ANNUAL REPORT
                                 TO SHAREHOLDERS



                                TABLE OF CONTENTS
                                                                           Page

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 ....................................  23
Notes to Consolidated Financial Statements ...............................  25
Directors and Executive Officers .........................................  56
Shareholder Information ..................................................  57



DESCRIPTION OF BUSINESS

MFB Corp. is an Indiana unitary  savings and loan holding  company  organized in
1993,  and parent  company of its wholly  owned  savings  bank  subsidiary,  MFB
Financial (the "Bank"). MFB Corp. and the Bank (collectively  referred to as the
"Company")  conduct  business from their corporate  office located in Mishawaka,
Indiana and its eleven 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 business customers. The Bank's wholly-owned
subsidiary,   Mishawaka  Financial  Services,  Inc.,  offers  general  property,
casualty,  life and health insurance to customers in the Bank's market area. The
Bank's wholly-owned  subsidiaries,  MFB Investments I, Inc., MFB Investments II,
Inc.  and MFB  Investments,  LP are  Nevada  corporations  and a Nevada  limited
partnership that manage a portion of the Bank's investment portfolio.




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MESSAGE TO OUR SHAREHOLDERS

     On  behalf  of the  Board of  Directors,  our  management  team and all the
employees of MFB Corp. and its subsidiary,  MFB Financial,  it is my pleasure to
provide you with our Annual Report for the fiscal year ended September 30, 2004.

     Without question the past year was an eventful one for our organization. In
October,  2003 we acquired our new headquarters  facility.  After remodeling the
building  to meet our  needs,  we  completed  our move  this past  summer.  This
facility now houses all administrative and support staff as well as our business
banking  and  wealth  management  personnel.  This  consolidation  into a single
location from two separate ones has improved  efficiency for the bank and morale
for our employees.  Although  overhead  expenses of the building have negatively
affected  earnings in the short term, we expect to generate  considerable  lease
income  from the 60% of the  building  that we do not  occupy.  In fact,  at the
present time we are completing  negotiations  with two quality  tenants that not
only will  generate  revenue but enhance the image of the  building as a premier
professional property in this area.

     In  August,  2004 we  completed  the  acquisition  of  certain  assets  and
assumption  of certain  liabilities  of  Sobieski  Bank  located in South  Bend,
Indiana. This was the first such acquisition ever undertaken by our 115 year old
institution.  MFB  Financial  acquired  $7.3 million in cash,  $35.9  million in
investments,  $53.7  million in net loans and $9.4  million in other assets from
Sobieski.  The  liabilities  assumed  included $69.3 million in deposits,  $35.7
million in FHLB  advances  and  $884,000 in other  liabilities.  This  strategic
transaction has allowed MFB to have an immediate and  substantial  presence in a
portion of St.  Joseph  County where we were  previously  underrepresented.  The
acquisition improves our growth potential in this market and we are very pleased
with the  relationships we are building with our new clients in the western part
of the county.

     In  addition  to the  three  branch  locations  acquired  in  the  Sobieski
purchase, we also constructed and opened our new MFB Erskine branch on the south
side of South Bend in early 2004.  The Bank now operates  eleven  offices across
our two county market area.

     Primarily as a result of the acquisition,  total assets grew $112.6 million
from $428.6 million at the end of last year to $541.2 million at the end of this
fiscal year. Additionally,  loans increased $81.7 million and deposits increased
$65.8 million this year. While  considerable  balance sheet growth occurred this
past year, we retained our focus on the continued  improvement in asset quality.
The result was a decrease in nonperforming  assets from 1.43% of total loans one
year ago to 1.07% at year end.

     The Company  generated net income of $1.8 million ($1.30  diluted  earnings
per common  share) for the year.  We  experienced  strong growth in net interest
income and  noninterest  income.  This  revenue  growth was offset by  increased
noninterest expense driven  significantly by the expansion mentioned above. Book
value per common share  outstanding was $27.02 at year-end,  up from $26.60 last
year and the Company  increased the annualized  dividend rate again this year to
$0.47 per share, the eighth consecutive annual increase. The market value of the
Company's shares was $31.54 per share at September 30, 2004.

     We look  forward to the year ahead with  optimism  and the  knowledge  that
continued  attention to the core  principles of high asset quality and steadfast
cost control will allow MFB to remain "Michiana's Finest Bank".


                                       Charles J. Viater
                                       President and Chief Executive Officer



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                            MFB CORP. AND SUBSIDIARY
                      SELECTED CONSOLIDATED FINANCIAL DATA

The  following  selected  consolidated  financial  data  of MFB  Corp.  and  its
subsidiary  is qualified  in its entirety by, and should be read in  conjunction
with the consolidated  financial statements,  including notes thereto,  included
elsewhere in this Annual Report.

                                                                                    At September 30,
                                                           ----------------------------------------------------------------------
                                                                                     (In Thousands)
                                                           2004           2003            2002           2001           2000
                                                           ----           ----            ----           ----           ----
<S>                                                    <C>             <C>            <C>            <C>             <C>
Summary of Financial Condition:
Total assets                                           $   541,222     $   428,624    $   421,200    $   413,084     $   396,003
Loans receivable                                           399,925         318,155        316,391        311,613         317,178
Allowance for loan losses                                    6,074           5,198          5,143          4,632           1,672
Loans held for sale, net                                     1,034           6,626          6,404          3,074           6,495
Cash and cash equivalents                                   28,595          40,357         27,582         34,223          14,544
Securities available for sale, including FHLB stock         74,820          46,499         59,892         54,167          47,930
Goodwill and other intangible assets                         5,056               -              -              -               -
Deposits                                                   357,893         292,106        264,377        245,179         239,394
Securities sold under agreements to repurchase                   -               -              -         11,022           9,143
FHLB advances                                              133,443          98,790        119,215        119,685         112,152
Shareholders' equity                                        35,906          34,251         33,952         34,380          32,514



                                                                                Years Ended September 30,
                                                           ----------------------------------------------------------------------
                                                                                     (In Thousands)
                                                           2004           2003            2002           2001           2000
                                                           ----           ----            ----           ----           ----
Summary of Operating Results:
Interest income                                        $    22,792     $    23,326    $    26,188    $    30,316     $    28,666
Interest expense                                            11,089          12,244         13,829         17,972          16,473
                                                       -----------     -----------    -----------    -----------     -----------
     Net interest income                                    11,703          11,082         12,359         12,344          12,193
Provision for loan losses                                      800           1,110          3,369          3,096           1,106
                                                       -----------     -----------    -----------    -----------     -----------
     Net interest income after provision
         for loan losses                                    10,903           9,972          8,990          9,248          11,087
Noninterest income
     Service charges on deposit accounts                     3,030           1,624          1,049            903             666
     Trust fee income                                          495             464            298            213             146
     Insurance commissions                                     208             187            158            140             149
     Net realized gains from sales of loans                  1,032           3,395          1,578          1,046             525
     Loan servicing fees, net of amortization                   52            (603)           (84)            32              82
     Mortgage servicing right recovery (impairment)            217            (576)             -              -               -
     Net gain (loss) on securities available for sale         (109)             40           (934)           (52)            (41)
     Other                                                     755             450            104            314             137
                                                       -----------     -----------    -----------    -----------     -----------
         Total noninterest income                            5,680           4,981          2,169          2,596           1,664
Noninterest expense
     Salaries and employee benefits                          7,021           6,803          5,922          4,944           4,668
     Occupancy and equipment expense                         2,743           1,558          1,483          1,370           1,148
     Professional and consulting fees                        1,226             364            297            311             198
     Data processing expense                                   632             596            669            517             443
     Other expense                                           2,936           2,561          2,121          1,841           1,786
                                                       -----------     -----------    -----------    -----------     -----------
         Total noninterest expense                          14,558          11,882         10,492          8,983           8,243
                                                       -----------     -----------    -----------    -----------     -----------
Income before income taxes                                   2,025           3,071            667          2,861           4,508
Income tax expense                                             235             671             18            951           1,693
                                                       -----------     -----------    -----------    -----------     -----------
     Net income                                        $     1,790     $     2,400    $       649    $     1,910     $     2,815
                                                       ===========     ===========    ===========    ===========     ===========

<PAGE>


Supplemental Data:
Basic earnings per common share                        $     1.36      $    1.87      $     0.49     $     1.42      $    2.04
Diluted earnings per common share                            1.30           1.80            0.47           1.38           2.00
Dividends declared per common share                          .470           .435            .415           .395           .375
Book value per common share                                 27.02          26.60           25.53          25.72          23.93
Return on assets                                             0.40%          0.56%           0.16%          0.47%          0.75%
Return on equity                                             5.05           7.14            1.84           5.75           8.88
Interest rate spread                                         2.53           2.41            2.73           2.73           2.93
Net yield on average interest-earning assets                 2.81           2.73            3.08           3.15           3.38
Dividend pay-out ratio                                      34.56          23.26           84.69          27.82          18.38
Equity-to-assets                                             6.63           7.99            8.06           8.32           8.21
Non-performing assets to total loans                         1.07           1.43            1.88            .89            .02
Allowance for loan losses to total loans                     1.52           1.63            1.63           1.49            .53




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

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

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

The August, 2004 acquisition of certain assets and liabilities of Sobieski Bank,
as mentioned  throughout  the  "Management  Discussion and Analysis of Financial
Condition and Results of  Operations,"  has  significantly  impacted the balance
sheet  growth of the Company as compared to last year.  It is expected  that the
acquisition will significantly  increase revenues in 2005,  particularly related
to net interest income, service charges on deposit accounts and mortgage related
noninterest  income.   Noninterest   expenses  are  expected  to  also  increase
significantly, particularly related to salaries and employee benefits, occupancy
and equipment and other expense. Although management expects this acquisition to
be accretive  to earnings  next year,  no assurance  can be given that this will
occur.


CRITICAL ACCOUNTING POLICIES

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

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance for probable  incurred  credit losses,  increased by the provision for
loan losses and decreased by charge-offs, less recoveries.  Management estimates
the allowance for loan losses balance  required by evaluating  current  economic
conditions,  changes in character and size of the loan portfolio,



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delinquencies  and  adequacy of loan  collateral  securing  loan  delinquencies,
historical and estimated  charge offs and other  pertinent  information  derived
from a review  of the loan  portfolio.  Allocations  of the  allowance  for loan
losses may be made for specific loans,  but the entire allowance for loan losses
is available for any loan that, in management's judgment, should be charged-off.
Loan losses are charged  against the allowance  for loan losses when  management
believes the loan balance is uncollectible.

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

Fair Value of Securities  Available for Sale:  Securities available for sale are
carried  at fair  value,  with  unrealized  holding  gains and  losses  reported
separately in accumulated  other  comprehensive  income (loss),  net of tax. The
Company  obtains market values from a third party on a monthly basis in order to
adjust the  securities to fair value.  As a result of changes in the fair market
value  of  the  Company's  available  for  sale  securities   portfolio,   other
comprehensive (loss), net of tax, totaled $(326,000),  $(272,000) and $(239,000)
for 2004, 2003, and 2002, respectively.  Additionally,  securities available for
sale are  required to be written down to fair value when a decline in fair value
is not  temporary;  therefore,  future  changes in the fair value of  securities
could  have  a  significant  impact  on  the  Company's  operating  results.  In
determining  whether a market value decline is other than temporary,  management
considers the reason for the decline, the extent of the decline and the duration
of the decline. As of September 30, 2004, unrealized losses on equity securities
(primarily  floating rate government  sponsored entity preferred stocks) totaled
approximately  $875,000.  These losses have not been  recognized into net income
because  the  securities  are of  high  credit  quality  (rated  AA or  higher),
management  has  the  intent  and  ability  to  hold  the  investments  for  the
foreseeable  future,  and  the  decline  in fair  value  is  largely  due to the
historically  low market interest rates at the time the Company's  floating rate
preferred  stocks  repriced.  The  fair  value is  expected  to  recover  as the
securities  approach  their  repricing  dates and market rates rise.  Should our
consideration  of these  factors  change,  the Company may be required to record
unrealized  losses on some or all of these  investments in the income statement.
Further,  future  changes in  generally  accepted  accounting  principles  could
require us to record  unrealized  losses on some or all of these  investments in
the income statement.

Mortgage Servicing Rights:  Servicing rights represent both purchased rights and
the allocated value of servicing rights retained on loans sold. Servicing rights
are expensed in proportion  to, and over the period of,  estimated net servicing
revenues.  Impairment  is  evaluated  based  on the fair  value  of the  rights,
determined  using  prices for similar  assets with  similar  characteristics  or
discounted  cash flows using  market  based  assumptions.  Any  impairment  of a
grouping is reported as a valuation allowance. Changes in interest rates and the
level of refinance  activity can have volatile  effects on the carrying value of
servicing rights.  The Company obtains an outside appraisal on a quarterly basis
from a national  firm who  specializes  in mortgage  servicing  valuation.  This
valuation is used to evaluate the Company's  mortgage servicing rights asset for
impairment.  As September  30, 2004,  mortgage  servicing  rights had a carrying
value of $2.09 million.


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COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2004 AND 2003

RESULTS OF OPERATIONS

Consolidated  net income for the Company for the year ended  September  30, 2004
was $1.8 million or $1.30  diluted net income per common share  compared to $2.4
million or $1.80  diluted  net income  per common  share for the same  period in
2003.  The decrease in net income was primarily  attributable  to an increase in
noninterest  expense  partially  offset by an increase in net  interest  income,
decreased  provision  for  loan  losses  over  last  year  and  an  increase  in
noninterest income.

Net interest  income totaled $11.7 million for the year ended September 30, 2004
compared  to $11.1  million for the same  period one year ago.  Interest  income
decreased  $534,000 and interest expense  decreased $1.1 million during the year
ended  September 30, 2004 compared to the same period in 2003.  Although  record
low interest  rates began to increase  during the later half of the fiscal year,
the Company  experienced  overall  decreases in yield earned on interest bearing
assets and rates paid on interest  bearing  liabilities as compared to the prior
year  due  to   downward   repricing   of  these   instruments.   The  yield  on
interest-earning assets decreased 28 basis points from 5.75% in 2003 to 5.47% in
2004. The average interest rate paid on interest-bearing  liabilities  decreased
40 basis points from 3.34% to 2.94% during the same period, and as a result, the
interest rate spread increased 12 basis points from 2.41% to 2.53% in 2004.

The provision for loan losses is determined  in  conjunction  with  management's
review and evaluation of current economic  conditions,  changes in the character
and size of the loan portfolio,  loan  delinquencies  (current status as well as
past trends),  adequacy of collateral  securing  impaired and delinquent  loans,
historical and estimated net charge-offs and other pertinent information.  Based
on the factors above,  the provision for loan losses decreased from $1.1 million
for the year ended  September 30, 2003 to $800,000 for the year ended  September
30, 2004. Net charge-offs  totaled $1.1 million and $526,000 for the years ended
September 30, 2003 and 2004 respectively. The Bank continues to improve its loan
review and risk assessment  procedures  giving  particular  consideration to the
risks related to the growing  commercial loan portfolio and the risk of loss for
$2.2 million of commercial loans classified as impaired at the end of this year.
Impaired  loans  declined  from $4.0  million  last year due to charge  offs and
payments on those loans.

Noninterest  income  increased  from $5.0  million for the twelve  months  ended
September  30,  2003 to $5.7  million  for the year ended  September  30,  2004.
Service charges on deposit accounts,  trust fee income and insurance commissions
reflected  strong growth from 2003 to 2004,  offset by the decrease in net gains
on loans sold to secondary markets. Loans sold to the secondary market decreased
by 59.3% between 2003 and 2004. In addition to the items above,  the increase in
noninterest  income was affected by two  additional  items,  mortgage  servicing
right impairment and subsequent recoveries and net losses on securities. For the
year ended September 30, 2004, the mortgage  servicing rights valuation recovery
was  $217,000  compared  to the  impairment  charge of $576,000  last year.  The
impairment and recovery on mortgage  servicing  rights is related to the decline
and subsequent  recovery in the market value of servicing rights associated with
MFB  Financial's  $207 million  mortgage loan servicing  portfolio.  The loss on
securities  for the year of  $109,000  is the  result of a write  down of equity
securities held by MFB Corp. based on current estimates of fair value.

Noninterest  expense  increased  from  $11.9  million to $14.6  million  for the
comparable  twelve month periods ending September 30. The significant  growth in
occupancy  expense is related to the operation of three acquired  branches,  the
opening of another branch and the expenses related to the acquisition of the new
Corporate  offices.  Professional  and consulting  fees increased over the prior
year due to two major  projects  and  expenses  related  to the  acquisition  of
certain  assets  and  assumption  of  certain   liabilities  of  Sobieski  Bank.
Management  expects   professional  and  consulting   expenses  related  to  the
acquisition  to decline  significantly  for the


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year  ended  September  30,  2005.  However,  consulting  related  expenses  for
implementation  of  Sarbanes/Oxley  Section  404  regulations  are  expected  to
increase significantly.  The internal control reporting requirements mandated by
Section 404 are to be  implemented  by the Company by September 30, 2005.  Other
expense  increased  over last year due to increases in  advertising,  telephone,
postage,  insurance and foreclosure expenses. Other expenses also increased over
last year due to $97,000 of amortization  expense on intangible  assets recorded
in the acquisition. Amortization expense is expected to be $559,000 next year.

Income tax  expense  declined  from  $671,000  last year to  $235,000  this year
primarily  due to decreased net income  before tax.  Federal  income tax expense
declined  from  $552,000 to $229,000 and state income tax expense  declined from
$119,000 to $6,000.  The overall effective income tax expense rate declined from
21.9% last year to $11.6% this year  primarily  due to  maintaining a comparable
level of low income  housing  income tax credits on a reduced  amount of taxable
income.


BALANCE SHEET COMPOSITION

Cash and cash  equivalents  decreased  $11.8  million  from $40.4  million as of
September 30, 2003 to $28.6  million as of September 30, 2004.  Net cash used in
investing  activities  of $27.3  million  was  offset  by net cash  provided  by
operating  activities  and financing  activities  amounting to $12.6 million and
$3.0 million, respectively.

As of September 30, 2004,  the total  securities  available  for sale  portfolio
amounted to $66.0  million,  an increase of $26.0  million from $40.0 million at
September  30,  2003.  Securities  available  for sale  and FHLB  stock of $35.9
million were part of the  acquisition  of certain assets from Sobieski Bank. The
securities  portfolio  activity  included  security  purchases of $11.0 million,
security  maturities  and sales  totaling  $8.9 million,  principal  payments on
mortgage-backed and related securities of $9.2 million,  and a $700,000 decrease
due to premium  amortization  and market value declines on securities  available
for sale.

As of September 30, 2004, loans  receivable were $399.9 million,  an increase of
$81.7  million from $318.2  million as of September 30, 2003.  Commercial  loans
outstanding increased by $30.2 million from $130.4 million at September 30, 2003
to $160.6  million at  September  30, 2004.  Consumer  loan  receivables,  which
include  home  equity  term loans and lines of credit,  increased  $9.0 to $39.0
million while  residential  mortgage loans  increased  $42.5 million from $157.8
million  to $200.3  million  at  September  30,  2004.  As part of the  Sobieski
acquisition  mentioned above,  $40.2 million of mortgage loans,  $9.3 million of
commercial   loans,   and  $4.7  million  of  consumer  loans,   were  acquired.
Diversification  of the asset mix in the  balance  sheet will  continue  to be a
focus to improve profit  margins,  control margin  volatility and to appeal to a
broader  range of customers and potential  customers.  The Company  continues to
build on its reputation as a quality local lender satisfying the market's desire
for local service and local decision making.

During the year ended September 30, 2004, the Company completed secondary market
mortgage loan sales totaling $46.8 million,  and the net gains realized on these
loan sales were $1.0 million,  including  $581,000 related to recording mortgage
loan servicing  rights.  Loan sales last year were $115.1  million,  and the net
gains  realized on these loans sales were $3.4 million,  including  $1.3 million
related to recording  mortgage loan servicing rights.  The loans sold during the
year ended  September 30, 2004 were  primarily  fixed rate  mortgage  loans with
maturities  of fifteen years or longer.  The sale of mortgage  loans serves as a
source of additional liquidity and management  anticipates that the Company will
continue to deliver  fixed rate loans to the  secondary  market to meet consumer
demand,  manage  interest rate risk, and diversify the


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asset mix of the Company.  Adjustable  rate loans often  provide rates of return
that are  generally  superior to other  investments  that carry similar terms to
repricing.  The  Company  anticipates  that  these  loans  will  continue  to be
originated  and  retained  in the Bank's  portfolio.  As part of its  efforts to
manage interest rate risk, the Company originated and held in its portfolio $4.8
million of fixed rate mortgage loans  originated  during 2004,  with an interest
rate of 6.00%.  At September 30, 2004,  $1.0 million of loans were classified as
loans held for sale  compared to $6.6  million at September  30, 2003.  Mortgage
loans  serviced for others by the Company grew from $161.6  million last year to
$206.5 million at the end of this year of which,  $31.9 million were acquired in
the acquisition.

The  Company's  allowance for loan losses at September 30, 2004 was $6.1 million
or 1.52% of loans,  comparable  to the $5.2 million or 1.63% of loans at the end
of last year.  Loan loss  reserves  of  $602,000  were  acquired  as part of the
acquisition.  The ratio of nonperforming  assets to loans was 1.07% at September
30, 2004  compared to 1.43% at September  30, 2003.  Based on the  evaluation of
many factors including current economic conditions, changes in the character and
size of the loan portfolio,  current and past delinquency  trends and historical
and estimated net charge-offs,  the Company  provided  $800,000 to its allowance
for loan  losses  during the year ended  September  30,  2004  compared  to $1.1
million for the prior year ended  September  30, 2003.  Net charge offs deducted
from the allowance  for loan losses were  $526,000 for the year ended  September
30, 2004  compared to $1.1  million  last year.  In  management's  opinion,  the
Company's  allowance  for loan  losses  at  September  30,  2004  and loan  loss
provision for the year is  appropriate  in light of an improving  loan portfolio
offset by the  allowance  determined  to be necessary  for an  additional  $54.3
million in new loans from the acquisition.

Premises and  equipment  increased  from $6.1  million at September  30, 2003 to
$19.4  million at September  30, 2004 due to the purchase and  remodeling of the
Corporate  headquarters,  opening of an additional branch and the acquisition of
fixed  assets  related to  Sobieski  Bank.  On October  31,  2003,  the  Company
completed  the $7.3  million  purchase  of an existing  building  in  Mishawaka,
Indiana  to serve  as its new  corporate  headquarters.  The  Company  presently
occupies  approximately  35% of that 120,000 square foot building and intends to
lease the remaining space to tenants.  Presently,  tenants occupy  approximately
15,000 square feet under leases that run through February 29, 2005. The location
of  the  new  headquarters  building  is  expected  to  accelerate  the  growth,
recognition  and  efficiency of the  organization.  Fixed assets of $3.4 million
were added this year as a result of the  Sobieski  acquisition  including  three
branch offices.

Goodwill and other intangible assets totaling $5.15 million were recorded at the
acquisition  date as a result of the purchase of certain assets and  liabilities
of  Sobieski  Bank.  These  intangibles  represent  the  difference  between the
purchase  price  and the  value of the  assets  purchased  and the  value of the
liabilities  assumed.  At  September  30, 2004 the balance of Goodwill was $2.36
million and the balance of the other  intangible  assets was $2.69 million.  The
Company  will  assess  goodwill  for  impairment  at least  annually.  The other
intangible  assets included the identified  value of the core deposits  acquired
and the value of customer relationships  obtained in the acquisition.  These two
intangible assets are amortized to expense over a ten year period.

Total  deposits  increased  $65.8 million to $357.9  million as of September 30,
2004 from $292.1 million as of September 30, 2003.  Core deposits  consisting of
demand,  NOW, savings and MMDA accounts  increased from $133.8 million to $167.8
million from September 30, 2003 to September 30, 2004. As part of the assumption
of  certain   liabilities  of  Sobieski  Bank,  MFB  assumed  $47.4  million  in
certificates  of deposits and $21.8 million of core deposits.  Federal



--------------------------------------------------------------------------------
                                        7
<PAGE>

Home Loan Bank ("FHLB")  advances  increased  from $98.8 million as of September
30, 2003 to $133.4 million as of September 30, 2004. This increase was primarily
due to the assumption of Sobieski Bank's FHLB advances totaling $35.7 million.

Total shareholders' equity increased from $34.3 million as of September 30, 2003
to $35.9 million as of September 30, 2004. The increases to equity resulted from
net income of $1.8  million and  $523,000  generated  from the exercise of stock
options, offset by cash dividend payments of $617,000, and a $326,000 adjustment
to reflect the decrease in market value of  securities  available  for sale.  As
discussed in Note 3 of the "Notes to  Consolidated  Financial  Statements,"  the
Company has continued to  experience a  significant  decline in the value of two
marketable equity securities due to the low rate environment.  The book value of
MFB Corp.  common  stock,  based on the  actual  number  of shares  outstanding,
increased from $26.60 at September 30, 2003 to $27.02 at September 30, 2004.


COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2003 AND 2002

RESULTS OF OPERATIONS

Consolidated  net income for the Company for the year ended  September  30, 2003
was $2.4  million or $1.80  diluted  net income per  common  share  compared  to
$649,000  or $0.47  diluted  net income per common  share for the same period in
2002.  The  increase  in net income was  primarily  attributable  to a decreased
provision for loan losses over the previous year and an increase in  noninterest
income  offset by decreased net interest  income and an increase in  noninterest
expense.

Net interest  income totaled $11.1 million for the year ended September 30, 2003
compared to $12.4 million for the same period in 2002. Interest income decreased
$2.9 million and interest  expense  decreased $1.6 million during the year ended
September 30, 2003 compared to the same period in 2002. Despite increases in the
volume of interest earning assets and interest bearing  liabilities from 2002 to
2003, net interest  income  decreased as a result of the decline in the interest
rates earned on interest  earning assets exceeding the decline in interest rates
paid on  interest  bearing  liabilities.  The yield on  interest-earning  assets
decreased  79 basis  points  from  6.54% in 2002 to 5.75% in 2003.  The  average
interest  rate paid on  interest-bearing  liabilities  decreased 46 basis points
from 3.80% to 3.34% during the same period,  and as a result,  the interest rate
spread  decreased 32 basis points from 2.73% in 2002 to 2.41% in 2003.  The rate
paid on interest bearing deposits  declined from 2.95% in 2002 to 2.30% in 2003.
However, the rate paid on FHLB borrowings only declined from 5.68% to 5.64%.

The  provision  for loan losses  decreased  from $3.4 million for the year ended
September 30, 2002 to $1.1 million for the year ended  September  30, 2003.  Net
charge-offs  totaled $2.9 million and $1.1 million for the years ended September
30, 2002 and 2003  respectively.  For the year ended  September  30,  2002,  the
provision was charged $1.25 million  related to a commercial loan to a furniture
manufacturing  company. The provision was also charged $770,000 for increases in
loss allocations on certain  commercial  loans from information  obtained from a
required periodic  examination  completed in August 2002 by the Office of Thrift
Supervision  (OTS).  For the year ended  September  30,  2003,  the $1.1 million
provision relates  specifically to the factors above and $387,000 in charge offs
on two loans  exceeding  specific  reserves  allocated to those loans.  Impaired
loans  declined  from $6.6  million at  September  30,  2002 to $4.0  million at
September  30, 2003 due to the loan charge offs above and an $850,000  reduction
in the balance of one specific impaired loan from liquidation of collateral.

Noninterest  income  increased  from $2.2  million for the twelve  months  ended
September  30,  2002 to $5.0  million  for the year ended  September  30,  2003.
Service charges on deposit accounts, trust fee income, insurance commissions and
net gains from sale of loans  reflected  strong


--------------------------------------------------------------------------------
                                        8
<PAGE>

growth from 2002 to 2003. The decline in the overall  interest rate  environment
resulted in a significant  increase in mortgage loan originations and subsequent
mortgage loan sales to the secondary  market.  Related to this, the rate decline
also  contributed  to  heavy  mortgage  refinancings  leading  to a  significant
increase in  amortization of mortgage  servicing  rights which is netted against
loan servicing fees. Other noninterest income increased  primarily due to income
earned from the purchase of two bank owned life insurance policies.  In addition
to the items  above,  the  increase in  noninterest  income was  affected by two
additional  items,  mortgage  servicing right  impairment and net gain (loss) on
securities. During the third quarter ended June 30, 2003, the Company recorded a
$704,000  ($425,000 net of tax) impairment charge due to the decline in value of
its approximate $161.6 million mortgage loan servicing  portfolio.  The value of
mortgage  servicing   portfolios  in  the  mortgage  banking  industry  declined
significantly from 2002 due to the record low interest rate environment.  Due to
a moderate  increase  in values,  a $465,000  ($280,000  net of tax)  impairment
recovery was recorded during the fourth quarter ended September 30, 2003. During
the year ended  September 30, 2002, the Company  recorded an $895,000 write down
of a $1.0 million WorldCom,  Inc. corporate note investment.  That note was sold
in October, 2002 for $160,000 netting a gain of $40,000.

Noninterest  expense  increased  from  $10.5  million to $11.9  million  for the
comparable  twelve  month  periods  ending  September  30,  2002 and  2003.  The
significant  growth in salaries and benefits is the result of continued staffing
of several key positions in the  organization  designed to position the Bank for
growth  in  the  coming  years,   increases  in  mortgage   commissions  due  to
significantly  higher mortgage origination volume and pension expense related to
the termination of the Company's  pension plan.  Occupancy expense increased due
to additional  furniture and equipment  purchases while data processing  expense
decreased due to the  renegotiation of contracted  information  system services.
Other  expense  increased  from 2002 to 2003 due to  increases  in  advertising,
telephone, postage, business development, consulting and foreclosure expenses.


ASSET/LIABILITY MANAGEMENT

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

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

As part of its efforts to monitor  and manage  interest  rate risk,  the Company
uses the Net Portfolio Value ("NPV") methodology adopted by the Office of Thrift
Supervision (OTS) 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 which was
8.72% as of September 30, 2004,  down slightly from 9.05% at September 30, 2003.
Management and the Board of Directors review the OTS measurements on a quarterly
basis to determine  whether the  Company's  interest rate exposure is within the
limits established by the Board of Directors in the Company's interest rate risk
policy.

The Company's asset/liability  management strategy dictates acceptable limits on
the amounts of change in NPV given certain changes in interest rates. The tables
presented  here,  as of  September  30,  2004 and 2003,  are an  analysis of the
Company's interest rate risk as measured by


--------------------------------------------------------------------------------
                                        9
<PAGE>

changes in NPV for  instantaneous  and  sustained  parallel  shifts in the yield
curve,  in 100 basis point  increments,  up 300 basis  points and down 100 basis
points (Due to the  abnormally  low interest rate  environment  at September 30,
2004 and 2003,  data was not  available  from the OTS for the shift  downward in
rates by 200 and 300 basis points).

As  illustrated  in the September 30, 2004 table below,  the Company's  interest
rate risk is sensitive to both rising and  declining  rates.  The decline in NPV
with a rate  reduction  is due to the change in value of fixed rate Federal Home
Loan Bank borrowings  that would occur.  The decline in NPV with a rate increase
is due to the relative volume of mortgage assets with fixed rate characteristics
in the OTS model over the volume of liabilities with fixed rate characteristics.


                               September 30, 2004
                               ------------------
                              (Dollars in Thousands)

     Change in                                        NPV as % of Portfolio
  Interest Rates       Net Portfolio Value               Value of Assets
    In Basis      ------------------------------     ------------------------
     Points                                           NPV
(Rate Shock) (1)  $ Amount   $ Change   % Change     Ratio         Change (1)
---------------   --------   ---------  --------     -----         ----------
      +300        $36,125    $(12,586)    (26)%      6.80%          (192) bp
      +200         41,987      (6,725)    (14)       7.76            (96) bp
      +100         46,357      (2,355)     (5)       8.42            (30) bp
         0         48,712           -       -        8.72                  -
      (100)        47,138      (1,574)     (3)       8.37            (35) bp

(1) Expressed in basis points

Specifically,  the September 30, 2004 table indicates that the Company's NPV was
$48.7 million or 8.72% 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 $6.7 million or 14%  decrease in the  Company's  NPV and
would result in a 96 basis point  decrease in the  Company's NPV ratio to 7.76%.
Also,  an  immediate  100 basis point  decrease in market  interest  rates would
result in a $1.6  million or 3% decrease in the  Company's  NPV,  and a 35 basis
point decrease in the Company's NPV ratio to 8.37%.

As illustrated in the September 30, 2003 table below, the Company's interest
rate risk was sensitive to both a significant rise and a decline in rates for
the same reasons as noted above.


                               September 30, 2003
                               ------------------
                              (Dollars in Thousands)

     Change in                                        NPV as % of Portfolio
  Interest Rates       Net Portfolio Value               Value of Assets
    In Basis      ------------------------------     ------------------------
     Points                                           NPV
(Rate Shock) (1)  $ Amount   $ Change   % Change     Ratio         Change (1)
---------------   --------   ---------  --------     -----         ----------
      +300        $37,705     $(2,940)     (7)%      8.74%           (31) bp
      +200         39,819        (826)     (2)       9.09               4 bp
      +100         40,966         321       1        9.23              18 bp
         0         40,645                            9.05
      (100)        38,193      (2,452)     (6)       8.43            (62) bp

(1) Expressed in basis points

Specifically,  the September 30, 2003 table indicates that the Company's NPV was
$40.6 million or 9.05% 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 $826,000 or 2.0%


--------------------------------------------------------------------------------
                                        10
<PAGE>

decline in the Company's NPV and would result in a 4 basis point increase in the
Company's NPV ratio to 9.09%.  Also,  an immediate  100 basis point  decrease in
market  interest  rates would result in a $2.5  million or 6.0%  decrease in the
Company's  NPV,  and a 62 basis  point  decrease in the  Company's  NPV ratio to
8.43%.

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

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

The Board of  Directors  and  management  of the Company  believe  that  certain
factors  afford the  Company  the  ability to operate  successfully  despite its
exposure to interest  rate risk.  The Company  manages its interest rate risk by
originating and retaining adjustable rate loans in its portfolio and by normally
selling  currently  originated fixed rate one-to-four  family real estate loans.
Loans classified as held for sale as of September 30, 2004 totaled $1.0 million.
The Company retains the servicing on loans sold in the secondary  market and, at
September 30, 2004, $206.5 million of such loans were being serviced for others.

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

The Company offers a range of maturities on its deposit  products at competitive
rates and monitors the  maturities on an ongoing  basis.  The Company's  cost of
interest-bearing  funds has declined from 3.34% for the year ended September 30,
2003 to 2.94% for the year  ended  September  30,  2004.  The  Company  has also
experienced an increase in the percentage of low interest cost demand and saving
deposits  to total  deposits  which  reduces its  sensitivity  to an increase in
rates.

--------------------------------------------------------------------------------
                                        11
<PAGE>
<TABLE>
<CAPTION>

AVERAGE BALANCE SHEETS

The following are the average balance sheets for the years ended September 30:

                                                                2004               2003            2002
                                                               Average            Average         Average
                                                             Outstanding        Outstanding     Outstanding
                                                               Balance            Balance         Balance
                                                               -------            -------         -------
                                                                               (In Thousands)
<S>                                                         <C>                 <C>             <C>
Assets:
Interest earning assets:
     Interest-bearing deposits                              $     21,210        $     30,856    $     22,797
     Mortgage-backed securities (1)                               18,741              25,852          26,261
     Other securities available for sale (1)                      24,235              24,412          30,216
     FHLB stock                                                    6,932               6,359           6,308
     Loans held for sale (2)                                       1,287               1,532             353
     Loans receivable (3)                                        343,545             316,223         314,210
                                                            ------------        ------------    ------------
         Total interest-earning assets                           415,950             405,234         400,145
Noninterest-earning assets, net
  of allowance for loan losses                                    29,116              21,643          17,675
                                                            ------------        ------------    ------------

         Total assets                                       $    445,066        $    426,877    $    417,820
                                                            ============        ============    ============

Liabilities and shareholders' equity:
Interest-bearing liabilities:
     Savings accounts                                       $     35,309        $     28,714    $     19,249
     NOW and money market accounts                                79,500              67,389          59,433
     Certificates of deposit                                     156,961             155,740         155,519
     Repurchase agreements                                             -                   -           9,988
     Other borrowings                                              1,078                 155               -
     FHLB advances                                               104,801             114,146         119,297
                                                            ------------        ------------    ------------
         Total interest-bearing liabilities                      377,649             366,144         363,486
Other liabilities                                                 31,974              27,129          19,020
                                                            ------------        ------------    ------------
              Total liabilities                                  409,623             393,273         382,506

Shareholders' equity:
     Common stock                                                 12,393              13,020          12,944
     Retained earnings                                            32,120              29,901          30,402
     Net unrealized gain (loss) on
       securities available for sale                                (812)               (419)           (196)
     Treasury stock                                               (8,258)             (8,898)         (7,836)
                                                            -------------       -------------   ------------
     Total shareholders' equity                                   35,443              33,604          35,314
                                                            ------------        ------------    ------------
     Total liabilities and
       shareholders' equity                                 $    445,066        $    426,877    $    417,820
                                                            ============        ============    ============

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


--------------------------------------------------------------------------------
                                        12
</TABLE>
<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, repurchase agreements 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.


                                                    Year ended September 30,
                                                 2004        2003         2002
                                                 ----        ----         ----
Average interest rate earned on:
     Interest-bearing deposits                    0.82%       1.11%        1.88%
     Mortgage-backed securities (1)               3.21        2.22         4.39
     Other securities available for sale (1)      3.08        4.16         4.67
     FHLB stock                                   4.63        5.32         6.31
     Loans held for sale                          6.07        6.62         7.24
     Loans receivable                             6.07        6.62         7.24
         Total interest-earning assets            5.47        5.75         6.54

Average interest rate of:
     Savings accounts                              .62        0.95         1.12
     NOW and money market accounts                 .72        0.75         1.18
     Certificates of deposit                      2.94        3.22         3.85
     Repurchase agreements                           -           -         1.54
     FHLB advances                                5.38        5.64         5.68
     Other borrowings                             3.52        3.87            -
         Total interest-bearing liabilities       2.94        3.34         3.80

Interest rate spread (2)                          2.53        2.41         2.73
Net yield on interest-earning assets (3)          2.81        2.73         3.08

--------------------------------------------------------------------------------
(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.



--------------------------------------------------------------------------------
                                        13
<PAGE>

The following  table describes the extent to which changes in interest rates and
changes in volume of  interest-related  assets and liabilities have affected the
Company's consolidated interest income and expense during the periods indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information  is provided on changes  attributable  to (1) changes in rate (i.e.,
changes in rate  multiplied  by old  volume)  and (2)  changes in volume  (i.e.,
changes in volume  multiplied by old rate).  Changes not solely  attributable to
rate or volume have been allocated  proportionately  to the change due to volume
and the change due to rate.


<TABLE>
<CAPTION>

Year ending September 30, 2004
compared to year ended                                        Total Net         Due to          Due to
September 30, 2003                                             Change            Rate           Volume
                                                               ------            ----           ------
                                                                            (In Thousands)
<S>                                                          <C>             <C>              <C>
Interest-earning assets:
     Interest-bearing deposits                               $       (167)   $        (76)    $        (91)
     Securities                                                        30             212             (182)
     Mortgage-backed securities                                      (269)           (270)               1
     FHLB stock                                                       (17)            (46)              29
     Loans held for sale                                              (23)             (8)             (15)
     Loans receivable                                                 (88)         (1,820)           1,732
                                                             -------------   -------------    ------------
         Total                                                       (534)         (2,008)           1,474
Interest-bearing liabilities:
     Savings accounts                                                 (53)           (107)              54
     NOW and money market accounts                                     67             (21)              88
     Certificates of deposit                                         (405)           (444)              39
     Repurchase agreements                                              -               -                -
     Other borrowings                                                  32              (1)              33
     FHLB advances                                                   (796)           (284)            (512)
                                                             -------------   -------------    -------------
         Total                                                     (1,155)           (857)            (298)
                                                             -------------   -------------    -------------
Change in net interest income                                $        621    $     (1,151)    $      1,772
                                                             ============    =============    ============


Year ending September 30, 2003
compared to year ended                                        Total Net         Due to          Due to
September 30, 2002                                             Change            Rate           Volume
                                                               ------            ----           ------
                                                                            (In Thousands)
Interest-earning assets:
     Interest-bearing deposits                               $        (88)   $       (210)    $        122
     Securities                                                      (403)           (146)            (257)
     Mortgage-backed securities                                      (569)           (559)             (10)
     FHLB stock                                                       (60)            (63)               3
     Loans held for sale                                               76              (2)              78
     Loans receivable                                              (1,818)         (1,962)             144
                                                             -------------   -------------    ------------
         Total                                                     (2,862)         (2,942)              80
Interest-bearing liabilities:
     Savings accounts                                                  57             (36)              93
     NOW and money market accounts                                   (192)           (277)              85
     Certificates of deposit                                         (964)           (973)               9
     Repurchase agreements                                           (154)              -             (154)
     Other borrowings                                                   6               -                6
     FHLB advances                                                   (337)            (47)            (290)
                                                             -------------   -------------    -------------
         Total                                                     (1,584)         (1,333)            (251)
                                                             -------------   -------------    -------------
Change in net interest income                                $     (1,278)   $     (1,609)    $        331
                                                             =============   =============    ============


-----------------------------------------------------------------------------------------------------------
                                                  14
</TABLE>
<PAGE>

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.

Liquid  assets were $96.1  million as of  September  30, 2004  compared to $81.4
million as of September 30, 2003.  The sale of fixed rate loans  throughout  the
year, along with the growth in deposits and the maturity of securities available
for sale has provided sources of additional  liquidity.  Management believes the
Company's  liquidity  level  as of  September  30,  2004 is  sufficient  to meet
anticipated liquidity needs.

The cash flow statements provide an indication of the Company's sources and uses
of cash as well as an  indication  of the  ability of the Company to maintain an
adequate  level of  liquidity.  A  discussion  of the  changes  in the cash flow
statements for the years ended September 30, 2004, 2003 and 2002 follows.

During  the year  ended  September  30,  2004,  net  cash  and cash  equivalents
decreased  $11.8  million  from $40.4  million at  September  30,  2003 to $28.6
million at September 30, 2004.

The Company  experienced  a net increase in cash from  operating  activities  of
$12.6  million  during  the year  primarily  attributable  to net income of $1.8
million,  adjustments  for the provision for loan losses of $800,000,  change in
accrued expenses and other  liabilities of $2.4 million,  change in other assets
of $1.1  million,  and  proceeds  of  $46.8  million  realized  from the sale of
mortgage  loans,  offset by the  origination  of $40.7 million of loans held for
sale.  The Bank  originates,  sells and delivers its fixed rate,  owner-occupied
residential  mortgage loans on either a "Best Efforts" delivery program basis or
with FHLMC mandatory  delivery  programs.  The "Best Efforts" program allows the
Bank to commit loans for  delivery to  investors  at prices that are  determined
prior to loan approval. In the event that loans are not closed and therefore not
delivered,  the Bank incurs no penalty.  The strategy reduces interest rate risk
exposure by  minimizing  the volume of loans  closed and carried in the held for
sale loan portfolio.  Under the mandatory delivery programs, loans are committed
to be  delivered  at  predetermined  prices and  penalties  could be assessed if
delivery commitments are not met. Those loans held for sale originated at market
that are not committed for delivery at time of origination are subject to market
conditions  at time of sale.  Of the  $1.0  million  of  loans  held for sale at
September 30, 2004,  $800,000 were under the "Best Efforts" program and $200,000
were originated without predetermined scheduled delivery dates.

The $27.3  million  decrease in cash used in investing  activities  for the year
ended September 30, 2004 was primarily  related to loan  originations  exceeding
loan  payments by $29.5  million and fixed asset  acquisitions  and purchases of
$11.2  million,  offset by  principal  payments  and  maturities  of  securities
exceeding  security  purchases by $7.1 million and net cash acquired in the bank
acquisition of $6.9 million.

Financing  activities  generated  net cash of $2.9  million  for the year  ended
September 30, 2004.  The net cash was provided  primarily from the proceeds from
the borrowing by MFB Corp from a correspondent  bank mentioned below,  partially
offset by decreases of $3.3 million in deposit cash flows.  In August,  2004 MFB
Corp.  contributed $6.5 million of additional capital to the Bank



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

in conjunction  with MFB Financial's  purchase of certain assets and liabilities
of  Sobieski  Bank.  The  capital  contribution  was  funded  by a $6.5  million
borrowing  from MFB  Corp's  correspondent  bank (see Note 8 of the Notes to the
Consolidated  Financial  Statements).  The  proceeds  were  used by the  Bank to
bolster  its  capital  ratios  (see  Note 11 of the  Notes  to the  Consolidated
Financial  Statements),  fund the net cash of $407,000 paid at the acquisition's
closing  and  fund  the  various  legal,   accounting  and  regulatory  expenses
associated with the acquisition totaling approximately $440,000.


NEW ACCOUNTING PRONOUNCEMENTS

EITF Issue 03-1 entitled, The Meaning of Other-Than-Temporary Impairment and Its
Application  to Certain  Investments,  contains  accounting  guidance  regarding
other-than-temporary  impairment on  securities  that was to take effect for the
quarter ended  September 30, 2004.  However,  the effective  date of portions of
this guidance has been delayed,  and more interpretive  guidance is to be issued
in the near future. The effect of this new and pending guidance on the Company's
financial statements is not known, but it is possible this guidance could change
management's  assessment of  other-than-temporary  impairment in future periods.
(See  discussion  in Note 3 of the Notes to  Consolidated  Financial  Statements
related to fair value of securities available for sale.)

On March 31, 2004,  the FASB issued the  Exposure  Draft,  Share-based  payment,
which is a proposed  amendment  to SFAS No.  123,  "Accounting  for  Stock-based
Compensation." In this draft, the FASB formally proposed to require companies to
recognize the fair value of stock options and other stock-based  compensation to
employees for future  reporting  periods in the income  statement based on their
fair values.  The final  standard  would be effective  for public  companies for
interim or annual periods  beginning  after June 15, 2005. The Company is in the
process of evaluating the impact of the exposure draft.


IMPACT OF INFLATION

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

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

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

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


--------------------------------------------------------------------------------
                                        16
<PAGE>

FORWARD LOOKING STATEMENTS

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

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

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



--------------------------------------------------------------------------------
                                        17
<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Shareholders
MFB Corp.
Mishawaka, Indiana


We have audited the  accompanying  consolidated  balance sheets of MFB Corp. and
Subsidiary  as of  September  30,  2004 and 2003  and the  related  consolidated
statements  of income,  shareholders'  equity and cash flows for the years ended
September 30, 2004, 2003 and 2002. 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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 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,  2004  and  2003,  and the  results  of  their
operations and their cash flows for the years ended September 30, 2004, 2003 and
2002 in conformity with U.S. generally accepted accounting principles.




                                       Crowe Chizek and Company LLC

South Bend, Indiana
November 17, 2004



--------------------------------------------------------------------------------
                                        18
<PAGE>
<TABLE>
<CAPTION>

                                         MFB CORP. AND SUBSIDIARY
                                        CONSOLIDATED BALANCE SHEETS
                                        September 30, 2004 and 2003
-------------------------------------------------------------------------------------------------------------------

                                                                                    2004                 2003
                                                                                    ----                 ----
<S>                                                                          <C>                  <C>
ASSETS
Cash and due from financial institutions                                     $       9,524,380    $      13,881,081
Interest-bearing deposits in other financial
  institutions - short-term                                                         19,070,650           26,475,898
                                                                             -----------------    -----------------
     Total cash and cash equivalents                                                28,595,030           40,356,979

Securities available for sale                                                       66,021,011           40,028,743
Other Investments                                                                   12,628,329           10,019,782

Loans held for sale                                                                  1,033,800            6,625,540

Mortgage Loans                                                                     200,340,015          157,770,998
Commercial Loans                                                                   160,604,691          130,359,586
Consumer Loans                                                                      38,979,895           30,024,074
                                                                             -----------------    -----------------
     Loans receivable                                                              399,924,601          318,154,658
     Less:  allowance for loan losses                                               (6,074,134)          (5,198,137)
                                                                             ------------------   -----------------
       Loans receivable, net                                                       393,850,467          312,956,521
                                                                             -----------------    -----------------

Premises and equipment, net                                                         19,384,466            6,089,647
Mortgage servicing rights, net                                                       2,092,135            1,373,201
Cash surrender value of life insurance                                               5,706,756            5,217,387
Goodwill                                                                             2,362,836                    -
Other intangible assets                                                              2,692,900                    -
Other assets                                                                         6,854,706            5,955,850
                                                                             -----------------    -----------------
     Total assets                                                            $     541,222,436     $    428,623,650
                                                                             =================    =================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
     Deposits
         Noninterest-bearing demand deposits                                 $      31,657,521    $      26,481,555
         Savings, NOW and MMDA deposits                                            136,099,148          107,340,694
         Time deposits                                                             190,135,947          158,283,602
                                                                             -----------------    -----------------
              Total deposits                                                       357,892,616          292,105,851
                                                                             -----------------    -----------------

     Federal Home Loan Bank advances                                               133,443,392           98,790,251
     Loans from correspondent banks                                                  6,500,000              300,000
      Accrued expenses and other liabilities                                         7,480,558            3,176,342
                                                                             -----------------    -----------------
         Total liabilities                                                         505,316,566          394,372,444
                                                                             -----------------    -----------------
Shareholders' equity
     Common stock, 5,000,000 shares authorized;
       shares issued: 1,689,417 - 2004 and 2003, shares outstanding:
       1,329,060 - 2004; 1,287,710 - 2003                                           12,486,314           12,560,058
     Retained earnings - substantially restricted                                   32,194,679           31,022,460
     Accumulated other comprehensive (loss),
       net of tax of $37,932 in 2004 and ($35,735) in 2003                            (791,717)            (466,113)
     Treasury stock, 360,357 common shares - 2004;
       401,707 common shares - 2003, at cost                                        (7,983,406)          (8,865,199)
                                                                             ------------------   ------------------
         Total shareholders' equity                                                 35,905,870           34,251,206
                                                                             -----------------    -----------------

              Total liabilities and shareholders' equity                     $     541,222,436    $     428,623,650
                                                                             =================    =================

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


                                                        19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                          MFB CORP. AND SUBSIDIARY
                                      CONSOLIDATED STATEMENTS OF INCOME
                                Years ended September 30, 2004, 2003 and 2002

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

                                                                 2004                2003                2002
                                                                 ----                ----                ----
<S>                                                         <C>                 <C>                <C>
Interest income
     Loans receivable, including fees                       $    20,921,584     $    21,033,219    $     22,774,932
     Securities                                                   1,696,947           1,959,835           2,985,112
     Other interest-earning assets                                  173,736             332,949             428,318
                                                            ---------------     ---------------    ----------------
         Total interest income                                   22,792,267          23,326,003          26,188,362

Interest expense
     Deposits                                                     5,447,584           5,806,124           6,899,988
     Securities sold under agreements
               to repurchase                                              -                   -             153,509
     FHLB advances and other borrowings                           5,641,984           6,438,114           6,775,439
                                                            ---------------     ---------------    ----------------
         Total interest expense                                  11,089,568          12,244,238          13,828,936
                                                            ---------------     ---------------    ----------------

Net interest income                                              11,702,699          11,081,765          12,359,426

Provision for loan losses                                           800,000           1,110,000           3,369,431
                                                            ---------------     ---------------    ----------------

Net interest income after provision
  for loan losses                                                10,902,699           9,971,765           8,989,995

Noninterest income
     Service charges on deposit accounts                          3,030,459           1,623,611           1,048,718
     Trust fee income                                               494,922             463,561             297,727
     Insurance commissions                                          208,036             187,143             158,097
     Net realized gains from sales of loans                       1,032,362           3,395,381           1,578,045
     Loan servicing fees, net of amortization                        51,460            (602,609)            (83,752)
     Mortgage servicing right recovery (impairment)                 216,905            (576,376)                  -
     Net gain (loss) on securities available for sale              (109,253)             40,000            (933,958)
     Other                                                          755,497             450,081             104,414
                                                            ---------------     ---------------    -----------------
         Total noninterest income                                 5,680,388           4,980,792           2,169,291

Noninterest expense
     Salaries and employee benefits                               7,020,737           6,802,641           5,922,166
     Occupancy and equipment expense                              2,742,768           1,558,025           1,482,756
     Professional and consulting fees                             1,226,498             363,828             296,840
     Data processing expense                                        632,329             596,106             669,177
     Other expense                                                2,936,183           2,561,010           2,121,091
                                                            ---------------     ---------------    ----------------
         Total noninterest expense                               14,558,515          11,881,610          10,492,030
                                                            ---------------     ---------------    ----------------

Income before income taxes                                        2,024,572           3,070,947             667,256

Income tax expense                                                  234,923             671,163              18,719
                                                            ---------------     ---------------    ----------------
Net income                                                  $     1,789,649     $     2,399,784    $        648,537
                                                            ===============     ===============    ================

Basic earnings per common share                                   $    1.36           $    1.87           $    0.49
Diluted earnings per common share                                      1.30                1.80                0.47



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

                                                           20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                           MFB CORP. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 Years ended September 30, 2004, 2003 and 2002
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                        Accumulated
                                                                                           Other
                                                                                       Comprehensive                      Total
                                                                          Retained    Income (Loss),     Treasury     Shareholders'
                                                        Common Stock      Earnings      Net of Tax         Stock         Equity
                                                        ------------      --------    - ----------         -----         ------
<S>                  <C> <C>                           <C>            <C>            <C>             <C>            <C>
Balance at September 30, 2001                          $  13,023,255  $  29,088,683  $       45,036  $  (7,776,959) $  34,380,015
                                                        ------------   ------------   ------------    ------------   ------------

Purchase of 23,190 shares of treasury stock                                                               (506,881)      (506,881)
Stock option exercise-issuance of 16,700 shares
   of treasury stock                                        (199,642)                                      366,642        167,000
Tax benefit related to employee stock plan                    57,103                                                       57,103
Cash dividends declared - $.415 per share                                  (554,220)                                     (554,220)
Comprehensive income:
   Net income for the year end September 30, 2002                           648,537                                       648,537
   Other comprehensive income (loss)                                                       (239,117)                     (239,117)
                                                                                                                    --------------
     Total comprehensive income                                    -              -               -              -        409,420
                                                       -------------  -------------  --------------  -------------  -------------

Balance at September 30, 2002                             12,880,716     29,183,000        (194,081)    (7,917,198)    33,952,437
                                                       -------------  -------------  --------------  -------------  -------------


Purchase of 75,339 shares of treasury stock                                                             (1,676,634)    (1,676,634)
Stock option exercise-issuance of 33,000 shares
    of treasury stock                                       (350,508)             -               -        728,633        378,125
Tax benefit related to employee stock plan                    29,850              -               -              -         29,850
Cash dividends declared - $.435 per share                          -       (560,324)              -              -       (560,324)
Comprehensive income:
   Net income for the year end September 30, 2003                  -      2,399,784               -              -      2,399,784
   Other comprehensive income (loss)                               -              -        (272,032)             -       (272,032)
                                                                                                                    --------------
     Total comprehensive income                                    -              -               -              -      2,127,752
                                                       -------------  -------------  --------------  -------------  -------------

Balance at September 30, 2003                          $  12,560,058  $  31,022,460  $     (466,113) $  (8,865,199) $  34,251,206
                                                       =============  =============  =============== ============== =============


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


                                                        21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                           MFB CORP. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 Years ended September 30, 2004, 2003 and 2002
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                        Accumulated
                                                                                            Other
                                                                                        Comprehensive                      Total
                                                                           Retained     Income (Loss)     Treasury     Shareholders'
                                                         Common Stock      Earnings      Net of Tax         Stock         Equity
                                                         ------------      --------      ----------         -----         ------

<S>                  <C> <C>                            <C>            <C>            <C>             <C>            <C>
Balance at September 30, 2003                           $  12,560,058  $  31,022,460  $     (466,113) $  (8,865,199) $  34,251,206

Stock option exercise-issuance of 41,350 shares
    of treasury stock                                        (359,104)             -               -        881,793        522,689
Tax benefit related to employee stock plan                    285,360              -               -              -        285,360
Cash dividends declared - $.47 per share                            -       (617,430)              -              -       (617,430)
Comprehensive income:
   Net income for the year end September 30, 2004                   -      1,789,649               -              -      1,789,649
   Other comprehensive income (loss)                                -              -        (325,604)             -       (325,604)
                                                                                                                     --------------
     Total comprehensive income                                     -              -               -              -      1,464,045
                                                        -------------  -------------  --------------  -------------  -------------

Balance at September 30, 2004                           $  12,486,314  $  32,194,679  $     (791,717) $  (7,983,406) $  35,905,870
                                                        =============  =============  =============== ============== =============



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

                                                        22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                          MFB CORP. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                Years ended September 30, 2004, 2003 and 2002

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

                                                                   2004               2003                2002
                                                                   ----               ----                ----
<S>                                                         <C>                 <C>                <C>
Cash flows from operating activities
     Net income                                             $     1,789,649     $     2,399,784    $        648,537
     Adjustments to reconcile net income
       to net cash from operating activities
         Depreciation and amortization, net of
           accretion                                              1,278,662           1,343,323           1,207,633
         Provision for loan losses                                  800,000           1,110,000           3,369,431
         Net (gains) losses on securities available for sale        109,253             (40,000)            933,958
         Net realized gains from sales of loans                  (1,032,362)         (3,395,381)         (1,578,045)
         Amortization of mortgage servicing rights                  388,580             996,128             365,993
         Accretion of intangible assets
              and purchase adjustments                             (133,391)                  -                   -
         Origination of loans held for sale                     (40,741,232)       (103,572,557)        (76,592,582)
         Impairment (recovery) of mortgage
              servicing rights                                     (216,905)            576,376                   -
         Proceeds from sales of loans held for sale              46,784,299         115,074,018          73,926,222
         Loss on sales of fixed assets                               46,165                   -                   -
         Equity in loss of investment in limited
           partnership                                              220,253             165,571             163,495
         Appreciation in cash surrender value of
                 life insurance                                    (230,080)           (217,387)                  -
         Net change in:
              Accrued interest receivable                            87,453             244,558               8,095
              Other assets                                        1,074,707             111,208          (2,021,347)
              Accrued expenses and other liabilities              2,392,077            (218,535)          1,022,653
                                                            ---------------     ----------------   ----------------
                  Net cash from operating activities             12,617,128            14,577,106         1,454,043

Cash flows from investing activities
     Net change in interest-bearing time
       deposits in other financial institutions                    (500,000)           (501,160)          1,000,000
     Net change in loans receivable                             (29,469,712)        (12,474,759)         (7,636,389)
         Net cash received in acquisition                         6,873,938                   -                   -
     Proceeds from:
         Sales of securities available for sale                           -             160,000           5,311,521
         Principal payments of mortgage-backed
           and related securities                                 9,212,720          34,371,588          21,451,698
         Maturities and calls of securities available
           for sale                                               8,944,482           5,000,000          21,794,846
         Sales of fixed assets                                      318,039                   -                   -
     Purchase of:
         Securities available for sale                          (11,049,719)        (27,152,202)        (56,127,721)
         Life Insurance                                            (170,545)         (5,000,000)                  -
         Premises and equipment, net                            (11,180,184)         (1,527,053)           (516,062)
     Stock dividend paid by FHLB                                   (312,300)           (163,000)                  -
                                                            ---------------     ----------------   ----------------
Net cash used in investing activities                       $   (27,333,281)    $    (7,286,586)   $    (14,722,107)


---------------------------------------------------------------------------------------------------------------------
                                                         Continued

                                                             23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended September 30, 2004, 2003 and 2002


<S>                                                         <C>                 <C>                <C>

Cash flows from financing activities
     Purchase of treasury stock                             $             -     $    (1,676,634)   $       (506,881)
     Net change in deposits                                      (3,292,653)         27,728,373          19,198,225
     Net change in securities sold under
       agreements to repurchase                                           -                   -         (11,021,511)
     Proceeds from FHLB borrowings                               38,000,000                   -                   -
     Repayment of FHLB borrowings                               (38,929,859)        (20,424,864)           (469,870)
     Proceeds from other borrowings                               6,500,000             300,000                   -
     Repayment of other borrowings                                 (300,000)                  -                   -
     Proceeds from exercise of stock options                        522,689             378,125             167,000
     Net change in advances from
       borrowers for taxes and insurance                          1,071,457            (260,488)           (185,696)
     Cash dividends paid                                           (617,430)           (560,324)           (554,220)
                                                            ---------------     ----------------   ----------------
         Net cash from financing activities                       2,954,204           5,484,188           6,627,047
                                                            ---------------     ----------------   ----------------

Net change in cash and cash equivalents                         (11,761,949)         12,774,708          (6,641,017)

Cash and cash equivalents at beginning of year                   40,356,979          27,582,271          34,223,288
                                                            ---------------     ----------------   ----------------

Cash and cash equivalents at end of year                    $    28,595,030     $    40,356,979    $     27,582,271
                                                            ===============     ===============    ================

Supplemental disclosures of cash flow information
    Cash paid during the year for:
         Interest                                           $    10,834,701     $    11,782,216    $     13,598,405
         Income taxes                                               670,000             400,000             811,500

Supplemental schedule of noncash investing activities:
     Transfer from:
         Loans receivable to loans held for sale            $             -     $     9,656,411    $              -

         Loans receivable to real estate owned              $     1,346,757     $     1,020,835    $        348,320



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

                                                              24
</TABLE>
<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of MFB Corp., and its wholly-owned subsidiary MFB Financial
(the "Bank"), a federal stock savings bank, and the wholly-owned subsidiaries of
the Bank,  Mishawaka  Financial  Services,  Inc.,  MFB  Investments I, Inc., MFB
Investments  II, Inc.  and MFB  Investments,  LP  (together  referred to as "the
Company").  Mishawaka Financial Services, Inc. is engaged in the sale of general
property,  casualty, life and health insurance to customers in the Bank's market
area. MFB Investments I, Inc., MFB Investments II, Inc. and MFB Investments,  LP
are Nevada  corporations and a Nevada limited  partnership that manage a portion
of the Bank's investment portfolio.  All significant  intercompany  transactions
and balances are eliminated in consolidation.

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

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

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

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

                                   (Continued)

                                       25
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

Securities:  Securities  are  classified  as held to  maturity  and  carried  at
amortized cost when  management has the positive intent and ability to hold them
to maturity.  Securities are classified as available for sale when they might be
sold before maturity.  Securities  available for sale are carried at fair value,
with  unrealized  holding gains and losses  reported  separately in  accumulated
other  comprehensive  income loss),  net of tax.  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 as loans held for sale and are carried at the
lower of cost or estimated market value in the aggregate.  Net unrealized losses
are recognized in a valuation allowance by charges to income.

Servicing  rights  are  recognized  as assets for  purchased  rights and for the
allocated value of retained servicing rights on loans sold. Servicing rights are
expensed  in  proportion  to, and over the period of,  estimated  net  servicing
revenues.  Impairment  is  evaluated  based  on the fair  value  of the  rights,
determined  using prices for similar assets with similar  characteristics,  when
available,  or based upon discounted cash flows using market-based  assumptions.
Any impairment is reported as a valuation allowance.

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.  Loan fees and certain
direct  loan  origination  costs  are  deferred,  and  the  net  fee or  cost is
recognized as an adjustment to interest income using the interest method.

Because some loans may not be repaid in full,  an  allowance  for loan losses is
recorded.  An allowance  for loan losses is a valuation  allowance  for probable
incurred  credit  losses.  The  allowance  for loan  losses  is  increased  by a
provision for loan losses charged to expense and decreased by  charge-offs  (net
of  recoveries).  Estimating the risk of loss and the amount of loss on any loan
is  necessarily  subjective.   Accordingly,   the  allowance  is  maintained  by
management  at a level  considered  adequate to cover losses that are  currently
anticipated.  Management's  periodic evaluation of the adequacy of the allowance
is based on the Company's past loan loss experience, known and inherent risks in
the  portfolio,  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.  Loan  losses are  charged  against  the
allowance when  management  believes the  uncollectibility  of a loan balance is
confirmed.

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

                                   (Continued)

                                       26
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

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. Loans are considered
impaired  if  full  principal  or  interest  payments  are  not  anticipated  in
accordance  with the contractual  loan terms.  Impaired loans are carried at the
present value of expected future cash flows  discounted at the loan's  effective
interest  rate, or at the fair value of the collateral if the loan is collateral
dependent.  A portion of the  allowance for loan losses is allocated to impaired
loans if the value of such loans is deemed to be less than the  unpaid  balance.
If these allocations cause the allowance for loan losses to require an increase,
such increase is reported as a component of the provision for loan losses.

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

Foreclosed Real Estate:  Real estate properties acquired through, or in lieu of,
loan foreclosure are initially  recorded at the lower of carrying amount or fair
value at the date of acquisition,  establishing a new cost basis.  Any reduction
to fair  value  from the  carrying  amount  of the  related  loan at the time of
acquisition  is accounted  for as a loan loss and charged  against the allowance
for loan  losses.  Valuations  are  periodically  performed  by  management  and
valuation allowances are adjusted through a charge to income for changes in fair
value or estimated selling costs.

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

Premises and Equipment:  Land is carried at cost. Buildings and improvements and
furniture and equipment are carried at cost, less  accumulated  depreciation and
amortization  computed  principally by using the  straight-line  method over the
estimated useful lives of the assets.  Useful life of buildings and improvements
is 39 years and the range for  furniture  and  equipment is 3 years to 15 years.
These  assets are  reviewed  for  impairment  when events  indicate the carrying
amount is significantly less than the fair value.

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


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

                                   (Continued)

                                       27
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

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.

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

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

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

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

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

Stock-Based  Compensation:  Compensation expense under stock options is reported
using the intrinsic value method. No stock-based  compensation cost is reflected
in net income,  as all options granted had an exercise price equal to or greater
than the  market  price of the  underlying  common  stock at date of grant.  The
following  table  illustrates the effect of net income and earnings per share if
expense  was  measured  using  the fair  value  recognition  provisions  of FASB
Statement No. 123, Accounting for Stock-Based Compensation.


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

                                   (Continued)

                                       28
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

                                             2004          2003          2002
                                             ----          ----          ----

Net income as reported                    $1,789,649    $2,399,784   $   648,537

Less: Stock-based compensation
expense determined under fair value
based method                                 223,176       198,346       159,852
                                          ----------    ----------   -----------


Proforma net income                       $1,566,473    $2,201,438   $   488,685
                                          ==========    ==========   ===========

Basic earnings per share as reported      $  1.36       $   1.87     $  0.49
Pro forma basic earnings per share           1.19           1.71        0.37

Diluted earnings per share as reported    $  1.30       $   1.80     $  0.47
Pro forma diluted earnings per share         1.14           1.65        0.36


The fair values for the options  granted  during the year were  estimated at the
date of grant using a  Black-Scholes  option  pricing  model with the  following
weighted-average assumptions:

                                                    2004      2003         2002
                                                    ----      ----         ----

     Risk-free interest rate                       4.11%       3.72%       4.83%
     Expected dividend rate                        1.44        1.82        2.06
     Stock price volatility                       24.53       23.23       14.41
     Estimated Life                               8 yrs       8 yrs       8 yrs

In future years, as additional  options are granted,  the proforma effect on net
income and earnings  per share may  increase.  Stock  options are used to reward
directors  and certain  executive  officers and provide them with an  additional
equity  interest.  Options  are issued  for ten year  periods  and have  varying
vesting schedules.

Comprehensive  Income:  Comprehensive  income  consists  of net income and other
comprehensive  income (loss). Other comprehensive income (loss) includes the net
change in net unrealized gains and losses on securities  available for sale, net
of  reclassification  adjustments  and tax effects,  and is also recognized as a
separate component of shareholders' equity.

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

Restriction on Cash: Cash on hand or on deposit with correspondent banks of $5.3
million and $3.8 million,  respectively, was required to meet regulatory reserve
and clearing requirements at year end 2004 and 2003.

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

                                   (Continued)

                                       29
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

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






















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

                                   (Continued)

                                       30
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 2 - EARNINGS PER COMMON SHARE

A reconciliation  of the numerators and denominators  used in the computation of
the basic  earnings  per common  share and diluted  earnings per common share is
presented below:

                                                                           Year ended September 30,
                                                                    2004              2003               2002
                                                                    ----              ----               ----
<S>                                                            <C>                <C>               <C>
Basic Earnings Per Common Share
     Numerator
         Net income                                            $    1,789,649     $    2,399,784    $       648,537
                                                               ==============     ==============    ===============
     Denominator

         Weighted average common shares
           outstanding for basic earnings per
           common share                                             1,316,115          1,285,661          1,334,260
                                                               ==============     ==============    ===============

     Basic earnings per common share                           $         1.36     $         1.87    $          0.49
                                                               ==============     ==============    ===============

Diluted Earnings Per Common Share
     Numerator
         Net income                                            $    1,789,649     $    2,399,784    $       648,537
                                                               ==============     ==============    ===============
     Denominator
         Weighted average common shares
           outstanding for basic earnings per
           common share                                             1,316,115          1,285,661          1,334,260
         Add:  Dilutive effects of assumed
           exercises of stock options                                  59,885             44,808             39,617
                                                               --------------     --------------    ---------------
         Weighted average common shares
           and dilutive potential common
           shares outstanding                                       1,376,000          1,330,469          1,373,877
                                                               ==============     ==============    ===============

     Diluted earnings per common share                         $         1.30     $         1.80    $          0.47
                                                               ==============     ==============    ===============


Stock options for 5,000, -0-, and 42,500 shares of common stock were not
considered in computing diluted earnings per common share for the years ended
September 30, 2004, 2003 and 2002 because they were antidilutive.
--------------------------------------------------------------------------------

                                   (Continued)

                                       31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 3 - SECURITIES

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

                                           -------------------------September 30, 2004--------------------------
                                                                    ------------------
                                                                    Gross            Gross
                                               Amortized         Unrealized       Unrealized            Fair
                                                 Cost               Gains           Losses              Value
                                                 ----               -----           ------              -----
<S>                                        <C>                 <C>              <C>              <C>
Debt securities
     U.S. Government
       and federal agencies                $      9,303,466    $     54,182     $      (6,017)   $     9,351,631
     Municipal bonds                                343,334          13,176                 -            356,510
     Mortgage-backed                             45,266,242         232,176           (93,096)        45,405,322
     Corporate notes                              7,733,879         131,603          (210,809)         7,654,673
                                           ----------------    ------------     --------------   ---------------
                                                 62,646,921         431,137          (309,922)        62,768,136
Marketable equity securities                      4,127,875               -          (875,000)         3,252,875
                                           ----------------    ------------     --------------   ---------------

                                           $     66,774,796    $    431,137     $  (1,184,922)   $    66,021,011
                                           ================    ============     ==============   ===============


                                           -------------------------September 30, 2003--------------------------
                                                                    ------------------
                                                                    Gross            Gross
                                               Amortized         Unrealized       Unrealized            Fair
                                                 Cost               Gains           Losses              Value
                                                 ----               -----           ------              -----
Debt securities
     U.S. Government
       and federal agencies                $      9,368,820    $    194,081     $           -    $     9,562,901
     Municipal bonds                                346,124          22,772                 -            368,896
     Mortgage-backed                             16,807,629          67,861          (106,398)        16,769,092
     Corporate notes                              9,770,890         196,087          (480,548)         9,486,429
                                           ----------------    ------------     --------------   ---------------
                                                 36,293,463         480,801          (586,946)        36,187,318
Marketable equity securities                      4,237,128               -          (395,703)         3,841,425
                                           ----------------    ------------     --------------   ---------------

                                           $     40,530,591    $    480,801     $    (982,649)   $    40,028,743
                                           ================    ============     ==============   ===============


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

                                                   (Continued)

                                                       32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 3 - SECURITIES (Continued)

Securities  with  unrealized  losses at year-end 2004,  aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, are as follows:

                                            Less than 12 Months              12 Months or More                   Total
                                            -------------------              -----------------                   -----
                                           Fair          Unrealized         Fair      Unrealized            Fair     Unrealized
                                           Value           Loss             Value        Loss              Value         Loss
                                           -----           ----             -----        ----              -----         ----
<S>                                     <C>              <C>           <C>           <C>              <C>            <C>
Debt securities
      U.S. Government and               $ 2,852,257      $  (6,017)    $          -  $          -     $   2,852,257  $    (6,017)
         federal agencies
      Mortgage-backed                    12,964,402        (52,988)       3,873,878       (40,108)       16,838,280      (93,096)
      Corporate notes                       984,855        (15,145)       4,768,560      (195,664)        5,753,415     (210,809)

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

                                         16,801,514        (74,150)       8,642,438      (235,772)       25,443,952     (309,922)
Marketable equity securities                      -              -        3,125,000      (875,000)        3,125,000     (875,000)
                                        -----------      ---------     ------------  ------------     -------------  -----------
         Total                          $16,801,514      $ (74,150)    $ 11,767,438  $ (1,110,772)    $  28,568,952  $(1,184,922)
                                        ===========      =========     ============  ============     =============  ===========
</TABLE>

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

Of the total gross  unrealized  losses of  $1,185,000,  $875,000  relates to the
reduced  value  of  floating  rate  preferred  stocks  of  government  sponsored
agencies.  This decline in value is primarily  attributable to the current level
of interest rates, and the timing of scheduled coupon  adjustments,  which occur
every one to two years.  Such  adjustments  resulted  in coupons  being set at a
level  lower than  today's  market.  Credit  issues are not  considered  to be a
significant  factor relative to the current  unrealized  losses. As the level of
interest rates rise, and coupons are adjusted,  the value of the preferred stock
issues is expected to increase. Based on current interest rate forecasts and the
resulting  estimates of recovery  obtained by the Company from outside  experts,
management currently expects recovery of the unrealized losses.

Related to the  unrealized  losses for debt  securities  classified as corporate
notes,  $167,000 of unrealized  losses is attributable to a trust preferred bond
issued by a regional  banking  organization.  This  unrealized loss is primarily
attributable  to the low interest rate  environment,  and the variable  interest
rate structure of the bond. Such interest rate  adjustments  resulted in coupons
being set at a level lower than today's  market.  As interest rates rise and the
bonds coupon rate increases,  management  anticipates recovery of the unrealized
losses.  Management has the ability to hold this bond to maturity, at which time
the face value of the bond would be realized.  Credit issues are not  considered
to be a significant factor relative to the current unrealized losses.

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.

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

                                   (Continued)

                                       33
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

                                                    September 30, 2004
                                                    ------------------
                                                Amortized            Fair
                                                  Cost               Value
                                                  ----               -----

     Due in one year or less               $      4,439,269    $     4,525,933
     Due after one year through
       five years                                11,723,023         11,646,690
     Due after five years through
       ten years                                    224,654            224,561
     Due after ten years                            993,733            965,630
                                           ----------------    ---------------
                                                 17,380,679         17,362,814
     Mortgage-backed securities                  45,266,242         45,405,322
                                           ----------------    ---------------

                                           $     62,646,921    $    62,768,136
                                           ================    ===============

Proceeds from sales of  securities  available for sale were $-0- during the year
ended September 30, 2004. A $109,253 write down on a corporate stock held by MFB
Corp. was recorded  based on current  estimates of fair value for the year ended
September 30, 2004.

Proceeds  from  sales and  liquidation  of  securities  available  for sale were
$160,000  during the year ended  September 30, 2003.  Gross gains of $40,000 and
gross losses of $-0- were realized on these sales.

Proceeds from sales of securities  available for sale were $5,311,521 during the
year ended  September  30,  2002.  Gross gains of $130,287  and gross  losses of
$168,766 were realized on these sales.  The company  recorded an $895,479  write
down on a $1.0 million  WorldCom,  Inc.  corporate  note  investment  during its
fiscal  third  quarter,  2002.  The sale of this  investment  accounted  for the
$160,000 in proceeds and $40,000 gain for the year ended September 30, 2003.



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

                                   (Continued)

                                       34
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 4 - LOANS RECEIVABLE

Loans receivable, at September 30 are summarized as follows:

                                                                                    2004                 2003
                                                                                    ----                 ----
<S>                                                                          <C>                  <C>
Residential mortgage loans:
         Secured by one-to-four family residences                            $     176,816,762    $     129,472,398
         Construction loans                                                         20,259,466           22,066,066
         Other                                                                       3,898,833            6,727,880
                                                                             -----------------    -----------------
                                                                                   200,975,061          158,266,344
         Less:
           Net deferred loan origination fees                                         (496,427)            (557,611)
           Undisbursed portion of construction and
                other mortgage loans                                                  (138,619)              62,265
                                                                             ------------------   -----------------
              Total residential mortgage loans                                     200,340,015          157,770,998

Commercial
         Commercial real estate                                                     99,198,554           80,913,758
         Commercial                                                                 61,752,718           49,709,400
                                                                             -----------------    -----------------
                                                                                   160,951,272          130,623,158
         Less: net deferred loan origination fees                                     (346,581)            (263,572)
                                                                             -----------------    -----------------
               Total commercial loans                                              160,604,691          130,359,586

Consumer loans:
         Home equity and second mortgage                                            32,006,458           24,534,708
         Other                                                                       6,973,437            5,489,366
                                                                             -----------------    -----------------
              Total consumer loans                                                  38,979,895           30,024,074

         Total Loans Receivable                                              $     399,924,601    $     318,154,658
                                                                             =================    =================


</TABLE>
<TABLE>
<CAPTION>


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

                                                               2004                2003                 2002
                                                               ----                ----                 ----
<S>                                                        <C>               <C>                  <C>
     Balance at beginning of year                          $    5,198,137    $       5,143,005    $       4,631,981
     Provision for loan losses                                    800,000            1,110,000            3,369,431
     Acquired allowance for loan losses                           602,467                    -                    -
     Charge-offs                                                 (543,734)          (1,388,152)          (2,872,683)
     Recoveries                                                    17,264              333,284               14,276
                                                           --------------    -----------------    -----------------

     Balance at end of year                                $    6,074,134    $       5,198,137    $       5,143,005
                                                           ==============    =================    =================

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

                                   (Continued)

                                       35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 4 - LOANS RECEIVABLE (Continued)

Impaired loans were as follows:
                                                                                     2004                2003
                                                                                     ----                ----
<S>                                                                             <C>                <C>
     Year-end loans with no allocated allowance
       for loan losses                                                          $           -      $          -
     Year-end loans with allocated allowance
       for loan losses                                                                2,217,000           4,027,000
                                                                                ---------------    ----------------
         Total                                                                  $     2,217,000    $      4,027,000
                                                                                ===============    ================

     Amount of the allowance for loan
       losses allocated                                                         $       995,000    $      1,370,000

     Average of impaired loans during the year                                        2,506,000           5,233,000

     Interest income recognized during impairment                                        82,000              82,000
     Cash-basis interest income recognized during
       impairment                                                                        73,000              66,000


The  average  balance of  impaired  loans in 2002 was  $8,070,000  and there was
$227,000  interest income and $226,000  cash-basis  interest  income  recognized
during impairment.

Nonperforming loans were as follows at year end.
                                                                                      2004               2003
                                                                                      ----               ----
     Loans past due over 90 days still on accrual status                        $           -      $          -
     Non-accrual loans                                                                2,719,000           3,845,000
                                                                                ---------------    ----------------
       Total nonperforming loans                                                $     2,719,000    $      3,845,000
                                                                                ===============    ================

A total of $1.4 million and $3.6 million of the impaired loans were  non-accrual
loans as of September 30, 2004 and 2003.

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  balance  sheets.  The  Company  is  subject  to  certain  recourse
obligations on the loans serviced for Telebank. The unpaid principal balances of
mortgage loans serviced for others at September 30, 2004 and 2003 are summarized
as follows:

                                                                                      2004                 2003
                                                                                      ----                 ----
     Mortgage loan portfolios serviced for:
         Federal Home Loan Mortgage Corporation                                 $   197,860,783    $    150,542,108
         Fannie Mae Corporation                                                       2,303,866           4,532,304
         Merchants Bank                                                               1,290,447           1,637,562
         Telebank                                                                       956,407           1,009,175
         Hanover Capital Mortgage Holdings, Inc.                                        495,090             775,670
         LaSalle Bank, FSB                                                              867,408           1,088,242
         Citizens Bank                                                                  691,911             861,611
         Federal Home Loan Bank of Indianapolis                                       1,090,545           1,118,750
         Bank Mutual                                                                    975,002                   -
                                                                                ---------------    ----------------
                                                                                $   206,531,459    $    161,565,422
                                                                                ===============    ================


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

                                                        (Continued)

                                                            36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 4 - LOANS RECEIVABLE, (Continued)

Custodial escrow balances  maintained in connection with the foregoing  serviced
loans were $3,202,322 and $1,247,181 at September 30, 2004 and 2003.

Activity for capitalized  mortgage  servicing  rights and the related  valuation
allowance was as follows:

                                                 2004                2003                 2002
                                                 ----                ----                 ----
<S>                                         <C>                 <C>                 <C>
 Servicing rights, net of valuation allowance:

   Balance at beginning of year             $    1,373,201      $   1,616,588       $   1,068,801
   Additions                                       581,035          1,329,117             913,780
   Change in Valuation allowance                   216,905           (576,376)                  -
   Acquired from Sobieski                          309,574                  -                   -
   Amortized to expense                           (388,580)          (996,128)           (365,993)
                                            --------------      -------------       -------------
   Balance at end of year                   $    2,092,135      $   1,373,201       $   1,616,588
                                            ==============      =============       =============

 Valuation allowance:
   Balance at beginning of year             $     (576,376)     $           -
   Impairment charge                              (414,736)        (1,155,894)
   Impairment recovery                             631,641            579,518
                                            --------------      --------------
   Balance at end of year                   $     (359,471)     $    (576,376)
                                            ==============      ==============
</TABLE>

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:

                                                2004               2003
                                                ----               ----

       Balance at beginning of year      $      2,333,898    $     2,058,788
       New loans                                  215,335          1,058,916
       Repayments                                (601,218)          (783,806)
                                         -----------------   ---------------

       Balance at end of year            $      1,948,015    $     2,333,898
                                         ================    ===============







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

                                   (Continued)

                                       37
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 5 - PREMISES AND EQUIPMENT, NET

Premises and equipment at September 30 are summarized as follows:

                                                      2004            2003
                                                      ----            ----

     Land                                         $   4,492,767    $  1,851,042
     Buildings and improvements                      13,187,855       4,606,342
     Furniture and equipment                          6,319,254       3,707,259
                                                  -------------    ------------
         Total cost                                  23,999,876      10,164,643
     Accumulated depreciation and amortization       (4,615,410)     (4,074,996)
                                                  --------------   ------------

                                                  $  19,384,466    $  6,089,647
                                                  =============    ============

Depreciation  and  amortization of premises and equipment  included in occupancy
and equipment expense was approximately $945,000,  $557,000 and $562,000 for the
years  ended  September  30,  2004,  2003 and 2002,  respectively.  The  Company
purchased a new corporate headquarters building on October 31, 2003 at a cost of
$7.3 million including land cost of $1.75 million.  Building improvements on the
new  Corporate  headquarters  totaled  $743,000 in 2004.  Premises and equipment
added in the Sobieski acquisition totaled $3.4 million.


NOTE 6 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

The change in balance for goodwill  during the year ended  September 30, 2004 is
as follows:

                                                            2004

Beginning of year                                      $           -
Acquired goodwill                                          2,362,836
                                                       -------------
End of Year                                            $   2,362,836
                                                       =============

<TABLE>
<CAPTION>


Acquired Intangible Assets

Acquired intangible assets were as follows as of year end:

                                                                     2004
                                                     Gross Carrying            Accumulated
                                                         Amount               Amortization
<S>                                                      <C>                       <C>
Amortized intangible assets:
     Core deposit intangibles                            $   1,610,000             $   48,800
     Other customer relationship  intangibles                1,180,000                 48,300
                                                   --------------------     ------------------
          Total                                          $   2,790,000             $   97,100
                                                   ====================     ==================


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

                                         (Continued)

                                              38
</TABLE>
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

Aggregate amortization expense was $97,100 for 2004.

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

            2005                     $   559,200
            2006                         435,100
            2007                         385,500
            2008                         335,800
            2009                         286,300


NOTE 7 - DEPOSITS

At September 30, 2004, the scheduled maturities of certificates of deposit for
the years ending September 30, are as follows:

                           2005             $109,463,008
                           2006               22,748,111
                           2007               45,886,909
                           2008                8,535,751
                           2009                2,448,897
                           Thereafter          1,053,271
                                            ------------

                                            $190,135,947
                                            ============

The  aggregate   amount  of  short-term   jumbo   certificates   of  deposit  in
denominations of $100,000 or more was approximately  $42,736,000 and $38,795,000
at September 30, 2004 and 2003.


NOTE 8 - BORROWINGS

At September 30, 2004,  advances from the Federal Home Loan Bank of Indianapolis
with fixed and  variable  rates  ranging  from 3.60% to 7.31% are required to be
repaid in the year ending September 30 as follows:

                           2005                     $ 11,200,000
                           2006                       10,500,000
                           2007                        9,000,000
                           2008                       53,000,000
                           2009                       17,160,392
                           Thereafter                 32,583,000
                                                    ------------
                                                    $133,443,392
                                                    ============

At  September  30,  2004,  $8,799,400  of FHLB stock,  $168,762,000  of eligible
mortgage loan collateral,  $55,449,000 of other real estate related  collateral,
and  $21,263,000 of other  securities are pledged to the FHLB to secure advances
outstanding.  The Company's additional borrowing capacity with the FHLB is $17.7
million at September 30, 2004.

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

                                   (Continued)

                                       39
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

In  addition,  $112 million of the advances  outstanding  at September  30, 2004
contained  put options with put dates ranging from October 2004 to January 2005,
whereby the advance can be called by the FHLB prior to maturity.

In the quarter ended September 30, 2004, the Company  borrowed $6.5 million from
a correspondent  bank.  This variable rate line of credit,  tied to the one year
LIBOR rate plus 175 basis points  (presently at 4.33% as of September 30, 2004),
matures on August 31, 2005,  at which time it may be converted to a term loan to
be amortized over a five year period.

The borrowing is  collateralized by MFB Financial stock and requires the Bank to
remain "well-capitalized" as defined by regulatory capital adequacy guidelines.


NOTE 9 - EMPLOYEE BENEFITS

Employee  Pension  Plan:  On April 1, 2003,  the Bank  terminated  its qualified
noncontributory   multiple-employer   defined   benefit  pension  plan  covering
substantially all of its employees. The plan was administered by the trustees of
the Financial Institutions  Retirement Fund. At termination,  the Company made a
contribution  of $148,000 to the Fund as part of the  termination  agreement  to
cover the deficit  between the vested  benefits  and the value of the  Company's
calculated portion of the total plan assets.  Pension plan expense for the years
ended  September  30,  2003 and  2002 was  approximately  $148,000  and  $5,300,
respectively.

401(k) Plan: The Company maintains a retirement savings 401(k) plan which covers
all full time employees who are 21 years or older and have completed one year of
service.  Participants  may  defer up to 15% of  compensation,  and the  Company
increased  its match to 125% (90% for the years  ending  September  30, 2003 and
2002) of elective  deferrals on 6% of the participants'  compensation  effective
October 1, 2003.  Expense for the 401(k) plan for the years ended  September 30,
2004,  2003  and  2002  was  approximately  $315,000,   $193,000  and  $150,000,
respectively.

Employee Stock Ownership Plan (ESOP): The Company maintains an ESOP for eligible
employees.  Employees with at least one year of employment and who have attained
age  twenty-one  are eligible to  participate.  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.


<TABLE>
<CAPTION>

The ESOP shares as of September 30 were as follows:

                                                             2004             2003               2002
                                                             ----             ----               ----
<S>                                                           <C>               <C>                <C>
     Allocated shares                                         152,750           152,750            147,500
     Shares withdrawn from the plan by participants           (29,984)          (24,274)           (16,198)
                                                       --------------     -------------    ---------------
     Total ESOP shares held in the plan                       122,766           128,476            131,302
                                                       ==============     =============    ===============

</TABLE>
--------------------------------------------------------------------------------

                                   (Continued)

                                       40
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

Stock  Option  Plans:  The Board of Directors of the Company has adopted the MFB
Corp. Stock Option Plans (the "Option Plans").  The number of options authorized
under the Plans totals 450,000 shares of common stock.  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, 2004,  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, 2004,
2003 and 2002. As of September 30, 2004,  68,000  options  remain  available for
future grants.

<TABLE>
<CAPTION>

Activity in the Option Plans is summarized as follows:

                                                                                      Weighted           Weighted
                                               Number of                               Average           Average
                                              Outstanding          Exercise            Exercise         Fair Value
                                                Options              Price              Price            of Grants
                                                -------              -----              -----            ---------
<S>                       <C> <C>               <C>             <C>      <C>           <C>
     Balance at September 30, 2001              188,650         $10.00 - 26.75         $16.68
     Granted                                     16,500          18.75 - 20.55          19.73             $ 4.45
     Forfeited                                   (2,500)         17.25 - 20.55          17.91
       Exercised                                (16,700)            10.00               10.00
                                                --------
     Balance at September 30, 2002              185,950          10.00 - 26.75          17.53
     Granted                                     59,000             21.30               21.30              5.82
     Forfeited                                     (500)            21.30               21.30
     Exercised                                  (33,000)         10.00 - 21.30          11.46
                                                --------
     Balance at September 30, 2003              211,450          10.00 - 26.75          19.71
     Granted                                     26,500          30.35 -  34.01         31.90              9.96
     Forfeited                                        -                -                -
     Exercised                                  (41,350)         10.00 - 26.75          13.30
                                                --------
       Balance at September 30, 2004            196,600          15.00 - 34.01          22.69
                                               ========
</TABLE>

     Options exercisable at September 30, based on vesting schedules established
     at date of grant, are as follows:

                                                            Weighted
                                       Number                Average
                                     of Options          Exercise Price
                                     ----------          --------------
                  2002                 156,264            $   16.91
                  2003                 139,994                18.68
                  2004                 123,494                22.04



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

                                   (Continued)

                                       41
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

At September 30, 2004 options outstanding were as follows:


                                  Outstanding                                    Exercisable
                                  -----------                                    -----------
                                          Weighted Average                                  Weighted
                                  Remaining                                                  Average
    Range of                     Contractual          Exercise                              Exercise
 Exercise Prices     Number     Life in years           Price             Number              Price
 ---------------     ------     -------------           -----             ------              -----
<C>      <C>         <C>             <C>              <C>                 <C>              <C>
$15.00 - $18.75      39,500          2.55             $  15.89            35,200           $  15.54
$20.55 - $26.75     130,600          5.83                22.90            78,794              23.94
$30.35 - $34.01      26,500          9.39                31.90             9,500              30.35
                 ----------------------------------------------------------------------------------
Outstanding at
year end
                    196,600          5.65 years       $  22.69           123,494           $  22.04
                 ==================================================================================

</TABLE>
<TABLE>
<CAPTION>

NOTE 10 - INCOME TAXES

     The Company files consolidated  income tax returns.  Income tax expense for
     the years ended September 30 are summarized as follows:

                                                    2004              2003               2002
                                                    ----              ----               ----
<S>                                           <C>                <C>               <C>
     Federal: Current                         $      402,246     $      731,145    $      367,179
              Deferred                              (173,499)          (178,801)         (418,795)
                                              ---------------    ---------------   --------------
                                                     228,747            552,344           (51,616)

     State:   Current                                      -            166,354            73,222
              Deferred                                 6,176            (47,535)           (2,887)
                                              --------------     ---------------   --------------
                                                       6,176            118,819            70,335
                                              --------------     --------------    --------------
              Total income tax expense        $      234,923     $      671,163    $       18,719
                                              ==============     ==============    ==============

</TABLE>
<TABLE>
<CAPTION>

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:

                                                                 2004                2003               2002
                                                                 ----                ----               ----
<S>                                                          <C>                <C>               <C>
Income taxes at statutory rate                               $      688,354     $    1,044,122    $      226,867
Tax effect of:
     State tax, net of federal income tax effect                      4,076             78,421            46,421
     Low income housing credits                                    (398,208)          (348,257)         (214,072)
     Bank owned life insurance income                               (78,227)           (73,912)                -
     Other items, net                                                18,928            (29,211)          (40,497)
                                                             --------------     ---------------   --------------

         Total income tax expense                            $      234,923     $      671,163    $       18,719
                                                             ==============     ==============    ==============
</TABLE>
--------------------------------------------------------------------------------

                                   (Continued)

                                       42
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

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

                                                                                     2004               2003
                                                                                     ----               ----
<S>                                                                             <C>               <C>
     Deferred tax assets
         Bad debt deduction                                                     $    2,405,965    $    2,111,061
         Low income housing credit carry-forward                                       513,556           241,388
         Net deferred loan fees                                                        319,344           325,271
         Depreciation                                                                   22,586                 -
         Net unrealized depreciation on securities available for sale                        -            35,735
         Other                                                                          64,107           118,627
                                                                                --------------    --------------
                                                                                     3,325,558         2,832,082
     Deferred tax liabilities
         Accretion                                                                     (75,554)          (70,745)
         Depreciation                                                                        -           (27,964)
         FHLB stock dividend                                                          (220,477)          (96,775)
         Mortgage servicing rights                                                    (808,493)         (543,924)
         Net Unrealized appreciation on securities available for sale                  (37,932)                -
                                                                                ---------------   --------------
                                                                                    (1,142,456)         (739,408)
                                                                                ---------------   --------------
                  Net deferred tax asset (liability)                            $    2,183,102    $    2,092,674
                                                                                ==============    ==============
</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, 2004 and 2003. 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.
Tax  legislation  passed in August 1996  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.  The  deferred  tax  liability  was fully
recaptured as of September 30, 2004.


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

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

                                   (Continued)

                                       43
<PAGE>
<TABLE>
<CAPTION>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

only adequately capitalized,  regulatory approval is required to accept brokered
deposits.  If undercapitalized,  capital  distributions are limited, as is asset
growth and expansion, and plans for capital restoration are required.

The Bank's actual capital and required  capital amounts and ratios are presented
below:

                                                                                                 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, 2004
    Total capital (to risk
      weighted assets)         $    36,870      10.04%      $    29,368        8.00%    $    36,710       10.00%
    Tier 1 (core) capital
      (to risk weighted assets)     33,562       8.88            14,684        4.00          22,026        6.00
    Tier 1 (core) capital (to
      adjusted total assets)        33,562       6.29            21,334        4.00          26,668        5.00

As of September 30, 2003
    Total capital (to risk
      weighted assets)         $    36,346      12.41%      $    23,435        8.00%    $    29,294       10.00%
    Tier 1 (core) capital
      (to risk weighted assets)     33,268      11.36            11,718        4.00          17,576        6.00
    Tier 1 (core) capital (to
      adjusted total assets)        33,268       7.77            17,116        4.00          21,395        5.00

</TABLE>

Regulations  limit  the  dividends  that may be paid by the Bank  without  prior
approval of the Office of Thrift Supervision.  In addition,  the Bank is subject
to  dividend  limitations  by the OTS in  conjunction  with the  approval of the
acquisition of certain assets and liabilities of Sobieski Bank.  Under the terms
of the agreement, the Bank must remain "well-capitalized" for one year after the
acquisition  date.  Accordingly,  at  October 1,  2004,  $160,000  of the Bank's
retained  earnings was  potentially  available for  distribution to the Company,
without obtaining prior regulatory approval.



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

                                   (Continued)

                                       44
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 12 - OTHER NON-INTEREST INCOME AND EXPENSE

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

                                                                   2004              2003               2002
                                                                   ----              ----               ----
<S>                                                          <C>                <C>               <C>
         Other noninterest income
              Other service charges and fees                 $      159,913     $      226,925    $      125,735
              ATM foreign surcharges                                 57,010             47,047            54,349
              Visa interchange income                                81,966             63,856            44,946
              Partnership equity loss                              (217,510)          (165,570)         (163,495)
              Bank owned life insurance                             230,079            217,387                 -
              Rental Income                                         244,642                  -                 -
              Rental Income - Other Real Estate                     102,465                  -                 -
              Other                                                  96,932             60,436            42,879
                                                             --------------     --------------    --------------

                                                             $      755,497     $      450,081     $     104,414
                                                             ==============     ==============    ==============

         Other noninterest expense
              Printing, postage and supplies                        437,609            376,421           338,588
                   Advertising and Business development             409,906            357,381           202,016
              Telephone                                             239,479            211,560           164,066
              Insurance                                             190,960            135,606           125,736
              Directors fees                                        167,537            157,788           141,917
              Other                                               1,490,692          1,322,254         1,148,768
                                                             --------------     --------------    --------------

                                                             $    2,936,183     $    2,561,010    $    2,121,091
                                                             ==============     ==============    ==============

</TABLE>
<TABLE>
<CAPTION>

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:

                               ------------------2 0 0 4----------------  ------------------2 0 0 3----------------
                                                 -------                                    -------
                                    Fixed       Variable                       Fixed       Variable
                                 Rate Loans    Rate Loans       Total       Rate Loans    Rate Loans       Total
                                 ----------    ----------       -----       ----------    ----------       -----
<S>                            <C>           <C>            <C>           <C>            <C>           <C>
Mortgage loans                 $    752,500  $     606,700  $  1,359,200  $  9,885,230   $ 2,211,760   $ 12,096,990
Commercial loans                  3,166,010              -     3,166,010     2,795,409       105,398      2,900,807
Unused equity lines of credit    13,937,273     22,364,940    36,302,213    10,186,616    20,598,890     30,785,506
Unused commercial  lines
     and letters of credit                -     61,856,887    61,856,887        13,875    60,825,163     60,839,038
Unused construction loan
  lines of credit                 3,178,347              -     3,178,347     4,675,825     5,638,811     10,314,636
                               ------------  -------------  ------------  ------------  ------------   ------------

                               $ 21,034,130  $  84,828,527  $105,862,657   $27,556,955   $89,380,022   $116,936,977
                               ============  =============  ============   ===========   ===========   ============

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

                                                (Continued)

                                                    45
</TABLE>
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

Fixed rate  mortgage  loan  commitments  at September 30, 2004 are at an average
rate of 6.23% with terms primarily ranging from 15 to 30 years.  Commercial loan
fixed rate commitments are primarily for five year terms with an average rate of
6.62%.  The average rate on variable rate mortgage loan commitments is 5.83% 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.

Under  employment  agreements with certain  executive  officers,  certain events
leading to separation  from the Company  could result in cash payments  totaling
$1.54 million as of September 30, 2004.

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 - SHAREHOLDER RIGHTS PLAN

The  Company  has  adopted a  Shareholder  Rights  Plan and  declared a dividend
distribution  at the rate of one Right for each  share of common  stock  held of
record as of the close of business on October  21,  1996,  and for each share of
common stock issued thereafter up to the Distribution Date (defined below).

Each Right entitles  holders of common stock to buy one share of common stock of
the Company at an exercise  price of $46.  The Right would be  exercisable,  and
would detach from the common stock (the "Distribution Date") only if a person or
group (i) were to acquire 12% or more of the outstanding  shares of common stock
of the  Company;  (ii) were to  announce a tender or  exchange  offer  that,  if
consummated,  would result in a person or group beneficially  owning 30% or more
of the outstanding shares of common stock of the Company; or (iii) were declared
by the Board to be an Adverse  Person (as defined in the Plan) if such person or
group beneficially owns 10% or more of the outstanding shares of common stock in
the Company.  In the event of any occurrence  triggering the Distribution  Date,
each Right may be exercised by the holder  (other than such an acquiring  person
or group) to  purchase  shares of common  stock of the  Company  (or, in certain
circumstances, common stock of the acquiring person) at a 50% discount to market
price.  The  Company is  entitled  to redeem the Rights at $.01 per Right at any
time. The Rights will expire at the close of business on October 1, 2006.


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

                                   (Continued)

                                       46
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 15 - BUSINESS COMBINATION

On August 6, 2004,  the Company  acquired  certain  assets and  assumed  certain
liabilities  of  Sobieski  Bank,  a  savings  and loan  association  with  three
locations in South Bend, Indiana.  As a result of this acquisition,  the Company
expects  to further  solidify  its market  share in the St.  Joseph and  Elkhart
counties,  expand its customer  base to enhance  deposit fee income,  provide an
opportunity to market  additional  products and services to new  customers,  and
reduce operating costs through economies of scale.

The  transaction  resulted in a premium of  $407,000  over the fair value of net
assets  acquired.  As part of the  transaction,  $2.4 million in goodwill,  $1.2
million in customer  relationship  intangibles  and $1.6 million in core deposit
intangibles  were  acquired.  The  intangible  assets will be amortized over ten
years, using an accelerated  method.  Goodwill will not be amortized but instead
evaluated  periodically for impairment.  Goodwill and intangible  assets will be
deducted for tax purposes over 15 years using the straight line method.

The following  table  summarizes the estimated fair value of assets acquired and
liabilities assumed at the date of acquisition.


Cash                                                   $     7,281,000
Securities, including FHLB stock                            35,922,000

Net Loans                                                   53,674,000

Premises and equipment                                       3,445,000
Goodwill                                                     2,363,000
Core deposit intangible                                      1,610,000
Customer relationship intangible                             1,180,000
Other assets                                                   812,000
                                                       ----------------
      Total assets acquired                                106,287,000
                                                       ================

Certificates of deposits                                   (47,442,000)
Other deposits                                             (21,815,000)
                                                       ----------------
    Total Deposits                                         (69,257,000)

FHLB advances                                              (35,739,000)
Other liabilities                                             (884,000)
                                                       ----------------
     Total liabilities assumed                            (105,880,000)
                                                       ----------------
          Net assets acquired                          $       407,000
                                                       ================

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

                                   (Continued)

                                       47
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

The following table presents pro forma information for the years ended September
30,  2004 and 2003 as if the  acquisition  had  occurred  at October 1, 2003 and
2002. The pro forma  information  includes  adjustments  for interest income and
loans and securities  acquired,  amortization  of  intangibles  arising from the
transaction,  depreciation  expense on property  acquired,  interest  expense on
deposits  acquired,  and the related income tax effects.  The effects of certain
transactions  related to various  fraudulent  and  otherwise  unauthorized  loan
matters impacting Sobieski Bank's historical financial results were not included
in the pro forma information below. However,  other factors negatively impacting
the  historical  financial  results of Sobieski Bank have not been excluded from
the pro forma  information  presented  below.  Therefore,  pro  forma  financial
information is not  necessarily  indicative of the results of operations as they
would have been had the acquisition been effected on the assumed dates.

                                         2004                  2003
Net interest income                  $  14,694,000        $  14,073,000
Net income                               1,328,000            1,938,000

Basic earnings per share               $      1.01          $      1.51
Diluted earnings per share                     .97                 1.46










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

                                   (Continued)

                                       48
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS

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

                            CONDENSED BALANCE SHEETS
                           September 30, 2004 and 2003

                                                                                     2004                 2003
                                                                                     ----                 ----
<S>                                                        <C>                  <C>                 <C>
ASSETS
Cash and cash equivalents                                                       $       885,981    $        416,295
Securities available for sale                                                         1,126,925           1,200,915
Investment in Bank subsidiary                                                        40,789,446          33,200,296
Other assets                                                                            113,264             225,295
                                                                                ---------------    ----------------
     Total assets                                                               $    42,915,616    $     35,042,801
                                                                                ===============    ================
LIABILITIES
Loan payable to Bank subsidiary                                                 $       450,000    $        450,000
Loans from correspondent bank                                                         6,500,000             300,000
Accrued expenses and other liabilities                                                   59,746              41,595
                                                                                ---------------    ----------------
     Total liabilities                                                                7,009,746             791,595
SHAREHOLDERS' EQUITY                                                                 35,905,870          34,251,206
                                                                                ---------------    ----------------
     Total liabilities and shareholders' equity                                 $    42,915,616    $     35,042,801
                                                                                ===============    ================



                         CONDENSED STATEMENTS OF INCOME
                  Years ended September 30, 2004, 2003 and 2002

                                                                2004                 2003                 2002
                                                                ----                 ----                 ----
INCOME
Dividends from Bank subsidiary - cash                      $      630,000       $    2,070,000      $     1,055,000
Interest income                                                    39,081               42,666               61,740
                                                           --------------       --------------      ---------------
     Total                                                        669,081            2,112,666            1,116,740

EXPENSES
Interest expense                                                   56,758               36,141               36,901
Other expenses                                                    291,541              186,183              153,178
                                                           --------------       --------------      ---------------
     Total                                                        348,299              222,324              190,079

Income before income taxes and
  equity in undistributed (excess distributed)
  net income of Bank subsidiary                                   320,782            1,890,342              926,661
Income tax benefit                                                 40,186               69,884               50,835
                                                           --------------       --------------      ---------------

Income before equity in undistributed
 (excess distributed) net income
  of Bank subsidiary                                              360,968            1,960,226              977,496
Equity in undistributed (excess distributed)
  net income of Bank subsidiary                                 1,428,681              439,558             (328,959)
                                                           --------------       --------------      ---------------
Net income                                                 $    1,789,649       $    2,399,784      $       648,537
                                                           ==============       ==============      ===============


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

                                   (Continued)

                                       49
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                  Years ended September 30, 2004, 2003 and 2002

                                                                     2004             2003              2002
                                                                     ----             ----              ----
<S>                                                           <C>                 <C>                <C>
Cash flows from operating activities
     Net income                                               $     1,789,649     $   2,399,784      $   648,537
     Adjustments to reconcile net income to
       net cash  from operating activities
         Equity in (undistributed) excess distributed
           net income of  Bank subsidiary                          (1,428,681)         (439,558)         328,959
         Investment impairment valuation                              109,253                 -                -
         Net change in other assets                                   376,055          (155,278)          29,967
         Net change in accrued expenses and
           other liabilities                                           18,151              (403)          (7,545)
                                                              ---------------    --------------   ---------------
              Net cash from operating activities                      864,427         1,804,545          999,918

Cash flows from investing activities
     Investment in banking subsidiary                              (6,500,000)                -                -
                                                              ----------------   --------------   --------------
Net cash from investing activities                                 (6,500,000)                -                -

Cash flows from financing activities
     Purchase of MFB Corp. common stock                                     -        (1,676,634)        (506,881)
     Proceeds from exercise of stock options                          522,689           378,125          167,000
     Proceeds from other borrowings                                 6,500,000                 -                -
     Repayment of other borrowings                                   (300,000)                -                -
     Cash dividends paid                                             (617,430)         (560,324)        (554,220)
                                                              ----------------   --------------   --------------
         Net cash from financing activities                         6,105,259        (1,858,833)        (894,101)
                                                              ---------------    --------------   --------------

Net change in cash and cash equivalents                               469,686           (54,288)         105,817

Cash and cash equivalents at beginning
  of year                                                             416,295           470,583          364,766
                                                              ---------------    --------------   --------------

Cash and cash equivalents at end of year                      $       885,981    $      416,295   $      470,583
                                                              ===============    ==============   ==============


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

                                   (Continued)

                                       50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 17 - 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, 2004 and 2003.
Items which are not financial instruments are not included.

                                                   2 0 0 4                                   2 0 0 3
                                                   -------                                   -------
                                        Carrying             Estimated            Carrying             Estimated
                                         Amount             Fair Value             Amount             Fair Value
                                         ------             ----------             ------             ----------

<S>                                 <C>                 <C>                  <C>                  <C>
Assets
------
Cash and cash equivalents           $     28,595,030    $      28,595,000    $      40,356,979    $      40,357,000
Other investments                         12,628,329           12,628,000           10,019,782           10,020,000
Securities available for sale             66,021,011           66,021,000           40,028,743           40,029,000
Loans held for sale                        1,033,800            1,034,000            6,625,540            6,626,000
Loans receivable, net of
  allowance for loan losses              393,850,467          401,428,443          312,956,521          324,510,000

Liabilities
-----------
Noninterest bearing demand
  deposits                               (31,657,521)         (31,658,000)         (26,481,555)         (26,482,000)
Savings, NOW and MMDA
  deposits                              (136,099,148)        (136,099,000)        (107,340,694)        (107,341,000)
Other time deposits                     (190,135,947)        (191,771,000)        (158,283,602)        (163,299,000)
FHLB advances                           (133,443,392)        (141,889,000)         (98,790,251)        (110,451,000)
Loans from correspondent
  banks                                   (6,500,000)          (6,500,000)            (300,000)            (300,000)

</TABLE>

For purposes of the above  disclosures  of estimated  fair value,  the following
assumptions  were used as of September  30, 2004 and 2003.  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 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, 2004 and 2003 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,
2004 and 2003, applied for an estimated time period until the loan is assumed to
reprice or be paid. In addition,  when  computing  the estimated  fair value for
loans  receivable,  the  allowance  for  loan  losses  was  subtracted  from the
calculated  fair value for  consideration  of credit issues.  The estimated fair
value for other  investments,  noninterest  bearing demand deposits and savings,
NOW and MMDA deposits is based upon their  carrying  value.  The estimated  fair
value for other time deposits as well as loans from correspondent banks and FHLB
advances  is based  upon  estimates  of the rate the  Company  would pay on such
deposits or  borrowings  at  September  30, 2004 and 2003,  applied for the time
period until maturity.  The estimated fair value of other financial  instruments
and off-balance-sheet loan commitments approximate cost


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

                                   (Continued)

                                       51
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

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, 2004 and 2003, 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, 2004 and 2003 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.




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

                                   (Continued)

                                       52
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 18 - OTHER COMPREHENSIVE INCOME (LOSS)

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

                                                                     2004              2003             2002
                                                                     ----              ----             ----
<S>                                                            <C>                <C>               <C>
Net change in net unrealized gains and losses
  on securities available for sale
     Unrealized gains (losses) arising during
       the year                                                $     (361,190)    $     (324,551)   $    (1,199,295)
     Reclassification adjustment for (gains) losses
       included in net income                                         109,253            (40,000)           933,958
                                                               --------------     ---------------   ---------------
         Net change in net unrealized gains
           and losses on securities available
           for sale                                                  (251,937)          (364,551)          (265,337)

Tax expense (benefit)                                                  73,667            (92,519)           (26,220)
                                                               --------------     --------------    ----------------

     Total other comprehensive income (loss)                   $     (325,604)    $     (272,032)   $      (239,117)
                                                               ===============    ==============    ================




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

                                   (Continued)

                                       53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                          --------------Year Ended September 30, 2004--------------
                                                                        -----------------------------
                                                              1st            2nd             3rd           4th*
(In thousands, except per share data)                       Quarter        Quarter         Quarter        Quarter
                                                            -------        -------         -------        -------
<S>                                                       <C>            <C>            <C>             <C>
Interest income                                           $     5,527    $     5,446    $     5,505     $     6,314

Interest expense                                                2,719          2,699          2,697           2,974
                                                          -----------    -----------    -----------     -----------


Net interest income                                             2,808          2,747          2,808           3,340

Provision for loan losses                                         300            200            150             150
                                                          -----------    -----------    -----------     -----------


Net interest income after provision for loan
  losses                                                        2,508          2,547          2,658           3,190

Non-interest income                                             1,474          1,195          1,760           1,251

Non-interest expense                                            3,255          3,399          3,573           4,331
                                                          -----------    -----------    -----------     -----------


Income before income taxes                                        727            343            845             110

Income tax expense                                                108            (10)           238            (101)
                                                          -----------    ------------   -----------     ------------


Net income                                                $       619    $       353    $       607     $       211
                                                          ===========    ===========    ===========     ===========

Basic earnings per common share                           $       .48    $       .27    $       .46     $       .16
                                                          ===========    ===========    ===========     ===========
Diluted earnings per common share                         $       .45    $       .26    $       .44     $       .15
                                                          ===========    ===========    ===========     ===========


* The increase in non-interest expense in the fourth quarter of fiscal year 2004
is primarily  related to expense  incurred in  connection  with the  acquisition
previously  mentioned and the  additional  costs incurred to operate the related
new branch locations. The increases in interest income, interest expense and net
interest  income during the fourth  quarter are primarily  related to the assets
and liabilities acquired.





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

                                   (Continued)

                                       54
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)

                                                          --------------Year Ended September 30, 2003--------------
                                                                        -----------------------------
                                                              1st            2nd            3rd*            4th
(In thousands, except per share data)                       Quarter        Quarter         Quarter        Quarter
                                                            -------        -------         -------        -------
<S>                                                       <C>            <C>            <C>             <C>
Interest income                                           $     6,173    $     5,691    $     5,732     $     5,730

Interest expense                                                3,258          3,113          3,065           2,808
                                                          -----------    -----------    -----------     -----------


Net interest income                                             2,915          2,578          2,667           2,922

Provision for loan losses                                         450            450            110             100
                                                          -----------    -----------    -----------     -----------


Net interest income after provision for loan
  losses                                                        2,465          2,128          2,557           2,822

Non-interest income                                             1,307          1,418            386*          1,870

Non-interest expense                                            2,703          2,985          3,095           3,099
                                                          -----------    -----------    -----------     -----------


Income before income taxes                                      1,069            561           (152)          1,593

Income tax expense                                                308             91           (213)            485
                                                          -----------    -----------    ------------    -----------


Net income                                                $       761    $       470    $        61     $     1,108
                                                          ===========    ===========    ===========     ===========

Basic earnings per common share                           $       .58    $       .37    $       .05     $       .87
                                                          ===========    ===========    ===========     ===========
Diluted earnings per common share                         $       .56    $       .36    $       .05     $       .83
                                                          ===========    ===========    ===========     ===========

* The  significant  decline in net income for the third  quarter of fiscal  year
2003 is primarily due to a $704,000 mortgage servicing rights impairment charge.



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

                                   (Continued)

                                       55
</TABLE>
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                             DIRECTORS AND OFFICERS
                               September 30, 2004

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

                      MFB CORP. AND MFB FINANCIAL DIRECTORS

M. Gilbert Eberhart (age 70) has served as Secretary of MFB Financial since 1987
and of MFB Corp. since inception. He is a dentist based in Mishawaka.

Thomas F. Hums (age 71) served as President and Chief  Executive  Officer of MFB
Financial from 1972 until  September 1995. He also served as President and Chief
Executive  Officer  of  Mishawaka  Financial  Services,  Inc.  from  1975  until
September 1995. He also served as President and Chief  Executive  Officer of MFB
Corp. from inception  until  September  1995. He is the current  Chairman of MFB
Corp. and MFB Financial.

Jonathan E. Kintner (age 61) is an optometrist based in Mishawaka.

Christine  A.  Lauber  (age 59) is a  Certified  Public  Accountant  in  private
practice in South Bend, Indiana.

Michael J. Marien (age 56) is a Sales Representative with Signode Corporation, a
division of ITW.

Charles J. Viater (age 50) has served as President and Chief  Executive  Officer
of MFB Corp.,  MFB  Financial  and  Mishawaka  Financial  Services,  Inc.  since
September  1995.  He  previously  served as Executive  Vice  President for Amity
Federal  Savings  Bank and Chief  Financial  Officer of Amity  Bancshares,  Inc.
beginning in December 1990.

Reginald  H. Wagle  (age 62) has served as Vice  President  of  Memorial  Health
Foundation since 1992. Until 1992, he was a free-lance  political consultant and
until 1991, he also served as District  Director for the Office of United States
Representative John P. Hiler, Third Congressional District of Indiana.

Robert C. Beutter (age 69) has served as Mayor of Mishawaka,  Indiana for twenty
years and is currently in private law practice in Mishawaka, Indiana.


                        MFB FINANCIAL EXECUTIVE OFFICERS

Charles J. Viater                                 Thomas J. Flournoy
President and                                     Executive Vice President and
Chief Executive Officer*                          Chief Financial Officer

Donald R. Kyle                                    James P. Coleman, III
Executive Vice President and                      Executive Vice President and
Chief Operating Officer                           Director of Wealth Management

                                                  M. Gilbert Eberhart
                                                  Secretary*


* Holds same position with MFB Corp.

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<PAGE>


                            MFB CORP. AND SUBSIDIARY
                             SHAREHOLDER INFORMATION
                               September 30, 2004

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

Market Information

The  common  stock  of MFB  Corp.  is  traded  on the  National  Association  of
Securities Dealers Automated Quotation System, National Market System, under the
symbol  "MFBC."  As  of  September  30,  2004,  there  were   approximately  470
shareholders  of record.  The following  table sets forth market price (based on
daily closing prices) and dividend  information  for the Company's  common stock
for the periods  indicated.

                                                         Dividend
Fiscal Quarters Ended      High Trade     Low Trade      Declared
---------------------      ----------     ---------      --------

December 31, 2002             23.44         20.59          .105
March 31, 2003                22.97         21.10           .11
June 30, 2003                 26.65         22.39           .11
September 30, 2003            32.00         25.18           .11

December 31, 2003             33.09         30.00           .11
March 31, 2004                35.00         29.96           .12
June 30, 2004                 35.00         30.52           .12
September 30, 2004            31.54         27.60           .12



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


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


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



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<PAGE>

Shareholder and General Inquiries

The  Company is  required  to file an Annual  Report on Form 10-K for its fiscal
year ended  September  30, 2004 with the  Securities  and  Exchange  Commission.
Copies of this annual report may be obtained without charge upon written request
to:

                  Charles J. Viater
                  President and Chief Executive Officer
                  MFB Corp.
                  4100 Edison Lakes Parkway (Suite 300)
                  Mishawaka, IN 46545


Office Locations
----------------
Corporate Headquarters       Main Office                   Branch Office
4100 Edison Lakes Parkway    121 S Church St.              25990 County Road 6
Mishawaka, IN 46545          Mishawaka, IN 46544           Elkhart, IN 46514

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

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

                             Branch Office                 Branch Office
                             2930 W. Cleveland Rd.         411 W McKinley Ave
                             South Bend, IN 46628          Mishawaka, IN 46545

                             Branch Office                 Branch Office
                             740 S. Walnut                 23761 Western Ave.
                             South Bend, IN 46619          South Bend, IN 46619

                             Branch Office
                             742 E. Ireland Rd.
                             South Bend, IN 46614


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