<PAGE>
 
                                TABLE OF CONTENTS
                                -----------------


                                                                           Page
                                                                           ----
President's Message.......................................................    1

General Information.......................................................    2

Selected Consolidated Financial and Other Data of the Company.............  3-4

Management's Discussion and Analysis of Financial Condition and
  Results of Operations................................................... 5-14

Consolidated Financial Statements.........................................15-45

Stockholder Information...................................................   46

Corporate Information.....................................................   47
<PAGE>
 
                [LETTERHEAD OF IFB HOLDINGS, INC. APPEARS HERE]


September 17, 1998


Message to our Stockholders:

The Board of Directors, Officers and Staff of IFB Holdings, Inc. and its wholly
owned subsidiary, Investors Federal Bank, National Association, are pleased to
provide you with our second annual report.

Investors Federal Bank and Savings Association officially became a subsidiary of
IFB Holdings, Inc. on December 30, 1996, when the bank converted to stock form.
On January 30, 1997, the Bank changed its charter to a national bank charter.

We wish to thank our officers and employees for their hard work and dedication
during the past year and for our profitable year.

Net income for the year was $597,000, up from $300,000 for fiscal 1997. Our
return on assets for the year ended June 30, 1998 was .89% with a return on
average equity of 7.14%.

Our total assets as of June 30, 1998 were $76.2 million with loans receivable of
$35.3 million and deposits of $35.3 million. Our stockholders' equity was $9.3
million or 12.22% of assets. The Bank had regulatory capital ratios of 21.4% for
total risk-based capital to risk-weighted assets, 20.3% for Tier I capital to
risk-weighted assets, and 8.7% for Tier I capital and tangible capital to
adjusted total assets.

Non-performing assets of the Bank increased during 1998. At June 30, 1998,
non-performing assets were $495,000, an increase of $271,000 from June 30, 1997.
Loan loss reserves at June 30, 1998 were $324,000 or 65.45% of non-performing
assets.

In thanking our valued customers and stockholders for their continued support we
are optimistic about the future, and confident that our strategies and plans
will provide security for our customers and stockholders.

Sincerely,



Earle S. Teegarden, Jr.
President and Chief Executive Officer

                                        1
<PAGE>
 
                               GENERAL INFORMATION
                               -------------------

IFB Holdings, Inc. (the "Company") is a Delaware Corporation which is the
holding company for Investors Federal Bank, National Association (the "Bank").
The Company was organized by the Bank for the purpose of acquiring all of the
capital stock of the Bank in connection with the conversion of the Bank from
mutual to stock form, which was completed on December 30, 1996 (the
"Conversion").

The only significant assets of the Company are the capital stock of the Bank,
the Company's loan to the Company's Employee Stock Ownership Plan (ESOP),
$956,000 in securities available for sale and cash of approximately $1.6
million. The business of the Company initially consists of the business of the
Bank.

The Bank is the successor to Investors Federal Bank and Savings Association (the
"Association") which had served Missouri since its founding as a mutual thrift
in 1934. The Association converted to a national bank in January 1997 following
its conversion to stock form in December 1996. As part of the stock conversion,
the Association became a wholly owned subsidiary of the Company which acquired
all of the Association's newly issued stock with the proceeds from a public
offering of the Company's stock.

As a bank holding company, the Company is registered with and subject to
regulation and examination by the Board of Governors of the Federal Reserve
System. As a national bank, the Bank is subject to comprehensive regulation and
examination by the Office of the Comptroller of the Currency (OCC) which also
serves as its chartering authority. Because the Bank was formerly chartered as a
savings association, its deposits are insured by the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC) which
insures the Bank's deposits to the legal maximum of $100,000 per account.

Investors Federal has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs of
the communities it serves. The Bank attracts deposits from the general public
and historically has used such deposits, together with other funds, to originate
and purchase one- to four-family residential mortgage loans, and to originate
non-residential real estate loans (primarily farm loans), and consumer loans
consisting primarily of loans secured by automobiles. In addition, in recent
years, the bank has expanded its loan portfolio by purchasing Small Business
Administration ("SBA")-guaranteed loans and Federal Housing Administration
("FHA")-insured Title I home improvement loans. At June 30, 1998, the Bank's
total loan portfolio was $35.3 million, of which 72.0% were one- to four-family
residential mortgage loans, 6.3% were non-residential real estate loans, 12.2%
were consumer loans (including FHA home improvement loans), and 2.7% were
SBA-guaranteed loans.

                                        2
<PAGE>
 
                               IFB HOLDINGS, INC.
                               ------------------
           SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
           ----------------------------------------------------------

Set forth below are selected consolidated financial and other data of the
Company at and for the years indicated. The selected consolidated financial and
other data does not purport to be complete and is qualified in its entirety by
reference to the detailed information and Consolidated Financial Statements and
Notes thereto presented elsewhere in this Annual Report.
<TABLE>
<CAPTION>
                                                            At June 30,
                                         ------------------------------------------------
                                           1998      1997      1996      1995      1994
                                         --------  --------  --------  --------  --------
                                                          (In Thousands)
<S>                                      <C>       <C>       <C>       <C>       <C>    
Selected Financial Condition Data:
---------------------------------

Total assets                             $76,178   $60,220   $52,587   $45,013   $41,095
Loans receivable, net                     35,255    29,962    28,429    26,340    22,719
Mortgage-backed securities:
  Held to maturity                            --        --        --     8,306    10,674
  Available for sale                      29,495    18,501    16,971     4,397       470
Investment securities:
  Held to maturity                           245     2,209       215       815       809
  Available for sale                       4,911     4,760     3,264     1,737     2,009
Deposits                                  35,255    34,980    35,495    35,210    37,072
FHLB advances                             31,075    16,265    13,474     6,419     1,073
Total stockholders' equity                 9,312     8,641     3,268     3,042     2,743

                                                        Year Ended June 30,
                                         ------------------------------------------------
                                           1998      1997      1996      1995      1994
                                         --------  --------  --------  --------  --------
                                                          (In Thousands)
<S>                                      <C>       <C>       <C>       <C>       <C>    
Selected Operations Data:
------------------------

Total interest income                    $ 4,831   $ 3,868   $ 3,616   $ 2,843   $ 2,509
Total interest expense                     2,982     2,364     2,264     1,716     1,432
                                         -------   -------   -------   -------   -------
  Net interest income                      1,849     1,504     1,352     1,127     1,077
Provision for loan losses                     91        --       210         1        15
                                         -------   -------   -------   -------   -------
Net interest income after provision
  for loan losses                          1,758     1,504     1,142     1,126     1,062
                                         -------   -------   -------   -------   -------
Fees and service charges                     225       232       231       225       218
Gain on sales of interest-earning
  assets, net                                 66        14        46        19         7
Other non-interest income                     22        19        80        22        59
                                         -------   -------   -------   -------   -------
Total non-interest income                    313       265       357       266       284
Total non-interest expense                 1,126     1,298     1,030     1,011     1,101
                                         -------   -------   -------   -------   -------
Income before income taxes                   945       471       469       381       245
Income tax expense                           348       171       167       135       105
Cumulative effect on prior years of
  a change in accounting principle            --        --        --        27        25
                                         -------   -------   -------   -------   -------
Net income                               $   597   $   300   $   302   $   273   $   165
                                         =======   =======   =======   =======   =======


Earnings per share-basic                 $  1.08   $   .55       N/A       N/A       N/A
                                         =======   =======   =======   =======   =======
</TABLE>

                                        3
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                          At or For the Years Ended June 30,
                                               ------------------------------------------------------
                                                 1998      1997        1996        1995        1994
                                               --------  --------    --------    --------    --------
<S>                                            <C>       <C>         <C>         <C>         <C> 
Selected Financial Ratios and Other Data:
----------------------------------------

Performance ratios:
  Return on assets (1)                            .89%      .55%        .61%        .64%        .40%
  Return on total equity (2)                     7.14      4.75        8.86        8.88        6.13
  Interest rate spread information:
    Average during period                        2.06      2.16        2.38        2.36        2.39
    End of period                                1.84      2.39        2.29        2.64        2.55
  Net interest margin (3)                        2.83      2.82        2.79        2.72        2.67
  Ratio of noninterest expense to
   average total assets                          1.68      2.37        2.07        2.38        2.66
  Ratio of average interest-earning assets
   to average interest-bearing liabilities     116.88    114.80      108.63      108.64      108.00

Asset quality ratios:
  Non-performing assets to total assets
   at end of period (4)                           .65       .37         .24         .06         .33
 Allowance for loan losses to
   non-performing loans                         65.45    127.23      221.09       65.03       64.69
  Allowance for loan losses to loans
   receivables, net                               .92       .94        1.00         .31         .39

Capital ratios:
  Total equity to total assets at end
   of period                                    12.22%    14.35%       6.21%       6.76%       6.67%
  Average total equity to average
   assets                                       12.49%    11.55%       6.85%       7.24%       6.53%

Other data:
  Number of full-service offices                    3         3           3           3           3
  Number of deposit accounts                       --     6,537       7,083       7,302       7,519
  Number of real estate loans
   outstanding                                     --     1,290       1,237       1,251       1,205
</TABLE> 

--------------
(1) Ratio of net income to average total assets. 
(2) Ratio of net income to average total equity.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Non-performing assets includes non-accrual loans, foreclosed real estate and
    other repossessed assets.


                                        4
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                      ------------------------------------

Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
other sections contained in this report.

General
-------

The business of the Bank is that of a financial intermediary consisting
primarily of attracting deposits from the general public and using such deposits
to originate loans secured by one- to four-family residences and agricultural
real estate and, to a lesser extent, agricultural non-real estate loans,
consumer loans, and commercial real estate and non real estate loans. The Bank's
income is derived principally from interest earned on loans and, to a lesser
extent, from interest earned on securities and mortgage-backed and related
securities. The operations of the Bank are influenced significantly by general
economic conditions and by policies of financial institution regulatory
agencies, including the Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC). The Bank's cost of funds is
influenced by interest rates on competing investments and general market
interest rates. Lending activities are affected by the demand for financing of
real estate and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered.

The Bank's net interest income is dependent primarily upon the difference or
spread between the average yield earned on loans and investment securities and
the average rate paid on deposits, as well as the relative amounts of such
assets and liabilities. The Bank, as other financial institutions, is subject to
interest rate risk to the degree that its interest-bearing liabilities mature or
reprice at different times, or on a different basis, than its interest-earning
assets.

Asset Liability Management
--------------------------

One of the Bank's principal financial objectives is to achieve long-term
profitability while reducing its exposure to fluctuations in interest rates. The
Bank has sought to reduce exposure of its earnings to changes in market interest
rates by managing the mismatch between asset and liability maturities and
interest rates.

The Bank's Board of Directors has formulated an Asset/Liability Policy designed
to promote long-term profitability while managing interest rate risk. The
Asset/Liability Policy is designed to reduce the impact of changes in interest
rates on the Bank's net interest income by achieving a more favorable match
between the maturity or repricing dates of its interest-earning assets and
interest-bearing liabilities. The Bank has sought to reduce exposure of its
earnings to changes in market interest rates by increasing the interest rate
sensitivity of the Bank's assets through the origination of loans with interest
rates subject to periodic adjustment to market conditions. Accordingly, the Bank
has emphasized the origination of adjustable-rate mortgage ("ARM") loans and
consumer loans (which generally have shorter terms) for retention in its
portfolio. The Bank has also increased its FHLB borrowings in an effort to
lengthen the maturity of its liabilities. Finally, the Bank has sought to
maintain a strong base of less interest sensitive and lower costing "core
deposits" in the form of passbook accounts, NOW accounts, money market accounts
and noninterest-bearing demand accounts, and by promoting longer-term
certificates of deposit in an effort to extend the maturity of its liabilities.

                                        5
<PAGE>
 
Financial Condition
-------------------

Total assets increased $16.0 million, or 26.5%, to $76.6 million at June 30,
1998 from $76.1 million at June 30, 1997. This was primarily the result of
increases of $11.0 million, or 59.4%, in mortgage-backed securities, $5.3
million, or 17.7%, in loans receivable and $573,000, or 23.7%, in
interest-earning deposits. The substantial increases in mortgage-backed
securities, and interest earning assets were funded primarily from an increase
in FHLB advances of $14.8 million, which reflected management's asset/liability
strategy of seeking to earn the spread between the yield earned on
adjustable-rate interest-earning assets and the rates paid on the FHLB advances.

Loans receivable, net, increased by $5.3 million, or 17.7%, to $35.2 million at
June 30, 1998 from $30.0 million at June 30, 1997, due primarily to purchases of
one-to-four family residential mortgage loans, as well as moderate increases in
all types of loans.

Deposits increased $275,000, or 0.8%, to $35.3 million at June 30, 1998, from
$35.0 million at June 30, 1997, due primarily to an increase of $246,000 in
total certificates of deposit.

Management utilized FHLB advances because such advances, unlike deposit
accounts, do not require the Bank to incur the operating expenses associated
with attracting and servicing customer accounts. In addition, such advances can
be accessed immediately and in specified amounts.

Total stockholders' equity increased $0.7 million, or 7.8%, to $9.3 million at
June 30, 1998 from $8.6 million at June 30, 1997, due to net earnings during the
fiscal year ended June 30, 1998.

Results of Operations
---------------------

The Company's results of operations depend primarily on the level of its net
interest income and noninterest income and its control of operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.

The Company's noninterest income consists primarily of fees charged on
transaction accounts and fees charged for delinquent payments received on
mortgage and consumer loans.


                                        6
<PAGE>
 
 The following table presents for the period indicated the total dollar amount
of interest income from average interest-earning assets and the resultant yields
as well as the total dollar amount of interest expense on average
interest-bearing liabilities and the resultant rates. No tax equivalent
adjustments were made. Non-accruing loans have been included in the table as
loans carrying a zero yield.

<TABLE> 
<CAPTION> 
                                                                                     Years Ended June 30,
                                                           -----------------------------------------------------------------------
                                                                            1998                             1997
                                                           ------------------------------------ ---------------------------------- 
                                        At June 30, 1998   
                                   -----------------------      Average                             Average
                                   Outstanding              Outstanding   Interest              Outstanding Interest
                                     Balance    Yield/Rate    Balance    Earned/Paid Yield/Rate    Balance  Earned/Paid Yield/Rate
                                   -----------  ----------  -----------  ----------- ----------  ---------- ----------- ----------
                                                                        (Dollars in Thousands)
                                                                        ----------------------
<S>                               <C>           <C>        <C>           <C>         <C>        <C>        <C>         <C> 
Interest-earning assets:
  Loans receivable (1)            $   35,255       8.22%   $   32,780      2,755        8.40%    $   28,753   $ 2,343      8.15%
  Mortgage-backed securities          29,495       6.65%       23,073      1,555        6.74%        16,866     1,147      6.77%
  Investment securities                5,156       5.45%        6,709        391        5.83%         4,451       269      6.04%
  Investments in other                                                                                        
   financial institutions              2,995       2.95%        1,627         46        2.83%         2,376        58      2.44%
  FHLB and FRB stock                   1,638       6.95%        1,190         84        7.06%           809        56      6.92%
                                  ----------               ----------    -------      -------    ----------   -------     ------ 
  Total interest-earning                                                                                      
    assets (1)                        74,539       7.17%       65,379      4,831        7.39%        53,255     3,868      7.26%
                                                                         =======                              ------- 
Noninterest-earning assets             1,639         --         1,535         --                      1,363        --        --
                                  ----------               ----------                            ----------                      
   Total assets                   $   76,178               $   66,914                            $   54,618   
                                  ==========               ==========                            ==========   
Interest-bearing liabilities:                                                                                 
  Savings deposits                $    2,572       3.00%   $    2,528         76        3.01%    $    2,703        82      3.03%
  Demand and NOW                                                                                              
    deposits (2)                       9,353       3.58%       10,224        353        3.45%         9,529       350      3.67%
  Certificate accounts                21,558       5.59%       21,034      1,175        5.59%        21,330     1,184      5.55%
  FHLB advances                       31,075       5.86%       22,151      1,378        6.22%        12,826       748      5.83%
                                  ----------               ----------    -------                 ----------   -------            
  Total interest-bearing                                                                                      
    liabilities                       64,558       5.33%       55,937      2,982        5.33%        46,388     2,364      5.10%
                                                                         =======                              ------- 
Noninterest-bearing liabilities        2,308         --         2,620                     --          1,921        --        --
                                  ----------               ----------                            ----------       
  Total liabilities                   66,866                   58,557                                48,309   
                                                                                                              
Stockholders' equity                   9,312                    8,357                                 6,309   
                                  ----------               ----------                            ----------       
Total liabilities and                                                                                         
   stockholders' equity           $   76,178               $   66,914                            $   54,618   
                                  ==========               ==========                            ==========       
Net interest income                                                      $ 1,849                              $ 1,504
                                                                         =======                              =======
Net interest rate spread                           1.84%                                2.06%                              2.16%
                                                   =====                              =======                            =======
Net earning assets                $    9,981               $    9,442                            $    6,867   
                                  ==========               ==========                            ==========
Net interest margin                                                         2.83%                                2.82%
                                                                          =======                                =====
Average interest-earning                                                                                      
 assets to average interest-                                                                                  
 bearing liabilities                                                        1.17x                                1.15x
                                                                          =======                                =====
</TABLE> 

--------------
                                                                     
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
    loss reserves.
(2) Excludes non-interest-bearing deposit accounts.

                                        7
<PAGE>
 
Rate/Volume Analysis

The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes due to
changes in outstanding balances and those due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by prior interest rate) and (ii) changes in rate
(i.e., changes in rate multiplied by prior volume). For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionately to the changes due to volume and the changes due
to rate.

                                                    Years Ended June 30,
                                            -----------------------------------
                                                          1998 vs. 1997
                                            -----------------------------------
                                              Increase/(Decrease)
                                                     Due to             Total
                                            ----------------------
                                                                       Increase
                                                Volume      Rate      (Decrease)
                                                ------      ----      ----------
                                                        (In Thousands) 

Interest-earning assets:
  Loans receivable                            $   338      $    74    $   412 
  Mortgage-backed securities                      418           (5)       413
  Investment securities                           131           (9)       122
  Interest earning deposits                       (20)           8        (12)
  FHLB stock                                       27            1         28
                                              -------      -------    -------
    Total interest-earning assets             $   894      $    69        963 
                                              =======      =======    ======= 
Interest-bearing liabilities:
  Savings deposits                            $    (5)     $    (1)   $    (6)
  Demand and NOW deposits                          25          (22)         3
  Certificate accounts                            (18)           9         (9)
  FHLB advances                                   577           53        630
                                              -------      -------    -------
    Total interest-bearing liabilities        $   579      $    39        618
                                              =======      =======    -------
Net interest income                                                   $   345 
                                                                      =======  




                                        8
<PAGE>
 
Comparison of Operating Results for the Years
Ended June 30, 1998 and 1997

Performance Summary
-------------------

Net earnings for the year ended June 30, 1998 increased by $297,000, or 99.0% to
$597,000 from $300,000 for the year ended June 30, 1997. The increase was
primarily due to the combined effects of a $345,000 increase in net interest
income, an increase in the loan loss provision of $91,000, a $48,000 increase in
non-interest income, a $172,000 decrease in non-interest expense, and a $177,000
increase in income tax expense. For the years ended June 30, 1998 and 1997, the
returns on average assets were 0.89% and 0.55% respectively, while the returns
on average equity were 7.14% and 4.15% respectively.

Net Interest Income
-------------------

For the year ended June 30, 1998, net interest income increased by $345,000, or
22.9%, to $1.85 million from $1.50 million for the year ended June 30, 1997. The
increase reflected an increase of $963,000 in interest income to $4.8 million
from $3.9 million which more than offset an increase of $618,000 in interest
expense to $3.0 million from $2.4 million. The increase in interest income
reflected increased balances of loans receivable, mortgage-backed securities and
investment securities and to a lesser extent, increased yields earned on loans
receivable. Increased balances were funded by $14.8 million of additional FHLB
advances. Interest expense increased primarily due to an increased balance of
FHLB advances together with higher rates paid on such advances.

For the year ended June 30, 1998, the average yield on interest-earning assets
was 7.39% compared to 7.26% for the year ended June 30, 1997. The average cost
of interest-bearing liabilities was 5.33% for the year ended June 30, 1998, and
5.10% for the year ended June 30, 1997. The increase in the average yield on
interest-earning assets was due to higher overall levels of interest rates for
loans for the year ended June 30, 1998 as compared to the earlier period. The
average balance of interest-earning assets increased by $12.2 million to $65.4
million for the year ended June 30, 1998 from $53.2 million for the year ended
June 30, 1997. The increase primarily reflected an increase of $6.2 million in
the average balance of mortgage-backed securities, $4.0 million in the average
balance of loans and $2.2 million in the average balance of investment
securities for the year ended June 30, 1998 as compared to the year ended June
30, 1997. During this same period, average interest-bearing liabilities
increased by $9.5 million to $55.9 million for the year ended June 30, 1998 from
$46.4 million for the year ended June 30, 1997. The increase primarily reflected
an increase of $9.3 million is the average balance of FHLB advances.

The Bank's average interest rate spread was 2.06% for the year ended June 30,
1998, compared to 2.16% for the earlier year period. The average net interest
margin was 2.83% for the year ended June 30, 1998, compared to 2.82% for the
year ended June 30, 1997.

Provision for Loan Losses
-------------------------

During the year ended June 30, 1998, the Bank had a $91,000 provision for loan
losses compared to no provision for the year ended June 30, 1997. The allowance
for loan losses of $324,000, or .91% of loans receivable, net at June 30, 1998,
compared to $285,000, or .94% of loans receivable, net at June 30, 1997. The
allowance for loan losses as a percentage of non-performing loans decreased to
65.45% at June 30, 1998, from 127.73% at June 30, 1997. The ratio decreased due
to the increase in non-performing loans to $495,000 at June 30, 1998 compared to
$271,000 at June 30, 1997. Management believes the ratio

                                        9
<PAGE>
 
of the allowance for loan losses to net loans receivable is adequate.

Management will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods.

Non-Interest Income
-------------------

For the year ended June 30, 1998, non-interest income increased $48,000 to
$313,000 from $265,000 for the year ended June 30, 1997. Customer service
charges, primarily relating to fees on transaction accounts, were $225,000 for
the year ended June 30, 1998 and $232,000 for the year ended June 30, 1997.
Other non-interest income included late charges on loans of $8,000 and $10,000
for the years ended June 30, 1998 and 1997, respectively, and gain on sale of
investments of $66,000 and $14,000 for the years ended June 30, 1998 and 1997,
respectively.

Income Taxes
------------

Income taxes increased by 177,000 to $348,000 for the twelve months ended June
30, 1998 from $171,000 for the year ended June 30, 1997. The effective tax rates
were 36.9% and 36.3% for the years ended June 30, 1998 and 1997, respectively.


Non-Interest Expense
--------------------

Non-interest expense decreased $172,000 to $1.1 million for the year ended June
30, 1998 from $1.3 million for the year ended June 30, 1997.The decrease was due
to no SAIF assessment in 1998 compared to the $226,000 special assessment in
1997 to recapitalize the SAIF fund. This was partially offset due to a $62,000
increase in other noninterest expense.

Comparison of Operating Results for the Years Ended June 30, 1997 and 1996

Performance Summary
-------------------

Net earnings for the year ended June 30, 1997 decreased by $2,000, or 0.7% to
$300,000 from $302,000 for the year ended June 30, 1996. The decrease was
primarily due to the combined effects of a $152,000 increase in net interest
income, a decrease in the loan loss provision of $210,000, and a $92,500
decrease in non-interest income, the net of which was more than offset by a
$268,000 increase in non-interest expense, primarily due to the special SAIF
assessment of $226,000, and a $4,000 increase in income tax expense. For the
years ended June 30, 1997 and 1996, the returns on average assets were 0.55% and
0.61% respectively, while the returns on average equity were 4.75% and 8.86%
respectively.

Net Interest Income
-------------------

For the year ended June 30, 1997, net interest income increased by $152,000, or
11.2%, to $1.50 million from $1.35 million for the year ended June 30, 1996. The
increase reflected an increase of $252,000 in interest income to $3.9 million
from $3.6 million which more than offset an increase of $100,000 in interest
expense to $2.4 million from $2.3 million. The increase in interest income
reflected increased balances of loans receivable, mortgage-backed securities and
investment securities offset by somewhat lower yields earned on interest-earning
assets. Increased balances were funded by the net "Conversion" proceeds of $5.5
million and $2.8 million of additional FHLB advances. Interest expense increased
primarily

                                       10
<PAGE>
 
due to an increased balance of FHLB advances together with higher rates paid on
such advances.

For the year ended June 30, 1997, the average yield on interest-earning assets
was 7.26% compared to 7.45% for the year ended June 30, 1996. The average cost
of interest-bearing liabilities was 5.10% for the year ended June 30, 1997, an
increase from 5.07% for the year ended June 30, 1996. The decrease in the
average yield on interest-earning assets was due to lower overall levels of
interest rates for loans for the year ended June 30, 1997 as compared to the
earlier period. The average balance of interest-earning assets increased by $4.7
million to $53.2 million for the year ended June 30, 1997 from $48.5 million for
the year ended June 30, 1996. The increase primarily reflected an increase of
$1.5 million in the average balance of loans and $1.5 million in the average
balance of investment securities for the year ended June 30, 1997 as compared to
the year ended June 30, 1996. During this same period, average interest-bearing
liabilities increased by $1.7 million to $46.4 million for the year ended June
30, 1997 from $44.7 million for the year ended June 30, 1996.

The Bank's average interest rate spread was 2.16% for the year ended June 30,
1997, compared to 2.38% for the earlier year period. The average net interest
margin was 2.82% for the year ended June 30, 1997, compared to 2.79% for the
year ended June 30, 1996.

Provision for Loan Losses
-------------------------

During the year ended June 30, 1997, the Bank had no provision for loan losses
compared to a provision of $210,000 for the year ended June 30, 1996. The
allowance for loan losses of $285,000, or .94% of loans receivable, net at June
30, 1997, compared to $283,000, or 1.00% of loans receivable, net at June 30,
1996. The allowance for loan losses as a percentage of non-performing loans
decreased to 127.73% at June 30, 1997, from 221.09% at June 30, 1996. The ratio
decreased due to the increase in non-performing loans from $128,000 at June 30,
1996 to $224,000 at June 30, 1997. Management believes the ratio of the
allowance for loan losses to net loans receivable is adequate.


Non-Interest Income
-------------------

For the year ended June 30, 1997, non-interest income decreased $92,000 to
$265,000 from $357,000 for the year ended June 30, 1996. Included in
non-interest income for the year ended June 30, 1996 was $66,000 of patronage
dividends from and gain on the sale of the Bank's former cooperative data
processing service bureau. Patronage dividends are an allocation of earnings to
the user/owners of the cooperative data processing service bureau, all of which
were paid to the Bank and the other user/owners at the time of the sale of the
bureau. Customer service charges, primarily relating to fees on transaction
accounts, were $232,000 for the year ended June 30, 1997 and $231,000 for the
year ended June 30, 1996. Other non-interest income included late charges on
loans of $10,000 and $7,000 for the years ended June 30, 1997 and 1996,
respectively.

Income Taxes
------------

Income taxes increased by $4,000 to $171,000 for the twelve months ended June
30, 1997 from

                                       11
<PAGE>
 
$167,000 for the year ended June 30, 1996. The effective tax rates were 36.3%
and 35.6% for the years ended June 30, 1997 and 1996, respectively.

Non-Interest Expense
--------------------

Non-interest expense increased $267,000 to $1.3 million for the year ended June
30, 1997 from $1.0 million for the year ended June 30, 1996. A special
assessment of $226,000 to recapitalize the Savings Association Insurance Fund
(SAIF) substantially contributed to the increase. As a result of the special
assessment, the FDIC has substantially decreased the assessment rate for SAIF
deposit insurance in future periods. The increase was also due to an increase in
compensation and benefits of $55,000, primarily due to ESOP compensation.

Occupancy and equipment expense was up $39,000 due primarily to depreciation on
new hardware and software. This was more than offset by a $46,000 decrease in
data processing expenses due to a new in-house system.



Liquidity and Capital Resources

Liquidity refers to the ability of the Bank to convert assets into cash or cash
equivalents without significant loss. Liquidity management involves evaluating
the Bank's daily cash flow requirements to meet customer demands, whether they
be depositors wishing to withdraw funds or borrowers requiring funds to meet
their credit needs. Without proper liquidity management, the Company would not
be able to perform the primary function of a financial intermediary and would,
therefore, not be able to meet the production and growth needs of the
communities it serves.

The primary investing activity of the Bank is the origination of loans. The Bank
originated loans of $12.4 million and $8.2 million in 1998 and 1997,
respectively. The Bank's primary sources of funds for investment are cash
receipts from deposits and principal and interest collections on loans and net
earnings. Additional liquidity is available from the maturity and earnings on
securities and mortgage backed securities (MBS), as well as the ability to
liquidate securities available-for-sale. The Bank also has an agreement with the
FHLB of Des Moines to provide cash advances. While maturities and scheduled
amortization of loans and mortgage-backed securities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. Commitments at June 30,
1998 to originate mortgage loans were approximately $729,000. Commitments on
behalf of borrowers for unused lines of credit were approximately $543,000
expiring in one year or less. These commitments are legally binding agreements
to lend to the Bank's customers. The Bank has $13.9 million in certificates due
within one year and $13.7 million in other deposits without specific maturity at
June 30, 1998. Historically, the Bank has been able to retain most of the
deposits or attract new deposits by offering competitive rates. Management
believes it has an adequate level of liquidity to ensure the availability of
sufficient funds to support loan growth and deposit withdrawals and to satisfy
financial commitments.

The Bank had regulatory capital ratios of 21.4% for total risk-based capital to
risk-weighted assets, 20.3% for Tier I capital to risk-weighted assets, and 8.7%
for Tier I capital and tangible capital to adjusted total assets. See Note 11 of
the Notes to Consolidated Financial Statements for further discussion of the
Bank's regulatory capital.

Recent Accounting Developments

SFAS No. 130 "Reporting Comprehensive Income," will be adopted July 1, 1998.
This

                                       12
<PAGE>
 
statement provides accounting and reporting standards to report a measure of all
changes in equity of an enterprise that results from recognized transactions and
economic events of the period. The major component of comprehensive income for
the Company will be unrealized gains and losses on certain investments in debt
and equity securities.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.

Management believes adoption of SFAS Nos. 130 and 133 does not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.

The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.


Year 2000

The Bank has been in contact with hardware and software providers of their data
processing system. Testing has begun and should be completed prior to December
31, 1998, though testing will continue through June 30, 1999.

Through contact with the various providers, the Bank does not foresee any major
capital expenditure and expects a cost of no more than $10,000 to be Year 2000
compliant.


Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations of
the Bank is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services. In the current interest
rate environment, management believes that the liquidity and the maturity
structure of the Bank's assets and liabilities are critical to the maintenance
of acceptable performance levels.

                                       13
<PAGE>
 
[LETTERHEAD OF LOCKRIDGE, CONSTANT & CONRAD, LLC APPEARS HERE]




                          INDEPENDENT AUDITORS' REPORT
                          ---------------------------- 

The Board of Directors
IFB Holdings, Inc.
Chillicothe, Missouri

We have audited the accompanying consolidated statements of financial condition
of IFB Holdings, Inc. and Subsidiary as of June 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with 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 in the first
paragraph present fairly, in all material respects, the financial position of
IFB Holdings, Inc. and Subsidiary as of June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles.



/s/ Lockridge, Constant & Conrad, LLC

Chillicothe, Missouri
September 17, 1998,


                                       14
<PAGE>
 
Consolidated Statements of Financial Condition
<TABLE> 
<CAPTION> 
                                                                                    At June 30,
                                                                               ---------------------
                                                                              1998                1997
                                                                            -------             -------
                                                         ASSETS                    (In Thousands)
                                                         ------                    -------------  
<S>                                                                        <C>          <C> 
Cash on hand and non-interest earning deposits                             $    546            $    581
Interest-earning deposits                                                     2,995               2,422
Investment securities (Note 2):                                                                        
  Securities available-for-sale at fair value                                 4,911               4,760
 Securities held-to-maturity at amortized cost                                                         
   (estimated market value of $245,000 and                                                             
   $2,210,000, respectively)                                                    245               2,209
Mortgage-backed securities (Note 3):                                                                   
  Securities available-for-sale at fair value                                29,495              18,501
Loans receivable, net (Note 4)                                               35,255              29,962
Accrued interest receivable (Note 5)                                            623                 446 
Investment required by law - stock in
 Federal Home Loan Bank and Federal Reserve Bank,
  at cost                                                                     1,638                 897
Premises and equipment (Note 6)                                                 417                 357
Other assets                                                                     53                  85
                                                                           --------            --------
             Total Assets                                                  $ 76,178            $ 60,220
                                                                           ========            ======== 
<CAPTION> 

                                        LIABILITIES AND STOCKHOLDERS' EQUITY
                                        ------------------------------------

Deposits (Note 7)                                                         $ 35,255             $ 34,980
Federal Home Loan Bank advances (Note 8)                                    31,075               16,265
Advances from borrowers for taxes and insurance                                 28                   33
Income taxes (Note 10):                                                                                
      Current                                                                   36                   72
      Deferred                                                                 178                   72
Accrued expenses and other liabilities                                         294                  157
                                                                          --------             --------
             Total liabilities                                              66,866               51,579
                                                                          --------             -------- 

Commitments and contingencies (Note 14)

Preferred stock, $.01 par value; authorized
 100,000 shares; none outstanding                                               --                   --
Common stock $.01 par value; authorized                                                       
 900,000 shares, issued 592,523 shares in 1998 and 1997                          6                    6
Additional paid-in capital                                                   5,554                5,530
Retained earnings, substantially                                                                       
 restricted (Note 10)                                                        3,992                3,559
Unrealized gain (loss) on securities                                                                   
  available-for-sale, net of tax                                               134                  (33)
 Common stock acquired by the ESOP (Note 9)                                   (374)                (421)
                                                                          --------             --------
             Total  stockholders' equity                                     9,312                8,641
                                                                          --------             -------- 

                            Total Liabilities and Stockholders'  Equity   $ 76,178             $ 60,220 
                                                                          ========             ========
</TABLE> 


See accompanying notes to consolidated financial statements.

                                       15
<PAGE>

<TABLE> 
<CAPTION> 
 
                                                                       For the Three Years Ended June 30, 1998


Consolidated Statements of Income
                                                                                Years ended June 30,
                                                                    -----------------------------------------
                                                                     1998             1997             1996
                                                                   -------          ---------        --------
                                                                                    (In Thousands)
<S>                                                               <C>               <C>              <C>     
Interest income:
      Loans receivable (Note 4)                                     $2,755           $2,343            $2,340
      Investment securities:                                                                                 
        Taxable interest                                               273              237               120
        Nontaxable interest                                             13               13                13
        Dividends                                                      105               19                18
      FHLB and FRB dividends                                            84               56                39
      Mortgage-backed and related securities                         1,555            1,142             1,039
      Other interest-earning assets                                     46               58                47
                                                                    ------           ------            ------
             Total interest income                                   4,831            3,868             3,616
                                                                    ------           ------            ------ 

Interest expense:
      Deposits (Note 7)                                              1,604            1,616             1,634
      Federal Home Loan Bank advances                                1,378              748               630
                                                                    ------           ------            ------
             Total interest expense                                  2,982            2,364             2,264
                                                                    ------           ------            ------
                                                                                                             
             Net interest income                                     1,849            1,504             1,352
                                                                                                             
Provision for loan losses (Note 4)                                      91               --               210
                                                                    ------           ------            ------
             Net interest income after provision for loan losses     1,758            1,504             1,142
                                                                    ------           ------            ------ 

Noninterest income:
      Banking service charges and fees                                 225              232               231
      Gain on sales of interest-earning assets, net (Note 12)           66               14                46
      Other (Note 13)                                                   22               19                80
                                                                    ------           ------            ------
             Total noninterest income                                  313              265               357
                                                                    ------           ------            ------ 

Noninterest expense:
      Compensation and benefits (Note 9)                               674              671               616
      Occupancy and equipment (Note 6)                                 114              104                65 
      SAIF deposit insurance premium                                    22              283                80 
      Data processing                                                    2                2                48 
      Professional fees                                                 69               68                47 
      Printing, postage and supplies                                    80               67                65 
      Other (Note 13)                                                  165              103               109 
                                                                    ------           ------            ------ 
             Total noninterest expense                               1,126            1,298             1,030 
                                                                    ------           ------            ------

             Income before income taxes                                945              471               469
                                                                                                             
Income tax expense (Note 10)                                           348              171               167
                                                                    ------           ------            ------
             Net income                                             $  597           $  300            $  302
                                                                    ======           ======            ======
             Earnings per share-basic                               $ 1.08           $  .55               N/A 
                                                                    ======           ======  
</TABLE> 


See accompanying notes to consolidated financial statements.

                                       16
<PAGE>
 
                                         For the Three Years Ended June 30, 1998

<TABLE> 
<CAPTION> 
Consolidated Statement of Stockholders' Equity
                                                                     Three Years Ended June 30, 1998
                                        ---------------------------------------------------------------------------------
                                                                             (In Thousands)
                                                                                        Unrealized
                                                                                        Gain (Loss)
                                                                                       on Securities
                                                                                        Available-
                                                                                         for-Sale,
                                                                                          Net of             Common
                                                       Additional                        Deferred             Stock
                                        Common          Paid-In         Retained          Income            Acquired
                                        Stock           Capital         Earnings           Taxes            by ESOP         Total
                                        -------        ----------       --------       -------------        --------       ------
<S>                                     <C>            <C>              <C>            <C>                  <C>           <C>   
Balance, June 30, 1995                  $    --           $    --       $ 3,037             $     5         $    --       $ 3,042

  Net income for the year ended
    June 30, 1996                            --                --           302                  --              --           302
  Change in net unrealized gains
   (losses) for  available-for-sale
   securities, net of deferred income
   tax of $24,000                            --                --            --                 (76)             --           (76)
                                        -------           -------       -------             -------         -------       -------

Balance, June 30, 1996                       --                --         3,339                 (71)             --         3,268

Additions (deductions) for the year
 ended June 30, 1997:
 Net income                                  --                --          300                   --              --           300
Sale of common stock, net of                                                                                                     
   offering costs of  $403,000                6             5,516           --                   --              --         5,522
 Unearned ESOP shares                        --                --           --                   --            (474)         (474)
   Dividends declared ($.15 per share)       --                --          (80)                  --              --           (80)
 Allocation of ESOP shares                   --                14           --                   --              53            67
 Change in unrealized gain  (loss) on                                                                                            
   securities  available-for-sale, net                                                                                           
   of deferred income tax of $20,000         --                --           --                   38              --            38
                                        -------           -------      -------              -------         -------       ------- 

Balance, June 30, 1997                        6             5,530        3,559                  (33)           (421)        8,641

Additions (deductions) for the year
 ended June 30, 1998:
Net income                                   --                --          597                   --              --           597
Dividends declared ($.30 per share)          --                --         (164)                  --              --          (164)
Allocation of ESOP shares                    --                24           --                   --              47            71 
Change in unrealized gain  (loss) on
   securities  available-for-sale, net
   of deferred income tax of $86,000         --                --           --                  167              --           167  
                                        -------           -------      -------              -------         -------       -------  
                                                                                                                                
Balance, June 30, 1998                  $     6           $ 5,554      $ 3,992              $   134         $  (374)      $ 9,312
                                        =======           =======      =======              =======         =======       ======= 
</TABLE> 

See accompanying notes to consolidated financial statements.


                                       17
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                         For the Three Years Ended June 30, 1998


Consolidated Statements of Cash Flows
                                                                                       Years ended June 30,
                                                                              ----------------------------------
                                                                 1998               1997                  1996
                                                              ---------          ----------              -------
                                                                                           (In Thousands)
<S>                                                           <C>                <C>                     <C>     
Cash flows from operating activities:
Net income                                                       $ 597              $ 300                 $ 302
Adjustments to reconcile net income to
  net cash provided by operating activities:
   Net loss (gain) on sales of:
       Investment securities                                       (30)                --                    --
       Mortgage-backed securities                                  (35)               (14)                  (46)
   Depreciation                                                     54                 52                    23
   Provision for loan loss                                          91                 --                   210
   Amortization of premiums, discounts, and loan fees               (1)                48                     9
   FHLB stock dividend                                              --                 --                    (9)
Changes in assets and liabilities:                                                                             
       Interest receivable                                        (176)                10                  (135)
       Prepaid expenses and other assets                            32                 (8)                   25
       Income taxes                                                (16)                 2                   (29)
       Accrued expenses and other liabilities                      137                (42)                   76
       ESOP compensation expense                                    24                 14                    --
                                                                 -----              -----                 ----- 
            NET CASH PROVIDED BY
             OPERATING ACTIVITIES                                  677                362                   426
                                                                 -----              -----                 -----
                                                                               (Continued)
</TABLE> 


See accompanying notes to consolidated financial statements.

                                       18
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                             For the Three Years Ended June 30, 1998


Consolidated Statements of Cash Flows (continued)
                                                                Years ended June 30,
                                            -------------------------------------------------------
                                               1998                    1997                  1996
                                             ---------              ----------              -------
                                                                               (In Thousands)
<S>                                         <C>                     <C>                   <C>  
Cash flows from investing activities:
      Net decrease (increase) in loans         (728)                     104                 (288)   
      Purchased loans                        (4,657)                  (1,655)              (2,007)
      Purchase of investment securities-                                                          
       available-for-sale                    (2,594)                      --               (1,579)
      Purchase of investment securities-                                                          
       held-to-maturity                          --                   (3,402)                  -- 
      Purchase of mortgage-backed                                                                 
       securities - available-for-sale      (18,684)                  (6,315)              (9,540)
      Mortgage-backed securities                                                                  
       principal repayments -                                                                     
       available-for-sale                     5,961                    2,890                3,009 
      Proceeds from maturities/calls                                                              
       of investment securities                                                                   
       available-for-sale                     3,102                       --                  600  
      Proceeds from sales of
       investment securities -
       available-for-sale                     1,042                       --                   --
      Proceeds from sales of mortgage-
       backed securities - available
       -for-sale                              2,311                    1,858                2,257
      Purchase of FHLB and FRB stock           (741)                    (173)                (365)
      Proceeds from maturities of                                                                
       certificates of deposit                   --                       --                  100
      Proceeds from sales of real                                                                
       estate owned                              --                       --                   --
      Purchase of office properties                                                              
       and equipment                           (114)                     (34)                (140)
      Loan to ESOP                               --                     (474)                  --
      Repayment on ESOP loan                     47                       52                   --
                                            -------                  -------              ------- 
           NET CASH USED IN
             INVESTING ACTIVITIES           (15,055)                  (7,149)              (7,953)
                                            -------                  -------              -------

                                                                  (Continued)
</TABLE> 

See accompanying notes to consolidated financial statements.

                                       19
<PAGE>

<TABLE> 
<CAPTION> 
 
                                                                        For the Three Years Ended June 30, 1998


Consolidated Statements of Cash Flows (continued)
                                                                           Years ended June 30,
                                                      --------------------------------------------------------
                                                         1998                   1997                    1996
                                                      ----------             ----------                -------
                                                                           (In Thousands) 
<S>                                                   <C>                    <C>                       <C> 
Cash flows from financing activities:
      Dividends paid                                       (164)                   (80)                    --
      Net increase (decrease) in demand deposits,
         NOW accounts,  passbook savings accounts,
         and certificates of deposit                        275                   (515)                   268
      Net increase in escrow mortgage funds                  (6)                    (2)                   (15)
      Proceeds from Federal Home Loan Bank advances      35,775                 18,550                  9,000
      Principal repayments on Federal Home Loan                                                              
           Bank advances                                (21,464)               (15,965)                  (746)
      Net borrowings from Federal Home Loan Bank                                                             
           line of credit                                   500                    200                 (1,200)
      Proceeds from the issuance of common stock             --                  5,522                     --
                                                       --------               --------               --------
                  NET CASH PROVIDED BY FINANCING                                                             
                   ACTIVITIES                            14,916                  7,710                  7,307 
                                                       --------               --------               --------

                  INCREASE (DECREASE) IN CASH               538                    923                   (220)

CASH AT BEGINNING OF YEAR                                 3,003                  2,080                  2,300
                                                       --------               --------               --------


CASH AT END OF YEAR                                    $  3,541               $  3,003               $  2,080
                                                       ========               ========               ========

<CAPTION> 

Supplemental disclosure of cash flow information:
  Cash paid for:

             Interest - deposits                       $    318               $    321               $    383
                                                       ========               ========               ========
                                                                                                             
             Interest - advances                       $  1,258               $    747               $    619
                                                       ========               ========               ========
                                                                                                             
             Income taxes                              $    364               $    166               $    176
                                                       ========               ========               ======== 
Noncash investing and financing activities:

      Loans transferred to real estate owned           $     --               $     --               $     --
                                                       ========               ========               ========
</TABLE> 

See accompanying notes to consolidated financial statements.

                                       20
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business
--------

IFB Holdings, Inc.(the "Company") is a Delaware corporation incorporated in
October, 1996, for the purpose of being the holding company for Investors
Federal Bank, N.A. (the Bank). On December 30, 1996, the Bank converted from a
mutual to a stock form of ownership, and the Company completed its initial
public offering, and, with a portion of the net proceeds acquired all of the
issued and outstanding capital stock of the Bank (the "Conversion").

The Bank provides financial services to individuals and corporate customers, and
is subject to competition from other financial institutions. The Bank is also
subject to the regulations of certain Federal agencies and undergoes periodic
examination by those regulatory authorities.

The Company is principally engaged in one to four family home lending in
agricultural-based rural communities in and around Chillicothe, Missouri. The
Company also makes consumer loans depending on demand and management's
assessment as to the quality of the loan.

Basis of Financial Statement Presentation
-----------------------------------------

The accompanying consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary, Investors Federal Bank, N.A., and
Investors Federal Service Corporation, the Bank's wholly owned subsidiary. All
significant intercompany transactions and balances are eliminated in
consolidation.

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the year. Actual
results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosure or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgements about information available to them at the time of their examination.
Because of these factors, in management's judgement, the allowances for loan
losses reflected in the consolidated financial statements is adequate to absorb
estimated losses that may exist in the current portfolio.

Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
                                                            -----------------
Fair Value of Financial Instruments, requires that the estimated fair value of
------------------------------------
the Bank's financial instruments be disclosed. Fair market value estimates of
financial instruments are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time

                                       21
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The entire holdings or a significant portion of a particular financial
instrument. Because no market exists for a significant portion of the Bank's
financial instruments, some fair value estimates are subjective in nature and
involve uncertainties and matters of significant judgment. Changes in
assumptions could significantly affect these estimates. Fair value estimates are
presented for existing on-balance-sheet and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant affect on
fair value estimates and have not been considered in any of the estimates (see
Note 19).

Cash Equivalents
----------------

Cash equivalents of $3,541,000 and $3,003,000 at June 30, 1998 and 1997,
respectively, consist of cash on hand, funds due from banks and money market
mutual funds. For purposes of the statements of cash flows, the Bank considers
all highly liquid debt instruments with original maturities when purchased of
three months or less to be cash equivalents.

Investment Securities
---------------------

Investment securities that are held for short-term resale are classified as
trading securities and are carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and are carried at cost, adjusted for amortization of premium
and accretion of discounts using the interest method. Other marketable
securities are classified as available-for-sale and are carried at fair value.
Realized and unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses, net of tax, on securities
available-for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is determined using the specific
identification method. Yields on tax exempt obligations are not computed on a
tax-equivalent basis.

Mortgage-Backed Securities
--------------------------

Mortgage-backed securities represent participating interest in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are classified as available-for-sale or
held-to-maturity. Available-for-sale securities are carried at fair value with
the unrealized gain or loss, net of income tax, reflected as a separate
component of stockholders' equity and held-to-maturity securities are carried at
amortized cost. Premiums and discounts are amortized using the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Cost of mortgage-backed securities sold is recognized using the
specific identification method.

The Bank evaluates mortgage-backed securities on a monthly basis to monitor
prepayments and the resulting effect on yields and valuations. Management
considers the concentration of credit risk to be minimal on mortgage-backed
securities because all such securities are guaranteed as to timely payment of
principal and interest by FNMA, FHLMC, GNMA and SBA or the underlying loans are
insured by private mortgage insurance. Cost of securities sold are recognized
based on the specific-identification method. All sales are made without
recourse.

At June 30, 1998 and 1997, the Bank had no outstanding commitments to sell loans
or securities.

Equity securities that are nonmarketable are carried at cost. Nonmarketable
equity securities held by the Bank consist of their patronage equity in the
Financial Information Trust (a computer service bureau) and stock in the Federal
Home Loan Bank and Federal Reserve Bank. In June, 1996, the Bank sold its
interest in the Financial Information Trust.

                                       22
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The Bank, as a member of the Federal Home Loan Bank System and Federal Reserve
Bank, is required to maintain an investment in capital stock. No ready market
exists for the stock and it has no quoted market value. For reporting purposes
these investments are assumed to have a market value equal to cost. (See Note
19.)

Accounting for Certain Investments in Debt and Equity Securities
----------------------------------------------------------------

In May 1993 the FASB issued SFAS No. 115, Accounting for Certain Investments in
                                          -------------------------------------
Debt and Equity Securities. SFAS No. 115 addresses the accounting and reporting
--------------------------
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are to be
classified in three categories and accounted for as follows:

*     Debt securities that the enterprise has the positive intent and ability to
      hold to maturity are classified as held-to-maturity securities and
                                         ---------------------------
      reported at amortized cost.

*     Debt and equity securities that are bought and held principally for the
      purpose of selling them in the near term are classified as trading
                                                                 -------
      securities and reported at fair value, with unrealized gains and losses
      ----------
      included in earnings.

*     Debt and equity securities not classified as either held-to-maturity
      securities or trading securities are classified as available-for-sale
                                                         ------------------ 
      securities and reported at fair value, with unrealized gains and losses
      ----------
      excluded from earnings and reported in a separate component of
      stockholders' equity.

SFAS No. 115 is restrictive as to suitable reasons for selling any security
classified as held-to-maturity. Investments and mortgage-backed securities
classified as available-for-sale provide greater flexibility for asset/liability
management, liquidity needs, reacting to changes in market rates and related
prepayment risk, and changes in availability of and the yield on alternative
investments. The Bank has determined that all of their mortgage-backed
securities are classified as available-for-sale, and a majority of their
investment securities are classified as available-for-sale.

Loans Receivable
----------------

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses, and net deferred loan-origination costs.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.

Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgement, the borrower's
ability to make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.


Effective July 1, 1995, the Bank adopted SFAS No. 114, Accounting by Creditors
                                                       -----------------------
for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
------------------------                    --------------------------- 
Impairment of a Loan - Income Recognition and Disclosures, which amends SFAS No.
---------------------------------------------------------
114. SFAS No. 114, as amended by SFAS No. 118, defines the recognition criteria
for loan impairment and the measurement methods for certain impaired loans and

                                       23
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


loans for which terms have been modified in troubled-debt restructurings (a
restructured loan). Specifically, a loan is considered impaired when it is
probable a creditor will be unable to collect all amounts due - both principal
and interest according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate. Alternatively,
impairment can be measured by reference to an observable market price, if one
exists, or the fair value of the collateral for a collateral-dependent loan.
Regardless of the historical measurement method used, SFAS No. 114 requires a
creditor to measure impairment based on the fair value of the collateral when
the creditor determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement.

The Bank applies the recognition criteria of SFAS No. 114 to multi-family
residential loans, commercial real estate loans and agriculture loans. Smaller
balance, homogeneous loans, including one-to-four family residential loans and
consumer loans, are collectively evaluated for impairment. SFAS No. 118 amends
SFAS No. 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans. The Bank has elected to continue to use its
existing nonaccrual methods for recognizing interest on impaired loans. The
adoption of SFAS No. 114 and SFAS No. 118 resulted in no prospective adjustment
to the allowance for loan losses and did not affect the Bank's policies
regarding charge-offs or recoveries.


Loan-Origination Fees, Commitment Fees, and
-------------------------------------------
Related Costs
-------------

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 over the contractual life of the loans, adjusted for estimated
prepayments based on the Bank's historical prepayment experience.


Foreclosed Real Estate
----------------------

Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value less estimated selling costs at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.

Valuations are periodically performed by management, and an allowance for losses
is established by a charge to operations if the carrying value of a property
exceeds its estimated net realizable value.

All foreclosed real estate owned is held-for-sale. There was no foreclosed real
estate owned at June 30, 1998.


Income Taxes
------------

Deferred income taxes arise from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.

An asset and liability approach is used for financial accounting and reporting
of income taxes which, among other things, requires the Bank to take into
account changes in the tax rates when valuing the deferred income tax accounts
recorded on the balance sheet. A deferred tax liability or asset is recognized
for the estimated future tax effects attributable to temporary differences and
loss carryforwards. Temporary differences include

                                       24
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


differences between financial statement income and tax return income which are
expected to reverse in future periods as well as differences between the tax
bases of assets and liabilities and their amounts for financial reporting which
are also expected to be settled in future periods. To the extent a deferred tax
asset is established which is not realizable, a valuation allowance shall be
established against such asset.


Premises and Equipment
----------------------

Land is carried at cost. Buildings, furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization. Buildings,
furniture, fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets. Estimated useful lives range from
ten to forty years for buildings and related improvements and from three to
eighteen years for furniture, fixtures and equipment.


Net Income Per Share
--------------------

Earnings per share are calculated in accordance with Financial Accounting
Standards Board Statement No. 128 (SFAS No. 128). This statement, which is
effective for the periods ending after December 15, 1997, requires disclosure of
basic earnings per share and diluted earnings per share, and also requires
restatement of earnings per share data for prior periods. Basic earnings per
share was computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. The company
has no itrems which cause dilution of earnings per share.

The following shows the amounts used in computing earnings per share.

                                                  1998
                                    -------------------------------
                                   Income      Shares      Per-Share
                                 (numerator)(denominator)   amount

Basic EPS Net income              $597,000    552,151       $1.08
                                                            =====

 
                                                 1997
                                    -----------------------------
                                   Income      Shares    Per-Share
                                 (numerator) (denominator)  amount

Basic EPS Net income              $300,000    547,929       $ .55
                                                            =====


                                       25
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 2: INVESTMENT SECURITIES

Securities available-for sale consist of the following:

<TABLE> 
<CAPTION> 
                                                                      June 30, 1998
                                            ---------------------------------------------------------------
                                                                 Gross             Gross                
                                             Amortized        Unrealized        Unrealized        Fair  
                                               Cost              Gains            Losses          Value 
                                             ---------        ----------        ----------       ------- 
                                                                    (In Thousands)
<S>                                          <C>              <C>               <C>              <C>  
Bonds, notes and debentures 
 at fair value:
   Federal agencies                           $   598          $    --           $    (1)          $   597
   FHLB zero coupon bond                          556               17                --               573
Equity securities at fair value:             
   Mutual funds                                 1,499                9               (17)            1,491
   FNMA preferred stock                         1,002               44                --             1,046
   FHLMC preferred stock                          665               24                --               689
   Preferred stock trust                          500               15                --               515
                                              -------          -------           -------           -------
                                             
                                              $ 4,820          $   109           $   (18)          $ 4,911
                                              =======          =======           =======           =======
<CAPTION> 
                                                                       June 30, 1997
                                             ------------------------------------------------------------
                                                                 Gross             Gross                
                                             Amortized        Unrealized        Unrealized        Fair  
                                               Cost              Gains            Losses          Value 
                                             ---------        ----------        ----------       ------- 
                                                                  (In Thousands)
<S>                                          <C>              <C>               <C>              <C> 
Bonds, notes and debentures 
 at fair value:
   Federal agencies                           $ 1,591          $     4           $   (20)          $ 1,575
   FHLB zero coupon bonds                          95               --                (2)               93
Equity securities at fair value:              
   Mutual funds                                 1,415                2               (22)            1,395
   FNMA preferred stock                         1,002               32                --             1,034
   FHLMC preferred stock                          665               --                (2)              663
                                              -------          -------           -------           -------
                                              $ 4,768          $    38           $   (46)          $ 4,760
                                              =======          =======           =======           =======
</TABLE> 

                                       26
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


Securities held-to-maturity consist of the following:

<TABLE> 
<CAPTION> 

                                                                                           June 30, 1998
                                                                  -------------------------------------------------------------
                                                                                      Gross            Gross
                                                                  Amortized        Unrealized        Unrealized          Fair
                                                                     Cost             Gains            Losses            Value
                                                                  ---------        ----------        ----------         -------
                                                                                         (In Thousands)
                                                                                          ------------
<S>                                                               <C>               <C>               <C>               <C> 
Bonds, notes and debentures at fair value:
    Municipal securities                                           $   245          $    --           $    --           $   245
                                                                   =======          =======           =======           =======
<CAPTION> 

                                                                                          June 30, 1997
                                                                  -------------------------------------------------------------
                                                                                      Gross            Gross
                                                                  Amortized        Unrealized        Unrealized          Fair
                                                                     Cost             Gains            Losses            Value
                                                                  ---------        ----------        ----------         -------
                                                                                         (In Thousands)
                                                                                          ------------
<S>                                                               <C>               <C>               <C>               <C> 
Bonds, notes and debentures at fair value:
    Bankers acceptance                                             $   998          $    --           $    --           $   998
    U.S. Treasury note                                                 500               --                (1)              499
    Federal agencies                                                   496                2                --               498
    Municipal securities                                               215               --                --               215
                                                                   -------          -------           -------           -------
                                                                   $ 2,209          $     2           $    (1)          $ 2,210
                                                                   =======          =======           =======           =======
</TABLE> 

The following is a summary of debt securities at June 30, 1998, by contractual
maturity for available-for-sale and held-to-maturity securities.

<TABLE> 
<CAPTION> 
                                                                Securities Available-                  Securities To Be Held-
                                                                       for-Sale                              To-Maturity
                                                            ----------------------------           -----------------------------
                                                             Amortized           Fair               Amortized            Fair
                                                                Cost             Value                 Cost              Value
                                                             ---------          -------             ---------           -------
                                                                                       (In Thousands)
                                                                                        ------------
<S>                                                          <C>                <C>                 <C>                 <C> 
Due in one year or less                                      $   --              $   --              $  215              $  215
Due after one year
 through five years                                             498                 496                  --                  --
Due after five years
 through ten years                                              100                 101                  --                  --
Due after ten year                                              556                 573                  30                  30
                                                             ------              ------              ------              ------
                                                             $1,154              $1,170              $  245              $  245
                                                             ======              ======              ======              ======
</TABLE> 

During the year ended June 30, 1998, the Bank had gross realized gains of
$30,000 on sales of available-for-sale investment securities and no gross
realized losses.

During the year ended June 30, 1997, the Bank did not sell any investment
securities from their available-for-sale portfolio.


                                       27
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 3:        MORTGAGE-BACKED SECURITIES

Mortgage-backed securities available-for-sale consist of the following:

<TABLE> 
<CAPTION> 

                                                                                        June 30, 1998
                                                              -----------------------------------------------------------------
                                                                                   Gross             Gross
                                                              Amortized         Unrealized         Unrealized          Fair
                                                                Cost               Gains             Losses            Value
                                                              ---------         ----------         ----------        ---------
                                                                                       (In Thousands)
                                                                                       --------------
<S>                                                           <C>               <C>                <C>               <C> 
Mortgage-backed securities at fair value:
      GNMA certificates                                       $  2,870          $      7           $     (7)          $  2,870
      FHLMC certificates                                         1,753                15                 (1)             1,767
      FNMA certificates                                          5,643                49                (22)             5,670
      CMO/REMIC                                                 10,666                50                (17)            10,699
      SBA pools                                                  8,451                45                 (7)             8,489
                                                              --------          --------           --------           --------

                                                              $ 29,383          $    166           $    (54)          $ 29,495
                                                              ========          ========           ========           ========
</TABLE> 

Of the $10,699,000 of fair value of CMO/REMIC's above, $10,175,000 was
guaranteed by FNMA or FHLMC. The balance of $524,000 was guaranteed by private
mortgage insurance companies.

<TABLE> 
<CAPTION> 
                                                                                        June 30, 1997
                                                              -----------------------------------------------------------------
                                                                                   Gross             Gross
                                                              Amortized         Unrealized         Unrealized          Fair
                                                                Cost               Gains             Losses            Value
                                                              ---------         ----------         ----------        ---------
                                                                                       (In Thousands)
                                                                                       --------------
<S>                                                           <C>               <C>                <C>               <C> 
Mortgage-backed securities at fair value:
      GNMA certificates                                       $  1,193          $     15           $     (3)          $  1,205
      FHLMC certificates                                         1,505                21                 (6)             1,520
      FNMA certificates                                          3,109                56                 (1)             3,164
      CMO/REMIC                                                  4,617                12                 (8)             4,621
      SBA pools                                                  8,118                13               (140)             7,991
                                                              --------          --------           --------           --------
                                                              $ 18,542          $    117           $   (158)          $ 18,501
                                                              ========          ========           ========           ========
</TABLE> 

Of the $4,621,000 of fair value of CMO/REMIC's above, $4,112,000 was guaranteed
by FNMA or FHLMC. The balance of $509,000 was guaranteed by private mortgage
insurance companies.

                                       28
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The amortized cost and fair value of mortgage-backed securities by contractual
maturity, are shown below as of June 30, 1998. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE> 
<CAPTION> 
                                             Mortgage-Backed Securities
                                                 Available-for-Sale
                                           ------------------------------
                                              Amortized           Fair
                                                 Cost             Value
                                              ---------          -------
                                                     (In Thousands)
                                                     --------------
<S>                                           <C>                <C>  
Due in one year or less                        $    --           $    --
Due after one year
  through five years                               254               255
Due after five years
 through ten years                               2,526             2,533
Due after ten years                             26,603            26,707
                                               -------           -------
                                               $29,383           $29,495
                                               =======           =======
</TABLE> 

During the year ended June 30, 1998, the Bank sold mortgage-backed securities
available-for-sale with total proceeds of $2,311,000 resulting in gross realized
gains of $35,000 and no realized losses. During the year ended June 30, 1997,
the Bank sold mortgage-backed securities available-for-sale with total proceeds
of $1,862,000 resulting in gross realized gains of $14,000 and no realized
losses.

During the year ended June 30, 1996, the Bank sold mortgage-backed securities
available-for-sale with total proceeds of $2,257,000 resulting in gross realized
gains of $46,000 and no realized losses.

Mortgage-backed securities available-for-sale with a fair value of $16,036,000
were pledged in connection with Federal Home Loan Bank
borrowings at June 30, 1998.

                                       29
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 4:  LOANS RECEIVABLE

Loans receivable at June 30 are summarized as follows:

                                                    1998               1997
                                                  --------           --------
                                                         (In Thousands)
Mortgage loans:

    One-to-four-family                              $25,633          $23,386
    Commercial                                        1,828              471
    Non-residential real estate                       2,237            1,729
    Multi-family                                        589               --
                                                    -------          -------
       Total mortgage loans                          30,287           25,586
                                                    -------          -------

Other loans:
    Automobile                                        2,447            1,669
    SBA guaranteed                                      952              971
    Home improvement - FHA                              936            1,202
    Loans on savings accounts                           468              395
    Other                                               492              410
                                                    -------          -------
       Total other loans                              5,295            4,647
                                                    -------          -------

Add:
    Deferred loan costs                                   3               15

Less:
    Loans in process                                      6                1
    Allowance for loan losses                           324              285
                                                    -------          -------

Loans receivable, net                               $35,255          $29,962
                                                    =======          =======

At June 30, 1998, the Bank's loan portfolio consisted of $11,203,000 of fixed
rate loans and $24,378,000 of variable rate loans. The fixed rate loans had a
weighted average term to maturity of 12.88 years and a weighted average interest
rate of 8.90%.

The Bank is required to maintain qualifying collateral for the Federal Home Loan
Bank of Des Moines (the "Bank") representing 150 percent of current Bank credit.
(See Note 8.) At June 30, 1998, the Bank met this requirement. Qualifying
collateral is defined as fully disbursed, whole first mortgage loans on improved
residential property or securities representing a whole interest in such
mortgages. The mortgages must not be past due more than 60 days. They must not
be otherwise pledged or encumbered as security for other indebtedness, and the
documents must be in the physical possession or control of the Bank. The
documents that govern the determination of the qualifying mortgage collateral
are the (a) Federal Home Loan Bank of Des Moines' Credit Policy Statement, dated
May 1, 1997, and (b) the Agreement for Advances, Pledge, and Security Agreement
between the Bank and the Federal Home Loan Bank of Des Moines, dated April 3,
1989.

                                       30
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


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

                                             1998         1997         1996
                                            ------       ------       ------
                                                     (In Thousands)
Balance at beginning of year                $ 285        $ 283        $  81
Provision charged to
 income                                        91           --          210
Charge-offs                                   (65)          (3)         (11)
Recoveries                                     13            5            3
                                            -----        -----        -----
Balance at end of year                      $ 324        $ 285        $ 283
                                            =====        =====        =====



Nonaccrual and renegotiated loans for which interest has been reduced totaled
approximately $495,000 and $224,000 at June 30, 1998 and 1997, respectively.

Interest income foregone on these loans was insignificant.

The Bank is not committed to lend additional funds to debtors whose loans have
been modified.


NOTE 5:        ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at June 30 is summarized as follows:


                                                 1998              1997
                                                 ----              ----
                                                     (In Thousands)
                                
Investment securities                           $  51              $ 26
Mortgage-backed                 
  securities                                      266               177
Loans receivable                                  306               243
                                                -----              ----
                                                $ 623              $446
                                                =====              ====



NOTE 6:  PREMISES AND EQUIPMENT

Premises and equipment at June 30 are summarized as follows:

                                                   1998              1997
                                                   ----              ----
                                                       (In Thousands)
Cost:                                
  Land                                             $101              $101
  Building                                          396               359
  Furniture, fixtures, and equipment                457               473
                                                   ----              ----
                                                    954               933
Less accumulated  depreciation and   
  amortization                                      537               576
                                                   ----              ----
                                                   $417              $357
                                                   ====              ====

Depreciation expense for the years ended June 30, 1998, 1997 and 1996 was
$54,000, $52,000 and $23,000, respectively.

                                       31
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 7:  DEPOSITS
<TABLE> 
<CAPTION> 
Deposits at June 30 are summarized as follows:

                                          1998                              1997
                              ----------------------------      -----------------------------
                              Weighted                          Weighted
                              Average                           Average
                               Rate     Amount         %         Rate      Amount         %
                               -----    -------      -----       ----      -------      ----- 
                                                      (In Thousands)
<S>                            <C>      <C>          <C>         <C>       <C>          <C> 
Noninterest-bearing            --  %    $ 1,772        5.0       --  %     $ 1,800        5.1
Demand and NOW                 2.61%      2,523        7.2       2.71%       2,371        6.8
Money market                   3.94%      6,830       19.4       3.94%       6,982       20.0
Passbook savings               3.00%      2,572        7.3       3.00%       2,520        7.2
                                        -------      -----                 -------      ----- 
                               2.92%     13,697       38.9       3.10%      13,673       39.1
                                        -------      -----                 -------      ----- 
Certificates of deposit:                                              
 2.00% to 2.99%                 -- %         --         --       2.00%           2         --
 3.00% to 3.99%                 -- %         --         --       3.91%           6         --
 4.00% to 4.99%                4.75%        573        1.6       4.79%       1,108        3.2
 5.00% to 5.99%                5.47%     17,985       51.0       5.40%      16,144       46.2
 6.00% to 6.99%                6.37%      2,610        7.4       6.32%       3,580       10.2
 7.00% to 7.99%                7.40%        356        1.0       7.26%         434        1.2
 8.00% to 8.99%                8.10%         34         .1       8.10%          33         .1
                               5.59%     21,558       61.1       5.57%      21,307       60.9
                                        -------      -----                 -------      ----- 
                               4.59%    $35,255      100.0       4.60%     $34,980      100.0
                                        =======      =====                 =======      =====
</TABLE> 
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $1,924,000 and $1,291,000 at June 30,
1998 and 1997, respectively. Balances of deposit accounts in excess of $100,000
are not federally insured.

At June 30, 1998, scheduled maturities of certificates of deposit are as
follows:
<TABLE> 
<CAPTION> 
                                         Year Ending June 30,
                   ---------------------------------------------------------------
                    1999       2000       2001       2002       2003    Thereafter
                   -------    -------    -------    -------    -------  --------- 
                                           (In Thousands)
                                           --------------
<S>                <C>        <C>        <C>        <C>        <C>      <C> 
 4.00% to 4.99%    $   515    $    46    $    12    $    --    $    --    $    --
 5.00% to 5.99%     12,682      2,793      1,621        385        191        312
 6.00% to 6.99%        350      1,527        649         62         20          3
 7.00% to 7.99%        322         34         --         --         --         --
 8.00% to 8.99%         34         --         --         --         --         --
                   -------    -------    -------    -------    -------    ------- 
                   $13,903    $ 4,400    $ 2,282    $   447    $   211    $   315
                   =======    =======    =======    =======    =======    =======
</TABLE> 

Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE> 
<CAPTION> 
                                                        1998      1997      1996
                                                       ------    ------    ------ 
                                                             (In Thousands)
<S>                                                    <C>       <C>       <C> 
Passbook, money market and NOW                         $  429    $  432    $  453
Interest expense on certificates of deposit greater
  than $100,000                                            94        74        75
Certificates of deposit                                 1,081     1,110     1,106
                                                       ------    ------    ------ 
                                                       $1,604    $1,616    $1,634
                                                       ======    ======    ======
</TABLE> 



                                       32
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 8:  FEDERAL HOME LOAN BANK ADVANCES

Advances consist of the following:

     Final                             Interest           June 30,
  Maturity Dates                      Rate Range            1998
  --------------                      ----------       --------------
                                                       (In thousands)
                                                       -------------- 

July 1, 1998-June 30, 1999          5.556%-6.130%         $21,300
July 1, 1999-June 30, 2000          5.930%-6.630%           2,200
July 1, 2000-June 30, 2001          6.000%-6.820%           1,200
July 1, 2001-June 30, 2002          7.310%-7.310%             500
July 1, 2002-June 30, 2003          6.280%-6.280%             486
Thereafter                          4.820%-6.860%           5,389
                                                          -------
                                                          $31,075
                                                          =======

                                                          June 30,
                                                            1997
                                                       --------------           
                                                       (In thousands)
                                                       -------------- 
July 1, 1997-June 30, 1998          5.350%-6.160%         $11,700
July 1, 1998-June 30, 1999          6.030%-6.130%             600
July 1, 1999-June 30, 2000          6.330%-6.630%           1,100
July 1, 2000-June 30, 2001          6.000%-6.820%           1,200
July 1, 2001-June 30, 2002          7.310%-7.310%             500
Thereafter                          5.760%-6.570%           1,165
                                                          -------
                                                          $16,265
                                                          =======

See Notes 3 and 4 of the financial statements for collateral securing this
indebtedness.

The maximum amount of Federal Home Loan Bank advances outstanding at any month
end during the years ended June 30, 1998 and 1997 was $31,075,000 and
$16,265,000 respectively.


                                       33
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 9:  PENSION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN

The Bank had a defined contribution pension plan which covered all eligible
employees who had completed one full year of continuous service. The benefits
contemplated by the plan were funded through employer contributions on the basis
of salaries. The cost of funding is charged to current operations as accrued and
there is no unfunded liability for past service. The amount funded and charged
to expense amounted to approximately $23,000 in 1996. The Bank is in the process
of discontinuing the plan.

Employee Stock Ownership Plan
-----------------------------

In conjunction with the Conversion, the Bank formed an Employee Stock Ownership
Plan ("ESOP"). The ESOP covers substantially all employees with more than one
year of employment and who have attained the age of 21. The ESOP borrowed
$474,000 from the Company and purchased 47,401 common shares issued in the
Conversion. The loan is payable over a period of 10 years with an interest rate
equal to the Bank's prime rate. The Bank makes scheduled discretionary cash
contributions to the ESOP sufficient to service the amount borrowed.

Shares are released for allocation to participants based upon the ratio of the
current year's debt service to the sum of total principal and interest payments
over the life of the loan. Released shares are allocated among ESOP participants
on the basis of compensation in the year of allocation.

Dividends paid on allocated shares are added to participant accounts. Dividends
paid on unallocated shares are to be used to pay principal and interest on the
loan.

The Company accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the debt of the ESOP is recorded as debt and shares pledged as
collateral are reported as unearned ESOP shares, a reduction of stockholder's
equity. As shares are released from collateral, the Bank records compensation
expense in an amount equal to the fair value of the shares, and the shares
become outstanding for net income per share computations. ESOP compensation
expense was $65,000 and $73,000 for the years ended June 30, 1998 and 1997,
respectively.

The ESOP shares as of June 30, 1998 were as follows:

Allocated shares                                       7,630
Shares released for  allocation                        2,370
Unreleased shares                                     37,401
                                                      ------

Total ESOP shares                                     47,401
                                                      ======
Fair value of  unreleased shares
  at June 30, 1998                                  $615,000
                                                    ========


                                       34
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 10: INCOME TAXES

As discussed in Note 1, the Company uses the liability method of accounting for
income taxes. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities.

Retained earnings of the Bank at June 30, 1998 and 1997 includes approximately
$127,000, for which no provision for federal income tax has been made. This
amount represents allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts allocated for purposes other than tax bad debt losses
will create income for tax purposes only, which will be subject to the then
current corporate income tax rate.

Income tax expense for the periods then ended is summarized as follows:

                                                      June 30,
                                     ------------------------------------------
                                       1998            1997             1996
                                     ---------       ---------        --------- 

Current                              $ 327,000       $ 221,000        $ 208,000
Deferred (benefit)                      21,000         (50,000)         (41,000)
                                     ---------       ---------        --------- 
                                     $ 348,000       $ 171,000        $ 167,000
                                     =========       =========        =========

Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rates of 34 percent to income before income taxes as a result
of the following:
<TABLE> 
<CAPTION> 
                                                     1998          1997          1996
                                                   ---------     ---------     --------- 
<S>                                                <C>           <C>           <C> 
Expected income tax expense at federal tax rate    $ 321,000     $ 160,000     $ 160,000
State tax net of Federal tax benefit                  37,000        12,000         8,000
Municipal income and  dividends nontaxable           (40,000)      (16,000)       (3,000)
Compensation expense for employee stock plan           4,000         5,000            --
Other                                                 26,000        10,000         2,000
                                                   ---------     ---------     --------- 
Total income tax expense                           $ 348,000     $ 171,000     $ 167,000
                                                   =========     =========     =========
</TABLE> 


                                       35
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996
<TABLE> 
<CAPTION> 
Deferred tax liabilities (assets) are comprised of the following at June 30:

                                                                                1998          1997
                                                                              ---------     --------- 
<S>                                                                           <C>           <C> 
Income and expenses recognized in the financial statements on the accrual
 basis, but on the cash basis for tax purposes                                $ 152,000     $ 125,000
Income tax basis of FHLB stock versus carrying value                             51,000        49,000
Deferred loan costs                                                               1,000         6,000
Net fixed assets                                                                 35,000        19,000
Unrealized gain on available-for-sale securities                                 69,000            --
                                                                              ---------     --------- 

Gross deferred tax liabilities                                                  308,000       199,000
                                                                              ---------     ---------

Unrealized loss on available-for-sale securities                                     --       (17,000)
Provision for loan loss                                                        (130,000)     (110,000)
                                                                              ---------     ---------

Gross deferred tax assets                                                      (130,000)     (127,000)
                                                                              ---------     ---------

Net deferred tax liability                                                    $ 178,000     $  72,000
                                                                              =========     =========
</TABLE> 
For years ended June 30, 1998, 1997 and 1996, deferred tax expense resulted from
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. The sources and tax effects of
these temporary and timing differences are as follows:
<TABLE> 
<CAPTION> 
                                                                  1998         1997         1996
                                                                --------     --------     -------- 
<S>                                                             <C>          <C>          <C> 
Income and expense recognized in the financial statements on
 the accrual basis, but on the cash basis for tax purposes      $ 28,000     $ (1,000)    $ 30,000
FHLB stock basis                                                   1,000           --        3,000
Tax bad debt reserve                                                  --      (44,000)       4,000
Deferred loan fees                                                (4,000)      (8,000)       2,000
Net fixed assets                                                  15,000        4,000        9,000
Provision for loan loss                                          (19,000)      (1,000)     (89,000)
                                                                --------     --------     -------- 
                                                                $ 21,000     $(50,000)    $(41,000)
                                                                ========     ========     ========
</TABLE> 
The Bank did not establish a valuation allowance for its deferred tax assets as
management believes they are realizable.


                                       36
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 11: REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Office of the Comptroller of the Currency
(OCC). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the Bank and the
consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines involving quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification under the prompt corrective action guidelines are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total risk-based
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined), and
tangible capital to adjusted total assets (as defined). As discussed in greater
detail below, as of June 30, 1998, the Bank does meet all of the capital
adequacy requirements to which it is subject.

As of June 30, 1998, the most recent notification from the OCC, the Bank was
categorized as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as
disclosed in the table below. There are no conditions or events since the most
recent notification that management believes have changed the Bank's prompt
corrective action category.
<TABLE> 
<CAPTION> 
                                                                        For Capital Adequacy Purposes
                                                                         and to be Well-Capitalized
                                                                                 under the
                                                                          Prompt Corrective Action
                                                     Actual                      Provisions
                                               ------------------         -----------------------
                                                Amount      Ratio          Amount          Ratio
                                                ------      -----          ------          ----- 
                                              (dollars in thousands)       (dollars in thousands)
<S>                                             <C>         <C>            <C>             <C> 
As of June 30, 1998
 Total Risk-Based Capital (to Risk
   Weighted Assets)                             $6,599      21.4%          $3,084          10.0%
 Tier I Capital (to Risk-Weighted                                                       
  Assets)                                       $6,275      20.3%          $1,855           6.0%
 Tier I Capital (to Adjusted Total Assets)      $6,275       8.7%          $4,328           6.0%
 Tangible Capital (to Adjusted Total Assets)    $6,275       8.7%          $3,606           5.0%

As of June 30, 1997                                                                     
 Total Risk-Based Capital (to Risk                                                     
   Weighted Assets)                             $6,155      26.1%          $2,359          10.0%
 Tier I Capital (to Risk-Weighted Assets)       $5,870      24.9%          $1,416           6.0%
 Tier I Capital (to Adjusted Total Assets)      $5,870      10.9%          $3,241           6.0%
 Tangible Capital (to Adjusted Total                                                    
   Assets)                                      $5,870      10.9%          $2,701           5.0%
</TABLE> 

                                       37
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 12: GAIN ON SALES OF INTEREST EARNING ASSETS, NET

Gains are summarized as follows for the years ended June 30:

                                              1998        1997        1996
                                            --------    --------    -------- 

Realized gains on sales of:
      Mortgage-backed securities - gains    $ 36,000    $ 14,000    $ 46,000
      Investment securities - gains           30,000          --          --
                                            --------    --------    -------- 
                                            $ 66,000    $ 14,000    $ 46,000
                                            ========    ========    ========


NOTE 13: OTHER NON-INTEREST INCOME AND EXPENSE

Other non-interest income and expense amounts are summarized as follows for the
years ended June 30:


                                              1998        1997        1996
                                            --------    --------    --------
Other noninterest income:
      Loan late charges                     $ 13,000    $ 10,000    $  7,000
      Other                                    9,000       9,000      73,000
                                            --------    --------    --------
                                            $ 22,000    $ 19,000    $ 80,000
                                            ========    ========    ========

Other noninterest expense:
      Advertising and promotion             $ 24,000    $ 20,000    $ 19,000
      Telephone                               19,000      17,000      16,000
      Other                                  122,000      66,000      74,000
                                            --------    --------    --------
                                            $165,000    $103,000    $109,000
                                            ========    ========    ========

In 1996, other income includes approximately $66,000 of patronage dividends and
gain on the sale of the Bank's former cooperative data processing service
bureau. Patronage dividends are an allocation of earnings to the user owners of
a cooperative association, which may be credited to the user owner's account or
paid in cash. As a result of the sale of the service bureau, all of the
dividends have been paid to the Bank.


NOTE 14: COMMITMENTS AND CONTINGENCIES

Loan Commitments
----------------

At June 30, 1998, the Bank had outstanding firm commitments to originate loans
as follows:

       Fixed Rate            Variable Rate             Total
       ----------            -------------             -----
        $74,000                $655,000              $729,000
        =======                ========              ========


These loans are at rates of 7.25% to 9.75% for terms of five to thirty years.

                                       38
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The Bank is involved, from time to time, as plaintiff or defendant in various
legal actions arising in the normal course of their businesses. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing the Bank
in the proceedings, that the resolution of these proceedings should not have a
material effect on the Bank's financial position or results of operations on a
consolidated basis.


NOTE 15: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the statement of financial position. The contract or notional
amounts of those instruments reflect the extent of the Bank's involvement in
particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the commitments to extend credit is represented by the contractual
notional amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.

Unless noted otherwise, the Bank does not require collateral or other security
to support financial instruments with credit risk.


                                                            Contract or
                                                          Notional Amount
                                                          ---------------
Financial instruments the contract 
 amounts of which represent credit risk:
    Commitments to extend credit                            $   729,000
    Open lines of credit                                    $   543,000

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. These
commitments and outstanding lines of credit generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since some
commitments can expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant, and
equipment, and income-producing commercial properties.

The Bank invests funds in other financial institutions in the form of
certificates of deposit, none of which exceed the insured limit of $100,000. In
addition, the Bank maintains cash accounts at the Federal Home Loan Bank and
four banks. Balances reflected on the banks' statements exceed the $100,000
insurance limit by varying amounts on a daily basis. The Bank controls this risk
by monitoring the financial condition of the banks. The Federal Home Loan Bank
is an instrumentality of the U.S. Government.


                                       39
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


NOTE 16: RELATED PARTY TRANSACTIONS

Certain directors and executive officers of the Bank or its subsidiary were loan
customers. A summary of aggregate related party loan activity, for loans
aggregating $60,000 or more to any one related party, is as follows:

                                          June 30,          June 30,
                                            1998              1997
                                          --------          -------- 
Beginning balance                         $172,000          $ 77,000
New loans                                   90,000            97,000
Repayments                                  14,000             2,000
                                          --------          -------- 
Ending balance                            $248,000          $172,000
                                          ========          ========

In the opinion of management, related party loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unrelated persons and do not involve more
than the normal risk of collectibility.


NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

The following condensed statement of financial condition, as of June 30, 1998
and condensed statements of earnings and cash flows for the year then ended for
IFB Holdings, Inc. should be read in conjunction with the consolidated financial
statements and the notes thereto.


                                                                    June 30,
                                                                      1998
                                                                 --------------
                                                                 (In thousands)
                                       ASSETS

Cash on hand and noninterest earning deposits                         $ 1,219
Interest-earning deposits in other institutions                           344
Investment securities available-for-sale                                  515
Mortgage-backed securities available-for-sale                             441
Interest receivable                                                         2
Investment in subsidiary                                                6,415
ESOP loan receivable                                                      374
                                                                      -------
     Total assets                                                     $ 9,310
                                                                      =======
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable                                                  $    (4)
Accrued expenses                                                            2
                                                                      -------
     Total liabilities                                                     (2)
                                                                      -------

Common stock                                                                6
Additional paid in capital                                              5,554
Retained earnings                                                       3,992
Unrealized gain (loss) on securities, net of taxes                        134
ESOP obligation                                                          (374)
                                                                      -------
               Total Stockholders' Equity                               9,312
                                                                      -------
               Total liabilities and
               stockholders' equity                                   $ 9,310
                                                                      =======


                                       40
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


                                Statement of Income
                                                                    Year Ended
                                                                     June 30,
                                                                       1998
                                                                  --------------
                                                                  (In thousands)
Interest income:
       Investment securities                                          $    96
       ESOP loan                                                           34
                                                                      -------
                                                                          130

Income from investment in subsidiary                                      528
Noninterest expense                                                        18
                                                                      -------
Income before income taxes                                                640
Income tax expense                                                         43
                                                                      -------
       Net income                                                     $   597
                                                                      =======

                              Statement of Cash Flows
                                                                   Year Ended
                                                                     June 30,
                                                                       1998
                                                                  --------------
                                                                  (In thousands)
Cash flows from operating activities:
       Net income                                                     $   597
       Equity in earnings of subsidiary                                  (350)
       Adjustments to reconcile net earnings to net cash
        provided by operating activities:
          Amortization of premiums and discounts                           (5)
          (Increase) decrease in interest receivable                        9
          Decrease in income tax payable                                  (34)
          Increase (decrease) in other liabilities                         (1)
                                                                      -------
            Net cash provided by operating activities                     216
                                                                      -------

Cash flows from investing activities:
       Purchase of investment securities                                 (941)
       Maturities of investments                                        2,000
       Repayment on ESOP loan                                              47
                                                                      -------
           Net cash provided (used) in investing activities             1,106
                                                                      -------

Cash flows from financing activities:
       Dividends paid                                                    (164)
                                                                      -------
          Net cash provided by financing activities                      (164)
                                                                      -------
          Increase in cash and cash equivalents                         1,158

Cash and cash equivalents at beginning of period                          405
                                                                      -------

Cash and cash equivalents at end of period                            $ 1,563
                                                                      =======

Dividends paid by subsidiary to parent                                $   178
                                                                      =======

                                       41
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996

                
NOTE 18: FEDERAL DEPOSIT INSURANCE PREMIUMS

The deposits of the Bank are presently insured by the Savings Association
Insurance Fund (SAIF), which together with the Bank Insurance Fund (BIF), are
the two insurance funds administered by the FDIC. In the third quarter of 1995,
the FDIC lowered the premium schedule for BIF-insured institutions in
anticipation of the BIF achieving its statutory reserve ratio. The reduced
premium created a significant disparity in deposit insurance expense, causing a
competitive advantage for BIF members. Legislation enacted on September 30, 1996
provided for a one-time special assessment of .657% of the Bank's SAIF insured
deposits at March 31, 1995. The purpose of the assessment is to bring the SAIF
to its statutory reserve ratio. Based on the above formula, the Bank's SAIF
assessment of $226,000 was recorded in the 1997 consolidated financial
statements. Although the special one-time assessment significantly increased
noninterest expense for the year, the anticipated reduction in the premium
schedule will reduce the Bank's federal insurance premiums for future periods.


NOTE 19: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of the
company's financial instruments at June 30, 1998 and 1997. FASB Statement No.
107, Disclosures About Fair Value of Financial Instruments, defines the fair
     -----------------------------------------------------
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.


<TABLE> 
<CAPTION> 


                                                                              1998                             1997
                                                                 ------------------------------   -------------------------------
                                                                   Carrying           Fair           Carrying           Fair
                                                                    Amount            Value           Amount           Value
                                                                 --------------    ------------   -------------    --------------
                                                                                          (In Thousands)
<S>                                                              <C>               <C>            <C>              <C> 
Nontrading instruments:                                                                                                  
  Cash and cash equivalents                                      $    3,541         $    3,541     $     3,003      $    3,003
  Investment securities and mortgage-backed securities           $   34,651         $   34,651     $    25,470      $   25,470
  Loans, net                                                     $   35,255         $   35,747     $    29,962      $   30,162
  Accrued interest receivable                                    $      623         $      623     $       446      $      446
  FHLB and Federal Reserve bank stock                            $    1,638         $    1,638     $       897      $      897
  Deposit liabilities                                            $   35,255         $   35,923     $    34,980      $   35,106
  Debt-FHLB advances                                             $   31,075         $   30,203     $    16,265      $   16,193
  Other liabilities                                              $      536         $      536     $       334      $      334
Unrecognized financial instruments:                                                                                
  Commitments to extend credit                                   $        -         $        -     $         -      $        -
  Open lines of credit                                           $        -         $        -     $         -      $        -

</TABLE> 

                                       42
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The carrying amounts in the table are included in the statement of financial
position under the indicated captions, except for advances from borrowers for
taxes and insurance, income taxes payable and accrued expenses and other
liabilities which have been combined into other liabilities. For unrecognized
financial instruments, the carrying amounts represent accruals or deferred
income arising from those unrecognized financial instruments for which at June
30, 1998, there were none.

Estimation of Fair Values
-------------------------

The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.

Short-term financial instruments are valued at their carrying amounts included
in the statement of financial position, which are reasonable estimates of fair
value due to the relatively short period to maturity of the instruments. This
approach applies to cash and cash equivalents, accrued receivables, and certain
other liabilities.

Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates. Future cash flows of loans are estimated
based on their maturities and weighted average rates and are discounted at
current rates offered for similar loan terms to new borrowers.

Investment securities are valued at quoted market prices if available. For
unquoted securities, the reported fair value is estimated by the Company on the
basis of financial and other information.

Fair value of demand deposits and deposits with no defined maturity is taken to
be the amount payable on demand at the reporting date. The fair value of
fixed-maturity deposits is estimated using rates currently offered for deposits
of similar remaining maturities. The intangible value of long-term relationships
with depositors is not taken into account in estimating the fair values
disclosed.

Rates currently available to the Company for Federal Home Loan Bank advances
with similar terms and remaining maturities are used to estimate the fair value
of existing borrowings as the present value of expected cash flows. Advances
which have maturities within one year or rates which adjust monthly are valued
at the carrying amount.

NOTE 20: RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 130 "Reporting Comprehensive Income," will be adopted July 1, 1998.
This statement provides accounting and reporting standards to report a measure
of all changes in equity of an enterprise that results from recognized
transactions and economic events of the period. The major component of
comprehensive income for the Company will be unrealized gains and losses on
certain investments in debt and equity securities.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.

                                       43
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


Management believes adoption of SFAS Nos. 130 and 133 does not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.

The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.

NOTE 21: CONVERSION TO STOCK FORM OF OWNERSHIP

On December 30, 1996, the Company sold 592,523 shares of common stock at $10.00
per share to depositors and employees of the Bank. On January 30, 1997, the
charter was changed from a federal stock savings bank to a national bank. Total
proceeds from the Conversion, after deducting conversion expenses of $403,000,
were $5,522,000 and are reflected as common stock and additional paid-in capital
in the accompanying consolidated statement of financial condition. The Company
used $2,762,000 of the net proceeds to acquire all of the capital stock of the
Bank.

The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amount required for the
liquidation account discussed below or regulatory capital requirements.

At the time of the conversion, the Bank established a liquidation account in an
amount equal to its retained earnings as reflected in the latest statement of
financial condition used in the final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental account holders who continue to maintain their deposit accounts in
the Bank after conversion. In the event of a complete liquidation of the Bank,
and only in such an event, eligible depositors who continue to maintain accounts
shall be entitled to receive a distribution from the liquidation account before
any liquidation may be made with respect to common stock.

Unlike the Bank, the Company is not subject to regulatory restrictions on the
payment of dividends to is stockholders. However, the Company's source of funds
for future dividends may depend upon dividends received by the Company from the
Bank.

NOTE 22: OFFICER, DIRECTOR AND EMPLOYEE PLANS

The Company's stockholders approved a stock option and incentive plan and a
recognition and retention plan (RRP) at the Annual meeting in November, 1997.


Stock Option and Incentive Plan
-------------------------------

The plan is implemented for the benefit of the directors, officers and employees
of the Company and its affiliates. The maximum number of shares to be issued
from authorized but not currently outstanding shares under the plan is 59,252 or
10% of the total shares issued in the conversion. The exercise price of the
options shall not be less than the common stock market value at the date the
options are granted.



Recognition and Retention Plan
------------------------------

The RRP plan can award shares authorized but not currently outstanding to
directors and to employees in key management positions in order to provide them
with a proprietary interest in the Company in a manner designed to encourage
such employees to remain with the Company. The maximum number of shares
authorized under the plan is 23,700 or 4% of the total shares issued in the
conversion. No shares have been granted or awarded for the stock option and
incentive plan or the RRP.

                                       44
<PAGE>
 
                                                    June 30, 1998, 1997 and 1996


The effective date of the plans was January 1, 1998. The term of the plan is ten
years. The future impact of the plan would be to increase (1) the number of
outstanding shares of common stock, and (2) compensation expense, and decrease
(1) net income per share, and (2) book value per share. It is not possible to
quantify the effect on the financial position or results of operations from
implementing the plan at this time.

NOTE 23: MARKET RISK DISCLOSURES

The Bank's net portfolio values would change as market interest rates change. As
of June 30, 1998, a 200 basis point increase in the market interest rates would
cause approximately a $531,000, or 8.79 percent, decline in the market value of
its portfolio assets.

NOTE 24: RESTATEMENT OF COMMON STOCK PAR VALUE

Common stock was miscalculated at the time it was initially recorded by $53,000.
Additional paid-in capital was understated by the same amount. The June 30, 1997
financial statements have been restated, resulting in no effect on total
stockholders' equity.

NOTE 25: YEAR 2000

The Bank has been in contact with hardware and software providers of their data
processing system. Testing has begun and should be completed prior to December
31, 1998, though testing will continue through June 30, 1999.

Through contact with the various providers, the Bank does not foresee any major
capital expenditure and expects a cost of no more than $10,000 to be Year 2000
compliant.

NOTE 26: SUBSEQUENT EVENT-TREASURY STOCK

Subsequent to June 30, 1998, the company acquired 118,125 shares of treasury
stock at a cost of $1,816,746.

                                       45
<PAGE>
 
                              IFB HOLDINGS, INC.
                              ------------------
                            STOCKHOLDER INFORMATION
                            -----------------------

Annual Meeting
--------------

The Annual Meeting of Stockholders will be held at 2:00 p.m. on November 17,
1998 at the Grand River Inn, located at the intersection of highways U.S. 36 and
U.S. 65, Chillicothe, Missouri.

Stock Listing
-------------

IFB Holdings, Inc. common stock is traded on the NASDAQ Bulletin Board under the
symbol "IFBH".

Price Range of Common Stock
---------------------------

The per share price range of the common stock and dividends paid per share of
common stock, for each quarter since conversion was as follows:

          Quarter Ended                 High          Low       Dividends
          -------------                 ----          ---       ---------
     
          December 31, 1996            12 1/4         12 1/4       N/A
          March 31, 1997               13             12 1/4       N/A
          June 30, 1997                13             12 1/4       $.15
          September 30, 1997           14 1/4         12 1/2       N/A
          December 31, 1997            15 1/4         14           $.15
          March 31, 1998               16 9/16        14 3/4       N/A
          June 30, 1998                17             16 3/8       $.15

A $.15 per share dividend was declared by the Board of Directors on November 18,
1997, payable December 31, 1997 to stockholders of record December 10, 1997. A
$.15 per share dividend was declared by the Board of Directors on May 19, 1998,
payable June 30, 1998 to stockholders of record June 5, 1998. As of June 30,
1998, there were 199 stockholders of record and 592,523 shares of common stock
issued and outstanding.

Dividends will be paid upon the determination of the Board of Directors that
such payment is consistent with the long-term interests of IFB Holdings, Inc.
The factors affecting this determination include the Company's current and
projected earnings, operating results, financial condition, regulatory
restrictions, future growth plans, and other relevant factors.

Illinois Stock Transfer Company is the Company's stock agent and registrar.
Illinois Stock Transfer Company maintains the Company's stockholder records. To
change the name, address, or ownership of stock, to report lost stock
certificates, or to consolidate accounts, contact Illinois Stock Transfer
Company, 209 West Jackson Boulevard, Suite 903, Chicago, Illinois 60606, phone
number: 312-427-2953.

Annual Report, Other Reports and General Inquiries
--------------------------------------------------

IFB Holdings, Inc. is required to file an Annual Report on Form 10KSB for its
fiscal year ended June 30, 1998 with the Securities and Exchange Commission.
Copies of this annual report may be obtained without charge upon written request
to: Earle Teegarden, Jr. 522 Washington Street - Box 110, Chillicothe, Missouri
64601-0110, phone number: 660/646-3733.

<TABLE> 
<CAPTION> 


Market Makers
-------------

<S>                                           <C>                                         <C>  
Trident Securities, Inc.                      Friedman, Billings, Ramsey & Co., Inc.           Tucker Anthony, Inc.
1275 Peachtree St., N.E. - Suite 466          1919 Pennsylvania Ave., N.W. - Suite 616         1 South Wacker Dr.
Atlanta, Georgia  30309                       Washington, D.C.  20006                          Chicago, Illinois  60606
800-340-6321                                  800-846-5050                                        Contact Curt Thompson at
                                                                                                  888-655-4135
</TABLE> 

                                       46
<PAGE>
 
                               IFB HOLDINGS, INC.
                              CORPORATE INFORMATION

<TABLE> 
<CAPTION> 

Officers                                        Directors 
--------                                        ---------
<S>                                           <C>                                         <C>   

Earle S. Teegarden, Jr.                       Robert T. Fairweather                       Larry R. Johnson
  President, CEO and CFO                       Chairman of the Board -                     Executive Officer
                                               Retired retail hardware                  
Larry R. Johnson                                                                          J. Michael Palmer
  Senior Vice President and Secretary         Edward P. Milbank                            Private Investor
                                                Vice-Chairman of the Board         
Mark D. Buntin                                  President, Milbank Mills -                Armand J. Peterson
  Chief Accounting Officer                      A feed manufacturing company               President, Chillicothe Iron &
                                                                                           Steel -  A steel fabricating company 
                                              Earle S. Teegarden, Jr.                         
                                                Chief Executive Officer                  

</TABLE> 

<TABLE> 
<CAPTION> 
                                                                                   
INVESTORS FEDERAL BANK, N.A.
----------------------------

Officers                                                 Directors
--------                                                 --------- 
<S>                                                      <C>               
Earle S. Teegarden, Jr.,  President                      Robert T. Fairweather, Chairman

Larry R. Johnson,  Senior Executive Vice-President       Edward P. Milbank, Vice-Chairman
  Cashier and Secretary
                                                         Earle S. Teegarden, Jr., President
Charles Merrill, Vice-President and Treasurer
                                                         Larry R. Johnson, Senior Executive
Mark Buntin,  Vice-President and Chief                    Vice-President
  Accounting Officer
                                                         J. Michael Palmer
Sandra Wheeler,  Assistant Vice President
                                                         Armand J. Peterson

Office Location
---------------
522 Washington Street                                    Telephone:         660-646-3733
Chillicothe, MO  64601                                   FAX:               660-646-7300
                                                   
Special Counsel                                          Independent Auditors
---------------                                          --------------------
Luse, Lehman, Gorman, Pomerenk                           Lockridge, Constant & Conrad, LLC
  & Schick, P.C.                                         448 Washington Street
5335 Wisconsin Avenue, N.W.                              Chillicothe, MO  64601
Suite 400                                          
Washington, D.C.  20015                                  660-646-6911

</TABLE> 

                                       47