SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20552


                                   FORM 10-KSB

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 [FEE REQUIRED]

                  For the fiscal year ended June 30, 1998

                                                        OR

[  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 [NO FEE REQUIRED]

            For the transition period from                     to

                         Commission File Number 1-14343

                      MIDLAND CAPITAL HOLDINGS CORPORATION
                 (Name of Small Business Issuer in its Charter)

            United States                                        36-4238089
   (State or Other Jurisdiction of                           (I.R.S. Employer
   Incorporation or Organization)                         Identification Number)

     8929 South Harlem Avenue
       Bridgeview, Illinois                                        60455
(Address of Principal Executive Offices)                          Zip Code

         Issuer's telephone number, including area code: (708) 598-9400

         Securities Registered Under Section 12(b) of the Exchange Act:

                                      None

      Securities Registered Pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $ .01 per share
                                (Title of Class)

         Check whether the Issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve  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    [   ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]
 
         The Issuer had  $595,000  in net income for the fiscal  year ended June
30, 1998.
<PAGE>
         As of June 30, 1998,  there were issued and outstanding  363,975 shares
of the Issuer's  Common  Stock.  The Issuer's  voting stock is not regularly and
actively traded,  and there are no regularly quoted bid and asked prices for the
Issuer's  voting  stock.  Accordingly,  the  Issuer is unable to  determine  the
aggregate market value of the voting stock held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

         PARTS II and IV of Form 10-KSB - Annual Report to Stockholders  for the
Fiscal Year Ended June 30, 1998.

         PART III of Form 10-KSB - Proxy  Statement for the 1998 Annual  Meeting
of Stockholders.
<PAGE>
                                     PART I


Item 1.  Description of Business

         Midland  Capital  Holding  Corporation  (the  "Company")  is a Delaware
corporation  which was  organized  in 1998 by Midland  Federal  Savings and Loan
Association (the "Association" or "Midland Federal") for the purpose of becoming
a thrift  institution  holding  company.  The  Company and the  Association  are
headquartered in Bridgeview,  Illinois. The Association began operations in 1914
as a state-chartered mutual savings institution. In 1982, the Association became
a federal mutual savings and loan association.

         On June 30, 1993, the  Association  completed a conversion to the stock
form of organization.  In that conversion, the Association issued 345,000 shares
of Common Stock, raising net proceeds of approximately $3.1 million. On July 23,
1998,  the  Association  became a  wholly-owned  subsidiary of the Company.  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. All references to the Company, unless otherwise
indicated, at or before July 23, 1998 refer to the Association.  Midland Federal
has been  principally  engaged in the business of  attracting  deposits from the
general public and using such deposits to originate residential mortgage and, to
a lesser extent,  consumer,  multi-family  and other loans in its primary market
area. The Association has also made substantial  investments in  mortgage-backed
securities, investment securities and liquid assets.

         The  Association's  primary market area consists of Southwest  Chicago,
and the southwest  suburban  communities of Bridgeview,  Oak Lawn,  Palos Hills,
Hickory  Hills,  Burbank and Justice which it serves  through its main office in
Bridgeview and two branch offices in Southwest Chicago. Its deposits are insured
up to applicable limits by the Federal Deposit Insurance  Corporation  ("FDIC").
At June 30,  1998,  Midland  Federal had $117.4  million of assets,  deposits of
$107.8 million and stockholders equity of $8.8 million.

         The main office of the Company and the  Association are located at 8929
South Harlem Avenue, Bridgeview, Illinois 60455 and the telephone number at that
address is (708) 598-9400.

Forward-Looking Statements

         When used in this Form 10-KSB and in future filings by the Company with
the  Securities  and Exchange  Commission  (the "SEC"),  in the Company's  press
releases or other public or shareholder  communications,  and in oral statements
made with the approval of an authorized  executive officer, the words or phrases
"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 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
are subject to the above-stated  qualifications in any event. The Company wishes
to advise  readers  that the factors  listed  above could  affect the  Company's
<PAGE>
financial  performance  and could cause the Company's  actual results for future
periods to differ  materially  from any opinions or  statements  expressed  with
respect to future periods in any current statements.

         The  Company  does  not   undertake--and   specifically   declines  any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or  unanticipated
events.

Impact of the Year 2000

         All of the  Company's  data  processing  functions are performed by the
Association or outside  vendors.  The  Association has conducted a comprehensive
review of its computer systems to identify  applications  that could be affected
by the Year 2000 issue and has developed an  implementation  plan to address the
issue.  The  Association  is in contact with  vendors and  providers of critical
systems to  determine  their  progress in bringing  such  systems into Year 2000
compliance,  which  compliance  is  anticipated  by  December  31,  1998 and the
Association  is  currently  scheduling  testing  dates for mission  critical and
non-mission critical systems.

         The  Association is scheduled to convert its on-line  customer  account
data processing,  as well as certain other critical data processing and computer
systems, to a new service provider beginning in October 1998 (the "Conversion").
The  Association  has been  informed by the new service  provider  that all such
systems  will be Year 2000  compliant  by December  31,  1998.  The  Association
anticipates  that it will incur  Conversion  costs in the approximate  amount of
$125,000,  which costs will be recorded as a charge to earnings in the period in
which the Conversion  services are performed.  The Conversion  will also require
additional  capital  expenditures  for  computer  and related  equipment  in the
approximate  amount of $150,000  which costs will be  amortized  over the useful
life of the equipment purchased.

Lending Activities

         General. The principal lending activity of the Association has been the
origination for its portfolio of  conventional  first mortgage real estate loans
secured  by  owner  occupied  one-  to  four-family  residential  property.  The
Association also originates  multi-family and non-residential  real estate loans
and consumer loans.

         Loan  originations  come  primarily from walk-in  customers,  continued
business from  customers and referrals  from local real estate  brokers  through
contact with the Association's staff of loan originators. The Association's loan
originators  earn a base salary plus  commission  based upon first mortgage loan
sales generated by the originator.  All completed loan applications are reviewed
by the Association's salaried loan officers. As part of the application process,
information is obtained concerning the income,  financial condition,  employment
and credit history of the applicant.  If  multi-family or commercial real estate
is  involved,  information  is also  obtained  concerning  cash flow  after debt
service.   The  quality  of  loan   applications   are  analyzed  based  on  the
Association's credit underwriting guidelines as well as the guidelines issued by
the Federal Home Loan Mortgage Corporation  ("FHLMC"),  depending on the type of
loan  involved.   The   Association  has   established   correspondent   lending
<PAGE>
relationships  with other lenders in order to take applications  which either do
not conform to the  Association's  underwriting  guidelines  or are for mortgage
loan  products  not  offered  by the  Association,  such as FHA  and VA  insured
mortgage loans. In  consideration of a loan broker fee paid by the lender to the
Association,  the  Association  processes  the loan  application  and forwards a
completed loan application package to the lender, who underwrites and originates
the loan.

         All real estate  loans are  appraised  by  independent  fee  appraisers
approved by the Board of Directors.  The Association  obtains audited  financial
statements,  and current unaudited  financial  statements where appropriate,  as
well as  annual  financial  statements  for  borrowers  with  loans  secured  by
commercial real estate.

         Real estate loans are generally  approved by the Loan  Committee or are
approved  by the  Chief  Lending  Officer  or the  President  in  amounts  up to
$200,000,  and then ratified by the Loan  Committee.  Loans for amounts  between
$200,000  and  $350,000  must be approved by the Loan  Committee,  and loans for
amounts over $350,000 by the Board of Directors.  The Chief Lending  Officer has
approval authority for all consumer loans.

         The Association  generally requires, in connection with the origination
of real estate loans,  fire and casualty  insurance  coverage,  as well as flood
insurance where appropriate,  to protect the Association's interest. The cost of
this insurance  coverage is paid by the borrower.  The Association also requires
title  insurance  coverage on all real estate loans  except for second  mortgage
loans in amounts less than $25,000 for which loans the Association only requires
that good and marketable title be verified by an independent  title search.  The
cost of title insurance coverage is paid for by the borrower, except in the case
of second mortgage loans on which the Association may, from time to time, absorb
such costs for promotional purposes.

         The aggregate amount of loans that the Association is permitted to make
under  applicable  federal  regulations to any one borrower,  including  related
entities,  and the aggregate amount that the Association  could have invested in
any one real  estate  project is  generally  the  greater  of 15% of  unimpaired
capital and surplus or $500,000. See "Regulation - Federal Regulation of Savings
Associations."

         At June 30, 1998, the  Association had one borrower with an outstanding
loan balance in excess of  $500,000.  The loan  totaled  $1.1  million,  and was
secured by a 43 unit  multi-family  residential  property  in the  Association's
market area. This loan,  which had been delinquent at June 30, 1997, was brought
current by the  borrower  during  the year  ended  June 30,  1998 as a result of
improved cash flows  derived from the property.  This loan was made prior to the
imposition of the regulatory limits described above, and is  grandfathered.  See
"Non-Performing Assets, Classified Assets, Loan Delinquencies and Defaults."
<PAGE>
         Loan  and  Mortgage-backed   Securities  Portfolio   Composition.   The
following  table  sets  forth  information  concerning  the  composition  of the
Association's loan and mortgage-backed  securities  portfolios in dollar amounts
and in percentages as of the dates indicated.
<TABLE>
<CAPTION>
                                                                                  June 30,
                                              ------------------------------------------------------------------------------- 
                                                       1998                         1997                        1996
                                              -----------------------       --------------------         --------------------    
                                              Amount          Percent       Amount        Percent        Amount       Percent
                                              ------          -------       ------        -------        ------       -------
                                                                           (Dollars in Thousands)
<S>                                            <C>             <C>          <C>             <C>          <C>            <C>        
Real Estate Loans
 One- to four-family.......................    $35,030         87.82%       $29,018         84.26%       $28,398        84.09%     
 Multi-family..............................      1,790          4.49          2,201          6.39          2,268         6.72      
 Non-residential...........................        244           .61            264          0.77            282         0.84      
 Construction..............................        450          1.13            300          0.87             --        ---        
                                               -------         -----        -------         -----        -------        ----- 
    Total mortgage loans...................     37,514         94.05         31,783         92.29         30,948        91.65 
                                               -------         -----        -------         -----        -------        ----- 
Other Loans                                                                                                                   
 Consumer Loans:                                                                                                              
  Deposit accounts.........................        464          1.16            425          1.23            435         1.29 
  Student..................................      1,316          3.30          1,542          4.48          1,789         5.30 
  Automobile...............................        372           .93            456          1.33            401         1.19 
  Mobile home..............................         10           .03             21           .06             56          .16 
  Other....................................        139           .35            138           .40            119          .35 
                                               -------         -----        -------         -----        -------        ----- 
     Total consumer loans..................      2,301          5.77          2,582          7.50          2,800         8.29 
                                               -------         -----        -------         -----        -------        ----- 
                                                                                                                              
  Commercial business loans................         71           .18             74           .21             21          .06 
                                               -------         -----        -------         -----        -------        ----- 
     Total loans receivable................     39,886        100.00%        34,439        100.00%        33,769       100.00%
                                                ------        ======        -------        ======        -------       ====== 
Less                                                                                                                          
 Loans in process..........................         41                          137                           11              
 Deferred fees and discounts...............         17                           97                          125              
 Allowance for uncollected interest........        262                          262                          262              
 Allowance for loan losses.................        394                          551                          596              
                                              --------                      -------                      -------              
     Loans receivable, net.................    $39,172                      $33,392                      $32,775              
                                               =======                      =======                      ======= 
Mortgage-backed securities:                                                                                                   
  FHLMC....................................    $14,256         68.49%       $14,234         65.03%       $18,513        67.82%
  FNMA.....................................      6,147         29.53          7,097         32.43          8,098        29.66 
  GNMA.....................................        389          1.87            520          2.38            650         2.38 
  Collateralized mortgage obligation.......         24           .11             36           .16             39          .14 
                                               -------         -----        -------         -----        -------        ----- 
    Total mortgage-backed securities.......     20,816        100.00%        21,887        100.00%        27,300       100.00%
                                                              ======                       ======                      ====== 
  Net premiums.............................         29                           49                          110              
                                               -------                      -------                      -------              
  Net mortgage-backed securities...........    $20,845                      $21,936                      $27,410              
                                               =======                      =======                      =======
</TABLE>
<PAGE>
         The following  table shows the  composition of the  Association's  loan
portfolio by fixed and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                        June 30,
                                        -------------------------------------------------------------------------- 
                                                1998                     1997                       1996
                                        -------------------------------------------------------------------------- 
                                         Amount      Percent      Amount       Percent       Amount        Percent
                                         ------      -------      ------       -------       ------        -------
                                                                 (Dollars in Thousands)
<S>                                      <C>           <C>        <C>           <C>         <C>             <C>        
Fixed-Rate Loans
Real Estate:
  One- to four-family                    $32,057       80.37%     $24,517       71.19%      $23,438         69.40%  
  Multi-family                               179         .45          181         .53           182           .54   
                                         -------       -----      -------       -----       -------         -----   
      Total real estate loans             32,236       80.82       24,698       71.72        28,620         69.94   
                                         -------       -----      -------       -----       -------         ----- 
  Consumer                                    10         .03           21         .06            56           .16   
                                         -------       -----      -------       -----       -------         -----          
     Total fixed-rate loans               32,246       80.85       24,719       71.78        28,676         70.10   
                                         -------       -----      -------       -----       -------         -----   
                                                                                                                    
Adjustable-Rate Loans                                                                                               
Real estate:                                                                                                        
  One- to four-family                      2,973        7.45        4,501       13.07         4,960         14.69   
  Multi-family                             1,611        4.04        2,020        5.86         2,086          6.18   
  Non-residential                            244         .61          264         .77           282           .84   
  Construction                               450        1.13          300         .87            --            --   
                                         -------       -----      -------       -----       -------         ----- 
     Total real estate loans               5,278       13.23        7,085       20.57         7,328         21.71   
                                         -------       -----      -------       -----       -------         ----- 
  Consumer                                 2,291        5.74        2,561        7.44         2,744          8.13   
  Commercial business                         71         .18           74         .21            21           .06   
                                         -------       -----      -------       -----       -------         ----- 
     Total adjustable-rate loans           7,640       19.48        9,720       28.22        10,093         29.90   
                                         -------       -----      -------       -----       -------         -----  
     Total loans                          39,886      100.00%      34,439      100.00%       33,769        100.00%  
                                                      ======                   ======                      ======   
                                                                                                                    
Less:                                                                                                               
  Loans in process                            41                      137                        11        
  Deferred fees and discounts                 17                       97                       125        
  Allowance for uncollected interest         262                      262                       262        
  Allowance for loan losses                  394                      551                       596        
                                         -------                  -------                   -------                 
     Total loans, net                    $39,172                  $33,392                   $32,775        
                                                                                                                    
</TABLE>
<PAGE>
         The following schedule illustrates the interest rate sensitivity of the
Association's  loan portfolio at June 30, 1998.  Mortgages which have adjustable
or renegotiable  interest rates are shown as maturing in the period during which
the  contract  is due.  The  schedule  does not  reflect the effects of possible
prepayments or enforcement of due-on-sale clauses or interest rate adjustments.
<TABLE>
<CAPTION>
                                                                       Real Estate
                               ------------------------------------------------------------------------------------------- 
                                                            Multi-Family        Construction or                            
                               One- to Four-Family         and Commercial          Development              Consumer        
                               --------------------       ------------------    ------------------    -------------------- 
                                           Weighted                 Weighted              Weighted                Weighted 
                                           Average                   Average               Average     Amount     Average  
                                Amount       Rate         Amount      Rate       Amount      Rate       Rate        Rate      
                                ------       ----         ------      ----       ------      ----       ----        ----      
                                                                   (Dollars in Thousands)
<S>                          <C>             <C>       <C>           <C>       <C>          <C>       <C>           <C>    
Due During Years
Ending June 30,

1999(1)..................    $   567,764     9.43%     $  681,754    10.01%    $450,000     10.50     $ 733,732     8.71%  
2000.....................        123,116    10.34          23,462    11.50          ---       ---       198,037     7.62   
2001.....................        147,191     8.47         179,461     9.75          ---       ---       392,358     8.03   
2002 to 2003.............      1,103,755     8.40             ---    ---            ---       ---       290,084     8.36   
2004 to 2007.............      3,194,588     7.98       1,149,800     8.24          ---       ---       532,445     8.24   
2008 to 2022.............     13,014,904     7.67             ---                   ---       ---       153,977     8.32   
2023 and following.......     16,878,540     7.62             ---    ---            ---       ---           ---      ---   
                                                                                       
                             $35,029,858               $2,034,477              $450,000              $2,300,633            
                                                                                                              
                                                                                                      
<CAPTION>
                                Commercial                                
                                 Business                  Total          
                            -----------------------------------------                                             
                                      Weighted               Weighted    
                             Amount    Average    Amount     Average     
                             ------    -------    ------     -------                             
<C>                         <C>                <C>               <C>    
1999(1)..................   $70,988     ---%   $2,504,238        9.30%  
2000.....................       ---      ---      344,615        8.86   
2001.....................       ---      ---      719,010        8.55   
2002 to 2003.............       ---      ---    1,393,839        8.39   
2004 to 2007.............       ---      ---    4,876,833        8.07   
2008 to 2022.............       ---      ---   13,168,881        7.68   
2023 and following.......       ---      ---   16,878,540        7.62   
                                                                        
                            $70,988           $39,885,956        7.85% 
</TABLE>

                           
(1) Includes demand loans, loans having no stated maturity and overdraft loans.


         The  total  amount  of  loans  due  after  June  30,  1999  which  have
predetermined  interest  rates is  approximately  $34.0  million while the total
amount of loans due after such date which have floating or  adjustable  interest
rates is approximately $3.4 million.
<PAGE>
One- to Four-Family Residential Real Estate Lending

         The Association's primary lending activity has been the origination and
purchase of  permanent  loans  secured by mortgages  on  owner-occupied  one- to
four-family  residences.  At June 30,  1998,  $35.0  million  or  87.8%,  of the
Association's  gross loan  portfolio  consisted  of  permanent  loans on one- to
four-family  residences.  Most of these loans were secured by properties located
in  the  State  of  Illinois,   with  a  substantial  majority  located  in  the
Association's primary market area. At June 30, 1998,  approximately $465,000 was
secured by one-to four-family residential properties located in Florida.

         Historically,  Midland  Federal  originated  for  retention  in its own
portfolio  30-year  fixed-rate loans secured by one- to four-family  residential
real estate.  Beginning  in 1981,  in order to reduce its exposure to changes in
interest  rates,  Midland  Federal began to originate  adjustable rate mortgages
("ARMs"),  subject to market conditions and consumer  preference.  However, as a
result of continued consumer demand,  Midland Federal has continued to originate
for retention in its portfolio  fixed-rate  residential  loans in amounts and at
rates which are monitored for compliance with the Association's  asset/liability
management policy.  From time to time, the Association will make  owner-occupied
one- to four-family construction loans for a six-month interest only term, which
the Association will convert to a permanent  mortgage for a fee generally of one
point.  The  Association   requires  the  interest  on  such  loans  during  the
construction term to be paid or placed in escrow when the loan is funded.

         The  Association's  current one- to  four-family  residential  ARMs are
fully  amortizing  loans  with  contractual  maturities  of up to 30 years.  The
interest rates on  substantially  all the ARMs originated by Midland Federal are
subject to  adjustment at one-year  intervals.  The  Association's  ARM products
generally  carry  interest  rates  which are reset to a stated  margin  over the
one-year  U.S.   Treasury  Rate.   Adjustments  in  the  interest  rate  of  the
Association's  ARMs are generally  limited to 2% at any  adjustment  date and 6%
over the life of the  loan.  At June 30,  1998,  the  total  balance  of one- to
four-family  ARMs was $3.0  million,  or 7.5% of the  Association's  gross  loan
portfolio.

         The Association  also originates home equity lines of credit which were
funded in the amount of $799,000 at June 30, 1998, and home equity loans,  which
were $2.3 million at June 30, 1998. Unfunded commitments on home equity lines of
credit totaled $597,000 at June 30, 1998. The Association's home equity lines of
credit are five year interest-only  balloon loans secured by second liens on the
property,  and are  made in  amounts  up to 75% of the  appraised  value  of the
property (including first lien amounts). The Association's home equity loans are
three to 15 year fixed-rate  loans secured by second liens on the property,  and
are made in amounts up to 80% of the appraised value of the property  (including
first lien amounts).

         The  Association's  residential  loans are generally  underwritten  and
documented  to  permit  their  sale in the  secondary  market.  The  Association
evaluates  both the borrower's  ability to make principal and interest  payments
and the  value of the  property  that will  secure  the  loan.  Midland  Federal
generally originates  residential mortgage loans with loan-to-value ratios of up
to 80%, although the Board of Directors has authorized  originations of mortgage
loans with loan-to-value  ratios of up to 90%. On any mortgage loan exceeding an
80%  loan-to-value  ratio at the time of origination,  Midland Federal generally
requires private mortgage insurance on the excess.
<PAGE>
         The  Association's   residential  mortgage  loans  customarily  include
"due-on-sale"  clauses, which are provisions that give Midland Federal the right
to declare a loan immediately due and payable in the event the borrower sells or
otherwise  disposes of the real property subject to the mortgage and the loan is
not repaid.

Multi-Family Residential Lending

         The  Association's  multi-family  residential  portfolio  includes $1.8
million in loans  secured by  residential  buildings  (5 or more units)  located
primarily in the Association's  primary market area. The Association  originates
primarily   adjustable-rate   multi-family  real  estate  loans.  Rates  on  the
Association's adjustable-rate multi-family real estate loans generally adjust in
a manner consistent with the Association's ARMs.

         Multi-family real estate loans are generally underwritten in amounts of
up to 70% of the  appraised  value of the  underlying  property.  Appraisals  on
properties securing multi-family real estate loans originated by the Association
are  performed  by a  qualified  appraiser  at the time  the  loan is  made.  In
addition,   the   Association's   underwriting   procedures   generally  require
verification of the borrower's credit history,  income and financial statements,
banking  relationships,  references  and income  projections  for the  property.
Personal  guarantees are generally  obtained for the Association's  multi-family
real estate loans.

         The  Association  monitors the cash flow and operating  performance  of
borrowers through  inspection of collateral,  calls on borrowers,  inspection of
business premises and evaluation of interim financial statements.

         Midland  Federal had 6  multi-family  real estate loans  totaling  $1.8
million at June 30, 1998. The net amount of such loans which was  non-performing
at June 30, 1998 was $38,000.  See "- NonPerforming  Assets,  Classified Assets,
Loan   Delinquencies  and  Defaults"  for  a  discussion  of  the  Association's
non-performing multi-family residential loans.

         Multi-family  residential real estate loans generally  present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited  number  of  loans  and  borrowers,  the  effects  of  general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by  multi-family  residential  real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed), the borrower's ability to repay the loan may be impaired.

Consumer Lending

         Management believes that consumer loans help the Association expand its
customer  base and  create  stronger  ties to its  existing  customer  base.  In
addition,  because  consumer loans  generally have shorter terms to maturity and
carry higher rates of interest than do residential  loans,  they can be valuable
asset/liability management tools.
<PAGE>
         Midland Federal offers a variety of secured  consumer loans,  including
education loans (which carry a guaranty from a State agency),  automobile  loans
and loans  secured by savings  deposits.  In addition,  the  Association  offers
unsecured consumer loans through its  Visa/MasterCard  credit card program.  The
Association currently originates  substantially all of its consumer loans in its
principal market area.

         Consumer loan terms vary according to the type of  collateral,  term of
the  loan and  creditworthiness  of the  borrower.  The  underwriting  standards
employed by the Association  for consumer loans include a  determination  of the
applicant's  payment  history on other debts and an assessment of the borrower's
ability to meet  payments on the  proposed  loan along with his or her  existing
obligations.   In  addition  to  the  creditworthiness  of  the  applicant,  the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.

         Student loans are originated by Midland  Federal in compliance with the
guidelines  established by the Illinois  Guaranteed Loan Program ("IGLP").  As a
result,  any loans  that  become  delinquent  30-90  days are sold to IGLP.  The
Association's  student  loan volume may decline in the future as a result of new
legislative  proposals  that  the  U.S.  government  provide  direct  loans  for
education.  As of June 30, 1998,  student loans amounted to $1.3 million or 3.3%
of the Association's gross loan portfolio.

         The Association  also originates  consumer loans secured by automobiles
in its primary market area.  Underwriting  standards employed by the Association
in   connection   with  these  loans   includes  a  review  of  the   borrowers'
creditworthiness,  verification  of  collateral  value and  perfection of a lien
against the collateral.  The Association requires vehicle insurance on all loans
secured by automobiles.  At June 30, 1998, the Association had $372,000, or .93%
of its gross loan portfolio in automobile loans.

         Lines of credit  extended  through  the  Association's  Visa/MasterCard
credit card program are generally limited to $10,000. The Association obtains an
application  from the  borrower,  a credit  report on the  borrower and verifies
employment  for credit card  borrowers.  At June 30, 1998, the  Association  had
$73,000 or .18% of its gross loan portfolio in credit card loans.

         Consumer loans may entail greater risk than residential mortgage loans,
particularly  in the case of consumer  loans which are  unsecured  or secured by
rapidly  depreciable assets such as automobiles.  In such cases, any repossessed
collateral  for defaulted  consumer  loans may not provide  adequate  sources of
repayment  for  the  outstanding  loan  balances  as a  result  of  the  greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be  recovered  on  such  loans.  Although  the  level  of  delinquencies  in the
Association's  consumer loan portfolio has generally been low (at June 30, 1998,
$5,000, or approximately .22% of the consumer loan portfolio was 90 days or more
delinquent),  there can be no assurance that  delinquencies will not increase in
the future.
<PAGE>
Commercial Real Estate Lending

         Midland Federal maintains a portion of its portfolio in permanent loans
secured by commercial  real estate.  The  Association's  commercial  real estate
portfolio consists of loans on a variety of non-residential property,  including
an automobile repair center and churches. At June 30, 1998, $244,000, or .61% of
the Association's  gross loan portfolio  consisted of permanent loans secured by
commercial real estate.  In the future,  the Association  intends to continue to
engage  in a  modest  level  of  commercial  real  estate  lending,  subject  to
regulatory  restrictions.  Management  intends that any future  commercial  real
estate loans carry adjustable interest rates and a loan-to-value ratio of 70% or
less.  Nevertheless,  in  view  of the  significant  amount  of  risk  generally
associated with  commercial real estate lending,  there can be no assurance that
the Association will not experience  delinquencies on its commercial real estate
portfolio.

Mortgage-Backed Securities

         Midland  Federal  has  a  substantial   portfolio  of   mortgage-backed
securities totaling $20.8 million.  Midland Federal utilizes its mortgage-backed
securities  to  supplement  loan  production  and to  meet  its  asset/liability
management objectives.  Mortgage-backed  securities can also serve as collateral
for  borrowings  and,  through  repayments,   as  a  source  of  liquidity.  For
information  regarding  the  carrying  and  fair  values  of  Midland  Federal's
mortgage-backed  securities  portfolio,  see Note 4 of the  Notes  to  Financial
Statements in the Annual Report to Stockholders  filed as Exhibit 13 hereto. See
"Regulation."

         The  following  table  sets  forth the  contractual  maturities  of the
Association's  mortgage-backed  securities  at June 30, 1998. It should be noted
that, due to  prepayments,  the actual maturity of the  Association's  long term
mortgage-backed  securities  will  likely  be  significantly  shorter  than  the
contractual maturities.
<TABLE>
<CAPTION>
                                                                     Due in                    Balance Outstanding
                                                    ----------------------------------------------------------------  
                                                        3 to 5       6 to 20     Over 20
                                                         Years        Years       Years       Fixed       Adjustable
                                                    -----------------------------------------------------------------   
<S>                                                      <C>          <C>         <C>          <C>           <C>    
Federal Home Loan Mortgage Corporation..............     $4,012       $1,607      $8,662       $4,012        $10,269
Federal National Mortgage Association...............        ---          580       5,571        1,859          4,292
Government National Mortgage Association............        ---          389         ---          389            ---
Collateralized Mortgage Obligations.................        ---           24         ---           24            ---
                                                        -------     --------    --------     --------       -------- 
     Total..........................................    $ 4,012     $  2,600    $ 14,233     $  6,284       $ 14,561
                                                        =======     ========    ========     ========       ========
</TABLE>

Loan Originations, Purchases and Sales

         Real estate loans are originated by Midland Federal's staff of salaried
loan  officers.  In addition,  in order to increase loan volumes,  commencing in
September  1995, the  Association  hired  commissioned  loan  originators.  Loan
applications  are taken at each  office,  processed  in the  Association's  main
office and then  submitted to the Chief  Lending  Officer,  the President or the
Loan Committee for approval.
<PAGE>
         While the Association  originates both  adjustable-rate  and fixed-rate
loans,  its ability to originate  loans is dependent upon the relative  customer
demand for loans in its market.  Demand is also  affected by the  interest  rate
environment.  The Association has not purchased loans in recent years,  however,
during the years ended June 30, 1998 and 1997, the Association did sell loans to
the Illinois  Housing  Development  Authority and other  leaders,  under various
programs.

         The following tables set forth the  Association's  loan origination and
mortgage-backed  securities  purchases,  sales and principal  repayments for the
periods indicated.
<TABLE>
<CAPTION>
                                                         Year Ended June 30,
                                                --------------------------------  
                                                   1998        1997        1996
                                                --------------------------------  
                                                           (In Thousands)
<S>                                             <C>           <C>           <C>     
Loans receivable
Originations by type:
 Adjustable-Rate:
  Real estate - One- to four-family             $    239      $    986      $  1,922
                  - construction                     408           300          --
  Non-real estate - consumer                       1,770         1,113         1,112
                                                --------      --------      --------
          Total adjustable rate                    2,417         2,399         3,034
                                                --------      --------      --------
 Fixed-Rate:
  Real estate - One- to four-family               14,916         5,172         4,878
                - non-residential                   --            --              31
  Non-real estate - consumer                         173           254           225
                                                --------      --------      --------
          Total fixed-rate                        15,089         5,426         5,134
                                                --------      --------      --------
          Total loans originated                  17,506         7,825         8,168
                                                --------      --------      --------

Real estate loans sold                            (2,197)         (832)         --
Transfer of loans to foreclosed real estate          (58)          (85)         --
Principal repayments                              (9,804)       (6,238)       (6,574)
                                                --------      --------      --------

Net increase (decrease)                         $  5,447      $    670      $  1,594
                                                ========      ========      ========

Mortgage-backed securities:
     Mortgage-backed securities purchased       $  4,592      $   --        $  4,488
     Mortgage-backed securities sold                --            --            --
     Amortization and repayments                  (5,663)       (5,413)       (5,800)
                                                --------      --------      --------

  Net increase (decrease)                       $ (1,071)     $ (5,413)     $ (1,312)
                                                ========      ========      ========

</TABLE>
<PAGE>
Non-Performing Assets, Classified Assets, Loan Delinquencies and Defaults

         When a  borrower  fails  to make a  required  payment  on a  loan,  the
Association  attempts  to cause the  deficiency  to be cured by  contacting  the
borrower. A notice is mailed to the borrower and late charges are assessed after
a payment is 30 days past due.  Five days after the late  notice is mailed,  the
Loan Service Counselor/Collector will contact the borrower by telephone. After a
payment is 60 days past due,  the Loan  Service  Counselor/Collector  conducts a
personal  interview  with the borrower  after which if the loan  continues to be
delinquent,  it is referred to the Loan Service  Manager.  After the 90th day of
delinquency,  the Association  institutes action to foreclose on the property or
to acquire it by deed in lieu of foreclosure. If foreclosed on, real property is
sold at a public sale and may be purchased by the Association.  A decision as to
whether and when to initiate foreclosure proceedings is based on such factors as
the amount of the outstanding loan in relation to the original  indebtedness and
the current value of the property,  the extent of delinquency and the borrower's
ability and willingness to cooperate in curing delinquencies.  Generally, when a
loan becomes  delinquent 90 days or more, the Association will place the loan on
a non-accrual status and, as a result, previously accrued interest income on the
loan is taken out of current  income.  Future interest income is recognized on a
cash basis. The loan will remain on a non-accrual  status as long as the loan is
90 days delinquent, unless a repayment plan is being followed.
<PAGE> 
         The amounts presented  represent the total remaining principal balances
of the related loans,  rather than actual payment  amounts which are overdue and
are  reflected as a percentage of total loans.  The  following  table sets forth
information  concerning delinquent mortgage and other loans at June 30, 1998 and
June 30,  1997.  The  balances  included  in the table do not  reflect  specific
reserves.
<TABLE>
<CAPTION>
                                                                        At June 30, 1998
                                                                      Loans Delinquent For:
                                 ---------------------------------------------------------------------------------------------------

                                        30 - 59 days                      60 - 89 days                       90 days and over       
                                 ---------------------------------------------------------------------------------------------------

                                    Number     Amount      Percent    Number       Amount    Percent    Number    Amount    Percent 
                                 ---------------------------------------------------------------------------------------------------

                                                                        (Dollars in Thousands)
<S>                                 <C>          <C>        <C>        <C>          <C>        <C>        <C>        <C>      <C>   
Real estate:
  One- to four-family............      7         $237        .68%         6         $485       1.38%        3        $220       .63%
  Multi-family...................    ---          ---        ---        ---          ---        ---         4         237     13.24 
Consumer.........................      4           11        .48        ---          ---        ---         6           5       .22 
Commercial business..............                 ---        ---        ---          ---        ---         1           3      4.23 
                                    ----         ----       ----       ----         ----       ----       ---        ----     ----- 
     Total.......................    $11          248        .62%      $  6         $485       1.22%      $14         465      1.16%
                                     ===         ====       ====       ====         ====       ====       ===        ====     ===== 

<CAPTION>
                                                  At June 30, 1998
                                                Loans Delinquent For:
                                             -----------------------------                     
                                                        Total               
                                             -----------------------------    
                                              Number     Amount     Percent     
                                             -----------------------------    
Real estate:                                 
  One- to four-family............             <C>       <C>        <C>        
  Multi-family...................                                          
Consumer.........................               16      $ 942        2.69%  
Commercial business..............                4        237       13.24   
                                                10         16         .70   
     Total.......................                1          3        4.23   
                                              -----     -----       -----   
                                              $  31     1,198        3.00%  
                                              =====     =====       =====   
                                    
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                            At June 30, 1997
                                                                          Loans Delinquent For:
                                  --------------------------------------------------------------------------------------------------
                                             30 - 59 days                      60 - 89 days                     90 days and over    
                                  --------------------------------------------------------------------------------------------------

                                    Number     Amount     Percent     Number     Amount     Percent      Number    Amount    Percent
                                    ------     ------     -------     ------     ------     -------      ------    ------    -------
                                                                                           (Dollars in Thousands)
<S>                                    <C>     <C>          <C>           <C>    <C>          <C>            <C>     <C>        <C> 
Real estate:
  One- to four-family............      14      $  860       2.96%         3      $  411       1.42%          1       $ 58       .20%
  Multi-family...................     ---         ---        ---          1       1,177      53.48           4        253     11.49 
Consumer.........................       2           9        .35        ---         ---        ---           7          6       .23 
                                   
     Total.......................    $ 16         869       2.52%       $ 4       1,588       4.61%        $ 12       317       .92%
                                               
<CAPTION>
                                                At June 30, 1997
                                              Loans Delinquent For:
                                         ------------------------------                    
                                                     Total             
                                         ------------------------------             
                                         Number     Amount      Percent   
                                         ------     ------      -------   
Real estate:                              <C>      <C>          <C>    
  One- to four-family............           18     $1,329         4.58% 
  Multi-family...................            5      1,430        64.97  
Consumer.........................            9         15          .58  
                                                                        
     Total.......................          $32      2,774         8.05% 
                                    
</TABLE>
<PAGE>
         The table below sets forth the amounts and categories of non-performing
assets,  shown net of specific  reserves,  in the Association's  loan 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 include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
                                                          At June 30,
                                                --------------------------------  
                                                 1998        1997         1996
                                                ------      ------      --------  
                                                    (Dollars in Thousands)
<S>                                             <C>         <C>            <C>
Non-Accruing Loans:
  One- to four-family                           $  220      $   58         161
  Multi-family                                      38          42          50
  Consumer                                           2           3          19
   Commercial business                               3        --          --
                                                ------      ------      ------
     Total                                         263         103         230
                                                ------      ------      ------

Accruing loans delinquent 90 days or more:
  Multi-family                                    --          --         1,217
                                                ------      ------      ------
     Total                                        --          --         1,217
                                                ------      ------      ------

Foreclosed Assets:
  One- to four-family                              747         855         770
                                                ------      ------      ------
     Total                                         747         855         770
                                                ------      ------      ------

Total non-performing assets                     $1,010      $  988      $2,217
                                                            ======      ======

Total as a percentage of total assets              .86%        .86%       1.90%
                                                ======      ======      ======

</TABLE>

         As of June 30, 1998, there were no concentrations of loans in any types
of industry  which exceed 10% of the  Association's  total  loans,  that are not
included as a loan category in the preceding table.

         For the fiscal year ended June 30, 1998,  gross  interest  income which
would have been recorded had the  non-accruing  loans been current in accordance
with their  original terms  amounted to $12,000,  which interest  income was not
accrued into interest income for the fiscal year ended June 30, 1998.

         Real Estate Owned. As of June 30, 1998, the Association had $746,500 of
real  estate  owned   properties.   The  following  is  a  description   of  the
Association's three largest real estate owned properties.
<PAGE>
         Florida  Condominium.  This asset  derived from a $640,000 loan made in
1986  for a  penthouse  condominium  located  in Ft.  Lauderdale,  Florida.  The
Association  obtained  title to the property on December 11, 1989 and has listed
the  property  for sale  and/or  lease with a local real estate  broker.  In the
interim,  the  Association  has leased the  property at $50,000 per year through
December 31, 1998.  The  Association  further wrote down its  investment in this
property  during  the year ended June 30,  1998 in the amount of  $160,000  as a
result of recent comparable sales activity.

         Florida  Condominium.  This asset  derived from a $426,000 loan made in
1985  for a  penthouse  condominium  located  in Ft.  Lauderdale,  Florida.  The
Association  obtained  title to the property on November 19, 1991 and has listed
the  property  for sale  and/or  lease  with a local  real  estate  broker.  The
Association  further wrote down its investment in this property  during the year
ended June 30, 1998 in the amount of $7,000 as a result of pending  negotiations
to lease the property for one year with a one year purchase option.

         Florida  Condominium.  This asset  derived from a $130,000 loan made in
1990 for a two  bedroom  condominium  located in Ft.  Lauderdale,  Florida.  The
Association  obtained  title to the  property on October 28, 1996 and has listed
the property for sale and/or lease with a local real estate broker.

         Non-Accruing  Loans.  As of June 30,  1998,  non-accruing  multi-family
loans  consisted  of one loan in the  amount of  $38,000  secured by a five unit
property  located in Chicago,  Illinois.  Nonaccruing  one- to-four family loans
totaled  $220,000 and consisted of three loans secured by properties  located in
the Association's primary market area.

         As of June 30,  1998,  there were no other  loans not  included  on the
table or  discussed  above 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.

         Classified  Assets.  Federal  regulations  require  that  each  savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection with  examinations of savings  institutions,  OTS and Federal Deposit
Insurance  Corporation (the "FDIC") examiners have authority to identify problem
assets and,  if  appropriate,  require  them to be  classified.  There are three
classifications  for problem  assets:  "substandard,"  "doubtful"  or "loss." An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying  capacity of the obligor or of the collateral  pledged,  if
any.   "Substandard"   assets  include  those  characterized  by  the  "distinct
possibility"  that the  savings  association  will  sustain  "some  loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard,"   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
which do not currently  expose the savings  association  to  sufficient  risk to
warrant  classification  in one of the  aforementioned  categories,  but possess
weaknesses, are required to be designated "Special Mention" by management.
<PAGE>
         When  a  savings  association   classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets.  When a savings  association  classifies
problem  assets as  "loss,"  it is  required  either  to  establish  a  specific
allowance for losses equal to 100% of that portion of the asset so classified or
to  charge-off  such  amount.   An   association's   determination   as  to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject to review by the  association's  District  Director at the  regional OTS
office,  who may order the establishment of additional  general or specific loss
allowances.

         In connection with the filing of its periodic  reports with the OTS and
in  accordance  with  its  classification  of  assets  policy,  the  Association
regularly  reviews the assets in its  portfolio to determine  whether any assets
require classification in accordance with applicable  regulations.  On the basis
of  management's  review of its assets,  at June 30, 1998, the  Association  had
classified a total of $1.1 million of its assets as substandard (net of specific
reserves of $491,000), none as doubtful, $244,000 as loss (which have been fully
reserved), and $279,000 as special mention.

Allowance for Losses on Loans and Real Estate

         The  allowance for loan losses is  established  through a provision for
loan losses based on  management's  evaluation  of the risk inherent in its loan
portfolio  and  changes  in the nature  and  volume of its loan  activity.  Such
evaluation,  which  includes a review of all loans of which full  collectibility
may not be reasonably assured, considers among other matters, the estimated fair
value of the underlying  collateral,  economic conditions,  historical loan loss
experience  and other  factors that  warrant  recognition  in  providing  for an
adequate loan loss allowance.

         Real estate properties acquired through foreclosure are recorded at the
lower of the related  loan  balance,  net of any  specific  loan loss  provision
(which is  charged-off at the time of transfer),  or fair value minus  estimated
costs to sell at the date of foreclosure. Valuations are periodically updated by
management  and a specific  provision for losses on such property is established
by a charge to operations if the carrying value of the property exceeds its fair
value  minus  estimated  costs to sell.  In the year  ended June 30,  1998,  the
Association  increased its provision for loss on real estate owned properties in
the amount of $167,000 in order to further reduce the  Association's  investment
in two out of state  condominium  properties  as a result of  recent  comparable
sales  activity and pending sale  negotiations  regarding such  properties.  See
"Real Estate Owned" for a discussion of these properties.

         In  the  year  ended  June  30,  1998,  a  $1.2  million   multi-family
residential  mortgage loan, which had been delinquent during the prior year, was
brought  current by the borrower as a result of improved cash flows derived from
the underlying  collateral.  The Association incurred no loan charge-offs in the
year ended June 30, 1998.  The  Association  reduced it's general  allowance for
loan losses from  $282,000 at June 30, 1997 to $150,000 at June 30, 1998,  which
level was determined by the Association to be consistent with its revised policy
for the  establishment  and  maintenance of adequate levels of general loan loss
allowances  based  upon an  assessment  of the  level  of risk  inherent  in the
Association's  loan  portfolio  including  its  classified  loans.  The $132,000
decrease in the  Association's  general  allowance for loan losses during fiscal
1998 was the result of a $160,000  recovery of  previously  established  general
loan loss  provision  which was  offset by  $26,000  in  recoveries  from  loans
<PAGE>
previously  classified  "loss" and $2,000 in  recoveries  from loans  previously
charged off.  Although  management  believes  that it uses the best  information
available to determine the allowances, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future  additions to the  Association's  allowances  will be the
result of periodic  loan,  property  and  collateral  reviews and thus cannot be
predicted in advance. At June 30, 1998 the Association had a total allowance for
losses on loans of $394,000 or 1.00% of total loans.  See Note 5 of the Notes to
Financial  Statements in the Annual Report to  Stockholders  filed as Exhibit 13
hereto.

         The  following  table  sets  forth  an  analysis  of the  Association's
allowance for loan losses.
<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                                  ------------------------------
                                                  1998       1997         1996
                                                  ------------------------------   
                                                      (Dollars in Thousands)

<S>                                               <C>        <C>         <C>  
Balance at beginning of period                    $ 551      $ 596       $ 666

Charge-offs:
 One- to four-family                               --           43          73
 Multi-family                                      --         --            95
 Consumer                                          --            3           4
 Commercial business                               --         --             2
                                                  -----      -----       ----- 
                                                   --           46         174
                                                  -----      -----       ----- 
Recoveries:  
 One- to four-family                                 --         --         101
 Consumer                                             3          1           3
                                                  -----      -----       ----- 
     Total recoveries                                 3          1         104
                                                  -----       -----      ------

Net charge-offs                                       3        (45)         (70)
Additions credited to operations                   (160)        --           --
                                                  -----       -----       ------
Balance at end of period                          $ 394       $ 511       $ 596
                                                  =====       =====       =====

Ratio of net charge-offs during the period to
 average loans outstanding during the period        -- %        .13%        .21%

Ratio of net charge-offs during the period to
 average non-performing assets                      -- %       2.56%       2.82%

Allowance for loan losses to
 non-performing loans(1)                          57.16%     274.39%      22.00%

Allowance for loan losses to total loans           1.00%       1.62%       1.78%

</TABLE>
-----------                                                                  
(1)  General  valuation  allowances  to  non-performing  loans (net of  specific
allowances).
<PAGE>
         The  following  table  presents the portions of the  allowance for loan
losses applicable to each loan category.
<TABLE>
<CAPTION>
                                                                   June 30,
                                  -----------------------------------------------------------------------------  
                                           1998                     1997                     1996
                                  -----------------------    ----------------------    -----------------------    
                                                 Percent                   Percent                 Percent
                                                 of Loans                  of Loans                of Loans
                                                 in Each                   in Each                 in Each
                                                 Category                  Category                Category
                                                 to Total                  to Total                to Total
                                     Amount        Loans     Amount         Loans       Amount      Loans
                                   --------------------------------------------------------------------------    
                                                                 (In Thousands)

<S>                                <C>             <C>          <C>          <C>         <C>           <C>   
One- to four-family..............  $     78        87.82%       $129         84.26%      $  98         84.09%
Multi-family.....................       208          4.49        219           6.39        260          6.72
Non-residential..................       ---           .61          1            .77        ---          0.84
Construction.....................       ---          1.13        ---            .87        ---           ---
Consumer.........................        48          5.77         59           7.50         67          8.29
Commercial business..............       ---           .18        ---            .21        ---          0.06
Unallocated......................       ---           143        ---            171        ---
                                   ---------      ------        ----        -------      -----        ------  
     Total.......................  $    394        100.00%      $551         100.00%     $ 596        100.00%
                                   ==========     =======       ====        =======      =====        ====== 

</TABLE>

Investment Activities

         As a part of its asset/liability  management strategy and as a response
to a relatively  high level of  competition  and low level of loan  demand,  the
Association  invests in various  types of liquid  assets,  short and medium term
government   securities  as  well  as  smaller  amounts  of  other  assets.  The
Association  is required by federal  regulations to maintain a minimum amount of
liquid assets that may be invested in specified securities and is also permitted
to make certain other security investments.  The Association maintains liquidity
in excess  of  regulatory  requirements.  Cash flow  projections  are  regularly
reviewed and updated to assure that adequate  liquidity is provided.  As of June
30, 1998, the  Association's  liquidity  ratio (liquid assets as a percentage of
net withdrawable savings and current borrowings) was 56.8%.

         At June 30, 1998, the Association's  interest-bearing deposits in other
financial  institutions totaled $29.3 million, or 25.0% of its total assets, and
investment securities totaled $21.2 million, or 18.1% of its total assets. As of
such date, the Association also had a $554,000 investment in the common stock of
the FHLB of Chicago in order to satisfy the  requirement  for membership in this
institution.  At June 30, 1998, the average term to maturity or repricing of the
investment securities portfolio was approximately two years.
<PAGE>
         The following  table sets forth the  composition  of the  Association's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                    At June 30,
                                      ------------------------------------------------------------------- 
                                              1998                     1997                   1996
                                      -------------------    --------------------    --------------------   
                                      Carrying     Fair       Carrying      Fair    Carrying        Fair
                                       Value       Value       Value        Value     Value         Value
                                                                (In Thousands)
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>    
Investment Securities:
 U.S. Government securities           $21,185     $21,226     $21,058     $21,057     $21,033     $21,031
 FHLB - Chicago stock                     554         554         554         554         554         554
 Other equity investments                --          --          --          --          --          --
                                      -------     -------     -------     -------     -------     -------
   Total investment securities        $21,739     $21,780     $21,612     $21,611     $21,587     $21,585
                                      =======     =======     =======     =======     =======     =======

Interest-bearing deposits:

 FHLB daily investment                $18,522     $18,522     $17,825     $17,825     $17,733     $17,733
 Other daily investments               10,816      10,816      10,241      10,241       9,715       9,715
                                      -------     -------     -------     -------     -------     -------
  Total interest-bearing deposits     $29,338     $29,338     $28,066     $28,066     $27,448     $27,448
                                      =======     =======     =======     =======     =======     =======

</TABLE>
         The composition and maturities of the investment  securities portfolio,
excluding FHLB of Chicago stock, are indicated in the following table.
<TABLE>
<CAPTION>
                                                                          June 30, 1998
                                             ---------------------------------------------------------------------   
                                               1 Year      1 to 2       Over       Total Investment
                                              or Less      Years      10 Years        Securities
                                              -------     -------     --------    ------------------
                                                                                                        Weighted
                                                Book        Book        Book        Book        Fair     Average
                                               Value       Value       Value       Value       Value       Yield
                                               -----       -----       -----       -----       -----       -----
                                                                 (Dollars in Thousands)

<S>                                           <C>         <C>         <C>        <C>         <C>            <C> 
U.S. government and agency securities.....    $9,998      $9,991      $1,196     $21,185     $21,226        5.9%
                                              ======      ======      ======     =======     =======
</TABLE>

Sources of Funds

         General.  Deposit accounts have traditionally been the principal source
of the  Association's  funds for use in lending and for other  general  business
purposes.  In addition to  deposits,  the  Association  derives  funds from loan
repayments and cash flows generated from operations. Scheduled loan payments are
a relatively stable source of funds,  while deposit inflows and outflows and the
related cost of such funds have varied.  Borrowings  may be used on a short-term
basis to compensate  for seasonal  reductions in deposits or deposit  inflows at
less than  projected  levels  and may be used on a longer  term basis to support
expanded lending activities.
<PAGE>
         Deposits.   The  Association   attracts   principally   short-term  and
intermediate-term  deposits  from the  Association's  primary  market area.  The
Association offers regular passbook accounts, NOW accounts, money market deposit
accounts,  fixed interest rate certificates of deposit with varying  maturities,
and negotiated rate $100,000 jumbo certificates of deposit ("Jumbo CDS").

         Deposit account terms vary,  according to the minimum balance required,
the time period the funds must remain on deposit and the  interest  rate,  among
other factors.  Midland Federal has not actively sought deposits  outside of its
primary market area.

         The flow of deposits is influenced  significantly  by general  economic
conditions,  changes in money market and prevailing interest rates,  competition
and the Association's pricing policies and capital requirements. Midland Federal
regularly  evaluates  the  internal  cost of funds,  surveys  rates  offered  by
competing  institutions,  reviews its cash flow  requirements  for liquidity and
executes rate changes when deemed appropriate.

         Midland  Federal has  utilized  high quality  service and  promotion to
attract passbook and transaction  accounts.  The Association believes that these
accounts  are  less  interest  rate   sensitive   and,  in  most  interest  rate
environments,  carry lower interest  charges than  certificate  accounts.  While
there are costs associated with offering transaction  accounts,  the Association
believes  that the fee  income  and  enhanced  spread  outweigh  any  additional
administrative expense.  Midland Federal does not have any brokered deposits and
has no present intention to accept or solicit such deposits.

         The  following  table sets forth the savings  flows at the  Association
during the periods indicated.
<TABLE>
<CAPTION>
                                                 Year Ended June 30,
                                     ------------------------------------------  
                                        1998            1997           1996
                                     ----------      ---------       ---------   
                                              (Dollars in Thousands)
<S>                                  <C>             <C>             <C>      
Opening balance                      $ 102,973       $ 107,914       $ 105,090
Deposits                               360,039         332,833         328,188
Withdrawals                           (358,909)       (341,491)       (329,191)
                                     ---------       ---------       ---------
Balance before interest credited       104,103          99,256         104,087
Interest credited                        3,659           3,717           3,827
                                     ---------       ---------       ---------

Ending balance                       $ 107,762       $ 102,973       $ 107,914
                                     =========       =========       =========

Net increase (decrease)              $   4,789       $  (4,941)      $   2,824
                                     =========       =========       =========

Percent increase (decrease)               4.65%          (4.58)%          2.69%
                                     =========       =========       =========
</TABLE>
<PAGE>
         The following table sets forth the dollar amount of savings deposits in
the various types of deposit  programs  offered by the  Association at the dates
indicated.
<TABLE>
<CAPTION>
                                                                    June 30,
                                    ----------------------------------------------------------------------------  
                                           1998                      1997                       1996
                                    ---------------------------------------------------------------------------    
                                                 Percent                    Percent                     Percent
                                    Amount      of Total       Amount      of Total       Amount       of Total
                                    ------      --------       ------      --------       ------       --------
                                                              (Dollars in Thousands)
<S>                               <C>              <C>        <C>             <C>        <C>             <C>   
Interest Rate Range:

Passbook accounts                 $ 40,716         37.78%     $ 40,984        39.80%     $ 43,420        40.24%
NOW accounts                         8,266          7.67         8,468         8.22         7,986         7.40
Money market accounts                3,706          3.44         3,769         3.66         4,768         4.42
Non-interest bearing deposits        7,823          7.26         7,327         7.12         7,266         6.73
                                  --------        ------      --------       ------      --------       ------
  Total non-certificates            60,511         56.15        60,548        58.80        63,440        58.79
                                  --------        ------      --------       ------      --------       ------

Certificates:

Interest rate range:
 0.00 - 3.99%                         --             --           --           --            --            --
 4.00 - 4.99%                         --             --           --           --           2,692         2.50
 5.00 - 5.99%                       47,151         43.75        40,438        39.27        38,714        35.88
 6.00 - 6.99%                          100           .10         1,987         1.93         3,068         2.84
                                  --------        ------      --------       ------      --------       ------

   Total certificates               47,251         43.85        42,425        41.20        44,474        41.21
                                  --------        ------      --------       ------      --------       ------
   Total deposits                 $107,762        100.00%     $102,973       100.00%     $107,914       100.00%
                                  ========        ======      ========       ======      ========       ======

</TABLE>
<PAGE>
         The  following  table  shows  rate  and  maturity  information  for the
Association's time deposits as of June 30, 1998.
<TABLE>
<CAPTION>
                                      5.00-           6.00-                           Percent
                                      5.99            6.99              Total         of Total
                                     --------          ------         --------         ------- 
                                                      (Dollars in Thousands)
<S>                                  <C>               <C>            <C>               <C>                      
Certificate Accounts Maturing
in Quarter Ending:

September 30, 1998                  $ 16,701           $              $ 16,701          33.35%                   
December 31, 1998                     14,677              --            14,677          31.06         
March 31, 1999                         4,262              --             4,262           9.02         
June 30, 1999                          5,072              --             5,072          10.73         
September 30, 1999                     1,100              --             1,100           2.23         
December 31, 1999                        964             100             1,064           2.25         
833March 31, 2000                        833              --               833           1.76         
June 30, 2000                            944              --               944           2.00         
September 30, 2000                     1,346              --             1,346           2.85         
December 31, 2000                      1,252              --             1,252           2.65         
                                                                                                      
     Total                          $ 47,151           $ 100          $ 47,251         100.00%                   
                                    =========          =====          ========         ======            
                                                                                                      
     Percent of total                  99.79%            .21%           100.00%        
                                    ========           =====          ========            
                                    
</TABLE>
         The  following  table   indicates  the  amount  of  the   Association's
certificates  of deposit and other deposits by time remaining  until maturity as
of June 30, 1998.
<TABLE>
<CAPTION>
                                                                      Maturity
                                              --------------------------------------------------------  

                                                            Over        Over        Over
                                              3 Months     3 to 6      6 to 12       12
                                               or Less     Months      Months      Months       Total
                                               -------     ------      ------      ------       -----
                                                                   (In Thousands)

<S>                               <C>          <C>         <C>         <C>         <C>         <C>    
Certificates of deposit less than $100,000     $15,105     $12,433     $ 8,189     $ 6,306     $42,033

Certificate of deposit of $100,000 or more       1,596       2,244       1,146         232       5,218
                                               -------     -------     -------     -------     -------

   Total certificates of deposit               $16,701     $14,677     $ 9,335     $ 6,538     $47,251
                                               =======     =======     =======     =======     =======
</TABLE>
<PAGE>
Borrowings

         Midland  Federal's  other available  sources of funds include  advances
from  the  Federal  Home  Loan  Bank  ("FHLB")  of  Chicago  and  collateralized
borrowings.  As a member of the FHLB of Chicago,  the Association is required to
own capital stock in the FHLB of Chicago and is authorized to apply for advances
from the FHLB of Chicago.  Each FHLB credit  program has its own interest  rate,
which may be fixed or variable, and range of maturities. The FHLB of Chicago may
prescribe the acceptable uses for these advances,  as well as limitations on the
size of the advances  and  repayment  provisions.  The  Association  has not had
significant borrowings in recent years.

Competition

         Midland  Federal faces strong  competition in originating  loans and in
attracting deposits. Competition in originating loans comes primarily from other
thrift institutions, commercial banks and mortgage bankers which also make loans
secured by real estate  located in the  Association's  primary  market area. The
Association  competes for loans  principally  on the basis of the interest rates
and loan fees it charges,  the types of loans it  originates  and the quality of
service it provides to borrowers.

         The Association  faces substantial  competition in attracting  deposits
from other thrift institutions, commercial banks, money market and mutual funds,
credit unions and other investment  vehicles.  The ability of the Association to
attract  and retain  deposits  depends on its  ability to provide an  investment
opportunity  that satisfies the  requirements of investors as to rate of return,
liquidity,  risk and other factors.  The Association competes for these deposits
by offering a variety of deposit  accounts at  competitive  rates and convenient
business hours.  The Association  estimates its share of deposits in its primary
market area to be less than 3%.

         The authority to offer money market deposits,  and expanded lending and
other powers  authorized for thrift  institutions  by federal  legislation,  has
resulted in increased  competition  for both deposits and loans  between  thrift
institutions and other financial institutions such as commercial banks.

Service Corporation

         Federal  associations  generally may invest up to 2% of their assets in
service corporations, plus an additional 1% of assets if for community purposes.
In  addition,  federal  associations  may  invest up to 50% of their  regulatory
capital in  conforming  loans to their  service  corporations.  In  addition  to
investments  in service  corporations,  federal  associations  are  permitted to
invest  an  unlimited  amount  in  operating   subsidiaries  engaged  solely  in
activities which a federal association may engage in directly.

         Midland   Federal  has  one  service   corporation,   Midland   Service
Corporation,  located  in  Bridgeview,  Illinois,  which  was  organized  by the
Association  in 1976 to act as a holding  company  for the  Association's  other
subsidiaries.  At June 30, 1998,  Midland Federal's equity investment in Midland
Service  Corporation was  approximately  $180,000.  During fiscal 1998,  Midland
Service Corporation recorded a profit of $3,000.
<PAGE>
         Midland  Service  Corporation  owns MS Insurance  Agency,  an insurance
agency which provides  insurance products to customers of Midland Federal and to
members  of the  general  public in Midland  Federal's  market  area.  Insurance
products offered by this agency,  include credit life,  health,  homeowners' and
disability.  MS Insurance  Agency had a loss of $1,400 for the 1998 fiscal year,
all of which is included  in the  Midland  Service  Corporation  income  amounts
reported above.


                                   REGULATION

         General.  Midland  Federal is a  federally  chartered  savings and loan
association,  the deposits of which are federally insured and backed by the full
faith and credit of the United States Government.  Accordingly,  Midland Federal
is  subject to broad  federal  regulation  and  oversight  extending  to all its
operations. The Association is a member of the FHLB of Chicago and is subject to
certain  limited  regulation  by the Board of Governors  of the Federal  Reserve
System  ("Federal  Reserve  Board").  Midland Federal is a member of the Savings
Association Insurance Fund ("SAIF"), which together with the Bank Insurance Fund
(the "BIF") are the two deposit  insurance  funds  administered by the FDIC, and
the deposits of Midland  Federal are insured by the FDIC. As a result,  the FDIC
has certain regulatory and examination authority over the Association.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

         Federal  Regulation  of  Savings  Associations.  The OTS has  extensive
authority  over  the  operations  of  savings  associations.  As  part  of  this
authority, Midland Federal is required to file periodic reports with the OTS and
is  subject  to  periodic  examinations  by the OTS and the  FDIC.  The last OTS
examination  commenced on April 27, 1998 using financial data as of December 31,
1997, and the last regular OTS and FDIC joint  examination was on June 30, 1993.
When these examinations are conducted by the OTS and the FDIC, the examiners may
require  the  Association  to provide for higher  general or specific  loan loss
reserves.

         All savings associations are subject to semi-annual assessments,  based
upon the savings  associations  total assets.  The Association's paid assessment
during the fiscal year ended June 30, 1998 was $35,000.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions,  including Midland Federal.  This enforcement  authority includes,
among other  things,  the  ability to assess  civil  money  penalties,  to issue
cease-and-desist  or  removal  orders and to  initiate  injunctive  actions.  In
general,  these enforcement  actions may be initiated for violations of laws and
regulations  and unsafe or unsound  practices.  Other  actions or inactions  may
provide  the basis for  enforcement  action,  including  misleading  or untimely
reports  filed  with  the  OTS.  Except  under  certain  circumstances,   public
disclosure of final enforcement actions by the OTS is required.

         In addition, the investment and lending authority of the Association is
prescribed by federal laws and  regulations,  and it is prohibited from engaging
in any activities not permitted by such laws and regulations.  For instance,  no
savings  association may invest in corporate debt securities not rated in one of
the  four  highest  rating   categories  by  a  nationally   recognized   rating
organization.  In  addition,  the  permissible  level of  investment  by federal
associations  in loans secured by  non-residential  real property may not exceed
400% of regulatory capital,  except with approval of the OTS. Midland Federal is
in compliance with each of these restrictions.
<PAGE>
         The Association's  permissible lending limit for  loans-to-one-borrower
is equal to the  greater of $500,000  or 15% of  unimpaired  capital and surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1998, the  Association's  lending limit under this restriction was $1.3
million.  The  Association  is  in  compliance  with  the  loans-to-one-borrower
limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a capital  compliance  plan. A failure to submit a plan or
to comply  with an  approved  plan  will  subject  the  institution  to  further
enforcement action.

         Insurance of Accounts and Regulation by the FDIC.  Midland Federal is a
member of the SAIF,  which is  administered  by the FDIC.  Savings  deposits are
insured up to applicable  limits by the FDIC and such insurance is backed by the
full faith and credit of the United  States  Government.  As  insurer,  the FDIC
imposes deposit insurance premiums and is authorized to conduct  examinations of
and to require reporting by FDIC-insured institutions.  It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC also
has the authority to initiate enforcement actions against savings  associations,
after giving the OTS an opportunity  to take such action,  and may terminate the
deposit  insurance  if it  determines  that the  institution  has  engaged or is
engaging  in  unsafe  or  unsound  practices,  or  is in an  unsafe  or  unsound
condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e.,  a core capital  ratio of at least 5%, a ratio of core
capital to risk-weighted assets of at least 6% and a risk-based capital ratio of
at least  10%)  and  considered  healthy  would  pay the  lowest  premium  while
institutions that are less than adequately  capitalized (i.e., a core capital or
core  capital  to  risk-based  capital  ratios of less  than 4% or a  risk-based
capital ratio of less than 8%) and considered of substantial supervisory concern
would pay the highest premium.  Risk classification of all insured  institutions
will be made by the FDIC for each semi-annual assessment period.

         The FDIC is authorized to increase  assessment  rates,  on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated  reserve  ratio of 1.25% of SAIF insured  deposits.  In setting these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FDIC may also impose  special  assessments  on SAIF  members to repay
amounts  borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

         In order to equalize the deposit  insurance  premium  schedules for BIF
and SAIF insured institutions, the FDIC imposed a one-time special assessment on
all SAIF-assessable deposits pursuant to federal legislation passed on September
30, 1996. The Association's special assessment, which was $674,061,144, was paid
in November 1996.  Effective  January 1, 1997, the premium  schedule for BIF and
SAIF insured institutions
<PAGE>
ranged  from  0 to 27  basis  points.  However,  SAIF-insured  institutions  are
required to pay a Financing Corporation (FICO) assessment,  in order to fund the
interest on bonds issued to resolve thrift failures in the 1980s,  equal to 6.48
basis points for each $100 in domestic deposits,  while BIF-insured institutions
pay an assessment equal to 1.52 basis points for each $100 in domestic deposits.
The  assessment  is expected  to reduced to 2.43 no later than  January 1, 2000,
when  BIF  insured  institutions  fully  participate  in the  assessment.  These
assessments,  which may be revised based upon the level of BIF and SAIF deposits
will continue until the bonds mature in the year 2017.

         Regulatory    Capital    Requirements.    Federally   insured   savings
associations,  such as the Association, are required to maintain a minimum level
of regulatory capital.  The OTS has established  capital standards,  including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations.  These
capital  requirements  must be generally as stringent as the comparable  capital
requirements  for national  banks.  The OTS is also authorized to impose capital
requirements  in excess  of these  standards  on  individual  associations  on a
case-by-case basis.

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement.  Further, any unrealized holding gains or losses, net of income
taxes,  on securities  classified as available for sale in accordance  with SFAS
No. 115 are excluded from regulatory capital calculations. At June 30, 1998, the
Association had no intangible  assets and an unrealized  gain, net of tax, under
SFAS No. 115 in the amount of $145,000.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.

         At June 30, 1998, the Association had tangible capital of $8.6 million,
or 7.33% of adjusted total assets, which is approximately $6.9 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted  total  assets  (as  defined by  regulation).  Core  capital  generally
consists  of  tangible  capital  plus  certain  intangible   assets,   including
supervisory goodwill (which is phased-out over a five-year period) and a limited
amount of purchased credit card  relationships and purchased  mortgage servicing
rights.  As a result  of the  prompt  corrective  action  provisions  of  FDICIA
discussed  below,  however,  a savings  association must maintain a core capital
ratio  of at  least  4% to  be  considered  adequately  capitalized  unless  its
supervisory  condition  is such to allow it to maintain a 3% ratio.  At June 30,
1998, the Association had no intangibles which were subject to these tests.

         At June  30,  1998,  the  Association  had core  capital  equal to $8.6
million,  or 7.33% of adjusted  total  assets,  which is $5.1 million  above the
minimum leverage ratio requirement of 3% in effect on that date.
<PAGE>
          The OTS risk-based  requirement  requires savings associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the  risk-based  requirement  only to the extent of core capital.  At
June 30,  1998,  Midland  Federal  had no capital  instruments  that  qualify as
supplementary capital and $150,000 of general loss reserves, which was less than
1.25% of risk-weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital instruments. There were no such equity
investments at June 30, 1998.

         In  determining  the  amount  of  risk-weighted   assets,  all  assets,
including certain  off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%,  based on the risk  inherent in the type of asset.  For
example,  the OTS has assigned a risk weight of 50% for  prudently  underwritten
permanent  one- to  four-family  first lien mortgage loans not more than 90 days
delinquent  and having a loan to value ratio of not more than 80% at origination
unless the loan amount in excess of such ratio is insured by an insurer approved
by the FNMA or FHLMC.

         OTS regulations  also require that every savings  association with more
than normal  interest rate risk exposure to deduct from its total  capital,  for
purposes of determining compliance with such requirement, an amount equal to 50%
of its  interest-rate  risk  exposure  multiplied  by the  present  value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings  association,  greater  than 2% of the  present  value of its
assets,  based upon a  hypothetical  200 basis  point  increase  or  decrease in
interest rates (whichever results in a greater decline).  Net portfolio value is
the  present  value  of  expected  cash  flows  from  assets,   liabilities  and
off-balance  sheet  contracts.  The rule will not become effective until the OTS
evaluates the process by which savings  associations may appeal an interest rate
risk deduction determination.  It is uncertain as to when this evaluation may be
completed.  Any savings  association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement  unless the
OTS determines otherwise.

         On June 30, 1998,  the  Association  had total  capital of $8.8 million
(including $8.6 million in core capital and $150,000 of qualifying  general loss
reserves) and  risk-weighted  assets of $37.5 million or total capital of 23.36%
of risk-weighted  assets.  This amount was $5.8 million above the 8% requirement
in effect on that date.

         The OTS and the FDIC are authorized  and,  under certain  circumstances
required,  to take certain actions against  associations that fail to meet their
capital requirements. Effective December 19, 1992, the federal banking agencies,
including   the  OTS,  were  given   additional   enforcement   authority   over
undercapitalized depository institutions.  The OTS is generally required to take
action  to  restrict  the  activities  of  an   "undercapitalized   association"
(generally  defined to be one with less than  either a 4% core  ratio,  a Tier 1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.
<PAGE>
         Any savings  association  that fails to comply with its capital plan or
is  "significantly  undercapitalized"  (i.e.,  Tier 1 risk-based or core capital
ratios of less than 3% or a  risk-based  capital  ratio of less than 6%) must be
subject  to  one  or  more  of  additional   specified   actions  and  operating
restrictions, which may cover all aspects of its operations and include a forced
merger or acquisition of the association.

         An  association  that becomes  "critically  undercapitalized"  (i.e., a
tangible  capital  ratio  of  2%  or  less)  is  subject  to  further  mandatory
restrictions on its activities in addition to those  applicable to significantly
undercapitalized  associations. In addition, the OTS must appoint a receiver (or
conservator  with the concurrence of the FDIC) for a savings  association,  with
certain  limited  exceptions,   within  90  days  after  it  becomes  critically
undercapitalized.

         Any  undercapitalized  association  is  also  subject  to  the  general
enforcement  activity of the OTS and the FDIC,  including the  appointment  of a
receiver or conservator.

         The  imposition by the OTS or the FDIC of any of these  measures on the
Association  may  have  a  substantial   adverse  effect  on  the  Association's
operations and  profitability and the value of its stock. If the OTS or the FDIC
require an association  such as Midland  Federal,  to raise  additional  capital
through the issuance of stock or other  capital  instruments  such  issuance may
result in the dilution in the percentage of ownership of Midland Federal.

         Limitations   on  Dividends  and  Other  Capital   Distributions.   OTS
regulations impose various  restrictions on savings associations with respect to
their ability to make distributions of capital,  which include dividends,  stock
redemptions or repurchases,  cash-out mergers and other transactions  charged to
the capital account.  OTS regulations  also prohibit a savings  association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result,  the regulatory  capital of the  association  would be reduced below the
amount  required to be maintained  for the  liquidation  account  established in
connection with its mutual to stock conversion.

         Generally, savings associations,  such as the Association,  that before
and after the proposed  distribution meet their capital  requirements,  may make
capital  distributions  during any calendar year equal to the greater of 100% of
net  income for the  year-to-date  plus 50% of the amount by which the lesser of
the  association's  tangible,  core or  risk-based  capital  exceeds its capital
requirement  for such  capital  component,  as measured at the  beginning of the
calendar  year,  or 75% of their net income  for the most  recent  four  quarter
period.  However,  an  association  deemed  to be in need of  more  than  normal
supervision  by the OTS may have its dividend  authority  restricted by the OTS.
Midland Federal may pay dividends in accordance with this general authority.

         Savings  associations  proposing to make any capital  distribution need
only  submit  written  notice  to the OTS 30 days  prior  to such  distribution.
Savings  associations  that do not,  or would  not meet  their  current  minimum
capital requirements  following a proposed capital  distribution,  however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution  during that 30-day  notice  period  based on safety and  soundness
concerns. See "Regulatory Capital Requirements."

         The OTS has proposed  regulations that would revise the current capital
distribution  restrictions.  Under the proposal a savings association may make a
capital distribution without notice to the OTS provided that it has a CAMEL 1 or
2 rating, is not of supervisory concern, and would remain adequately capitalized
(as  defined in the OTS prompt  corrective  action  regulations)  following  the
proposed  distribution.   Savings  associations  that  would  remain  adequately
capitalized  following the proposed distribution but do not meet the other noted
<PAGE>
requirements  must  notify  the  OTS  30  days  prior  to  declaring  a  capital
distribution. The OTS stated it will generally regard as permissible that amount
of capital  distributions  that do not exceed  50% of the  institution's  excess
regulatory  capital plus net income to date during the calendar  year. A savings
association  may not make a capital  distribution  without prior approval of the
OTS and the FDIC if it is  undercapitalized  before,  or as a result of,  such a
distribution.  As under  the  current  rule,  the OTS may  object  to a  capital
distribution if it would constitute an unsafe or unsound practice.  No assurance
may be given as to whether or in what form the regulations may be adopted.

         Liquidity.  All savings  associations,  including Midland Federal,  are
required  to  maintain  an average  daily  balance of liquid  assets  equal to a
certain  percentage of the sum of its average daily balance of net  withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion of
what the Association includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity  and Capital
Resources" in the Annual Report to Stockholders filed as Exhibit 13 hereto. This
liquid asset ratio  requirement  may vary from time to time (between 4% and 10%)
depending   upon   economic   conditions   and  savings  flows  of  all  savings
associations.  At the  present  time,  the  minimum  liquid  asset  ratio is 4%.
Penalties may be imposed upon  associations  for  violations of the liquid asset
ratio requirement.  At June 30, 1998, the Association was in compliance with the
requirement, with an overall liquid asset ratio of 56.8% .

         Accounting.   An  OTS  policy  statement   applicable  to  all  savings
associations  clarifies and  re-emphasizes  that the investment  activities of a
savings   association  must  be  in  compliance  with  approved  and  documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement,  management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation.

         OTS accounting regulations,  which may be made more stringent than GAAP
by the OTS,  to require  that  transactions  be  reported  in a manner that best
reflects  their  underlying  economic  substance  and  inherent  risk  and  that
financial  reports must incorporate any other  accounting  regulations or orders
prescribed  by the OTS. The  Association  is in  compliance  with these  amended
rules.

         Qualified Thrift Lender Test. All savings  associations,  including the
Association,  are  required to meet a qualified  thrift  lender  ("QTL") test to
avoid certain  restrictions  on their  operations.  This test requires a savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments for nine out of every 12 months on a
rolling basis.  As an alternative,  the savings  association may maintain 60% of
its assets in those  assets  specified  in Section  7701(a)(19)  of the Internal
Revenue Code.  Under either test, such assets  primarily  consist of residential
housing related loans and investments.  At June 30, 1998 the Association met the
test and has always met the test since its effectiveness.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the Bank  Insurance  Fund.  If an  association  that  fails the test has not yet
requalified  and has not converted to a national bank, its new  investments  and
activities are limited to those permissible for both a savings association and a
national bank,  and it is limited to national bank branching  rights in its home
state. In addition, the association is immediately ineligible to receive any new
<PAGE>
FHLB borrowings and is subject to national bank limits for payment of dividends.
If such  association  has not requalified or converted to a national bank within
three years after the failure,  it must divest of all  investments and cease all
activities  not  permissible  for a national  bank.  In addition,  it must repay
promptly  any  outstanding  FHLB  borrowings,  which may  result  in  prepayment
penalties.

         Community  Reinvestment  Act.  Under  the  Community  Reinvestment  Act
("CRA"),  every  FDIC  insured  institution  has a  continuing  and  affirmative
obligation  consistent  with safe and sound  banking  practices to help meet the
credit  needs  of its  entire  community,  including  low  and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection  with the  examination  of the  Association,  to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications, such
as  a  merger  or  the  establishment  of  a  branch,  by  the  Association.  An
unsatisfactory  rating may be used as the basis for the denial of an application
by the OTS.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  the  Association  may be required  to devote  additional
funds for investment and lending in its local  community.  The  Association  was
examined for CRA compliance in 1996 and received a rating of "satisfactory."

         Transactions with Affiliates. Generally, transactions between a savings
association or its  subsidiaries  and its affiliates are required to be on terms
as  favorable  to  the  association  as  transactions  with  non-affiliates.  In
addition,  certain of these  transactions  are restricted to a percentage of the
association's  capital.  Affiliates of Midland Federal include any company which
is under common control with the Association. In addition, a savings association
may not lend to any affiliate  engaged in activities not  permissible for a bank
holding company or acquire the securities of most affiliates.  The Association's
subsidiaries are not deemed affiliates,  however;  the OTS has the discretion to
treat subsidiaries as affiliates on a case-by-case basis.

         Certain  transactions with directors,  officers or controlling  persons
are also subject to conflict of interest  regulations enforced by the OTS. These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
persons.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts)  and  non-personal  time  deposits.  At June  30,  1998  the
Association  was in  compliance  with these reserve  requirements.  The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy  liquidity  requirements  that may be imposed by the OTS.
See "--Liquidity."
<PAGE>
         Savings  associations are authorized to borrow from the Federal Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

         Federal Home Loan Bank System.  The Association is a member of the FHLB
of  Chicago,  which  is one of 12  regional  FHLBs  that  administers  the  home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the board of directors of the FHLB. These
policies  and  procedures  are subject to the  regulation  and  oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.  While  a  member  of the  FHLB of  Chicago  at June  30,  1998,  the
Association had not entered into a credit  arrangement  with the FHLB of Chicago
and, as such, could not obtain funds from the FHLB of Chicago.

         As a member, Midland Federal is required to purchase and maintain stock
in the FHLB of Chicago.  At June 30, 1998  Midland  Federal had $554,000 in FHLB
stock,  which  was in  compliance  with this  requirement.  In past  years,  the
Association has received substantial  dividends on its FHLB stock. Over the past
five  calendar  years  such  dividends  have  averaged  6.41% and were 6.81% for
calendar year 1997.

         Under  federal  law,  the FHLBs are  required to provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction in value of the Association's FHLB stock may result in a corresponding
reduction in Midland Federal's capital.

         For the year ended June 30, 1998, dividends paid by the FHLB of Chicago
to Midland Federal totaled $37,000,  which was a $1,000 decrease over the amount
of dividends  received in fiscal year 1997. The $9,200 dividend received for the
quarter ended June 30, 1998 reflects an annualized  rate of 6.62%, or .18% below
the rate for calender 1997.

         Federal  Taxation.  For fiscal  years  beginning  prior to December 31,
1995, savings associations such as the Association that met certain definitional
tests relating to the composition of assets and other  conditions  prescribed by
the Internal  Revenue Code of 1986, as amended (the "Code"),  were  permitted to
establish  reserves  for bad debts and to make annual  additions  thereto  which
could,  within  specified  formula limits,  be taken as a deduction in computing
taxable  income  for  federal  income tax  purposes.  The amount of the bad debt
reserve deduction for  "non-qualifying  loans" was computed under the experience
method.  The  amount of the bad debt  reserve  deduction  for  "qualifying  real
property  loans"  (generally  one- to four-family  residential  loans secured by
improved real estate) could be computed  under either the  experience  method or
the percentage of taxable income method (based on an annual election).

         Under the  experience  method,  the bad debt reserve  deduction  was an
amount  determined  under a formula based  generally upon the bad debts actually
sustained by the savings association over a period of years.
<PAGE>
         The  percentage of specially  computed  taxable income that was used to
compute a savings  association's bad debt reserve deduction under the percentage
of taxable  income  method (the  "percentage  bad debt  deduction")  was 8%. The
percentage bad debt deduction thus computed was reduced by the amount  permitted
as a  deduction  for  non-qualifying  loans  under the  experience  method.  The
availability  of the  percentage of taxable income method  permitted  qualifying
savings  associations to be taxed at a lower  effective  federal income tax rate
than that applicable to corporations  generally  (approximately  31.28% assuming
the maximum percentage bad debt deduction).

         If an  association's  specified  assets  (generally,  loans  secured by
residential  real  estate  or  deposits,  educational  loans,  cash and  certain
government  obligations)  constitute  less  than 60% of its  total  assets,  the
association  could not deduct any addition to a bad debt  reserve and  generally
must include existing reserves in income over a four year period.

          In August  1996,  legislation  was  enacted  that  repeals the reserve
method of accounting (including the percentage of taxable income method) used by
many thrifts, including the Association, to calculate their bad debt reserve for
federal income tax purposes.  As a result, large thrifts such as the Association
must  recapture  that  portion of the reserve that exceeds the amount that could
have been taken under the specific  charge-off  method for  post-1987 tax years.
The  legislation  also  requires  thrifts to account  for bad debts for  federal
income  tax  purposes  on the  same  basis as  commercial  banks  for tax  years
beginning  after  December 31, 1995.  The  recapture  will occur over a six-year
period,  the  commencement of which will be delayed until the first taxable year
beginning  after  December 31,  1997,  provided the  institution  meets  certain
residential  lending  requirements.  The management of the Association  does not
believe that the legislation will have a material impact on the Association.

         In addition to the regular income tax, corporations,  including savings
associations such as the Association, generally are subject to a minimum tax. An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
after 1986 and before 1996, corporations, including savings associations such as
the Association,  are also subject to an environmental tax equal to 0.12% of the
excess of alternative  minimum  taxable income for the taxable year  (determined
without regard to net operating  losses and the deduction for the  environmental
tax) over $2 million.

         To the extent earnings appropriated to a savings association's bad debt
reserves for  "qualifying  real property  loans" and deducted for federal income
tax purposes  exceed the allowable  amount of such reserves  computed  under the
experience method and to the extent of the association's  supplemental  reserves
for  losses on loans  ("Excess"),  such  Excess  may not,  without  adverse  tax
consequences,   be  utilized  for  the  payment  of  cash   dividends  or  other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 1998, the Association's  Excess for tax purposes totaled
approximately $1.4 million.
<PAGE>
         The Association and its subsidiaries file a consolidated federal income
tax return on a fiscal year basis using the accrual method of accounting. In the
past, savings  associations,  such as Midland Federal,  that file federal income
tax returns as part of a consolidated group were required by applicable Treasury
regulations  to reduce  their  taxable  income for  purposes  of  computing  the
percentage  bad debt  deduction  for losses  attributable  to  activities of the
non-savings  association members of the consolidated group that are functionally
related to the activities of the savings association member.

         The  Association  and its  consolidated  subsidiaries  have  never been
audited by the IRS with respect to federal  income tax  returns.  The statute of
limitations  has passed for tax years ending on or prior to June 30,  1995,  for
the Association and its consolidated subsidiaries.

         Illinois  Taxation.  Midland Federal and its subsidiaries file separate
Illinois income tax returns.  For Illinois income tax purposes,  the Association
and its  subsidiaries  are taxed at an effective rate equal to 7.18% of Illinois
taxable income.  For these purposes,  "Illinois  Taxable Income" generally means
federal taxable income,  subject to certain adjustments  (including the addition
of interest  income on state and  municipal  obligations  and the  exclusion  of
interest income on United States Treasury obligations).  The exclusion of income
on United States Treasury  obligations has the effect of reducing  significantly
the Illinois taxable income of savings associations.

Impact of New Accounting Standards

         Reporting Comprehensive Income. In June 1997, the FASB issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("SFAS No. 130").  This  statement  establishes  standards for reporting and the
display of comprehensive income and its components (revenues,  expenses,  gains,
losses) in a full set of general-purpose  financial statements.  SFAS No. 130 is
effective for fiscal years  beginning  after December 15, 1997.  Management does
not believe  that  adoption  of SFAS No. 130 will have a material  impact of the
Association's financial condition or results of operations.

         Disclosures about Segments of an Enterprise and Relates Information. In
June 1997, the FASB issued Statement of Financial  Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") which becomes  effective  for fiscal years  beginning  after  December 15,
1997.  SFAS No.  131  establishes  standards  for the way that  public  business
enterprises report information about operating segments and requires enterprises
to report selected  information  about operating  segments in interim  financial
reports.  Management  does not believe that adoption of SFAS No. 131 will have a
material impact on the Association's consolidated financial condition or results
of operations.

         Employers'  Disclosure  about Pension and Other Employee  Benefits.  In
February 1998, the FASB issued Statement of Financial  Accounting  Standards No.
132, "Employers' Disclosures about Pensions and Other Post-retirement  Benefits"
("SFAS No. 132"). SFAS No. 132 alters current disclosure  requirements regarding
pensions  and other  post-retirement  benefits in the  financial  statements  of
employers who sponsor such benefits plans. The revised  disclosure  requirements
are designed to provide  additional  information to assist readers in evaluating
future costs related to such plans.  Additionally,  the revised  disclosures are
<PAGE>
designed to provide  changes in the  components  of pension and benefit costs in
addition to the year end  components of those factors in the resulting  asset or
liability  related to such plans.  The  statement is effective  for fiscal years
beginning after December 15, 1997 with earlier application available. Management
does not believe  that  adoption of SAFS No. 132 will have a material  impact on
the Association's consolidated financial condition of results of operations.

         Accounting for Derivative  Instruments and for Hedging  Activities.  In
June 1998, the FASB issued Statement of Financial  Accounting  Standards No. 133
"Accounting for Derivative  Instruments and for Hedging  Activities"  ("SAFS No.
133").  SFAS No. 133 provides a  comprehensive  and consistent  standard for the
recognition and measurement of derivatives and hedging activities. The statement
requires all  derivatives  to be recorded on the balance sheet at fair value and
establishes  special  accounting  for the  following  three  different  types of
hedges:  hedges of  changes in the fair  value of  assets,  liabilities  or firm
commitments  (referred to as fair value  hedges);  hedges of the  variable  cash
flows of  forecasted  transactions  (cash  flow  hedges);  and hedges of foreign
currency  exposures  of  net  investments  in  foreign  operations.  Though  the
accounting  treatment  and  criteria  for each of the  three  types of hedges is
unique, they all result in recognizing offsetting changes in value or cash flows
of both the hedge and the hedged item in earnings in the same period. Changes in
the fair  value of  derivatives  that do not meet the  criteria  of one of these
three categories of hedges are included in earnings in the period of the change.
SFAS No. 133 is effective for years beginning after June 15, 1999, but companies
can early adopt as of the beginning of any fiscal quarter that begins after June
1998.  Management  does not  expect the  adoption  of this  statement  to have a
material impact on the Association's consolidated financial condition or results
of operations.

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


                                   MANAGEMENT

Executive Officers of the Association


         The following information as to the business experience during the past
five  years  is  supplied  with  respect  to  each  executive   officer  of  the
Association.  There are no  arrangements or  understandings  between the persons
named and any other person pursuant to which such officers were selected.

         Paul Zogas.  Mr. Zogas has been  Chairman of the Board,  President  and
Chief Executive  Officer since 1983, and a Director since 1982 . Mr. Zogas holds
a BA degree in Economics  from the  University  of Michigan in Ann Arbor,  and a
Juris Doctor degree from De Paul University College of Law in Chicago. Mr. Zogas
provides  legal  services  from time to time to private  clients,  and serves as
Director  of Midland  Business  Systems,  Inc.,  a computer  sales,  service and
consulting company located in Chicago, Illinois.
<PAGE>
         Charles Zogas.  Mr. Zogas has been the Executive Vice President and the
Chief  Operations  Officer  of the  Association  since  1982.  He was  elected a
Director in 1983, and also serves as Secretary and Treasurer.  Mr. Zogas holds a
BS degree from the University of Notre Dame in Notre Dame, Indiana,  and a Juris
Doctor  degree from  IIT/Chicago  - Kent College of Law. Mr. Zogas also provides
legal  services  from time to time to private  clients and serves as Director of
Midland Business Systems, Inc., a computer sales, service and consulting company
located in Chicago, Illinois.

         Richard  Taylor.  Mr.  Taylor  joined the  Association  in 1972.  Since
joining the Association in 1972, he has held various  lending  positions and has
held the position of Vice  President in Charge of Lending since 1982. Mr. Taylor
holds a BS degree from Illinois  State  University,  and is also a licensed real
estate and insurance broker.

Employees

         At June 30, 1998, the Association had a total of 37 full-time employees
and 40 part-time employees.  None of the Association's employees are represented
by any collective bargaining group.  Management considers its employee relations
to be good.

Item 2.  Description of Property

Offices

         Midland  Federal owns the building and land for its main office at 8929
South Harlem Avenue,  Bridgeview,  Illinois.  This office has 18,000 square feet
and a net book value of $980,000 at June 30, 1998. The Association also has a 99
year  easement on land  adjacent to its main  office  which  expires in the year
2078. The  Association  owns the building and land for its two branch offices in
Chicago at 4040 South Archer  Avenue in Brighton  Park and 2657 West 69th Street
in Marquette Park which have 5,000 and 2,500 square feet and $58,000 and $33,000
net book values at June 30, 1998, respectively.

         The  Association  has a lease ($17,256 per year to June 30, 1999) on an
approximately 4,800 square foot lot located in Homer Township,  Illinois,  where
the  Association  may open a branch  in the  future.  As of June 30,  1998,  the
Association  had not  resubmitted an application  for OTS approval of the branch
nor have any cost projections been obtained.

Computer Equipment

         The Association's recordkeeping activities are maintained on an on-line
basis  with  an  independent   service  bureau.  The  Association's   accounting
activities  are  maintained on an in-house  computer.  The net book value of the
Association's computer equipment at June 30, 1998 was $156,000.

Item 3.  Legal Proceedings

         The Association is, from time to time, a defendant to certain  lawsuits
arising in the ordinary course of its business.  The  Association  believes that
there is no litigation  pending  which,  if adversely  determined,  would have a
material adverse effect on its financial condition.
<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation  of proxies or  otherwise,  during the three  months ended June 30,
1998.

                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters

         Pages 22 through 23 of the 1998 Annual Report to Stockholders is herein
incorporated by reference.

Item 6.  Management's Discussion and Analysis or Plan of Operation

         Pages 7 through 19 of the 1998 Annual Report to  Stockholders is herein
incorporated by reference.

Item 7.  Financial Statements

         Pages 25  through  49 of the 1998  Annual  Report to  Stockholders  are
herein incorporated by reference.

Item 8.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure

         There have been no changes in or disagreements  with the  Association's
accountants on accounting and financial disclosure matters.

                                    PART III


Item 9.  Directors, Executive Officers, Promoters and Control
              Persons; Compliance with Section 16(a) of the Exchange Act

         Information  concerning  Directors of the Issuer is incorporated herein
by reference from the  Association's  definitive  Proxy Statement for the Annual
Meeting of  Stockholders,  a copy of which will be filed not later than 120 days
after the close of the fiscal year.

Item 10.  Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from the  Association's  definitive  Proxy  Statement  for the Annual
Meeting of  Stockholders,  a copy of which will be filed not later than 120 days
after the close of the fiscal year.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and  management  is  incorporated  herein by  reference  from the  Association's
definitive  Proxy  Statement for the Annual Meeting of  Stockholders,  a copy of
which will be filed not later than 120 days after the close of the fiscal year.
<PAGE>
Item 12.  Certain Relationships and Related Transactions

         Information  concerning  relationships and transactions is incorporated
herein by reference from the  Association's  definitive  Proxy Statement for the
Annual Meeting of Stockholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.
<PAGE>
                                    PART IV


Item 13.  Exhibits and Reports on Form 8-K

         (a) Exhibits:

<TABLE>
<CAPTION>
                                                                                               Reference to
                                                                                               Prior Filing
Regulation                                                                                      or Exhibit
S-K Exhibit                                                                                  Number Attached
  Number                      Document                                                           Hereto
  ------                      --------                                                           ------
<S>             <C>                                                                           <C>

     2          Plan of acquisition, reorganization, arrangement, liquid, or succession            None
     3          Articles of Incorporation and Bylaws....................................           ***
     4          Instruments defining the rights of security holders,
                including indentures:
                 Common Stock Certificate...............................................           ***
     9          Voting trust agreement..................................................           None
    10          Material contracts:
                 Employee Stock Ownership Plan..........................................           ***
                 1993 Stock Option and Incentive Plan...................................            **
                 Employment Agreements..................................................           ***
                 Recognition and Retention Plan.........................................           ***
                 401(k) Retirement/Savings Plan.........................................           ***
    11          Statement re computation of per share earnings..........................           ****
    13          Annual Report to Security Holders.......................................           13
    16          Letter on change in certifying accountant...............................          None
    18          Letter on change in accounting principles...............................          None
    21          Subsidiaries of Registrant..............................................            21
    22          Published report regarding matters submitted to vote of security holders          None
    23          Consent of Experts and Counsel..........................................           None
    24          Power of Attorney.......................................................      Not required
    27          Financial Data Schedule.................................................           27
    99          Additional Exhibits                                                               None
</TABLE>

--------------------
*        Filed on January 15, 1993 an exhibit to the Association's  initial Form
         AC.

*        Filed  on  March  19,   1993  as  an  exhibit   to  the   Association's
         Pre-Effective Amendment No. One to the Form AC.

***      Filed  on June  22,  1998 as  exhibits  to the  Company's  Registration
         Statement  No.  333-57399  on Form S-4.  All of such  previously  filed
         documents  are hereby  incorporated  herein by reference in  accordance
         with Item 601 of Regulation S-B.

****     See Note 1 of the Notes to Consolidated  Financial  Statements included
         in the Annual Report under Exhibit 13.

         (b) Reports on Form 8-K:

         No reports on Form 8-K have been filed  during the  three-month  period
ended June 30, 1998.
<PAGE>



                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                        MIDLAND CAPITAL HOLDINGS CORPORATION


Date:   September 22, 1998              By:    /s/ Paul M. Zogas
       -------------------                     -----------------
                                               Paul M. Zogas
                                               Chairman, President and 
                                               Chief Executive Officer
                                               (Duly Authorized Representative)

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.



/s/ Paul M. Zogas                            /s/ Charles A. Zogas
------------------                           --------------------
Paul M. Zogas, Chairman, President and       Charles A. Zogas, Director, 
Chief Executive Officer                      Executive Vice President 
(Principal Financial and Accounting          and Secretary
 Officer)
Date: September 22, 1998                     Date: September 22, 1998
     -------------------                           -------------------


/s/ Jonas Vaznelis                           /s/ Richard Taylor
------------------                           ------------------
Jonas Vaznelis, Director                     Richard Taylor, Director and 
Date: September 22, 1998                     Vice President
                                             Date: September 22, 1998


/s/ Michael J. Kukanza                       /s/ Algerd Brazis
----------------------                       -----------------
Michael J. Kukanza, Director                 Algerd Brazis, Director
Date: September 22, 1998                     Date: September 22, 1998