##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 
 FORM 10-QSB  þ
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 OR  o
    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 þ No o Transitional Small Business Disclosure Format. Yes o No þ 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  As of February 14, 2005, the Issuer had 372,600 shares of Common Stock issued and outstanding.




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition  December 31, 2004 (unaudited) and June 30, 2004
    
    
    1Consolidated Statements of Earnings  Three months ended December 31, 2004 and 2003 and Six months ended December 31, 2004 and 2003 (unaudited)
    
    
    2Consolidated Statements of Changes in Stockholders Equity  Six months ended December 31, 2004 (unaudited)
    
    
    3Consolidated Statements of Cash Flows  Six months ended December 31, 2004 and 2003 (unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5-6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7-15Item 3. Controls and Procedures
    
    
    16Part II. OTHER INFORMATION
    
    
    17Index to Exhibits
    
    
    18




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Part I  FINANCIAL INFORMATION 
 Item 1. FINANCIAL STATEMENTS 
 Consolidated Statements
of Financial Condition
 December 31,
    
    
    June 30,2004
    
    
    2004(Unaudited)AssetsCash and amounts due from depository institutions
    
    $
    2,852,122
    
    
    
    3,786,039Interest-bearing deposits
    
    
    37,810,953
    
    
    
    46,710,590Total cash and cash equivalents
    
    
    40,663,075
    
    
    
    50,496,629Investment securities available for sale, at fair value
    
    
    1,277,813
    
    
    
    1,234,375Mortgage-backed securities, held to maturity (fair value:December 31, 2004 - $2,286,540;
June 30, 2004 - $2,980,932)
    
    
    2,258,227
    
    
    
    2,941,517Loans receivable (net of allowance for loan losses:December 31, 2004 - $458,430;
June 30, 2004 - $459,472)
    
    
    95,794,586
    
    
    
    93,961,360Loans receivable held for sale
    
    
    0
    
    
    
    581,500Stock in Federal Home Loan Bank of Chicago
    
    
    1,093,600
    
    
    
    1,061,800Office properties and equipment, net
    
    
    2,307,414
    
    
    
    2,376,025Accrued interest receivable
    
    
    337,749
    
    
    
    359,702Prepaid expenses and other assets
    
    
    625,274
    
    
    
    547,453Total assets
    
    $
    144,357,738
    
    
    
    153,560,361Liabilities and Stockholders EquityLiabilities:Deposits
    
    $
    130,806,744
    
    
    
    140,436,704Advance payments by borrowers for taxes and insurance
    
    
    1,026,511
    
    
    
    954,259Other liabilities
    
    
    429,575
    
    
    
    427,084Total liabilities
    
    
    132,262,830
    
    
    
    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
      December 31, 2004 and June 30, 2004
    
    
    3,726
    
    
    
    3,726Additional paid-in capital
    
    
    3,395,580
    
    
    
    3,395,580Retained
earnings - substantially restricted
    
    
    8,500,575
    
    
    
    8,176,334Accumulated other comprehensive income, net of income taxes
    
    
    195,027
    
    
    
    166,674Total stockholders equity
    
    
    12,094,908
    
    
    
    11,742,314Total liabilities and stockholders equity
    
    $
    144,357,738
    
    
    
    153,560,361
 See accompanying notes to consolidated financial statements. -1-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Consolidated Statements of Earnings Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003(Unaudited)
    
    
    (Unaudited)Interest income:Interest on loans
    
    $
    1,382,873
    
    
    
    1,326,592
    
    
    
    2,757,642
    
    
    
    2,843,324Interest on mortgage-backed securities
    
    
    22,475
    
    
    
    49,584
    
    
    
    48,506
    
    
    
    120,029Interest on investment securities
    
    
    18,990
    
    
    
    29,099
    
    
    
    37,979
    
    
    
    80,278Interest on interest-bearing deposits
    
    
    176,954
    
    
    
    114,681
    
    
    
    322,064
    
    
    
    225,270Dividends on FHLB stock
    
    
    16,140
    
    
    
    17,719
    
    
    
    31,871
    
    
    
    33,600Total interest income
    
    
    1,617,432
    
    
    
    1,537,675
    
    
    
    3,198,062
    
    
    
    3,302,501Interest expense:Interest on deposits
    
    
    335,789
    
    
    
    457,903
    
    
    
    682,937
    
    
    
    948,630Total interest expense
    
    
    335,789
    
    
    
    457,903
    
    
    
    682,937
    
    
    
    948,630Net interest income
    
    
    1,281,643
    
    
    
    1,079,772
    
    
    
    2,515,125
    
    
    
    2,353,871Provision for loan losses
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    30,000Net interest income after provision
for loan losses
    
    
    1,281,643
    
    
    
    1,064,772
    
    
    
    2,515,125
    
    
    
    2,323,871Non-interest income:Loan fees and service charges
    
    
    71,609
    
    
    
    99,610
    
    
    
    142,624
    
    
    
    274,102Commission income
    
    
    12,991
    
    
    
    19,623
    
    
    
    25,243
    
    
    
    37,626Profit on sale of loans
    
    
    4,148
    
    
    
    2,515
    
    
    
    13,852
    
    
    
    11,112Deposit related fees
    
    
    106,827
    
    
    
    123,403
    
    
    
    219,850
    
    
    
    250,237Gain on satisfaction of
foreclosure judgments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433,285Other income
    
    
    12,203
    
    
    
    15,180
    
    
    
    29,593
    
    
    
    44,877Total non-interest income
    
    
    207,778
    
    
    
    260,331
    
    
    
    431,162
    
    
    
    1,051,239Non-interest expense:Staffing costs
    
    
    667,511
    
    
    
    653,371
    
    
    
    1,297,294
    
    
    
    1,364,017Advertising
    
    
    15,478
    
    
    
    19,071
    
    
    
    33,595
    
    
    
    36,979Occupancy and equipment expenses
    
    
    157,233
    
    
    
    186,668
    
    
    
    321,561
    
    
    
    384,773Data processing
    
    
    48,901
    
    
    
    51,155
    
    
    
    99,250
    
    
    
    103,774Federal deposit insurance premiums
    
    
    5,102
    
    
    
    5,592
    
    
    
    10,260
    
    
    
    11,443Other
    
    
    241,232
    
    
    
    230,881
    
    
    
    467,235
    
    
    
    467,157Total non-interest expense
    
    
    1,135,457
    
    
    
    1,146,738
    
    
    
    2,229,195
    
    
    
    2,368,143Income before income taxes
    
    
    353,964
    
    
    
    178,365
    
    
    
    717,092
    
    
    
    1,006,967Income tax provision
    
    
    120,348
    
    
    
    60,644
    
    
    
    243,811
    
    
    
    342,369Net income
    
    $
    233,616
    
    
    
    117,721
    
    
    
    473,281
    
    
    
    664,598Earnings per share (basic)
    
    $
    .63
    
    
    
    .32
    
    
    
    1.27
    
    
    
    1.78Earnings per share (diluted)
    
    $
    .63
    
    
    
    .32
    
    
    
    1.27
    
    
    
    1.78Dividends declared per common share
    
    $
    .20
    
    
    
    .17
    
    
    
    .40
    
    
    
    .34
 See accompanying notes to consolidated financial statements. -2-




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    473,281
    
    
    
    
    
    
    
    473,281Other comprehensive
income, net of tax:Unrealized holding gain
during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,353
    
    
    
    28,353Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    473,281
    
    
    
    28,353
    
    
    
    501,634Dividends declared on common
stock ($0.40 per share)
    
    
    
    
    
    
    
    
    
    
    (149,040
    )
    
    
    
    
    
    
    (149,040
    )Balance at December 31, 2004
    
    $
    3,726
    
    
    
    3,395,580
    
    
    
    8,500,575
    
    
    
    195,027
    
    
    
    12,094,908
 See accompanying notes to consolidated financial statements. -3-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATIONAND SUBSIDIARIES 
 Consolidated Statements of Cash Flows (Unaudited) Six Months EndedDecember 31,2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    473,281
    
    
    
    664,598Adjustments to reconcile net income to net cash from
operating activities:Depreciation
    
    
    108,060
    
    
    
    148,627Net (accretion) amortization on securities
    
    
    (1,748
    )
    
    
    (6,040
    )Provision for loan losses
    
    
    
    
    
    
    30,000Federal Home Loan Bank stock dividend
    
    
    (31,800
    )
    
    
    (33,500
    )Proceeds from sale of loans held for sale
    
    
    987,050
    
    
    
    791,450Origination of loans held for sale
    
    
    (405,550
    )
    
    
    (687,461
    )Profit on sale of loans
    
    
    (2,196
    )
    
    
    (11,112
    )Decrease in accrued interest receivable
    
    
    21,953
    
    
    
    93,908Increase (decrease) in accrued interest payable
    
    
    806
    
    
    
    (4,042
    )Decrease in deferred income on loans
    
    
    (17,381
    )
    
    
    (246,000
    )Increase in other assets
    
    
    (90,231
    )
    
    
    (63,454
    )Increase (decrease) in other liabilities
    
    
    1,685
    
    
    
    (30,117
    )Net cash provided by operating activities
    
    
    1,043,929
    
    
    
    646,857Cash flows from investing activities:Proceeds from repayments of mortgage backed securities,
held to maturity
    
    
    684,559
    
    
    
    2,096,007Proceeds from maturities of investment securities,
available for sale
    
    
    
    
    
    
    5,000,000Loan disbursements
    
    
    (11,817,108
    )
    
    
    (28,310,353
    )Loan repayments
    
    
    10,001,263
    
    
    
    27,588,556Property and equipment expenditures
    
    
    (39,449
    )
    
    
    (9,243
    )Net cash provided (for) by investing activities
    
    
    (1,170,735
    )
    
    
    6,364,967Cash flows from financing activities:Deposit account receipts
    
    
    193,315,852
    
    
    
    202,464,941Deposit account withdrawals
    
    
    (203,590,175
    )
    
    
    (207,823,360
    )Interest credited to deposit accounts
    
    
    644,363
    
    
    
    897,821Payment of dividends
    
    
    (149,040
    )
    
    
    (126,684
    )Increase (decrease) in advance payments by borrowers
for taxes and insurance
    
    
    72,252
    
    
    
    (133,950
    )Net cash provided for financing activities
    
    
    (9,706,748
    )
    
    
    (4,721,232
    )Net change in cash and cash equivalents
    
    
    (9,833,554
    )
    
    
    2,290,592Cash and cash equivalents at beginning of period
    
    
    50,496,629
    
    
    
    49,421,065Cash and cash equivalents at end of period
    
    $
    40,663,075
    
    
    
    51,711,657Cash paid during the period for:Interest
    
    $
    682,131
    
    
    
    952,672Income taxes
    
    
    218,069
    
    
    
    327,390Computation of Per Share EarningsCertificationCertification
 See accompanying notes to consolidated financial statements. -4-




---



##### Table of Contents



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 and six
months ended December 31, 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 accounts and transactions have been eliminated in
consolidation. Note C  Earnings Per Share Earnings per share for the three month and six month periods ended December 31, 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. -5-




---



##### Table of Contents



Note
E   Effect of New Accounting Pronouncements (continued) In March 2004, the FASB reached a consensus on EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-1). EITF 03-1 provides guidance
for determining when an investment is impaired and whether the impairment is other than temporary.
EITF 03-1 also incorporates into its consensus the required disclosures about unrealized losses on
investments announced by the EITF in late 2003 and adds new disclosure requirements relating to
cost-method investments. The new disclosure requirements are effective for annual reporting
periods ending after June 15, 2004 and the new impairment accounting guidance was to become
effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB delayed
the effective date of EITF 03-1 for measurement and recognition of impairment losses until
implementation guidance is issued. Adoption of the impairment guidance contained in EITF 03-1 is
not expected to have a material impact on the Companys financial position or results of
operations. 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-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES 
 Item 2. 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 reorganization, 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 December 31, 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-




---



##### Table of Contents



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 December 31, 2004, Midland
Federals capital ratios exceeded all of its regulatory capital requirements with both tangible and
core capital ratios of 7.31% and a risk-based capital ratio of 13.68%. FINANCIAL CONDITION At December 31, 2004, total assets of the Company decreased by $9.2 million to $144.4 million from
$153.6 million at June 30, 2004. Loans receivable, including loans available for sale, increased
$1.3 million to $95.8 million at December 31, 2004. The Company originated $12.2 million of
primarily fixed rate loans during the six months ended December 31, 2004 compared to loan
originations of $29.0 million during the prior year period. The lower loan origination volume in
the current six month period was due in part to a decrease in the amount of mortgage refinancing
activity. Offsetting loan originations in the current six month period were loan repayments of
$10.0 million as well as loan sales of $987,000. There were no new purchases of mortgage-backed
securities during the six months ended December 31, 2004 and as a result, the balance of
mortgage-backed securities decreased by $683,000 to $2.3 million due to repayments and
amortization. The balance of investment securities available for sale remained stable and totaled $1.3 million at
December 31, 2004 compared to $1.2 million at June 30, 2004. Gross unrealized gains in the
available for sale portfolio were $295,000 at December 31, 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 December 31, 2004 was 12.2 years. The Company decreased the balance of cash and cash equivalents by $9.8 million to $40.7 million at
December 31, 2004 from $50.5 million at June 30, 2004 to fund the decline in deposit liabilities
discussed below. Non-performing assets consisted of $240,000 in non-accruing loans at December 31, 2004 compared to
$55,000 at June 30, 2004. Non-accruing loans at December 31, 2004 consisted of $233,000 in
one-to-four family residential mortgage loans and $7,000 in non-mortgage loans. The allowance for
loan losses decreased by $1,000 to $459,000 at December 31, 2004 as a result of $1,000 in net loan
charge offs. The Company made no loan loss provision during the six months ended December 31,
2004. At December 31, 2004 the Companys ratio of allowance for loan losses to non-performing
loans was 190.78% 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-




---



##### Table of Contents



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. December 31,
    
    
    June 30,2004
    
    
    2004(Dollars in Thousands)Non-Accruing Loans:One-to-four family
    
    $
    233
    
    
    $
    36Multi-family
    
    
    
    
    
    
    Consumer
    
    
    7
    
    
    
    19Commercial business
    
    
    
    
    
    
    Total non-performing loans
    
    $
    240
    
    
    $
    55Foreclosed Assets:One-to-four family
    
    
    
    
    
    
    Total foreclosed assets
    
    
    
    
    
    
    Total non-performing assets
    
    $
    240
    
    
    $
    55Total as a percentage of total assets
    
    
    0.17
    %
    
    
    0.04
    %
 As of December 31, 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-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES FINANCIAL CONDITION (continued) The following table sets forth an analysis of the Companys allowance for loan losses. Six Months EndedDecember 31,2004
    
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    460
    
    
    $
    410Charge-offs:One-to-four family loans
    
    
    
    
    
    
    Consumer loans
    
    
    1
    
    
    
    10Commercial business loans
    
    
    
    
    
    
    Total charge-offs
    
    
    1
    
    
    
    10Recoveries:One-to-four family loans
    
    
    
    
    
    
    Multi-family loans
    
    
    
    
    
    
    Consumer loans
    
    
    
    
    
    
    Total recoveries
    
    
    
    
    
    
    Net (charge-offs) recoveries
    
    
    (1
    )
    
    
    (10
    )Additions charged to operations
    
    
    
    
    
    
    30Balance at end of period
    
    $
    459
    
    
    $
    430Ratio of net charge-offs during the period to
average loans outstanding during the period
    
    
    .01
    %
    
    
    .01
    %Ratio of net charge-offs during the period to
average non-performing assets
    
    
    .56
    %
    
    
    2.25
    %Allowance for loan losses to non-performing loans
    
    
    190.78
    %
    
    
    88.48
    %Allowance for loan losses to total loans
    
    
    0.48
    %
    
    
    0.45
    %
 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 adequate to provide for probable accrued losses in the
portfolio, there can be no assurance that such losses will not exceed the estimated amounts. Deposits for the six months ended December 31, 2004 decreased $9.6 million as a result of net
withdrawals in the amount of $10.3 million offset by interest credited to deposits in the amount of
$644,000. The net decrease in deposits is primarily attributed to managements deposit pricing
controls as well as increased pricing competition for interest costing deposits in the current
rising interest rate environment. The decrease in deposits is the result of a $4.8 million
decrease in certificate of deposit accounts, a $4.3 million decrease in passbook deposit accounts,
a $598,000 decrease in money market accounts and a $93,000 decrease in NOW accounts offset by a
$159,000 increase in demand deposit accounts. -10-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES FINANCIAL CONDITION (continued) Stockholders equity increased $353,000, or 3.0%, to $12.1 million at December 31, 2004 from $11.7
million at June 30, 2004. The increase in stockholders equity was due to net income of $473,000
and an increase in accumulated other comprehensive income of $29,000 offset by the payment of cash
dividends in the amount of $149,000. RESULTS OF OPERATIONS The Company had net income of $234,000 for the quarter ended December 31, 2004 compared to net
income of $118,000 for the quarter ended December 31, 2003. The increase in net income in the
current quarter is the result of a $202,000 increase in net interest income, a $15,000 decrease in
provision for loan losses and an $11,000 decrease in non-interest expense offset by a $52,000
decrease in non-interest income and a $60,000 increase in income taxes. For the six months ended December 31, 2004 the Company had net income of $473,000 compared to net
income of $665,000 for the six months ended December 31, 2003. Net income in the six months ended
December 31, 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 six month period also included the collection of non-accruing loan
interest from another loan workout agreement in the amount of $30,000. Exclusive of the after tax
impact of these items in both periods, net income for the six months ended December 31, 2004 would
have been $453,000, compared to net income of $236,000 for the six months ended December 31, 2003. The Companys interest rate spread increased to 3.53% for the quarter ended December 31, 2004 from
2.75% for the prior year quarter. The increase in interest rate spread was due to an increase in
the average yield earned on interest earning assets to 4.65% in the quarter ended December 31, 2004
from 4.13% in the prior year quarter as well as a decrease in the Companys average cost of
interest costing deposits to 1.12% in the quarter ended December 31, 2004 from 1.38% in the prior
year quarter. The average balance of net earning assets (average interest earning assets minus
average interest bearing liabilities) also increased by $3.0 million to $19.4 million compared with
the prior year period. For the six months ended December 31, 2004, interest rate spread increased to 3.41% compared to
3.00% in the prior year six month period. Interest rate spread increased in the six months ended
December 31, 2004 compared with the prior year period as a result of both an increase in yields on
interest earning assets and a decrease in the average yield paid on interest costing deposits. The
average balance of net earning assets in the six months ended December 31, 2004 increased by $2.9
million to $19.0 million compared with the prior year period. Interest Income Interest income increased $80,000, or 5.2%, for the quarter ended December 31, 2004 as compared to
the same period last year. The increase in interest income is attributed to an increase in the
average yield earned on interest earning assets which offset a decline in the average outstanding
balance of interest earning assets. The average yield on interest earning assets increased to
4.65% for the quarter ended December 31, 2004 from 4.13% in the prior year quarter. The average
outstanding balance of interest earning assets decreased by $9.5 million to $139.2 million for the
quarter ended December 31, 2004 compared to $148.7 million for the quarter ended December 31, 2003
due primarily to a decline in cash equivalents. -11-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Interest Income (continued) For the six months ended December 31, 2004, interest income decreased $104,000, or 3.2%, from the
2003 period. The decrease in interest income for the current six month period was the result of a
decrease in the average outstanding balance of interest earning assets which offset an increase in
the average yield earned on interest earning assets. The average outstanding balance of interest
earning assets decreased by $8.1 million to $141.3 million for the six months ended December 31,
2004 from $149.4 million for the prior year period. The average yield on interest earning assets
increased to 4.53% compared to 4.42% for the year earlier period. Interest on loans receivable increased $56,000, or 4.2%, in the quarter ended December 31, 2004,
compared with the prior year quarter, as a result of a $2.8 million increase in the average
outstanding balance of loans receivable to $96.2 million. The average yield earned on loans
receivable increased slightly to 5.69% for the six months ended December 31, 2004 from 5.68% for
the prior year period. Interest on mortgage-backed securities decreased $27,000, or 54.7%, for the quarter ended December
31, 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 due to repayments as well as a
decrease in the average yield earned on mortgage-backed securities. For the quarter ended December
31, 2004, the average balance of mortgage-backed securities decreased $1.9 million to $2.4 million
from $4.3 million in the prior year quarter. The average yield earned on mortgage-backed
securities also decreased to 3.80% for the quarter ended December 31, 2004 from 4.63% for the
quarter ended December 31, 2003. The decrease in the average yield earned on mortgage-backed
securities was primarily the result of the repayment at maturity of higher yielding balloon
mortgage-backed securities in the portfolio. Interest earned on investment securities decreased $10,000, or 34.7%, for the quarter ended
December 31, 2004 from the prior year period due to a $1.2 million decrease in the average
outstanding balance of investment securities to $1.3 million from $2.5 million in the 2003 quarter.
The average yield earned on investment securities increased to 5.94% for the quarter ended
December 31, 2004 from 4.62% in the year earlier period as lower yielding securities within the
investment securities portfolio matured and were not replaced. Interest earned on interest bearing deposits increased $62,000, or 54.3%, for the quarter ended
December 31, 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
December 31, 2004, the average yield earned on interest bearing deposits increased to 1.85% from
0.97% for the quarter ended December 31, 2003. The increase in the average yield earned on
interest bearing deposits was offset by a $9.3 million decrease in the average balance of interest
bearing deposits to $38.2 million from $47.5 million in the 2003 quarter. The Company decreased
its balance of interest bearing deposits in order to fund the $9.6 million decrease in deposit
liabilities, discussed above. -12-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Interest Income (continued) For the six months ended December 31, 2004 interest on loans receivable decreased $86,000, or 3.0%,
compared with the prior year period. The decrease in interest income was primarily attributed to a
decrease in the average yield earned on loans receivable to 5.75% for the six months ended December
31, 2004 as compared to 6.13% for the six months ended December 31, 2003. The primary factor for
the decrease in the average yield earned on loans receivable was the collection of $30,000 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 $3.2 million increase in the average
outstanding balance of net loans receivable to $96.0 million for the six months ended December 31,
2004 from $92.8 million for the six months ended December 31, 2003. For the six months ended December 31, 2004 interest earned on mortgage backed securities decreased
$72,000 to $49,000. The decrease in interest income is attributed to a decrease in the average
outstanding balance of mortgage-backed securities as well as a decrease in the average yield earned
on mortgage-backed securities. The average outstanding balance of mortgage-backed securities
decreased by $2.4 million to $2.5 million for the six months ended December 31, 2004 from $4.9
million in the 2003 period. The average yield earned on mortgage-backed securities also decreased
to 3.90% for the six months ended December 31, 2004 from 4.92% for the comparable prior year
period. For the six months ended December 31, 2004 interest earned on investment securities decreased
$42,000 to $38,000. The decrease in interest income is attributed to a $2.5 million decrease in
the average outstanding balance of investment securities to $1.3 million for the six months ended
December 31, 2004 from $3.8 million in the prior year period. The decrease in the average
outstanding balance of investment securities was offset by an increase in the average yield earned
on investment securities to 5.96% for the six months ended December 31, 2004 from 4.26% in the
comparable prior year period. For the six months ended December 31, 2004 interest earned on interest bearing deposits increased
$97,000 from the year earlier period. The increase in interest income was primarily due to an
increase in the average yield earned on interest bearing deposits to 1.59% for the six months ended
December 31, 2004 from 0.96% for the prior year period. The increase in the average yield earned
on interest bearing deposits offset a decrease in the average outstanding balance of interest
bearing deposits to $40.5 million for the six months ended December 31, 2004 from $46.9 million for
the comparable prior year period. Interest Expense Interest expense decreased $122,000, or 26.7%, for the quarter ended December 31, 2004 compared
with the prior year quarter. The decrease in interest expense is the result of a decline in the
average outstanding balance of interest costing deposits as well as a decrease in the average yield
paid on interest costing deposits. For the quarter ended December 31, 2004 the average outstanding
balance of interest costing deposits decreased by $12.5 million to $119.8 million from $132.3
million for the prior year quarter and the average yield paid on interest costing deposits
decreased to 1.12% from 1.38% for the quarter ended December 31, 2003. For the six months ended December 31, 2004 interest expense decreased $266,000 to $683,000 from
$949,000 for the prior year period. The decrease in interest expense in the six month period is
also the result of declines in both the average outstanding balance of interest costing deposits
and the average yield paid on interest costing deposits. For the six months ended December 31,
2004 the average outstanding balance of interest costing deposits decreased by $11.0 million to
$122.3 million and the average yield paid on interest costing deposits decreased to 1.12% from
1.42% for the six months ended December 31, 2003. -13-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES 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 allowance for loan loses totaled $459,000, or .48% of total loans, at December 31,
2004 compared to $460,000, or .49% of total loans, at June 30, 2004. The $1,000 decrease in the
Companys allowance for loan losses during the current six month period was the result of $1,000 in
loan charge offs. At December 31, 2004, after consideration of the high concentration of
one-to-four family mortgage loans in the loan portfolio, peer data, current economic conditions,
trends in the portfolio, the low level of loan charge offs and the strong housing market, the
$459,000 allowance for loan losses 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 six months ended December 31, 2004. Non-Interest Income Non-interest income decreased $52,000 to $208,000 in the quarter ended December 31, 2004 from
$260,000 in the quarter ended December 31, 2003. The primary factors for the decrease in
non-interest income in the current quarter were a $28,000 decrease in loan fees and service
charges, a $16,000 decrease in deposit related fees and a $7,000 decrease in commission income.
The decrease in loan fees and service charges is attributed to a decrease in loan origination
activity compared to the prior year quarter. For the six months ended December 31, 2004 non-interest income decreased $620,000 to $431,000 from
$1.05 million in the prior year period. 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 $131,000 decrease in loan fees and service charges, a $30,000
decrease in deposit related fees and a $12,000 decrease in commission income. The decrease in
loan fees and service charges in the current six month period is attributed to a decrease in loan
origination activity from the prior year period due to a reduction in loan refinancing activity. Non-Interest Expense Non-interest expense decreased $11,000 to $1.14 million in the quarter ended December 31, 2004
compared to the prior year quarter. The decrease in non-interest expense is primarily the result
of a $29,000 decrease in office occupancy expense and a $4,000 decrease in advertising expense
offset by a $14,000 increase in staffing costs and a $7,000 increase in computer software and
support expense. The increase in staffing costs is primarily attributed to a $38,000 increase in
costs for employee medical and pension benefits offset by a $23,000 decrease in loan origination
commissions, due to a decrease in lending volume. The decrease in office occupancy expense is
primarily attributed to a $20,000 decrease in depreciation expense. For the six months ended December 31, 2004 non-interest expense decreased $139,000 to $2.23 million
from $2.37 million in the prior year period. The primary factors for the decrease in non-interest
expense in the current six month period were a $67,000 decrease in staffing costs, a $63,000
decrease in office occupancy expense, a $13,000 decrease in professional fees and a $5,000 decrease
in data processing fees offset by a $9,000 increase in computer software and support expense. The
decrease in staffing costs is primarily attributed to an $86,000 decrease in loan origination
commissions offset by a $47,000 increase in costs for employee medical and pension benefits. The
decrease in office occupancy expense is primarily the result of a $41,000 decrease in depreciation
expense. -14-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES Income Taxes Income taxes increased $59,000 to $120,000 in the quarter ended December 31, 2004 from $61,000 for
the prior year quarter as a result of the increase in operating income from the prior year quarter. For the six months ended December 31, 2004 income taxes decreased $98,000 to $244,000 compared to
$342,000 in the prior year period. The decreased income tax provision was due primarily to the
decrease in operating income in the six months ended December 31, 2004 as compared to the six
months ended December 31, 2003. The effective income tax rate in all periods presented was 34.0%. 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 December 31, 2004 the Company had commitments to originate $2.3 million in loans, all
of which were one-to-four family 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 December 31, 2004, the Association had tangible and core capital of $10.6 million, or 7.31% of
adjusted total assets, which was approximately $8.4 million and $6.2 million above the minimum
requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets. At December 31, 2004, the Association had total capital of $11.0 million (including $10.6 million
in core capital) and risk-weighted assets of $80.5 million, or total capital of 13.68% of
risk-weighted assets. This amount was $4.6 million above the 8.0% requirement in effect on that
date. -15-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES 
 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. -16-




---



##### Table of Contents



MIDLAND CAPITAL HOLDINGS CORPORATION 
 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 which
if adversely determined would have a material adverse effect on its financial condition at this
time. Item 2. UNREGISTERED SALES OF EQUITY 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 On October 20, 2004 the shareholders held their annual meeting to consider and act upon the
election of Mr. Jonas Vaznelis and Mr. Paul M. Zogas to serve as directors for terms of three years
and the ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors for the
Company for the fiscal year ending June 30, 2005. Both of the foregoing items were approved by the
shareholders at the meeting by the following vote totals based upon 372,600 shares outstanding and
entitled to vote at the meeting.  I.
    Election of Directors  350,751 shares voted, as follows: Jonas Vaznelis:350,751 votes FOR; -0- votes WITHHELD. Paul M. Zogas:350,751 votes FOR; -0- votes WITHHELD.  II.
    Ratification of the appointment of Cobitz, VandenBerg &
Fennessy as auditors for the Company for the fiscal year
ending June 30, 2005  350,751 shares voted, as follows: FOR:
    
    
    350,551AGAINST:
    
    
    200ABSTAIN:
    
    
    -0-
 Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS See Exhibit Index. -17-




---



##### Table of Contents



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
 -18-




---



##### Table of Contents



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:  February 14, 2005
BY:
    /s/ Paul ZogasPaul ZogasPresident, Chief Executive Officer
and Chief Financial Officer DATE:  February 14, 2005
BY:
    /s/ Charles ZogasCharles ZogasExecutive Vice President and
Chief Operating Officer