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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-QSB  (X)
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR  (  )
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to __________ Commission File Number 1-14343 MIDLAND CAPITAL HOLDINGS CORPORATION  Delaware
    
    36-4238089(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 8929 S. Harlem Avenue, Bridgeview, Illinois
    
    60455(Address of Principal Executive Offices)
    
    (Zip Code)
 Issuers telephone number, including area code: (708) 598-9400 Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes (X)
No (  ) Transitional
Small Business Disclosure Format. Yes (  ) No
(X) Indicate the number of shares of each of the Issuers classes of common
stock as of the latest practicable date: Common Stock, par value $.01
(Title of Class) As of November 10, 2004, the Issuer had
372,600 shares of Common Stock issued and outstanding.




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MIDLAND CAPITAL HOLDINGS CORPORATION  
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition -
September 30, 2004 (unaudited) and June 30, 2004
    
    
    1Consolidated Statements of Earnings - Three Months
Ended September 30, 2004 and 2003 (unaudited)
    
    
    2Consolidated Statements of Changes in Stockholders Equity -
Three Months Ended September 30, 2004 (unaudited)
    
    
    3Consolidated Statements of Cash Flows  Three Months
Ended September 30, 2004 and 2003 (unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5-6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    7-14Item 3. Controls and Procedures
    
    
    14Part II. OTHER INFORMATION
    
    
    15Index to Exhibits
    
    
    16Computation of Per Share EarningCertificationCertification




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MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Part I  FINANCIAL INFORMATION 
 Consolidated Statements of Financial Condition September 30,
    
    June 30,2004
    
    2004(Unaudited)AssetsCash and amounts due from depository institutions
    
    $
    3,661,806
    
    
    
    3,786,039Interest-bearing deposits
    
    
    41,446,455
    
    
    
    46,710,590Total cash and cash equivalents
    
    
    45,108,261
    
    
    
    50,496,629Investment securities available for sale, at fair value
    
    
    1,285,312
    
    
    
    1,234,375Mortgage-backed securities, held to maturity (fair value: 
September 30, 2004 - $2,498,211;
June 30, 2004 - $2,980,932)
    
    
    2,468,471
    
    
    
    2,941,517Loans receivable (net of allowance for loan losses: 
September 30, 2004 - $459,472;
June 30, 2004 - $459,472)
    
    
    95,838,439
    
    
    
    93,961,360Loans receivable held for sale
    
    
    238,000
    
    
    
    581,500Stock in Federal Home Loan Bank of Chicago
    
    
    1,077,500
    
    
    
    1,061,800Office properties and equipment, net
    
    
    2,349,712
    
    
    
    2,376,025Accrued interest receivable
    
    
    402,969
    
    
    
    359,702Prepaid expenses and other assets
    
    
    687,201
    
    
    
    547,453Total assets
    
    $
    149,455,865
    
    
    
    153,560,361Liabilities
and Stockholders EquityLiabilities:Deposits
    
    $
    135,667,630
    
    
    
    140,436,704Advance payments by borrowers for taxes and insurance
    
    
    1,311,075
    
    
    
    954,259Other liabilities
    
    
    536,241
    
    
    
    427,084Total liabilities
    
    
    137,514,946
    
    
    
    141,818,047Stockholders equity:Preferred stock, $.01 par value: 
authorized 50,000 shares; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: authorized 600,000
shares; issued and outstanding 372,600 shares
at September 30, 2004 and June 30, 2004
    
    
    3,726
    
    
    
    3,726Additional paid-in capital
    
    
    3,395,580
    
    
    
    3,395,580Retained earnings  substantially restricted
    
    
    8,341,479
    
    
    
    8,176,334Accumulated other comprehensive income, net of income taxes
    
    
    200,134
    
    
    
    166,674Total stockholders equity
    
    
    11,940,919
    
    
    
    11,742,314Total liabilities and stockholders equity
    
    $
    149,455,865
    
    
    
    153,560,361
 See accompanying notes to consolidated financial statements. - 1 -




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MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Consolidated Statements of Earnings (Unaudited) Three Months EndedSeptember 30,2004
    
    2003Interest income:Interest on loans
    
    $
    1,374,769
    
    
    
    1,516,732Interest on mortgage-backed securities
    
    
    26,030
    
    
    
    70,445Interest on investment securities
    
    
    18,990
    
    
    
    51,180Interest on interest-bearing deposits
    
    
    145,111
    
    
    
    110,589Dividends on FHLB stock
    
    
    15,731
    
    
    
    15,881Total interest income
    
    
    1,580,631
    
    
    
    1,764,827Interest expense:Interest on deposits
    
    
    347,148
    
    
    
    490,728Total interest expense
    
    
    347,148
    
    
    
    490,728Net interest income before provision for loan losses
    
    
    1,233,483
    
    
    
    1,274,099Provision for loan losses
    
    
    
    
    
    
    15,000Net interest income after provision for loan losses
    
    
    1,233,483
    
    
    
    1,259,099Non-interest income:Loan fees and service charges
    
    
    71,015
    
    
    
    174,492Commission income
    
    
    12,252
    
    
    
    18,003Gain on sale of loans
    
    
    9,704
    
    
    
    8,598Deposit related fees
    
    
    113,023
    
    
    
    126,834Gain on satisfaction of foreclosure judgments
    
    
    
    
    
    
    433,285Other income
    
    
    17,390
    
    
    
    29,696Total non-interest income
    
    
    223,384
    
    
    
    790,908Non-interest expense:Staffing costs
    
    
    629,783
    
    
    
    710,646Advertising
    
    
    18,117
    
    
    
    17,907Occupancy and equipment expenses
    
    
    164,329
    
    
    
    198,106Data processing
    
    
    50,349
    
    
    
    52,619Federal deposit insurance premiums
    
    
    5,158
    
    
    
    5,851Other
    
    
    226,002
    
    
    
    236,276Total non-interest expense
    
    
    1,093,738
    
    
    
    1,221,405Income before income taxes
    
    
    363,129
    
    
    
    828,602Income tax provision
    
    
    123,464
    
    
    
    281,725Net income
    
    $
    239,665
    
    
    
    546,877Earnings per share (basic)
    
    $
    0.64
    
    
    
    1.47Earnings per share (diluted)
    
    $
    0.64
    
    
    
    1.47Dividends declared per common share
    
    $
    0.20
    
    
    
    0.17
 See accompanying notes to consolidated financial statements. - 2 -




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MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Consolidated Statements of Changes in Stockholders Equity (Unaudited) AccumulatedAdditional
    
    
    
    
    
    OtherCommon
    
    Paid-In
    
    Retained
    
    ComprehensiveStock
    
    Capital
    
    Earnings
    
    Income
    
    TotalBalance at June 30, 2004
    
    $
    3,726
    
    
    
    3,395,580
    
    
    
    8,176,334
    
    
    
    166,674
    
    
    
    11,742,314Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    239,665
    
    
    
    
    
    
    
    239,665Other comprehensive
income, net of tax:Unrealized holding gain
during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,460
    
    
    
    33,460Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    239,665
    
    
    
    33,460
    
    
    
    273,125Dividends declared on common
stock ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    (74,520
    )
    
    
    
    
    
    
    (74,520
    )Balance at September 30, 2004
    
    $
    3,726
    
    
    
    3,395,580
    
    
    
    8,341,479
    
    
    
    200,134
    
    
    
    11,940,919
 See accompanying notes to consolidated financial statements. - 3 -




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MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Consolidated Statements of Cash Flows (Unaudited) Three Months EndedSeptember 30,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    239,665
    
    
    
    546,877Adjustments to reconcile net income to net cash from
operating activities:Depreciation
    
    
    55,348
    
    
    
    75,989Net accretion on securities
    
    
    (1,508
    )
    
    
    (3,405
    )Federal Home Loan Bank stock dividend
    
    
    (15,700
    )
    
    
    (15,800
    )Provision for loan losses
    
    
    
    
    
    
    15,000Proceeds from sale of loans held for sale
    
    
    693,050
    
    
    
    611,900Origination of loans held for sale
    
    
    (349,550
    )
    
    
    (575,450
    )Gain on sale of loans
    
    
    (9,704
    )
    
    
    (8,598
    )(Increase) decrease in accrued interest receivable
    
    
    (43,267
    )
    
    
    29,822Decrease in accrued interest payable
    
    
    (614
    )
    
    
    (3,478
    )Decrease in deferred income on loans
    
    
    (10,378
    )
    
    
    (239,659
    )Increase in other assets
    
    
    (147,282
    )
    
    
    (136,714
    )Increase in other liabilities
    
    
    109,771
    
    
    
    244,135Net cash provided by operating activities
    
    
    519,831
    
    
    
    540,619Cash flows from investing activities:Proceeds from repayments of mortgage-backed securities,
held to maturity
    
    
    474,315
    
    
    
    1,262,227Proceeds from maturities of investment securities,
available for sale
    
    
    
    
    
    
    2,500,000Loan disbursements
    
    
    (5,717,202
    )
    
    
    (18,372,662
    )Loan repayments
    
    
    3,850,501
    
    
    
    19,697,719Property and equipment expenditures
    
    
    (29,035
    )
    
    
    (5,884
    )Net cash provided (for) by investing activities
    
    
    (1,421,421
    )
    
    
    5,081,400Cash flows from financing activities:Deposit account receipts
    
    
    96,179,684
    
    
    
    108,345,224Deposit account withdrawals
    
    
    (101,277,121
    )
    
    
    (111,238,206
    )Interest credited to deposit accounts
    
    
    328,363
    
    
    
    465,988Payment of dividends
    
    
    (74,520
    )
    
    
    (63,342
    )Increase (decrease) in advance payments by borrowers
for taxes and insurance
    
    
    356,816
    
    
    
    (698,481
    )Net cash provided for financing activities
    
    
    (4,486,778
    )
    
    
    (3,188,817
    )Net change in cash and cash equivalents
    
    
    (5,388,368
    )
    
    
    2,433,202Cash and cash equivalents at beginning of period
    
    
    50,496,629
    
    
    
    49,421,065Cash and cash equivalents at end of period
    
    $
    45,108,261
    
    
    
    51,854,267Cash paid during the period for:Interest
    
    $
    347,762
    
    
    
    494,206Income taxes
    
    
    25,076
    
    
    
    12,538
 See accompanying notes to consolidated financial statements. - 4 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and therefore, do not include
information or footnotes necessary for fair presentation of financial
condition, results of operations and changes in financial position in
conformity with accounting principles generally accepted in the United States
of America. However, in the opinion of management, all adjustments (which are
normal and recurring in nature) necessary for a fair presentation have been
included. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The results of operations for the three months ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the entire year. Note B - Principles of Consolidation The accompanying unaudited consolidated financial statements include the
accounts of Midland Capital Holdings Corporation (the Company) and its
wholly-owned subsidiary, Midland Federal Savings and Loan Association (the
Association) and the Associations wholly-owned subsidiaries, Midland Federal
Service Corporation, Midland Insurance Services, Inc. and Bridgeview
Development Company. All significant intercompany balances and transactions
have been eliminated in consolidation. Note C - Earnings Per Share Earnings per share for the three month periods ended September 30, 2004 and
2003 were determined by dividing net income for the period by the weighted
average number of shares of common stock outstanding (see Exhibit 11 attached).
Stock options are regarded as common stock equivalents and are therefore
considered in diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method. Note D - Industry Segments The Company operates principally in the thrift industry through its subsidiary
savings and loan. As such, substantially all of the Companys revenues, net
income, identifiable assets and capital expenditures are related to thrift
operations. Note E - Effect of New Accounting Pronouncements In December 2003, the American Institute of Certified Public Accountants
(AICPA) released Statement of Position 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses
accounting for differences between contractual cash flows and cash flows
expected to be collected from an investors initial investment in loans or debt
securities acquired in a transfer if those differences are attributable to
credit quality. SOP 03-3 is effective for loans acquired in fiscal years
beginning after December 15, 2004. Adoption of this Statement is not expected
to have a material impact on the Companys consolidated financial statements. In March 2004, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 105 (SAB No. 105), Application of Accounting Principles to Loan
Commitments. SAB No. 105 prohibits the inclusion of estimated servicing cash
flows and internally developed intangible assets within the valuation of
interest rate lock commitments under Statement of Accounting Standards No. 133.
SAB No. 105 is effective for disclosures and
interest rate lock commitments initiated after March 31, 2004. Adoption of
this Bulletin did not have a material impact on the Companys consolidated
financial statements. - 5 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Note E - Effect of New Accounting Pronouncements (continued) The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It
is intended only as a particular interest to financial institutions. - 6 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Companys press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases would be,
will allow, intends to, will likely result, are expected to, will
continue, is anticipated, estimate, project or similar expressions are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to risks and uncertainties, including but not limited to changes in economic
conditions and real estate values in the Companys market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Companys market area and competition, all or some of which could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Companys financial performance and could cause the
Companys actual results for future periods to differ materially from those
anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements. GENERAL Midland Capital Holdings Corporation (the Company) is a Delaware corporation
that was organized for the purpose of becoming the thrift holding company for
Midland Federal Savings and Loan Association (the Association or Midland
Federal). The Association converted from a federal mutual savings and loan
association to a federal stock savings and loan association on June 30, 1993
(the Conversion). In the Conversion, 345,000 shares of common stock, par
value of $.01 per share, of the Association were sold in an initial public
offering for an aggregate consideration of $3.45 million. On July 23, 1998, as
a result of a re-organization, the Association became a wholly owned subsidiary
of the Company, and each outstanding share of common stock of the Association
became, by operation of law, one share of common stock of the Company. At
September 30, 2004 there were 372,600 shares of the Companys common stock
outstanding. The principal asset of the Company is the outstanding stock of the Association.
The Company presently has no separate operations and its business consists
only of the business of the Association and its subsidiaries. Midland Federal
has been principally engaged in the business of attracting deposits from the
general public and using such deposits to originate residential mortgage loans,
and to a lesser extent, consumer, multi-family and other loans in its primary
market area. The Association also has made substantial investments in
mortgage-backed securities, investment securities and liquid assets. Midland
Federal also operates a wholly-owned subsidiary, Midland Federal Service
Corporation that owns and operates Midland Insurance Services, Inc., a full
service retail insurance agency. - 7 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES GENERAL (continued) The Associations primary market area consists of Southwest Chicago, and the
southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Justice, Burbank, Chicago Ridge, Homer Glen, Lockport, Orland Park and
Lemont. The Company serves these communities through its main office in
Bridgeview, two branch banking offices in southwest Chicago and a third branch
banking office in Homer Glen, Illinois. The Associations deposits are insured
up to applicable limits by the Federal Deposit Insurance Corporation (FDIC).
At September 30, 2004, Midland Federals capital ratios exceeded all of its
regulatory capital requirements with both tangible and core capital ratios of
7.04% and a risk-based capital ratio of 13.60%. FINANCIAL CONDITION At September 30, 2004, total assets of the Company decreased by $4.1 million to
$149.5 million from $153.6 million at June 30, 2004. Loans receivable,
including loans available for sale, increased $1.5 million to $96.1 million at
September 30, 2004. The Company originated $6.1 million of primarily fixed
rate loans during the quarter ended September 30, 2004 compared to loan
originations of $18.9 million during the prior year quarter. The lower loan
origination volume in the current quarter was due in part to a decrease in the
amount of mortgage refinancing activity. Offsetting loan originations in the
current quarter were loan repayments of $3.9 million as well as loan sales of
$693,000. There were no new purchases of mortgage-backed securities during the
quarter ended September 30, 2004 and as a result, the balance of
mortgage-backed securities decreased by $473,000 to $2.5 million due to
repayments and amortization. The balance of investment securities available for sale remained stable and
totaled $1.3 million at September 30, 2004 compared to $1.2 million at June 30,
2004. Gross unrealized gains in the available for sale portfolio were $303,000
at September 30, 2004 compared to gross unrealized gains of $253,000 at June
30, 2004, reflecting the positive impact of lower long term interest rates.
The weighted average remaining term to maturity of the Companys total
investment securities portfolio at September 30, 2004 was 12.4 years. In order to fund a decline in deposit liabilities, the Company decreased the
balance of cash and cash equivalents by $5.4 million to $45.1 million at
September 30, 2004 from $50.5 million at June 30, 2004. Non-performing assets consisted of $133,000 in non-accruing loans at September
30, 2004 compared to $55,000 at June 30, 2004. The allowance for loan losses
remained unchanged at $460,000, or 0.48% of total loans, at September 30, 2004
as compared to June 30, 2004. The Company experienced no loan charge offs and
made no additional loan loss provisions during the quarter ended September 30,
2004. Non-accruing loans at September 30, 2004 consisted of $125,000 in
one-to-four family residential mortgage loans and $8,000 in non-mortgage loans.
At September 30, 2004 the Companys ratio of allowance for loan losses to
non-performing loans was 344.99% compared to 829.00% at June 30, 2004.
Management believes that the current allowance for loan losses is adequate to
cover probable accrued losses in the portfolio. - 8 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES FINANCIAL CONDITION (continued) The following table sets forth the amounts and categories of non-performing
assets in the Companys portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest becomes doubtful, generally when
the loan is delinquent 90 days or more. Foreclosed assets, if any, include
assets acquired in settlement of loans. September 30,
    
    June 30,2004
    
    2004(Dollars in Thousands)Non-Accruing Loans:One-to-four family
    
    $
    125
    
    
    $
    36Multi-family
    
    
    
    
    
    
    Consumer
    
    
    8
    
    
    
    19Commercial business
    
    
    
    
    
    
    Total non-performing loans
    
    $
    133
    
    
    $
    55Foreclosed Assets:One-to-four family
    
    
    
    
    
    
    Total foreclosed assets
    
    
    
    
    
    
    Total non-performing assets
    
    $
    133
    
    
    $
    55Total as a percentage of total assets
    
    
    0.09
    %
    
    
    0.04
    %
 As of September 30, 2004, there were no loans not included in the above table
where known information about the possible credit problems of borrowers caused
management to have serious doubts as to the ability of the borrower to comply
with present loan repayment terms and which may result in disclosure of such
loans in the future. - 9 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES FINANCIAL CONDITION (continued) The following table sets forth an analysis of the Companys allowance for loan
losses. Three Months EndedSeptember 30,2004
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    460
    
    
    $
    410Charge-offs:One-to-four family loans
    
    
    
    
    
    
    Consumer loans
    
    
    
    
    
    
    1Commercial business loans
    
    
    
    
    
    
    Total charge-offs
    
    
    
    
    
    
    1Recoveries:One-to-four family loans
    
    
    
    
    
    
    Multi-family loans
    
    
    
    
    
    
    Consumer loans
    
    
    
    
    
    
    Total recoveries
    
    
    
    
    
    
    Net (charge-offs) recoveries
    
    
    
    
    
    
    (1
    )Additions charged to operations
    
    
    
    
    
    
    15Balance at end of period
    
    $
    460
    
    
    $
    424Ratio of net charge-offs during the period to
average loans outstanding during the period
    
    
    
    %
    
    
    
    %Ratio of net charge-offs during the period to
average non-performing assets
    
    
    
    %
    
    
    
    %Allowance for loan losses to non-performing loans
    
    
    344.99
    %
    
    
    103.35
    %Allowance for loan losses to total loans
    
    
    0.48
    %
    
    
    0.46
    %
 At September 30, 2004, the Company was aware of no regulatory directives or
suggestions that the Association make additional provisions for losses on
loans. Although the Company believes its allowance for loan losses is at a
level that it considers to be adequate to provide for possible accrued losses
in the portfolio, there can be no assurance that such losses will not exceed
the estimated amounts. Deposits for the quarter ended September 30, 2004 decreased $4.8 million as a
result of net withdrawals in the amount of $5.1 million offset by interest
credited to deposits in
the amount of $328,000. The net decrease in deposits is primarily attributed
to increased pricing competition for interest costing deposits in the current
rising interest rate environment. The decrease in deposits is the result of a
$2.8 million decrease in certificate of deposit accounts, a $2.1 million
decrease in passbook deposit accounts and a $629,000 decrease in money market
accounts offset by a $701,000 increase in demand deposit accounts and a $98,000
increase in NOW accounts. Stockholders equity increased $199,000, or 1.7%, to $11.9 million at September
30, 2004 from $11.7 million at June 30, 2004. The increase in stockholders
equity was due to net income of $240,000 and an increase in accumulated other
comprehensive income of $34,000 offset by the payment of cash dividends in the
amount of $75,000. - 10 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES RESULTS OF OPERATIONS Net income for the quarter ended September 30, 2004 was $240,000 compared to
net income of $547,000 for the quarter ended September 30, 2003. Net income in
the current quarter was decreased as the result of a $41,000 decrease in net
interest income and a $567,000 decrease in non-interest income, offset by a
$15,000 decrease in provision for loan losses, a $128,000 decrease in
non-interest expense and a $158,000 decrease in income taxes. Net income in the quarter ended September 30, 2003 was increased by the
collection of non-accruing loan interest in the amount of $216,000 as well as a
$433,000 gain from the satisfaction of deficiency judgments, both of which were
the result of a loan workout agreement that was paid in full during the quarter
ended September 30, 2003. The current quarter also included the collection of
non-accruing loan interest from another loan workout agreement in the amount of
$15,000. Exclusive of these items in both periods, net income for the quarter
ended September 30, 2004 would have been $230,000, compared to net income of
$119,000 for the quarter ended September 30, 2003. The Companys interest rate spread increased to 3.30% for the quarter ended
September 30, 2004 from 3.24% for the prior year period. The increase in
interest rate spread was primarily due to a decrease in the Companys average
yield paid on interest costing deposits to 1.11% in the current period from
1.46% in the prior year period. The decrease in the average yield paid on
interest costing deposits offset a decrease in the average yield earned on
interest earning assets to 4.41% in the current period from 4.71% in the prior
year period. The average balance of net earning assets (average interest
earning assets minus average interest bearing liabilities) also increased by
$2.9 million to $18.7 million compared with the prior year period. Interest Income Interest income decreased $184,000, or 10.4%, for the quarter ended September
30, 2004 as compared to the same period last year. The decrease in interest
income is attributed to a decline in the average yield earned on interest
earning assets as well as a decline in the average balance of interest earning
assets. The average yield on interest earning assets decreased to 4.41% for
the quarter ended September 30, 2004 from 4.71% in the prior year quarter and
the average balance of interest earning assets decreased by $6.6 million to
$143.4 million for the quarter ended September 30, 2004 compared to $150.0
million for the quarter ended September 30, 2003. The decline in the average
yield earned on interest earning assets is primarily attributed to the
collection of $15,000 of non-accruing loan interest in the current period as
compared to the collection of $216,000 of non-accruing loan interest in the
prior year period, as discussed above. Interest on loans receivable decreased $142,000, or 9.4%, for the quarter ended
September 30, 2004 from the comparable quarter in 2003. The decrease in
interest income was primarily attributed to a decrease in the average yield
earned on loans receivable to
5.74% for the quarter ended September 30, 2004 as compared to 6.59% for the
quarter ended September 30, 2003. The primary factor for the decrease in the
average yield earned on loans receivable was the collection of $15,000 of
non-accruing loan interest in the current period as compared to the collection
of $216,000 of non-accruing loan interest in the prior year period, as
discussed above. The decrease in the average yield on loans receivable was
partially offset by a $3.7 million increase in the average outstanding balance
of net loans receivable to $95.7 million for the quarter ended September 30,
2004 from $92.0 million for the quarter ended September 30, 2003. - 11 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Interest Income (continued) Interest on mortgage-backed securities decreased $44,000, or 63.0%, for the
quarter ended September 30, 2004 from the comparable quarter in 2003. The
decrease in interest income is attributed to a decrease in the average balance
of mortgage-backed securities as well as a decrease in the average yield earned
on mortgage-backed securities in the quarter ended September 30, 2004 as
compared with the same period last year. For the quarter ended September 30,
2004, the average balance of mortgage-backed securities decreased $2.9 million
to $2.6 million from $5.5 million in the prior year quarter. The average yield
earned on mortgage-backed securities also decreased to 4.00% for the quarter
ended September 30, 2004 from 5.14% for the quarter ended September 30, 2003.
The decrease in the average yield earned on mortgage-backed securities was the
result of the Companys balance of adjustable rate mortgage-backed securities
re-pricing at lower yields as market interest rates decreased between the two
quarterly periods. Interest earned on investment securities decreased $32,000, or 62.9%, for the
quarter ended September 30, 2004 from the prior year period due to a $3.7
million decrease in the average outstanding balance of investment securities to
$1.3 million from $5.0 million in the 2003 quarter. The decline in the average
balance of investment securities was offset by an increase in the average yield
earned on investment securities to 5.97% for the quarter ended September 30,
2004 from 4.07% in the year earlier period, as lower yielding securities within
the portfolio were allowed to runoff at maturity. Interest earned on interest bearing deposits increased $34,000, or 31.2%, for
the quarter ended September 30, 2004 from the same quarter in 2003. The
increase in interest income is attributed to an increase in the average yield
earned on interest bearing deposits. For the quarter ended September 30, 2004,
the average yield earned on interest bearing deposits increased to 1.36% from
0.95% for the quarter ended September 30, 2003. The increase in the average
yield on interest bearing deposits offset a $3.7 million decrease in the
average balance of interest bearing deposits to $42.7 million from $46.4
million in the 2003 quarter. Interest Expense Interest expense decreased $144,000, or 29.3%, for the quarter ended September
30, 2004 compared with the prior year quarter. The decrease in interest
expense is attributable to a decrease in the average yield paid on interest
costing deposits as well as a decrease in the average balance of interest
costing deposits. For the quarter ended September 30, 2004, the average yield
paid on interest costing deposits decreased to 1.11% from 1.46% for the quarter
ended September 30, 2003. The average balance of interest costing deposits
also decreased by $9.5 million to $124.7 million for the quarter ended
September 30, 2004 from $134.2 million in the prior year quarter. Provisions for Losses on Loans The Company maintains an allowance for loan losses based upon managements
periodic evaluation of probable accrued losses in the portfolio based on known
and inherent risks in the loan portfolio, the Companys past loan loss
experience, adverse situations that may affect borrowers ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The Company incurred no loan charge offs during the quarter
ended September 30, 2004. After consideration of the high concentration of
one-to-four family mortgage loans in the loan portfolio, current economic
conditions, trends in the portfolio, the level of loan charge offs and the
strong housing market, the $460,000 allowance for loan losses at September 30,
2004 was determined by the Company to be sufficient to cover probable accrued
losses in the loan portfolio consistent with its policy for the establishment
and maintenance of adequate levels of loan loss reserves. As a result, the
Company made no loan loss provision during the quarter ended September 30,
2004. - 12 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Provisions for Losses on Loans (continued) The Companys ratio of allowance for loan losses to total loans and to
non-performing loans was .48% and 344.99%, respectively, at September 30, 2004
compared to .49% and 829.00%, respectively, at June 30, 2004. Non-Interest Income Non-interest income decreased $568,000 to $223,000 in the quarter ended
September 30, 2004 as compared to the prior year quarter. The primary factors
for the decrease in non-interest income were the elimination of a $433,000 gain
from the satisfaction of deficiency judgments which occurred in the prior year
period, a $103,000 decrease in loan fees and service charges, a $14,000
decrease in deposit related fees and a $6,000 decrease in commission income.
The decrease in loan fees and service charges in the current quarter is
attributed to a decrease in loan origination activity compared to the prior
year period, as loan originations decreased to $6.1 million from $18.9 million. Non-Interest Expense Non-interest expense decreased $128,000 to $1.1 million in the quarter ended
September 30, 2004 as compared to the prior year quarter. The decrease in
non-interest expense is primarily the result of an $81,000 decrease in staffing
costs, a $34,000 decrease in office occupancy expense and a $16,000 decrease in
professional fees. The decrease in staffing costs is primarily attributed to a
$63,000 decrease in loan origination commissions, due to a decrease in lending
volume offset by a $9,000 increase in the cost of employee benefits. Income Taxes Income taxes decreased to $123,000 in the quarter ended September 30, 2004 from
$282,000 for the same period last year. The decreased income tax provision was
due primarily to the decrease in operating income in the quarter ended
September 30, 2004 as compared to the quarter ended September 30, 2003. LIQUIDITY AND CAPITAL RESOURCES The Companys principal sources of funds are deposits, loan and mortgage backed
securities repayments, proceeds from the maturities of investment securities
and other funds provided by operations. The Company maintains investments in
liquid assets based
upon managements assessment of (i) the Companys need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and (iv)
the objectives of the Companys asset/liability management program. At
September 30, 2004 the Company had commitments to originate $1.5 million in
single-family mortgage loans and commitments to sell $238,000 in loans. The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificate of deposits and deposit withdrawals,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. The Company considers its liquidity and capital reserves
sufficient to meet its outstanding short and long-term needs. The Company
expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities. At September 30, 2004, the Association had tangible and core capital of $10.5
million, or 7.04% of adjusted total assets, which was approximately $8.3
million and $6.0 million above the minimum requirements in effect on that date
of 1.5% and 3.0%, respectively, of adjusted total assets. - 13 -




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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) At September 30, 2004, the Association had total capital of $11.0 million
(including $10.5 million in core capital) and risk-weighted assets of $80.6
million, or total capital of 13.60% of risk-weighted assets. This amount was
$4.5 million above the 8.0% requirement in effect on that date. 
 Item 3. CONTROLS AND PROCEDURES The Company has adopted disclosure controls and procedures designed to
facilitate the Companys financial reporting. The disclosure controls
currently consist of communications between the Chief Executive and Financial
Officer and each department head to identify any new transactions, events,
trends, risks or contingencies which may be material to the Companys
operations. In addition, the Chief Executive and Financial Officer and the
Companys independent auditors also meet on a quarterly basis and discuss the
Companys material accounting policies. Finally, the Chief Executive and
Financial Officer and certain of the Companys other Officers meet on a regular
basis to review the Companys financial statements and certain documents
related to material transactions. The Companys Chief Executive and Financial
Officer has evaluated the effectiveness of these disclosure controls as of the
end of the period covered by this report and found them to be adequate. The Company maintains internal control over financial reporting. There have
not been any significant changes in such internal control over financial
reporting in the last quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal controls over financial
reporting. - 14 -




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MIDLAND CAPITAL HOLDINGS CORPORATION AND SUBSIDIARIES 
 PART II  OTHER INFORMATION Item 1. LEGAL PROCEEDINGS From time to time, the Association is a party to legal proceedings wherein it
enforces its security interest or is a defendant to certain lawsuits arising
out of the ordinary course of its business. Neither the Company nor the
Association believes that it is a party to any legal proceedings that, if
adversely determined, would have a material adverse effect on its financial
condition at this time. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K See Exhibit Index. - 15 -




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INDEX TO EXHIBITS ExhibitNumber
    
    Description11
    
    Computation of Per Share Earnings31.1
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 - 16 -




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SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. MIDLAND CAPITAL HOLDINGS CORPORATION
RegistrantDATE: November 10, 2004
    
    BY:
    
    /s/ Paul ZogasPaul ZogasPresident, Chief Executive Officerand Chief Financial OfficerDATE: November 10, 2004
    
    BY:
    
    /s/ Charles ZogasCharles ZogasExecutive Vice President andChief Operating Officer