FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark one)

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

For the fiscal year ended September 30, 1996
                                       or

[ ]  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

For the transition period from         to

Commission file number:  0-23374

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

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

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

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

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

Securities Registered Pursuant to Section 12(g) of the Act:

                                     Common Stock, without par value
                                    (Common Share Purchase Rights)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

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

Indicate by check mark if disclosure of delinquent  filers persuant to Item 405,
Regulation S-K (229.405 of this chapter) is not contained  herein,  and will not
be contained,  to the best of  Registrant's  knowledge,  in definitive  proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any ammendment to this Form 10-K. X__

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of December 2, 1996, was $23,906,370.00.

The  number of shares of the  registrant's  common  stock,  without  par  value,
outstanding as of December 2, 1996, was 1,781,517 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Annual Report to Shareholders for the fiscal year ended
September 30, 1996 are incorporated by reference into Part II.

Portions of the Proxy Statement for the 1997 Annual Meeting of the  Shareholders
are incorporated into Part I and Part III.


                            Exhibit Index on Page 47
                              Page one of 99 Pages



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                                    MFB CORP.
                                    Form 10-K
                                      INDEX


PART I

Item 1.           Business ..............................................  1
Item 2.           Properties ............................................ 40
Item 3.           Legal Proceedings ..................................... 41
Item 4.           Submission of Matters to a Vote of Security Holders ... 41
Item 4.5          Executive Officers of MFB.............................. 41

PART II

Item 5.           Market for Registrant's Common Equity and Related
                           Stockholder Matters .......................... 42
Item 6.           Selected Financial Data ............................... 43
Item 7.           Management's Discussion and Analysis of Financial
                           Condition and Results of Operations .......... 43
Item 8.           Financial Statements and Supplementary Data ........... 43
Item 9.           Changes in and Disagreements with Accountants on
                              Accounting and Financial Disclosure........ 43

PART III

Item 10.          Directors and Executive Officers of the Registrant..... 44
Item 11.          Executive Compensation................................. 44
Item 12.          Security Ownership of Certain Beneficial Owners
                             and Management.............................. 44
Item 13.          Certain Relationships and Related Transactions......... 44

PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports
                             on Form 8-K................................. 44
Signatures                  ............................................. 46

Item 15.          Exhibit List .......................................... 47





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                                     PART 1

Item 1.       Business.

General

     MFB Corp. ("MFB") is an Indiana corporation organized in December, 1993, to
become a unitary savings and loan holding company.  MFB became a unitary savings
and loan holding  company upon the conversion of Mishawaka  Federal Savings (the
"Bank",  and together with MFB, the "Company") from a federal mutual savings and
loan  association to a federal stock savings bank on March 24, 1994. On November
1, 1996, Mishawaka Federal Savings officially changed its name to MFB Financial.
The principal asset of MFB consists of 100% of the issued and outstanding shares
of  common  stock,  $0.01  par value per  share,  of the  Bank.  The Bank  began
operations in Mishawaka,  Indiana in 1889 under the name Mishawaka  Building and
Loan Association.

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

     The Company's  principal  source of revenue is interest income from lending
activities,  primarily  residential  mortgage  loans  and,  to a lesser  extent,
residential  construction loans. At September 30, 1996, $143.8 million, or 92.9%
of the Company's  total loan  portfolio,  consisted of mortgage  loans on one-to
four-family  residential  real  property  which are  generally  secured by first
mortgages  on the  property.  MFB  Financial  also  makes a  limited  number  of
residential  construction loans. A large majority of the residential real estate
loans  originated  by MFB  Financial  are secured by  properties  located in St.
Joseph County.

     MFB Financial  also makes a limited  number of consumer  loans,  commercial
real estate loans and multi-family  mortgage loans. Consumer loans include loans
secured by deposits and home equity and second mortgage loans.

     In the early 1980's, most savings  association's loan portfolios  consisted
of long-term,  fixed-rate  loans which carried low interest  rates.  At the same
time,  most savings  associations  had to pay high interest rates on deposits in
order to be competitive and retain deposits.  The mismatch between the low fixed
rates on long-term  mortgage  loans and the high  interest  rates on  short-term
deposits  had an  adverse  effect on these  savings  associations'  business.  A
significant  portion of MFB  Financial's  loan portfolio  consists of adjustable
rate loans.  Adjustable  rate loans  permit MFB  Financial  to better  match the
interest it earns on loans with the interest it pays on deposits.  Additionally,
MFB Financial attempts to lengthen liability  repricing by aggressively  pricing
longer term  certificates  of deposit  during periods of relatively low interest
rates.


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Lending Activities

     General. MFB Financial historically has concentrated its lending activities
on the  origination  of loans secured by first  mortgage liens for the purchase,
construction  or refinancing of one-to  four-family  residential  real property.
These loans continue to be the major focus of MFB Financial's  loan  origination
activities.  Over the past year, a successful home equity line of credit program
was added as well as a new commercial  loan program which is expected to enhance
loan yields. Management is currently evaluating other loan programs which may be
added as business plans warrant.

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

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

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

     MFB  Financial   normally  requires  private  mortgage   insurance  on  all
conventional residential  single-family mortgage loans with loan-to-value ratios
in excess of 80%. The private  mortgage  insurance  obligation may be eliminated
when the  principal  balance  of the loan is reduced  below 75% of the  original
cost.  MFB  Financial  generally  will not lend more  than 95% of the  lesser of
current cost or appraised value of a residential  single-family  property.  Some
equity lines of credit are  originated  at up to 90%  loan-to-value  with higher
yields to compensate for potentially higher risk.

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

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

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

     Generally,  construction loans are 12-month  adjustable rate mortgage loans
with interest calculated on the amount disbursed under the loan and payable on a
monthly  basis.  Interest rates for such loans are generally 1% above the normal
residential mortgage rates. A construction

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loan fee is also charged for these loans. MFB Financial  normally requires a 75%
loan-to-value  ratio  for  its  construction  loans.  Inspections  are  made  in
conjunction with  disbursements  under a construction loan, and the construction
phase is generally limited to six months.

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

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

     Origination, Purchase and Sale of Loans. MFB Financial currently originates
its loans pursuant to its own underwriting  standards and forms of documentation
which are not in conformity with the standard  criteria of the Federal Home Loan
Mortgage   Corporation   ("FHLMC")  or  Federal  National  Mortgage  Association
("FNMA").  If it  desired  to sell its  loans,  MFB  Financial  might  therefore
experience some difficulty  selling such loans quickly in the secondary  market.
MFB Financial's  ARMs vary from secondary market criteria  because,  among other
things,  MFB  Financial  does not use the standard  loan form,  does not require
current  property  surveys in most cases,  permits  borrowers to make repayments
which reduce  subsequent  payment  obligations  on loans and does not permit the
conversion of those loans to fixed rate loans. However, steps are being taken to
upgrade the loan  origination  system to allow new loans to more closely conform
to  secondary  market  documentation  standards.  This upgrade is expected to be
completed in 1997.

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

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

     MFB Financial's  loan approval process is intended to assess the borrower's
ability to repay the loan,  the  viability  of the loan and the  adequacy of the
value of the  property  that will  secure  the loan.  To assess  the  borrower's
ability to repay, MFB Financial studies the employment and

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credit  history and  information  on the  historical  and  projected  income and
expenses of its mortgagors.

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

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

Non-Performing and Problem Assets

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

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

     Non-performing  assets.  At  September  30,  1996,  $198,000 or .09% of the
Company's total assets, were  non-performing  assets (loans delinquent more than
90  days,  non-accrual  loans,  real  estate  owned  (REO")  and  troubled  debt
restructurings).  At September 30, 1996,  the Company had no impaired  loans and
there was no real estate acquired as a result of foreclosure, voluntary deed, or
other  means.  Such real estate is  classified  by the  Company as "real  estate
owned" or "REO" until it is sold. When property is so acquired, the value of the
asset is recorded on the books of the  Company at fair value.  Interest  accrual
ceases when the collection of interest becomes doubtful. All costs incurred from
the date of acquisition in maintaining the property are expensed.


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

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

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

Allowance for Loan Losses

     The allowance for loan and lease losses is maintained through the provision
for loan losses,  which is charged to earnings.  The  provision is determined in
conjunction  with  management's   review  and  evaluation  of  current  economic
conditions  (including  those of MFB Financial's  lending area),  changes in the
character  and size of the  loan and  lease  portfolio,  delinquencies  (current
status  as well as past and  anticipated  trends)  and  adequacy  of  collateral
securing loan delinquencies, historical and estimated net charge-offs, and other
pertinent information derived from a review of the loan and lease portfolio.  In
management's  opinion,  MFB  Financial's  allowance for loan and lease losses is
adequate to absorb anticipated future losses existing at September 30, 1996.

Investments

     General.  Federally  chartered  savings  associations have the authority to
invest in various types of liquid assets,  including U.S. Treasury  obligations,
securities  of various  federal  agencies,  certain  certificates  of deposit of
insured banks and savings institutions, certain bankers'

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acceptances,  repurchase  agreements and federal funds sold.  Subject to various
restrictions, federally chartered savings associations may also invest a portion
of their assets in commercial paper,  corporate debt securities and asset-backed
securities.  The investment  policy of MFB Financial,  which is established  and
implemented by MFB Financial's  Investment  Committee,  is designed primarily to
maximize  the yield on the  investment  portfolio  subject to minimal  liquidity
risk, default risk, interest rate risk, and prudent asset/liability management.

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

     Liquidity.  Federal regulations require FHLB-member savings associations to
maintain an average daily balance of liquid assets equal to a monthly average of
not less than a specified  percentage of its net  withdrawable  savings deposits
plus short-term  borrowings.  Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related  securities,  and certain first lien residential
mortgage loans.  This liquidity  requirement may be changed from time-to-time by
the OTS to any amount  within the range of 4% to 10%, and is currently 5%. Also,
a  savings   association   currently  must  maintain  short-term  liquid  assets
constituting  at least  1% of its  average  daily  balance  of net  withdrawable
deposit accounts and current  borrowings.  Monetary penalties may be imposed for
failure to meet these  liquidity  requirements.  As of September  30, 1996,  the
Company had liquid assets of $69.0 million and a regulatory  liquidity  ratio of
26.3%, of which 5.3% constituted short-term investments.

Sources of Funds

     General. Deposits have traditionally been MFB Financial's primary source of
funds for use in lending and investment activities. In addition to deposits, MFB
Financial derives funds from scheduled loan payments, loan prepayments, retained
earnings and income on earning assets.  While scheduled loan payments and income
on earning assets are relatively  stable sources of funds,  deposit  inflows and
outflows can vary widely and are influenced by prevailing interest rates, market
conditions and levels of  competition.  Borrowings from the FHLB of Indianapolis
may be used in the  short-term  to  compensate  for  reductions  in  deposits or
deposit inflows at less than projected levels.  Historically,  MFB Financial has
rarely  borrowed on a  longer-term  basis to support  expanded  activities or to
assist  in its  asset/liability  management.  However,  during  the  year  ended
September  30, 1996,  the Bank  instituted a capital  leveraging  strategy  that
involved the purchase of earning assets funded  primarily with FHLB  borrowings.
The success of this strategy  contributed to net earnings and helped improve the
overall return on equity during the year.

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


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<PAGE>

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

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

     Borrowings. MFB Financial focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. There
are regulatory  restrictions  on advances from the Federal Home Loan Banks,  See
"Regulation--Federal  Home Loan Bank System" and "--Qualified Thrift Lender." At
September  30, 1996,  MFB Financial had $ 24.5 million in Federal Home Loan Bank
borrowings  outstanding.  MFB Financial  does not  anticipate  any difficulty in
obtaining advances appropriate to meet its requirements in the future.

Service Corporation Subsidiary

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

     MFB  Financial's  only  subsidiary,   Mishawaka  Financial  Services,  Inc.
("Mishawaka  Financial"),  was organized in 1975 and currently is engaged in the
sale of credit life, general fire and accident, car, home and life insurance, as
agent to MFB Financial's  customers and the general  public.  During fiscal year
1996, Mishawaka Financial received  approximately $113,000 in commissions versus
approximately  $116,000 in commissions  received during fiscal year 1995.  Since
Mishawaka  Financial  conducts all of its activities as agent for its customers,
MFB

                                                       7


<PAGE>



Financial  is not  required  to deduct  from its  capital  any  portion  of this
investment.  The  consolidated  statements  of income of MFB included  elsewhere
herein  include the  operation of MFB Financial  and  Mishawaka  Financial.  All
significant  intercompany  balances and transactions have been eliminated in the
consolidation.

Employees

     As of September 30, 1996, MFB Financial  employed 52 persons on a full-time
basis and 18 persons on a part-time basis. None of MFB Financial's employees are
represented by a collective bargaining group.  Management considers its employee
relations to be excellent.


                                                       8


<PAGE>



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

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

<TABLE>
<CAPTION>



                                                                        1996            1995             1994
                                                                       Average         Average          Average
                                                                     Outstanding     Outstanding      Outstanding
                                                                       Balance         Balance          Balance
                                                                       -------         -------          -------
Assets:                                                                            (In thousands)
Interest-earning assets:
<S>                                                                <C>              <C>             <C>         
     Interest-bearing deposits                                     $       6,709    $      7,995    $     24,117
     Securities (1)                                                       35,392          39,841          27,093
     Mortgage-backed securities (1)                                       19,717          12,558          10,698
     Loans receivable (2)                                                133,670         118,735         110,540
     Stock in FHLB of Indianapolis                                         1,303           1,223           1,149
                                                                   -------------    ------------    ------------
         Total interest-earning assets                                   196,791         180,352         173,597
Non-interest earning assets, net
  of allowance for loan losses                                             3,792           3,517           3,546
                                                                   -------------    ------------    ------------

              Total assets                                         $     200,583    $    183,869    $    177,143
                                                                   =============    ============    ============

Liabilities and shareholders' equity:
Interest-bearing liabilities:
     Savings accounts                                              $       9,746    $      9,774    $      9,646
     NOW and money market accounts                                        26,006          26,672          30,662
     Certificates of deposit                                             113,570         106,556         107,294
     FHLB borrowings                                                       9,625               -               -
                                                                   -------------    ------------    ------------
         Total interest-bearing liabilities                              158,947         143,002         147,602

Other liabilities                                                          4,229           2,838           2,200
                                                                   -------------    ------------    ------------
     Total liabilities                                                   163,176         145,840         149,802

     Shareholders' equity
         Common stock                                                     19,064          20,527          10,524
         Retained earnings                                                19,718          19,117          17,802
         Less common stock acquired by:
              Employee stock ownership plan                               (1,007)         (1,208)           (675)
              Recognition and retention plans                               (235)           (407)           (310)
              Unrealized gain (loss) on securities
                available for sale                                          (133)              -               -
                                                                   -------------    ------------    ------------
         Total shareholders' equity                                       37,407          38,029          27,341
                                                                   -------------    ------------    ------------

         Total liabilities and shareholders' equity                $     200,583    $    183,869    $    177,143
                                                                   =============    ============    ============
</TABLE>
---------------
(1)  Average  outstanding  balance reflects unrealized gain (loss) on securities
     available for sale.
(2)  Total loans less deferred net loan fees and loans in process.

<PAGE>



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

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

<TABLE>
<CAPTION>


                                                                              Year Ended September 30, 1996
                                                                      --------------------------------------------
                                                                         Average                          Average
                                                                         Balance         Interest       Yield/Cost
                                                                         -------         --------       ----------
                                                                                  (Dollars in thousands)
INTEREST-EARNING ASSETS
<S>                                                                   <C>             <C>                  <C>  
     Interest-bearing deposits                                        $      6,709    $        422         6.29%

     Securities (1)                                                         35,410           2,186         6.17
     Mortgage-backed securities (1)                                         19,920           1,225         6.15
     Loans receivable (2)                                                  133,670          10,246         7.67
     Stock in FHLB of Indianapolis                                           1,303             103         7.90
                                                                      ------------    ------------         ---- 
         Total interest-earning assets                                $    197,012          14,182         7.20
                                                                      ============          ======         ====

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

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

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

Interest rate spread (3)                                                                                   2.13%

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

Average interest-earning assets to
  average interest-bearing liabilities                                      123.95%

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

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

(2)  Total loans less deferred net loan fees and loans in process.

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

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

<PAGE>



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

<TABLE>
<CAPTION>

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

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

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

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

Interest rate spread (2)                                                                                   2.12%

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

Average interest-earning assets to
  average interest-bearing liabilities                                      126.12%
</TABLE>
----------------
(1)  Total loans less deferred net loan fees and loans in process.

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

<PAGE>



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

<TABLE>
<CAPTION>

                                                                             Year Ended September 30, 1994
                                                                      --------------------------------------------
                                                                         Average                          Average
                                                                         Balance         Interest       Yield/Cost
                                                                         -------         --------       ----------
                                                                                  (Dollars in thousands)
INTEREST-EARNING ASSETS
<S>                                                                   <C>             <C>                  <C>  
     Interest-bearing deposits                                        $     24,117    $        922         3.82%
     Investment securities                                                  27,093           1,498         5.53
     Mortgage-backed securities                                             10,698             586         5.48
     Loans receivable (1)                                                  110,540           8,479         7.67
     Stock in FHLB of Indianapolis                                           1,149              60         5.22
                                                                      ------------    ------------         ---- 
         Total interest-earning assets                                $    173,597          11,545         6.65
                                                                      ============    ============         ==== 

INTEREST-BEARING LIABILITIES
     Savings accounts                                                 $      9,646             265         2.75%
     NOW and money market accounts                                          30,662             813         2.65
     Certificates of deposit                                               107,294           4,941         4.61
                                                                      ------------    ------------         ---- 
         Total interest-bearing liabilities                           $    147,602           6,019         4.08
                                                                      ============    ============         ==== 

Net interest earning assets                                           $     25,995
                                                                      ============

Net interest income                                                                   $      5,526
                                                                                      ============

Interest rate spread (2)                                                                                   2.57%

Net yield on average interest-earning assets (3)                                                           3.18%

Average interest-earning assets to
  average interest-bearing liabilities                                      117.61%

</TABLE>
----------------
(1)  Total loans less deferred net loan fees and loans in process.

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

<PAGE>





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

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

<TABLE>
<CAPTION>

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

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

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




                                                        13


<PAGE>





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

<TABLE>
<CAPTION>


                                                                             Increase (Decrease) in
                                                                              Net Interest Income
                                                                   Total Net           Due to            Due to
                                                                    Change              Rate             Volume
                                                                 -----------       -----------       ------------
                                                                                    (In thousands)
Year ended September 30, 1995 compared
  to year ended September 30, 1994
      Interest-earning assets
<S>                                                              <C>               <C>               <C>          
         Interest-bearing deposits                               $      (440)      $       367       $       (807)
         Securities                                                      802                69                733
         Mortgage-backed securities                                      106                 4                102
         Loans receivable                                                337              (278)               615
         Stock in FHLB of Indianapolis                                    33                29                  4
                                                                 -----------       -----------       ------------
             Total                                                       838               191                  647

      Interest-bearing liabilities
         Savings accounts                                                  9                 5                  4
         NOW and money market accounts                                    50               164               (114)
         Certificates of deposit                                         710               744                (34)
                                                                 -----------       -----------       ------------
             Total                                                       769               913                (144)
                                                                 -----------       -----------       -------------

Change in net interest income                                    $        69       $      (722)      $        791
                                                                 ===========       ===========       ============
</TABLE>


<PAGE>





II.     INVESTMENT PORTFOLIO


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

<TABLE>
<CAPTION>


                                                               At September 30,
                                      1996                           1995                          1994
                          ---------------------------     --------------------------    ---------------------------
                           Amortized          Fair         Amortized        Fair          Amortized        Fair
                             Cost             Value          Cost           Value           Cost           Value
                           -----------    -----------     -----------    -----------    -----------     -----------
                                                              (In thousands)
Debt securities
     U.S. Government
       and federal
<S>                        <C>            <C>             <C>            <C>            <C>             <C>        
       agencies            $    40,160    $    40,207     $         -    $         -    $         -     $         -
     Mortgage-backed            24,473         24,074               -              -              -               -
                           -----------    -----------     -----------    -----------    -----------     -----------

                                64,633         64,281               -              -              -               -

Marketable equity
  securities                     2,494          2,482               -              -              -               -
                           -----------    -----------     -----------    -----------    -----------     -----------

                           $    67,127    $    66,763     $         -    $         -    $         -     $         -
                           ===========    ===========     ===========    ===========    ===========     ===========
</TABLE>


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

<TABLE>
<CAPTION>

                                                               At September 30,
                                      1996                           1995                          1994
                          ---------------------------     --------------------------    ---------------------------
                           Amortized          Fair         Amortized        Fair          Amortized        Fair
                             Cost             Value          Cost           Value           Cost           Value
                           -----------    -----------     -----------    -----------    -----------     -----------
                                                              (In thousands)
<S>                        <C>            <C>             <C>            <C>            <C>             <C>        
Debt securities
     U.S. Government
       and federal
       agencies            $         -    $         -     $    40,117    $    40,180    $         -     $         -
     Mortgage-
       backed                        -              -          11,905         11,524              -               -
                           -----------    -----------     -----------    -----------    -----------     -----------

                           $         -    $         -     $    52,022    $    51,704    $         -     $         -
                           ===========    ===========     ===========    ===========    ===========     ===========

</TABLE>

<PAGE>


II.     INVESTMENT PORTFOLIO (Continued)

     A.   The following table sets forth the amortized cost and estimated market
          value of investment securities and other securities:

<TABLE>
<CAPTION>


                                                           At September 30,
                                  1996                           1995                              1994
                      --------------------------       --------------------------      ------------------------------
                                        Estimated                      Estimated                        Estimated
                         Amortized       Market         Amortized        Market         Amortized        Market
                           Cost           Value           Cost            Value           Cost            Value
                           -----------    -----------     -----------    -----------    -----------     -----------
                                                              (In thousands)
Investment Securities
U.S. Government
  and federal
<S>                   <C>            <C>               <C>             <C>             <C>            <C>          
  agencies            $         -    $          -      $         -     $        -      $   41,773     $      40,792
Mortgage-backed                 -               -                -              -          13,158            12,328
                      -----------    ------------      -----------     ----------      ----------     -------------

                      $         -    $          -      $         -     $        -      $   54,931     $      53,120
                      ===========    ============      ===========     ==========      ==========     =============
Other securities
FHLB stock, at
  cost                $     1,336    $      1,336      $     1,271     $    1,271      $    1,176     $       1,176
                      ===========    ============      ===========     ==========      ==========     =============
</TABLE>


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

<TABLE>
<CAPTION>


                                                 Amount at September 30, 1996, which matures in
                                       One                One to                Five to
                                 Year or Less           Five Years             Ten Years             Totals
                            -------------------    ------------------     -----------------    ------------------
                             Amortized    Fair     Amortized    Fair      Amortized   Fair     Amortized    Fair
                               Cost       Value      Cost       Value       Cost      Value      Cost       Value
                             ---------   -------   ---------   ------     ---------  -------   ---------    ------
                                                              (Dollars in thousands)

<S>                          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>      
U.S. Government and federal
  agencies                   $   6,837  $   6,849  $  32,973  $  33,019  $     350  $     339  $  40,160  $  40,207
                             =========  =========  =========  =========  =========  =========  =========  =========

Weighted average yield          5.88%                 6.85%                 6.50%                6.68%
</TABLE>


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

C.   Excluding  those  holdings of the  investment  portfolio  in U.S.  Treasury
     securities  and  other  agencies  of the  U.S.  Government,  there  were no
     investments  in  securities  of any one issuer  which  exceeded  10% of the
     shareholders' equity of the Company at September 30, 1996.





<PAGE>





III.     LOAN PORTFOLIO

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

<TABLE>
<CAPTION>

                                                                   September 30,
                                  -------------------------------------------------------------------------------
                                              1996                      1995                      1994           
                                  -------------------------- ------------------------- ------------------------- 
                                                  Percent                   Percent                     Percent  
                                                    of                        of                          of     
                                     Amount        Total       Amount        Total        Amount         Total   
                                     ------        -----       -----------                ------         -----   
                                                              (Dollars in thousands)
Mortgage loans
<S>                               <C>              <C>      <C>                <C>       <C>           <C>       
     Residential                  $   143,751      92.87%   $    119,720       97.60%    $113,770      97.25%    
     Commercial real estate               876        .57             206       .17            443        .38     
     Multi-family                         163        .10             189       .15            192        .16     
     Residential construction           5,005       3.23           2,106       1.72         2,213       1.89     
                                                                                           
Consumer loans                                                                               
     Home equity and second                                                                  
       mortgage loans                   3,790       2.45             375       .30            298        .26     
     Financing leases                   1,125        .73               -         -              -          -     
     Other                                 83        .05              74       .06             69        .06     
                                  -----------    -------    ------------   ------------------------   --------   
         Gross loans receivable       154,793     100.00%        122,670    100.00%      %116,985     100.00%    
                                                 =======                   ========      ========     ======   

Less
     Allowance for loan losses           (340)                      (310)                    (280)               
     Deferred net loan fees              (440)                      (370)                    (447)               
     Loans in process                  (1,961)                      (809)                    (961)               
                                  -----------               ------------                 --------                
                                                                                    
         Net loans receivable     $   152,052               $    121,181                 $115,297                
                                  ===========               ============                 ========                
                                                                                    
Mortgage-backed securities                                                          
     FHLMC certificates           $     5,013               $     11,905                 $ 13,158                
     CMO - REMIC                       19,061                          -                        -                
                                  -----------               -----------                  --------                
         Net mortgage-                                                              
           backed securities      $    24,074               $     11,905                 $ 13,158                
                                  ===========               ============                 ========                
                                                                                
Mortgage loans
     Adjustable rate              $   130,336      87.01%   $    113,394     92.78%      $110,853      95.06%    
     Fixed rate                        19,459      12.99           8,827      7.22          5,765       4.94     
                                  -----------    -------    ------------   ------------------------   --------   


         Total                    $   149,795     100.00%   $    122,221   100.00%     $    116,618     100.00%  
                                  ===========    =======    ============   ======      ============   ========   
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                     September 30,
                                  ------------------------------------------------------              
                                              1993                      1992              
                                  -------------------------- ---------------------------              
                                                    Percent                     Percent   
                                                      of                          of      
                                     Amount          Total       Amount          Total    
                                     ------          -----       ------          -----    
                                                   (Dollars in thousands)        
Mortgage loans                                                                            
<S>                               <C>              <C>       <C>               <C>     
     Residential                  $    107,168     97.87%    $    110,338      97.08%    
     Commercial real estate                496       .45              607        .54      
     Multi-family                          625       .57              691        .61      
     Residential construction              848       .78            1,333       1.17      
                                                                                          
Consumer loans                                                                            
     Home equity and second                                                               
       mortgage loans                      256       .24              434        .38      
     Financing leases                        -         -                 -         -      
     Other                                 106       .09              248        .22      
                                    ------------   -------     ------------  ---------    
         Gross loans receivable        109,499    100.00%         113,651     100.00%      
                                                 =======                      ======     
                                                                                          
Less                                                                                      
     Allowance for loan losses            (250)                       (58)                
     Deferred net loan fees               (556)                      (646)                
     Loans in process                     (481)                      (721)                
                                  ------------               ------------                 
                                                                                          
         Net loans receivable     $    108,212               $    112,226                 
                                  ============               ============                 
                                                                                          
Mortgage-backed securities                                                                
     FHLMC certificates           $          -               $          -                 
     CMO - REMIC                             -                          -                 
                                  ------------               ------------                 
         Net mortgage-                                                                    
           backed securities      $          -               $          -                 
                                  ============               ============                 
                                                                                          
Mortgage loans                                                                            
     Adjustable rate              $    102,837     94.23%    $    104,034      92.09%     
     Fixed rate                          6,300      5.77            8,935       7.91      
                                    ------------   -------     ------------  ---------    
                                                                                          
                                                                                          
         Total                      $    109,137    100.00%    $    112,969   100.00%     
                                    ============   =======     ============   ======     
</TABLE>


                                                                17




<PAGE>





III.    LOAN PORTFOLIO (Continued)

        B. Loan Maturity.  The following table sets forth certain information at
           September 30, 1996,  regarding the dollar amount of loans maturing in
           MFB Corp.'s  consolidated loan portfolio based on the date that final
           payment is due under the terms of the loan.  Demand  loans  having no
           stated  schedule of repayments and no stated  maturity and overdrafts
           are  reported  as due in one year or  less.  This  schedule  does not
           reflect  the  effects  of  possible  prepayments  or  enforcement  of
           due-on-sale clauses. Management expects prepayments will cause actual
           maturities to be shorter.

<TABLE>
<CAPTION>


                                        Balance                    Due during years ended September 30,
                                      Outstanding                                     2000       2002       2007      2012
                                   at September 30,                                   and         to         to        and
                                         1996        1997       1998       1999       2001       2006       2011     Following
                                        --------   --------   --------   --------   --------   --------   --------   --------
                                                                           (In thousands)
Mortgage Loans
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>     
      Residential                       $143,751   $     24   $    117   $    201   $  1,264   $  8,027   $ 31,054   $103,064
      Commercial real estate                 876         --         --         --        314        259        303         --
      Multi-family                           163          7         --         --         --         91         21         44
      Residential construction             5,005      1,430         --         --         --         --        339      3,236

Consumer Loans
      Home equity and second mortgage      3,790         --         --         --        212      3,476         48         54
      Financing leases                     1,125         --         --         --         --      1,125         --         --
      Other                                   83         74          9         --         --         --         --         --
                                        --------   --------   --------   --------   --------   --------   --------   --------

      Total                             $154,793   $  1,535   $    126   $    201   $  1,790   $ 12,978   $ 31,765   $106,398
                                        ========   ========   ========   ========   ========   ========   ========   ========
                                                                        
</TABLE>

The following  table sets forth, as September 30, 1996, the dollar amount of all
loans due  after one year  which  have  fixed  interest  rates and  floating  or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                     Due After September 30, 1997
                                             -----------------------------------------
                                                               Variable
                                              Fixed Rates        Rates           Total
                                                --------       --------       --------
                                                            (In thousands)
Mortgage loans
<S>                                             <C>            <C>            <C>     
      Residential                               $ 17,095       $126,632       $143,727
      Commercial real estate                         266            610            876
      Multi-family                                    21            135            156
      Residential construction                     1,488          2,087          3,575
                                                                            
Consumer loans                                                              
      Home equity and second mortgage                388          3,402          3,790
      Financing leases                             1,125             --          1,125
      Other                                            9             --              9
                                                --------       --------       --------
                                                                            
      Total                                     $ 20,392       $132,866       $153,258
                                                ========       ========       ========
</TABLE>

                                                                         


                                                                20


<PAGE>





III.     LOAN PORTFOLIO (Continued)

         C.    Risk Elements

              1.  Nonaccrual, Past Due and Restructured Loans

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

<TABLE>
<CAPTION>
                                                                  At September 30,
                                       1996            1995             1994            1993              1992
                                       ----            ----             ----            ----              ----
                                                               (Dollars in thousands)

Accruing loans delinquent
<S>                                <C>              <C>             <C>             <C>              <C>          
  more than 90 days                 $      198       $     308       $       107     $      223       $         177
Non-accruing loans (1)                       -               -                 -              -                   -
Troubled debt
  restructurings                             -               -                 -              -                   -
                                    ----------       ---------       -----------     ----------       -------------
      Total non-performing
        loans                              198             308               107            223                 177
Real estate owned, net                       -              18                22             50                   -
                                    ----------       ---------       -----------     ----------       -------------

      Total non-performing
        assets                      $      198       $     326       $       129     $      273       $         177
                                    ==========       =========       ===========     ==========       =============

Non-performing loans to
  total loans, net (2)                   .13%                        .25%  .09%           .21%              .16%
Non-performing assets to
  total assets                           .09%                        .17%  .07%           .16%              .11%
</TABLE>

Management  believes that the allowance for loan losses balance at September 30,
1996 is adequate to absorb any losses on  nonperforming  loans, as the allowance
balance is  maintained by  management  at a level  considered  adequate to cover
losses that are currently  anticipated  based on past loss  experience,  general
economic  conditions,  information about specific borrower situations  including
their financial  position and collateral values, and other factors and estimates
which are subject to change over time.


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

(1)  MFB Corp.  generally  places  mortgage  loans on a  nonaccrual  status when
     serious  doubt exists as to theri  collectibility.  At September  30, 1996,
     there were no loans on nonaccrual.

(2)  Total lonas less deferred net loan fees an loans in process.

<PAGE>

III.     LOAN PORTFOLIO (Continued)

         C.     Risk Elements (Continued)

                2.    Potential Problem Loans

                      As of September  30, 1996,  there are no loans where there
                      are serious  doubts as to the  ability of the  borrower to
                      comply with present loan repayment terms, which may result
                      in  disclosure  of such loans  pursuant  to Item  III.C.1.
                      Consideration was given to loans classified for regulatory
                      purposes  as  loss,  doubtful,   substandard,  or  special
                      mention  that have not been  disclosed in Section 1 above.
                      Management  believes  that these loans do not represent or
                      result  from  trends  or  uncertainties  which  management
                      reasonably expects will materially impact future operating
                      results,  liquidity,  or capital resources,  or management
                      believes  that  these  loans  do  not  represent  material
                      credits about which management is aware of any information
                      which causes  management to have serious  doubts as to the
                      ability  of  such   borrowers  to  comply  with  the  loan
                      repayment terms.

                3.    Foreign Outstandings

                      None

                4.    Loan Concentrations

                      MFB  Corp.   historically  has  concentrated  its  lending
                      activities  on the  origination  of loans secured by first
                      mortgage   liens  for  the   purchase,   construction   or
                      refinancing  of  one-  to  four-family   residential  real
                      property.  These  loans  continue to be the major focus of
                      MFB  Corp.'s  loan  origination  activities,  representing
                      96.10% of MFB Corp.'s  total loan  portfolio  at September
                      30, 1996.


         D.     Other Interest-Earning Assets

                There are no other  interest-earning  assets as of September 30,
                1996 which would be required to be disclosed under Item III. C.1
                or 2 if such assets were loans.



                                                       20


<PAGE>

           IV.    SUMMARY OF LOAN LOSS EXPERIENCE

          A.   The allowance for loan losses is maintained through the provision
               for loan losses, which is charged to earnings.  The provision for
               loan losses is determined in conjunction with management's review
               and evaluation of current economic conditions (including those of
               MFB Corp.'s lending area), changes in the characteristic and size
               of the loan portfolio, loan delinquencies (current status as well
               as past  and  anticipated  trends)  and  adequacy  of  collateral
               securing  loan   delinquencies,   historical  and  estimated  net
               charge-offs,  and  other  pertinent  information  derived  from a
               review  of the  loan  portfolio.  In  management's  opinion,  MFB
               Corp.'s   allowance   for  loan  losses  is  adequate  to  absorb
               anticipated future losses from loans at September 30, 1996.

               The  following  table  analyzes   changes  in  the   consolidated
               allowance  for loan  losses  during  the past  five  years  ended
               September 30, 1996.

<TABLE>
<CAPTION>

                                                          Years Ended September 30,
                                       ----------------------------------------------------------------
                                       1996            1995          1994          1993           1992
                                       ----            ----          ----          ----           ----
                                                               (Dollars in thousands)
<S>                                    <C>            <C>            <C>            <C>            <C> 
Balance of allowance at
  beginning of period                  $310           $280           $250           $ 58           $ 31
Add
      Recoveries of loans
        previously charged-
        off--residential real
        estate loans                     --             --             --             --             --
Less charge offs
      Residential real estate
        loans                            --             --             --             --             --
      Commercial real estate
        loans                            --             --             --             --             --
      Consumer loans                     --             --             --             --             --
                                       ----           ----           ----           ----           ----
Net charge-offs                          --             --             --             --             --
Provisions for loan losses               30             30             30            192             27
                                       ----           ----           ----           ----           ----

Balance of allowance at
  end of period                        $340           $310           $280           $250           $ 58
                                       ====           ====           ====           ====           ====

Net charge-offs to total
  average loans out-
  standing for period                    -%             -%             -%             -%             -%
Allowance at end of
  period to total loans, net
  at end of period (1)                  .22%           .26%           .24%           .23%           .05%
Allowance to total non-
  performing loans at
  end of period                        171.72%        100.65%        261.68%        112.11%        32.77%

</TABLE>
---------------------------------
(1)  Total loans less deferred net loan fees and loans in process.
<PAGE>




           IV.    SUMMARY OF LOAN LOSS EXPERIENCE (Continued)

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


<TABLE>
<CAPTION>
                                                      September 30,
                               --------------------------------------------------------
                                             1996                        1995            
                               -----------------------------  -------------------------- 
                                                   Percent                    Percent               
                                                  of loans                    of loans              
                                                   in each                    in each               
                                                  category                     category              
                                                  to total                     to total              
                                    Amount          Loans       Amount          Loans              
                                    ------          -----       -----------              
                                                                                         
Balance at end of period
  applicable to

<S>                             <C>                 <C>        <C>                <C>        
      Residential               $         311       92.87%     $       281        97.60%     
                                                                                
      Commercial real                                                           
        estate                              1         .57                1          .17        
                                                                                
      Multi-family                          1         .10                1          .15        
                                                                                
      Residential construction              1        3.23                1         1.72       
                                                                                
      Consumer loans (1)                    1        3.23                1          .36        
                                                                                
      Unallocated                          25          -                25            -   
                                -------------     ------       -----------       ------   
                                                                                
          Total                 $         340      100.0%      $       310       100.00%    
                                =============     ======       ===========       ======     
</TABLE>


<TABLE>
<CAPTION>
                                                                   September 30,
                                            1994                        1993                         1992             
                                ---------------------------  --------------------------   --------------------------  
                                                  Percent                      Percent                     Percent    
                                                 of loans                     of loans                     of loans   
                                                  in each                      in each                     in each    
                                                 category                     category                    category    
                                                 to total                     to total                    to total    
                                   Amount          Loans        Amount          Loans       Amount          Loans     
                                   ------          -----        ------          -----       ------          -----     
                                                                 (Dollars in thousands)
<S>                              <C>               <C>       <C>                <C>       <C>                <C>     
Balance at end of period                                                                                             
  applicable to                                                                                                      
                                                                                                                     
      Residential                $        251      97.25%    $       221        97.87%    $         33       97.08%  
                                                                                                                     
      Commercial real                                                                                                
        estate                              1        .38               1          .45                -         .54   
                                                                                                                     
      Multi-family                          1        .16               1          .57                -         .61   
                                                                                                                     
      Residential construction              1       1.89               1          .78                -        1.17     
                                                                                                                     
      Consumer loans (1)                    1        .32               1          .33                -         .60   
                                                                                                                     
      Unallocated                          25           -             25            -               25           -   
                                 ------------    --------    -----------    ---------     ------------    --------   
                                                                                                                     
          Total                  $        280     100.00%    $       250       100.00%    $         58      100.00%  
                                 ============    =======     ===========    =========     ============      ======   
</TABLE>

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

<PAGE>


V.       DEPOSITS

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

<TABLE>
<CAPTION>

                                                      1 9 9 6                      1 9 9 5                         1 9 9 4
                                                      -------                      -------                         -------
                                             Average        Average         Average        Average        Average         Average
                                             Amount          Rate           Amount          Rate          Amount           Rate
                                                                            (Dollars in thousands)
<S>                                      <C>                  <C>       <C>                  <C>       <C>                  <C>  
Savings accounts                         $      9,746         2.77%     $      9,774         2.80%     $      9,646         2.75%
Now and money market accounts                  26,006         3.12            26,672         3.24            30,662         2.65
Certificates of deposit                       113,570         5.68           106,556         5.30           107,294         4.61
Demand deposits (noninterest-bearing)             816                            839                            625
                                         ------------                   ------------                   ------------

                                         $    150,138                   $    143,841                   $    148,227
                                         ============                   ============                   ============
</TABLE>




        Maturities  of time  certificates  of deposit and other time deposits of
$100,000 or more outstanding at September 30, 1996 is summarized as follows:

                                                                Amount
                                                            (In thousands)

Three months or less                                        $      3,946
Over three months and through six months                           3,942
Over six months and through twelve months                          6,379
Over twelve months                                                10,221
                                                            ------------

                                                            $     24,488




                                       23


<PAGE>


VI.      RETURN ON EQUITY AND ASSETS

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

<TABLE>
<CAPTION>


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

<S>                                                           <C>               <C>              <C>         
        Average total assets                                  $    200,583      $    183,869     $    177,143
                                                              ============      ============     ============

        Average shareholders' equity                          $     37,407      $     38,029     $     27,341
                                                              ============      ============     ============

        Net income                                            $        975      $      1,236     $      1,532
                                                              ============      ============     ============

        Return on average total assets                                .49%            .67%              .86%
                                                              ===========       =========        ==========

        Return on average shareholders' equity                       2.61%           3.25%             5.60%
                                                              ===========       =========        ==========

        Dividend payout ratio (dividends
          declared per share divided by net
          income per share)                                         12.24%                -%               -%
                                                              ===========       ===========      ===========

        Average shareholders' equity
          to average total assets                                   18.65%          20.68%            15.43%
                                                              ===========       =========        ==========
</TABLE>



VII.     SHORT-TERM BORROWINGS

         The Company  did not have any  category of  short-term  borrowings  for
         which the average balance  outstanding  during the reported periods was
         30 percent or more of  shareholders'  equity at the end of the reported
         periods.






<PAGE>


                                   COMPETITION

     MFB  Financial  originates  most of its  loans to and  accepts  most of its
deposits from residents of St. Joseph County, Indiana.

     MFB   Financial  is  subject  to   competition   from   various   financial
institutions,  including  state and national  banks,  state and federal  savings
associations,  credit unions,  certain non-banking  consumer lenders,  and other
companies  or firms,  including  brokerage  houses and  mortgage  brokers,  that
provide  similar  services  in St..  Joseph  County  with  significantly  larger
resources  than MFB  Financial.  In total,  there are 13 financial  institutions
located  in  Mishawaka,   Indiana,  including  MFB  Financial.  These  financial
institutions  consist of three commercial  banks,  three savings banks and seven
credit  unions.   MFB  Financial  must  also  compete  with  banks  and  savings
institutions in Elkhart and South Bend since media advertising from these cities
reaches the Mishawaka  community.  MFB Financial also competes with money market
funds with respect to deposit accounts and with insurance companies with respect
to individual retirement accounts.

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

     In addition,  The Riegle-Neal  Interstate Banking and Branching  Efficiency
Act of 1994 (the  "Riegle-Neal  Act") permits bank holding  companies to acquire
banks  in  other  states  and,   with  state  consent  and  subject  to  certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion.  The State of Indiana  recently passed a law  establishing
interstate  branching  provisions for Indiana  state-chartered  banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion and authorizes out-of-state banks meeting certain requirements
to branch into Indiana by merger de novo  expansion.  The Indiana  Branching Law
became effective March 15, 1996,  provided that prior to June 1, 1997 interstate
mergers and de novo branches are not permitted to out-of-state  banks unless the
laws of their home states  permit  Indiana  banks to merge or  establish de novo
branches  on a  reciprocal  basis.  This  new  legislation  may also  result  in
increased competition for the Holding Company and the Bank.

     The primary  factors  influencing  competition  for  deposits  are interest
rates,  service and convenience of office locations.  MFB Financial competes for
loan  originations  primarily  through the efficiency and quality of services it
provides borrowers,  builders and realtors,  and through interest rates and loan
fees it charges.  Competition  is affected by, among other  things,  the general
availability of lendable funds, general and local economic  conditions,  current
interest rate levels, and other factors that are not readily predictable.



<PAGE>


                                   REGULATION

General

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

     The  OTS  has   extensive   authority   over  the   operations  of  savings
associations.  As part of this authority,  the Bank is required to file periodic
reports with the OTS and is subject to periodic  examinations by the OTS and the
FDIC.  The last  regular OTS  examination  of the Bank was as of June 10, 1996 .
When these  examinations are conducted by the OTS, the examiners may require the
Company  to provide  for higher  general or  specific  loan loss  reserves.  All
savings  associations  are subject to a semi-annual  assessment,  based upon the
savings  association's  total  assets,  to  fund  the  operations  of  the  OTS.
Currently,  the assessment rates range from .0172761% of assets for associations
with assets of $67 million or less to .0045864% for associations  with assets in
excess of $35  billion.  The Bank's  OTS  assessment  for the fiscal  year ended
September 30, 1996, was approximately $57,000.

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

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



<PAGE>


     Congress is considering  legislation that would consolidate the supervision
and regulation of all U.S. financial institutions into one or two administrative
bodies,  would expand the powers of financial  institutions,  and would  provide
regulatory relief to financial  institutions ("the  legislation").  It cannot be
predicted  whatever  or when the  legislation  will be  enacted or the extent to
which the Bank or the Holding Company would be affected thereby.


Safety and Soundness Standards

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

Federal Home Loan Bank System

     The Bank is a member of the FHLB  system,  which  consists  of 12  regional
banks.  The federal  Housing  Finance Board  ("FHFB"),  an  independent  agency,
controls the FHLB System  including  the FHLB of  Indianapolis.  The FHLB System
provides a central credit facility primarily for member savings associations and
other  member  financial  institutions.  The Bank is  required to hold shares of
capital  stock in the FHLB of  Indianapolis  in an amount at least  equal to the
greater  of 1% of the  aggregate  principal  amount  of its  unpaid  residential
mortgage loans,  home purchase  contracts and similar  obligations at the end of
each  calendar  year,  .3% of its  assets  or 1/20  (or  such  greater  fraction
established by the FHLB) of outstanding  FHLB  advances,  commitments,  lines of
credit and letters of credit.  The Bank is  currently  in  compliance  with this
requirement.  At September 30, 1996, the Bank's  investment in stock of the FHLB
of Indianapolis was $1.3 million.

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

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

     All FHLB  advances  must be  fully  secured  by  sufficient  collateral  as
determined by the FHLB.  Eligible  collateral includes first mortgage loans less
than 90 days delinquent or securities



<PAGE>

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

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

  Insurance of Deposits

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

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

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

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



<PAGE>

borrowed  from  the  United  States  Treasury  or for any  other  reason  deemed
necessary by the FDIC.

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

     In order to  eliminate  this  disparity  and any  competitive  disadvantage
between  BIF and SAIF  member  institutions  with  respect to deposit  insurance
premiums,  legislation to recapitalize the SAIF was enacted in September,  1996.
The legislation provided for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to  recapitalize  the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if  no  savings  associations  then  exist.  The  special  assessment  rate  was
established  at  .657% of  assessable  deposits  by the  FDIC and the  resulting
assessment  on the Bank of $955,000  was paid in  November,  1996.  This special
assessment  significantly  increased  noninterest expense and adversely affected
the Company's  results of operations for the year ended  September 30, 1996. See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations.  " As a result of the special assessment,  the Bank's annual deposit
insurance premiums  beginning in 1997 will be reduced to approximately  $102,000
based upon its current risk  classification and the new assessment  schedule for
SAIF  insured  institutions.  These  premiums  are  subject  to change in future
periods.

     Prior to the enactment of the legislation, a portion of the SAIF assessment
imposed  on  savings  associations  was used to repay  obligations  issued  by a
federally chartered  corporation to provide financing ("FICO") for resolving the
thrift  crisis  in the  1980's.  Although  the FDIC has  proposed  that the SAIF
assessment be equalized with the BIF assessment schedule,  effective, October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing  obligation.  Although the  legislation  also now
requires  assessments  to be made on  BIF-assessable  deposits for this purpose,
effective  January 1, 1997,  that  assessment will be limited to 20% of the rate
imposed on SAIF  assessable  deposits  until the earlier of December 31, 1999 or
when no  savings  association  continues  to exist,  thereby  imposing a greater
burden  on SAIF  member  institutions  such as the  Bank.  Thereafter,  however,
assessments  on  BIF-member  institutions  will  be made on the  same  basis  as
SAIF-member  institutions.  The rates to be established by the FDIC to implement
this requirement for all FDIC- insured  institutions are uncertain at this time,
but are  anticipated to be about a 6.5 basis points  assessment on SAIF deposits
and 1.5 basis points  assessment on BIF deposits until BIF insured  institutions
participate fully in the assessment.



<PAGE>

Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  stockholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,  certain minority equity interests in subsidiaries,  purchased mortgage
servicing rights and purchased credit card relationships  (which may be included
in an amount up to 25% of core  capital,  but  which  are to be  reported  on an
association's balance sheet at the lesser of 90% of their fair market value, 90%
of their original  price, or 100% of their  remaining  unamortized  book value),
less  nonqualifying  intangibles.  Under the  tangible  capital  requirement,  a
savings bank must maintain  tangible  capital (core capital less all  intangible
assets except  purchased  mortgage  servicing  rights and purchased  credit card
relationships which may be included after making the above-noted adjustments) of
at least 1.5% of total assets.  Under the  risk-based  capital  requirements,  a
minimum  amount of capital must be  maintained  by a savings bank to account for
the relative risks inherent in the type and amount of assets held by the savings
bank. The  risk-based  capital  requirement  requires a savings bank to maintain
capital  (defined  generally  for these  purposes as core  capital  plus general
valuation  allowances  and  permanent or maturing  capital  instruments  such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of  risk-weighted  assets.  Assets  are ranked as to risk in one of four
categories  (0-100%)  with a credit  risk-free  asset such as cash  requiring no
risk-based  capital  and an  asset  with a  significant  credit  risk  such as a
non-accrual  loan being assigned a factor of 100%. At September 30, 1996,  based
on the capital  standards  then in effect,  the Bank was in compliance  with its
fully phased-in capital requirements.

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

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



<PAGE>

exempt from the new interest  rate  component of the new rule.  Although the OTS
has decided to delay  implementation  of this rule,  it will continue to monitor
the level of interest  rate risk at individual  institutions  and it retains the
authority,  on a case-by-case  basis, to impose additional capital  requirements
for individual institutions with significant interest rate risk.

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

Prompt Corrective Action

     Certain   regulatory   action  is  mandated  or  recommended   for  savings
associations  that are deemed to be well  capitalized,  adequately  capitalized,
undercapitalized,      significantly     undercapitalized     and     critically
undercapitalized. At each successively lower capital category, an institution is
subject to more restrictive and numerous  mandatory or discretionary  regulatory
actions  or  limits,  and the OTS has less  flexibility  in  determining  how to
resolve the problems of the  institution.  OTS regulations  define these capital
levels as follows: (1) well-capitalized  associations must have total risk-based
capital of at least 10%, core risk-based capital  (consisting only of items that
qualify for inclusion in core capital) of at least 6% and a leverage ratio of at
least 5% and are not  subject  to any order or written  directive  of the OTS to
maintain  a specific  capital  level for any  capital  measure;  (2)  adequately
capitalized  associations  are those that meet the  regulatory  minimum of total
risk-based  capital of 8%, core risk-based capital of 4% and a leverage ratio of
4% (except for institutions  receiving the highest  examination rating, in which
case  the  requirement  is  3%),  but  which  are  not  well  capitalized;   (3)
undercapitalized  associations  are those that do not meet the  requirements for
adequately   capitalized   associations,   but   that   are  not   significantly
undercapitalized;  (4)  significantly  undercapitalized  associations have total
risk- based capital of less than 6%, core risk-based capital of less than 3% and
a  leverage  ratio  of  less  than  3%;  and  (5)  critically   undercapitalized
associations are those with tangible capital of less than 2% of total assets. In
addition, the OTS can downgrade an association's designation notwithstanding its
capital  level,  based on less than  satisfactory  examination  ratings in areas
other than capital or if the institution is deemed to be in an unsafe or unsound
condition.  Each undercapitalized  association must submit a capital restoration
plan  to the  OTS  within  45  days  after  it  becomes  undercapitalized.  Such
institution   will  be  subject  to  increased   monitoring   and  asset  growth
restrictions  and will be required to obtain prior  approval  for  acquisitions,
branching and engaging in new lines of business.  Significantly undercapitalized
institutions  must  restrict  the payment of bonuses and raises to their  senior
executive officers.  Furthermore, a critically undercapitalized institution must
be placed in conservatorship or receivership  within 90 days after reaching such
capitalization  level,  except  under  limited  circumstances.  It will  also be
prohibited from making payments on any subordinate  debt securities  without the
prior  approval  of the FDIC  and  will be  subject  to  significant  additional
operating  restrictions.  The Bank's  capital at September  30, 1996,  meets the
standards for a well-capitalized association.




<PAGE>

     Federal  law  prohibits  an  insured  institution  from  making  a  capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized.  In addition,  each company  controlling  an  undercapitalized
institution  must  guarantee that the  institution  will comply with its capital
plan until the institution has been adequately  capitalized on an average during
each of four consecutive  calendar quarters and must provide adequate assurances
of performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the institution's total assets at the
time  the  institution  became  undercapitalized,  or (b) the  amount  which  is
necessary to bring the institution  into  compliance with all capital  standards
applicable to such institution at the time the institution  fails to comply with
its capital restoration plan.

Capital Distributions Regulation

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

    A Tier 1 Institution  could,  after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to 100% of its net
income to date  during the  calendar  year plus an amount  that would  reduce by
one-half  its  "surplus  capital  ratio" (the  excess  over its Fully  Phased-in
Capital  Requirements)  at the beginning of the calendar  year.  Any  additional
amount of capital distributions would require prior regulatory approval.

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


Real Estate Lending Standards

     OTS  regulations  require  savings  associations  to establish and maintain
written  internal  real estate  lending  policies.  Each  association's  lending
policies must be consistent with safe and



<PAGE>

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

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

Federal Reserve System

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

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

Transactions with Affiliates

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

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



<PAGE>

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

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

Holding Company Regulation

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

     HOLA generally prohibits a savings and loan holding company,  without prior
approval of the  Director of the OTS,  from (i)  acquiring  control of any other
savings  bank or savings  and loan  holding  company or  controlling  the assets
thereof or (ii)  acquiring or retaining more than 5 percent of the voting shares
of a  savings  bank  or  holding  company  thereof  which  is not a  subsidiary.
Additionally,  under certain circumstances a savings and loan holding company is
permitted  to acquire,  with the  approval of the  Director of the OTS, up to 15
percent of previously  unissued  voting shares of an  under-capitalized  savings
bank for cash without that savings bank being deemed  controlled  by the holding
company.  Except with the prior approval of the Director of the OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise  more than 25% of such company's  stock,  may also acquire
control of any savings institution,  other than a subsidiary institution, or any
other savings and loan holding company.



<PAGE>

     MFB's  Board of  Directors  presently  intends to operate  MFB as a unitary
savings and loan holding  company.  There are generally no  restrictions  on the
permissible  business  activities of a unitary savings and loan holding company.
However,  if the Director of OTS  determines  that there is reasonable  cause to
believe  that the  continuation  by a savings  and loan  holding  company  of an
activity  constitutes  a serious risk to the  financial  safety,  soundness,  or
stability of its  subsidiary  savings  bank,  the Director of the OTS may impose
such  restrictions  as deemed  necessary  to address  such risk and limiting (i)
payment of dividends by the savings bank, (ii) transactions  between the savings
bank and its affiliates, and (iii) any activities of the savings bank that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings bank.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings and loan holding  companies,  if the savings bank subsidiary of
such a holding  company fails to meet the Qualified  Thrift Lender ("QTL") test,
then such  unitary  holding  company  would  become  subject  to the  activities
restrictions applicable to multiple holding companies.  (Additional restrictions
on securing advances from the FHLB also apply). See "--Qualified Thrift Lender."
At  September  30,  1996,  the Bank's  asset  composition  was in excess of that
required to qualify the Bank as a Qualified Thrift Lender.

     If MFB were to acquire  control of another savings  institution  other than
through  a merger  or  other  business  combination  with the  Bank,  MFB  would
thereupon become a multiple savings and loan holding company.  Except where such
acquisition   is  pursuant  to  the  authority  to  approve   emergency   thrift
acquisitions  and where each  subsidiary  savings  bank meets the QTL test,  the
activities  of MFB and any of its  subsidiaries  (other  than  the Bank or other
subsidiary  savings   associations)  would  thereafter  be  subject  to  further
restrictions.  HOLA provides that,  among other things,  no multiple savings and
loan holding  company or  subsidiary  thereof  which is not a savings bank shall
commence  or  continue  for a limited  period of time after  becoming a multiple
savings and loan holding company or subsidiary  thereof,  any business  activity
other than (i)  furnishing  or performing  management  services for a subsidiary
savings bank,  (ii)  conducting an insurance  agency or escrow  business,  (iii)
holding,  managing, or liquidating assets owned by or acquired from a subsidiary
savings  institution,  (iv) holding or managing properties used or occupied by a
subsidiary savings institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by the FSLIC by regulation as of
March 5, 1987,  to be engaged in by multiple  holding  companies  or (vii) those
activities  authorized  by the FRB as  permissible  for bank holding  companies,
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan  holding  companies.  Those  activities  described in (vii)
above must also be approved by the Director of the OTS prior to being engaged in
by a multiple holding company.

     The  Director of the OTS may also  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
associations  in more than one state,  if the multiple  savings and loan holding
company involved  controls a savings bank which operated a home or branch office
in the state of the  association  to be acquired as of March 5, 1987,  or if the
laws  of  the  state  in  which  the  institution  to  be  acquired  is  located
specifically permit institutions to be acquired by state-chartered  institutions
or savings and loan holding  companies  located in the state where the acquiring
entity is located (or by a holding  company that controls  such  state-chartered
savings institutions). Also, the Director of the OTS may



<PAGE>

approve an acquisition  resulting in a multiple savings and loan holding company
controlling  savings  associations in more than one state in the case of certain
emergency thrift acquisitions.

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

     No  subsidiary  savings  bank of a savings  and loan  holding  company  may
declare or pay a dividend on its  permanent or  nonwithdrawable  stock unless it
first gives the Director of the OTS 30 days advance  notice of such  declaration
and payment.  Any dividend  declared during such period or without the giving of
such notice shall be invalid.

Branching

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

Federal Securities Law

     The  shares of Common  Stock of MFB are  registered  with the SEC under the
1934 Act. MFB is subject to the information, proxy solicitation, insider trading
restrictions  and  other  requirements  of the 1934 Act and the rules of the SEC
thereunder.  After the third anniversary of the Bank's conversion to stock form,
if MFB has fewer than 300  shareholders,  it may deregister its shares under the
1934 Act and cease to be subject to the foregoing requirements.

     Shares of Common Stock held by persons who are affiliates of MFB may not be
resold  without  registration  or  unless  sold in  accordance  with the  resale
restrictions  of Rule 144 under the 1933 Act.  If MFB meets the  current  public
information requirements under Rule 144, each affiliate of MFB who complies with
the other conditions of Rule 144 (including the two-year



<PAGE>

holding period and those that require the affiliate's sale to be aggregated with
those of certain  other  persons)  would be able to sell in the  public  market,
without  registration,  a number of shares  not to  exceed,  in any  three-month
period,  the  greater  of (i) 1% of the  outstanding  shares  of MFB or (ii) the
average  weekly  volume of trading in such  shares  during  the  preceding  four
calendar weeks.

Qualified Thrift Lender

    Under  current OTS  regulations,  the QTL test  requires that a savings bank
have at  least  65 % of its  portfolio  assets  invested  in  "qualified  thrift
investments" on a monthly  average basis in 9 out of every 12 months.  Qualified
thrift  investments  under the QTL test  include:  (i) loans  made to  purchase,
refinance,   construct,  improve  or  repair  domestic  residential  housing  or
manufactured housing; (ii) home equity loans; (iii) mortgage-backed  securities;
(iv) direct or indirect existing obligations of either the FDIC or the FSLIC for
ten years  from the date of  issuance,  if  issued  prior to July 1,  1989;  (v)
obligations of the FDIC,  FSLIC,  FSLIC Resolution Fund and the Resolution Trust
Corporation for a five year period from July 1, 1989, if issued after such date;
(vi) FHLB stock;  (vii) 50% of the dollar amount of  residential  mortgage loans
originated and sold within 90 days of origination; (viii) investments in service
corporations  that derive at least 80% of their gross  revenues from  activities
directly  related  to  purchasing,  refinancing,   constructing,   improving  or
repairing domestic residential real estate or manufactured housing; (ix) 200% of
the  dollar  amount  of loans  and  investments  made to  acquire,  develop  and
construct one to four-family  residences  that are valued at no more than 60% of
the median value of homes constructed in the area; (x) 200% of the dollar amount
of loans for the  acquisition  or  improvement  of  residential  real  property,
churches,  schools,  and nursing homes located within, and loans for any purpose
to any small business located within,  an area where credit needs of its low and
moderate  income  residents are determined not to have been adequately met; (xi)
loans for the purchase, construction improvement or upkeep of churches, schools,
nursing  homes  and  hospitals  not  qualified  under  (x);  (xii)  up to 10% of
portfolio assets held in consumer loans or loans for educational  purposes;  and
(xiii) FHLMC and FNMA stock.  However,  the aggregate  amount of  investments in
categories  (vii)-(xiii)  which may be taken  into  account  for the  purpose of
whether an institution meets the QTL test cannot exceed 15% of portfolio assets.
Portfolio assets under the QTL test include all of an association's  assets less
(i)  goodwill  and other  intangibles,  (ii) the value of  property  used by the
association to conduct its business,  and (iii) its liquid assets as required to
be maintained under law up to 20% of total assets.

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



<PAGE>

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

     At September 30, 1996, 96.20% of the Bank's portfolio assets (as defined on
that date) were  invested in  qualified  thrift  investment  (as defined on that
date), and therefore the Bank's asset composition was in excess of that required
to qualify the Bank as a QTL.  Also,  the Bank does not expect to  significantly
change its lending or investment  activities  in the near future,  and therefore
expects  to  continue  to  qualify  as a QTL,  although  there  can  be no  such
assurance.


Community Reinvestment Act Matters

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


                                    TAXATION

Federal Taxation

     Historically,  Savings associations,  such as the Bank, have been permitted
to compute bad debt deductions  using either the bank  experience  method or the
percentage  of  taxable  income  method.  However,  in  future  years,  only the
specified  experience  formula  method  will be  allowed  as, in  August,  1996,
legislation  was enacted that  repealed  the reserve  method of  accounting  for
federal income tax purposes.  As a result,  the Bank must recapture that portion
of the  reserve  that  exceeds  the amount  that could have been taken under the
experience  method for  post-1987  tax years.  The  recapture  will occur over a
six-year  period,  the  commencement  of which will be  delayed  until the first
taxable year beginning after December 31, 1997,  provided the institution  meets
certain residential lending requirements. In addition, the pre-1988 reserve, for
which no deferred taxes have been recorded,  will not have to be recaptured into
income unless (i) the bank no longer qualifies as a bank under the Code, or (ii)
excess dividends or distributions  are paid out by the Bank. The total amount of
bad debt to be recaptured is approximately $1,310,000.

     Depending on the composition of its items of income and expense,  a savings
bank may be



<PAGE>

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

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

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

State Taxation

     For its taxable period  beginning  January 1, 1990, the Bank became subject
to Indiana's new Financial  Institutions Tax ("FIT"), which is imposed at a flat
rate of 8.5% on "adjusted  gross income."  "Adjusted gross income," for purposes
of FIT,  begins  with  taxable  income as defined by Section 63 of the Code and,
thus, incorporates federal tax law to the extent that it affects the computation
of taxable  income.  Federal  taxable income is then adjusted by several Indiana
modifications.  Other applicable state taxes include generally  applicable sales
and use taxes plus real and personal property taxes.

     MFB's (or  previously  the Bank's)  state  income tax returns have not been
audited in the last five years.










<PAGE>

Item 2.     Properties.

     At September 30, 1996,  MFB Financial  conducted its business from its main
office at 121 South Church Street, Mishawaka,  Indiana 46544, three full service
branch offices and an additional loan origination office The main office and the
three  branch  offices are owned by MFB  Financial,  while the loan  origination
office is leased.

     The  following  table  provides  certain  information  with  respect to MFB
Financial's offices as of September 30, 1996:

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

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

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

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

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

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

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

     MFB Financial  also has  contracted  for the date  processing and reporting
services of BISYS,  Inc. in Houston,  Texas.  The cost of these date  processing
services is approximately $17,000 per month.







<PAGE>


Item 3.       Legal Proceedings.

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

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

     No matter was submitted to a vote of MFB's shareholders  during the quarter
ended September 30, 1996.

Item 4.5.       Executive Officers of MFB.

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

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



     Charles J.  Viater  (age 42) has served as  President  and Chief  Executive
Officer of MFB Financial  since September 1, 1995. For the previous he served as
Chief  Financial  Officer of Amity  Bancshares  and Executive  Vice President of
Amity Federal Savings in Tinley Park, Illinois.

     M. Gilbert Eberhart (age 62) has served as Secretary of MFB Financial since
1987 and of MFB since its organization. He is also a dentist based in Mishawaka.

     Timothy C. Boenne (age 50) has served as Vice  President and  Controller of
MFB Financial  since 1992.  Until 1992, he also served as Branch Manager for MFB
Financial's McKinley Branch.

      Michael  J.  Portolese  (age  45)  has  served  as Vice  President  of MFB
Financial since 1977. He also serves as MFB Financial's  Savings  Administrator,
Security Director and Compliance Coordinator.



<PAGE>

     William  L.  Stockton,  Jr.  (age 49) has served as Vice  President  of MFB
Financial  since  1988 and has  been in  charge  of  lending  operations  at MFB
Financial since 1992.

                                     PART II


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

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

      Quarter                                                       Dividends
       Ended                   High Bid           Low Bid           Declared
------------------             --------           --------          ---------
December 31, 1994               $13.75             $10.625             None
March 31, 1995                   14.50              12.50              None
June 30, 1995                    14.25              13.00              None
September 30, 1995               16.25              13.00              None
December 31, 1995                16.25              14.75              None
March 31, 1996                   15.25              13.75              None
June 30, 1996                    14.75              13.75           $ .06/share
September 30, 1996               19.00              13.75              None

     As of September 30, 1996,  there were  approximately  728  shareholders  of
record of MFB's Common Stock.  MFB estimates  that, as of that date,  there were
approximately 914 additional shareholders in "street name".

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

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



<PAGE>

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

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


Item 6.       Selected Financial Data.

     The  information  required by this item is incorporated by reference to the
material under the heading  "Selected  Consolidated  Financial Data of MFB Corp.
and Subsidiary" on page 4 of MFB's Annual Report to Shareholders  for its fiscal
year ended September 30, 1996 (the "Annual Report").

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

     The information required by this item is incorporated by reference to pages
5 through 15 of the Annual Report.

Item 8. Financial Statements and Supplementary Data.

     MFB's  Consolidated  Financial  Statements  and Notes thereto  contained on
pages 16 through 46 of the Annual Report are incorporated herein by reference.


Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

     Not Applicable.
<PAGE>

                                    PART III


Item 10.       Directors and Executive Officers of the Registrant.

     The  information  required  by this  item  with  respect  to  directors  is
incorporated  by reference to pages 2 through 3 of MFB's Proxy Statement for its
1997 Annual Shareholder Meeting (the "Proxy Statement").  Information concerning
MFB's  executive  officers  is  included  in Item 4.5 in Part 1 of this  report.
Information concerning compliance by such persons with Section 16(a) of the 1934
Act is incorporated by reference to page 7 of the Proxy Statement.

Item 11.      Executive Compensation

     The   information   required  by  this  item  with   respect  to  executive
compensation  is  incorporated  by  reference  to pages 4 through 6 of the Proxy
Statement.


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

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

Item 13. Certain Relationships and Related Transactions.

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


<PAGE>

                                     PART IV


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

(a)  The following financial statements are included in this report:



                                                                   Pages in this
                                                                     Form 10-K
     Financial Statements                                                43

     Report of Independent Auditors                                      49

     Consolidated Balance Sheets at September 30, 1996, and 1995         65
                                                                       
                                                                       
     Consolidated Statements of Income for the Years Ended               66
          September 30, 1996, 1995 and 1994                            
                                                                       
     Consolidated Statements of Changes in Shareholders' Equity          67
          for the Years ended September 30, 1996, 1995 and 1994        
                                                                       
     Consolidated Statements of Cash Flows for the Years ended           68
          September 30, 1996, 1995 and 1994                            
                                                                       
     Notes to Consolidated Financial Statements                          70
                                                                     



(b)  MFB filed three Form 8-K reports  during the quarter  ended  September  30,
     1996.

 Date of report:      September 13, 1996
 Item  reported :     News release dated September 13, 1996 regarding the 
                      announcement of its annual meeting date and amendment to 
                      the Code of Bylaws.

 Date of report:      August 5, 1996
 Item reported :      News release dated July 17, 1996  regarding
                      the  declaration  of a $ .06 per share  cash  dividend
                      payable  on August  20,  1996 to  holders of record on
                      August 6, 1996.

 Date of report:      July 11, 1996
 Item reported :      News release dated July 11, 1996 regarding the 
                      announcement of third  quarter  earnings  and  the  Board 
                      of  Director's  approval  of  plan to repurchase up to 5% 
                      of the outstanding shares of the Company's stock.

MFB filed one Form 8-K report during the quarter ended June 30, 1996.
 Date of report:      April 19, 1996
 Item reported :      News  release  dated  April  9,  1996
                      announcing  second  quarter 1996  earnings and the
                      Board  of   Director's   approval  of  a  plan  to
                      repurchase up to 5% of the outstanding shares of the 
                      company's stock.

(c)  The exhibits filed  herewith or  incorporated  by reference  herein are set
     forth on the Exhibit Index on page E-1


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

<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirement  of  Section  13 or 15(d)  of the  Securities
Exchange Act 9f 1934, as amended,  the Registrant had duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.

                                    MFB CORP.

     Date: December 30, 1996
                                             By:/s/ Charles J. Viater
                                                --------------------------------
                                                Charles J. Viater, President and
                                                     Chief Executive Officer


     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  the report has been signed below by the following persons on behalf of
the  Registrant  and in the  capacities  indicated on this 30th day of December,
1996.


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


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



/s/ Marian K. Torian                              /s/ Reginald H. Wagle
----------------------------------                ------------------------------
Marian K. Torian,                                 Reginald H. Wagle, Director
Chairman of the Board                             

<PAGE>




                                  EXHIBIT LIST
Exhibit 
Index                                                                    Page

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

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

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

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

10(3)    Employment  Agreement  between  Mishawaka Federal Savings and
         Charles J. Viater is  incorporated  by  reference  to Exhibit
         10(3) to the  September  30, 1995 Form 10-K filed on December
         27, 1995.

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

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

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

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

23       Consent of Crowe, Chizek and Company.                             97

27       Financial Data Schedule                                           98
-------------
*        Management  contracts  and  plans  required  to be  filed  as
         exhibits are included as Exhibits 10(1)-10(6).