Could Be Realized in Accordance  with FASB Technical  Bulletin
No. 85-4  (Accounting for Purchases of Life Insurance).  This issue requires
that a policyholder  consider  contractual  terms of a life insurance policy
in determining the amount that could be realized under the insurance  contract.
It also requires that if the contract  provides for a greater surrender value if
all individual  policies in a group are surrendered at the same time,  that the
surrender  value be determined  based on the assumption that policies will be
surrendered on an individual  basis.  Lastly,  the issue  discusses  whether the
cash surrender  value should be discounted when the  policyholder  is
contractually  limited in its ability to surrender a policy.  This issue is
effective for fiscal years  beginning  after December 15, 2006.  The Company
does not believe the adoption of this issue will have a material  impact on our
financial statements.

NOTE 2 - EARNINGS PER COMMON SHARE

A  reconciliation  of the  numerators  and  denominators  used in the
computation  of the basic  earnings per common share and diluted
earnings per common share is presented below:
<table>
<caption>
                                                                           Year ended September 30,
                                                                    2007              2006               2005
                                                                     (In thousands, except per share data)
Basic Earnings Per Common Share
     Numerator

                                                            <c>                <c>               <c>
         Net income                                            $    3,232         $   2,166         $   2,496

     Denominator
         Weighted average common shares
           outstanding for basic earnings per
           common share                                             1,317             1,344              1,346

     Basic earnings per common share                           $     2.45         $    1.61         $     1.85


                                                                           Year ended September 30,
                                                                    2007              2006               2005
                                                                      (In thousands, except per share data)
Diluted Earnings Per Common Share
     Numerator
         Net income                                            $   3,232          $   2,166         $   2,496

     Denominator
         Weighted average common shares
           outstanding for basic earnings per
           common share                                            1,317              1,344             1,346
         Add:  Dilutive effects of assumed
           exercises of stock options                                 49                 46                32
         Weighted average common shares
           and dilutive potential common
           shares outstanding                                      1,366              1,390             1,377

     Diluted earnings per common share                         $    2.37          $    1.56         $    1.81
</table>
Stock options for 17,000,  22,000,  and 24,000  shares of common stock were not
considered  in computing  diluted  earnings per common share for the years ended
September 30, 2007, 2006 and 2005 because they were antidilutive.







NOTE 3 - SECURITIES

The fair value of securities  available for sale and the related gross
unrealized  gains and losses  recognized in  accumulated  other
comprehensive income (loss) are as follows:
<table>
<caption>
                                                               September 30, 2007
                                                 Gross              Gross
                                                 Fair            Unrealized       Unrealized
                                                 Value              Gains           Losses
                                                           (Dollars in thousands)
Debt securities
     U.S. Government

                                        <c>                 <c>              <c>
      and federal agencies                 $          1,506    $          6     $           -
     Mortgage-backed                                 25,027              59              (382)
     Corporate notes                                  3,506               -              (468)
                                                     30,039              65              (850)
Marketable equity securities                          3,370             318                 -

                                           $         33,409    $        383     $        (850)


                                                               September 30, 2006
                                                 Gross              Gross
                                                 Fair            Unrealized       Unrealized
                                                 Value              Gains           Losses
                                                            (Dollars in thousands)
Debt securities
     U.S. Government
     and federal agencies                  $         14,322    $          2     $         (72)
     Municipal bonds                                    338               -                 -
     Mortgage-backed                                 33,195              18              (662)
     Corporate notes                                  7,115               2              (133)
                                                     54,970              22              (867)
Marketable equity securities                          3,413             328                 -

                                           $         58,383    $        350     $        (867)

</table>
Marketable equity securities are comprised of government sponsored agency
preferred stocks of $3.1 million for both September 30, 2007 and 2006.







NOTE 3 - SECURITIES (Continued)

Securities  with  unrealized  losses at year-end 2007 and 2006,  aggregated by
investment  category and length of time that  individual securities have been in
a continuous unrealized loss position, are as follows:
<table>
<caption>
                                                           September 30, 2007
                                                         (Dollars in thousands)

                                Less than 12 Months             12 Months or More                  Total
                              Fair         Unrealized        Fair        Unrealized         Fair        Unrealized
                              Value           Loss           Value          Loss            Value          Loss

                        <c>            <c>             <c>          <c>            <c>                <c>
Debt securities
Mortgage-backed            $    610       $     (1)       $  19,335     $    (381)    $     19,945       $ (382)
   Corporate notes              458            (39)           3,048          (429)           3,506         (468)

   Total                   $  1,068       $    (40)       $  22,383     $    (810)    $     23,451       $ (850)


                                                                       September 30, 2006
                                                                            (Dollars in thousands)

                                Less than 12 Months             12 Months or More                  Total
                              Fair         Unrealized        Fair        Unrealized         Fair        Unrealized
                              Value           Loss           Value          Loss            Value          Loss
Debt securities
   U.S. Government and
       federal agencies     $    9,359     $      (34)      $    3,461     $    (38)     $  12,820       $    (72)
   Mortgage-backed               6,991            (40)          24,334         (622)        31,325           (662)
   Corporate notes                 989            (11)           4,848         (122)         5,837           (133)

   Total                    $   17,339     $      (85)      $   32,643     $   (782)     $  49,982       $   (867)

</table>
Management  evaluates securities for  other-than-temporary  impairment at least
on a quarterly basis, and more frequently when economic or market concerns
warrant such  evaluation.  Consideration  is given to (1) the length of time and
the extent to which the fair value has been less than cost,  (2) the  financial
condition and  near-term  prospects of the issuer,  and (3) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair value.

In the first quarter of fiscal 2005,  management  recorded a non-cash impairment
charge through earnings of $948,000 for the decline in the value of floating
rate  preferred  stock  securities.  During the quarter  ending
December 31, 2004, a  multi-billion  dollar FNMA preferred stock issuance with a
substantially  different  structure and higher yield than previous  offerings
had a detrimental  effect on the fair value of the Company's FNMA and FHLMC
preferred stock  holdings.  Additionally,  a downgrade in rating on the FNMA
security due to  disclosed  accounting  issues,  the  duration of the
suppressed  market  value on both the FNMA and FHLMC  securities  and the
Company's  inability to project when market value recovery would occur led
management to record the write-down as of December 31, 2004. The unrealized
gains on these marketable  equity  securities was $328,000 at
September 30, 2006, and fell slightly to gains of $318,000 at
September 30, 2007, based upon the fair values subsequent to the write-down.

NOTE 3 - SECURITIES (Continued)

Related to the  unrealized  losses for debt  securities  classified as corporate
notes,  $388,000 and $96,000 of unrealized  losses at September 30, 2007 and
2006 were  attributable to a trust preferred bond issued by a regional banking
organization.  Credit issues are not a factor  relative  to the current
unrealized  losses,  but rather the current  interest  rate  structure  of the
market for trust preferred  instruments.  The Bank has the ability to hold this
bond for the foreseeable  future and as market interest rate changes and
the issuance approaches its maturity, the fair value is expected to recover.

Unrealized  losses on other debt and equity  securities as of September 30, 2007
and 2006 have not been  recognized into income because the  issuer's  securities
are of high  credit  quality  (rated AA or  higher),  management  has the
intent  and  ability  to hold the investments for the  foreseeable  future,
and the decline in fair value is largely due to changes in market  interest
rates.  The fair value is expected to recover as the investments approach
maturity.

The fair  value of debt  securities  by  contractual  maturity  are shown
below.  Expected  maturities  may  differ  from  contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

                        September 30, 2007
                       (Dollars in thousands)

                                                                   Fair
                                                                   Value

     Due in one year or less                                  $          1,003
     Due after one year through five years                                 503
     Due after five years through ten years                                  -
     Due after ten years                                                 3,506
                                                                         5,012
     Mortgage-backed securities                                         25,027

                                                              $         30,039


There were no sales of securities  available for sale during the years ended
September 30,  2007, 2006 or 2005. During the years ended September 30, 2007,
2006,  and 2005 the Company  recorded  security  impairment  charges of $-0-,
$-0-,  and $948,000,  respectively. During the fiscal year ended
September  30,  2002,  the  Company  recorded an $895,000  write down on a $1.0
million  WorldCom,  Inc. corporate  debt  security.  That  security  was sold
in  October  2002 for  $160,000.  In  total,  the  Company  received  $402,000
in distribution  payments  during fiscal year 2007 as a result of  distributions
of funds  recovered by the U.S.  Securities and Exchange Commission in its
action against  WorldCom,  Inc. The Company may receive an additional
distribution  depending upon the resolution of disputed  claims,  appeals from
court  determinations  and  additional  administrative  expenses,  interest  and
taxes  incurred by the settlement funds; however, any further distribution would
likely be relatively small.

NOTE 4 - LOANS RECEIVABLE

Loans receivable, at September 30 are summarized as follows:
<table>
<caption>
                                                                                    2007                 2006
                                                                                      (Dollars in thousands)
Residential mortgage loans:

                                                                          <c>                  <c>
         Secured by one-to-four family residences                            $       178,056      $       174,399
         Construction loans                                                           18,107               22,232
         Other                                                                         5,588                3,090
                                                                                     201,751              199,721
         Less:
           Net deferred loan origination fees                                          (466)                (498)
           Undisbursed portion of construction and
           other mortgage loans                                                         (52)                 (27)
              Total residential mortgage loans                                       201,233              199,196

Commercial
         Commercial real estate                                                       95,241               84,651
         Commercial                                                                   58,890               49,970
                                                                                     154,131              134,621
         Less: net deferred loan origination fees                                      (186)                (209)
              Total commercial loans                                                 153,945              134,412

Consumer loans:
         Home equity and second mortgage                                              42,593               37,779
         Other                                                                         9,985                7,835
         Net deferred loan costs                                                           -                    -
              Total consumer loans                                                    52,578               45,614

         Total loans receivable                                              $         407,756    $       379,222
</table>
Activity in the allowance for loan losses is summarized as follows for the years
ended September 30:
<table>
<caption>
                                                               2007                2006                 2005
                                                                          (Dollars in thousands)

                                                        <c>               <c>                  <c>
     Balance at beginning of year                          $         7,230   $           6,388    $           6,074
     (Negative) Provision for loan losses                          (1,257)               1,032                  723
     Charge-offs                                                     (701)                (195)               (499)
     Recoveries                                                        26                    5                   90

     Balance at end of year                                $         5,298   $           7,230    $           6,388

</table>
NOTE 4 - LOANS RECEIVABLE (Continued)
<table>
<caption>
Impaired loans were as follows:
                                                                                     2007                2006
                                                                                      (Dollars in thousands)

                                                                             <c>                <c>
     Year-end loans with no allocated allowance
     for loan losses                                                            $      759         $      873
     Year-end loans with allocated allowance
     for loan losses                                                                 2,901              6,052
         Total                                                                  $    3,660         $    6,925

     Amount of the allowance for loan
     losses allocated                                                           $    2,433         $    4,337
     Average of impaired loans during the year                                       4,644              8,270
     Interest income recognized during impairment                                        9                165
     Cash-basis interest income recognized during
       impairment                                                                        7                159
</table>
The largest loan  relationship  included in impaired loans as of
September 30, 2007 totaled  approximately  $1.5 million for which $1.5 million
of the  allowance  for loan losses has been  allocated.  Principal  payments of
approximately  $1.6  million were made on this impaired loan during fiscal year
2007. The Bank  maintained the $1.5 million  allowance for the loan losses
allocation  based upon the history of unreliable and  inconsistent  financial
reporting and cash flows of the customer's  business.  The actual loss on this
loan relationship may vary significantly from the current estimate  contingent
upon the borrower's ability to seek alternative  financing or pay down the loan.
At September 30, 2006,  this  relationship  totaled  approximately  $3.1
million,  and $3.1 million of the allowance was allocated to it.  Impaired loans
have decreased from 2006 due to payments  received on this  commercial  loan and
other  commercial loans with improved financial conditions.

<table>
<caption>
Non-performing loans were as follows at year end:
                                                                                      2007               2006
                                                                                            (Dollars in thousands)

                                                                             <c>                <c>
     Loans past due over 90 days still on accrual status                        $            41    $            619
     Non-accrual loans                                                                    4,693               6,390
     Restructured loans                                                                     361                   -

       Total non-performing loans                                               $         5,095    $          7,009
</table>
A total of $3.7 million and $5.4 million of the impaired loans were non-accrual
loans as of September 30, 2007 and 2006.



NOTE 4 - LOANS RECEIVABLE (Continued)

Mortgage  loans  serviced  for others are not  included in the  accompanying
consolidated  balance  sheets.  The Company is subject to certain recourse
obligations on the loans serviced for E*trade.  The unpaid  principal  balances
of mortgage loans serviced for others at September 30, 2007 and 2006 are
summarized as follows:
<table>
<caption>
                                                                                     2007                 2006
                                                                                       (Dollars in thousands)

                                                                           <c>                 <c>
     Mortgage loan portfolios serviced for:
         Federal Home Loan Mortgage Corporation                               $    182,722        $         191,300
         Fannie Mae Corporation                                                        912                    1,320
         Federal Home Loan Bank of Indianapolis                                        710                      740
         Merchants Bank                                                                617                      726
         E*trade (Formerly Telebank)                                                   439                      499
         Wells Fargo (Formerly Hanover)                                                406                      453
         LaSalle Bank, FSB                                                             388                      411
         Bank Mutual                                                                   239                      308
         Citizens Bank                                                                 119                      256

         Total                                                                $    186,552        $         196,013
</table>
Custodial  escrow balances  maintained in connection with the foregoing
serviced loans were $3.7 million and $1.9 million at September 30, 2007 and 2006
respectively.

Activity for capitalized mortgage servicing rights and the related valuation
allowance was as follows:
<table>
<caption>
                                                 2007                2006                 2005
                                                               (Dollars in thousands)

 Servicing rights, net of valuation
   allowance:

                                         <c>                  <c>                <c>
   Balance at beginning of year             $      2,366         $      2,341       $     2,092
   Additions                                         179                  151               463
   Change in Valuation allowance                      (8)                 178               181
   Amortized to expense                             (284)                (304)            (395)

   Balance at end of year                   $      2,253         $      2,366       $     2,341

Valuation allowance:
   Balance at beginning of year             $         -          $       (178)      $     (359)
   Impairment charge                               (120)                 (116)            (555)
   Impairment recovery                               112                  294               736

   Balance at end of year                   $        (8)         $         -        $     (178)
</table>

NOTE 4 - LOANS RECEIVABLE (Continued)

The fair value of  capitalized  mortgage  servicing  rights was  $2,412,000 and
$2,527,000 at September 30, 2007 and 2006. The serviced loan portfolio was
stratified by interest rate and fair value was  determined at period end based
upon the following  weighted  average assumptions:

                                                       2007                2006


Weighted-average constant prepayment rate           12.30%               11.90%
Weighted-average coupon rate                         6.00%                5.95%
Weighted-average net servicing fee                   0.25%                0.25%
Weighted-average discount rate                       9.09%                9.10%
Weighted-average current age (in years)              3.75                 3.10

Additions  to  capitalized  servicing  rights are  included in gains from the
sales of loans on the  consolidated  statement of income. Service fee income
received for  servicing  those loans,  net of the  amortization  of  capitalized
servicing  rights,  aggregated to $193,000, $213,000, and $126,000 for 2007,
2006, and 2005 and is included in other income on the consolidated statement of
income.

Certain  directors  and  executive  officers  of the  Company  and its
subsidiary,  including  associates  of such  persons,  are loan customers.  A
summary of the  related  party loan  activity,  for loans  aggregating  $60,000
or more to any one  related  party is as follows:

                                                 2007               2006
                                                 (Dollars in thousands)

           Balance at beginning of year    $       3,223       $    3,001
           New loans                                 350              687
           Repayments                              (635)            (465)
           Related party changes                     153                -

           Balance at end of year          $       3,091       $    3,223













NOTE 5 - PREMISES AND EQUIPMENT, NET

Premises and equipment at September 30 are summarized as follows:
<table>
<caption>

                                                                                    2007               2006
                                                                                     (Dollars in thousands)

                                                                           <c>               <c>
     Land                                                                     $         4,409    $         4,413
     Buildings and improvements                                                        14,543             14,292
     Furniture and equipment                                                            5,914              7,303
     Total cost                                                                        24,866             26,008
     Accumulated depreciation and amortization                                        (6,360)            (6,531)

     Total                                                                    $        18,506    $        19,477
</table>
Depreciation of premises and equipment  included in occupancy and equipment
expense was approximately  $1.3 million for the years ended September 30,  2007
and 2006  respectively.  During fiscal year 2007, the Company disposed of almost
fully depreciated assets no longer in use by the Company.


NOTE 6 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill was $2.0 million at September 30, 2007 and 2006.  During the year ended
September  30, 2006,  the company  received  $453,000 from Sobieski Bancorp as
a result of the successful  voluntary  mediation  relating to a disputed asset
from the August 2004 closing of the acquisition of certain assets and certain
liabilities.  The proceeds,  net of legal fees, were recorded as a reduction of
goodwill when received.

Acquired Intangible Assets

Acquired intangible assets were as follows as of September 30, 2007:
<table>
<caption>
                                                          Gross Carrying         Accumulated
                                                              Amount            Amortization
                                                                 (Dollars in thousands)
Amortized intangible assets:

                                                       <c>                <c>
     Core deposit intangibles                             $         1,610    $            824
     Customer relationship intangibles                              1,180                 654
     Trust customer relationship intangibles                          610                   -

         Total                                            $         3,400    $          1,478



NOTE 6 - GOODWILL AND INTANGIBLE ASSETS (Continued)

Acquired intangible assets were as follows as of September 30, 2006:

                                                          Gross Carrying         Accumulated
                                                              Amount            Amortization
                                                                 (Dollars in thousands)
Amortized intangible assets:
     Core deposit intangibles                             $         1,610    $            595
     Customer relationship intangibles                              1,180                 496

         Total                                            $         2,790    $          1,091

</table>
Aggregate amortization expense was $387,000, $435,000 and $559,000 for 2007,
2006 and 2005.

Estimated amortization expense for each of the next five years ending
September 30:

                           2008                                $       397,000
                           2009                                        347,000
                           2010                                        298,000
                           2011                                        248,000
                           2012                                        199,000

Refer to Note 16 for more detailed information on the trust customer
relationship intangible recorded at September 30, 2007.


NOTE 7 - DEPOSITS

At September  30, 2007,  the  scheduled  maturities of  certificates  of deposit
for the years ending  September 30, are as follows (in thousands):

                           2008                               $         97,733
                           2009                                         36,020
                           2010                                         12,711
                           2011                                          1,845
                           2012                                         20,297
                           Thereafter                                    2,436

                                                             $         171,042

The aggregate amount of jumbo  certificates of deposit in denominations of
$100,000 or more was  approximately  $48.6 million and $50.5 million at
September 30, 2007 and 2006, respectively.



NOTE 8 - BORROWINGS

At September 30, 2007,  advances from the Federal Home Loan Bank of Indianapolis
with $109.3 million fixed rates ranging from 4.10% to 6.35% and $15.0 million
variable  rates that reset  quarterly  with rates ranging from 4.76% to 5.60%
are required to be repaid in the year ending September 30 as follows
(in thousands):

                           2008                              $          69,134
                           2009                                         21,738
                           2010                                         14,500
                           2011                                          8,000
                           2012                                         10,886

                                                             $       124,258

At September 30, 2007,  $7.7 million of FHLB stock,  $118.3  million of eligible
mortgage loan  collateral  and $34.6 million of other real estate loan  related
collateral  are pledged to the FHLB to secure  advances  outstanding.  The
Company's  additional  borrowing capacity  with the FHLB is $23.5  million at
September  30, 2007.  The Company  established a $5.0 million line of credit
with the FHLB on August 24, 2007 and there was no balance outstanding as of
September 30, 2007.

In addition,  $78.0 million of the advances  outstanding  at September 30, 2007
contained put options with quarterly put dates ranging from October 2007 to
December 2007, whereby the advance can be called by the FHLB prior to maturity.

At September 30, 2007, the Company had no outstanding  borrowings from a
correspondent  bank, compared to $4.5 million at September 30, 2006.  This
variable rate line of credit, tied to the one month LIBOR rate plus 160 basis
points was paid off on February 28, 2007.


NOTE 9 - SUBORDINATED DEBENTURES

A trust, MFBC Statutory Trust I, formed by the Company,  issued $5.0 million of
trust preferred  securities on July 29, 2005 as part of a private  placement of
such securities.  The Company issued  subordinated  debentures to the trust in
exchange for the proceeds of the offering;  the debentures and related debt
issuance costs represent the sole assets of the trust.  The securities  mature
30 years from the date of issuance,  require  quarterly  distributions and bear
a fixed rate of interest of 6.22% per annum for the first five years, resetting
quarterly  thereafter at the prevailing  three-month  LIBOR rate plus 1.7% per
annum.  Interest on the securities is payable quarterly in arrears each
September 15,  December 15, March 15, and June 15 commencing
September 15, 2005. The Company may redeem the trust preferred  securities,  in
whole or in part,  without penalty,  on or after September 15, 2010, or earlier
upon the occurrence of certain events with the payment of a premium upon
redemption.  The securities mature on September 15, 2035.

NOTE 10 - EMPLOYEE BENEFITS

401(k) Plan:  The Company  maintains a retirement  savings  401(k) plan which
covers all  employees  who are 21 years or older and have completed  three
months of service.  Employees  are  eligible  to receive  contributions  from
the Company  after one year of service. Participants  may defer up to 75% of
compensation  and the Company will contribute an amount equal to 125% of
elective  deferrals on 6% of the  participants'  compensation  elected to be
deferred.  Expense for the 401(k) plan for the years ended
September 30, 2007, 2006 and 2005 was approximately $386,000, $333,000 and
$320,000 respectively.

Employee Stock Ownership Plan (ESOP):  On July 1, 2004, the Bank merged the ESOP
into the MFB Financial  Employees'  Savings and Profit Sharing Plan and Trust
and ceased  adding new  participants.  As of September 30, 2007 all
participants  in the ESOP were 100% vested. Employees  monitor ESOP shares as
part of their 401(k)  balance.  Pursuant to the Pension  Protection Act of 2006,
eligible  employees have the ability to divest MFB Corp shares at anytime.

Stock  Option  Plans:  The Board of Directors of the Company has adopted the
MFB Corp.  Stock  Option Plans (the "Option  Plans").  The number of options
authorized  under the Plans totals  450,000 shares of common stock.  Stock
options are used to reward  directors and certain  officers and employees of the
Company and its subsidiaries  and provide them with an additional  equity
interest.  The option exercise  price must be no less than 85% of the fair
market value of common stock on the date of the grant,  and the option term
cannot exceed ten years and one day from the date of the grant - the options
have varying vesting  schedules.  As of  September 30,  2007, all options
granted  have an  exercise  price  of at least  100% of the  market  value of
the  common  stock on the date of  grant.  As of September 30, 2007, 8,000
options remain available for future grants.

For the year ended  September 30, 2007,  stock option  compensation  expense of
$35,000 was  recognized  in connection  with the option plans with related tax
benefits of $12,000.  At September  30, 2007,  compensation  expense  related to
non vested stock option  grants aggregated to $43,000 and is expected to be
recognized as follows:

                                                 Stock Option Compensation
                                               Expense (dollars in thousands)

For the fiscal years ending September 30:        2008              $   32
                                                 2009                  11
                                                Total              $   43










NOTE 10 - EMPLOYEE BENEFITS (Continued)

The fair value of each  option  award is  estimated  on the date of grant  using
a closed  form  option  valuation  model that uses the assumptions  noted in the
table below.  Expected  volatilities are based on historical  volatilities of
the Company's common stock. The Company uses  historical  data to estimate
option  exercise.  Separate  groups of  employees  that have  similar
historical  exercise behavior are  considered separately  for  valuation
purposes.  The expected term of options  granted is  based on historical  data
and represents the period of time that options granted are expected to be
outstanding.  The risk-free rate of interest for periods within the contractual
life of the option is based on the U.S.  Treasury yield curve in effect at the
time of the grant.  There were no stock options granted during 2007.
<table>
<caption>
                                                                      2007              2006              2005

                                                                   <c>               <c>               <c>
     Risk-free interest rate                                             -                4.60%            4.23%
     Expected dividend rate                                              -                1.68              1.96
     Stock price volatility                                              -               20.66             28.77
     Estimated Life                                                      -               8 yrs             8 yrs

</table>
Activity in the Option Plans is summarized as follows:
<table>
<caption>
                                                                                     Weighted        Weighted
                                                                                      Average         Average
                                                                  Exercise           Exercise       Fair Value
                                                   Options          Price              Price         of Grants

                                                <c>            <c>               <c>              <c>
     Balance at September 30, 2006                   217,110      $17.25 - $34.01      $24.89
         Granted                                           -       -                     -           $       -
         Forfeited                                         -       -                     -
         Exercised                                    (9,990)     21.30 - 30.35         21.81
     Balance at September 30, 2007                   207,210      17.25 - 34.01         25.04
</table>














NOTE 10 - EMPLOYEE BENEFITS (Continued)

The Company has a policy of using  shares  held as treasury  stock to satisfy
share  option  exercises.  Currently,  the Company has a sufficient  number of
treasury  shares to satisfy  expected  share option  exercises.  Options
exercisable  at September  30, based on vesting schedules established at the
date of grant, are as follows:
<table>
<caption>
                                                                                           Weighted
                                                            Number                          Average
                                                          of Options                    Exercise Price

                         <c> <c>                       <c>                                 <c>
                  September 30, 2005                      196,509                             $23.95
                  September 30, 2006                      210,310                              24.64
                  September 30, 2007                      201,410                              24.83
</table>
At September 30, 2007 options outstanding and options exercisable were as
follows:


<table>
<caption>
                                                                                                              Exercisable
                                                                        Outstanding
                                                                      Weighted Average
                                                                               Weighted                             Weighted
                                                       Remaining               Average                               Average
      Range of                                        Contractual              Exercise                             Exercise
   Exercise Prices                   Number          Life in years              Price                 Number          Price
<c>                               <c>                    <c>                    <c>                <c>                <c>
$17.25 - $18.75                        3,210              3.42                   18.18                 3,210          18.18
$20.55 - $26.75                      175,500              4.84                   24.03               175,500          24.03

$30.35 - $34.01                       28,500              6.87                   32.03                22,700          31.95
-------------------------------------------- -------------------- -------------------------- ------------------- ------------------
Outstanding/Exercisable              207,210              5.10                   25.04                201,410         24.83
-------------------------------------------- -------------------- -------------------------- ------------------- -------------------
-------------------------------------------- -------------------- -------------------------- ------------------- -------------------
Aggregate
Intrinsic Value                   $1,100,477                                                        $1,100,477
-------------------------------------------- -------------------- -------------------------- ------------------- -------------------
</table>
The intrinsic  value of options  exercised was $124,000,  $185,000 and $309,000
for the years ended  September 30, 2007, 2006 and 2005. Cash  received  from
option  exercises  for the years ended  September  30,  2007,  2006 and 2005 was
$216,000,  $218,000 and $439,000 respectively.  The actual tax benefit
realized  for the tax  deductions  from stock  options  exercises  totaled
$48,000,  $9,000 and $15,000 for the years ending September 30, 2007, 2006 and
2005.

Continuation  Agreements:  On September 18, 2007,  the Board of Directors of the
Bank approved a "Salary  Continuation  Agreement"  for the President/CEO and a
"Director Fee Continuation  Agreement" to provide  retirement  benefits to
directors in certain  circumstances. Under the Salary  Continuation  Agreement,
if the President/CEO  retires at the age of sixty, he will receive an annual
benefit in the amount of $60,000 in equal  monthly  installments  for a period
of fifteen  years.  Under the Director Fee  Continuation  Agreement,  a director
who serves the Bank for at least 5 years and who retires  after  reaching  age
72 will  receive an annual  benefit for 5 years (10 years,  if the director  has
served for 10 or more years) equal to 50% of the total fees paid to the director
during the last year before ending  service.  As a result of the two approved
agreements,  the Bank charged  $95,000 to salaries and employee  benefits and
recorded a corresponding liability of $95,000 as of September 30, 2007.


NOTE 11 - INCOME TAXES

The Company files consolidated income tax returns.  Income tax expense for the
years ended September 30 are summarized as follows:
<table>
<caption>
                                                                   2007              2006               2005
                                                                             (Dollars in thousands)

             <c>                                          <c>                <c>                <c>
     Federal:   Current                                      $          574     $         467      $        478
                Deferred                                                302              (203)               34
                                                                        876               264               511

     State:     Current                                                   -                 -                90
                Deferred                                                103               (54)                9
                                                                        103               (54)               99

                Total income tax expense                     $          979     $         210      $        611
</table>
Total income tax expense  differed from the amounts  computed by applying the
federal  income tax rate of 34% in all periods  presented to income before
income taxes as a result of the following for the years ended September 30:
<table>
<caption>
                                                                 2007                2006               2005
                                                                             (Dollars in thousands)

                                                          <c>                <c>              <c>
Income taxes at statutory rate                               $       1,432      $        808     $      1,056
Tax effect of:
     State tax, net of federal income tax effect                        68               (36)              66
     Low income housing credits                                       (403)             (403)           (402)
     Bank owned life insurance income                                 (100)              (80)            (75)
     Other items, net                                                  (18)              (79)            (34)

         Total income tax expense                            $         979     $         210     $        611
</table>
NOTE 11 - INCOME TAXES (Continued)


The  components  of the net  deferred  tax asset  (liability)  recorded in the
consolidated  balance  sheets as of September 30 are as follows:
<table>
<caption>
                                                                                    2007               2006
                                                                                     (Dollars in thousands)
     
                                                                        <c>               <c>
     Deferred tax assets
         Bad debt deduction                                                     $        2,088    $        2,851
         Low income housing credit carry-forward                                           619               475
         Net deferred loan fees                                                            257               279
         Impairment on Investment Securities                                               322               322
         Intangible Assets                                                                 342               271
         Net operating loss carryforward                                                    90                58
         Net unrealized depreciation on securities available for sale                      159               176
         Other                                                                              92                74
              Total deferred tax assets                                                  3,969             4,506
     Deferred tax liabilities
         Accretion                                                                        (106)              (92)
         Depreciation                                                                     (168)             (304)
         FHLB stock dividend                                                              (217)             (262)
         Mortgage servicing rights                                                        (888)             (920)
         Goodwill                                                                         (176)             (125)
         Partnership income                                                               (167)             (133)
         Other                                                                             (69)              (70)
              Total deferred tax liabilities                                            (1,791)           (1,906)

              Net deferred tax asset (liability)                                $        2,178    $        2,600

</table>
Federal income tax laws provided  savings banks with  additional  bad debt
deductions  through the tax year ended  September 30, 1987, totaling  $4.6
million for the Bank.  Accounting  standards  do not require a deferred  tax
liability  to be recorded on this amount, which liability  would  otherwise
total $1.6 million at September 30, 2007 and 2006. If the Bank were  liquidated
or otherwise  ceases to be a bank or if tax laws change, the $1.6 million would
be recorded as expense.

NOTE 12 - REGULATORY MATTERS

The Bank is subject to regulatory  capital  requirements  administered by
federal banking  agencies.  Capital  adequacy  guidelines and prompt  corrective
action  regulations  involve  quantitative  measures of assets,  liabilities,
and certain  off-balance-sheet  items calculated under regulatory  accounting
practices.  Capital amounts and classifications  are also subject to qualitative
judgments by regulators  about  components,  risk  weightings,  and other
factors,  and the regulators can lower  classifications  in certain cases.
Failure to meet various capital  requirements can initiate  regulatory action
that could have a direct material effect on the financial statements.

The  prompt  corrective  action  regulations  provide  five  classifications,
including  well  capitalized,  adequately  capitalized, undercapitalized,
significantly  undercapitalized,  and  critically  undercapitalized,  although
these terms are not used to represent overall  financial  condition.  If only
adequately  capitalized,  regulatory  approval  is required to accept  brokered
deposits.  If undercapitalized, capital distributions are limited, as is asset
growth and expansion, and plans for capital restoration are required.

The Bank's actual capital and required capital amounts and ratios are presented
below:
<table>
<caption>
                                                                                                    Minimum
                                                                                                  Requirement
                                                                      Minimum                     To Be Well
                                                                    Requirement                Capitalized Under
                                                                    For Capital                Prompt Corrective
                                         Actual                  Adequacy Purposes           Action Provisions
                                   Amount        Ratio          Amount        Ratio          Amount       Ratio
                                                               (Dollars in Thousands)

                            <c>               <c>        <c>                <c>      <c>               <c>
As of September 30, 2007
    Total capital (to risk
      weighted assets)         $    41,220       10.79%     $    30,550        8.00%    $    38,188       10.00%
    Tier 1 (core) capital
      (to risk weighted assets)     38,582        9.99           15,275        4.00          22,913        6.00
    Tier 1 (core) capital (to
      adjusted total assets)        38,582        7.65           20,182        4.00          25,228        5.00

As of September 30, 2006
    Total capital (to risk
      weighted assets)         $    43,221       12.96%     $    26,688        8.00%    $    33,360       10.00%
    Tier 1 (core) capital
      (to risk weighted assets)     40,859       12.10           13,344        4.00          20,016        6.00
    Tier 1 (core) capital (to
      adjusted total assets)        40,859        8.34           19,604        4.00          24,506        5.00
</table>
Regulations  limit  the  dividends  that  may be paid  by the  Bank  without
prior  approval  of the  Office  of  Thrift  Supervision. Accordingly,  at
October 1, 2007,  $3.0 million of the Bank's  retained  earnings was
potentially  available for  distribution  to the Company, without obtaining
prior regulatory approval.








NOTE 13 - OTHER NON-INTEREST INCOME AND EXPENSE

Other noninterest income and expense amounts are summarized as follows for the
years ended September 30:
<table>
<caption>
                                                                   2007              2006               2005
                                                                              (Dollars in thousands)

                                                          <c>                <c>               <c>
Other noninterest income:
              Loan servicing fees - net                      $          193     $          213    $          126
               Other service charges and fees                            71                117               191
              ATM foreign surcharges                                     47                 47                49
              Brokerage commissions                                     210                133                72
              Visa interchange income                                   136                123               105
              Partnership equity loss                                  (245)              (221)             (282)
              Rental income                                             479                563               182
              Rental income - other real estate                          25                150               166
              Other                                                      95                151               133
                                                             $        1,011     $        1,276    $          742


                                                                   2007              2006               2005
                                                                             (Dollars in thousands)
         Other noninterest expense:
              Insurance                                      $          188     $          213    $          238
              Miscellaneous Employee                                    238                319               274
              Lending                                                   405                292               282
              Deposit                                                    91                 83               107
              Wealth Management                                         137                118               102
              Collection                                                146                216               197
              Bad Debt and Fraud                                        116                100                89
              Other                                                     293                306               376
                                                             $        1,614     $        1,647    $        1,665

</table>
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONTINGENCIES

Various outstanding  commitments and contingent  liabilities are not reflected
in the financial  statements.  Commitments to make loans at September 30
are as follows:
<table>
<caption>
                               ------------------2 0 0 7----------------  ------------------2 0 0 6----------------
                                                              (Dollars in thousands)

                                    Fixed       Variable                       Fixed       Variable
                                 Rate Loans    Rate Loans       Total       Rate Loans    Rate Loans       Total

                            <c>           <c>            <c>           <c>           <c>            <c>
Mortgage loans                 $      1,555  $       1,343  $      2,898  $        728  $      3,113   $      3,841
Commercial loans                        465              -           465           146             -            146
Unused equity lines of credit        26,605         12,864        39,469        21,107        16,896         38,003
Unused commercial lines
     and letters of credit                -         31,057        31,057             -        31,048         31,048
Unused construction loan
  lines of credit                     3,551          1,380         4,931         2,392         1,850          4,242

                               $     32,176  $      46,644  $     78,820  $     24,373  $     52,907   $     77,280
</table>
Fixed rate mortgage loan  commitments at September 30, 2007 are at an average
rate of 7.08% with terms primarily  ranging from 15 to 30 years.  There were no
commercial  loan fixed rate  commitments  at September  30, 2007.  The average
rate on variable  mortgage  loan commitments is 6.13% and is tied to the one
year Treasury bill rate.  Rates on variable  commercial  loan  commitments  are
tied to the national prime rate.

Since  commitments  to make loans and to fund unused lines of credit and loans
in process may expire without being used, the amounts do not necessarily
represent future cash commitments.  In addition,  commitments are agreements to
lend to a customer as long as there is no violation of any condition
established in the contract.  The maximum exposure to credit loss in the event
of  nonperformance by the other party is the  contractual  amount of these
instruments.  The same credit policy is used to make such  commitments as is
used for loans receivable.

Under  employment  agreements with certain  executive  officers,  certain events
leading to separation from the Company could result in cash payments totaling
$1.4 million as of September 30, 2007.

In the opinion of management,  after consultation with legal counsel,  the
ultimate disposition of all legal matters is not expected to have a material
adverse effect on the consolidated financial position or results of operation
of the Company.


NOTE 15 - SHAREHOLDER RIGHTS PLAN

The Company has adopted a  Shareholder  Rights  Plan and  declared a dividend
distribution  at the rate of one Right for each share of common stock held of
record as of the close of business on October 21, 2006,  and for each share of
common stock issued  thereafter  up to the Distribution Date (defined below).

Currently  each Right  entitles  holders of common stock to buy one share of
common  stock of the Company at an exercise  price of $93. In addition,  each
Right would be  exercisable,  and would detach from the common stock
(the  "Distribution  Date") only if a person or group (i) were to acquire  12%
or more of the  outstanding  shares of common  stock of the  Company;
(ii) were to announce a tender or exchange offer that, if consummated,  would
result in a person or group  beneficially  owning 30% or more of the outstanding
shares of common stock of the  Company;  or (iii) were  declared by the Board
to be an Adverse  Person (as defined in the Plan) if such person or group
beneficially  owns 10% or more of the  outstanding  shares  of  common  stock in
the  Company.  In the  event of any  occurrence triggering  the  Distribution
Date,  each Right may be  exercised  by the holder  (other  than such an
acquiring  person or group) to purchase shares of common stock of the Company
(or, in certain  circumstances,  common stock of the acquiring person) at a 50%
discount to market  price.  The Company is  entitled to redeem the Rights at
$.01 per Right at any time.  The Rights will expire at the close of
business on October 1, 2016.

NOTE 16 - BUSINESS COMBINATION

On September 28, 2007, the Company acquired certain trust assets,  personal
property and contracts (the "Trust Business") of Community Trust & Investment
Company,  Inc., an Indiana trust company serving the greater  Indianapolis area
and  Crawfordsville,  Indiana.  The Trust Business provides a myriad of trust
services including trust account  administration  under agreement and wills;
agency accounts, guardianships,  estate  settlement;  custodial and other
standard trust services.  The business also offers  administration of employee
benefit and employee welfare plans and administrative  service through
partnerships with established  investment advisors.  The Company acquired
approximately  $275.0 million in trust assets and will be operating from offices
in Carmel and Crawfordsville,  Indiana.  The acquisition includes a group of
trust professionals that complement the Company's existing trust department.

The  purchase  price is based upon the fees earned and  received on the trust
assets  acquired  during the three year period from the date of closing.  The
first  year's  payment is 25%, the second  year's  payment is 20%, and the third
year  payment is 15% of the fees earned and received during those periods.  At
closing,  the estimated purchase price  approximated  $660,000 and resulted in a
present value  intangible  asset of  $610,000.  This  intangible  asset will be
amortized  on a straight  line basis over ten years and will be adjusted, with
offsetting impact to the acquisition payable, as actual payments are determined.









NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed financial statements for the parent company,
MFB Corp.
<table>
<caption>
                                                       CONDENSED BALANCE SHEETS
                                                      September 30, 2007 and 2006
                                                                                     2007                 2006
                                                                                     (Dollars in thousands)
ASSETS

                                                                             <c>                <c>
Cash and cash equivalents                                                       $         1,511    $       1,533
Securities available for sale                                                                 -               33
Investment in Bank subsidiary                                                            44,593           46,834
Other assets                                                                                 32              118
     Total assets                                                               $        46,136    $      48,518

LIABILITIES
Other borrowings                                                                $             -    $       4,500
Subordinated debentures                                                                   5,000            5,000
Accrued expenses and other liabilities                                                       79               79
     Total liabilities                                                                    5,079            9,579

SHAREHOLDERS' EQUITY                                                                     41,057           38,939
      Total liabilities and shareholders' equity                                $        46,136    $      48,518


</table>
<table>
<caption>
                                                    CONDENSED STATEMENTS OF INCOME
                                             Years ended September 30, 2007, 2006 and 2005

                                                                2007                 2006                 2005
                                                                            (Dollars in thousands)
INCOME

                                                       <c>                     <c>                <c>
Dividends from Bank subsidiary - cash                      $       6,000          $      -           $        -
Interest and Noninterest income                                       14                10                   11
     Total                                                         6,014                10                   11

EXPENSES
Interest expense                                                     451               720                  345
Other expenses                                                       296               323                  243
     Total                                                           747             1,043                  588

Income before income taxes and
  equity in undistributed (excess distributed)
  net income of Bank subsidiary                                    5,267            (1,033)               (577)
Income tax (benefit)                                                (239)             (401)               (280)

Income (loss) before equity in undistributed
 (excess distributed) net income
 of Bank subsidiary                                                5,506              (632)               (297)
Equity in undistributed
net income of Bank subsidiary                                     (2,274)             2,798               2,793
Net income                                                 $       3,232          $   2,166           $   2,496
</table>


                       (Continued)


NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
<table>
<caption>
                                                  CONDENSED STATEMENTS OF CASH FLOWS
                                             Years ended September 30, 2007, 2006 and 2005

                                                                     2007             2006              2005
                                                                         (Dollars in thousands)
Cash flows from operating activities

                                                            <c>                 <c>               <c>
     Net income                                                $     3,232         $    2,166        $    2,496
     Adjustments to reconcile net income to
       net cash  from operating activities
         Equity in undistributed net income
           of Bank subsidiary                                        2,274             (2,798)          (2,793)
         Stock based compensation expense                               35                103                 -
         Net change in other assets                                    134                325             (306)
         Net change in accrued expenses and
           other liabilities                                             -                 14                 2
Net cash from operating activities                                   5,675               (190)            (601)

Cash flows from investing activities
     Maturities and calls of securities                                 33                 95             1,000
Net cash from investing activities                                      33                 95             1,000

Cash flows from financing activities
     Purchase of MFB Corp. common stock                               (576)            (1,486)                -
     Proceeds from exercise of stock options                           216                218               439
      Proceeds from subordinated debentures                              -                  -             5,000
     Repayment of other borrowings                                  (4,500)            (2,000)            (450)
     Cash dividends paid                                              (870)              (714)            (664)
Net cash from financing activities                                  (5,730)            (3,982)            4,325
Net change in cash and cash equivalents                                (22)            (4,077)            4,724

Cash and cash equivalents at beginning
  of year                                                            1,533              5,610               886

Cash and cash equivalents at end of year                      $      1,511    $         1,533   $         5,610
</table>
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The  following  table shows the  estimated  fair values and the related
carrying  amounts of the Company's  financial  instruments  at September 30,
2007 and 2006.  Items which are not financial instruments are not included.
<table>
<caption>
                                                    2007                                      2006
                                        Carrying             Estimated            Carrying             Estimated
                                         Amount             Fair Value             Amount             Fair Value
                                                                (Dollars in thousands)
Assets

                                   <c>                  <c>                  <c>               <c>
Cash and cash equivalents             $       23,470       $       23,470       $       16,289    $          16,289
Other investments                              9,718                9,718               10,939               10,939
Securities available for sale                 33,409               33,409               58,383               58,383
Loans held for sale                              612                  612                    -                    -
Loans receivable, net of
     allowance for loan losses               402,458              402,780              371,992              366,561
Accrued interest receivable                    2,246                2,246                2,346                2,346

Liabilities
Noninterest-bearing demand
     deposits                                (39,043)             (39,043)             (30,031)             (30,031)
Savings, NOW and MMDA
     deposits                               (129,719)            (129,719)            (129,233)            (129,233)
Time deposits                               (171,042)            (172,307)            (186,979)            (186,232)
Securities sold under
     agreements to repurchase                   (540)                (540)                   -                    -
FHLB advances                               (124,258)            (124,618)             (97,053)             (96,742)
Other borrowings                                   -                    -               (4,500)              (4,500)
Subordinated Debentures                       (5,000)              (5,000)              (5,000)              (5,000)
Accrued interest payable                        (419)                (419)                (855)                (855)
</table>
For purposes of the above  disclosures  of estimated  fair value,  the
following  assumptions  were used as of September  30, 2007 and 2006.  The
estimated  fair value for cash and cash  equivalents  are  considered to
approximate  cost.  The estimated  fair value for securities  available for sale
is based upon quoted market values for the  individual  securities  or for
equivalent  securities.  The estimated  fair value for loans held for sale,
net, is based on the price  offered in the  secondary  market on
September 30, 2007 and 2006 for loans having similar  interest rates and
maturities.  The estimated fair value for loans receivable is based upon
estimates of the  difference  in interest  rates the Company  would charge the
borrowers  for similar such loans with  similar  maturities  made at
September 30, 2007 and 2006,  applied for an estimated  time period until the
loan is assumed to reprice or be paid. In addition,  when computing the
estimated fair value for loans  receivable,  the allowance for loan losses was
subtracted  from the calculated fair value for consideration of credit issues.
The estimated fair value for other investments,  noninterest-bearing  demand
deposits and savings, NOW and MMDA  deposits is based upon their  carrying
value.  The  estimated  fair value for other time  deposits as well as
securities sold under agreements to repurchase,  other borrowings,
subordinated  debentures and FHLB advances is based upon estimates of the rate
the Company would pay on such deposits or borrowings at September 30, 2007 and
2006,  applied for the time period until  maturity.  The estimated fair value of
other financial  instruments and  off-balance-sheet  loan  commitments
approximate cost and are not considered significant to this presentation.



                                                              (continued)



NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

While these  estimates of fair value are based on management's  judgment of the
most  appropriate  factors,  there is no assurance that were the Company to have
disposed of such items at September 30, 2007 and 2006, the estimated fair values
would  necessarily  have been achieved at that date,  since market values may
differ depending on various  circumstances.  The estimated fair values at
September 30, 2007 and 2006 should not necessarily be considered to apply at
subsequent dates.

In addition,  other assets and  liabilities of the Company that are not defined
as financial  instruments are not included in the above disclosures,  such as
property and  equipment.  Also,  nonfinancial  instruments  typically  not
recognized  in  financial  statements nevertheless  may have value but are not
included in the above  disclosures.  Excluded,  among other items,  are the
estimated  earning power of core deposit accounts, the trained work force,
customer goodwill and similar items.


NOTE 19 - OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows:
<table>
<caption>
                                                                     2007              2006             2005
                                                                             (Dollars in thousands)

                                                           <c>                <c>              <c>
Net change in net unrealized gains and losses
  on securities available for sale
     Unrealized gains (losses) arising during
       the year                                                $         50       $        (31)    $      (679)
     Reclassification adjustment for (gains) losses
       included in net income                                             -                  -              948
         Net change in net unrealized gains
           (losses) on securities available
           for sale                                                      50                (31)             269

Tax expense (benefit)                                                    17                 (1)           (212)

     Total other comprehensive income (loss)                   $         33       $        (30)    $        481


</table>
NOTE 20 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<table>
<caption>
                                                          --------------Year Ended September 30, 2007--------------
                                                           (Dollars in thousands, except per share data)

                                                             1st *           2nd             3rd           4th
                                                            Quarter        Quarter         Quarter        Quarter

                                                        <c>           <c>              <c>             <c>
Interest income                                            $    7,112    $   7,337        $   7,312       $   7,538

Interest expense                                                4,052        3,988            3,888           4,002


Net interest income                                             3,060        3,349            3,424           3,536
Provision for loan losses                                      (1,128)        (228)            (298)            397


Net interest income after provision for loan
   losses                                                       4,188        3,577            3,722           3,139
Non-interest income                                             1,622        1,424            1,416           1,401

Non-interest expense                                            4,217        3,985            4,023           4,053


Income before income taxes                                      1,593        1,016            1,115             487

Income tax expense                                                442          235              272              30


Net income                                                 $    1,151    $     781         $    843       $     457

Basic earnings (loss) per common share                    $      0.87    $    0.59        $    0.64       $    0.35
Diluted earnings (loss) per common share                  $      0.84    $    0.57        $    0.62       $    0.34
</table>
* The negative  provision for loan losses during the quarter ended
December 31, 2006 was predominantly  related to the repayment of two
commercial  loans which  previously  had significant  allowance  for loan
loss  allocations,  which is  discussed in Note 4 to the consolidated
financial statements.




NOTE 20 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
<table>
<caption>
                                                          --------------Year Ended September 30, 2006--------------
                                                             (Dollars in thousands, except per share data)
                                                             1st *           2nd             3rd          4th **
                                                            Quarter        Quarter         Quarter        Quarter

                                                       <c>            <c>            <c>             <c>
Interest income                                           $     7,165    $     7,114    $     7,184     $     7,144

Interest expense                                                3,708          3,700          3,792           3,945


Net interest income                                             3,457          3,414          3,392           3,199

Provision for loan losses                                       2,055           (154)           (35)           (835)


Net interest income after provision for loan
   losses                                                       1,402          3,568          3,427           4,034

Non-interest income                                             1,616          1,461          1,846           1,410

Non-interest expense                                            3,972          3,956          4,286           4,174


Income (loss) before income taxes                                (954)         1,073            987           1,270

Income tax expense (benefit)                                     (557)           258            193             316


Net income (loss)                                         $      (397)   $       815    $       794     $       954

Basic earnings (loss) per common share                    $     (0.29)   $      0.60    $      0.59     $      0.72
Diluted earnings (loss) per common share                  $     (0.29)   $      0.58    $      0.57     $      0.69

</table>
* The significant increase in the provision for loan losses and the resulting
net loss for the 1st quarter of fiscal 2006 is primarily related to the
allowance for loan losses allocation on the impaired commercial loan
relationship previously discussed in Note 4.

** The recovery of loan losses in the 4th quarter is primarily related to
payments from the loan mentioned above in addition to improvement in the
financial condition of other commercial loans.



                                  MFB CORP. AND SUBSIDIARY

                              DIRECTORS AND EXECUTIVE OFFICERS
                                      September 30, 2007


                             MFB CORP. AND MFB FINANCIAL DIRECTORS
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Robert C.  Beutter (age 72) became of counsel to the South Bend law firm May
Oberfell  Lorber in November  2005.  Before that he was an attorney in private
practice in Mishawaka since 1962 and served as mayor of Mishawaka from 1984 to
2003.

--------------------------------------------------------------------------------
M. Gilbert  Eberhart (age 73) has served as Secretary of MFB Financial  since
1987 and of MFB Corp.  since  inception.  He is a dentist based in Mishawaka.

-------------------------------------------------------------------------------
Jonathan Housand (age 68) retired with thirty years banking  experience most
recently serving as President of Ameritrust  National Bank in Elkhart.  Since
retiring,  he has served as  president  and  General  Manager of WNIT,
Channel  34, and as Program  Officer of the Elkhart County Community Foundation.

--------------------------------------------------------------------------------
Jonathan E. Kintner (age 64) has a private practice of optometry in Mishawaka.

Christine A. Lauber (age 62) has served as a certified public  accountant in
private practice in South Bend,  Indiana for more than the last five years.  She
also serves as President of Automated Information Management, Inc.,
South Bend, Indiana.

--------------------------------------------------------------------------------
Edward Levy (age 59) has served as an officer and owner of  Freeman-Spicer
Leasing and Insurance  Corp.  and its  affiliated  entities (financial
services) for more than the past five years. In 2005 he became an executive
officer of Take Out Foods  International,  Inc. based in Indianapolis.

--------------------------------------------------------------------------------
Michael J. Marien (age 59) has served as an Account  Manager  for  IT/Signode
Corp.,  a division  of  Illinois  Tool Works.  He is the current Chairman of
MFB Corp. and MFB Financial.

Charles J. Viater (age 52) has served as President and Chief  Executive  Officer
of MFB Corp.,  MFB  Financial and Mishawaka  Financial Services, Inc. since
September 1995.

Reginald H. Wagle (age 64) has served as Vice  President of Memorial  Health
Foundation  since 1992.  Until 1992,  he was a free-lance political  consultant
and until 1991,  he also served as District  Director  for the Office of United
States  Representative  John P. Hiler, Third Congressional District of Indiana.

--------------------------------------------------------------------------------
                     MFB FINANCIAL EXECUTIVE OFFICERS

Charles J. Viater         James P. Coleman, III         Scott A. Taylor
President and             Executive Vice President and  Vice President
Chief Executive Officer*  Director of Wealth Management  Chief Deposit Officer

Donald R. Kyle                 Terry L. Clark                M. Gilbert Eberhart
Executive Vice President and   Executive Vice President and    Secretary*
Chief Operating Officer        Chief Financial Officer

* Holds same position with MFB Corp.

                             SHAREHOLDER INFORMATION
                                September 30, 2007

Performance Graph

The following graph shows the performance of the Holding Company's Common Stock
since September 30, 2002, in comparison to the NASDAQ Stock market- U.S. Index
and the NASDAQ Bank Index.
 -graphic omitted-
<table>
<caption>
                                         COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
                                         Among MFB Corp., The NASDAQ Composite Index
                                                    And The NASDAQ Bank Index
-----------------------------------------------------------------------------------------------------------------------------------
                                 9/02             9/03            9/04            9/05             9/06            9/07
-----------------------------------------------------------------------------------------------------------------------------------

                             <c>              <c>             <c>             <c>              <c>             <c>
MFB Corp.                       100.00           148.89          133.41          122.63           160.22          148.51
NASDAQ Composite                100.00           150.59          162.89          185.48           196.37          236.60
NASDAQ Bank                     100.00           121.09          139.12          146.31           158.08          145.74

</table>
*$100 invested on 9/30/02 in stock or index-including reinvestment of dividends.
Fiscal year ending September 30.
--------------------------------------------------------------------------------
<page>
Market Information

The common stock of MFB Corp. is traded on the NASDAQ Stock Market Global Market
(formerly  known as the National  Market),  under the symbol "MFBC." As of
November 30, 2007,  there were  approximately  396  shareholders of record.
The following table sets forth market price (based on daily closing prices) and
dividend information for the Company's common stock for the periods indicated.
<table>
<caption>
                                                                                               Dividend
Fiscal Quarters Ended                                    High Trade         Low Trade          Declared

                                                          <c>               <c>              <c>
December 31, 2005                                             28.34             24.50            0.125
March 31, 2006                                                32.00             27.01            0.135
June 30, 2006                                                 31.50             29.25            0.135
September 30, 2006                                            33.38             30.28            0.135

December 31, 2006                                             36.19             32.25            0.165
March 31, 2007                                                35.20             33.00            0.165
June 30, 2007                                                 34.64             33.00            0.165
September 30, 2007                                            34.58             29.75            0.165
</table>
MFB Corp.  is not  subject to the  regulatory  restrictions  of the Office of
Thrift  Supervision  ("OTS")  with  respect to payment of dividends  to its
shareholders,  although  the source of such  dividends  will depend in part upon
the receipt of  dividends  from the Bank.  Applicable  law  restricts  the
amount of dividends the Bank may pay to MFB Corp.  without  obtaining the prior
approval of the OTS. As discussed in Note 12 to the consolidated  financial
statements,  at Oct 1, 2007, $3.0 million of the Bank's retained  earnings
was potentially available for distribution to MFB Corp. without obtaining prior
regulatory approval.

In addition,  Indiana law  generally  limits the payment of  dividends  to
amounts  that will not affect the ability of a  corporation, after payment of
the dividend,  to pay its debts in the ordinary course of business or exceed the
difference  between the corporation's total assets and total  liabilities plus
preferential  amounts payable to shareholders with rights superior to those of
the holders of common stock.  Further,  amounts deducted for federal income tax
purposes cannot be used by the Bank to pay cash dividends  without the payment
of federal income taxes,  and MFB Corp. does not  contemplate any  distribution
by the Bank that would result in a recapture of the Bank's bad debt reserve or
otherwise create federal tax liabilities.












Transfer Agent and Registrar
         Registrar and Transfer Co.
         10 Commerce Drive
         Cranford, NJ 07016


Special Counsel
         Barnes & Thornburg LLP
         1313 Merchants Company Building
         11 South Meridian Street
         Indianapolis, IN 46204


Independent Auditors
         Crowe Chizek and Company LLC
         330 East Jefferson Blvd.
         South Bend, IN 46624



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

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

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

-------------------------------------------------------------------------------
                                                                  62
                                  SHAREHOLDER INFORMATION
                                     September 30, 2007

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


Shareholder and General Inquiries

The Company is required to file an Annual  Report on Form 10-K for its fiscal
year ended  September  30, 2007 with the  Securities  and Exchange  Commission.
Copies of this annual report may be obtained without charge via our website at
www.mfbbank.com  or upon written request to:

                  Charles J. Viater
                  President and Chief Executive Officer
                  MFB Corp.
                  4100 Edison Lakes Parkway, Suite 300
                  Mishawaka, IN 46545
<table>
<caption>
Office Locations

                           <c>                                 <c>
Corporate Headquarters        Main Office                         Branch Office
4100 Edison Lakes Parkway     4100 Edison Lakes Parkway           25990 County Road 6
Suite 300                     Suite 300                           Elkhart, IN 46514
Mishawaka, IN 46545           Mishawaka, IN 46545

                              Branch Office                       Branch Office
                              2427 Mishawaka Ave.                 23132 US 33
                              South Bend, IN 46615                Elkhart, IN 46517

                              Branch Office                       Branch Office
                              100 E. Wayne St.                    402 W. Cleveland Rd.
                              Suite 150                           Granger, IN 46545
                              South Bend, IN 46601

                              Branch Office                       Branch Office
                              2850 W. Cleveland Rd.               411 W. McKinley Ave
                              South Bend, IN 46628                Mishawaka, IN 46545

                              Branch Office                      Branch Office
                              742 E. Ireland Rd.                 23761 State Road 2
                              South Bend, IN 46614               South Bend, IN 46619

                              Branch Office                      Branch Office
                              121 S. Church St.                  11611 N. Meridian Suite 110
                              Mishawka, IN 46544                 Carmel, IN 46032

                              Loan Production Office             Wealth Management Office
                              307 West Buffalo St.               119 East Main St.
                              New Buffalo, MI 49117              Crawfordsville, IN 47933
</table>