Table of Contents


Letter to Shareholders                                                         1
Selected Consolidated Financial Data                                           2
Management's Discussion and Analysis                                           3
Report of Independent Auditors                                                18
Consolidated Balance Sheets                                                   19
Consolidated Statements of Income                                             20
Consolidated Statements of Shareholders' Equity                               21
Consolidated Statements of Cash Flows                                         22
Notes to Consolidated Financial Statements                                    24
Directors and Officers                                                        44
Shareholder Information                                                       45



DESCRIPTION OF BUSINESS

MFB Corp.  is an Indiana  corporation  organized in December  1993,  to become a
unitary savings and loan holding company. MFB Corp. became a unitary savings and
loan holding  company upon the  conversion of MFB  Financial,  formerly known as
Mishawaka  Federal  Savings (the "Bank") from a federal  mutual savings and loan
association to a federal stock savings bank in March 1994. MFB Corp. is the sole
shareholder of the Bank. MFB Corp. and the Bank (collectively referred to as the
"Company")  conduct business from their main office in Mishawaka,  Indiana,  and
five branch  locations in St. Joseph and Elkhart  Counties of Indiana.  The Bank
offers a variety of lending,  deposit, trust and other financial services to its
retail and commercial customers. The Bank's wholly-owned  subsidiary,  Mishawaka
Financial  Services,  Inc.  ("Mishawaka  Financial"),  is engaged in the sale of
credit life,  general fire and accident,  car, home, and life insurance as agent
for the Bank's customers and the general public.

<PAGE>




                                   BLANK PAGE


<PAGE>

Message To Our Shareholders

MFB Corp.  has just  completed  another year of growth and  prosperity.  We have
continued to enhance our ability to fulfill our stated  mission - to deliver the
highest  quality  financial  services  to our  community  that  result  in  ever
improving market share,  profitability  and shareholder  value. Our wholly-owned
subsidiary, MFB Financial ("the Bank"), has further positioned itself to compete
by adding  products and services that provide new evidence of our  commitment to
being a full  service,  locally  owned  bank  meeting  the  financial  needs  of
consumers and businesses in the Michiana area.

The Bank established a trust department in March that is dedicated to delivering
a full range of personal  trust and  employee  benefit plan  services.  This new
operation  has been  extremely  well received and has exceeded  expectations  in
these first few months - a clear sign that the Bank understands the needs of its
community  and the desire of  customers  to have these  sensitive  and  valuable
services  provided by their local banker.  The Bank's growth  strategy  includes
creating a broader physical presence in and around our established  market area.
To that end the Bank opened its first full service facility in Elkhart County in
June.  The  activity  level is well  above  our  projections  and this  expanded
presence is expected to generate  significant new opportunities for growth.  Our
plans call for another  full  service  facility  to open in downtown  South Bend
early next year. The Bank also  recognizes the value of an effective  management
team and  strives to  constantly  improve  that  team.  We have been able to add
several outstanding  banking  professionals this past year including a new Chief
Operating  Officer who is a lifetime  resident of our  community and has over 25
years of local banking knowledge and experience.

Our  technological  advances this past year included a complete analysis of Year
2000 issues and the renovation of all systems. This project not only allowed the
Bank to address  Y2K  challenges  but to enhance  system  capabilities  to serve
customers more effectively. We are confident that we will provide uninterrupted,
quality service to every customer in the Year 2000 and beyond.

All of the above  activities  will put  pressure  on  earnings in the near term.
However,  the long-term benefits of sound infrastructure and a strong management
team are  substantial.  Our  formula  for  success  has been a simple yet highly
effective one. By using  technology to its fullest and adding highly skilled and
experienced  banking  specialists to support product and service  offerings,  we
continually  enhance our  creditability in the community we serve. We convey the
message  that MFB  Financial  is  serious  about  delivering  quality  financial
services through professional decision makers that are readily accessible to our
clients.

Some important  financial  trends have emerged as a result of our commitment and
focus on these principles.  Total assets have grown from just $226 million three
years  ago to over $346  million  today.  Our core  deposit  base that  includes
checking,  demand deposits and savings accounts has increased from $36.7 million
to $59.8  million  during the same three year period.  Net  interest  income has
steadily improved.  Return on shareholders'  equity has almost tripled.  Diluted
earnings per common share have gone from $.50 at September  30, 1996 to $1.51 at
September 30, 1999. Each of these  statistics  provide evidence that our mission
is being achieved and that our goals are being realized.

More  consumers and local  businesses  than ever before can call MFB  Financial,
Michiana's Finest Bank, their bank. We are proud of that but not content.  There
are many members of this community that have not yet  experienced the difference
of  working  with a bank  that  puts  their  interests  first.  They  have  only
experienced  the  indifference  of working  with mega banks that make  arbitrary
decisions  in offices  and by people far away.  The pages  that  follow  provide
additional  information  about the past year's  performance  and we are proud to
present this 1999 Annual  Report to you. Be assured that we remain  committed to
growing long term  shareholder  value while meeting the  financial  needs of our
expanding community.



/s/ Charles J. Viater
Charles J. Viater
President and Chief Executive Officer
Selected Consolidated Financial Data



                                     - 1 -
<PAGE>

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,
                                                      -----------------------------------------------------------
                                                                           (In Thousands)
                                                       1999         1998         1997         1996         1995
                                                      -------      -------      -------      -------      -------
Summary of Financial Condition:
<S>                                                  <C>          <C>          <C>          <C>          <C>
Total assets                                         $346,454     $314,961     $255,921     $225,809     $187,065
Loans held for sale, net                                8,062       13,517       12,671           --           --
Loans receivable, net                                 269,464      231,606      188,264      152,052      121,181
Cash and cash equivalents                              12,062       17,904        9,482        1,734        7,454
Securities, including FHLB stock                       47,666       46,456       42,028       68,099       53,293
Interest-bearing time deposits in
     other financial institutions                       1,000           --           --          495        1,880
Deposits                                              201,407      180,666      171,887      158,964      144,552
Securities sold under agreements
     to repurchase                                      6,566        2,366          389           --           --
FHLB advances                                         104,226       92,726       47,500       24,500           --
Shareholders' equity                                   31,182       30,886       33,550       37,599       37,999

                                                                      Years Ended September 30,
                                                      -----------------------------------------------------------
                                                                           (In Thousands)
                                                       1999         1998         1997         1996         1995
                                                      -------      -------      -------      -------      -------
Summary of Operating Results:
Interest income                                       $24,254      $20,838      $17,685      $14,182      $12,383
Interest expense                                       14,448       12,204       10,157        8,057        6,788
                                                      -------      -------      -------      -------      -------
        Net interest income                             9,806        8,634        7,528        6,125        5,595
Provision for loan losses                                 230          120           30           30           30
                                                      -------      -------      -------      -------      -------
        Net interest income after
     provision for loan losses                          9,576        8,514        7,498        6,095        5,565
Noninterest income
        Insurance commissions                             148          143          134          127          128
        Brokerage commissions                              28           36           24           --           --
        Net gain from sales of securities                   4            8            6            3           --
        Net gains from sales of loans                     366          333           --           --           --
        Loan servicing fees, net                           54           12           --           --           --
        Other                                             620          432          261          232          189
                                                      -------      -------      -------      -------      -------
                Total noninterest income                1,220          964          425          362          317
Noninterest expense
        Salaries and employee benefits                  3,847        3,414        2,772        2,153        2,336
        Occupancy and equipment expense                   883          720          580          422          406
        SAIF deposit insurance premium                    109          108          147        1,291          332
        Provision to adjust loans held
            for sale to lower of cost or market           489           --           --           --           --
        Other expense                                   1,679        1,383        1,100          969          753
                                                      -------      -------      -------      -------      -------
                Total noninterest expense               7,007        5,625        4,599        4,835        3,827
                                                      -------      -------      -------      -------      -------
Income before income taxes                              3,789        3,853        3,324        1,622        2,055
Income tax expense                                      1,585        1,617        1,322          647          819
                                                      -------      -------      -------      -------      -------
        Net income                                    $ 2,204      $ 2,236      $ 2,002      $   975      $ 1,236
                                                      =======      =======      =======      =======      =======
Supplemental Data:
Return on assets (1)                                      .66%         .80%         .84%         .49%         .67%
Return on equity (2)                                     6.97         6.69         5.83         2.55         3.25
Interest rate spread (3)                                 2.57         2.54         2.49         2.13         2.12
Net yield on average interest-earning assets (4)         3.01         3.17         3.24         3.11         3.10
Dividend pay-out ratio (5)                              22.76        23.26        26.45        11.76           --
Net interest income to operating expenses (6)          139.96       153.48       163.70       126.67       146.20
Equity-to-assets (7)                                     9.00         9.81        13.11        16.65        20.31
Average interest-earning assets to
     average interest-bearing liabilities 110.19                    114.05       117.14       123.81       126.12
Non-performing assets to total assets                     .06          .09          .10          .09          .17
Non-performing loans to total loans                       .03          .05          .14          .13          .25
Allowance for loan losses to total loans, net             .24          .20          .20          .22          .26
Allowance for loan losses to non-performing loans      664.58       366.13       141.76       171.72       100.65
Basic earnings per common share $                        1.56      $  1.44      $  1.21      $   .51      $   .62
Diluted earnings per common share                     $  1.51      $  1.37      $  1.16      $   .50      $   .61
Dividends declared per share                          $  .355      $  .335      $   .32      $   .06      $    --
Book value per share                                  $ 21.96      $ 20.95      $ 20.33      $ 19.05      $ 18.29
</TABLE>
--------------------------------------------------------------------------------
(1)  Net income divided by average total assets.
(2)  Net income divided by average total equity.
(3)  Interest  rate spread is calculated by  subtracting  average  interest rate
     cost from average interest rate earned.
(4)  Net interest income divided by average interest-earning assets.
(5)  Dividends declared per share divided by basic earnings per share.
(6)  Operating expenses consist of other expenses less taxes.
(7)  Total equity divided by total assets.



                                     - 2 -
<PAGE>

Management  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 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 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 and real estate losses,  service charges,  retained mortgage
loan servicing fees, income from subsidiary  activities,  operating expenses and
income taxes.

Asset/Liability Management

     The  Company  is  subject  to  interest  rate risk to the  degree  that its
interest-bearing  liabilities,  primarily  deposits  with short and  medium-term
maturities,  mature or reprice  at  different  rates  than its  interest-earning
assets.  Although having  liabilities  that mature or reprice less frequently on
average than assets will be beneficial in times of rising interest  rates,  such
an  asset/liability  structure will result in lower net income during periods of
declining  interest  rates,  unless offset by other factors such as  noninterest
income.

     A key  element of the  Company's  asset/liability  plan is to  protect  net
earnings  from  changes in interest  rates by managing the maturity or repricing
mismatch between its interest-earning assets and rate-sensitive liabilities. 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  adopted by the Office
of Thrift  Supervision  as part of its capital  regulations.  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. As of June 30, 1999, (the most recently  available data), after a 200 basis
point rate decrease,  the Company's NPV ratio was 11.41%.  In the event of a 200
basis point increase in rates, the Company's NPV ratio was 9.24%. 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 June 30, 1999 and 1998, 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
and down 300 basis points.



                                     - 3 -
<PAGE>

                                  June 30, 1999
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)
--------------    --------      --------    --------      -----      ----------
                               (Dollars in Thousands)
    + 300         $ 25,505      $(13,202)     (34)%         7.93%     (332) bp
    + 200           30,453        (8,254)     (21)          9.24      (201) bp
    + 100           35,050        (3,657)      (9)         10.39       (86) bp
       0            38,707                                 11.25
    - 100           40,233         1,526        4          11.53        28  bp
    - 200           40,232         1,525        4          11.41        16  bp
    - 300           40,517         1,810        5          11.36        11  bp
(1) Expressed in basis points

               As illustrated in the June 30, 1999 table, the Company's interest
          rate risk is more sensitive to rising rates than declining rates. This
          occurs  primarily  because,   as  rates  rise,  the  market  value  of
          fixed-rate  loans  declines due to both the rate increases and slowing
          prepayments.  When rates  decline,  the Company does not  experience a
          significant  rise in market  value for these  loans  because  borrower
          prepayments increase.  The value of the Bank's deposits and borrowings
          change in approximately the same proportion in rising and falling rate
          scenarios.  Specifically,  the table indicates that, at June 30, 1999,
          the  Company's  NPV was $38.7 million or 11.25% 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
          $8.3 million or 21% decline in the Company's NPV and would result in a
          201 basis point or 17.9%  decline in the Company's NPV ratio to 9.24%.
          Conversely,  an immediate 200 basis point decrease in market  interest
          rates would result in a $1.5  million or 4% increase in the  Company's
          NPV, and a 16 basis point or 1.4%  increase in the Company's NPV ratio
          to 11.41%. The percentage change in the Company's NPV at June 30, 1999
          were within the limit in the Company's Board-approved guidelines.

                                  June 30, 1998
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)
--------------    --------      --------    --------      -----      ----------
                               (Dollars in Thousands)
   +300            $31,202      $(7,027)      (18)%       11.21%      (169) bp
   +200             34,428       (3,801)      (10)        12.08        (82) bp
   +100             37,104       (1,125)       (3)        12.74        (16) bp
   0                38,229           -          -         12.90          -
  - 100             37,408         (821)       (2)        12.47        (43) bp
  - 200             35,339       (2,890)       (8)        11.67       (123) bp
  - 300             33,382       (4,847)      (13)        10.91       (199) bp
(1) Expressed in basis points



                                     - 4 -
<PAGE>

     As illustrated in the June 30, 1998 table,  the Company's NPV declines both
in rising  and  falling  interest  rate  environments.  This  phenomenon  occurs
primarily as a result of the  historically  low interest rate  environment  that
existed at June 30, 1998, the heavy  concentration  of adjustable  rate loans in
the loan portfolio and the related prepayment  assumption used in the OTS model.
Specifically,  the table indicates that, at June 30, 1998, the Company's NPV was
$38.2 million or 12.9% 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 $3.8  million or 10% decline in the  Company's  NPV and
would result in a 82 basis point or 6.4% decline in the  Company's  NPV ratio to
12.08%.  Similarly,  an immediate  200 basis point  decrease in market  interest
rates would result in a $2.9 million or 8% decline in the  Company's  NPV, and a
123 basis  point or 9.5%  decline in the  Company's  NPV ratio to  11.67%.  Both
percentage  declines in the Company's NPV at June 30, 1998 were within the limit
in the Company's Board-approved guidelines.

     In  addition  to  monitoring  selected  measures  of NPV,  management  also
monitors effects on net interest income resulting from increases or decreases in
rates.  These  measures are used 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 table
must be considered.  For example,  although  certain assets and  liabilities may
have similar  maturities  or periods to  repricing,  they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
interest rates. Additionally, certain assets, such as 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.  The Company  manages its interest rate risk by
originating  adjustable  rate  loans and by  selling a portion of its fixed rate
one-to-four  family real estate loans.  While the Company  generally  originates
mortgage loans for its own portfolio, sales of certain fixed rate first mortgage
loans with maturities of 15 years or greater are currently  undertaken to manage
interest rate risk.  Loans  classified as held for sale as of September 30, 1999
totaled $8.1  million.  The Company  retains the  servicing on loans sold in the
secondary  market and, at September  30, 1999,  $41.6 million in such loans were
being serviced for others.  The Company also maintains capital well in excess of
regulatory requirements.

     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. Wholesale banking activities are conducted as a
means to supplement net income and to achieve desired growth targets. This


                                     - 5 -
<PAGE>

strategy  involves the  acquisition of assets funded through  sources other than
retail  deposits,  such as FHLB  advances.  The goal is to create  interest rate
spreads between asset yields and funding costs within acceptable risk parameters
while improving return on equity.

     The Company's  cost of funds  responds to changes in interest  rates due to
the relatively short-term nature of its deposit portfolio.  The Company offers a
range of maturities on its deposit  products at  competitive  rates and monitors
the maturities on an ongoing basis. Average Balance Sheets

The following are the average balance sheets for the years ended September 30:
<TABLE>
<CAPTION>

                                                          1999           1998          1997
                                                        Average        Average        Average
                                                      Outstanding    Outstanding     Outstanding
                                                        Balance        Balance         Balance
Assets:                                                             (In Thousands)
Interest earning assets:
<S>                                                    <C>            <C>            <C>
        Interest-bearing deposits                      $  11,983      $   9,633      $   1,856
        Securities (1)                                    17,593         13,541         30,765
        Mortgage-backed securities (1)                    30,572         23,218         22,222
        FHLB stock                                         5,453          3,446          1,783
        Loans held for sale                               15,571          2,401             35
        Loans receivable (2)                             244,132        220,244        175,726
                                                       ---------      ---------      ---------
        Total interest-earning assets                    325,304        272,483        232,387
        Noninterest-earning assets, net
          of allowance for loan losses                    10,889          5,414          4,663
                                                       ---------      ---------      ---------
        Total assets                                   $ 336,193      $ 277,897      $ 237,050
                                                       =========      =========      =========
Liabilities and equity:
Interest-bearing liabilities:
        Savings accounts                               $  12,277      $  10,737      $  10,359
        NOW and money market accounts                     36,422         30,065         26,770
        Certificates of deposit                          137,734        130,350        126,202
        Repurchase agreements                              3,892          1,647             97
        FHLB advance                                     104,894         66,123         34,960
                                                       ---------      ---------      ---------
        Total interest-bearing liabilities               295,219        238,922        198,388
Other liabilities                                          9,351          5,571          4,316
                                                       ---------      ---------      ---------
        Total liabilities                                304,570        244,493        202,704
Shareholders' equity:
        Common stock                                      12,933         12,921         14,015
        Retained earnings                                 24,550         22,958         21,381
        Net unrealized gain (loss) on
        securities available for sale                        213             56           (100)
        Less common stock acquired by:
        Employee stock ownership plan                       (352)          (565)          (790)
        Recognition and retention plan                       (11)           (80)          (157)
        Treasury stock                                    (5,710)        (1,886)            (3)
                                                       ---------      ---------      ---------
        Total shareholders' equity                        31,623         33,404         34,346
                                                       ---------      ---------      ---------
        Total liabilities and shareholders' equity     $ 336,193      $ 277,897      $ 237,050
                                                       =========      =========      =========
</TABLE>


(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.



                                     - 6 -
<PAGE>

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,
                                                     ------------------------------
                                                     1999         1998         1997
                                                     ----         ----         ----
Average interest rate earned on:
<S>                                                  <C>          <C>          <C>
        Interest-bearing deposits                    5.12%        5.81%        5.17%
        Securities (1)                               5.96         6.65         6.86
        Mortgage-backed securities (1)               5.99         5.84         6.46
        FHLB stock                                   8.00         8.01         8.08
        Loans held for sale                          7.01         7.41        --
        Loans receivable                             7.88         7.98         7.91
        Total interest-earning assets                7.46         7.65         7.61
Average interest rate of:
        Savings accounts                             2.39         2.52         2.68
        NOW and money market accounts                2.75         2.83         2.89
        Certificates of deposit 5.29                 5.57         5.65
        Repurchase agreements                        3.79         4.09         4.27
        FHLB advances                                5.45         5.67         5.64
        Total interest-bearing liabilities           4.89         5.11         5.12
Interest rate spread (2)                             2.57         2.54         2.49
Net yield on interest-earning assets (3)             3.01         3.17         3.24
</TABLE>

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

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

(3)  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  asset and  interest-bearing
liability,  information  is provided on changes  attributable  to (1) changes in
rate (i.e.,  changes in rate multiplied by old volume) and (2) changes in volume
(i.e.,  changes in volume multiplied by old rate).  Changes attributable to both
rate and volume have been allocated  proportionally  to the change due to volume
and the change due to rate.



                                     - 7 -
<PAGE>
<TABLE>
<CAPTION>
Year ending September 30, 1999
compared to year ended                   Total Net       Due to          Due to
September 30, 1998                         Change         Rate           Volume
                                          -------        -------        -------
                                                       (In Thousands)
Interest-earning assets:
<S>                                       <C>            <C>            <C>
        Interest-bearing deposits         $    53        $   (73)       $   126
        Securities                            148           (101)           249
        Mortgage-backed securities            474             34            440
        FHLB stock                            160             --            160
        Loans held for sale                   913            (10)           923
        Loans receivable                    1,668           (216)         1,884
                                          -------        -------        -------
        Total                               3,416           (366)         3,782
Interest-bearing liabilities:
        Savings accounts                       23            (14)            37
        NOW and money market accounts         149            (26)           175
        Certificates of deposit 20           (380)           400
        Repurchase agreements                  80             (5)            85
        FHLB Advances                       1,972           (148)         2,120
                                          -------        -------        -------
        Total                               2,244           (573)         2,817
                                          -------        -------        -------
Change in net interest income             $ 1,172        $   207        $   965
                                          =======        =======        =======

Year ended  September  30,  1998
compared  to year  ended
September  30,  1997
Interest-earning assets:
        Interest-bearing deposits         $   464        $    13        $   451
        Securities                         (1,212)        (1,150)
        Mortgage-backed securities            (79)          (140)            61
        FHLB stock                            132             (1)           133
        Loans held for sale                   178             --            178
        Loans receivable                    3,670            120          3,550
                                          -------        -------        -------
        Total                               3,153            (70)         3,223
Interest-bearing liabilities:
        Savings accounts                       (7)           (17)            10
        NOW and money market accounts          84             (9)            93
        Certificates of deposit 130          (102)           232
        Repurchase agreements                  63             --             63
        FHLB Advances                       1,777             10          1,767
                                          -------        -------        -------
        Total                               2,047           (118)         2,165
                                          -------        -------        -------
Change in net interest income             $ 1,106        $    48        $ 1,058
                                          =======        =======        =======
</TABLE>


                                     - 8 -
<PAGE>

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998

     Consolidated  net income for the Company for the year ended  September  30,
1999 was  $2,204,000  or $1.51  diluted net income per common share  compared to
$2,236,000  or $1.37  diluted net income per common share for the same period in
1998. Net interest  income after  provision for loan losses totaled $9.6 million
for the year ended  September  30, 1999  compared  to $8.5  million for the same
period one year ago.

     The increase in net interest  income was  primarily due to increases in the
interest  income on  increases in volume of  interest-earning  assets which more
than  offset the  increase  in interest  expense on  increases  in the volume of
interest-bearing liabilities. First mortgage loan receivables increased by $14.8
million and commercial  and consumer loan  receivables  by  approximately  $23.3
million from  September 30, 1998 to September 30, 1999. At the same time,  total
deposits  increased  by $20.7  million  and  Federal  Home Loan Bank  borrowings
increased by $11.5 million.  The asset and liability growth was partially offset
by a  decrease  in the yield on  interest-earning  assets  from 7.65% in 1998 to
7.46% in 1999.  The Company  also  experienced  a decrease  in interest  paid on
interest-bearing  liabilities  from 5.11% in 1998 to 4.89% in 1999. As a result,
the  interest  rate spread  increased  three basis  points from 2.54% in 1998 to
2.57% in 1999.

     Interest income  increased $3.4 million during the year ended September 30,
1999  compared to the same period in 1998.  The  increase was  primarily  due to
increased  volumes of loans  receivable,  particularly  commercial  and consumer
loans. Interest expense increased $2.2 million reflecting the growth in deposits
and borrowed funds.

[graph omitted]

                                  DILUTED EPS

                                1996      $0.50
                                1997      $1.16
                                1998      $1.37
                                1999      $1.51

     Noninterest income increased from $964,000 for the year ended September 30,
1998 to $1.2  million  for the twelve  months  ended  September  30,  1999.  The
noninterest  income  increases  are  primarily  due to fees  generated  from the
growing number of core deposit relationships,  recognition of mortgage servicing
rights,  net gains from loan sales and the servicing fees retained on these sold
loans.

     Noninterest  expense  increased  from $5.6  million to $7.0 million for the
comparable twelve month periods ending September 30. These  noninterest  expense
increases are primarily  attributable to staffing increases,  facility upgrades,
expenses incurred in the offering of additional services to the Bank's customers
and the recognition of a $489,000 provision to adjust loans held for sale to the
lower of cost or market at September 30, 1999.

     The provision for loan losses was increased from $120,000 during the period
ended September 30, 1998 to $230,000 for the period ended September 30, 1999 due
to the substantial  increase in commercial and consumer loan  portfolios  during
the 1999 fiscal year.

     As of September  30, 1999,  net loans were $269.5  million,  an increase of
$37.9 million from the $231.6 million as of September 30, 1998. Commercial loans
outstanding  increased by $16.6 million from $30.8 million at September 30, 1998
to $47.4  million at September  30, 1999.  Residential  mortgage  loans and home


                                     - 9 -
<PAGE>

equity  loans  outstanding  increased  by $18.7  million  during  the year ended
September 30, 1999 net of secondary  market sales  totaling $20.7 million during
the year.  Consumer loans  outstanding  also increased by $2.6 million from $1.9
million at September 30, 1998 to $4.5 million at September 30, 1999.  The growth
in all lending divisions is primarily  attributed to the Company's reputation as
a quality  local lender  satisfying  the market's  desire for local  service and
local decision making.

                              [PIE CHART OMITTED]

                                   Asset Mix

                    Mortgage                              58%
                    Cash and Investments                  18%
                    Commercial                            14%
                    Home Equity and Second Mortgages       4%
                    Construction                           3%
                    Other Assets                           2%
                    Consumer                               1%

     During the year ended September 30, 1999, the Company  completed  secondary
market  mortgage loan sales totaling $20.7 million and the net gains realized on
these loan sales were $366,000, including $258,000 related to recording mortgage
loan  servicing  rights.  At  September  30,  1999,  $8.1  million of loans were
classified as loans held for sale.

     The loans sold  during the year ended  September  30,  1999 were fixed rate
mortgage loans with maturities of fifteen years or longer. Servicing of the sold
loans has been retained by the Company and the fees generated during this period
were  approximately  $54,000,  net of $37,000 in  amortization  of mortgage loan
servicing rights. Management, in order to meet consumer demand, anticipates that
the Company will continue to deliver fixed rate loans to the secondary market to
manage interest rate risk and to diversify the asset mix of the Company.

                              [BAR GRAPH OMITTED]

                         Demand, NOW, Savings and MMDA
                                (Core Deposits)
                                 (In millions)

                        1996                      $36,722
                        1997                      $40,177
                        1998                      $45,134
                        1999                      $59,768

     Total  deposits  increased  $20.7 million to $201.4 million as of September
30, 1999 from $180.7 million as of September 30, 1998, and securities sold under
agreements to repurchase  increased from $2.4 million to $6.6 million during the


                                     - 10 -
<PAGE>

comparable  periods.  Federal Home Loan Bank  ("FHLB")  advances and other short
term  borrowings  also increased from $100.0 million as of September 30, 1998 to
$106.3 million as of September 30, 1999. These increases in deposits, repurchase
agreements and other borrowings  primarily funded the loan and investment growth
during the year.

     Cash and cash  equivalents  decreased $5.8 million from $17.9 million as of
September 30, 1998 to $12.1  million as of September 30, 1999.  Net cash used in
investing  activities totaled $38.0 million and was partially offset by net cash
provided by operating  and  financing  activities  amounting to $2.6 million and
$29.6 million, respectively.

     The Company's capital leveraging strategy involves the purchase of mortgage
related  and  other  securities  funded  primarily  with  FHLB  advances.   This
leveraging portfolio represented $20.8 million of the total securities available
for sale at September  30, 1999 compared to $15.7 million at September 30, 1998.
As of  September  30, 1999,  the total  securities  portfolio  amounted to $42.2
million,  an increase of $400,000 from $41.8 million at September 30, 1998.  The
securities  portfolio activity included net security purchases of $65.3 million,
security   maturities   totaling   $42.4   million,    principal   payments   on
mortgage-backed  and related  securities  of $21.5  million  and a $1.1  million
decrease in the market value of securities available for sale.

     Total liabilities increased from $284.1 million as of September 30, 1998 to
$315.3 million as of September 30, 1999.  This increase was primarily due to the
$20.7 million increase in deposits, a $6.3 million increase in FHLB advances and
other borrowings  during the year and a $4.2 million increase in securities sold
under agreements to repurchase.

     Total shareholders' equity increased from $30.9 million as of September 30,
1998 to $31.2  million as of  September  30, 1999.  The change to  shareholders'
equity  resulted  mainly from the  repurchases  of 56,668 shares of  outstanding
common stock during this period at a cost of $1.2 million along with the payment
of cash dividends of $515,000 and a $672,000  adjustment to reflect the decrease
in the  market  value  of  securities  available  for  sale,  net of tax.  These
decreases were offset by $2.2 million in net income. The book value of MFB Corp.
common stock, based on the actual number of shares  outstanding,  increased from
$20.95 at September 30, 1998 to $21.96 at September 30, 1999.

                              [PIE CHART OMITTED]

                            Liability and Equity Mix

               Other Time Deposits                        41%
               FHLB Advances                              30%
               Savings, DDA, NOW &
                    MMDA Deposits                         15%
               Stockholders' Equity                        9%
               Non-Interest
                    Bearing Deposits                       2%
               Repurchase Agreements                       2%
               Other Liabilities                           1%

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

     Consolidated  net income for the Company for the year ended  September  30,
1998 was $2.2 million  compared to $2.0 million for the same period in 1997. The
increase of $234,000  resulted  primarily  from a $1.1  million  increase in net
interest income and $539,000 increase in non-interest  income,  offset by a $1.0
million increase in non-interest  expense and a $295,000  increase in income tax
expense.



                                     - 11 -
<PAGE>

     The  increase in net  interest  income was  primarily  due to  increases in
interest income on increases in the volume of interest-earning assets which more
than offset the  increases  in interest  expense on  increases  in the volume of
interest-bearing liabilities. First mortgage loan receivables increased by $18.2
million and commercial  and consumer loan  receivables  by  approximately  $25.4
million  from  September  30, 1997 to  September  30,  1998.  The yield on total
interest-earning  assets  also  increased  from  7.61% in 1997 to 7.65% in 1998,
while the average rate paid on interest-bearing liabilities decreased from 5.12%
in 1997 to 5.11% in 1998. As a result,  the interest rate spread  increased five
basis points from 2.49% in 1997 to 2.54% in 1998.

     Interest income  increased $3.2 million during the year ended September 30,
1998  compared to the same period in 1997.  The  increase was  primarily  due to
increased volumes of loans receivable and an increase in the average rate earned
on these assets.  Interest expense increased $2.0 million  reflecting the growth
in deposits and borrowed funds.  Net interest income  increased $1.1 million for
the year ended September 30, 1998 compared to the year ended September 30, 1997.

     Noninterest income increased from $425,000 for the year ended September 30,
1997 to $964,000 for the twelve months ended September 30, 1998. The noninterest
income  increases are primarily due to income from the  recognition  of mortgage
servicing  rights from loans sold,  net gains from loan  sales,  servicing  fees
related  to sold  loans,  and fees  generated  from the  growing  number of core
deposit account relationships.

     Noninterest  expense  increased  from $4.6  million to $5.6 million for the
comparable twelve month periods ending September 30. These  noninterest  expense
increases  are  primarily  attributable  to  staffing  increases  and  renovated
facilities to support lending  operations,  along with expenses  incurred in the
offering of additional services to the Bank's customers.

     The provision for loan losses was increased  from $30,000 during the period
ended September 30, 1997 to $120,000 for the period ended September 30, 1998 due
to the  substantial  increase in the volumes of  commercial  and consumer  loans
during the 1998 fiscal year.

     As of September  30, 1998,  net loans were $231.6  million,  an increase of
$43.3 million from the $188.3 million as of September 30, 1997. Commercial loans
outstanding  increased  from $8.8 million at September 30, 1997 to $30.8 million
at  September  30,  1998 as a result of  substantial  efforts  to grow the small
business  banking  division.  Gross  residential  mortgage loans and home equity
loans outstanding increased by $20.4 million during the year ended September 30,
1998 net of  secondary  market sales  totaling  $28.1  million  during the year.
Consumer loans  outstanding also increased from $96,000 at September 30, 1997 to
$1.9  million at  September  30,  1998.  The  significant  growth in all lending
divisions can be credited to the Company's  reputation as a quality local lender
providing fast and knowledgeable service.

     At September  30, 1997,  $12.7 million of real estate  mortgage  loans were
reclassified  from  portfolio  loans  to loans  held  for sale in the  secondary
market.  During the year ended  September 30, 1998,  the Company  completed four
secondary  market  mortgage loan sales  totaling $28.1 million and the net gains
realized  on these loan  sales  were  $333,000,  including  $211,000  related to
recording  mortgage loan servicing  rights. At September 30, 1998, $13.5 million
of loans were classified as loans held for sale.

     The loans sold  during the year ended  September  30,  1998 were fixed rate
mortgage loans with maturities of fifteen years or longer. Servicing of the sold
loans has been retained by the Company and the fees generated during this period
were  approximately  $12,000,  net of $19,000 in  amortization  of mortgage loan
servicing rights.

     Total deposits increased $8.8 million to $180.7 million as of September 30,
1998 from $171.9 as of  September  30,  1997.  Federal  Home Loan Bank  ("FHLB")
advances and other short term borrowings also increased from $49.4 million as of


                                     - 12 -
<PAGE>

September 30, 1997 to $100.0 million as of September 30, 1998.  These  increases
in deposits and other  borrowings  primarily  funded the loan growth  during the
year and the $8.4 million increase in cash and cash equivalents.

     Cash and cash  equivalents  increased  $8.4 million from $9.5 million as of
September 30, 1997 to $17.9 million as of September 30, 1998.  Net cash provided
by operating  activities and financing  activities  amounted to $2.6 million and
$55.6  million,  respectively,  and was  partially  offset  by net cash  used in
investing activities of $49.8 million.

     The Company's capital leveraging strategy involves the purchase of mortgage
related  and  other  securities  funded  primarily  with  FHLB  advances.   This
leveraging portfolio represented $15.7 million of the total securities available
for sale at September  30, 1998 compared to $22.7 million at September 30, 1997.
As of  September  30, 1998,  the total  securities  portfolio  amounted to $41.8
million,  an increase of $2.2 million from $39.6  million at September 30, 1997.
The  securities  portfolio  increase  was  primarily  the result of net security
purchases of $44.5 million exceeding matured  securities  totaling $22.7 million
and  principal  payments  of  mortgage-backed  and related  securities  of $19.3
million.

     Total liabilities increased from $222.4 million as of September 30, 1997 to
$284.1 million as of September 30, 1998.  This increase was primarily due to the
$8.8  million  increase  in  deposits  and the $52.1  million  increase  in FHLB
advances and other borrowings during the year.

     Total shareholders' equity decreased from $33.6 million as of September 30,
1997 to $30.9 million as of September 30, 1998. The decreases to equity resulted
mainly from the repurchases of 245,200 shares of outstanding common stock during
this period at a cost of $5.9 million  along with the payment of cash  dividends
of $544,000.  These decreases were offset by $2.2 million in net income and $1.1
million generated from the exercise of stock options.

     The book value of MFB Corp.  common  stock,  based on the actual  number of
shares  outstanding,  increased  from $20.33 at September  30, 1997 to $20.95 at
September 30, 1998.

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,  overnight  interest-bearing  deposits  in other
financial  institutions  and  securities  available  for sale.  These assets are
commonly referred to as liquid assets.

     A standard  measure of liquidity for savings  associations  is the ratio of
cash and  eligible  investments  to a  certain  percentage  of net  withdrawable
savings  and  borrowings  due within one year.  The  minimum  required  ratio is
currently  set by OTS  regulation  at 4%. At  September  30,  1999,  the  Bank's
liquidity ratio was 16.87%.  Therefore,  the Bank's  liquidity is well above the
minimum regulatory requirements.

     Changes  in the  Bank's  liquidity  occur  as a  result  of its  operating,
investing and financing activities. These activities are discussed below for the
years ended September 30, 1999, 1998 and 1997.

     Liquid  assets  totaled  $51.2 million as of September 30, 1999 compared to
$59.7  million as of September  30, 1998 and $49.1  million as of September  30,
1997.  The $8.5  million  decrease  in  liquidity  from  September  30,  1998 to
September 30, 1999 was primarily due to a $5.8 million decrease in cash and cash
equivalents  and a $2.7 million  decrease in  securities  available for sale and
interest-bearing  time  deposits  in other  financial  institutions.  Management
believes  the  liquidity  level of $51.2  million as of  September  30,  1999 is
sufficient to meet anticipated liquidity needs.

     Liquidity  levels  increased  $10.6  million  from  September  30,  1997 to
September  30, 1998 due  primarily to a $8.4  million  increase in cash and cash
equivalents and a $2.2 million increase in securities available for sale.



                                     - 13 -
<PAGE>

     Short-term  borrowings  or  long-term  debt may be used to  compensate  for
reduction  in  other  sources  of  funds  such  as  deposits  and to  assist  in
asset/liability  management.  During the year ended September 30, 1996, the Bank
instituted a capital  leveraging  strategy that involved the purchase of earning
assets funded primarily with FHLB advances. As of September 30, 1999, total FHLB
borrowings amounted to $104.2 million,  $20.8 million of which were used as part
of this  strategy.  The remaining  $83.4 million was used primarily to fund loan
portfolio  growth.  The Bank had  commitments  to fund  loan  originations  with
borrowers  totaling  $65.0  million at  September  30,  1999.  In the opinion of
management,  the Company has  sufficient  cash flow and other cash  resources to
meet  current  and  anticipated  loan  funding  commitments,   deposit  customer
withdrawal  requirements and operating expenses. As of September 30, 1998, total
FHLB borrowings  amounted to $92.7 million,  $15.7 million of which were used as
part of the capital  leveraging  strategy.  The remaining $77.0 million was used
primarily to fund loan portfolio growth.

     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, 1999, 1998 and 1997 follows.

     During the year ended  September  30, 1999,  net cash and cash  equivalents
decreased $5.8 million from $17.9 million at September 30, 1998 to $12.1 million
at September 30, 1999.

     The Company experienced a net increase in cash from operating activities of
$2.6 million during the year that was primarily  attributable  to the net income
of $2.2 million and proceeds of $20.7 million realized from the sale of mortgage
loans, offset by the origination of $20.9 million of loans held for sale.

     The $38.0 million  decrease in cash from investing  activities for the year
ended  September 30, 1999 was primarily  related to the purchase of  securities,
FHLB stock and  interest-bearing  time deposits totaling $69.1 million,  a $32.8
million increase in net loans, and the $2.0 million net increase of premises and
equipment,  offset by sales and maturities of securities  totaling $44.4 million
and $21.5 million of mortgage-backed securities principal payments.

     Financing activities generated net cash of $29.6 million for the year ended
September  30, 1999.  The net cash was provided  primarily  from net deposits of
$20.7  million,  $6.6 million in net new borrowed  funds,  and increases of $4.2
million in repurchase agreements, partially offset by the use of $1.2 million to
repurchase the Company's stock.

     During the year ended  September  30, 1998,  net cash and cash  equivalents
increased  $8.4 million from $9.5 million at September 30, 1997 to $17.9 million
at September 30, 1998.

     The Company experienced a net increase in cash from operating activities of
$2.6 million during the year that was primarily  attributable to the origination
of $28.9 million of loans held for sale and $28.1  million of proceeds  realized
from the sale of mortgage loans and net income of $2.2 million.

     The $49.8 million  decrease in cash from investing  activities for the year
ended September 30, 1998 was primarily  related to the $43.5 million increase in
net loans and the $49.7  purchase of securities  and FHLB stock,  offset by sale
and  maturities  of  securities  totaling  $25.7  million  and $19.3  million of
mortgage-backed securities principal payments.

     Financing activities generated net cash of $55.6 million for the year ended
September 30, 1998.  The net cash was provided  primarily  from $45.2 million in
net new FHLB advances,  net deposits of $8.8 million,  a $4.9 million commitment
to purchase  securities and increases of $2.0 million in repurchase  agreements,
partially offset by the use of $5.9 million to repurchase the Company's stock.

     During the year ended  September  30, 1997,  net cash and cash  equivalents
increased  $7.7 million from $1.7 million at September  30, 1996 to $9.5 million
at September 30, 1997.



                                     - 14 -
<PAGE>

     The Company experienced a net increase in cash from operating activities of
$1.3 million  during the year that was primarily  attributable  to net income as
adjusted for accrual basis accounting at September 30, 1997.

     The $23.0 million  decrease in cash from investing  activities for the year
ended September 30, 1997 was primarily  related to the $48.9 million increase in
net loans and the $29.7 million purchase of securities and FHLB stock, offset by
sales and  maturities of securities  totaling  $53.1 million and $2.9 million of
mortgage-backed securities principal payments.

     Financing activities generated net cash of $29.5 million for the year ended
September 30, 1997.  The net cash was provided  primarily  from $23.0 million in
net new FHLB  advances  and net deposit  increases of $12.9  million,  partially
offset by the use of $6.4 million to repurchase the Company's stock and $554,000
in cash dividend payments during the year.

     As  of  September  30,  1999   management  is  not  aware  of  any  current
recommendations by regulatory authorities which, if they were to be implemented,
would have, or are reasonably  likely to have, a material  adverse effect on the
Company's liquidity, capital resources or operations.

NEW ACCOUNTING PRONOUNCEMENT

     SFAS No. 133 on derivatives will, beginning with the quarter ended December
31, 2000,  require all  derivatives  to be recorded at fair value in the balance
sheet,  with  changes in fair  value run  through  income.  If  derivatives  are
documented and effective as hedges, the change in the derivative fair value will
be offset by an equal change in the fair value of the hedged item.

IMPACT OF INFLATION

     The audited  consolidated  financial  statements presented herein have been
prepared in accordance  with 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,
however,  do not  necessarily  move  in the  same  direction  or with  the  same
magnitude as the price of goods and services,  since such prices are affected by
inflation.

     In periods of rapidly  rising  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.  An  additional  effect of
inflation  is the  possible  increase  in the  dollar  value  of the  collateral
securing  loans made by the Bank.  Management is unable to determine the extent,
if any, to which properties securing the Bank's loans have appreciated in dollar
value due to inflation.

YEAR 2000 READINESS

     The  Company is aware of the issues  associated  with  programming  code in
existing  computer  systems as the year 2000 approaches that involves the proper
recognition of date sensitive information when the year changes to 2000. Systems


                                     - 15 -
<PAGE>

that do not properly recognize such information could generate erroneous data or
cause a system to fail. The Company is heavily dependent on computer  processing
in its business  activities and the year 2000 issue creates risk for the Company
from unforseen  problems in the Company's computer system and from third parties
whom the Company  uses to process  information.  Such  failure of the  Company's
computer  system  and/or third  parties  computer  systems could have a material
impact on the Company's ability to conduct its business.

     A major third party vendor provides the Company's  primary data processing.
This provider has advised the Company that is has  completed  the  renovation of
its system to be year 2000 ready.  The Company has  performed  tests of the data
processing provider's system for year 2000 readiness and encountered no material
difficulties during the testing process.

     The Company has  performed  an  assessment  of its  computer  hardware  and
software,  and has determined those systems that require upgrade to be year 2000
ready.  Such upgrades were  completed  concurrently  with the third party vendor
system upgrades that were  implemented in June,  1999. In addition,  the Company
has reviewed  other  external  third party vendors that provide  services to the
Company (i.e.,  utility  companies,  electronic  funds transfer  providers,  and
software  companies) and has received  certification  letters from these vendors
that their systems will be year 2000 ready on a timely  basis.  Testing has been
performed with the service providers to determine their year 2000 readiness.

     The Company has  followed the FFIEC  guidance,  as published in a series of
interagency statements, on requirements on year 2000 readiness and has completed
the five phases identified:  awareness, assessment,  renovation,  validation and
implementation  for mission critical systems  including  third-party  providers.
Extensive  testing of the  critical  processes  in a year 2000  environment  has
revealed no material year 2000 problems.

     However, there is no assurance that the systems of other companies on which
the Company's systems rely will be timely converted.  If such  modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have an adverse impact on operations of the Company. The Company has developed a
year  2000  contingency  plan  that  addresses,  among  other  issues,  critical
operations  and  potential   failures  thereof,   and  strategies  for  business
continuation.

     Contingency  planning  is one of the  most  important  steps  in year  2000
readiness.  It provides a systematic basis for addressing an unexpected business
interruption  due to a year 2000 issue  triggered  by  internal  or third  party
system failures or by external  infrastructure  failures. A thorough contingency
plan is  prudent  to reduce  risk and  potential  impact  of year  2000  induced
interruptions  or  failures  of  critical  business  functions.   The  Company's
contingency  plan  facilitates  the   identification   of  potential   problems,
dissemination of information,  resolution of issues and decision-making  process
during the identified  year 2000  timeframe.  Our management  team will be fully
deployed  during this time period and should a year 2000 issue be detected,  the
contingency plan will be immediately enacted to address the problem.

     The Company's  significant  suppliers are an online computer  services firm
(provides data processing services),  the Federal Home Loan Bank of Indianapolis
and utility  services.  The  representations  from these suppliers are that they
have been  making  efforts to become  year 2000  ready and to test and  validate
their  systems  during  1999.  The Company  continues to monitor the progress of
these  suppliers by requesting  regular  updates of the suppliers'  progress and
believes that these  suppliers will be year 2000 ready before December 31, 1999.
Management does not know of alternative  suppliers for the services  provided by
these  entities,  but believes a conversion to these  suppliers of the Company's
data processing  capabilities  would be very difficult to accomplish  before the
year 2000.

     The Company  could incur  losses if loan  payments  are delayed due to year
2000 problems affecting significant borrowers. The Company has communicated with
such  parties to assess  their  progress  in  evaluating  and  implementing  any


                                     - 16 -
<PAGE>

corrective measures required by them to be year 2000 ready. To date, the Company
has not been  advised  by such  parties  that they do not have plans in place to
address and correct the issues  associated with the year 2000 problem;  however,
no assurance can be given as to the adequacy of such plans or to the  timeliness
of their implementation. As part of the current credit approval process, new and
renewed loans are evaluated as to the borrower's year 2000 readiness.

     The  Company,  as  with  all  financial  institutions,   has  reviewed  the
possibility  of some level of  reduction  in  deposits  during the later part of
1999. Based on its review,  the Company has determined that alternative  sources
of funds should be available to maintain adequate funding throughout the period.

     Based on the Company's review of its computer systems,  management believes
the cost of the remediation  effort to make its systems year 2000 ready will not
have  an  adverse  impact  on the  Company's  financial  condition,  results  of
operations or liquidity.  The Company had already replaced many of its computers
and associated equipment as a result of third party vendor upgrades.  These cost
and time  estimates are based on  management's  best  estimates and could differ
from those actually incurred.

     Although  management  believes the Company's  computer  systems and service
providers will be year 2000 ready, there can be no assurance that these systems,
or those systems of other companies on which the Company's systems rely, will be
fully functional in the year 2000. Such failure could have a significant adverse
impact on the financial condition and results of operations of the Company.

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, 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.



                                     - 17 -
<PAGE>


                         Report of Independent Auditors


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, 1999 and 1998 and the related  consolidated
statements  of income,  shareholders'  equity and cash flows for the years ended
September 30, 1999, 1998 and 1997. These consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of MFB Corp.
and  Subsidiary  as of  September  30,  1999 and 1998,  and the  results  of its
operations and its cash flows for the years ended  September 30, 1999,  1998 and
1997 in conformity with generally accepted accounting principles.





/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
November 10, 1999



                                     - 18 -
<PAGE>
MFB CORP. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                                       September 30,
                                                                                             -------------------------------
                                                                                                 1999              1998
                                                                                             -------------     -------------
ASSETS
<S>                                                                                          <C>               <C>
Cash and due from financial institutions                                                     $   6,315,747     $   3,018,404
Interest-bearing deposits in other financial institutions - short-term                           5,746,195        14,885,289
        Total cash and cash equivalents                                                         12,061,942        17,903,693
                                                                                             -------------     -------------
Interest-bearing time deposits in other financial institutions                                   1,000,000                --
Securities available for sale                                                                   38,170,143        41,819,768
Securities held to maturity (fair value of $3,709,205
  in 1999 and $-0- in 1998)                                                                      3,984,338                --
Federal Home Loan Bank (FHLB) stock, at cost                                                     5,511,300         4,636,300
Loans held for sale, net of unrealized losses
  of $489,152 in 1999 and $-0- in 1998                                                           8,061,951        13,516,502
Loans receivable, net of allowance for loan losses of
  $638,465 in 1999 and $453,567 in 1998 269,464,085                                            231,606,050
Accrued interest receivable                                                                      1,363,318           967,995
Premises and equipment, net                                                                      4,413,409         2,795,496
Mortgage servicing rights, net of accumulated amortization
  of $56,571 in 1999 and $19,376 in 1998                                                           412,390           191,699
Investment in limited partnership                                                                1,213,430         1,221,514
Other assets                                                                                       797,380           302,081
                                                                                             -------------     -------------
                Total assets                                                                 $ 346,453,686     $ 314,961,098
                                                                                             =============     =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
        Deposits
          Noninterest-bearing demand deposits                                                $   7,357,944     $   4,298,516
          Savings, NOW and MMDA deposits                                                        52,409,560        40,835,161
          Other time deposits                                                                  141,639,885       135,532,298
                        Total deposits                                                         201,407,389       180,665,975
        Securities sold under agreements to repurchase                                           6,566,395         2,365,716
        Other borrowings                                                                       104,225,750        97,656,964
        Advances from borrowers for taxes and insurance                                          2,111,183         2,316,317
        Accrued expenses and other liabilities                                                     961,339         1,070,349
                                                                                             -------------     -------------
                Total liabilities                                                              315,272,056       284,075,321
Shareholders' equity
        Common stock, no par value, 5,000,000 shares authorized;
          shares issued: 1,689,417 - 1999 and 1998;  shares
          outstanding: 1,420,049- 1999, 1,474,217 - 1998                                        13,016,302        12,846,979
        Retained earnings - substantially restricted                                            25,419,722        23,730,167
        Accumulated other comprehensive income (loss), net of
          tax of $(470,824) in 1999 and $(29,788) in 1998                                         (717,823)          (45,417)
        Unearned Employee Stock Ownership Plan (ESOP) shares                                      (222,963)         (444,557)
        Unearned Recognition and Retention Plan (RRP) shares                                            --           (38,500)
        Treasury Stock, 269,368 common shares - 1999;
          215,200 common shares - 1998, at cost                                                 (6,313,608)       (5,162,895)
                                                                                             -------------     -------------
                Total shareholders' equity                                                      31,181,630        30,885,777
                                                                                             -------------     -------------
                        Total liabilities and shareholders' equity                           $ 346,453,686     $ 314,961,098
                                                                                             =============     =============
</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                     - 19 -
<PAGE>
MFB CORP. AND SUBSIDIARY
Consolidated Statements of Income

<TABLE>
<CAPTION>


                                                                                Years ended September 30,
                                                                      -------------------------------------------
                                                                         1999            1998            1997
                                                                      -----------     -----------     -----------
<S>                                                                   <C>             <C>             <C>
Interest income
        Loans receivable, including fees
                Mortgage loans                                        $14,997,969     $15,071,514     $12,945,694
                Consumer and other loans                                1,267,455         858,670         550,905
                Financing leases and commercial loans                   4,060,194       1,815,178         400,120
        Securities - taxable                                            3,315,190       2,532,974       3,692,136
        Other interest-earning assets                                     612,977         559,547          95,971
                                                                      -----------     -----------     -----------
                Total interest income                                  24,253,785      20,837,883      17,684,826

Interest expense
        Deposits                                                        8,580,571       8,388,360       8,181,489
        Securities sold under agreements to repurchase                    147,675          67,352           4,138
        FHLB advances                                                   5,719,852       3,748,087       1,971,537
                                                                      -----------     -----------     -----------
                Total interest expense                                 14,448,098      12,203,799      10,157,164
Net interest income                                                     9,805,687       8,634,084       7,527,662
Provision for loan losses                                                 230,000         120,000          30,000
                                                                      -----------     -----------     -----------
Net interest income after provision
 for loan losses                                                        9,575,687       8,514,084       7,497,662

Noninterest income
        Insurance commissions                                             147,521         143,201         133,870
        Brokerage commissions                                              28,157          35,834          23,604
        Net realized gains from sales of securities
          available for sale                                                3,803           7,673           6,098
        Net realized gains from sales of loans  366,320 333,171 -
        Loan servicing fees, net of amortization
          of $37,195 in 1999 and $19,376 in 1998                           54,025          12,038              --
        Other income                                                      620,240         432,276         261,171
                                                                      -----------     -----------     -----------
        Total noninterest income                                        1,220,066         964,193         424,743

Noninterest expense
        Salaries and employee benefits                                  3,846,889       3,413,558       2,772,154
        Occupancy and equipment expense                                   882,698         720,305         579,327
        SAIF deposit insurance premium                                    109,208         107,503         147,121
        Provision to adjust loans held for sale
          to lower of cost or market                                      489,152              --              --
        Other expense                                                   1,678,134       1,384,023       1,099,972
                                                                      -----------     -----------     -----------
        Total noninterest expense                                       7,006,081       5,625,389       4,598,574
                                                                      -----------     -----------     -----------
Income before income taxes                                              3,789,672       3,852,888       3,323,831
Income tax expense                                                      1,585,374       1,616,605       1,321,630
                                                                      -----------     -----------     -----------
Net income                                                            $ 2,204,298     $ 2,236,283     $ 2,002,201
                                                                      ===========     ===========     ===========
        Basic earnings per common share $                                    1.56     $      1.44     $      1.21
        Diluted earnings per common share                                    1.51            1.37            1.16
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                     - 20 -
<PAGE>
MFB CORP. AND SUBSIDIARY
Consolidated Statements of Shareholder Equity
Years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                                   Accumulated
                                                                                                      Other
                                                                                                  Comprehensive
                                                                  Common           Retained        Income (Loss),    Unearned
                                                                   Stock           Earnings         Net of Tax      ESOP Shares
                                                                   -----           --------         ----------      -----------
<S>                                                             <C>              <C>              <C>              <C>
Balance at September 30, 1996                                   $ 18,316,651     $ 20,588,797     $   (219,928)    $   (893,651)
Purchase and retirement of 288,063 shares
  of common stock                                                 (5,381,427)              --               --               --
Purchase of 45,000 shares of treasury stock                               --               --               --               --
Stock option exercise-issuance of 3,500 common shares                 35,000               --               --               --
Stock option exercise-issuance of 6,150 shares
  of treasury stock                                                  (79,181)              --               --               --
Cash dividends declared - $ .32 per share                                 --         (553,557)              --           29,041
Effect of contribution to fund ESOP                                       --               --               --
Market adjustment of 23,276 ESOP shares
  committed to be released                                           188,153               --               --               --
Amortization of RRP contribution                                          --               --               --               --
Tax benefit related to employee stock plans                           28,975               --               --               --
Comprehensive income:
    Net income for the year end September 30, 1997                        --        2,002,201               --               --
    Net change in net unrealized gains and losses on
      securities available for sale, net of reclassification
      adjustments and tax effects                                         --               --                         293,136 -
          Total comprehensive income                                      --               --               --               --
                                                                ------------     ------------     ------------     ------------
Balance at September 30, 1997                                     13,108,171       22,037,441           73,208         (664,610)
Purchase of 245,200 shares of treasury stock                              --               --               --               --
Stock option exercise-issuance of 68,850 shares
  of treasury stock                                                 (968,611)              --               --               --
Cash dividends declared - $ .335 per share                                --         (543,557)              --           20,053
Effect of contribution to fund ESOP                                       --               --               --
Market adjustment of 20,989 ESOP shares
  committed to be released                                                          286,919 -               --               --
Amortization of RRP contribution                                          --               --               --               --
Tax benefit related to employee stock plans                                         420,500 -               --               --
Comprehensive income:
    Net income for the year end September 30, 1998                        --        2,236,283               --               --
    Net change in net unrealized gains and losses on
      securities available for sale, net of reclassification
      adjustments and tax effects                                         --               --         (118,625)              --
          Total comprehensive income                                      --               --               --               --
                                                                ------------     ------------     ------------     ------------
Balance at September 30, 1998                                   $ 12,846,979     $ 23,730,167     $    (45,417)    $   (444,557)
Purchase of 56,668 shares of treasury stock                               --               --               --               --
Stock option exercise-issuance of 2,500 shares
  of treasury stock                                                  (33,906)              --               --               --
Cash dividends declared - $ .355 per share                                --         (514,743)              --           13,961
Effect of contribution to fund ESOP                                       --               --               --
Market adjustment of 19,186 ESOP shares
  committed to be released                                                          203,229 -               --               --
Amortization of RRP contribution                                          --               --               --               --
Comprehensive income:
    Net income for the year end September 30, 1999                        --        2,204,298               --               --
    Net change in net unrealized gains and losses
      on securities available for sale, net of
      reclassification adjustments and tax effects                        --               --         (672,406)              --
          Total comprehensive income                                      --               --               --               --
                                                                ------------     ------------     ------------     ------------
Balance at September 30, 1999                                   $ 13,016,302     $ 25,419,722     $   (717,823)    $   (222,963)
                                                                ============     ============     ============     ============
</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>


                                                                                                        Total
                                                                      Unearned         Treasury      Shareholders'
                                                                     RRP Shares          Stock           Equity
                                                                     ----------          -----           ------
<S>                                                                <C>                <C>            <C>
Balance at September 30, 1996                                      $   (192,500)              $-     $ 37,599,369
Purchase and retirement of 288,063 shares
  of common stock                                                            --               --       (5,381,427)
Purchase of 45,000 shares of treasury stock                                  --       (1,029,375)      (1,029,375)
Stock option exercise-issuance of 3,500 common shares                        --               --           35,000
Stock option exercise-issuance of 6,150 shares
  of treasury stock                                                          --                      140,681 61,500
Cash dividends declared - $ .32 per share                                    --               --         (524,516)
Effect of contribution to fund ESOP                                   200,000 -               --          200,000
Market adjustment of 23,276 ESOP shares
  committed to be released                                                   --               --          188,153
Amortization of RRP contribution                                         77,000               --           77,000
Tax benefit related to employee stock plans                                  --               --           28,975
Comprehensive income:
    Net income for the year end September 30, 1997                           --               --        2,002,201
    Net change in net unrealized gains and losses on
      securities available for sale, net of reclassification
      adjustments and tax effects                                            --               --          293,136
          Total comprehensive income                                         --               --        2,295,337
                                                                   ------------     ------------     ------------
Balance at September 30, 1997                                          (115,500)        (888,694)      33,550,016
Purchase of 245,200 shares of treasury stock                                 --       (5,931,312)      (5,931,312)
Stock option exercise-issuance of 68,850 shares
  of treasury stock                                                          --        1,657,111          688,500
Cash dividends declared - $ .335 per share                                   --               --         (523,504)
Effect of contribution to fund ESOP                                   200,000 -               --          200,000
Market adjustment of 20,989 ESOP shares
  committed to be released                                                   --               --          286,919
Amortization of RRP contribution                                         77,000               --           77,000
Tax benefit related to employee stock plans                                  --               --          420,500
Comprehensive income:
    Net income for the year end September 30, 1998                           --               --        2,236,283
    Net change in net unrealized gains and losses on
      securities available for sale, net of reclassification
      adjustments and tax effects                                            --               --         (118,625)
          Total comprehensive income                                         --               --        2,117,658
                                                                   ------------     ------------     ------------
Balance at September 30, 1998                                      $    (38,500)    $ (5,162,895)    $ 30,885,777
Purchase of 56,668 shares of treasury stock                                  --       (1,209,619)      (1,209,619)
Stock option exercise-issuance of 2,500 shares
  of treasury stock                                                          --           58,906           25,000
Cash dividends declared - $ .355 per share                                   --               --         (500,782)
Effect of contribution to fund ESOP                                   207,633 -               --          207,633
Market adjustment of 19,186 ESOP shares
  committed to be released                                                   --               --          203,229
Amortization of RRP contribution                                         38,500               --           38,500
Comprehensive income:
    Net income for the year end September 30, 1999                           --               --        2,204,298
    Net change in net unrealized gains and losses
      on securities available for sale, net of
      reclassification adjustments and tax effects                           --               --         (672,406)
          Total comprehensive income                                         --               --        1,531,892
                                                                   ------------     ------------     ------------
Balance at September 30, 1999                                      $         --     $ (6,313,608)    $ 31,181,630
                                                                   ============     ============     ============
</TABLE>

                   The accompanying notes are an integral part of
                    these consolidated financial statements.


                                     - 21 -
<PAGE>
MFB CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                    1999              1998              1997
                                                                 -----------       -----------       -----------
Cash flows from operating activities
<S>                                                             <C>               <C>               <C>
        Net income                                              $  2,204,298      $  2,236,283      $  2,002,201
        Adjustments to reconcile net income
          to net cash from operating activities
        Depreciation and amortization, net of accretion              298,862           314,688           473,203
        Amortization of RRP contribution                              38,500            77,000            77,000
        Provision for loan losses                                    230,000           120,000            30,000
        Provision to adjust loans held for sale
          to lower of cost or market                                 489,152                --                --
        Net realized gains from sales of
          securities available for sale                               (3,803)           (7,673)           (6,098)
        Net realized gains from sales of loans                      (366,320)         (333,171)               --
        Amortization of mortgage servicing rights                     37,195            19,376                --
        Origination of loans held for sale                       (20,948,828)      (28,866,583)               --
        Proceeds from sales of loans held for sale                20,728,574        28,143,363                --
        Equity in loss of investment in
          limited partnership                                          8,084             4,236                --
        Market adjustment of ESOP shares
          committed to be released                                   203,229           286,919           188,153
        ESOP expense                                                 207,633           200,000           200,000
        Net change in:
                Accrued interest receivable                         (395,323)         (249,568)           99,587
                Other assets                                         (24,475)          (80,831)          498,262
                Accrued expenses and other liabilities              (138,798)          750,489        (2,303,772)
                                                                 -----------       -----------       -----------
                      Net cash from operating activities           2,567,980         2,614,528         1,258,536

Cash flows from investing activities
        Net change in interest-bearing time
          deposits in other financial institutions                (1,000,000)               --           495,000
        Net change in loans receivable                           (32,793,948)      (43,461,852)      (48,913,292)
        Proceeds from:
                Sales of securities available for sale             1,989,992         2,926,206        25,186,766
                Principal payments of mortgage-backed
                  and related securities                          21,505,020        19,343,270         2,938,521
                Maturities of securities available for sale       42,410,326        22,738,565        27,877,752
        Purchase of:
                Securities available for sale                    (63,280,952)      (47,461,878)      (28,634,913)
                Securities held to maturity                       (3,984,360)               --                --
                FHLB stock                                          (875,000)       (2,236,300)       (1,063,900)
                Premises and equipment, net                       (2,001,153)         (423,665)         (859,211)
                Investment in limited partnership                         --        (1,225,750)               --
                                                                 -----------       -----------       -----------
                      Net cash from investing activities         (38,030,075)      (49,801,404)      (22,973,277)
</TABLE>

                   The accompanying notes are an integral part of
                    these consolidated financial statements.

(Continued)
                                     - 22 -
<PAGE>

Consolidated Statements of Cash Flows
Years ended September 30, 1999, 1998 and 1997 (continued)

<TABLE>
<CAPTION>


                                                                1999              1998              1997
                                                            ------------      ------------      ------------
Cash flows from financing activities
<S>                                                         <C>               <C>               <C>
        Purchase of MFB Corp. common stock                  $ (1,209,619)     $ (5,931,312)     $ (6,410,802)
        Net change in deposits                                20,741,414         8,778,708        12,922,778
        Net change in securities sold under
          agreements to repurchase                             4,200,679         1,976,796           388,920
        Proceeds from other borrowings                        23,000,000        72,156,964        66,735,000
        Repayment of other borrowings                        (16,431,214)      (22,000,000)      (43,735,000)
        Proceeds from exercise of stock options                   25,000           688,500            96,500
        Net change in advances from
          borrowers for taxes and insurance                     (205,134)          462,069           (10,179)
        Cash dividends paid                                     (500,782)         (523,504)         (524,516)
                                                            ------------      ------------      ------------
                Net cash from financing activities            29,620,344        55,608,221        29,462,701
                                                            ------------      ------------      ------------
Net change in cash and cash equivalents (5,841,751)            8,421,345         7,747,960

Cash and cash equivalents at beginning of year                17,903,693         9,482,348         1,734,388
                                                            ------------      ------------      ------------
Cash and cash equivalents at end of year                    $ 12,061,942      $ 17,903,693      $  9,482,348
                                                            ============      ============      ============

Supplemental disclosures of cash flow information
        Cash paid during the year for
                Interest                                    $ 14,403,181      $ 12,305,287      $ 10,113,767
                Income taxes                                   1,627,895         1,182,448           868,000

Supplemental schedule of noncash investing
  activities
        Transfer from:
                Loans receivable to loans held for sale     $         --                $-      $ 12,671,186
                Loans held for sale to loans receivable        5,294,087                --                --

</TABLE>



                   The accompanying notes are an integral part of
                    these consolidated financial statements.


                                     - 23 -
<PAGE>


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
(together  referred to as "the Company"),  MFB Financial (the "Bank"), a federal
stock  savings bank,  and Mishawaka  Financial  Services,  Inc., a  wholly-owned
subsidiary of the Bank.  Mishawaka  Financial  Services,  Inc. is engaged in the
sale of credit life, general fire and accident,  car, home and life insurance as
agent  for  the  Bank's  customers  and  the  general  public.  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 Mishawaka  and the  surrounding  area.  Loans
secured  by  real  estate  mortgages  comprise  approximately  81% of  the  loan
portfolio  at  September  30,  1999 and are  primarily  secured  by  residential
mortgages. The Company operates primarily in the banking industry which accounts
for more than 90% of its revenues, operating income and assets.

     Use of Estimates In Preparing  Financial  Statements:  The  preparation  of
consolidated   financial   statements  in  conformity  with  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, the value of mortgage servicing rights, the value of investments
in limited partnerships, the value of stock options, the realization of deferred
tax assets,  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  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.

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

Gains and losses on the sale of  securities  are  determined  using the specific
identification  method based on amortized  cost and are  reflected in 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  on the  statements  of  financial


                                     - 24 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

condition  as loans held for sale and are carried at the lower cost or estimated
market  value in the  aggregate.  Net  unrealized  losses  are  recognized  in a
valuation allowance by charges to income.

     Loan servicing fees are recognized  when received and the related costs are
recognized when incurred.  The Bank sells mortgages into the secondary market at
market prices, which includes consideration for normal servicing fees.

     Effective  October 1, 1996,  the Company  adopted  Statement  of  Financial
Accounting Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights.
This Statement changed the accounting for mortgage  servicing rights retained by
a loan originator.  Under this standard,  if the originator sells or securitizes
mortgage loans and retains the related servicing  rights,  the total cost of the
mortgage loan is allocated  between the loan (without the servicing  rights) and
the servicing  rights,  based on their  relative fair values.  Prior to adopting
SFAS No. 122 on October 1, 1996,  servicing  right assets were recorded only for
purchased  rights to service  mortgage  loans.  The costs  allocated to mortgage
servicing  rights are now  recorded  as a separate  asset and are  amortized  in
proportion  to, and over the life of, the net  servicing  income.  The  carrying
value  of  the  mortgage   servicing  rights  are  periodically   evaluated  for
impairment.

     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,  and any deferred  fees or costs on  originated
loans, and unamortized premiums or discounts on purchased loans.

     Premiums or discounts on mortgage  loans are  amortized to income using the
level yield method over the remaining period to contractual  maturity,  adjusted
for anticipated prepayments. 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.  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,  periodic,
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.

     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 increase,  such increase is reported as a component of the provision for
loan losses.

     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,  home equity and second  mortgage  loans.  Commercial  loans and mortgage
loans secured by other  properties are evaluated  individually  for  impairment.
When analysis of borrower  operating results and financial  condition  indicates


                                     - 25 -
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

that underlying  cash flows of the borrower's  business are not adequate to meet
its debt service requirements,  the loan is evaluated for impairment. Often this
is  associated  with a delay  or  shortfall  in  payments  of 30  days or  more.
Nonaccrual loans are often also considered impaired. Impaired loans, or portions
thereof,  are charged off when deemed  uncollectible.  The nature of disclosures
for impaired loans is considered  generally  comparable to prior  nonaccrual and
renegotiated loans and non-performing and past due asset disclosures.

     Interest  income on loans is accrued  over the term of the loans based upon
the  principal  outstanding.  The  accrual  of  interest  on  impaired  loans in
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.

     Foreclosed Real Estate: Real estate properties acquired through, or in lieu
of,  loan  foreclosure  are  initially  recorded  at fair  value  at the date of
acquisition, establishing a new cost basis. Any reduction to fair value from the
carrying  value 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.
Foreclosed  real estate at September  30, 1999 and 1998 amounted to $100,000 and
$145,000.

     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.  These assets are reviewed for impairment
when events indicate the carrying amount may not be recoverable.

     Employee  Stock  Ownership Plan (ESOP):  The Company  accounts for its ESOP
under AICPA  Statement of Position  (SOP) 93-6. The cost of shares issued to the
ESOP,  but not yet  allocated to  participants,  are presented as a reduction of
shareholders'  equity.  Compensation  expense is  recorded  based on the average
market  price  of  the  shares  committed  to  be  released  for  allocation  to
participant  accounts.  The difference  between the market price and the cost of
shares  committed to be released is recorded as an  adjustment  to common stock.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings; dividends on unearned ESOP shares are reflected as a reduction of debt
and accrued interest.

     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 13.

     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.  ESOP shares are  considered  outstanding  for  earnings  per
common share calculations as they are committed to be released;  unearned shares


                                     - 26 -
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

are not considered  outstanding.  Recognition  and retention plan ("RRP") shares
are considered  outstanding  for earnings per common share  calculations as they
become vested. Diluted earnings per common share shows the dilutive effective of
additional  potential  common shares  issuable under stock options and nonvested
shares issued under the RRP.

     Stock  Compensation:  Expense for employee  compensation under stock option
plans is based on  Accounting  Principles  Board (APB)  Opinion 25, with expense
reported  only if  options  are  granted  below  market  price  at  grant  date.
Disclosures  of net income and  earnings per common share are provided as if the
fair value method of SFAS No. 123 were used for stock-based compensation.

     Comprehensive  Income (Loss):  Comprehensive  income (loss) consists of net
income  and  other  comprehensive  income  (loss).  Other  comprehensive  income
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. The accounting
standard that requires reporting  comprehensive  income (loss) first applies for
1999, with prior information restated to be comparable.

     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;  and insurance.
While the Company's  chief decision  makers  monitor 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.

     New Accounting  Pronouncement:  SFAS No. 133 on derivatives will, beginning
with the quarter ended December 31, 2000, require all derivatives to be recorded
at fair value in the balance  sheet.  Unless  designated  as hedges,  changes in
these fair values will be recorded in the income  statement.  If derivatives are
documented and effective as hedges, the change in the derivative fair value will
generally be offset by an equal change in the fair value of the hedged item.

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

NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT 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,
                                                           ---------------------------------------------
                                                               1999             1998             1997
                                                           -----------      -----------      -----------
<S>                                                        <C>              <C>              <C>
Basic Earnings Per Common Share
        Numerator
                Net income                                 $ 2,204,298      $ 2,236,283      $ 2,002,201
                                                           ===========      ===========      ===========
        Denominator
                Weighted average common shares
                  outstanding                                1,448,790        1,611,492        1,742,329
                Less:  Average unallocated ESOP shares         (30,450)         (50,538)         (72,670)
                Less:  Average nonvested RRP shares             (1,925)          (7,700)         (15,400)
                                                           -----------      -----------      -----------
                Weighted average common shares
                  outstanding for basic earnings per
                  common share                               1,416,415        1,553,254        1,654,259
                                                           ===========      ===========      ===========
        Basic earnings per common share                    $      1.56      $      1.44      $      1.21
                                                           ===========      ===========      ===========
</TABLE>


                                     - 27 -
<PAGE>
<TABLE>
<CAPTION>
                                                                 Year ended September 30,
                                                         ----------------------------------------
                                                            1999           1998           1997
                                                         ----------     ----------     ----------
<S>                                                      <C>            <C>            <C>
Diluted Earnings Per Common Share
        Numerator
                Net income                               $2,204,298     $2,236,283     $2,002,201
                                                         ==========     ==========     ==========
        Denominator
                Weighted average common shares
                  outstanding for basic earnings per
                  common share                            1,416,415      1,553,254      1,654,259
                Add:  Dilutive effects of average
                  nonvested RRP shares                          448          3,166             --
                Add:  Dilutive effects of assumed
                  exercises of stock options                 44,793         75,417         71,916
                                                         ----------     ----------     ----------
                Weighted average common shares
                  and dilutive potential common
                  shares outstanding                      1,461,656      1,631,837      1,726,175
                                                         ----------     ----------     ----------
        Diluted earnings per common share                $     1.51     $     1.37     $     1.16
                                                         ==========     ==========     ==========
</TABLE>


     Stock  options  for  78,250  and  45,000  shares of common  stock  were not
considered  in computing  diluted  earnings per common share for the years ended
September 30, 1999 and 1998 because they were antidilutive.

NOTE 3 - SECURITIES

     The amortized cost and fair value of securities available for sale and held
to maturity are as follows:

<TABLE>
<CAPTION>

                                                      Available for Sale
                                                      September 30, 1999
                                --------------------------------------------------------------
                                                     Gross            Gross
                                  Amortized       Unrealized       Unrealized         Fair
                                    Cost            Gains            Losses           Value
                                ------------    ------------     ------------     ------------
<S>                             <C>                       <C>    <C>              <C>
Debt securities
        U.S. Government and
          federal agencies      $  7,745,193              $-     $   (182,510)    $  7,562,683
        Mortgage-backed           27,112,085          56,085         (718,350)      26,449,820
        Corporate notes            3,958,662              --         (230,232)       3,728,430
                                ------------    ------------     ------------     ------------
                                  38,815,940          56,085       (1,131,092)      37,740,933
Marketable equity securities         542,850              --         (113,640)         429,210
                                ------------    ------------     ------------     ------------
                                $ 39,358,790    $     56,085     $ (1,244,732)    $ 38,170,143
                                ============    ============     ============     ============

                                                      Held to Maturity
                                                      September 30, 1999
                                --------------------------------------------------------------
                                                     Gross            Gross
                                  Amortized       Unrealized       Unrealized         Fair
                                    Cost            Gains            Losses           Value
                                ------------    ------------     ------------     ------------
Corporate notes                  $ 3,984,338      $      -        $(275,133)      $ 3,709,205
                                ============    ============     ============     ============
</TABLE>



                                     - 28 -
<PAGE>

<TABLE>
<CAPTION>

                                                      Available for Sale
                                                      September 30, 1998
                                --------------------------------------------------------------
                                                     Gross            Gross
                                  Amortized       Unrealized       Unrealized         Fair
                                    Cost            Gains            Losses           Value
                                ------------    ------------     ------------     ------------
<S>                             <C>               <C>             <C>              <C>
Debt securities
        U.S. Government
        and federal agencies    $  4,218,461    $     35,228     $         --     $  4,253,689
        Mortgage-backed           22,259,552          33,404          (25,879)      22,267,077
        Other securities           8,929,482              --               --        8,929,482
        Corporate notes            5,944,628               --         (81,488)       5,863,140
                                ------------    ------------     ------------     ------------
                                  41,352,123          68,632         (107,367)      41,313,388
Marketable equity securities         542,850              --          (36,470)         506,380
                                ------------    ------------     ------------     ------------
                                $ 41,894,973    $     68,632     $   (143,837)    $ 41,819,768
                                ============    ============     ============     ============
</TABLE>


     There were no securities held to maturity at September 30, 1998.

     The  amortized  cost  and  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.
<TABLE>
<CAPTION>


                                                 September 30, 1999
                                --------------------------------------------------------
                                    Available for Sale            Held for Maturity
                                --------------------------    --------------------------
                                  Amortized        Fair         Amortized        Fair
                                    Cost           Value          Cost           Value
                                -----------    -----------    -----------    -----------
<S>                             <C>            <C>            <C>            <C>
Due in one year or less         $   501,371    $   501,250    $   501,286    $   501,145
Due after one year through
  five years                      2,498,157      2,464,075             --             --
Due after five years through
  ten years                       4,000,000      3,893,760      3,483,052      3,208,060
Due after ten years               4,704,327      4,432,028             --             --
                                -----------    -----------    -----------    -----------
                                 11,703,885     11,291,113      3,984,338      3,709,205
Mortgage-backed securities       27,112,085     26,449,820             --             --
                                -----------    -----------    -----------    -----------
                                $38,815,940    $37,740,933    $ 3,984,338    $ 3,709,205
                                ===========    ===========    ===========    ===========
</TABLE>


     Proceeds from sales of securities available for sale were $1,989,992 during
the year ended  September  30,  1999.  Gross gains of $5,026 and gross losses of
$1,223 were realized on these sales.  During the year ended  September 30, 1998,
proceeds from the sales of securities  available for sale were  $2,926,206  with
gross  gains of $10,534  and gross  losses of $2,861  realized  on these  sales.
During the year ended  September  1997,  proceeds  from the sales of  securities
available for sale were $25,186,766 with gross gains of $59,828 and gross losses
of $53,730 realized on those losses.



                                     - 29 -
<PAGE>

NOTE 4 - LOANS RECEIVABLE, NET

     Loans receivable, net at September 30 are summarized as follows:
<TABLE>
<CAPTION>

                                                                1999              1998
                                                            -------------     -------------
<S>                                                         <C>               <C>
First mortgage loans (principally conventional)
        Principal balances
                Secured by one-to-four family residences    $ 191,479,582     $ 183,150,539
                Construction loans                             11,157,731         8,233,468
                Other                                           3,298,833           120,188
                                                            -------------     -------------
                                                              205,936,146       191,504,195
                Less undisbursed portion of construction
                  and other mortgage loans                        (87,153)         (485,444)
                                                            -------------     -------------
                        Total first mortgage loans            205,848,993       191,018,751

Commercial and consumer loans:
        Principal balances
        Home equity and second mortgage                       $13,308,441     $   9,067,504
        Commercial                                             47,399,290        30,774,778
        Financing leases                                           16,969            83,026
        Other                                                   4,461,096         1,913,564
                Total commercial and consumer loans            65,185,796        41,838,872
Allowance for loan losses                                        (638,465)         (453,567)
Net deferred loan origination fees                               (932,239)         (798,006)
                                                            -------------     -------------
                                                            $ 269,464,085     $ 231,606,050
                                                            =============     =============
</TABLE>


     Activity in the  allowance for loan losses is summarized as follows for the
years ended September 30:

                                    1999           1998           1997
                                 ---------      ---------      ---------
Balance at beginning of year     $ 453,567      $ 370,000      $ 340,000
Provision for loan losses          230,000        120,000         30,000
Charge-offs                        (45,102)       (36,433)            --
Recoveries                              --             --             --
                                 ---------      ---------      ---------
Balance at end of year           $ 638,465      $ 453,567      $ 370,000
                                 =========      =========      =========

At  September  30, 1999,  1998 and 1997,  no portion of the  allowance  for loan
losses was allocated to impaired loan balances as there were no loans considered
impaired loans as of or for the years ended September 30, 1999, 1998 and 1997.

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  balance sheets.  The unpaid  principal  balances of these loans at
September 30, are summarized as follows:
<TABLE>
<CAPTION>

                                                                  1999            1998
                                                              -----------     -----------
Mortgage loan portfolios serviced for:
<S>                                                           <C>             <C>
        Telebank                                              $ 7,597,059     $ 9,943,910
        Hanover Capital Mortgage Holdings, Inc.                 6,785,972       7,629,859
        LaSalle Bank, FSB                                       7,222,714       8,036,000
        Citizens Bank                                           6,250,822              --
        Federal Home Loan Mortgage Corporation                 13,709,321              --
                                                              -----------     -----------
                                                              $41,565,888     $25,609,769
                                                              ===========     ===========
</TABLE>

                                     - 30 -
<PAGE>


     Custodial  escrow  balances  maintained  in  connection  with the foregoing
serviced loans were $209,000 and $62,000 at September 30, 1999 and 1998.

     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:

                                             1999             1998
                                         -----------      -----------
Balance - beginning of year              $ 1,513,829      $   927,721
New loans                                    443,980          896,705
Repayments                                  (375,307)        (117,579)
Effect of changes in related parties              --         (193,018)
                                         -----------      -----------
Balance - end of year                    $ 1,582,502      $ 1,513,829
                                         ===========      ===========

NOTE 5 - PREMISES AND EQUIPMENT, NET

     Premises and equipment at September 30 are summarized as follows:

                                                  1999             1998
                                              -----------      -----------
Land                                          $   834,895      $   581,956
Buildings and improvements                      3,571,734        2,544,588
Furniture and equipment                         2,052,425        1,441,967
                                              -----------      -----------
        Total cost                              6,459,054        4,568,511
Accumulated depreciation and amortization      (2,045,645)      (1,773,015)
                                              -----------      -----------
                                              $ 4,413,409      $ 2,795,496
                                              ===========      ===========

     Depreciation  and  amortization  of  premises  and  equipment,  included in
occupancy  and  equipment  expense  was  approximately  $383,000,  $241,000  and
$216,000 for the years ended September 30, 1999, 1998 and 1997, respectively.

NOTE 6 - DEPOSITS

     The  aggregate  amount of  short-term  jumbo  certificates  of  deposit  in
denomination of $100,000 or more was  approximately  $30,252,000 and $27,568,000
at September 30, 1999 and 1998. At September 30, 1999, the scheduled  maturities
of certificates of deposit are as follows for the years ended September 30:

                    2000                    $110,416,081
                    2001                      22,227,730
                    2002                       6,873,015
                    2003                       1,467,270
                    2004                          70,271
                    Thereafter                   285,518
                                            ------------
                                            $141,639,885
                                            ============

NOTE 7 - 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.  Information concerning securities
sold under agreements to repurchase as of September 30 is summarized as follows:

                                     - 31 -
<PAGE>

<TABLE>
<CAPTION>

                                                     1999            1998            1997
                                                  ----------      ----------      ----------
<S>                                               <C>             <C>             <C>
        Average daily balance during the year     $3,892,000      $1,647,000      $   97,000
        Average interest rate during the year           3.79%           4.09%           4.27%
        Maximum month end balance
        during the year $7,079,000                $3,882,000      $  389,000
        Balance at end of year                    $6,566,395      $2,365,716      $  388,920
Securities underlying these agreements
at year end were as follows:
        Carrying value of securities              $9,892,000      $8,385,000      $3,530,000
        Fair value                                $9,310,000      $8,387,000      $3,508,000
</TABLE>


NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

     At  September  30,  1999,  advances  from the  Federal  Home  Loan  Bank of
Indianapolis  with  fixed and  variable  rates  ranging  from 4.76% to 5.93% are
required to be repaid in the year ending September 30 as follows:

               2000                              $8,000,000
               2001                               2,350,000
               2002                              11,350,000
               2003                              15,300,000
               2004                                 800,000
               Thereafter                        66,425,750
                                               ------------
                                               $104,225,750
                                               ============


     FHLB  advances  are secured by all FHLB stock,  qualifying  first  mortgage
loans,  government agency and mortgage backed securities.  At September 30, 1999
and 1998, in addition to $5,511,000 and $4,636,000 in FHLB stock,  collateral of
approximately  $225,715,000  and  $194,477,000  is pledged to the FHLB to secure
advances outstanding.

     At September 30, 1998,  the Bank had a due to broker for $4.9 million for a
security purchase which settled October 5, 1998.

NOTE 9 - EMPLOYEE BENEFITS

     Employee  Pension  Plan:  The Bank is part of a  qualified  noncontributory
multiple-employer defined benefit pension plan covering substantially all of its
employees.   The  plan  is   administered  by  the  trustees  of  the  Financial
Institutions  Retirement Fund.  There is no separate  valuation of plan benefits
nor segregation of plan assets  specifically  for the Bank because the plan is a
multiple-employer  plan and  separate  actuarial  valuations  are not made  with
respect to each  employer nor are the plan assets so  segregated.  As of July 1,
1999,  the latest  actuarial  valuation  date,  total plan assets  exceeded  the
actuarially  determined value of total vested benefits.  The cost of the plan is
set annually as an established percentage of wages. Pension plan expense for the
years ended September 30, 1999, 1998 and 1997 was approximately  $6,900,  $1,500
and $1,500, respectively.

     401(k) Plan:  On July 1, 1996,  the Company  adopted a  retirement  savings
401(k) plan which  covers all full time  employees  who are 21 or older and have
completed one year of service.  Beginning August 1, 1996, participants may defer
up to 15% of compensation.  The Company matches 50% of elective  deferrals on 6%
of the  participants'  compensation.  Expense  for the 401(k) plan for the years
ended September 30, 1999, 1998 and 1997 was approximately  $60,000,  $52,000 and
$42,000.



                                     - 32 -
<PAGE>
NOTE 9 - EMPLOYEE BENEFITS (continued)

     Employee  Stock  Ownership  Plan  (ESOP):  In  conjunction  with its  stock
conversion,  the Company established an ESOP for eligible  employees.  Employees
with at least one year of employment  and who have attained age  twenty-one  are
eligible  to  participate.  The ESOP  borrowed  $1,400,000  from the  Company to
purchase  140,000  shares of common  stock issued in the  conversion  at $10 per
share.  Collateral for the loan is the unearned shares of common stock purchased
by the ESOP with the loan proceeds. The loan will be repaid principally from the
Company's discretionary  contributions to the ESOP over a period of seven years.
The interest  rate for the loan is 6.25%.  Shares  purchased by the ESOP will be
held in suspense until allocated among ESOP participants as the loan is repaid.

     ESOP  expense was  approximately  $411,000,  $487,000  and $388,000 for the
years  ended  September  30,  1999,  1998 and 1997.  Contributions  to the ESOP,
including  dividends  on  unearned  ESOP  shares,  was  approximately  $222,000,
$220,000 and $229,000 during the years ended September 30, 1999, 1998 and 1997.

     Company  contributions  to the  ESOP  and  shares  released  from  suspense
proportional  to the  repayment  of the  ESOP  loan  are  allocated  among  ESOP
participants on the basis of  compensation  in the year of allocation.  Benefits
generally become 100% vested after five years of credited service. A participant
who terminates  employment for reasons other than death,  normal  retirement (or
early  retirement),  or  disability  prior to the  completion  of five  years of
credited  service does not receive any benefits under the ESOP.  Forfeitures are
reallocated among the remaining participating  employees, in the same proportion
as contributions.

     Benefits  are  payable in the form of stock  except for  fractional  shares
which  are  paid  in  cash  upon   termination  of  employment.   The  Company's
contributions  to the ESOP are not fixed,  so  benefits  payable  under the ESOP
cannot be estimated.

     ESOP participants receive  distributions from their ESOP accounts only upon
termination of service.

     At September 30, 1999, 1998 and 1997, 19,186, 20,989 and 23,276 shares with
an average fair value of $21.41,  $23.20 and $16.68 per share, were committed to
be released.

     The ESOP shares as of September 30 were as follows:

<TABLE>
<CAPTION>


                                                       1999             1998             1997
                                                   -----------      -----------      -----------
<S>                                                    <C>               <C>              <C>
Allocated shares                                       119,143           99,957           78,968
Unearned shares                                         20,857           40,043           61,032
Shares withdrawn from the plan by participants         (14,571)          (5,601)
        Total ESOP shares held in the plan             125,429          134,399          134,399
                                                   -----------      -----------      -----------
Fair value of unearned shares                      $   412,000      $ 1,021,000      $ 1,419,000
                                                   ===========      ===========      ===========
</TABLE>


     Recognition  and Retention  Plans  (RRPs):  In  conjunction  with its stock
conversion,  the Company  established  RRPs as a method of providing  directors,
officers and other key employees of the Company with a  proprietary  interest in
the Company in a manner  designed to  encourage  such persons to remain with the
Company.  Eligible  directors,  officers and other key  employees of the Company
become  vested  in  awarded  shares  of  common  stock at a rate of 20% per year
commencing March 24, 1994. The RRPs acquired, in the aggregate, 70,000 shares of
common stock issued in the  conversion  at $10 per share and 70,000  shares were
awarded to RRP  participants at no cost to them. RRP expense for the years ended
September  30,  1999,  1998 and  1997 was  approximately  $38,500,  $77,000  and
$77,000, respectively.

     Stock  Option Plan:  The Board of Directors of the Company  adopted the MFB
Corp. Stock Option Plans (the "Option Plans").  The number of options authorized


                                     - 33 -
<PAGE>

under the Plans totals 350,000 shares of common stock.  Officers,  employees and
outside  directors of the Company and its subsidiary are eligible to participate
in the Option Plans.  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.  As of September
30, 1999,  all options  granted  have an exercise  price of at least 100% of the
market  value of the  common  stock on the  date of  grant  and no  compensation
expense was recognized for stock options for the years ended September 30, 1999,
1998 and 1997. As of September 30, 1999,  69,250  options  remain  available for
future grants.

     SFAS No. 123, which became effective for the year ended September 30, 1997,
requires pro forma  disclosures  for companies  that do not adopt its fair value
accounting  method  for  stock-based  employee  compensation.  Accordingly,  the
following proforma information presents net income and earnings per common share
had the fair  value  method  been used to  measure  compensation  cost for stock
option plans.  The exercise price of options granted is equivalent to the market
value of underlying stock at the grant date.

     The fair value for the options was  estimated  at the date of grant using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:

                                                 1999         1998
                                                 ----         ----
Risk-free interest rate                          4.74%        6.00
Expected dividend rate                           1.71%        1.21%
Stock price volatility                          12.20%       12.45%
There were no options granted
for the year ended September 30, 1997.


                                 1999              1998              1997
                                 ----              ----              ----
Net income as reported     $   2,204,298     $   2,236,283     $   2,002,201
Proforma net income            2,054,921         2,069,443         1,981,761
Reported earnings per
  common and common
  equivalent share
        Basic              $        1.56     $        1.44     $        1.21
        Diluted            $        1.51     $        1.37     $        1.16
Proforma earnings per
  common and common
  equivalent share
        Basic              $        1.45     $        1.33     $        1.20
        Diluted            $        1.41     $        1.27     $        1.15

Activity in the Option Plan for the years ended is summarized as follows:
<TABLE>
<CAPTION>
                                                                          Weighted         Weighted
                                    Number of                             Average          Average
                                   Outstanding        Exercise            Exercise        Fair Value
                                     Options            Price              Price          of Grants
                                     -------            -----              -----          ---------
<S>                                   <C>           <C>                  <C>              <C>
Balance at September 30, 1996        200,000        $10.00-$15.25        $   10.76
        Exercised                     (9,650)       $   10.00            $   10.00
Balance at September 30, 1997        190,350        $10.00-$15.25        $   10.80
        Granted                       45,000        $        26.75       $   26.75        $    9.76
        Exercised                    (68,850)       $   10.00            $   10.00
Balance at September 30, 1998        166,500        $10.00-$26.75        $   15.45
        Granted                       35,750        $18.25-$21.875       $   21.37        $    5.30
        Exercised                     (2,500)       $   10.00            $   10.00
Balance at September 30, 1999        199,750        $10.00-$26.75        $   16.58
</TABLE>


                                     - 34 -
<PAGE>

     Options exercisable at September 30 are as follows:

                                                   Weighted
                                   Number          Average
                                 of Options      Exercise Price
                                 ----------      --------------
                        1997       176,350          $10.46
                        1998       122,500          $12.14
                        1999       155,750          $14.29

     At September 30, 1999, options outstanding had a weighted-average remaining
life of 7.65 years.

NOTE 10 - INCOME TAXES

     The Company files consolidated income tax returns. Prior to fiscal 1997, if
certain  conditions  were met in  determining  taxable income as reported on the
consolidated  federal income tax return, the Bank was allowed a special bad debt
deduction  based on a  percentage  of taxable  income (8% for fiscal 1996) or on
specified  experience formulas.  The Bank used the  percentage-of-taxable-income
method for the tax year ended  September  30, 1996.  Tax  legislation  passed in
August 1996 now  requires  the Bank to deduct a provision  for bad debts for tax
purposes  based on actual  loss  experience  and  recapture  the excess bad debt
reserve accumulated in tax years after September 30, 1987. The related amount of
deferred tax liability which must be recaptured is approximately $446,000 and is
payable over a six year period  beginning with the tax year ending September 30,
1999.

     Income tax expense  for the years  ended  September  30 are  summarized  as
follows:
<TABLE>
<CAPTION>


                                                 1999             1998             1997
                                             -----------      -----------      -----------
<S>                                          <C>              <C>              <C>
Federal
        Current                              $ 1,535,497      $ 1,301,834      $   765,810
        Deferred                                (284,395)          (2,359)         264,314
                                             -----------      -----------      -----------
                                               1,251,102        1,299,475        1,030,124
State
        Current                                  397,363          317,774          223,225
        Deferred                                 (63,091)            (644)          68,281
                                             -----------      -----------      -----------
                                                 334,272          317,130          291,506
                                             -----------      -----------      -----------
                Total income tax expense     $ 1,585,374      $ 1,616,605      $ 1,321,630
                                             ===========      ===========      ===========
</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>

                                                 1999            1998             1997
                                             -----------      -----------      -----------
<S>                                          <C>              <C>              <C>
Income taxes at statutory rate               $ 1,288,488     $ 1,309,982      $ 1,130,103
Tax effect of:
        State tax, net of federal income
          tax effect                             220,620         209,306          192,394
        Excess of fair value of ESOP
          shares released over cost               69,098          97,552           63,972
        Other items, net                           7,168            (235)         (64,839)
                                             -----------      -----------      -----------
                Total income tax expense     $ 1,585,374     $ 1,616,605      $ 1,321,630
                                             ===========     ===========      ===========
</TABLE>


                                     - 35 -
<PAGE>

     The  components of the net deferred tax asset  (liability)  recorded in the
consolidated balance sheets as of September 30 are as follows:
<TABLE>
<CAPTION>


                                                            1999             1998
                                                        -----------      -----------
<S>                                                     <C>              <C>
Deferred tax assets
        RRP expense                                     $        --      $    16,363
        Net deferred loan fees                              396,202          339,153
        Valuation adjustment on loans held for sale         207,890               --
        Net unrealized depreciation
          on securities available for sale                  470,824           29,788
        Other                                                14,764            1,249
                                                        -----------      -----------
                                                          1,089,680          386,553
Deferred tax liabilities
        Accretion                                           (20,445)         (57,364)
        Depreciation                                        (52,057)         (60,442)
        Bad debt deduction                                 (100,382)        (253,309)
        Mortgage servicing rights                          (175,266)         (81,472)
        Other                                               (44,121)         (25,079)
                                                        -----------      -----------
                                                           (392,271)        (477,666)
Valuation allowance                                              --               --
                                                        -----------      -----------
        Net deferred tax asset (liability)              $   697,409      $   (91,113)
                                                        ===========      ===========
</TABLE>


     Federal  income tax laws provided  savings banks with  additional  bad debt
deductions  through the tax year ended September 30, 1987,  totaling  $4,596,000
for the Bank. Accounting standards do not require a deferred tax liability to be
recorded on this amount,  which liability  would  otherwise total  $1,563,000 at
September 30, 1999 and 1998. If the Bank were liquidated or otherwise  ceases to
be a bank or if tax laws change, the $1,563,000 would be recorded as expense.

NOTE 11 - 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.



                                     - 36 -
<PAGE>

     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)
<S>                                    <C>         <C>          <C>         <C>       <C>          <C>
As of September 30, 1999
        Total capital (to risk
          weighted assets)             $31,268     15.23%       $16,428     8.00%     $20,536      10.00%
        Tier 1 (core) capital
          (to risk weighted assets)     30,630     14.92          8,214     4.00       12,321       6.00
        Tier 1 (core) capital (to
          adjusted total assets)        30,630      8.83         13,868     4.00       17,335       5.00

As of September 30, 1998
        Total capital (to risk
          weighted assets)             $29,489     16.28%       $14,493     8.00%     $18,116      10.00%
        Tier 1 (core) capital
          (to risk weighted assets)     29,046     16.03          7,246     4.00       10,869       6.00
        Tier 1 (core) capital (to
          adjusted total assets)        29,046      9.38         12,388     4.00       15,485       5.00
</TABLE>


     Regulations  of the Office of Thrift  Supervision  limit the dividends that
may be paid without prior approval of the Office of Thrift Supervision. The Bank
is currently a "well-capitalized"  Tier 1 institution and can make distributions
during a year of 100% of its retained  net income for the calendar  year-to-date
plus retained net income for the previous two calendar years (less any dividends
previously paid as long as the Bank would remain  "well-capitalized",  following
the proposed distribution. Accordingly, at September 30, 1999 none of the Bank's
retained  earnings was  potentially  available for  distribution to the Company,
without obtaining prior regulatory approval.



                                     - 37 -
<PAGE>

NOTE 12 - OTHER NONINTEREST INCOME AND EXPENSE

     Other noninterest  income and expense amounts are summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>


                                              1999            1998            1997
                                          -----------     -----------     -----------
<S>                                       <C>             <C>             <C>
Other noninterest income
Service charges and fees                  $   510,980     $   318,636     $   200,759
Other                                         109,260         113,640          60,412
                                          -----------     -----------     -----------
                                          $   620,240     $   432,276     $   261,171
                                          ===========     ===========     ===========
Other noninterest expense
Advertising and promotion                 $   206,254     $   186,257     $   179,423
Data processing                               379,715         384,629         281,171
Professional fees                             170,429         166,652         143,550
Printing, postage, stationery,
and supplies                                  219,267         162,794         192,514
Direct loan origination costs deferred       (202,349)       (262,686)       (245,981)
Other                                         904,818         746,377         549,295
                                          -----------     -----------     -----------
                                          $ 1,678,134     $ 1,384,023     $ 1,099,972
                                          ===========     ===========     ===========
</TABLE>


NOTE 13 - 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>

                                               1999                                         1998
                             ----------------------------------------     ----------------------------------------
                               Fixed         Variable                       Fixed         Variable
                             Rate Loans     Rate Loans      Total         Rate Loans     Rate Loans      Total
                             ----------     ----------      -----         ----------     ----------      -----
<S>                         <C>            <C>            <C>            <C>            <C>            <C>
First mortgage loans        $ 1,534,750    $ 1,100,350    $ 2,635,100    $ 3,398,489    $ 3,441,451    $ 6,839,940
Commercial loans              9,984,354      8,866,800     18,851,154      3,739,220      5,440,747      9,179,967
Unused lines of credit        7,953,681      7,812,361     15,766,042      3,268,364      8,998,528     12,266,892
Unused commercial loan
  lines of credit                    --     22,206,913     22,206,913             --      7,649,903      7,649,903
Unused construction loan
  lines of credit                    --      5,574,641      5,574,641             --      1,219,604      1,219,604
                            -----------    -----------    -----------    -----------    -----------    -----------
                            $19,472,785    $45,561,065    $65,033,850    $10,406,073    $26,750,233    $37,156,306
                            ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>


     Fixed rate  mortgage  loan  commitments  at September 30, 1999 are at rates
primarily ranging from 7.50% to 9.50%.  Mortgage loan fixed rate commitments are
primarily for terms  ranging from 15 to 30 years,  while  commercial  loan fixed
rate  commitments  are  primarily  for five year terms.  Rates on variable  rate
mortgage  loans range from 6.875% to 9.25% and are 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.



                                     - 38 -
<PAGE>

     Under  employment  agreements with certain  executives,  officers,  certain
events  leading to  separation  from the Company  could result in cash  payments
totaling $1,379,000 as of September 30, 1999.

     The Company and the Bank are  subject to certain  claims and legal  actions
arising in the ordinary course of business. In the opinion of management,  after
consultation  with legal counsel,  the ultimate  disposition of these matters is
not expected to have a material  adverse  effect on the  consolidated  financial
position or results of operation of the Company.

NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS

     Presented  below are the  condensed  financial  statements  for the  parent
company, MFB Corp.

                            CONDENSED BALANCE SHEETS
                          September 30, 1999 and 1998
<TABLE>
<CAPTION>

                                                          1999           1998
                                                      -----------    -----------
ASSETS
<S>                                                   <C>            <C>
  Cash and cash equivalents                           $   384,044    $   552,454
  Equity securities available for sale                    429,210        506,380
  Securities held to maturity                           1,000,000             --
  Investment in Bank subsidiary                        29,980,712     29,064,393
  Loan receivable from ESOP                               222,963        444,557
  Other assets                                             20,138        388,917
                                                      -----------    -----------
        Total assets                                  $32,037,067    $30,956,701

LIABILITIES
  Loan payable to Bank subsidiary                     $   750,000    $        --
  Accrued expenses and other liabilities                  105,437         70,924
                                                      -----------    -----------
        Total liabilities                                 855,437         70,924

SHAREHOLDERS' EQUITY                                   31,181,630     30,885,777
                                                      -----------    -----------
        Total liabilities and shareholders' equity    $32,037,067    $30,956,701
                                                      ===========    ===========
</TABLE>



                         CONDENSED STATEMENTS OF INCOME
                 Years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                     1999           1998            1997
                                                 -----------    -----------     -----------
<S>                                              <C>            <C>             <C>
Dividends from Bank subsidiary - cash            $ 1,125,000    $ 5,650,000     $ 2,000,000
Interest income                                       57,205         48,748          57,723
Other income                                              --            919              --
Interest expense                                      17,062          1,346           3,319
Other expenses                                       110,790        107,359         107,243
                                                 -----------    -----------     -----------
Income before income taxes and
  equity in undistributed net income
  of Bank subsidiary                               1,054,353      5,590,962       1,947,161
Income tax benefit                                    29,857         25,014          22,803
                                                 -----------    -----------     -----------
Income before equity in undistributed
  net income of Bank subsidiary                    1,084,210      5,615,976       1,969,964
(Distributions in excess of) equity in
  undistributed net income of Bank subsidiary      1,120,088     (3,379,693)         32,237
                                                 -----------    -----------     -----------
Net income                                       $ 2,204,298    $ 2,236,283     $ 2,002,201
                                                 ===========    ===========     ===========
</TABLE>


                                     - 39 -
<PAGE>

                       CONDENSED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                 1999                1998            1997
                                                                              -----------         -----------     -----------
Cash flows from operating activities
<S>                                                                           <C>                 <C>             <C>
        Net income                                                            $ 2,204,298         $ 2,236,283     $ 2,002,201
        Adjustments to reconcile net income to
          net cash from operating activities
                        Distributions in excess of (equity in
                          undistributed) net income of
                        Bank subsidiary                                        (1,120,088)          3,379,693         (32,237)
                        Net change in other assets                                353,863              30,063
                        Net change in accrued expenses and
                          other liabilities                                       121,285             310,634          97,747
                                                                              -----------         -----------     -----------
                                        Net cash from operating activities      1,559,358           5,565,084       2,097,774

Cash flows from investing activities
        Principal repayments on loan receivable
          from ESOP                                                               221,594             220,053         229,041
        Principal repayments on note receivable
          from Bank subsidiary                                                         --                  --       4,750,000
        Purchase of securities available for sale                                      --            (242,500)       (300,350)
        Purchase of securities held to maturity                                (1,000,000)                 --              --
                                                                              -----------         -----------     -----------
                        Net cash from investing activities                       (778,406)            (22,447)      4,678,691

Cash flows from financing activities
        Proceeds from loan payable to Bank
          subsidiary                                                              750,000                  --              --
        Purchase of MFB Corp. common stock                                     (1,209,619)         (5,931,312)     (6,410,802)
        Proceeds from exercise of stock options                                    25,000             688,500          96,500
        Cash dividends paid                                                      (514,743)           (543,557)       (553,557)
                                                                              -----------         -----------     -----------
                        Net cash from financing activities                       (949,362)         (5,786,369)     (6,867,859)
                                                                              -----------         -----------     -----------
Net change in cash and cash equivalents                                          (168,410)           (243,732)        (91,394)
Cash and cash equivalents at beginning
  of year                                                                         552,454             796,186         887,580
                                                                              -----------         -----------     -----------

Cash and cash equivalents at end of year                                      $   384,044         $   552,454     $   796,186
                                                                              ===========         ===========     ===========
</TABLE>
                                     - 40 -
<PAGE>


NOTE 15 - 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, 1999
and 1998. Items which are not financial instruments are not included.

<TABLE>
<CAPTION>

                                                1999                                1998
                                  -------------------------------     -------------------------------
                                     Carrying         Estimated           Carrying         Estimated
                                      Amount          Fair Value           Amount          Fair Value
                                  -------------     -------------     -------------     -------------
<S>                               <C>               <C>               <C>               <C>
Cash and cash equivalents         $  12,061,942     $  12,062,000     $  17,903,693     $  17,904,000
Interest-bearing time
  deposits in other financial
  institutions                        1,000,000         1,000,000                --                --
Securities available for sale        38,170,143        38,170,000        41,819,768        41,820,000
Securities held to maturity           3,984,338         3,709,000                --                --
FHLB stock                            5,511,300         5,511,000         4,636,300         4,636,000
Loans held for sale, net              8,061,951         8,062,000        13,516,502        13,517,000
Loans receivable, net of
  allowance for loan losses         269,464,085       269,707,000       232,606,050       234,324,000
Accrued interest receivable           1,363,318         1,363,000           967,995           968,000
Mortgage servicing rights, net          412,390           412,000           191,699           192,000
Investment in limited
  partnership                         1,213,430         1,213,000         1,221,514         1,222,000
Noninterest bearing demand
  deposits                           (7,357,944)       (7,358,000)       (4,298,516)       (4,299,000)
Savings, NOW and MMDA
  deposits                          (52,409,560)      (52,410,000)      (40,835,161)      (40,835,000)
Other time deposits                (141,639,885)     (141,314,000)     (135,532,298)     (135,573,000)
Securities sold under
  agreements to repurchase           (6,566,395)       (6,566,000)       (2,365,716)       (2,366,000)
FHLB advances                      (104,225,750)     (101,370,000)      (92,725,750)      (90,333,000)
Advances from borrowers
  for taxes and insurance            (2,111,183)       (2,111,000)       (2,316,317)       (2,316,000)
Other borrowings                             --                --        (4,931,214)       (4,931,000)
</TABLE>


     For  purposes  of the  above  disclosures  of  estimated  fair  value,  the
following assumptions were used as of September 30, 1999 and 1998. The estimated
fair value for cash and cash equivalents and  interest-bearing  time deposits in
other financial  institutions are considered to approximate  cost. The estimated
fair value for securities available for sale and securities held to maturity, 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, 1999 and 1998 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, 1999 and 1998,  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


                                     - 41 -
<PAGE>


issues.  The estimated fair value for FHLB stock,  accrued interest  receivable,
mortgage  servicing  rights,  investment  in  limited  partnership,  noninterest
bearing demand deposits,  savings,  NOW and MMDA deposits,  other borrowings and
advances from  borrowers  for taxes and  insurance is based upon their  carrying
value.  The  estimated  fair value for other time deposits as well as securities
sold under agreements to repurchase and FHLB advances is based upon estimates of
the rate the Company  would pay on such  deposits or borrowings at September 30,
1999 and 1998,  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.

     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, 1999 and 1998,  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, 1999 and 1998 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 16 - OTHER COMPREHENSIVE INCOME (LOSS)

     Other  comprehensive  income  (loss)  components  and related taxes were as
follows:

<TABLE>
<CAPTION>


                                                                   1999               1998               1997
                                                               -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>
Net change in net unrealized gains and losses
  on securities available for sale
                Unrealized gains (losses) arising during
                  the year                                     $(1,109,639)       $  (188,757)       $   491,503
                Reclassification adjustment for gains
                  included in net income                            (3,803)            (7,673)            (6,098)
                Net change in net unrealized gains
                  and losses on securities available
                  for sale                                      (1,113,442)          (196,430)           485,405
Tax effects                                                       (441,036)           (77,805)           192,269
                                                               -----------        -----------        -----------
                Total other comprehensive income (loss)        $  (672,406)       $  (118,625)       $   293,136
                                                               ===========        ===========        ===========
</TABLE>




                                     - 42 -
<PAGE>

NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>


                                                  Year Ended September 30, 1999
                                         -----------------------------------------------
                                           1st          2nd          3rd          4th
(In thousands, except per share data)    Quarter      Quarter      Quarter       Quarter
                                         -----------------------------------------------
<S>                                       <C>          <C>          <C>          <C>
Interest income                           $5,960       $5,957       $6,075       $6,262
Interest expense                           3,626        3,589        3,608        3,625
                                         -----------------------------------------------
Net interest income                        2,334        2,368        2,467        2,637
Provision for loan losses                     45           45           65           75
                                         -----------------------------------------------
Net interest income after provision
  for loan losses                          2,289        2,323        2,402        2,562
Noninterest income                           304          286          258          372
Noninterest expense                        1,467        1,594        2,023        1,923
                                         -----------------------------------------------
Income before income taxes                 1,126        1,015          637        1,011
Income tax expense                           463          421          272          429
                                         ===============================================
Net income                                $  663       $  594       $  365       $  582
Basic earnings per common share $            .46       $  .42       $  .26       $  .42
Diluted earnings per common share         $  .45       $  .40       $  .25       $  .41


                                                   Year Ended September 30, 1998
                                         -----------------------------------------------
                                           1st          2nd          3rd          4th
(In thousands, except per share data)    Quarter      Quarter      Quarter       Quarter
                                         -----------------------------------------------
Interest income                           $4,819       $5,154       $5,391       $5,474
Interest expense                           2,818        2,958        3,161        3,267
                                         -----------------------------------------------
Net interest income                        2,001        2,196        2,230        2,207
Provision for loan losses                     15           15           20           70
                                         -----------------------------------------------
Net interest income after provision
  for loan losses                          1,986        2,181        2,210        2,137
Noninterest income                           165          162          182          455
Noninterest expense                        1,279        1,461        1,396        1,489
                                         -----------------------------------------------
Income before income taxes                   872          882          996        1,103
Income tax expense                           370          216          508          523
                                         ===============================================
Net income                                $  502       $  666       $  488       $  580
Basic earnings per common share           $  .32       $  .43       $  .31       $  .38
Diluted earnings per common share         $  .30       $  .40       $  .30       $  .37
</TABLE>