MFB Corp. Announces Third Quarter Earnings

MFB Corp. (NASDAQ:MFBC), parent company of MFB Financial
(the "Bank"), reported today its consolidated financial results on an
unaudited basis of 794,000, or $0.57 diluted earnings per share for
the three months ended June 30, 2006 an increase from net income of
$614,000, or $0.44 diluted earnings per share, for the three months
ended June 30, 2005. MFB Corp's consolidated net income for the nine
months ended June 30, 2006 was $1,212,000, or $0.87 diluted earnings
per share, compared to $1,300,000, or $0.94 diluted earnings per
share, for the same period last year.
   Charles J. Viater, President and CEO, stated that "We are pleased
with another steady quarter of earnings as the interest rate
environment continues to pressure our net interest margin."
   MFB Corp's net interest income before provision for loan losses
for the three month period ended June 30, 2006 was $3.4 million
compared to $3.8 million for the same period last year. For the
nine-month periods ended June 30, 2006 and 2005, net interest income
was $10.3 million and $10.8 million, respectively. The decrease in net
interest income was predominantly due to an increase in deposit
interest expense, offset in part by an increase in interest income.
Interest expense on deposits increased to $2.3 million for the June
2006 quarter compared to $1.7 million for the June 2005 quarter, and
increased to $6.6 million from $4.9 million for the comparable nine
month periods. Interest income was $7.2 million for the three months
ended June 30, 2006 compared to $7.0 million for the three months
ended June 30, 2005, and for the nine months ended June 30, 2006 and
June 30, 2005 was $21.5 million and $20.5 million respectively.
   The provision for (recovery of) loan losses was ($35,000) for the
quarter ended June 30, 2006 compared to $361,000 for the same period
last year. The recovery during the quarter ended June 30, 2006 was
predominantly related to a reduction of commercial watch list loans.
The provision for loan losses was $1,867,000 for the nine months ended
June 30, 2006 compared to $632,000 for the same period last year. The
increase during the nine months ended June 30, 2006 was primarily
related to management's first quarter assessment of a commercial loan
to a business experiencing difficulties with inventory management,
trade accounts receivable collections, financial reporting, and
operating cash flow. This loan is primarily secured by inventory and
accounts receivable. After updating our analysis of the value of this
collateral, completing an assessment of the reliability and adequacy
of accounting systems and evaluating the recent financial performance
of the business, the Bank determined that an additional charge to
earnings in the amount of $2,324,000 ($1,411,000 net of tax) for this
loan was necessary during the first quarter ended December 31, 2005.
The loan has been placed on non-accrual status and is now fully
reserved. No charge-off has been recorded on this commercial loan
because the Bank cannot reasonably estimate at this time how much of
the loan it will ultimately collect. The percentage of non-performing
assets to total loans increased from 1.38% at June 30, 2005 to 2.40%
at June 30, 2006.
   Noninterest income increased to $1.8 million for the quarter
ending June 30, 2006 from $1.3 million for the comparable period in
2005 and increased to $4.9 million from $3.1 million for the same
nine-month periods. The increase for the quarter ended June 30, 2006
compared to June 30, 2005 was the result of a gain of $238,000 on the
call of an FHLB advance, a gain of $200,000 on the sale of the
insurance property and casualty business, and was offset by a $180,000
reduction in net realized gains from sales of loans. The year to date
increase was primarily the result of the first quarter non-cash
impairment charge to earnings in December 2004 of $948,000 ($626,000
net of tax) resulting from a decline in value of $2.0 million of
Fannie Mae ("FNMA") and $2.0 million of Freddie Mac ("FHLMC") floating
rate preferred stock securities MFB holds. Other increases over the
prior nine-month period came from office space rental income, which
was up $362,000, a $249,000 positive adjustment from a mortgage
servicing asset recovery versus impairment charge, and the
aforementioned gain on the call of the FHLB advance and gain on the
sale of the insurance book of business; net gains on the sales of
loans decreased by $410,000. The Bank's wholly-owned subsidiary,
Mishawaka Financial Services, Inc., continues to offer a variety of
life and health insurance products to customers in the Bank's market
area.
   Noninterest expense increased slightly to $4.3 million for the
quarter ended June 30, 2006 from $3.9 million for the quarter ended
June 30, 2005. For the nine months ended June 30, noninterest expense
increased from $11.8 million last year to $12.2 million for the same
period this year. The increase for the quarter and the nine months
ended 2006 compared to 2005 was primarily related to a loss on the
sale of a branch building, an increase in occupancy and equipment
expenses related to successful leasing of the majority of the main
office building by four major tenants, and an increase in salaries and
employee benefits.
   MFB Corp.'s total assets were $506.3 million at June 30, 2006
compared to $554.9 million at September 30, 2005. A decrease in cash
and cash equivalents from $54.2 million at September 30, 2005 to $24.4
million at June 30, 2006 was predominantly due to the repayment of
FHLB advances totaling $23.6 million during the nine months ended June
30, 2006. Total loans at June 30, 2006 of $379.1 million decreased
from the $390.7 million at September 30, 2005. Commercial loans
decreased from $157.8 million at September 30, 2005 to $139.6 million
at June 30, 2006, offset by mortgage loans increasing from $192.0
million at September 30, 2005 to $195.4 million at June 30, 2006 and
consumer loans, including home equity loans, increasing from $40.9
million at September 30, 2005 to $44.1 million at June 30, 2006.
Investment securities available for sale decreased from $63.6 million
at September 30, 2005 to $60.4 million at June 30, 2006.
   MFB Corp.'s allowance for loan losses at June 30, 2006 was $8.1
million or 2.14% of loans compared to $6.4 million or 1.63% of loans
at September 30, 2005. For the third quarter ended June 30, 2006, net
charge-offs were $51,000 compared to $119,000 net charge-offs for the
quarter ended June 30, 2005. Year to date net charge-offs were
$153,000 for the nine months ended June 30, 2006 and $263,000 for the
nine months ended June 30, 2005. In management's opinion, the
allowance for loan losses is adequate to cover probable incurred
losses at June 30, 2006.
   Total liabilities decreased $48.5 million during the nine-month
period, from $516.2 million at September 30, 2005 to $467.7 million at
June 30, 2006. The decrease was predominantly due to a measured
reduction in above-average cost deposit products and the repayment of
Federal Home Loan Bank (FHLB) Advances. Total deposits declined by
$23.8 million since September 30, 2005, from $374.4 million to $350.6
million; savings, NOW and MMDA deposits decreased $25.2 million, while
certificates increased by $3.0 million. Advances from the FHLB
decreased $23.8 million, from $125.9 million at September to $102.1
million at June 30. As of June 30, 2006, the advances had a weighted
average interest rate of 5.47% and mature over the next six years. A
total of $9 million of the advances with a weighted average interest
rate of 6.37% mature over the next twelve months.
   Total shareholders' equity declined by $92,000 to $38.6 million
from September 30, 2005 to June 30, 2006 due to dividend payouts of
$534,000, purchases of treasury stock of $491,000 and net unrealized
losses on investments of $323,000; these were offset in part by net
earnings of $1.2 million. MFB Corp's equity to assets ratio was 7.62%
at June 30, compared to 6.97% at September 30. The book value of MFB
Corp. stock also increased, from $28.52 at prior year end to $28.79 at
June 30, 2006.
   MFB Corp.'s wholly-owned bank subsidiary, MFB Financial, provides
retail and business financial services to the Michiana area through
its eleven banking centers in St. Joseph and Elkhart counties and
private client services to the Indianapolis market through its office
in Hamilton County. For more information, go to www.mfbbank.com.
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                      MFB CORP. AND SUBSIDIARIES
                CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 June 30, 2006 and September 30, 2005
                (in thousands except share information)


                                               June 30,  September 30,
                                                 2006        2005
                                               --------- -------------
Assets
Cash and due from financial institutions         $7,875        $7,613
Interest-bearing deposits in other financial
 institutions - short term                       16,477        46,596
                                               --------- -------------
   Total cash and cash equivalents               24,352        54,209

Securities available for sale                    60,431        63,575
Other investments                                11,858        12,514

Loans held for sale                                   0           407

Mortgage loans                                  195,411       191,970
Commercial loans                                139,646       157,804
Consumer loans                                   44,054        40,921
                                               --------- -------------
   Loans receivable                             379,111       390,695
   Less: allowance for loan losses               (8,102)       (6,388)
                                               --------- -------------
        Loans receivable, net                   371,009       384,307

Premises and equipment, net                      18,902        20,336
Mortgage servicing rights                         2,404         2,341
Cash surrender value of life insurance            6,165         5,964
Goodwill                                          1,970         2,423
Other intangible assets                           1,808         2,134
Other assets                                      7,399         6,667
                                               --------- -------------
             Total Assets                      $506,298      $554,877
                                               ========= =============
Liabilities and Shareholders' Equity
Liabilities
   Deposits
        Noninterest-bearing demand deposits     $35,264       $36,876
        Savings, NOW and MMDA deposits          128,664       153,864
        Time deposits                           186,636       183,624
                                               --------- -------------
             Total deposits                     350,564       374,364

   FHLB advances                                102,111       125,854
   Loans from correspondent banks                 6,500         6,500
   Subordinated debentures                        5,000         5,000
   Accrued expenses and other liabilities         3,542         4,486
                                               --------- -------------
        Total liabilities                       467,717       516,204

Shareholders' equity
   Common stock, no par value: 5,000,000 shares
    authorized; shares issued: 1,689,417 -
    06/30/06 and 09/30/05; shares outstanding:
    1,339,781 - 06/30/06 and 1,355,860 -
    09/30/05                                     12,376        12,376
   Additional paid-in capital                        44             -
   Retained earnings - substantially restricted  34,705        34,027
   Accumulated other comprehensive income
    (loss), net of tax of ($500) - 06/30/06 and
    ($175) - 09/30/05                              (633)         (310)
   Treasury stock: 349,636 common shares -
    06/30/06 and 333,557 common shares -
    09/30/05, at cost                            (7,911)       (7,420)
                                               --------- -------------
        Total shareholders' equity               38,581        38,673
                                               --------- -------------
             Total Liabilities and
              Shareholders' equity             $506,298      $554,877
                                               ========= =============


                      MFB CORP. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
          Three and Nine Months Ended June 30, 2006 and 2005
              (in thousands except per share information)


                                  Three Months Ended Nine Months Ended
                                      June 30,          June 30,
                                   2006      2005     2006     2005
                                 --------- -------- -------- --------
Interest income
  Loans receivable, including
   fees                             6,143   $6,314   18,212  $18,426
  Securities - taxable                840      610    2,418    1,937
  Other interest-bearing assets       201       53      833      145
                                 --------- -------- -------- --------
        Total interest income       7,184    6,977   21,463   20,508
Interest expense
  Deposits                          2,283    1,693    6,567    4,900
  FHLB advances and other
   borrowings                       1,509    1,532    4,633    4,806
                                 --------- -------- -------- --------
        Total interest expense      3,792    3,225   11,200    9,706
                                 --------- -------- -------- --------
Net interest income                 3,392    3,752   10,263   10,802
Provision for (recovery of) loan
 losses                               (35)     361    1,867      632
                                 --------- -------- -------- --------
Net interest income after
 provision for (recovery of)
 loan losses                        3,427    3,391    8,396   10,170

Noninterest income
   Service charges on deposit
    accounts                          814      831    2,442    2,417
   Trust fee income                    94      100      321      300
   Insurance commissions               38       53      129      153
   Net realized gains from sales
    of loans                           41      221      212      622
   Mortgage servicing asset
    recovery (impairment)              (1)    (107)     163      (86)
   Net gain (loss) on securities
    available for sale                  -        -        -     (948)
   Gain on call of FHLB advance       238        -      238        -
   Gain on sale of property and
    casualty insurance business       200        -      200        -
   Other income                       422      178    1,219      644
                                 --------- -------- -------- --------
        Total noninterest income    1,846    1,276    4,924    3,102
Noninterest expense
   Salaries and employee
    benefits                        2,003    1,953    5,875    5,617
   Occupancy and equipment            826      645    2,551    2,298
   Professional and consulting
    fees                              106      153      307      524
   Data processing expense            201      164      626      559
   Loss on sale of fixed assets       216        -      216        -
   Other expense                      934      970    2,639    2,811
                                 --------- -------- -------- --------
        Total noninterest
         expense                    4,286    3,885   12,214   11,809

Income before income taxes            987      782    1,106    1,463
Income tax expense (benefit)          193      168     (106)     163
                                 --------- -------- -------- --------
Net income                           $794     $614   $1,212   $1,300
                                 ========= ======== ======== ========

Basic earnings per common share     $0.59    $0.45    $0.90    $0.97
Diluted earnings per common
 share                              $0.57    $0.44    $0.87    $0.94

Cash dividends declared            $0.135   $0.125   $0.395   $0.370
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