ANNUAL REPORT
                                TO SHAREHOLDERS



                               TABLE OF CONTENTS
                                                                          Page

Letter to Shareholders                                                      2
Selected Consolidated Financial Data                                        3
Management's Discussion and Analysis                                        4
Report of Independent Auditors                                             16
Consolidated Balance Sheets                                                17
Consolidated Statements of Income                                          18
Consolidated Statements of Shareholders' Equity .                          19
Consolidated Statements of Cash Flows                                      21
Notes to Consolidated Financial Statements                                 23
Directors and Officers                                                     47
Shareholder Information                                                    48
                                   

DESCRIPTION OF BUSINESS

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

<PAGE>



TO OUR SHAREHOLDERS:

     On behalf of our  employees,  the Board of  Directors  and myself,  it is a
pleasure  to  provide  you  with  the  1997  Annual  Report  of MFB  Corp.  (the
"Company"),  the holding  company for MFB Financial  (the  "Bank").  In March of
1994,  after the formation of MFB Corp.,  the Bank  converted to a federal stock
savings  bank and this report  summarizes  our third full year of operation as a
stock company.

     This past year has been one of continued growth and change for our Company.
We remain  committed  to bringing  state-of-the-art  products  and  unparalleled
service to both consumers and small  businesses in our  community.  The goals of
growth and  diversification  were the primary impetus for the first major change
that took place this year.  In  November,  1996 we changed  the name of the Bank
from Mishawaka  Federal  Savings to MFB Financial.  We believe our new name more
accurately  describes our Bank as a full service  institution  offering the wide
variety of products and services  necessary to grow and remain  competitive.  We
added investment and brokerage  services,  broadened  commercial deposit product
offerings,  established  a corporate  lending  department  and opened a new full
service  facility.  As we look at the  financial  highlights of the past year, I
believe you will agree that these  changes  continue to move the Company and the
Bank forward toward the achievement of our strategic goals.

     1997 again saw solid balance sheet growth for our Company.  The Bank's loan
portfolio grew by $48.9 million,  the greatest single year of such growth in our
107 year history.  Substantial  contributions to this increase were made by both
the residential  lending and corporate  lending  divisions.  Our reputation as a
fast, courteous and knowledgeable lender, has allowed residential loan growth to
carry on at  record  levels.  At the same  time,  the  development  of our small
business  banking  division has attracted local  businesses  desiring a level of
personal  service that is fast  disappearing in our market.  We will continue to
focus  attention  on the  small  business  community  in an  effort  to  further
diversify our asset mix and improve earnings.

     Deposit based product offerings were enhanced as well. The emphasis on core
relationships,  competitive pricing and the highest quality service to customers
has  resulted in an increase in our  deposit  base of $12.9  million  during the
year.  Non-interest  bearing demand accounts increased  significantly as did our
certificate of deposit account base.

     In addition to the notable  balance sheet growth,  we experienced  improved
net interest  income as well.  Our average  interest rate spread  increased from
2.13% to 2.49% in just one year,  contributing  to an increase  in net  interest
income of $1.4 million for the year.

     Additionally,  the Company  repurchased  over 330,000  shares of its common
stock.  This activity  resulted in a reduction of the total shares  outstanding,
improved  the book value of the  remaining  outstanding  shares  and  positively
impacted  our return on equity.  In  addition,  I am sure you are aware that our
quarterly  dividend was increased to $.08 per outstanding  share as well.  These
events are all part of our systematic  approach to enhancing the long term value
of your investment in our Company.

     The  following  pages of this report  provide more  details  about the past
year's  performance.  Management  remains  committed to  identifying  additional
opportunities  to serve the  financial  needs of our community  effectively  and
profitably.  These  efforts  will  continue  to grow the long term value of your
investment in a prudent,  intelligent  fashion. We appreciate the confidence you
have shown in MFB Corp. and will  mindfully  operate the Company in an effort to
reward that confidence.




                                           Charles J. Viater
                                           President and Chief Executive Officer


<PAGE>
                            MFB CORP. AND SUBSIDIARY
                      SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                   At September 30,        
                                                 ----------------------------------------------------
                                                                    (In Thousands)
                                                   1997       1996       1995       1994       1993
                                                 --------   --------   --------   --------   --------
Summary of Financial Condition:
<S>                                              <C>        <C>        <C>        <C>        <C>     
Total assets                                     $255,921   $225,809   $187,065   $183,753   $168,581
Loans receivable, net,
     including loans held for sale                200,935    152,052    121,181    115,297    108,212
Cash and cash equivalents                           9,482      1,734      7,454      6,153     20,820
Securities, including FHLB stock                   42,028     68,099     53,293     56,107     16,624
Interest-bearing time deposits in other
  financial institutions                               --        495      1,880      3,365     20,469
Deposits                                          171,887    158,964    144,552    143,604    149,220
Securities sold under agreements to repurchase        389         --         --         --         --
FHLB advances                                      47,500     24,500         --         --         --
Shareholders' equity                               33,550     37,599     37,999     37,705     16,964
</TABLE>


<TABLE>
<CAPTION>
                                                                Years Ended September 30,       
                                                 --------------------------------------------------------
                                                                     (In Thousands)
                                                   1997        1996        1995        1994        1993
                                                 --------    --------    --------    --------    --------
Summary of Operating Results:
<S>                                              <C>         <C>         <C>         <C>         <C>     
Interest income                                  $ 17,685    $ 14,182    $ 12,383    $ 11,545    $ 11,931
Interest expense                                   10,157       8,057       6,788       6,019       6,559
                                                 --------    --------    --------    --------    --------
        Net interest income                         7,528       6,125       5,595       5,526       5,372
Provision for loan losses                              30          30          30          30         192
                                                 --------    --------    --------    --------    --------
        Net interest income after
          provision for loan losses                 7,498       6,095       5,565       5,496       5,180
Noninterest income
        Insurance commissions                         134         127         128         127         126
        Brokerage commissions                          24          --          --          --          --
        Net gain from sales of securities               6           3          --          --          10
        Other                                         261         232         189         151         159
                                                 --------    --------    --------    --------    --------
                Total noninterest income              425         362         317         278         295
Noninterest expense
        Salaries and employee benefits              2,772       2,153       2,336       1,969       1,600
        Occupancy and equipment expense               580         422         406         379         378
        SAIF deposit insurance premium                147       1,291         332         341         280
        Other expense                               1,100         969         753         666         621
                                                 --------    --------    --------    --------    --------
                Total noninterest expense           4,599       4,835       3,827       3,355       2,879
Income before income taxes and cumulative
     effect of change in accounting principles      3,324       1,622       2,055       2,419       2,596
Income tax expense                                  1,322         647         819         887       1,121
                                                 --------    --------    --------    --------    --------
Income before cumulative effect of  change
     in accounting principles                       2,002         975       1,236       1,532       1,475
                                                 --------    --------    --------    --------    --------
Cumulative effect of change in
     accounting for income taxes                       --          --          --          --        (188)
        Net income                               $  2,002    $    975    $  1,236    $  1,532    $  1,287
                                                 ========    ========    ========    ========    ========

Supplemental Data:
Return on assets (1)                                  .84%        .49%        .67%        .86%        .77%
Return on equity (2)                                 6.02        2.61        3.25        5.60        7.75
Interest rate spread (3)                             2.49        2.13        2.12        2.57        2.85
Net yield on average
     interest-earning assets (4)                     3.24        3.11        3.10        3.18        3.28
Dividend pay-out ratio (5)                          27.59       12.24          --          --          --

Net interest income to
     operating expenses (6)                        163.70      126.67      146.20      164.71      186.59
Equity-to-assets (7)                                13.11       16.65       20.31       20.52       10.06
Average interest-earning assets to
     average interest-bearing
     liabilities                                   117.14      123.81      126.12      117.61      110.73
Non-performing assets to total assets                 .10         .09         .17         .07         .16
Non-performing loans to total loans                   .13         .13         .25         .09         .21
Allowance for loan losses to total loans, net,
  including loans held for sale                       .18         .22         .26         .24         .23
Allowance for loan losses to
     non-performing loans                          141.76      171.72      100.65      261.68      112.11
Earnings per share (8)                           $   1.16    $    .49    $    .59    $    .43         $--
Earnings per share fully diluted (8)             $   1.14    $    .48    $    .59    $    .43         $--
Dividends declared per share                     $    .32    $    .06         $--         $--         $--
Book value per share                             $  20.33    $  19.05    $  18.29    $  17.24    $     --
Number of offices                                       6           5           4           4           4
-------------------------
</TABLE>

(1)  Net income divided by average total assets.
(2)  Net income divided by average total equity.
(3)  Interest  rate spread is calculated by  subtracting  average  interest rate
     cost from average interest rate earned.
(4)  Net interest income divided by average interest-earning assets.
(5)  Dividends declared per share divided by earnings per share.
(6)  Operating expenses consist of other expenses less taxes.
(7)  Total equity divided by total assets.
(8)  Earnings per common and common equivalent share subsequent to conversion.

<PAGE>

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

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

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

ASSET /LIABILITY MANAGEMENT

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

     A key  element of the  Company's  asset/liability  plan is to  protect  net
earnings  from  changes in interest  rates by managing the maturity or repricing
mismatch between its interest-earning assets and rate-sensitive liabilities. The
Company's one year  interest rate gap has been between a negative  150.48% and a
positive 9.14% at the end of each year from September 30, 1993, to September 30,
1997. This assumes that deposit accounts  reprice based on assumptions  provided
after the  following  table.  The  Company's  one year  interest  rate gap was a
negative  150.48% as of September 30, 1997. A negative  interest rate gap leaves
the Company's  earnings  vulnerable to periods of rising interests rates because
during such periods the  interest  expense paid on  liabilities  will  generally
increase more rapidly than the interest income earned on assets.  Conversely, in
a falling interest rate environment,  the total expense paid on liabilities will
generally  decrease more rapidly than the interest  income  earned on assets.  A
positive  interest  rate gap  would  have the  opposite  effect.  The  Company's
management  believes that the Company's  interest rate gap in recent periods has
generally been maintained  within an acceptable  range in view of the prevailing
interest rate environment.

     The Office of Thrift  Supervision (the "OTS") also provides a Net Portfolio
Value  ("NPV")  approach to the  measurement  of interest rate risk. In essence,
this approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities,  as  well as  cash  flows  from  off-balance-sheet  contracts.  The
difference is the NPV. As of June 30, 1997, (the most recently  available data),
after a 200 basis point rate change, the Bank's NPV ratio was 10.49%. Management
and the Board of Directors  review the OTS  measurements on a quarterly basis to
determine  whether the  Company's  interest  rate  exposure is within the limits
established  by the  Board of  Directors  in the  Company's  interest  rate risk
policy.


<PAGE>

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

     The following table  illustrates the projected  maturities and repricing of
the major  consolidated  asset and  liability  categories  of the  Company as of
September 30, 1997. Maturity and repricing dates have been projected by applying
the assumptions,  set forth after the table, to contractual maturity, call dates
and repricing dates. The information presented in the following table is derived
from data maintained by the Company and is not adjusted for  prepayments.  Since
most of the loans are adjustable rate loans which are due to reprice within five
years  or  less,  management  feels  that  loan  prepayments  will  not  have  a
significant impact on the results of the table below.

<TABLE>
<CAPTION>
                                                                                  At September 30, 1997
                                                                               maturing or Repricing Within
                                                ---------------------------------------------------------------------------------
                                                  Less                        6 Months                                      5 to
                                                 Than 3          3 to 6          to         1 to 3         3 to 5            10
                                                 Months          Months        1 Year        Years          Years           Years
                                                 ------          ------        ------        -----          -----           -----
<S>                                             <C>            <C>            <C>           <C>           <C>            <C>        
Adjustable rate mortgages                      $  8,427        $  6,764        $ 28,737      $ 47,866    $ 24,645       $ 22,925
Fixed rate mortgages                              1,452           2,278             972           711       1,284          1,516
Equity Loans                                        260              --              --             5         989          5,798
Financing leases                                     --              --              --            --          --            325
Commercial loans                                  2,466              --              50         1,899       3,821            476
Consumer loans                                       47              34              12            --          --             -- 
Securites                                         1,832           1,359           1,346         3,615      12,523          3,374
Mortgage-backed securities                           --              --              --         3,508          --             -- 
Interest-earning time deposits                    6,576              --              --            --          --             -- 
Stock in FHLB of Indianapolis                        --              --              --            --          --             -- 
Deferred loan fees                                  (15)            (16)            (44)           (9)        (10)           (16)
Loans in process                                    (33)             --              (1)          (25)        (51)            (6)
                                                 21,012          10,419          31,072        57,570      43,201         34,392 
                                                                                                                     
Interest-bearing Liabiliites                                                                                         
Certificates of deposit                          35,706          19,917          40,413        33,508       1,886            279
Savings acoounts                                 11,257              --              --            --          --             -- 
NOW and money market accounts                    26,872              --              --            --          --             -- 
 FHLB advances                                    2,000           6,000          14,000        14,500      17,000             -- 
                                                    389              --              --            --          --             -- 
                                                                                                                     
                                                 76,226          25,917          54,413        48,008      12,886            279
                                                                                                                     
Excess (deficiency) of interest-earning                                                                              
assets over interest bearing liabilities       $(55,214)       $(15,498)       $(23,341)     $  9,562    $ 30,315       $ 34,113
                                               --------        --------        --------      --------    --------       --------
                                                                                                                     
Cumulative excess (deficiency) of                                                                                    
 interest-earning assets over interest                                                                               
 bearing liabilities                           $(55,214)       $(70,712)       $(94,053)     $(84,491)   $(54,176)      $(20,063)
                                               --------        --------        --------      --------    --------       --------
                                                                                                                     
Cumulative interest rate gap to total                                                                                
 interest-earning assets                       -262.77%        -224.98%        -150.48%       -70.37%    $  33.18%       -10.15%
Off balance sheet assets (1)                   $ 23,840        $  6,352        $    218      $     25    $    126       $      6
</TABLE>    
(1)  Includes loan committments and loans in process.

<PAGE>
                                             
<TABLE>
<CAPTION>
                                                   At September 30, 1997
                                                maturing or Repricing Within
                                           -------------------------------------
                                             10 to
                                              20          Over 20
                                             Years         Years        Total
                                             -----         -----        -----
<S>                                        <C>           <C>           <C>      
Adjustable rate mortgages                  $     217     $      84     $ 139,565
Fixed rate mortgages                          22,943        14,824        45,980
Equity Loans                                     105            20         7,177
Financing leases                                  --            --           325
Commercial loans                                 121            --         8,833
Consumer loans                                    --             3            96
Securites                                         --            --        24,049
Mortgage-backed securities                     2,073         9,998        15,579
Interest-earning time deposits                    --            --         6,576
Stock in FHLB of Indianapolis                     --         2,400         2,400
Deferred loan fees                              (243)         (303)         (653)
Loans in process                                  (1)           --          (117)
                                              25,215        27,029       249,920

Interest-bearing Liabiliites
Certificates of deposit                           --            --       131,711
Savings acoounts                                  --            --        11,257
NOW and money market accounts                     --            --        26,872
 FHLB advances                                    --            --        47,500
                                                  --            --           389

                                                  --            --       217,729

Excess (deficiency) of interest-earning
assets over interest bearing liabilities   $  25,215     $  27,029     $  32,185
                                           ---------     ---------     ---------

Cumulative excess (deficiency) of
 interest-earning assets over interest
 bearing liabilities                       $   5,152     $  32,181     $  32,181
                                           ---------     ---------     ---------

Cumulative interest rate gap to total
 interest-earning assets                        2.31%        12.88%        12.88%
Off balance sheet assets (1)               $       1           $--     $  30,569
</TABLE>
-----------
(1)   Includes loan commitments and loans in process  
                                             
<PAGE>

     It is assumed  that fixed  maturity  deposits  are not  withdrawn  prior to
maturity,  that other  deposits are withdrawn or reprice in three months or less
due to  the  likelihood  that  such  deposits  will  reprice  in  the  event  of
significant  changes in the overall  level of interest  rates  available  in the
marketplace and that callable securities are repricing at the call date.


<PAGE>

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

     The  adjustable  rate first  mortgage loans the Bank holds in its portfolio
are  primarily  indexed to the National  Median Cost of Funds and interest  rate
adjustments on these loans may lag behind changes in market rates.  At September
30,1997,  these loans totaled $108.6 million,  or 53.7% of the Bank's total loan
portfolio.  In August 1996 the Bank began  originating  adjustable rate mortgage
loans using the One Year Treasury Index, and, at September 30, 1997, these loans
totaled $31.1 million, or 15.4% of the Bank's total loan portfolio. As a general
rule,  market rate  adjustments on loans indexed to the National  Median Cost of
Funds lag behind  changes in market rates due to the fact that the index is tied
to variables  that may not reprice on a basis as quickly as market rates (e. g.,
the One Year  Treasury).  In a period  of  rising  interest  rates,  the  Bank's
adjustable  rate  residential  loans may not adjust  upward as quickly as market
rates thereby adversely affecting the Company's net interest income. Conversely,
in a period of declining  interest rates, the Bank's adjustable rate residential
loans may not adjust  downward  as quickly as market  rates  thereby  positively
affecting the Company's net interest  income.  In any case, such adjustments may
be  limited  by loan  terms  which  restrict  changes  in  interest  rates  on a
short-term basis and over the life of the loan.


<PAGE>

AVERAGE BALANCE SHEETS

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

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

              Total assets                            $ 237,050    $ 200,583    $ 183,869
                                                      =========    =========    =========

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

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

     Shareholders' equity
         Common stock                                    14,015       19,064       20,527
         Treasury stock                                      (3)
         Retained earnings                               20,209       19,718       19,117
         Less common stock acquired by:
              Employee stock ownership plan                (790)      (1,007)      (1,208)
              Recognition and retention plans              (157)        (235)        (407)
              Unrealized gain (loss) on securities
                available for sale                         (100)        (133)          -- 
                                                      ---------    ---------    ---------
         Total shareholders' equity                   $  33,274       37,407       38,029
                                                      ---------    ---------    ---------

         Total liabilities and shareholders' equity   $ 237,050    $ 200,583    $ 183,869
                                                      =========    =========    =========
</TABLE>                                                                
------------
(1)  Average  outstanding  balance reflects unrealized gain (loss) on securities
     available for sale.
(2)  Total loans less deferred net loan fees and loans in process.


<PAGE>

INTEREST RATE SPREAD

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

                                                  Year ended September 30,
                                                  1997      1996      1995
                                                  ----      ----      ----
Average interest rate earned on:
   Interest-earning deposits                      5.17%     6.29%     6.03%
   Securities(l)                                  6.86%     6.17%     5.77%
   Mortage-backed securities(l)                   6.46%     6.15%     5.51%
   Loans receivable                               7.91%     7.67%     7.42%
   Stock in FHLB of Indianapolis                  8.08%     7.90%     7.60%
      Total interest-earning assets               7.61%     7.20%     6.87%
                                                          
Average interst rate of:                                  
                                                          
   Savings accounts                               2.68%     2.77%     2.80%
   NOW and money market accounts                  2.89%     3.12%     3.24%
                                                          
   Certificates of depoist                        5.65%     5.68%     5.30%
   FHLB advances                                  5.63%     5.50%      --- 
      Total interst-bearing liabilities           5.12%     5.07%     4.75%
                                                          
Interst rate spread (2)                           2.49%     2.13%     2.12%
Net yield on interest-eaming assets (3)           3.24%     3.11%     3.10%
---------------                                   
(1)      Yield is based on amortized cost without adjustment for unrealized gain
         (loss) on securities available for sale

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

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


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

<PAGE>

<TABLE> 
<CAPTION>                                                                                                            
                                                                                                                     
                                                                               Increase (Decrease) in                
                                                                                Net Interest Income                  
                                                                 ------------------------------------------------    
                                                                   Total Net           Due to            Due to      
                                                                    Change              Rate             Volume      
                                                                 -----------       -----------       ------------    
                                                                                    (In thousands)                   
Year ended September 30, 1997 compared                                                                               
  to year ended September 30, 1996                                                                                   
      Interest-earning assets                                                                                        
<S>                                                              <C>               <C>               <C>             
         Interest-bearing deposits                                $  (326)         $   (64)         $  (262)
         Securities                                                   (74)             230             (304)
         Mortgage-backed securities                                   211               64              147
         Loans receivable                                           3,651              332            3,319
         Stock in FHLB of Indianapolis                                 41                2               39
                                                                    3,503              564            2,939
             Total                                                                                
                                                                                                  
      Interest-bearing liabilities                                                                
         Savings accounts                                               8               (9)              17
         NOW and money market accounts                                (38)             (61)              23
         Certificates of deposit                                      687              (27)             714
         FHLB borrowings                                            1,443               15            1,428
                                                                                                  
             Total                                                  2,100              (82)           2,182
                                                                                                  
                                                                                                  
Change in net interest income                                     $ 1,403          $   646          $   757
                                                                  =======          =======          =======
</TABLE>  


<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>      

<PAGE>

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30,1997 AND SEPTEMBER 30, 1996

     Consolidated  net  income  for the  Company  for the year  ended  September
30,1997 was $2.0 million  compared to $975,000 for the same period in 1996.  The
increase of $1.0 million resulted  primarily from a $1.4 million increase in net
interest income and a $237,000 decrease in noninterest expense, partially offset
by a $675,000 increase in income tax expense. For the period ended September 30,
1996, income levels were significantly reduced as a result of a one time special
assessment to recapitalize the Savings Association Insurance Fund ("SAIF"). This
non-recurring expense was approximately  $577,000 on an after tax basis, and net
income for the year ended  September  30, 1996 would have amounted to $1,552,000
had this special assessment not been incurred.


<PAGE>

     The increase in net interest income was due to increases in both the volume
of  interest-earning  assets and higher rates earned on those assets,  partially
offset  by  increases  in the  volume  of  interest-bearing  liabilities.  First
mortgage  loan  receivables   increased  by  approximately   $38.6  million  and
commercial  and consumer loan  receivables by  approximately  $10.6 million from
September  30, 1996 to September 30, 1997.  The yield on total  interest-earning
assets also increased from 7.20% to 7.61% in 1997 while the average rate paid on
interest-bearing  liabilities  increased  from  5.07% to 5.12%  during  the same
period.  As a result,  the interest  rate spread  increased 36 basis points from
2.13% in 1996 to 2.49% in 1997.

     As of September  30, 1997 net loans,  including  loans held for sale,  were
$200.9  million,  an increase  of $48.9  million  from the $152.1  million as of
September 30, 1996. Substantial marketing efforts were utilized in the past year
to capitalize on the Bank's  reputation  as a quality local  residential  lender
providing fast and  knowledgeable  service.  This approach led to gross mortgage
loan  increases  of $38.6  million , an  increase  of 26.2%  for the year  ended
September 30, 1997.  Also,  although a limited number of small  commercial loans
were made in 1996,  substantial  efforts  were put forth during the past year to
fully develop the small business banking division in our community. As a result,
gross  commercial  loans  increased  $8.0  million  from  September  30, 1996 to
September 30, 1997.

     Total  deposits  increased  $12.9 million to $171.9 million as of September
30, 1997 from $159.0  million as of September  30, 1996.  Federal Home Loan Bank
advances and other short term  borrowings  also  increased from $24.5 million at
September 30, 1996 to $47.9 million as of September 30, 1997.

     Cash and cash  equivalents  increased  $7.7 million from $1.7 million as of
September 30, 1996 to $9.4 million as of September  30, 1997.  Net cash provided
by financing  activities and operating  activities amounted to $29.4 million and
$1.3  million,  respectively,  and was  partially  offset  by net  cash  used in
investing activities of $23.0 million.

     During the year ended  September  30, 1996,  the Company  adopted a capital
leveraging  strategy  that  involved the purchase of mortgage  related and other
securities funded primarily with Federal Home Loan Bank ("FHLB") advances.  This
leveraging portfolio represented $22.7 million of the total securities available
for sale at September  30, 1997 compared to $26.6 million at September 30, 1996.
As of  September  30, 1997,  the total  securities  portfolio  amounted to $39.6
million,  a decrease of $27.2  million from $66.8 million at September 30, 1996.
The  total  securities  portfolio  decrease  consisted  of  a  decrease  in  the
leveraging  portfolio  of $3.9  million and a decrease in the  remainder  of the
securities portfolio of $23.3 million, and was the result of securities maturing
totaling $27.9 million and principal payments of  mortgage-backed  securities of
$2.9 million  offset by net purchases of  securities  available for sale of $3.4
million.

     The $12.9 million increase in deposits,  the $23.0 million increase in FHLB
advances,  and the $27.2  million  decrease  in the  securities  portfolio  were
primarily  used to fund the  $48.9  million  increase  in net loans and the $7.7
million increase in cash and cash equivalents.

     Total  liabilities  increased  $34.2  million  from  $188.2  million  as of
September 30, 1996 to $222.4 million as of September 30, 1997. This increase was
primarily  due to the $12.9  million  increase in deposits and the $23.0 million
increase in FHLB advances.

     Total shareholders'  equity decreased $4.0 million from $37.6 million as of
September 30, 1996 to $33.6 million as of September 30, 1997.  This decrease was
primarily  attributable  to the repurchase of the Company's  common stock during
the year in the  amount of $6.4  million  and the  payment of  $554,000  in cash
dividends  during the year,  partially  offset by net income of $2.0 million for
the year ended September 30, 1997.


<PAGE>

     The book value of MFB Corp.  Common  stock,  based on the actual  number of
shares  outstanding  at each period,  increased  from $19.05 as of September 30,
1996 to $20.33 as of September 30, 1997.

     Interest income  increased $3.5 million during the year ended September 30,
1997  compared  to the same  period one year ago.  The  increase  was  primarily
related to increased  volumes of loans receivable and an increase in the average
rate earned on these assets.  Interest expense increased $2.1 million during the
most recent  twelve month period  primarily as a result of increased  volumes of
certificates of deposit and FHLB advances.  Net interest  income  increased $1.4
million  for the year  ended  September  30,  1997  compared  to the year  ended
September 30, 1996.

     Noninterest income increased from $362,000 for the year ended September 30,
1996 to $425,000 for the twelve months ended  September  30, 1997.  The increase
was primarily due to increased fee income related to demand deposit accounts and
brokerage commissions.

     Noninterest  expense decreased to $4.6 million for the year ended September
30,  1997 from $4.8  million for the same  period  last year.  This  decrease is
primarily related to the one time special assessment of $955,000 incurred in the
prior year to recapitalize the SAIF, offset by increased  compensation expenses,
expenses  related to the Bank's name change which took effect  November 1, 1996,
and expenses  incurred with the opening of a new full service branch facility on
June 6, 1997.  To operate the new full  service  branch  facility and attain the
substantial  loan growth in 1997,  the Bank's  staff  increased  by 15 employees
during the year. This is the primary reason for the 29% increase in salaries and
employee benefit expense from $2.2 million for the year ended September 30, 1996
to $2.8 million for the year ended September 30, 1997.

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30,1996
  AND SEPTEMBER 30,1995

     Consolidated  net  income  for the  Company  for the year  ended  September
30,1996 was $975,000  compared to $1.2 million for the same period in 1995.  The
decrease of $261,000  resulted  primarily from a one time special  assessment to
recapitalize  the Savings  Association  Insurance  Fund  ("SAIF")  of  $955,000,
partially offset by a $530,000 increase in net interest income from $5.6 million
in 1995 to $6.1  million in 1996 and a $172,000  decrease in income tax expense.
Had the  special  assessment  not been  incurred,  net income for the year ended
September 30, 1996 would have amounted to $1.6 million.

     The increase in net interest income was due to increases in both the volume
of interest-earning assets and higher rates earned which was partially offset by
increases  in the volume of  interest-bearing  liabilities  and rates paid.  The
average rate paid on interest-bearing liabilities increased 32 basis points from
4.75% in 1995 to  5.07% in 1996,  while  the  yield on  interest-earning  assets
increased 33 basis points from 6.87% in 1995 to 7.20% in 1996. As a result,  the
interest  rate spread  increased  one basis point from 2.12% in 1995 to 2.13% in
1996.

     As of September 30, 1996 net loans were $152.1 million,  $30.9 million more
than net loans of $121.2  million as of September 30, 1995.  Deposits  increased
$14.4 million to $159.0  million as of September 30, 1996 from $144.6 million as
of September 30, 1995.

     Cash and cash  equivalents  decreased  $5.8 million from $7.5 million as of
September  30, 1995 to $1.7  million as of  September  30, 1996  primarily  as a
result of a $5.4 million decrease in  interest-bearing  demand deposits in other
financial institutions.

     The  securities  portfolio  consists of government,  government  agency and
mortgage-related  securities.  Several changes occurred in this portfolio during
the year ended September 30, 1996. In November,  1995, the Financial  Accounting
Standards Board ("FASB") issued a special report, A Guide to  Implementation  of
SFAS No.115 on Accounting for Certain  Investments in Debt and Equity Securities
("Guide").  As permitted by the Guide,  on November 30, 1995, the Company made a

<PAGE>

one-time  reassessment  and  transferred  securities  from the  held-to-maturity
portfolio to the available-for-sale  portfolio.  At the date of transfer,  these
securities had an amortized cost of $47.9  million,  and the transfer  increased
the unrealized  appreciation  on securities  available-for-sale  by $196,000 and
increased  shareholders'  equity by $119,000 net of tax of $77,000. In addition,
during  the year  ended  September  30,  1996,  the  Company  adopted  a capital
leveraging  strategy  that  involved the purchase of mortgage  related and other
securities funded primarily with Federal Home Loan Bank ("FHLB") advances.  This
leveraging portfolio represented $26.6 million of the total securities portfolio
at September 30, 1996. As of September 30, 1996 the total  securities  portfolio
amounted to $66.8  million,  an increase of $14.8  million from $52.0 million at
September  30, 1995.  This  increase is primarily  related to the $26.6  million
increase  in  the  leveraging  portfolio,  partially  offset  by net  sales  and
maturities of other securities of $11.8 million during the year.

     The $30.9 million increase in net loans was funded primarily from the $14.4
million  increase  in  deposits,  the  $5.8  million  decrease  in cash and cash
equivalents and the $11.8 million decrease in securities discussed above.

     Total  liabilities  increased  $39.1  million  from  $149.1  million  as of
September 30, 1995 to $188.2  million as of September 30, 1996  primarily due to
the $14.4  million  increase in deposits  and a $24.5  million  increase in FHLB
advances used to fund the leveraged securities portfolio.

     Total  shareholders'  equity  decreased  $400,000  from $38.0 million as of
September 30, 1995 to $37.6  million as of September 30, 1996.  The decrease was
primarily  attributable  to the repurchase of the Company's  common stock during
the year in the  amount  of $1.5  million,  partially  offset  by net  income of
$975,000 for the year ended September 30, 1996.

     The book value of MFB Corp.  Common  stock,  based on the actual  number of
shares  outstanding  at each period,  increased  from $18.29 as of September 30,
1995 to $19.05 as of September 30, 1996.

     Interest income  increased $1.8 million during the year ended September 30,
1996 compared to the same period in 1995. The increase was primarily  related to
increased volumes of loans receivable and mortgage-backed  securities  partially
offset by a decrease in the volume of lower yielding  interest-bearing  deposits
and securities.  A general  increase in rates also  contributed to the increase.
Interest expense increased $1.3 million during the 1996 fiscal year, as compared
to 1995,  primarily as a result of increased  volumes of certificates of deposit
and  FHLB  advances.  Increased  rates  paid on  certificates  of  deposit  also
contributed to the interest  expense  increase.  Net interest  income  increased
$530,000  for the year  ended  September  30,  1996  compared  to the year ended
September 30, 1995.

     Noninterest income increased from $317,000 for the year ended September 30,
1995 to $362,000 for the twelve months ended  September  30, 1996.  The increase
was primarily due to increased fee income  related to demand  deposit  accounts.
Noninterest  expense  increased to $4.8 million for the year ended September 30,
1996 from $3.8 million for the same period last year. This increase is primarily
related to the one time special assessment to recapitalize the SAIF of $955,000.

BIF/SAIF FUND RESOLUTION

     On September 30, 1996, the president signed into law a bill that included a
measure to recapitalize the Savings  Association  Insurance Fund ("SAIF") with a
one-time special  assessment.  The Company accrued the expense for this one-time
assessment  as of September  30, 1996 in the amount of  $955,000,  or 65.7 basis
points of the Bank's deposits at March 31, 1995.  Beginning  January 1, 1997 the
regular  insurance  premium  decreases from 23 basis points to 6.4 basis points.
Based on deposits at  September  30, 1996  annualized  insurance  premiums  will
decreases  approximately $264,000 from $366,000 to $102,000,  resulting in a 3.6
year recovery period for the special assessment.


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

     A standard  measure of liquidity for savings  associations  is the ratio of
cash and  eligible  investments  to a  certain  percentage  of net  withdrawable
savings  and  borrowings  due within one year.  The  minimum  required  ratio is
currently set by OTS regulation at 5%, of which at least 1% must be comprised of
short-term  investments (i.e.,  generally with a term of less than one year). At
September 30, 1997,  the Bank's  liquidity  ratio was 16.98% and the  short-term
liquidity  ratio was 7.06%.  Therefore,  the Bank's  liquidity is well above the
minimum regulatory requirements.

     Changes  in the  Bank's  liquidity  occur  as a  result  of its  operating,
investing and financing activities. These activities are discussed below for the
years ended September 30, 1997, 1996 and 1995.

     Liquid  assets  totaled  $49.1 million as of September 30, 1997 compared to
$69.0  million as of September  30, 1996 and $61.4  million as of September  30,
1995.  The $19.9  million  decrease  in  liquidity  from  September  30, 1996 to
September 30, 1997 was primarily due to a $27.1 million  decrease in securities,
offset by a $7.7 million increase in cash and interest-bearing deposits in other
financial institutions. Management believes the liquidity level of $49.1 million
as of September 30, 1997 is sufficient to meet anticipated liquidity needs.

     Liquidity  levels  increased  $7.6  million  from  September  30,  1995  to
September  30, 1996 due  primarily to a $14.7  million  increase in  securities,
partially offset by a $5.4 million decrease in interest-bearing  demand deposits
in other financial institutions.

     Short-term  borrowings  or  long-term  debt may be used to  compensate  for
reduction  in  other  sources  of  funds  such  as  deposits  and to  assist  in
asset/liability  management.  The Bank has historically not borrowed significant
amounts. 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 advances.  As of September 30, 1997,  total FHLB  borrowings
amounted  to $47.5  million,  $23.5  million  of which were used as part of this
strategy.  The remaining $24 million was used  primarily to fund loan  portfolio
growth.  The Bank had  commitments  to fund  loan  originations  with  borrowers
totaling $30.6 million at September 30, 1997. In the opinion of management,  the
Company has  sufficient  cash flow and other cash  resources to meet current and
anticipated loan funding commitments,  deposit customer withdrawal  requirements
and operating expenses. There were no short-term borrowings or long-term debt as
of September 30, 1995.

     The cash flow statements provide an indication of the Company's sources and
uses of cash as well as an  indication of the ability of the Company to maintain
an adequate  level of  liquidity.  A discussion  of the changes in the cash flow
statements for the years ended September 30, 1997, 1996 and 1995 follows.

     During the year ended  September  30, 1997,  net cash and cash  equivalents
increased  $7.7 million from $1.7 million at September  30, 1996 to $9.4 million
at  September  30,  1997.  

     The Company experienced a net increase in cash from operating activities of
$1.3 million  during the year that was primarily  attributable  to net income as
adjusted for accrual  basis  accounting.  The $23.0 million net decrease in cash
from investing  activities  for the year ended  September 30, 1997 was primarily
related  to the $48.9  million  increase  in net  loans  and the  $29.7  million
purchase  of  securities  and FHLB  stock,  offset  by sales and  maturities  of
securities totaling $53.1 million and $2.9 million of mortgage-backed securities
principal payments.


<PAGE>

     Financing activities generated net cash of $29.4 million for the year ended
September 30, 1997.  The net cash was provided  primarily  from $23.0 million in
net new FHLB  advances  and net deposit  increases of $12.9  million,  partially
offset by the use of $6.4 million to repurchase the Company's stock and $554,000
in cash dividend payments during the year.

     For the year ended September 30, 1996, net cash decreased $5.8 million from
$7.5 million at September  30, 1995 to $1.7 million at September  30, 1996.  Net
cash from operating activities totaled $2.2 million.

     The Company experienced a $44.9 million net decrease in cash from investing
activities  for the year ended  September  30, 1996.  This  decrease in cash was
primarily  related  to the net  increase  in  loans  of  $30.9  million  and net
purchases of securities of $15.2 million.

     Financing activities generated net cash of $37.0 million for the year ended
September 30, 1996.  The net cash was provided  primarily  from $24.5 million in
new FHLB  borrowings  and a $14.4 million  increase in net  deposits,  partially
offset by the use of $1.5 million to repurchase  the Company's  stock during the
year.

     For the year ended September 30, 1995, net cash increased $1.3 million from
$6.2 million at September  30, 1994 to $7.5 million at September  30, 1995.  Net
cash from operating activities totaled 3.8 million. Of this amount, $2.0 million
was related to the September, 1995 commitment to purchase securities (settlement
October,  1995),  thereby  increasing accrued expenses and other liabilities for
1995. The remaining $1.8 million  increase for the year ended September 30, 1995
was a result of net income as adjusted for accrual basis accounting.

     The Company  experienced a $2.0 million net decrease in cash from investing
activities for the year ended September 30, 1995. This decrease in cash resulted
primarily  from  the  net  increase  in  loans  exceeding  the net  decrease  in
securities and interest-bearing time deposits in other financial institutions.

     The Company also experienced a $461,000 net decrease in cash from financing
activities  for  the  year  ended  September  30,  1995,  as the  purchases  and
retirement of $1.5 million of MFB Corp.  common stock exceeded the net increases
in deposits and advance payments by borrowers for taxes and insurance.

     As  of  September  30,  1997   management  is  not  aware  of  any  current
recommendations by regulatory authorities which, if they were to be implemented,
would have, or are reasonably  likely to have, a material  adverse effect on the
Company's liquidity, capital resources or operations.

CURRENT ACCOUNTING ISSUES

     SFAS No. 125,  "Accounting for Transfers and Servicing of Financial  Assets
and  Extinguishment  of  Liabilities,"  was  issued  in  1996.  It  revises  the
accounting for transfers of financial assets, such as loans and securities,  and
for distinguishing between sales and secured borrowings. It became effective for
some  transactions  occurring after December 31, 1996, and will be effective for
others in 1998.  The impact of partial  adoption in 1997 was not material to the
1997 consolidated  financial  statements and the impact of the complete adoption
in 1998 is also  not  expected  to be  material  to the  consolidated  financial
statements.

     Also, in March 1997, the accounting  requirements for calculating  earnings
per share were revised by SFAS No. 128, "Earnings Per Share." Basic earnings per
share for the quarter  ending  December  31,  1997 and later will be  calculated
solely on average  common shares  outstanding.  Diluted  earnings per share will
reflect  the  potential  dilution  of  stock  options  and  other  common  stock
equivalents. All prior calculations will be restated to be comparable to the new
methods.  As the Company has dilution from stock  options,  the new  calculation
methods will increase basic  earnings per share over what  otherwise  would have
been reported as primary  earnings per share,  while there will be little effect
on fully diluted earnings per share.


<PAGE>

     In June 1997, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 130, "Reporting  Comprehensive Income". This Statement establishes standards
for reporting and display of comprehensive  income and its components  (revenue,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  This  Statement  requires  that all items that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  Income  tax  effects  must  also be  shown.  This
Statement is effective for fiscal years  beginning  after December 15, 1997. The
adoption  of SFAS No.  130 is not  expected  to have a  material  impact  on the
results of operations or financial condition of the Company.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information." SFAS No. 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements  and requires  that those  enterprises
report  selected  information  about  operating  segments  in interim  financial
reports  issued to  shareholders.  It also  establishes  standards  for  related
disclosures about products and services,  geographic areas, and major customers.
This Statement is effective for financial statements for periods beginning after
December  15,  1997.  The  adoption  of SFAS No. 131 is not  expected  to have a
material  impact on the results of  operations  or  financial  condition  of the
Company.

IMPACT OF INFLATION

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

     The primary assets and liabilities of the Bank are monetary in nature. As a
result,  interest  rates  have  a  more  significant  impact  on  the  Company's
performance  than the effects of general  levels of inflation.  Interest  rates,
however,  do not  necessarily  move  in the  same  direction  or with  the  same
magnitude as the price of good and  services,  since such prices are affected by
inflation.

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

     The  principal  effect of  inflation,  as distinct  from levels of interest
rates, on earnings is in the area of noninterest expense.  Such expense items as
employee compensation,  employee benefits, and occupancy and equipment costs may
be  subject to  increases  as a result of  inflation.  An  additional  effect of
inflation  is the  possible  increase  in the  dollar  value  of the  collateral
securing  loans made by the Bank.  Management is unable to determine the extent,
if any, to which properties securing the Bank's loans have appreciated in dollar
value due to inflation.




<PAGE>

REPORT OF INDEPENDENT AUDITORS



Board of Directors
MFB Corp.
Mishawaka, Indiana


     We have audited the accompanying  consolidated  balance sheets of MFB Corp.
as of September  30, 1997 and 1996 and the related  consolidated  statements  of
income,  shareholders'  equity and cash flows for the years ended  September 30,
1997,  1996  and  1995.  These   consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the financial position of MFB Corp. as
of September 30, 1997 and 1996,  and the results of its  operations and its cash
flows for the years ended  September 30, 1997,  1996 and 1995 in conformity with
generally accepted accounting principles.





                                                Crowe, Chizek and Company LLP

South Bend, Indiana
November 3, 1997



<PAGE>

                            MFB CORP. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                          September 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                                          1997             1996
                                                                     -------------    -------------
ASSETS
<S>                                                                  <C>              <C>          
Cash and due from financial institutions                             $   2,905,849    $   1,734,388
Interest-bearing deposits in other financial
     institutions - short-term                                           6,576,499               --
                                                                     -------------    -------------
        Total cash and cash equivalents                                  9,482,348        1,734,388
Interest - bearing time deposits in
     other financial institutions                                               --          495,000
Securities available for sale                                           39,628,414       66,762,558
Federal Home Loan Bank (FHLB) stock, at cost                             2,400,000        1,336,100
Loans held for sale, net of
     unrealized losses of $-0- in 1997                                  12,671,186               --
Loans receivable, net of allowance for loan losses
     of $370,000 in 1997 and $340,000 in 1996                          188,264,198      152,052,092
Accrued interest receivable                                                718,427          818,014
Premises and equipment, net                                              2,612,793        1,969,264
Other assets                                                               143,445          641,707
                                                                     -------------    -------------
        Total assets                                                 $ 255,920,811    $ 225,809,123
                                                                     =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
        Deposits
                Noninterest-bearing demand deposits                  $   2,046,702    $   1,942,145
                Savings, NOW and MMDA deposits                          38,130,008       34,779,548
                Other time deposits                                    131,710,557      122,242,796
                                                                     -------------    -------------
                        Total deposits                                 171,887,267      158,964,489
        Securities sold under agreements to repurchase                     388,920               --
        FHLB advances                                                   47,500,000       24,500,000
        Advances from borrowers for taxes and insurance                  1,854,248        1,864,427
        Accrued expenses and other liabilities                             740,360        2,880,838
                                                                     -------------    -------------
                Total liabilities                                      222,370,795      188,209,754

Shareholders' equity
        Common stock, no par value, 5,000,000 shares authorized;
          shares issued: 1,689,417 - 1997, 1,973,980 - 1996;
          shares outstanding: 1,650,567 - 1997, 1,973,980 - 1996        13,108,171       18,316,651
        Retained earnings - substantially restricted                    22,037,441       20,588,797
        Net unrealized appreciation (depreciation) on
          securities available for sale, net of tax of $48,017 in
          1997 and  $(144,252) in 1996                                      73,208         (219,928)
        Unearned Employee Stock Ownership Plan (ESOP) shares              (664,610)        (893,651)
        Unearned Recognition and Retention Plan (RRP) shares              (115,500)        (192,500)
        Treasury Stock, 38,850 common shares, at cost                     (888,694)              --
                                                                     -------------    -------------
                Total shareholders' equity                              33,550,016       37,599,369
                                                                     -------------    -------------
                        Total liabilities and shareholders' equity   $ 255,920,811    $ 225,809,123
                                                                     =============    =============
</TABLE>

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

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
                 Years ended September 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                           1997          1996          1995
                                                        -----------   -----------   -----------
Interest income
        Loans receivable, including fees
<S>                                                     <C>           <C>           <C>        
                Mortgage loans                          $12,945,694   $ 9,956,394   $ 8,780,654
                Consumer and other loans                    550,905       182,177        35,433
                Financing leases and commercial loans       400,120       107,321            --
        Securities - taxable                              3,692,136     3,514,380     3,085,427
        Other interest-earning assets                        95,971       421,984       482,044
                                                        -----------   -----------   -----------
                Total interest income                    17,684,826    14,182,256    12,383,558

Interest expense
        Deposits                                          8,181,489     7,528,321     6,788,376
        Securities sold under agreements
          to repurchase                                       4,138            --            --
        FHLB advances                                     1,971,537       529,025            --
                                                        -----------   -----------   -----------
                Total interest expense                   10,157,164     8,057,346     6,788,376

Net interest income                                       7,527,662     6,124,910     5,595,182

Provision for loan losses                                    30,000        30,000        30,000
                                                        -----------   -----------   -----------
Net interest income after provision
  for loan losses                                         7,497,662     6,094,910     5,565,182

Noninterest income
        Insurance commissions                               133,870       126,819       127,766
        Brokerage Commissions                                23,604            --            --
        Net realized gains from sales of securities
          available for sale                                  6,098         3,731            --
        Other income                                        261,171       231,766       189,648
                                                        -----------   -----------   -----------
                Total noninterest income                    424,743       362,316       317,414

Noninterest expense
        Salaries and employee benefits                    2,772,154     2,152,656     2,336,230
        Occupancy and equipment expense                     579,327       422,388       405,998
        SAIF deposit insurance premium                      147,121     1,291,288       332,175
        Other expense                                     1,099,972       968,951       752,635
                                                        -----------   -----------   -----------
                Total noninterest expense                 4,598,574     4,835,283     3,827,038
                                                        -----------   -----------   -----------
Income before income taxes                                3,323,831     1,621,943     2,055,558

Income tax expense                                        1,321,630       646,793       819,452
                                                        -----------   -----------   -----------
Net income                                              $ 2,002,201   $   975,150   $ 1,236,106
                                                        ===========   ===========   ===========

Net income per common and common
  equivalent shares
        Primary                                         $      1.16   $       .49   $       .59
        Fully diluted                                          1.14           .48           .59
</TABLE>
--------------------------------------------------------------------------------
                  The accompanying notes are an integral part
                  of these consolidated financial statements.
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 Years ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                  Net Unrealized
                                                                                   Appreciation
                                                                                  (Depreciation)
                                                                                   on Securities
                                                                                     Available                                    
                                                                   Retained          For Sale,       Unearned        Unearned     
                                                  Common Stock     Earnings          Net of Tax    ESOP Shares      RRP Shares    
                                                  ------------     --------          ----------    -----------      ----------    

<S>                                               <C>            <C>                    <C>      <C>             <C>            
Balance at September 30, 1994                       $21,048,740    $ 18,495,980           $-       $ (1,300,000)   $   (540,052)  
                                                                                                                                  
Purchase and retirement of 109,361                                                                                                
     shares of common stock                          (1,530,486)             --           --                 --              --   
Effect of contribution to fund ESOP                          --              --           --            200,000              --   
Market adjustment of 22,516 ESOP shares                                                                                           
     committed to be released                            99,592              --           --                 --              --   
Amortization of RRP contribution                             --              --           --                 --         249,900   
Tax benefit related to employee stock plans              38,818              --           --                 --              --   
Net income for the year ended September 30, 1995             --       1,236,106           --                 --              --   
                                                    -----------    ------------         ----       ------------    ------------   
Balance at September 30, 1995                        19,656,664      19,732,086           --         (1,100,000)       (290,152)  
                                                                                                                                  
Purchase and retirement of 103,893                                                                                                
     shares of common stock                          (1,499,024)             --           --                 --              --   
Net unrealized appreciation on                                                                                                    
     securities available for  sale,                                                                                              
     net of tax $77,821 from transfer of securities          --              --      118,648                 --              --   
Cash dividends declared - $.06 per share                     --        (118,439)          --              6,349              --   
Effect of contribution to fund ESOP                          --              --           --            200,000              --   
Market adjustment of 21,515 ESOP                                                                                                  
     shares committed to be released                    117,247              --           --                 --              --   
Amortization of RRP contribution                             --              --           --                 --          97,652   
Tax benefit related to employee stock plans              41,764              --           --                 --              --   
Net change in unrealized appreciation (depreciation)                                                                              
     on securities available for sale,                                                                                            
     net of tax of ($222,073)                                --              --     (338,576)                --              --   
Net income for the year ended September 30, 1996             --         975,150           --                 --              --   
                                                    -----------    ------------     --------       ------------    ------------   
Balance at September 30, 1996                        18,316,651      20,588,797     (219,928)          (893,651)       (192,500)  
</TABLE>
     
<PAGE>

                                                                 Total    
                                                    Treasury   Shareholders'   
                                                      Stock       Equity       
                                                      -----       ------       
                                                                               
Balance at September 30, 1994                          $-      $ 37,704,668    
                                                                               
Purchase and retirement of 109,361                                             
     shares of common stock                             -        (1,530,486)   
Effect of contribution to fund ESOP                     -           200,000    
Market adjustment of 22,516 ESOP shares                                        
     committed to be released                           -            99,592    
Amortization of RRP contribution                        -           249,900    
Tax benefit related to employee stock plans             -            38,818    
Net income for the year ended September 30, 1995        -         1,236,106    
                                                     ----       -----------    
                                                                               
Balance at September 30, 1995                           -        37,998,598    
                                                                               
Purchase and retirement of 103,893                                             
     shares of common stock                             -        (1,499,024)   
Net unrealized appreciation on                                                 
     securities available for  sale,                                           
     net of tax $77,821 from transfer of securities     -           118,648    
Cash dividends declared - $.06 per share                -          (112,090)   
Effect of contribution to fund ESOP                     -           200,000    
Market adjustment of 21,515 ESOP                                               
     shares committed to be released                    -           117,247    
Amortization of RRP contribution                        -            97,652    
Tax benefit related to employee stock plans             -            41,764    
Net change in unrealized appreciation (depreciation                            
     on securities available for sale,                                         
     net of tax of ($222,073)                           -          (338,576)   
Net income for the year ended September 30, 1996        -           975,150    
                                                     ----       -----------    
Balance at September 30, 1996                           -        37,599,369    
                                                                               
<PAGE>                                             
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                                                                    Net Unrealized
                                                                                                     Appreciation
                                                                                                    (Depreciation)
                                                                                                    on Securities
                                                                                                      Available                     
                                                                                      Retained        For Sale,       Unearned      
                                                                    Common Stock      Earnings        Net of Tax      ESOP Shares   
                                                                     ------------    ------------    ------------    ------------  
<S>                                                                 <C>             <C>             <C>             <C>           
Balance at September 30, 1996                                        $ 18,316,651    $ 20,588,797    $   (219,928)   $   (893,651) 

Purchase and retirement of 288,063 shares of common stock              (5,381,427)             --              --              --  
Purchase of 45,000 shares of treasury stock                                    --              --              --              --  
Stock option exercise-issuance of 3,500 common shares                      35,000              --              --              --  
Stock option exercise-issuance of 6,150 shares of treasury stock          (79,181)             --              --              --  
Cash dividends declared - $ .32 per share                                      --        (553,557)             --          29,041  
Effect of contribution to fund ESOP                                            --              --              --         200,000  
Market adjustment of 23,276 ESOP shares committed to be released          188,153              --              --              --  
Amortization of RRP contribution                                               --              --              --              --  
Tax benefit related to employee stock plans                                28,975              --              --              --  
Net change in unrealized appreciation (depreciation) on securities
 available for sale, net of tax of $192,269                                    --              --         293,136              --  
Net income for the year ended September 30, 1997                               --       2,002,201              --              --  
                                                                     ------------    ------------    ------------    ------------  
Balance at September 30, 1997                                        $ 13,108,171    $ 22,037,441    $     73,208    $   (664,610) 
                                                                     ============    ============    ============    ============  
</TABLE>

<TABLE>
<CAPTION>
                                                                                                        Total       
                                                                        Unearned        Treasury     Shareholders' 
                                                                      RRP Shares        Stock           Equity     
                                                                      ------------    ------------    ------------   
<S>                                                                 <C>                       <C>   <C>            
Balance at September 30, 1996                                         $   (192,500)             $-    $ 37,599,369   
                                                                                                                     
Purchase and retirement of 288,063 shares of common stock                       --              --      (5,381,427)  
Purchase of 45,000 shares of treasury stock                                     --      (1,029,375)     (1,029,375)  
Stock option exercise-issuance of 3,500 common shares                           --              --          35,000   
Stock option exercise-issuance of 6,150 shares of treasury stock                --         140,681          61,500   
Cash dividends declared - $ .32 per share                                       --              --        (524,516)  
Effect of contribution to fund ESOP                                             --              --         200,000   
Market adjustment of 23,276 ESOP shares committed to be released                --              --         188,153   
Amortization of RRP contribution                                            77,000              --          77,000   
Tax benefit related to employee stock plans                                     --              --          28,975   
Net change in unrealized appreciation (depreciation) on securities                                                   
 available for sale, net of tax of $192,269                                     --              --         293,136   
Net income for the year ended September 30, 1997                                --              --       2,002,201   
                                                                      ------------    ------------    ------------   
Balance at September 30, 1997                                         $   (115,500)   $   (888,694)   $ 33,550,016   
                                                                      ============    ============    ============   
</TABLE>
                                               
--------------------------------------------------------------------------------
                  The accompanying notes are an integral part
                  of these consolidated financial statements.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                                         1997            1996            1995
                                                                     ------------    ------------    ------------
Cash flows from operating activities
<S>                                                                  <C>             <C>             <C>         
        Net income                                                   $  2,002,201    $    975,150    $  1,236,106
        Adjustments to reconcile net income
          to net cash from operating activities
                Depreciation and amortization, net of
                  accretion                                               473,203         272,595         315,899
                Amortization of RRP contribution                           77,000          97,652         249,900
                Provision for loan losses                                  30,000          30,000          30,000
                Net realized gains from sales of
                  securities available for sale                            (6,098)         (3,731)             --
                Market adjustment of ESOP shares
                  committed to be released                                188,153         117,247          99,592
                ESOP expense                                              200,000         200,000         200,000
                Net change in:
                        Accrued interest receivable                        99,587              94         (70,836)
                        Other assets                                      498,262         (44,501)       (301,900)
                        Accrued expenses and other liabilities         (2,303,772)        586,591       2,050,282
                                                                     ------------    ------------    ------------
                                Net cash from operating activities      1,258,536       2,231,097       3,809,043

Cash flows from investing activities
        Net change in interest-bearing time
          deposits in other financial institutions                        495,000       1,385,000       1,485,000
        Net change in loans receivable                                (48,913,292)    (30,900,930)     (5,914,327)
        Proceeds from:
                Sales of securities available for sale                 25,186,766      10,212,124              --
                Principal payments of mortgage-backed
                  and related securities                                2,938,521       2,280,597       1,283,272
                Maturities of securities available for sale            27,877,752      16,697,252              --
                Maturities of securities held to maturity                      --       4,300,000      14,350,000
        Purchase of:
                Securities available for sale                         (28,634,913)    (48,218,517)             --
                Securities held to maturity                                    --        (500,000)    (12,910,926)
                FHLB stock                                             (1,063,900)        (65,300)        (95,300)
                Premises and equipment, net                              (859,211)       (137,440)       (244,856)
                                                                     ------------    ------------    ------------
                        Net cash from investing activities            (22,973,277)    (44,947,214)     (2,047,137)

</TABLE>

<PAGE>
                            MFB CORP. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                 1997            1996            1995
Cash flows from financing activities
<S>                                                         <C>             <C>             <C>          
        Purchase of MFB Corp. common stock                  $ (6,410,802)   $ (1,499,024)   $ (1,530,486)
        Net change in deposits                                12,922,778      14,412,719         947,319
        Net change in securities sold under
          agreements to repurchase                               388,920              --              --
        Proceeds from FHLB advances                           66,735,000      24,500,000              --
        Repayment of FHLB advances                           (43,735,000)             --              --
        Proceeds from exercise of stock options                   96,500              --              --
        Net change in advances from
          borrowers for taxes and insurance                      (10,179)       (305,151)        122,579
        Cash dividends paid                                     (524,516)       (112,090)             --
                                                            ------------    ------------    ------------ 
                Net cash from financing activities            29,462,701      36,996,454        (460,588)
                                                            ------------    ------------    ------------ 
Net change in cash and cash equivalents                        7,747,960      (5,719,663)      1,301,318

Cash and cash equivalents at beginning of year                 1,734,388       7,454,051       6,152,733
                                                            ------------    ------------    ------------ 
Cash and cash equivalents at end of year                    $  9,482,348    $  1,734,388    $  7,454,051
                                                            ============    ============    ============

Supplemental disclosures of cash flow information
        Cash paid during the year for
                Interest                                    $ 10,113,767    $  7,988,256    $  6,786,274
                Income taxes                                     868,000         974,755         883,000

Supplemental schedule of noncash investing activities
        Transfer from:
                Investment securities to securities
                  held to maturity                                   $--             $--    $ 54,931,715
                Securities held to maturity to securities
                  available for sale                                  --      47,898,025              --
                Loans receivable to loans held for sale       12,671,186              --              --

</TABLE>
--------------------------------------------------------------------------------
                  The accompanying notes are an integral part
                  of these consolidated financial statements.

<PAGE>
                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include  the  accounts  of MFB  Corp.,  Inc.  and  its  wholly-owned  subsidiary
(together  referred to as "the Company"),  MFB Financial (the "Bank"), a federal
stock  savings bank,  and Mishawaka  Financial  Services,  Inc., a  wholly-owned
subsidiary of the Bank.  Mishawaka  Financial  Services,  Inc. is engaged in the
sale of credit life, general fire and accident,  car, home and life insurance as
agent  for  the  Bank's  customers  and  the  general  public.  All  significant
intercompany transactions and balances are eliminated in consolidation.

Nature of Business  and  Concentrations  of Credit Risk:  The primary  source of
income for the Company  results from granting  commercial and  residential  real
estate loans in Mishawaka and the surrounding area. Loans secured by real estate
mortgages comprise approximately 96% of the loan portfolio at September 30, 1997
and are  primarily  secured  by  residential  mortgages.  The  Company  operates
primarily  in the  banking  industry  which  accounts  for more  than 90% of its
revenues, operating income and assets.

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

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



<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

Loans Held for Sale:  Mortgage loans  intended for sale in the secondary  market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to income.

Loans Receivable: Loans receivable that management has the intent and ability to
hold for the  foreseeable  future or until  maturity or pay-off are  reported at
their outstanding principal balances adjusted for any charge-offs, the allowance
for  loan  losses,  and any  deferred  fees or costs on  originated  loans,  and
unamortized premiums or discounts on purchased loans.

Premiums or discounts on mortgage  loans are amortized to income using the level
yield method over the remaining  period to  contractual  maturity,  adjusted for
anticipated prepayments. Loan fees and certain direct loan origination costs are
deferred,  and the net fee or cost is  recognized  as an  adjustment to interest
income using the interest method.

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


<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Smaller-balance  homogeneous  loans are evaluated for impairment in total.  Such
loans include  residential  first mortgage  loans secured by one-to-four  family
residences, residential construction loans, automobile, manufactured homes, home
equity and second mortgage loans. Commercial loans and mortgage loans secured by
other  properties are evaluated  individually  for impairment.  When analysis of
borrower  operating  results and financial  condition  indicates that underlying
cash flows of the borrower's  business are not adequate to meet its debt service
requirements,  the loan is evaluated  for  impairment.  Often this is associated
with a delay or shortfall in payments of 30 days or more.  Nonaccrual  loans are
often also considered impaired. Impaired loans, or portions thereof, are charged
off when deemed  uncollectible.  The nature of disclosures for impaired loans is
considered  generally  comparable to prior nonaccrual and renegotiated loans and
non-performing and past due asset disclosures.

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

Foreclosed Real Estate:  Real estate properties acquired through, or in lieu of,
loan  foreclosure  are  initially   recorded  at  fair  value  at  the  date  of
acquisition, establishing a new cost basis. Any reduction to fair value from the
carrying  value of the related loan at the time of  acquisition is accounted for
as a loan loss and charged against the allowance for loan losses. Valuations are
periodically  performed by  management  and  valuation  allowances  are adjusted
through a charge to income for changes in fair value or estimated selling costs.
There were no properties held as foreclosed real estate at September 30, 1997 or
1996.

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



<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment:  Land is carried at cost. Buildings and improvements and
furniture and equipment are carried at cost, less  accumulated  depreciation and
amortization  computed  principally by using the  straight-line  method over the
estimated  useful lives of the assets.  These assets are reviewed for impairment
when events indicate the carrying amount may not be recoverable.

Servicing Rights:  Prior to adopting Statement of Financial Accounting Standards
(SFAS) No. 122 on October 1, 1996, servicing right assets were recorded only for
purchased  rights  to  service  mortgage  loans.  Subsequent  to  adopting  this
standard,  servicing  rights  represent both purchased  rights and the allocated
value of servicing rights retained on loans sold.  Servicing rights are expensed
in proportion  to, and over the period of,  estimated  net  servicing  revenues.
Impairment is evaluated  based on the fair value of the rights,  using groupings
of the  underlying  loans as to  interest  rates  and then,  secondarily,  as to
geographic  and  prepayment  characteristics.  Any  impairment  of a grouping is
reported as a valuation allowance.  The effect of adopting this standard was not
material.

Excess  servicing  receivable  is reported when a loan sale results in servicing
income  in  excess  of  normal  amounts,  and is  expensed  over the life of the
servicing on the interest method.

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

ESOP shares are  outstanding  for  earnings per share  calculations  as they are
committed to be released; unearned shares are not considered outstanding.

Financial  Instruments with  Off-Balance-Sheet  Risk: The Company, in the normal
course of business,  makes  commitments to make loans which are not reflected in
the  consolidated  financial  statements.  A  summary  of these  commitments  is
disclosed in Note 12.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share: Earnings per common share is computed by dividing net income
by the weighted  average  number of common shares  outstanding  and common share
equivalents  which would arise from  considering  dilutive  stock  options.  The
weighted average number of shares for calculating earnings per common share is:

                      1997        1996        1995
                    ---------   ---------   ---------
Primary             1,732,528   2,008,323   2,083,528
Fully diluted       1,752,687   2,035,087   2,106,785

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

Reclassifications:  Certain amounts in the 1996 and 1995 consolidated  financial
statements were reclassified to conform with the 1997 presentation.


NOTE 2 - SECURITIES AVAILABLE FOR SALE

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

<TABLE>
<CAPTION>
                                                     September 30, 1997      
                                                    Gross                          Gross
                                   Amortized       Unrealized      Unrealized      Fair
                                    Cost           Gains           Losses         Value
Debt securities
        U.S. Government
<S>                              <C>            <C>             <C>             <C>         
          and federal agencies   $ 23,617,973   $    109,623    $     (7,877)   $ 23,719,719
        Mortgage-backed            15,588,866         26,506         (36,077)     15,579,295
                                 ------------   ------------    ------------    ------------
                                   39,206,839        136,129         (43,954)     39,299,014
Marketable equity securities          300,350         29,050              --         329,400
                                 ------------   ------------    ------------    ------------
                                 $ 39,507,189   $    165,179    $    (43,954)   $ 39,628,414
                                 ============   ============    ============    ============
</TABLE>




<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)

<TABLE>
<CAPTION>
                                                    September 30, 1996   
                                                 Gross                          Gross
                                 Amortized       Unrealized      Unrealized      Fair
                                  Cost           Gains           Losses         Value
                               ------------   ------------    ------------    ------------
Debt securities
        U.S. Government and
<S>                            <C>            <C>             <C>             <C>         
          federal agencies     $ 40,159,602   $    142,886    $    (95,325)   $ 40,207,163
        Mortgage-backed          24,473,181             --        (399,246)     24,073,935
                               ------------   ------------    ------------    ------------
                                 64,632,783        142,886        (494,571)     64,281,098
Marketable equity securities      2,493,955             --         (12,495)      2,481,460
                               ------------   ------------    ------------    ------------
                               $ 67,126,738   $    142,886    $   (507,066)   $ 66,762,558
                               ============   ============    ============    ============
</TABLE>


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

                                            September 30, 1997    
                                         -------------------------  
                                          Amortized       Fair
                                            Cost          Value
                                         -----------   -----------
Due in one year or less                  $ 4,189,883   $ 4,207,833
Due after one year through five years     16,080,773    16,137,593
Due after five years through ten years     3,347,317     3,374,293
                                         -----------   -----------
                                          23,617,973    23,719,719
Mortgage-backed securities                15,588,866    15,579,295
                                         -----------   -----------
                                         $39,206,839   $39,299,014
                                         ===========   ===========

Proceeds from sales of securities available for sale were $25,186,766 during the
year ended  September  30,  1997.  Gross  gains of $59,828  and gross  losses of
$53,730 were realized on these sales.  During the year ended September 30, 1996,
proceeds from the sales of securities  available for sale were  $10,212,124 with
gross gains of $25,154 and gross losses of $21,423  realized on these sales. The
Company did not sell any securities during the year ended September 30, 1995.

On November 30, 1995,  securities  with an amortized  cost of  $47,898,025  were
reclassified   from  held  to   maturity   to   available   for  sale  based  on
interpretations  issued for SFAS No. 115. The transfer  increased the unrealized
appreciation  on  securities  available  for sale by $196,469 and  shareholders'
equity by $118,648, net of tax of $77,821.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 3 - LOANS RECEIVABLE, NET

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

                                                                   1997             1996
                                                               -------------    -------------
First mortgage loans (principally conventional)
        Principal balances
<S>                                                            <C>              <C>          
                Secured by one-to-four family residences       $ 164,598,210    $ 143,750,857
                Construction loans                                 8,245,274        5,004,730
                Other                                                130,800          162,643
                                                               -------------    -------------
                                                                 172,974,284      148,918,230
                Less undisbursed portion of construction and
                  other mortgage loans                              (117,394)      (1,961,107)
                                                               -------------    -------------
                        Total first mortgage loans               172,856,890      146,957,123

Consumer and other loans:
        Principal balances
                Home equity and second mortgage                    7,176,832        3,790,075
                Commercial                                         8,832,629          876,348
                Financing leases                                     325,048        1,124,624
                Other                                                 96,079           83,843
                                                               -------------    -------------
                        Total consumer and other loans            16,430,588        5,874,890
Allowance for loan losses                                           (370,000)        (340,000)
Net deferred loan origination fees                                  (653,280)        (439,921)
                                                               -------------    -------------
                                                               $ 188,264,198    $ 152,052,092
                                                               =============    =============
</TABLE>


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

                                 1997       1996       1995
                               --------   --------   --------
Balance at beginning of year   $340,000   $310,000   $280,000
Provision for loan losses        30,000     30,000     30,000
Charge-offs                          --         --         --
Recoveries                           --         --         --
                               --------   --------   --------
Balance at end of year         $370,000   $340,000   $310,000
                               ========   ========   ========

At September  30, 1997 and 1996, no portion of the allowance for loan losses was
allocated to impaired loan balances as there were no loans  considered  impaired
loans as of or for the years ended September 30, 1997 and 1996.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 3 - LOANS RECEIVABLE, NET (Continued)

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

                                  1997           1996
                              -----------    -----------
Balance - beginning of year   $ 1,032,494    $   592,367
New loans                              --        494,208
Repayments                       (104,773)       (54,081)
                              -----------    -----------
Balance - end of year         $   927,721    $ 1,032,494
                              ===========    ===========


NOTE 4 - PREMISES AND EQUIPMENT, NET

Premises and equipment at September 30 are summarized as follows:

                                                1997           1996
                                            -----------    -----------
Land                                        $   558,681    $   558,681
Buildings and improvements                    2,165,843      1,729,332
Real estate held for future expansion           128,885        128,885
Furniture and equipment                       1,291,437        868,737
                                            -----------    -----------
        Total cost                            4,144,846      3,285,635
Accumulated depreciation and amortization    (1,532,053)    (1,316,371)
                                            -----------    -----------
                                            $ 2,612,793    $ 1,969,264
                                            ===========    ===========

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


Depreciation and  amortization of premises and equipment,  included in occupancy
and equipment expense was approximately $216,000,  $145,000 and $129,000 for the
years ended September 30, 1997, 1996 and 1995, respectively.


NOTE 5 - DEPOSITS

The aggregate amount of short-term jumbo certificates of deposit in denomination
of $100,000 or more was  approximately  $24,892,000 and $24,488,000 at September
30, 1997 and 1996.

At September 30, 1997, the scheduled  maturities of  certificates of deposit are
as follows for the years ended September 30:

        1998                      $96,037,352
        1999                       28,099,054
        2000                        5,409,231
        2001                        1,620,700
        2002 and thereafter           544,220
                                 ------------
                                 $131,710,557
                                 ============

NOTE 6 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities  sold under  agreements to repurchase  consist of  obligations of the
Company to other parties.  These  arrangements are all one-day retail repurchase
agreements and are secured by investment securities.  Such collateral is held by
safekeeping agents of the Company.  Information concerning securities sold under
agreements to repurchase as of September 30, 1997, is summarized as follows:

        Average daily balance during the year          $97,365
        Average interest rate during the year             4.25%
        Maximum month end balance during the year     $388,920

Securities underlying these agreements at year end were as follows:

        Carrying value of securities    $3,530,000
        Fair value                      $3,508,000

There were no  securities  sold under  agreements to repurchase at September 30,
1996.


NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES

At September 30, 1997,  advances from the Federal Home Loan Bank of Indianapolis
with fixed and  variable  rates  ranging  from 5.01% to 5.95% mature in the year
ending September 30 as follows:

        1998           $22,000,000
        1999             8,500,000
        2000             6,000,000
        2002            11,000,000
                       -----------
                       $47,500,000
                       ===========
              
FHLB advances are secured by all FHLB stock,  qualifying  first mortgage  loans,
government  agency and  mortgage  backed  securities.  At  September  30,  1997,
collateral  of  approximately  $216,365,000  is  pledged  to the FHLB to  secure
advances outstanding.


<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 8 - EMPLOYEE BENEFITS

Employee  Pension  Plan:  The  Bank  is  part  of  a  qualified  noncontributory
multiple-employer defined benefit pension plan covering substantially all of its
employees.   The  plan  is   administered  by  the  trustees  of  the  Financial
Institutions  Retirement Fund (Retirement  Fund). There is no separate valuation
of plan  benefits  nor  segregation  of plan  assets  specifically  for the Bank
because the plan is a multiple-employer  plan and separate actuarial  valuations
are  not  made  with  respect  to each  employer  nor are  the  plan  assets  so
segregated.  As of July 1, 1997, the latest actuarial valuation date, total plan
assets exceeded the actuarially  determined value of total vested benefits.  The
cost of the plan is set annually as an established  percentage of wages. Pension
plan  expense  for the  years  ended  September  30,  1997,  1996  and  1995 was
approximately  $1,500, $3,000 and $179,000,  respectively.  Pension plan expense
for the year ended  September  30,  1997 and 1996 was reduced due to a change in
the  benefit  formula  from 2% of high 5 year  average  salary  for each year of
benefit service to 1.5%.

401(k) Plan: On July 1, 1996,  the Company  adopted a retirement  savings 401(k)
plan which covers all full time employees who are 21 or older and have completed
one year of service.  Beginning August 1, 1996, participants may defer up to 15%
of  compensation.  The Company  matches 50% of elective  deferrals  on 6% of the
participants'  compensation.  Expense  for the 401(k)  plan for the years  ended
September 30, 1997 and 1996 was approximately $42,000 and $5,000, respectively.

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

ESOP  expense was  approximately  $388,000,  $317,000 and $300,000 for the years
ended September 30, 1997, 1996 and 1995.  Contributions  to the ESOP,  including
dividends on unearned  ESOP shares,  was  approximately  $229,000,  $206,000 and
$200,000 during the years ended September 30, 1997, 1996 and 1995.

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

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 8 - EMPLOYEE BENEFITS (Continued)

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

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

At September 30, 1997, 1996 and 1995,  23,276,  21,515 and 22,516 shares with an
average fair value of $17.92,  $15.04 and $13.31 per share, were committed to be
released.

The ESOP shares as of September 30 were as follows:

                                                    1997           1996
                                                 -----------    -----------
Allocated shares                                      78,968         55,692
Unearned shares                                       61,032         84,308
Shares withdrawn from the plan by participants        (5,601)        (2,347)
        Total ESOP shares held in the plan           134,399        137,653
                                                 -----------    -----------
Fair value of unearned shares                    $ 1,419,000    $ 1,560,000
                                                 ===========    ===========

Recognition  and  Retention  Plans  (RRPs):   In  conjunction   with  its  stock
conversion,  the Company  established  RRPs as a method of providing  directors,
officers and other key employees of the Company with a  proprietary  interest in
the Company in a manner  designed to  encourage  such persons to remain with the
Company.  Eligible  directors,  officers and other key  employees of the Company
become  vested  in  awarded  shares  of  common  stock at a rate of 20% per year
commencing March 24, 1994. The RRPs acquired, in the aggregate, 70,000 shares of
common stock issued in the  conversion  at $10 per share and 70,000  shares were
awarded to RRP  participants at no cost to them. RRP expense for the years ended
September  30,  1997,  1996 and  1995 was  approximately  $77,000,  $98,000  and
$250,000, respectively.

Stock Option Plan:  The Board of Directors of the Company  adopted the MFB Corp.
Stock Option Plan (the "Option Plan").  The number of options  authorized  under
the Plan is 200,000  shares of common  stock.  Officers,  employees  and outside
directors of the Company and its  subsidiary  are eligible to participate in the
Option  Plan.  The  option  exercise  price must be no less than 85% of the fair
market  value of common  stock on the date of the  grant,  and the  option  term
cannot exceed ten years and one day from the date of the grant.  As of September
30, 1997,  all options  granted  have an exercise  price of at least 100% of the
market  value of the  common  stock on the  date of  grant  and no  compensation
expense was recognized for stock options for the years ended September 30, 1997,
1996 and 1995.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NNOTE 8 - EMPLOYEE BENEFITS (Continued)

SFAS No. 123,  which became  effective  for the year ended  September  30, 1997,
requires pro forma  disclosures  for companies  that do not adopt its fair value
accounting  method for  stock-based  employee  compensation.  The effects on the
Company's net income and earnings per share under the provisions of SFAS No. 123
were not material  for the years ended  September  30, 1997 and 1996.  In future
years,  the pro forma  effect of not  applying  this  standard  is  expected  to
increase as additional options are granted.

Activity in the Option Plan for the years ended is summarized as follows:

<TABLE>
<CAPTION>

                                                                                     Weighted
                                                                                      Average
                                    Available       Options        Exercise           Exercise
                                    For Grant       Outstanding     Price              Price
                                    ---------       -----------     -----              -----

<S>                                 <C>           <C>           <C>                <C>      
Balance at September30,1994           30,000        170,000       $       10.00      $   10.00
Granted                              (20,000)        20,000       $       15.00      $   15.00
Exercised                                 --             --       $-                 $-
Forfeited                                 --             --       $-                 $-
                                      ------        -------       ------ ------      ---------
Balanced at September 30, 1995        10,000        190,000       $10.00-$15.00      $   10.53
                                                                                     
Granted                              (10,000)        10,000       $       15.25      $   15.25
Exercised                                 --             --       $-                 $-
Forfeited                                 --             --       $-                 $-
                                      ------        -------       ------ ------      ---------
Balance at September 30, 1996             --        200,000       $10.00-$15.25      $   10.76
                                                                                     
Granted                                   --             --       $-                 $-
Exercised                                 --         (9,650)      $       10.00      $   10.00
Forfeited                                 --             --       $-                 $-
                                      ------        -------       ------ ------      ---------
Balance at September 30, 1997             --        190,350       $10.00-$15.25      $   10.80
                                     =======        =======       =============      =========
</TABLE>


Options exercisable at September 30 are as follows:

                                              Weighted
                        Number                Average
                       of Options          Exercise Price
                       ----------          --------------
        1995            170,000                 $10.00
        1996            174,000                 $10.11
        1997            180,000                 $10.28


<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 9 - INCOME TAXES

The Company  files  consolidated  income tax returns.  Prior to fiscal 1997,  if
certain conditions were met in determining  taxable income, the Bank was allowed
a special bad debt  deduction  based on a percentage  of taxable  income (8% for
fiscal 1996 and 1995) or on  specified  experience  formulas.  The Bank used the
percentage-of-taxable-income  method for the tax year ended  September 30, 1995,
but was unable to use this method for the tax year ended September 30, 1996. Tax
legislation  passed in August 1996 now  requires  the Bank to deduct a provision
for bad debts for tax purposes based on actual loss experience and recapture the
excess bad debt reserve  accumulated in tax years after  September 30, 1987. The
related   amount  of  deferred  tax  liability   which  must  be  recaptured  is
approximately  $446,000 and is payable over a six year period beginning no later
than the tax year ending September 30, 1999.

Income tax expense for the years ended September 30 are summarized as follows:

                                            1997         1996          1995
Federal
        Current                          $  765,810     $725,920      $622,992
        Deferred                            264,314     (225,467)       12,487
                                          1,030,124      500,453       635,479
State
        Current                             223,225      225,213       176,270
        Deferred                             68,281      (78,873)        7,703
                                            291,506      146,340       183,973

             Total income tax expense    $1,321,630   $  646,793    $  819,452

Total  income tax expense  differed  from the amounts  computed by applying  the
federal income tax rate of 34% in all periods  presented to income before income
taxes as a result of the following for the years ended September 30:

<TABLE>
<CAPTION>
                                               1997           1996           1995
                                           -----------    -----------    -----------
<S>                                        <C>            <C>            <C>        
Income taxes at statutory rate             $ 1,130,103    $   551,461    $   698,890
Tax effect of:
        State tax, net of federal income
          tax effect                           192,394         96,584        121,422
        Excess of fair value of ESOP
          shares released over cost             63,972         39,864         33,861
        Other items, net                       (64,839)       (41,116)       (34,721)
                                           -----------    -----------    -----------
                Total income tax expense   $ 1,321,630    $   646,793    $   819,452
                                           ===========    ===========    ===========

</TABLE>
<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 9 - INCOME TAXES (Continued)

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

                                                1997         1996
                                             ---------    ---------
Deferred tax assets
        RRP expense                          $  16,363    $  16,363
        Net deferred loan fees                 277,644      186,966
        Net unrealized depreciation
          on securities available for sale          --      144,252
        SAIF assessment                             --      405,235
        Other                                   18,652           --
                                             ---------    ---------
                                               312,659      752,816
Deferred tax liabilities
        Accretion                              (59,882)     (28,817)
        Depreciation                           (48,685)     (42,807)
        Bad debt deduction                    (288,825)    (300,895)
        Net unrealized appreciation on
          securities available for sale        (48,017)          --
        Other                                  (39,171)     (27,354)
                                             ---------    ---------
                                              (484,580)    (399,873)
Valuation allowance                                 --           --
                                             ---------    ---------
        Net deferred tax asset (liability)   $(171,921)   $ 352,943
                                             =========    =========

Federal  income  tax  laws  provided  savings  banks  with  additional  bad debt
deductions  through the tax year ended September 30, 1987,  totaling  $4,596,000
for the Bank. Accounting standards do not require a deferred tax liability to be
recorded on this amount,  which liability  would  otherwise total  $1,563,000 at
September 30, 1997 and 1996. If the Bank were liquidated or otherwise  ceases to
be a bank or if tax laws change, the $1,563,000 would be recorded as expense.


NOTE 10 - REGULATORY MATTERS

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

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 10 - REGULATORY MATTERS (Continued)

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

The Bank's actual capital and required  capital amounts and ratios are presented
below:
<TABLE>
<CAPTION>
                                                                                       Minimum
                                                                                      Requirement
                                                                                  Minimum To Be Well
                                                                Requirement       Capitalized Under
                                                                For Capital       Prompt Corrective
                                            Actual            Adequacy Purposes    Action Provisions
                                            ------            -----------------    -----------------
                                      Amount      Ratio      Amount      Ratio    Amount       Ratio
                                      ------      -----      ------      -----    ------       -----
        (Dollars in thousands)
As of September 30, 1997
        Total capital (to risk
<S>                                    <C>          <C>      <C>          <C>     <C>          <C>   
          weighted assets)             $32,184      25.40%   $10,139      8.00%   $12,673      10.00%
        Tier I (core) capital                                                     
          (to risk weighted assets)     31,814      25.10      5,069      4.00      7,604       6.00
        Tier I (core) capital (to                                                 
          adjusted total assets)        31,814      12.43      7,676      3.00        N/A        N/A
        Tangible capital (to                                                      
          adjusted total assets)        31,814      12.43      3,838      1.50        N/A        N/A
        Tier I (core) capital (to                                                 
          average assets)               31,814      13.42      9,482      4.00     11,853       5.00
                                                                                  
As of September 30, 1996                                                          
        Total capital (to risk                                                    
          weighted assets)             $31,668      32.69%   $ 7,749      8.00%   $ 9,686      10.00%
        Tier I (core) capital                                                     
        (to risk weighted assets)       31,328      32.34      3,874      4.00      5,812       6.00
        Tier I (core) capital                                                     
          (to adjusted total assets)    31,328      13.85      6,785      3.00        N/A        N/A
        Tangible capital (to                                                      
          adjusted total assets)        31,328      13.85      3,392      1.50        N/A        N/A
        Tier I (core) capital (to                                                 
          average assets)               31,328      15.62      8,023      4.00     10,029       5.00
</TABLE>

                                                                               
Regulations of the Office of Thrift  Supervision limit the dividends that may be
paid without  prior  approval of the Office of Thrift  Supervision.  The Bank is
currently a  "well-capitalized"  Tier 1 institution  and can make  distributions
during a year of 100% of its net income to date  during  the year plus  one-half
its "surplus  capital ratio" (the excess over its capital  requirements)  at the
beginning of the calendar year. Accordingly, at September 30, 1997 approximately
$11,548,000 of the Bank's retained earnings is available for distribution to the
Company.

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 11 - OTHER NONINTEREST  INCOME AND EXPENSE

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

<TABLE>
<CAPTION>

                                                     1997           1996           1995
                                                 -----------    -----------    -----------
Other noninterest income
<S>                                              <C>            <C>            <C>        
        Service charges and fees                 $   200,759    $   174,315    $   124,232
        Other                                         60,412         57,451         65,416
                                                 -----------    -----------    -----------
                                                 $   261,171    $   231,766    $   189,648
                                                 ===========    ===========    ===========

Other noninterest expense
        Advertising and promotion                $   179,423    $   190,614    $    15,000
        Data processing                              281,171        200,940        175,734
        Professional fees                            143,550        175,341        116,008
        Printing, postage, stationery,
          and supplies                               192,514        123,215         87,229
        Direct loan origination costs deferred      (245,981)      (203,332)       (99,228)
        Other                                        549,295        482,173        457,892
                                                 -----------    -----------    -----------
                                                 $ 1,099,972    $   968,951    $   752,635
                                                 ===========    ===========    ===========
</TABLE>



NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
          AND CONTINGENCIES

Various outstanding  commitments and contingent liabilities are not reflected in
the  financial  statements.  Commitments  to make loans at  September  30 are as
follows:
<TABLE>
<CAPTION>
                                            1 9 9 7                                 1 9 9 6 
                             Fixed          Variable                   Fixed         Variable
                           Rate Loans      Rate Loans    Total       Rate Loans      Rate Loans      Total
                           -----------   -----------   -----------   -----------   -----------   -----------
<S>                        <C>           <C>           <C>           <C>           <C>           <C>        
First mortgage loans       $ 4,784,788   $ 3,816,543   $ 8,601,331   $ 1,680,256   $ 7,500,852   $ 9,181,108
Commercial loans             2,029,260     6,964,446     8,993,706            --            --            --
Unused lines of credit         717,622     8,931,973     9,649,595       307,028     7,059,117     7,366,145
Unused commercial loan
  line of credit                    --     1,825,409     1,825,409            --            --            --
Unused construction loan
  lines of credit                   --     1,380,909     1,380,909            --     2,721,545     2,721,545
                           -----------   -----------   -----------   -----------   -----------   -----------
                           $ 7,531,670   $22,919,280   $30,450,950   $ 1,987,284   $17,281,514   $19,268,798
                           ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
  AND CONTINGENCIES (Continued)

Fixed rate loan commitments at September 30, 1997 are at rates primarily ranging
from 7.125% to 10.75%. These fixed rate loan commitments are primarily for terms
ranging from 15 to 30 year terms.  Rates on variable rate loans range from 6.50%
to 9.25% and are tied  primarily  to the National  Monthly  Median Cost of Funds
Ratio to SAIF - Insured Institutions.

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

Under employment  agreements with certain executives,  officers,  certain events
leading to separation  from the Company  could result in cash payments  totaling
$1,018,000 as of September 30, 1997.

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


NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS

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

                            CONDENSED BALANCE SHEETS
                          September 30, 1997 and 1996

<TABLE>
<CAPTION>
                                                                 1997         1996
                                                             -----------   -----------
ASSETS
<S>                                                          <C>           <C>        
Cash and cash equivalents                                    $   796,186   $   887,580
Equity securities available for sale                             329,400            --
Investment in Bank subsidiary                                 31,939,172    31,108,173
Note receivable from Bank subsidiary                                  --     4,750,000
Loan receivable from ESOP                                        664,610       893,651
Other assets                                                       1,438        31,501
                                                             -----------   -----------
        Total assets                                         $33,730,806   $37,670,905
                                                             ===========   ===========

LIABILITIES
Accrued expenses and other liabilities                       $   180,790   $    71,536

SHAREHOLDERS' EQUITY                                          33,550,016    37,599,369
                                                             -----------   -----------
                Total liabilities and shareholders' equity   $33,730,806   $37,670,905
                                                             ===========   ===========
</TABLE>


<PAGE>

                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                         CONDENSED STATEMENTS OF INCOME
                 Years ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                    1997          1996           1995
                                                -----------   -----------    -----------
<S>                                             <C>                   <C>            <C>
Dividends from bank - cash                      $ 2,000,000           $--            $--
Interest income                                      57,723        74,390         85,212
Interest expense                                      3,319            --             --
Other expenses                                      107,243       153,973        132,605
                                                -----------   -----------    -----------
Income (loss) before income taxes
  and equity in undistributed net income
  of Bank subsidiary                              1,947,161       (79,583)       (47,393)

Income tax benefit                                   22,803        32,887         19,326
                                                -----------   -----------    -----------
Income (loss) before equity in
  undistributed net income of Bank subsidiary     1,969,964       (46,696)       (28,067)

Equity in undistributed net income
  of Bank subsidiary                                 32,237     1,021,846      1,264,173
                                                -----------   -----------    -----------
Net income                                      $ 2,002,201   $   975,150    $ 1,236,106
                                                ===========   ===========    ===========
</TABLE>

<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995



NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                1997           1996           1995
                                                             -----------    -----------    -----------
Cash flows from operating activities
<S>                                                          <C>            <C>            <C>        
        Net income                                           $ 2,002,201    $   975,150    $ 1,236,106
        Adjustments to reconcile net income to
          net cash  from operating activities
                Amortization, net of accretion                        --             --         (4,237)
                Equity in undistributed net income of
                  Bank subsidiary
                        Bank                                     (32,237)    (1,021,846)    (1,264,173)
                Net change in other assets                        30,063        287,659       (317,424)
                Net change in accrued expenses and
                  other liabilities                               97,747         40,417         27,738
                                                             -----------    -----------    -----------
                        Net cash from operating activities     2,097,774        281,380       (321,990)

Cash flows from investing activities
        Net change in interest-bearing deposits
          in other financial institutions                             --        948,366             --
        Principal repayments on loan receivable
          from ESOP                                              229,041        206,349        200,000
        Principal repayments on note receivable
          from Bank subsidiary                                 4,750,000      1,000,000      1,000,000
        Purchase of securities available for sale               (300,350)            --     (4,945,231)
        Proceeds from maturities of securities                        --             --      5,400,000
                                                             -----------    -----------    -----------
                Net cash from investing activities             4,678,691      2,154,715      1,654,769

Cash flows from financing activities
        Purchase of MFB Corp. common stock                    (6,410,802)    (1,499,024)    (1,530,486)
        Proceeds from exercise of stock options                   96,500             --             --
        Cash dividends paid                                     (553,557)      (118,439)            --
                                                             -----------    -----------    -----------
                Net cash from financing activities            (6,867,859)    (1,617,463)    (1,530,486)
                                                             -----------    -----------    -----------
Net change in cash and cash equivalents                          (91,394)       818,632       (197,707)

Cash and cash equivalents at beginning
  of year                                                        887,580         68,948        266,655
                                                             -----------    -----------    -----------
Cash and cash equivalents at end of year                     $   796,186    $   887,580    $    68,948
                                                             ===========    ===========    ===========
</TABLE>

<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  table shows the estimated  fair values and the related  carrying
amounts of the Company's  financial  instruments at September 30, 1997 and 1996.
Items which are not financial instruments are not included.

<TABLE>
<CAPTION>
                                                1 9 9 7                           1 9 9 6
                                      Carrying         Estimated          Carrying        Estimated
                                       Amount          Fair Value          Amount        Fair Value
                                       ------          ----------          ------        ----------

<S>                                 <C>              <C>              <C>              <C>          
Cash and cash equivalents           $   9,482,348    $   9,482,000    $   1,734,388    $   1,734,000
Interest-bearing time deposits
  in other financial institutions              --               --          495,000          495,000
Securities available for sale          39,628,414       39,628,000       66,762,558       66,763,000
FHLB stock                              2,400,000        2,400,000        1,336,100        1,336,000
Loans held for sale, net               12,671,186       12,671,000               --               --
Loans receivable, net of
  allowance for loan losses           188,264,198      191,855,000      152,052,092      152,341,000
Accrued interest receivable               718,427          718,000          818,014          818,000
Noninterest bearing demand
  deposits                             (2,046,702)      (2,047,000)      (1,942,145)      (1,942,000)
Savings, NOW and MMDA
  deposits                            (38,130,008)     (38,130,000)     (34,779,548)     (34,780,000)
Other time deposits                  (131,710,557)    (131,975,000)    (122,242,796)    (122,579,000)
Securities sold under
  agreements to repurchase               (388,920)        (389,000)              --               --
FHLB advances                         (47,500,000)     (47,092,000)     (24,500,000)     (24,337,000)
</TABLE>


For purposes of the above  disclosures  of estimated  fair value,  the following
assumptions  were used as of September  30, 1997 and 1996.  The  estimated  fair
value for cash and cash  equivalents  is considered  to  approximate  cost.  The
estimated  fair  value of  interest-bearing  time  deposits  in other  financial
institutions  is based upon  estimates of the rate the Company  would receive on
such deposits at September 30, 1997 and 1996,  applied for the time period until
maturity.  The estimated fair value for securities  available for sale, is based
upon  quoted  market  values for the  individual  securities  or for  equivalent
securities.  The estimated fair value for loans held for sale,  net, is based on
the price offered in the secondary market on September 30, 1997 for loans having
similar  interest  rates and  maturities.  The  estimated  fair  value for loans
receivable  is based upon  estimates  of the  difference  in interest  rates the
Company  would  charge  the  borrowers  for  similar  such  loans  with  similar
maturities  made at September 30, 1997 and 1996,  applied for an estimated  time
period  until the loan is  assumed  to reprice  or be paid.  In  addition,  when
computing the estimated fair value for loans receivable,  the allowance for loan
losses was subtracted from the calculated fair value for consideration of credit
issues.  The estimated fair value for FHLB stock,  accrued interest  receivable,
noninterest  bearing demand  deposits,  savings,  NOW and MMDA deposits is based
upon their carrying  value.  The estimated fair value for other time deposits as
well as securities  sold under  agreements  to  repurchase  and FHLB advances is
based upon  estimates  of the rate the  Company  would pay on such  deposits  or
borrowings  at  September  30, 1997 and 1996,  applied for the time period until
maturity.   The  estimated  fair  value  of  other  financial   instruments  and
off-balance-sheet  loan  commitments  approximate  cost  and are not  considered
significant to this presentation.

<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

While these  estimates of fair value are based on  management's  judgment of the
most  appropriate  factors,  there is no assurance that were the Company to have
disposed of such items at September 30, 1997 and 1996, the estimated fair values
would  necessarily  have been  achieved at that date,  since  market  values may
differ  depending  on  various  circumstances.  The  estimated  fair  values  at
September  30, 1997 and 1996 should not  necessarily  be  considered to apply at
subsequent dates.

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


NOTE 15 - SAIF DEPOSIT INSURANCE PREMIUM

The deposits of savings associations such as the Bank are insured by the Savings
Association  Insurance Fund (SAIF). A  recapitalization  plan signed into law on
September  30, 1996  provided  for a one-time  assessment  of 65.7 basis  points
applied to all SAIF deposits as of March 31, 1995.  Based on the Bank's deposits
as of this date, a one-time  assessment of  approximately  $955,000 was paid and
recorded as SAIF deposit  insurance premium expense for the year ended September
30, 1996.


NOTE 16 - IMPACT OF NEW ACCOUNTING STANDARDS

SFAS No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishment  of  Liabilities,"  was issued in 1996. It revises the accounting
for  transfers  of  financial  assets,  such as loans  and  securities,  and for
distinguishing  between sales and secured  borrowings.  It became  effective for
some  transactions  occurring after December 31, 1996, and will be effective for
others in 1998.  The impact of partial  adoption in 1997 was not material to the
1997 consolidated  financial  statements and the impact of the complete adoption
in 1998 is also  not  expected  to be  material  to the  consolidated  financial
statements.

Also, in March 1997, the accounting  requirements  for calculating  earnings per
share were revised by SFAS No. 128,  "Earnings  Per Share."  Basic  earnings per
share for the quarter  ending  December  31,  1997 and later will be  calculated
solely on average  common shares  outstanding.  Diluted  earnings per share will
reflect  the  potential  dilution  of  stock  options  and  other  common  stock
equivalents. All prior calculations will be restated to be comparable to the new
methods.  As the Company has dilution from stock  options,  the new  calculation
methods will increase basic  earnings per share over what  otherwise  would have
been reported as primary  earnings per share,  while there will be little effect
on fully diluted earnings per share.

<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 16 - IMPACT OF NEW ACCOUNTING STANDARDS (Continued)

In June 1997, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
130, "Reporting  Comprehensive Income". This Statement establishes standards for
reporting  and  display of  comprehensive  income and its  components  (revenue,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  This  Statement  requires  that all items that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  Income  tax  effects  must  also be  shown.  This
Statement is effective for fiscal years  beginning  after December 15, 1997. The
adoption  of SFAS No.  130 is not  expected  to have a  material  impact  on the
results of operations or financial condition of the Company.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about  products  and  services,  geographic  areas,  and major  customers.  This
Statement is effective  for financial  statements  for periods  beginning  after
December  15,  1997.  The  adoption  of SFAS No. 131 is not  expected  to have a
material  impact on the results of  operations  or  financial  condition  of the
Company.


<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995


NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                Year Ended September 30, 1997   
                                              ---------------------------------
                                                1st      2nd      3rd     4th
(In thousands, except per share data)         Quarter  Quarter  Quarter Quarter
                                              -------  -------  ------- -------

Interest income                                $4,107   $4,270   $4,511   $4,797

Interest expense                                2,339    2,428    2,612    2,778
                                               ------   ------   ------   ------

Net interest income                             1,768    1,842    1,899    2,019

Provision for loan losses                           7        8        7        8
                                               ------   ------   ------   ------

Net interest income after provision for loan    1,761    1,834    1,892    2,011
  losses

Noninterest income                                113       86      108      118

Noninterest expense                             1,084    1,055    1,156    1,304
                                               ------   ------   ------   ------

Income before income taxes                        790      865      844      825

Income tax expense                                314      343      336      329
                                               ------   ------   ------   ------

Net income                                     $  476   $  522   $  508   $  496
                                               ======   ======   ======   ======

Earnings per common and common
  equivalent share                             $  .26   $  .30   $  .30   $  .29
                                               ======   ======   ======   ======

<PAGE>


                            MFB CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       September 30, 1997, 1996 and 1995



NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)


                
                                         Year Ended September 30, 1996
(In thousands,                        1st       2nd      3rd        4th
except per share data)              Quarter   Quarter  Quarter    Quarter
                                    -------   -------   -------   -------
Interest income                     $ 3,215   $ 3,400   $ 3,633   $ 3,934

Interest expense                      1,834     1,932     2,050     2,241
                                    -------   -------   -------   -------

Net interest income                   1,381     1,468     1,583     1,693

Provision for loan losses                 8         7         8         7
                                    -------   -------   -------   -------

Net interest income after
     provision for loan
     losses                           1,373     1,461     1,575     1,686

Noninterest income                       83       121        91        67

Noninterest expense                     871       924       963     2,077


Income (loss) before income taxes       585       658       703      (324)

Income tax expense                      233       262       279      (127)
                                    -------   -------   -------   -------

Net income (loss)                   $   352   $   396   $   424   $  (197)
                                    =======   =======   =======   ======= 

Earnings (loss) per common and
     common equivalent share        $   .17   $   .20   $   .22   $  (.10)
                                    =======   =======   =======   ======= 


<PAGE>


                            MFB CORP. AND SUBSIDIARY
                             DIRECTORS AND OFFICERS
                               September 30, 1997


MFB CORP. AND MFB FINANCIAL DIRECTORS

M. Gilbert  Eberhart (age 63) has served as Secretary of the Bank since 1987. He
is also a dentist based in Mishawaka.

Thomas F. Hums (age 64) served as President and Chief  Executive  Officer of the
Bank from 1972 until  September  1995.  He also  served as  President  and Chief
Executive Officer of Mishawaka Financial from 1975 until September 1995.

Jonathan E. Kintner (age 54) is an optometrist based in Mishawaka.

Michael J. Marien (age 50) is a Sales Representative with Signode Corporation, a
division of ITW.

Marian K. Torian  (age 76) has served as  Chairman of the Bank and of  Mishawaka
Financial  since  1977.  She  also  served  as a  teacher  with  School  City of
Mishawaka.

Charles J. Viater (age 42) has served as President and Chief  Executive  Officer
of the Bank and Mishawaka  Financial since September 1995. He previously  served
as Executive Vice President for Amity Federal Bank and Chief  Financial  Officer
of Amity Bancshares, Inc. beginning in December 1990.

Reginald  H. Wagle  (age 55) has served as Vice  President  of  Memorial  Health
Foundation since 1992. Until 1992, he was a free-lance  political consultant and
until 1991, he also served as District  Director for the Office of United States
Representative John P. Hiler, Third Congressional District of Indiana.

In  addition,  Christine A. Lauber has served as a  non-voting  advisory  member
since January 21, 1997. She is a Certified Public Accountant in private practice
in South Bend, Indiana.

                             MFB FINANCIAL OFFICERS

Charles J. Viater                                 Timothy C. Boenne
President and Chief Executive Officer*            Vice President and Controller

Stephen F. Rathka                                 Thomas A. Smith
Senior Vice President                             Vice President

William L. Stockton, Jr.                          Michael J. Portolese
Senior Vice President                             Vice President

M. Gilbert Eberhart
Secretary*

* Holds same position with MFB Corp.


<PAGE>

                            MFB CORP. AND SUBSIDIARY
                            SHAREHOLDER INFORMATION
                               September 30, 1997


Market Information

The  common  stock  of MFB  Corp.  is  traded  on the  National  Association  of
Securities Dealers Automated Quotation System, National Market System, under the
symbol  "MFBC."  As  of  September  30,  1997,  there  were   approximately  670
shareholders of record. The following table sets forth market price and dividend
information for the Company's common stock for the periods indicated.

                                                           Dividend
Fiscal Quarters Ended      High Trade      Low Trade       Declared
---------------------      ----------      ---------       --------
December 31, 1995             $16.25         $14.75         $--
March 31, 1996                 15.25          13.75          --
June 30, 1996                  14.75          13.75          --
September 30, 1996             19.00          13.75            .06
December 31, 1996              19.25          15.50            .08
March 31, 1997                 19.75          16.63            .08
June 30, 1997                  19.75          18.75            .08
September 30, 1997             23.50          19.13            .08
                                                      
Transfer Agent and Registrar           Special Counsel
        Registrar and Transfer Co.          Barnes & Thornburg
        10 Commerce Drive                   1313 Merchants Company Building
        Cranford, NJ 07016                  11 South Meridan Street
                                            Indianapolis, IN 46204

        Independent Auditors
        Crowe, Chizek and Company LLP
        330 East Jefferson Blvd.
        South Bend, IN 46601

Shareholder and General Inquiries

The  Company is  required  to file an Annual  Report on Form 10-K for its fiscal
year ended  September  30, 1997 with the  Securities  and  Exchange  Commission.
Copies of this annual report may be obtained without charge upon written request
to:

Charles J. Viater
President and Chief Executive Officer
MFB Corp.
121 South Church Street
PO Box 528
Mishawaka, IN 46546

Office Locations
      Main Office             Branch Office           Mortgage Office
      121 S. Church St.       411 W. McKinley Ave.    227 S. Main St, Suite 110
      Mishawaka, IN 46544     Mishawaka, IN 46545     Elkhart, IN 46516

      Branch Office           Branch Office           Branch Office
      402 W. Cleveland Rd.    2427 Mishawaka Ave.     2304 Lincolnway East
      Mishawaka, IN 46545     South Bend, IN 46615    Goshen, IN 46526