================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

            For the Fiscal Year Ended June 30, 2003

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

       For the transition period from ________________ to ________________

                         Commission File Number 1-14343

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

           Delaware                                            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

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

                                   ----------

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

                                      None

           Securities Registered Pursuant to Section 12(g) of the 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 registrant'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 $690,000 in net income for the fiscal year ended June 30,
2003.

      As of June 30, 2003, there were issued and outstanding 372,600 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, 2003 and certain parts of Proxy Statement for 2003
Annual Meeting of Stockholders.

      PART III of Form 10-KSB - Proxy Statement for the 2003 Annual Meeting of
Stockholders.
--------------------------------------------------------------------------------
<PAGE>

                                     PART I

Item 1. Description of Business

      Midland Capital Holdings Corporation, which we refer to as Midland
Capital, is a Delaware corporation which was organized in 1998 by Midland
Federal Savings and Loan Association, which we refer to as Midland Federal, for
the purpose of becoming a thrift institution holding company. Midland Capital
and Midland Federal are headquartered in Bridgeview, Illinois.

      On June 30, 1993, Midland Federal completed a conversion to the stock form
of organization. In that conversion, Midland Federal issued 345,000 shares of
common stock, raising net proceeds of approximately $3.1 million. On July 23,
1998, Midland Federal became a wholly-owned subsidiary of Midland Capital.

      The principal asset of Midland Capital is the outstanding stock of Midland
Federal. Midland Capital presently has no separate operations and its business
consists only of the business of Midland Federal. All references to Midland
Capital, unless otherwise indicated, at or before July 23, 1998 refer to Midland
Federal.

      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, multi-family, consumer and other
loans in its primary market area. Midland Federal also has substantial
investments in liquid assets, mortgage-backed securities and investment
securities.

      Midland Federal's primary market area consists of southwest Chicago, and
the southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Burbank, Chicago Ridge, Homer Glen, Lockport, Orland Park and Lemont
which it serves through its main office in Bridgeview and three branch offices
in southwest Chicago. Its deposits are insured up to applicable limits by the
Federal Deposit Insurance Corporation. At June 30, 2003, Midland Federal had
$160.0 million of assets, deposits of $147.5 million and stockholders equity of
$11.1 million.

      The main offices of Midland Capital and Midland Federal are located at
8929 South Harlem Avenue, Bridgeview, Illinois 60455 and their telephone number
at that address is (708) 598-9400.

Forward-Looking Statements

      When used in this Form 10-KSB and in future filings by Midland Capital
with the SEC, in Midland Capital'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 Midland Capital's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans, real estate values
and competition in Midland Capital's market area, all or some of which could
cause actual


                                       2
<PAGE>

results to differ materially from historical earnings and those presently
anticipated or projected. Midland Capital 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.
Midland Capital wishes to advise readers that the factors listed above could
affect Midland Capital's financial performance and could cause Midland Capital's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.

      Midland Capital 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.

Lending Activities

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

      Loan originations come primarily from walk-in customers, continued
business from customers and referrals from local real estate brokers. Midland
Federal's loan originators earn a base salary plus commissions based upon first
mortgage loans generated by the originator. All completed loan applications are
reviewed by Midland Federal'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. Loan applications are analyzed based on Midland Federal's credit
underwriting guidelines as well as, in the case of residential loans, the
guidelines issued by the Federal Home Loan Mortgage Corporation.

      Midland Federal has established correspondent lending relationships with
other lenders in order to take applications which either do not conform to its
underwriting guidelines or are mortgage loan products that it does not offer,
such as FHA and VA insured mortgage loans. In consideration of a loan broker fee
paid by the lender to Midland Federal, it 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. Midland Federal obtains current financial statements
in connection with the underwriting process as well as annual financial
statements for borrowers with loans secured by commercial real estate.

      Residential real estate loans are generally approved by the Loan Committee
in amounts up to $400,000. Residential real estate loans may also be approved by
the Chief Lending Officer in amounts up to $275,000 or the President in amounts
up to $350,000, and then ratified by the Loan Committee or the Board of
Directors. Residential real estate loans in amounts over $400,000 must


                                       3
<PAGE>

be approved by the Board of Directors. Non-residential real estate loans are
generally approved by the Board of Directors. Non-residential real estate loans
may also be approved by the President in amounts up to $350,000 and then
ratified by the Board of Directors. The Chief Lending Officer and the President
each have approval authority for any consumer loans.

      Midland Federal 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 its interest. The cost of this insurance
coverage is paid by the borrower. Midland Federal also requires title insurance
coverage on all real estate loans except for second mortgage loans in amounts of
less than $25,000 for which loans it 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 for which Midland Federal may, from time to time, absorb such costs for
promotional purposes.

      The aggregate amount of loans that Midland Federal is permitted to make
under applicable federal regulations to any one borrower, including related
entities, and the aggregate amount that it 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, 2003, Midland Federal had two borrowers with outstanding loan
balances in excess of $500,000. One loan totaled $913,000, and was secured by a
43 unit multi-family residential property in Midland Federal's market area. The
other borrower's loans totaled $505,000 and were secured by two 6-unit apartment
buildings. These loans were current and performing in accordance with their
terms at June 30, 2003. See "-- Non-Performing Assets, Classified Assets, Loan
Delinquencies and Defaults."


                                       4
<PAGE>

      Loan and Mortgage-backed Securities Portfolio Composition. The following
table sets forth information concerning the composition of Midland Federal's
loan and mortgage-backed securities portfolios in dollar amounts and in
percentages as of the dates indicated.

<TABLE>
<CAPTION>
                                                                                           June 30,
                                                           ------------------------------------------------------------------------
                                                                    2003                     2002                     2001
                                                           --------------------      --------------------      --------------------
                                                            Amount      Percent       Amount      Percent       Amount      Percent
                                                           --------     -------      --------     -------      --------     -------
                                                                                    (Dollars in Thousands)
<S>                                                        <C>            <C>        <C>            <C>        <C>            <C>
Real Estate Loans
 One- to four-family:
   Held for investment ...............................     $ 89,424       94.95%     $ 81,803       94.70%     $ 64,372       92.58%
   Available for sale ................................          367        0.39           740        0.86           452        0.65
 Multi-family ........................................        1,994        2.12         1,222        1.41         1,507        2.17
 Commercial ..........................................          687        0.73           935        1.08           491        0.70
 Construction ........................................          250        0.26            --          --           828        1.19
                                                           --------      ------      --------      ------      --------      ------
   Total real estate loans ...........................       92,722       98.45        84,700       98.05        67,650       97.29
                                                           ========      ======      ========      ======      ========      ======

Other Loans
 Consumer Loans:
 Deposit accounts ....................................          293        0.31           397        0.46           344        0.50
 Student .............................................          658        0.70           822        0.95           876        1.26
 Automobile ..........................................          336        0.36           321        0.37           469        0.67
 Credit card .........................................          139        0.15           116        0.14           124        0.18
 Other ...............................................           15        0.01            20        0.02            64        0.09
                                                           --------      ------      --------      ------      --------      ------
   Total consumer loans ..............................        1,441        1.53         1,676        1.94         1,877        2.70
                                                           --------      ------      --------      ------      --------      ------

 Commercial business loans ...........................           19        0.02             8        0.01             6        0.01
                                                           --------      ------      --------      ------      --------      ------
   Total loans receivable ............................       94,182      100.00%       86,384      100.00%       69,533      100.00%
                                                           ========      ======      ========      ======      ========      ======

Less
 Loans in process ....................................          617                        67                       668
 Deferred yield adjustments ..........................         (407)                     (379)                     (240)
 Allowance for uncollected interest ..................          263                       259                       260
 Allowance for loan losses ...........................          410                       350                       359
                                                           --------                  --------                  --------
   Loans receivable, net .............................     $ 93,299                  $ 86,087                  $ 68,486
                                                           ========                  ========                  ========

Mortgage-backed securities:
 FHLMC ...............................................     $  4,795       76.29%     $  8,324       80.12%     $ 14,146       81.45%
 FNMA ................................................        1,423       22.64         1,965       18.91         3,075       17.70
 GNMA ................................................           67        1.07            92        0.88           135        0.78
 Collateralized mortgage obligations .................           --          --             9        0.09            12        0.07
                                                           --------      ------      --------      ------      --------      ------
   Total mortgage-backed securities ..................        6,285      100.00%       10,390      100.00%       17,368      100.00%
                                                                         ======                    ======                    ======
 Net discounts .......................................          (13)                      (30)                      (58)
                                                                                     --------                  --------
 Net mortgage-backed securities ......................     $  6,272                  $ 10,360                  $ 17,310
                                                           ========                  ========                  ========
</TABLE>


                                       5
<PAGE>

      The following table shows the composition of Midland Federal's loan
portfolio by fixed and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                                          June 30,
                                                      -----------------------------------------------------------------------------
                                                              2003                         2002                        2001
                                                      ---------------------       ---------------------       ---------------------
                                                       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 ..........................      $ 83,491        88.65%      $ 76,488        88.55%      $ 59,612        85.73%
  Multi-family .................................           370         0.39            254         0.29            490         0.71
 Commercial ....................................           452         0.48            698         0.81            237         0.34
                                                      --------       ------       --------       ------       --------       ------
    Total real estate loans ....................        84,313        89.52         77,440        89.65         60,339        86.78
                                                      --------       ------       --------       ------       --------       ------
 Consumer ......................................           776         0.82            842         0.97            972         1.40
                                                      --------       ------       --------       ------       --------       ------
    Total fixed-rate loans .....................        85,089        90.34         78,282        90.62         61,311        88.18
                                                      --------       ------       --------       ------       --------       ------

Adjustable-Rate Loans
Real estate:
  One- to four-family ..........................         6,300         6.69          6,055         7.01          5,212         7.50
  Multi-family .................................         1,624         1.73            968         1.12          1,017         1.46
 Commercial ....................................           235         0.25            237         0.27            254         0.36
 Construction ..................................           250         0.26             --           --            828         1.19
                                                      --------       ------       --------       ------       --------       ------
    Total real estate loans ....................         8,409         8.93          7,260         8.40          7,311        10.51
                                                      --------       ------       --------       ------       --------       ------
 Consumer ......................................           665         0.71            834         0.97            905         1.30
 Commercial business ...........................            19         0.02              8         0.01              6         0.01
                                                      --------       ------       --------       ------       --------       ------
    Total adjustable-rate loans ................         9,093         9.66          8,102         9.38          8,222        11.82
                                                      --------       ------       --------       ------       --------       ------
    Total loans, receivable ....................        94,182       100.00%        86,384       100.00%        69,533       100.00%
                                                                     ======                      ======                      ======

Less:
 Loans in process ..............................           617                          67                         668
 Deferred yield adjustments ....................          (407)                       (379)                       (240)
 Allowance for uncollected interest ............           263                         259                         260
 Allowance for loan losses .....................           410                         350                         359
                                                      --------                    --------                    --------
    Loans receivable, net ......................      $ 93,299                    $ 86,087                    $ 68,486
                                                      ========                    ========                    ========
</TABLE>


                                       6
<PAGE>

      The following schedule illustrates the contractual maturity of Midland
Federal's loan portfolio at June 30, 2003. 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                        Commercial
                      One- to Four-Family   and Commercial       Development        Consumer          Business            Total
                      -------------------  ----------------  -----------------  ----------------  ----------------  ----------------
                                 Weighted          Weighted           Weighted          Weighted          Weighted          Weighted
                                 Average           Average            Average           Average           Average            Average
                      Amount       Rate    Amount    Rate     Amount    Rate    Amount    Rate    Amount    Rate    Amount    Rate
                      ------     --------  ------  --------   ------  --------  ------  --------  ------  --------  ------  --------
                                       (Dollars in Thousands)
<S>                  <C>           <C>     <C>       <C>       <C>      <C>     <C>        <C>     <C>      <C>     <C>       <C>
Due During Years
Ending June 30,

2004(1) ..........   $   879       6.66%   $  254    9.75%     $250     5.25%   $  542     6.59%   $  19    0.00%   $ 1,994   6.80%
2005 .............       355       4.31%       --      --%       --       --%      163     6.34%      --      --%       518   4.95%
2006 .............       238       4.99%    1,148    4.97%       --       --%      245     5.31%      --      --%     1,631   5.02%
2007 to 2008 .....     2,502       4.79%      324    6.25%       --       --%      324     6.57%      --      --%     3,150   5.12%
2009 to 2012 .....     2,125       6.80%      128    8.50%       --       --%      167     4.69%      --      --%     2,420   6.74%
2013 to 2027 .....    37,689       6.03%      116    7.25%       --       --%       --       --%      --      --%    37,805   6.03%
2028 and following   $46,003       6.45%   $  711    6.04%     $ --       --%   $   --       --%   $  --      --%   $46,714   6.44%
                     -------               ------              ----             ------             -----            -------

                     $89,791               $2,681              $250             $1,441             $  19            $94,182   6.22%
                     =======               ======              ====             ======             =====            =======
</TABLE>

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

      The total amount of loans due after June 30, 2004 which have predetermined
interest rates is approximately $83.96 million, while the total amount of loans
due after such date which have floating or adjustable interest rates is
approximately $8.28 million.


                                       7
<PAGE>

One- to Four-Family Residential Real Estate Lending

Midland Federal's primary lending activity has been the origination and purchase
of permanent loans secured by mortgages on owner-occupied one- to four-family
residences. Midland Federal has recently increased its one to four family
residential lending due to more aggressive organization efforts, a decline in
market interest rates and increased demand. At June 30, 2003, $89.8 million or
95.3%, of Midland Federal'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 Midland
Federal's primary market area.

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 the early 1980s, 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 primarily fixed-rate-residential loans, although
in amounts and at rates which are monitored for compliance with Midland
Federal's asset/liability management policy.

Midland Federal's fixed rate residential loans have terms up to 30 years
although approximately 46% of Midland Federal's fiscal 2003 originations have
terms of 15 year or less. Midland Federal establishes interest rates on its
fixed rate residential loans based on published agency pricing, an analysis of
its asset/liability needs and competitive factors.

Midland Federal'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. Midland Federal'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 Midland Federal's ARMs are
generally limited to 2% at any adjustment date and 6% over the life of the loan.
At June 30, 2003, the total balance of one- to four-family ARMs was $6.3
million, or 6.7% of Midland Federal's gross loan portfolio.

From time to time, Midland Federal will make owner-occupied one- to four-family
construction loans for a six-month interest only term, which Midland Federal
will convert to a permanent mortgage for a fee generally of one point. Midland
Federal requires the interest on such loans during the construction term to be
paid or placed in escrow when the loan is funded.

Also classified as one- to four-family residential loans are home equity lines
of credit which were funded in the amount of $2.6 million at June 30, 2003, and
home equity loans, which were $555,000 at June 30, 2003. Unfunded commitments on
home equity lines of credit totaled $1.7 million at June 30, 2003. Midland
Federal'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 of up to 75% of
the appraised value of the property (including first lien amounts). Midland
Federal'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).


                                       8
<PAGE>

Midland Federal's residential loans are generally underwritten and documented to
permit their sale in the secondary market. Midland Federal 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 95%. 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.

Midland Federal'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

Midland Federal's multi-family residential portfolio at June 30, 2003 included
$2.0 million in loans secured by residential buildings (5 or more units) located
primarily in Midland Federal's primary market area. Midland Federal originates
primarily adjustable-rate, multi-family real estate loans. Rates on Midland
Federal's adjustable-rate, multi-family real estate loans generally adjust in a
manner consistent with Midland Federal's ARMs.

Multi-family real estate loans are generally underwritten in amounts of up to
75% of the appraised value of the underlying property. Midland Federal's
underwriting procedures for multi-family 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 Midland Federal's multi-family real estate
loans.

Midland Federal 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.

Multi-family residential real estate loans generally present a higher level of
risk than loans secured by one- to four-family residences. The risk is greater
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 Midland Federal 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.


                                       9
<PAGE>

Midland Federal offers a variety of secured consumer loans, including
educational loans (which are guaranteed from a State agency), automobile loans
and loans secured by savings deposits. In addition, Midland Federal offers
unsecured consumer loans through its Visa/MasterCard credit card program.
Midland Federal 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
Midland Federal 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. Midland
Federal'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, 2003, student loans amounted to $658,000 or 0.70% of
Midland Federal's gross loan portfolio.

Midland Federal also originates consumer loans secured by automobiles in its
primary market area. Underwriting standards employed by Midland Federal in
connection with these loans include a review of the borrowers' creditworthiness,
verification of collateral value and perfection of a lien against the
collateral. Midland Federal requires vehicle insurance on all loans secured by
automobiles. At June 30, 2003, Midland Federal had $336,000, or 0.36% of its
gross loan portfolio in automobile loans.

Lines of credit extended through Midland Federal's Visa credit card program are
offered in amounts up to $10,000. Midland Federal obtains an application from
the borrower, a credit report on the borrower and verifies employment for credit
card borrowers. At June 30, 2003, Midland Federal had $139,000 or 0.15% 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, 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 Midland Federal's consumer loan portfolio
has generally been low, there can be no assurance that delinquencies will not
increase in the future.


                                       10
<PAGE>

Commercial Real Estate Lending

Midland Federal maintains a portion of its portfolio in permanent loans secured
by commercial real estate. Midland Federal's commercial real estate portfolio
consists of loans on a variety of non-residential property, including an
automobile repair center and office properties. At June 30, 2003, $687,000, or
0.73% of Midland Federal's gross loan portfolio consisted of permanent loans
secured by commercial real estate. In the future, Midland Federal intends to
continue to engage in a modest level of commercial real estate lending, subject
to regulatory restrictions. Management expects that most future commercial real
estate loans will carry adjustable interest rates or balloon maturities and a
loan-to-value ratio of 75% or less. Nevertheless, in view of the significant
amount of risk generally associated with commercial real estate lending, there
can be no assurance that Midland Federal will not experience delinquencies on
its commercial real estate portfolio.

Mortgage-Backed Securities

Midland Federal has a portfolio of mortgage-backed securities totaling $6.3
million at June 30, 2003. Most of Midland Federal's mortgage-backed securities
are passed through certificates issued by federal agencies. 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 Midland Federal's
mortgage-backed securities at June 30, 2003. It should be noted that, due to
prepayments, the actual maturity of Midland Federal's long term mortgage-backed
securities will likely be significantly shorter than the contractual maturities.

<TABLE>
<CAPTION>
                                                                           Due in                       Balance Outstanding
                                                              ---------------------------------        --------------------
                                                              1 to 5       6 to 20      Over 20
                                                               Years        Years        Years         Fixed     Adjustable
                                                              ------       ------       -------        ------    ----------
                                                                                     (In Thousands)
<S>                                                           <C>           <C>          <C>           <C>         <C>
Federal Home Loan Mortgage Corporation .............          $2,262        $1,874       $  646        $2,262      $2,520
Federal National Mortgage Association ..............              55         1,346           22           434         989
Government National Mortgage Association ...........              --            67           --            67          --
                                                              ------        ------       ------        ------      ------
   Total ...........................................          $2,317        $3,287       $  668        $2,763      $3,509
                                                              ======        ======       ======        ======      ======
</TABLE>


                                       11
<PAGE>

Loan Originations, Purchases and Sales

Real estate loans are originated by Midland Federal's staff of salaried loan
officers. In addition, Midland Federal utilizes commissioned loan originators.
Loan applications are taken at each office, processed in Midland Federal's main
office and then submitted to the Chief Lending Officer, the President or the
Loan Committee for approval.

Midland Federal's 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. Loan sales consist primarily of loans sold to the Illinois
Housing Development Authority and other lenders under various government
programs.

The following tables set forth Midland Federal's loan originations, purchases,
sales and mortgage-backed securities principal repayments for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                     Year Ended June 30,
                                                                           -----------------------------------------
                                                                             2003            2002             2001
                                                                           --------        --------         --------
                                                                                   (Dollars in Thousands)
<S>                                                                        <C>             <C>              <C>
      Originations by type:
       Adjustable-Rate:
        Real estate - one- to- four family ....................            $    883        $  4,062         $  1,154
        Real estate - multi-family ............................                 717              --               --
        Construction ..........................................                 400              --              342
        Non-real estate - consumer ............................                  34              51               38
                                                                           --------        --------         --------
           Total adjustable rate ..............................               2,034           4,113            1,534
                                                                           --------        --------         --------
       Fixed-Rate:
        Real estate - one- to- four family ....................              53,185          35,565           24,179
        Real estate - multi-family ............................                 117              --               --
        Real estate - commercial ..............................                  --             474              240
        Non-real estate - consumer ............................               1,086           1,076            1,374
                                                                           --------        --------         --------
           Total fixed-rate ...................................              54,388          37,115           25,793
                                                                           --------        --------         --------
           Total loans originated .............................              56,422          41,228           27,327
                                                                           --------        --------         --------

      Purchases:
       Fixed-Rate:
        Real estate - one-to-four-family ......................                  --              --              984
                                                                           --------        --------         --------
           Total loans purchased ..............................                  --              --              984
                                                                           --------        --------         --------
           Total additions ....................................              56,422          41,228           28,311
                                                                           --------        --------         --------

      Sales:
        Real estate loans sold ................................              (1,903)         (3,160)            (534)
        Principal repayments ..................................             (46,720)        (21,217)         (12,190)
                                                                           --------        --------         --------

        Net increase (decrease) ...............................            $  7,799        $ 16,851         $ 15,587
                                                                           ========        ========         ========

      Mortgage-backed securities:
        Mortgage-backed securities purchased ..................            $     --              --               --
        Mortgage-backed securities sold .......................                  --              --               --
        Amortization and repayments ...........................            $ (4,087)       $ (6,950)          (4,544)
                                                                           --------        --------         --------

        Net increase (decrease) ...............................            $ (4,087)       $ (6,950)        $ (4,544)
                                                                           ========        ========         ========
</TABLE>


                                       12
<PAGE>

Midland Federal's total loan originations during 2003 increased significantly
from the prior year primarily as a result of favorable interest rates which
increased demand for mortgage loans and aggressive origination efforts.

Non-Performing Assets, Classified Assets, Loan Delinquencies and Defaults

      When a borrower fails to make a required payment on a loan, Midland
Federal 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,
Midland Federal 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 Midland Federal. 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, Midland Federal 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.


                                       13
<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, 2003 and
June 30, 2002. The balances included in the table do not reflect specific
reserves.

<TABLE>
<CAPTION>
                                                                        At June 30, 2003
                                                                      Loans Delinquent For:
                           ---------------------------------------------------------------------------------------------------------
                                 30 - 59 days              60 - 89 days             90 days and over                 Total
                           -----------------------   -------------------------  -------------------------   ------------------------
                           Number  Amount  Percent   Number   Amount   Percent  Number   Amount   Percent   Number   Amount  Percent
                           ------  ------  -------   ------   ------   -------  ------   ------   -------   ------   ------  -------
                                                                       (Dollars in Thousands)
<S>                          <C>   <C>       <C>        <C>   <C>        <C>      <C>    <C>        <C>       <C>    <C>      <C>
Real estate:
  One- to four-family...      5    $  329    0.37%       1    $   20     0.02%     7     $  472     0.52%     13     $  821   0.91%
Consumer ...............     --        --      --        1         1     0.07      6         10     0.69       7         11    .76
Commercial business ....     --        --      --       --        --       --     --         --       --      --         --     --
                            ---    ------    ----      ---    ------     ----    ---     ------     ----     ---     ------   ----
    Total ..............      5    $  329    0.37%       2    $   21     0.02%    13     $  482     0.51%     20     $  832   0.88%
                            ===    ======              ===    ======             ===     ======              ===     ======
<CAPTION>
                                                                        At June 30, 2002
                                                                      Loans Delinquent For:
                           ---------------------------------------------------------------------------------------------------------
                                 30 - 59 days              60 - 89 days             90 days and over                 Total
                           -----------------------   -------------------------  -------------------------   ------------------------
                           Number  Amount  Percent   Number   Amount   Percent  Number   Amount   Percent   Number   Amount  Percent
                           ------  ------  -------   ------   ------   -------  ------   ------   -------   ------   ------  -------
                                                                       (Dollars in Thousands)
<S>                          <C>   <C>       <C>        <C>   <C>        <C>      <C>    <C>        <C>       <C>    <C>      <C>
Real estate:
  One- to four-family...     14    $1,151    1.41%       3    $   78     0.09%     5     $  148     0.18%     22     $1,377   1.68%
Consumer ...............      2        17    1.01       --        --       --      8         15     0.90      10         32   1.91
Commercial business ....     --        --      --       --        --       --      1          1     6.76       1          1   6.76
                            ---    ------    ----      ---    ------     ----    ---     ------     ----     ---     ------   ----
    Total ..............     16    $1,168    1.37%       3    $   78     0.09%    14     $  164     0.19%     33     $1,410   1.65%
                            ===    ======              ===    ======             ===     ======              ===     ======
</TABLE>


                                       14
<PAGE>

      The table below sets forth the amounts and categories of non-performing
assets, shown net of specific reserves, in Midland Federal'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. For all of the indicated periods, the Company had no accruing loans 90 or
more days delinquent. Foreclosed assets include assets acquired in settlement of
loans.

<TABLE>
<CAPTION>
                                                                                          At June 30,
                                                                               ------------------------------------
                                                                                2003          2002            2001
                                                                               ------        ------          ------
                                                                                      (Dollars in Thousands)

<S>                                                                            <C>           <C>             <C>
      Non-Accruing Loans:
       One- to four-family ......................................              $ 472         $ 148           $ 218
       Multi-family .............................................                 --            --              61
       Consumer .................................................                 10            15              62
       Commercial business ......................................                 --             1               3
                                                                               -----         -----           -----
         Total non-performing assets ............................                482           164             344
                                                                               -----         -----           -----

      Foreclosed Assets:
       One- to four-family ......................................                 --            --              --
                                                                               -----         -----           -----
         Total ..................................................                 --            --              --
                                                                               -----         -----           -----

      Total non-performing assets ...............................              $ 482         $ 164           $ 344
                                                                               =====         =====           =====

      Total as a percentage of total assets .....................               0.30%         0.11%           0.24%
                                                                               =====         =====           =====

      Specific loan loss reserve:
       One- to four-family ......................................                 --            --              --
       Multi-family .............................................                 --            --             (61)
       Consumer .................................................                 --            --             (50)
       Commercial business ......................................                 --            --              (3)
                                                                               -----         -----           -----
         Total specific loan loss reserve .......................               $ --          $ --           $(114)

      Total non-performing assets,
       net of specific reserves .................................              $ 482         $ 164           $ 230
                                                                               =====         =====           =====
      Total as a percentage of total assets .....................               0.30%         0.11%           0.16%
                                                                               =====         =====           =====
</TABLE>

      As of June 30, 2003, non-accruing one-to-four family loans totaled
$472,000 and consisted of six loans secured by properties located in Midland
Federal's primary market area and one loan located in Florida.

      As of June 30, 2003, there were no concentrations of loans in any types of
industry which exceeded 10% of Midland Federal's total loans that are not
included as a loan category in the preceding table.

      For the fiscal year ended June 30, 2003, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $24,000, which interest income was not accrued
into interest income for the fiscal year ended June 30, 2003.


                                       15
<PAGE>

      As of June 30, 2003, there were no other loans not included in 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 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.

      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 unlike specific allowances, have not been allocated to
particular problem assets. When a savings association classifies problem assets
as a "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 Midland
Federal'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, Midland Federal 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, 2003, Midland Federal had
classified a total of $586,000 of its assets as substandard, none as doubtful,
none as loss and none 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 risks 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 where full collectibility may
not be reasonably assured, considers among other matters, the estimated fair
value


                                       16
<PAGE>

of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance.

      Midland Capital's allowance for loan losses increased by $60,000 to
$410,000 at June 30, 2003 from $350,000 at the prior fiscal year end. At fiscal
year end, the $410,000 in general allowance for loan losses was determined by
Midland Capital to be consistent with its policy for the establishment and
maintenance of adequate levels of general loan loss allowances. The $60,000
increase in loan loss allowances was the result of loan loss provisions during
fiscal 2003. 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 Midland Federal's allowances will be the
result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance. At June 30, 2003 Midland Federal had a total allowance for
losses on loans of $410,000 or 0.44% 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 Midland Federal's allowance
for loan losses.

<TABLE>
<CAPTION>
                                                                                      Year Ended June 30,
                                                                                  -------------------------
                                                                                  2003       2002     2001
                                                                                  -----      -----    -----
                                                                                    (Dollars in Thousands)
<S>                                                                               <C>        <C>      <C>
      Balance at beginning of period .................................            $ 350      $ 359    $ 369
                                                                                  -----      -----    -----

      Charge-offs:
       One- to four-family ...........................................               --         --       --
       Consumer ......................................................               --         35       11
       Commercial business ...........................................               --          3       13
                                                                                  -----      -----    -----
        Total charge-offs ............................................               --         38       24
                                                                                  -----      -----    -----

      Recoveries:
       One- to four-family ...........................................               --         14       14
       Consumer ......................................................               --         --       --
                                                                                  -----      -----    -----
        Total recoveries .............................................               --         14       14
                                                                                  -----      -----    -----

      Net charge-offs ................................................               --        (24)     (10)
      Additions charged to operations ................................               60         15       --
      Balance at end of period .......................................            $ 410      $ 350    $ 359
                                                                                  =====      =====    =====

      Ratio of net charge-offs during the period to
       average loans outstanding during the period ...................              --%       0.03%    0.04%

      Ratio of net charge-offs during the period to
       average non-performing assets .................................              --%       9.60%    2.93%

      Allowance for loan losses to
       non-performing loans) .........................................            84.80%     213.29%  104.63%

      Allowance for loan losses to total loans .......................             0.44%      0.41%    0.52%
</TABLE>


                                       17
<PAGE>

      The following table presents the portions of the allowance for loan losses
applicable to each loan category.

<TABLE>
<CAPTION>
                                                                                June 30,
                                               ------------------------------------------------------------------------------
                                                       2003                        2002                          2001
                                               ---------------------     ------------------------       ---------------------
                                                             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
                                               ------       --------     ------          --------       ------       --------
                                                                            (Dollars in Thousands)

<S>                                             <C>          <C>             <C>          <C>             <C>          <C>
      One- to four-family .............         $177          95.34%         $113          95.56%         $ 96          93.23%
      Multi-family ....................            2           2.12             2           1.41            64           2.17
      Non-residential .................            1           0.73             2           1.08             1           0.70
      Construction ....................           --           0.26            --             --            --           1.19
      Consumer ........................            4           1.53             4           1.94            55           2.70
      Commercial business .............           --           0.02            --           0.01             2           0.01
      Unallocated .....................          226             --           229             --           141             --
                                                ----         ------          ----         ------          ----         ------
        Total .........................         $410         100.00%         $350         100.00%         $359         100.00%
                                                ====         ======          ====         ======          ====         ======
</TABLE>

Investment Activities

      As a part of its asset/liability management strategy and as a response to
a high level of competition for loans and low level of loan demand in parts of
Midland Federal's market area, Midland Federal invests in various types of
liquid assets, short and medium term government securities as well as smaller
amounts of other assets. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is provided.

      At June 30, 2003, Midland Federal's interest-bearing deposits in other
financial institutions totaled $45.7 million, or 28.6% of its total assets, and
investment securities totaled $6.4 million, or 4.0% of its total assets. As of
such date, Midland Federal also had a $996,000 investment in the common stock of
the FHLB of Chicago in order to satisfy the requirement for membership in this
institution. At June 30, 2003, the average term to maturity or repricing of the
investment securities portfolio was approximately two years.


                                       18
<PAGE>

      The following table sets forth the composition of Midland Federal's
investment portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                   At June 30,
                                                     -------------------------------------------------------------------------
                                                             2003                      2002                      2001
                                                     ---------------------     ---------------------     ---------------------
                                                     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 ....................      $   981        1,360      $   980      $ 1,205      $ 8,477      $ 8,741
 U.S. agency securities ........................        4,999        5,029       15,025       15,257       22,614       22,907
 FHLB - Chicago stock ..........................          996          996          897          897          783          783
                                                      -------      -------      -------      -------      -------      -------
   Total investment securities .................      $ 6,976      $ 7,385      $16,902      $17,359      $31,874      $32,431
                                                      =======      =======      =======      =======      =======      =======

Interest-bearing deposits:

 FHLB daily investment .........................      $ 8,264      $ 8,264      $ 3,569      $ 3,569      $ 2,424      $ 2,424
 Other daily investments .......................       37,414       37,414       24,913       24,913       14,015       14,015
                                                      -------      -------      -------      -------      -------      -------
   Total interest-bearing deposits .............      $45,678      $45,678      $28,482      $28,482      $16,439      $16,439
                                                      =======      =======      =======      =======      =======      =======
</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, 2003
                                                       -----------------------------------------------------------
                                                        1 Year      1 to 5        Over          Total Investment
                                                       or Less       Years      10 Years            Securities
                                                       -------       -----      --------       -------------------
                                                                      (Dollars in Thousands)
                                                                                                                        Weighted
                                                         Book        Book         Book          Book         Fair        Average
                                                        Value        Value        Value        Value         Value        Yield
                                                        -----        -----        -----        -----         -----      --------
                                                                        (In Thousands)
<S>                                                     <C>          <C>          <C>          <C>          <C>           <C>
U.S. government and agency securities ...........       $   --       $   --       $  981       $  981       $1,360
U.S. Agency securities ..........................        4,999           --           --        4,999        5,029
                                                        ------       ------       ------       ------       ------
                                                        $4,999       $   --       $  981       $5,980       $6,389        4.23%
                                                        ======       ======       ======       ======       ======        ====
</TABLE>

Sources of Funds

      General. Deposit accounts have traditionally been the principal source of
Midland Federal's funds for use in lending and for other general business
purposes. In addition to deposits, Midland Federal 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.

      Deposits. Midland Federal attracts principally short-term and
intermediate-term deposits from Midland Federal's primary market area. Midland
Federal offers regular passbook accounts,


                                       19
<PAGE>

NOW accounts, money market deposit accounts, fixed interest rate certificates of
deposit with varying maturities, and negotiated rate $100,000 jumbo certificates
of deposit.

      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 Midland Federal'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
and retain passbook and transaction accounts. Midland Federal 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, Midland Federal
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 Midland Federal during
the periods indicated.

<TABLE>
<CAPTION>
                                                                                  Year Ended June 30,
                                                                     --------------------------------------------
                                                                       2003              2002              2001
                                                                     ---------        ---------         ---------
                                                                                 (Dollars in Thousands)
<S>                                                                  <C>              <C>               <C>
      Opening balance ...................................            $ 138,444        $ 131,504         $ 126,871
      Deposits ..........................................              431,629          421,210           423,623
      Withdrawals .......................................             (425,169)        (417,924)         (424,012)
                                                                     ---------        ---------         ---------
      Balance before interest credited ..................              144,904          134,790           126,506
      Interest credited .................................                2,586            3,654             4,998
                                                                     ---------        ---------         ---------

      Ending balance ....................................            $ 147,490        $ 138,444         $ 131,504
                                                                     =========        =========         =========

      Net increase ......................................            $   9,046        $   6,940         $   4,633
                                                                     =========        =========         =========

      Percent increase ..................................                 6.53%            5.28%             3.65%
                                                                          ====             ====              ====
</TABLE>


                                       20
<PAGE>

      The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by Midland Federal at the dates
indicated.

<TABLE>
<CAPTION>
                                                                                          June 30,
                                                         ---------------------------------------------------------------------------
                                                                 2003                       2002                       2001
                                                         ---------------------      ---------------------      ---------------------
                                                                      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 .................................      $ 56,420       38.25%      $ 51,592       37.27%      $ 43,581       33.14%
NOW accounts ......................................        13,785        9.35         14,140       10.21         11,107        8.45
Money market accounts .............................         7,649        5.19          7,793        5.63          7,962        6.05
Non-interest bearing deposits .....................        11,647        7.90          9,998        7.22         10,009        7.61
                                                         --------      ------       --------      ------       --------      ------
    Total non-certificates ........................        89,501       60.69         83,523       60.33         72,659       55.25
                                                         --------      ------       --------      ------       --------      ------

Certificates:

Interest rate range:
 0.75-2.00% .......................................        32,770       22.22             --          --             --          --
 2.01-3.00% .......................................        15,204       10.31         40,561       29.30             --          --
 3.01-4.00% .......................................         8,615        5.84          7,647        5.52          8,316        6.32
 4.01-5.00% .......................................         1,141        0.77          2,670        1.93         29,201       22.21
 5.01-6.00% .......................................           258        0.17          3,943        2.85         16,649       12.66
 6.01-7.00% .......................................            --          --            100        0.07          4,679        3.56
                                                         --------      ------       --------      ------       --------      ------

    Total certificates ............................        57,988       39.31         54,921       39.67         58,845       44.75
                                                         --------      ------       --------      ------       --------      ------
    Total deposits ................................      $147,489      100.00%      $138,444      100.00%      $131,504      100.00%
                                                         ========      ======       ========      ======       ========      ======
</TABLE>


                                       21
<PAGE>

      The following table shows rate and maturity information for Midland
Federal's time deposits as of June 30, 2003.

<TABLE>
<CAPTION>
                                         0.75-        2.01-        3.01-       4.01-                   Percent
                                         2.00%        3.00%        4.00%       6.00%        Total      of Total
                                        -------     -------      -------      -------      -------     --------
                                                                 (Dollars in Thousands)
<S>                                     <C>         <C>          <C>          <C>          <C>           <C>
Certificate Accounts Maturing
in Quarter Ending:

September 30, 2003 ............         $14,095     $ 4,194      $ 1,882          741      $20,912        36.06%
December 31, 2003 .............          12,938       2,783          529          336       16,586        28.60
March 31, 2004 ................           2,919       6,408        4,552          322       14,201        24.29
June 30, 2004 .................           2,777         105          278           --        3,160         5.45
September 30, 2004 ............              --          81          244           --          325         0.56
December 31, 2004 .............              41         432          198           --          671         1.16
March 31, 2005 ................              --         125          702           --          827         1.43
June 30, 2005 .................              --         123          230           --          353         0.61
September 30, 2005 ............              --         611           --           --          611         1.05
December 31, 2005 .............              --         342           --           --          342         0.59
                                        -------     -------      -------      -------      -------       ------

  Total .......................         $32,770     $15,204      $ 8,615      $ 1,399      $57,988       100.00%
                                        =======     =======      =======      =======      =======       ======

  Percent of total ............           56.51%      26.22%       14.86%        2.41%      100.00%
                                        =======     =======      =======      =======      =======
</TABLE>

      The following table indicates the amount of Midland Federal's certificates
of deposit and other deposits by time remaining until maturity as of June 30,
2003.

<TABLE>
<CAPTION>
                                                                                      Maturity
                                                            -----------------------------------------------------------
                                                                           Over         Over        Over
                                                            3 Months      3 to 6      6 to 12        12
                                                             or Less      Months       Months       Months       Total
                                                            --------      -------     -------      -------      -------
                                                                                 (Dollars in Thousands)
<S>                                                          <C>          <C>         <C>          <C>          <C>
Certificates of deposit less than $100,000 .........         $16,601      $12,646     $15,645      $ 1,575      $46,467

Certificate of deposit of $100,000 or more .........           4,311        3,940       1,716        1,554       11,521
                                                             -------      -------     -------      -------      -------

 Total certificates of deposit .....................         $20,912      $16,586     $17,361      $ 3,129      $57,988
                                                             =======      =======     =======      =======      =======
</TABLE>

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, Midland Federal 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. Midland Federal has not had significant
borrowings in recent years.


                                       22
<PAGE>

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 make loans
secured by real estate located in Midland Federal's primary market area. Midland
Federal 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.

      Midland Federal 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 Midland Federal 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. Midland Federal competes for these deposits
by offering a variety of deposit accounts at competitive rates and convenient
business hours. Midland Federal estimates its share of deposits in its primary
market area to be less than 3%.

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 to act as a holding company
for Midland Federal's other subsidiaries. At June 30, 2003, Midland Federal's
equity investment in Midland Service Corporation was approximately $207,000.
During fiscal 2003, Midland Service Corporation recorded a profit of $12,000.

      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 profit of $10,000 for the 2003 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 U. S. government. Accordingly, Midland Federal is
subject to broad federal regulation and oversight extending to all its
operations. Midland Federal 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


                                       23
<PAGE>

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 Midland
Federal.

      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. The last OTS examination
commenced on August 5, 2002 using financial data as of June 30, 2002. When these
examinations are conducted, the examiners may require Midland Federal to provide
for higher general or specific loan loss reserves. Midland Federal is also
subject to joint examination by the FDIC and the OTS.

      All savings associations are subject to semi-annual assessments, based
upon the savings associations total assets. Midland Federal's paid assessment
during the fiscal year ended June 30, 2003 was $45,000.

      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 Midland Federal 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.

      Midland Federal'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, 2003, Midland Federal's lending limit under this restriction was $1.5
million. Midland Federal 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, 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.


                                       24
<PAGE>

      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 U.S. 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 (Tier 1 Risk-Based Capital) 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
a Tier 1 Risk-Based Capital ratio of 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 semi-annual
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 U. S. Treasury or for any other reason deemed
necessary by the FDIC.

      At fiscal year end 2003, the premium schedule for BIF- and SAIF- insured
institutions ranged from 0 to 27 basis points, and both BIF- and 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 about 1.76 basis points for each $100 in domestic deposits.
These assessments, which may be revised based upon the level of BIF and SAIF
deposits, will continue until the bonds mature in the years 2017 through 2019.

      Regulatory Capital Requirements. Federally insured savings associations,
such as Midland Federal, 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.


                                       25
<PAGE>

      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, 2003,
Midland Federal had deductible retained mortgage servicing assets and an
unrealized gain, net of tax, under SFAS No. 115 in the amount of $280,000.

      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 Midland Federal's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.

      At June 30, 2003, Midland Federal had tangible capital of $9.4 million, or
5.88% of adjusted total assets, which is approximately $7.0 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

      The capital standards also require core capital or Tier 1 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 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, 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, 2003, Midland Federal had retained mortgage servicing
assets which were subject to these tests.

      At June 30, 2003, Midland Federal had core capital equal to $9.4 million,
or 5.88% of adjusted total assets, which is $4.6 million above the minimum
leverage ratio requirement of 3% in effect on that date. In addition, on such
date Midland Federal had Tier 1 Risked-Based Capital equal to $9.4 million or
11.50% of Risk-Weighted Assets, which is $6.1 million above the requirement of
4% on effect on that date.

      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, 2003, Midland Federal had no capital instruments that qualify as
supplementary capital and $410,000 of general loss reserves, which was less than
1.25% of risk-weighted assets.


                                       26
<PAGE>

      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 $15,000 in
equity investments at June 30, 2003.

      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, 2003, Midland Federal had total capital of $9.8 million
(including $9.4 million in core capital and $410,000 of qualifying general loss
reserves) and risk-weighted assets of $81.9 million or total capital of 11.98%
of risk-weighted assets. This amount was $3.3 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. 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 4% Tier 1 risk based capital 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.

      Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 or 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


                                       27
<PAGE>

and operating restrictions, which may cover all aspects of its operations and
include a forced merger or acquisition of Midland Federal.

      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 Midland
Federal may have a substantial adverse effect on Midland Federal'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 Midland Federal 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 Midland Federal, that before and
after the proposed distribution remain well-capitalized, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus retained net income for the two preceding years
that is available for dividend. However, an institution 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.

      Any savings association that is a subsidiary of a holding company and
proposes 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."


                                       28
<PAGE>

      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, 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. Midland Federal is in compliance with these rules.

      Qualified Thrift Lender Test. All savings associations, including Midland
Federal, are required to meet a qualified thrift lender 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 1986 Internal Revenue Code,
as amended. Under either test, such assets primarily consist of residential
housing related loans and investments. At June 30, 2003 Midland Federal was in
compliance with the test.

      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 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,
Midland Federal is immediately ineligible to receive any new 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 all investments and cease all activities not permissible
for a national bank.

      Community Reinvestment Act. Under the Community Reinvestment Act, 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 Midland Federal, 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 Midland Federal. An unsatisfactory rating may be used as the
basis for the denial of an application such as a branch or merger application by
the OTS.


                                       29
<PAGE>

      Due to the heightened attention being given to the CRA in the past few
years, Midland Federal may be required to devote additional funds for investment
and lending in its local community. Midland Federal was examined for CRA
compliance in 2002 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 Midland Federal as transactions with non-affiliates. In
addition, certain of these transactions are restricted to a percentage of
Midland Federal's capital. Affiliates of Midland Federal include any company
which is under common control with Midland Federal. 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. Midland
Federal'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.

Holding Company Regulation

      Midland Capital is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, Midland Capital is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
Midland Capital and its non-savings association subsidiaries which also permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings association.

      As a unitary savings and loan holding company, Midland Capital generally
is not subject to activity restrictions. If Midland Capital acquires control of
another savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of Midland Capital and any
of its subsidiaries (other than Midland Federal or any other SAIF-insured
savings association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.

      If Midland Federal fails the QTL test, Midland Capital must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure Midland Capital must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."

      Midland Capital must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However,


                                       30
<PAGE>

such interstate acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings association.

      Federal Securities Law. The stock of Midland Capital is registered with
the SEC under the Securities Exchange Act of 1934, as amended. Midland Capital
is subject to the information, proxy solicitation, insider trading restrictions
and other requirements of the SEC under the Exchange Act.

      Midland Capital Holdings Corporation stock held by persons who are
affiliates (generally officers, directors and principal stockholders) of Midland
Capital may not be resold without registration or unless sold in accordance with
certain resale restrictions. If Midland Capital meets specified current public
information requirements, each affiliate of Midland Capital is able to sell in
the public market, without registration, a limited number of shares in any
three-month period.

      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, 2003 Midland
Federal was in compliance with these reserve requirements.

      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. Midland Federal 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, 2003, Midland Federal 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, 2003 Midland Federal had $996,000 in FHLB
stock, which was in compliance with this requirement. In past years, Midland
Federal has received substantial dividends on its FHLB stock. Over the past five
calendar years such dividends have averaged 6.48% and were 5.25% for calendar
year 2003.

      Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and


                                       31
<PAGE>

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 Midland Federal's FHLB stock may result in a corresponding
reduction in its capital.

      For the year ended June 30, 2003, dividends paid by the FHLB of Chicago to
Midland Federal totaled $51,000, which was a $7,000 increase from the amount of
dividends received in fiscal year 2002. The $15,000 dividend received for the
quarter ended June 30, 2003 reflects an annualized rate of 6.50%, or 1.25% above
the rate for calender year 2002.

      Federal Taxation. Savings institutions that met certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended, had been permitted to establish
reserves for bad debts and to make annual additions which could, within
specified formula limits, be taken as a deduction in computing taxable income
for federal income tax purposes. As a result of tax legislation enacted in 1996,
the amount of the bad debt reserve deduction is now computed under the
experience method.

      In addition to the regular income tax, corporations, including savings
institutions 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.

      To the extent earnings appropriated to a savings institutions 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 institution's supplemental reserves
for losses on loans, 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,
2003, Midland Federal's excess for tax purposes totaled approximately $1.1
million.

      Midland Capital and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting.

      Midland Capital 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, 2000, for
Midland Capital and its consolidated subsidiaries.

      Illinois Taxation. Midland Capital and its subsidiaries file separate
Illinois income tax returns. For Illinois income tax purposes, Midland Capital
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


                                       32
<PAGE>

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.

Employees

      At June 30, 2003, Midland Federal had a total of 44 full-time employees
and 45 part-time employees. None of Midland Federal'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 $860,000 at June 30, 2003. Midland Federal also has a 99
year easement on land adjacent to its main office which expires in the year
2078. Midland Federal 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 2,000 and 2,500 square feet and $622,000 and
$46,000 net book values at June 30, 2003, respectively.

      Midland Federal owns a parcel of vacant land located in Homer Glen,
Illinois which has a net book value of $180,500 at June 30, 2003. Midland
Federal has also entered into a lease for retail space and additional vacant
land adjacent to the same location in Homer Glen, Illinois. Midland Federal
established a full service branch banking facility at this location which opened
for business during April 1999. The net book value of remodeling and leasehold
improvement costs at this 32,846 square foot location amount to approximately
$364,000 at June 30, 2003.

Computer Equipment

      Midland Federal's recordkeeping activities are maintained on an on-line
basis with an independent service bureau. Midland Federal's accounting and loan
origination activities are maintained on an in-house computer network. The net
book value of Midland Federal's computer equipment at June 30, 2003 was
$112,000.

Item 3. Legal Proceedings

      Midland Federal is, from time to time, a defendant to certain lawsuits
arising in the ordinary course of its business. Midland Federal believes that
there is no litigation pending which, if adversely determined, would have a
material adverse effect on its financial condition.


                                       33
<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,
2003.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      Page 20 of the 2003 Annual Report to Stockholders is herein incorporated
by reference.

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

      Pages 6 through 19 of the 2003 Annual Report to Stockholders is herein
incorporated by reference.

Item 7. Financial Statements

      Pages 22 through 46 of the 2003 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 Midland Federal's
accountants on accounting and financial disclosure matters.

Item 8A. Controls and Procedures

      The Company has adopted interim disclosure controls and procedures
designed to facilitate the Company's financial reporting. The interim disclosure
controls currently consist of periodic communications among the Chief Executive
and Financial Officer and each department head to identify any transactions,
events, trends, risks or contingencies which may be material to the Company's
operations. In addition, the Chief Executive and Financial Officer and the
Company's independent auditors also meet on a quarterly basis and discuss the
Company's material accounting policies. The Company's Chief Executive and
Financial Officer has evaluated the effectiveness of these interim disclosure
controls as of the end of the period covered by this report and found them to be
adequate.

      The Company maintains internal control over financial reporting. There
have not been any significant changes in such internal control over financial
reporting in the last quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal controls over financial
reporting.


                                       34
<PAGE>

                                    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 Midland Capital'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 Midland Capital'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.


                                       35
<PAGE>

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 Midland Capital'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.


                                       36
<PAGE>

      The following table sets forth information with respect to securities to
be issued under Midland Capital's equity compensation plans as of June 30, 2003.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
====================================================================================================================================
                                                                                                                    (c)
                                                                                                          Number of securities
                                                            (a)                           (b)             remaining available for
                                                  Number of securities to be      Weighted-average        future issuance under
                                                  issued upon exercise of o       exercise price of       equity compensation plans
                                                  utstanding options, warrants    outstanding options,    (excluding securities
Plan Category                                     and rights                      warrants and rights     reflected in column (a))
====================================================================================================================================
<S>                                               <C>                             <C>                     <C>
Equity compensation plans approved by
security holders:

1. 1993 Stock Option and Incentive Plan(1)        1. None                         1. N/A                  1. 6,900
2. Recognition and Retention Plan(1)              2. N/A                          2. N/A(2)               2. N/A

====================================================================================================================================
Equity compensation plans not approved by
security holders                                               N/A

====================================================================================================================================
Total                                                          None                            N/A                   6,900
====================================================================================================================================
</TABLE>

(1)   Information regarding these plans is set forth under Item 10 to this
      Report.

(2)   Awards under plan consist of restricted stock.

Item 12. Certain Relationships and Related Transactions

      Information concerning relationships and transactions is incorporated
herein by reference from Midland Capital'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.


                                       37
<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

    31.1     Certification of Paul M. Zogas pursuant to Rule 13a-14 under the
             Securities and Exchange Act of 1934.............................................            31.1

    32.1     Certification of Paul M. Zogas pursuant to 18 U.S.C. Section 1350, as
             adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002...............            32.1
</TABLE>

----------
      *Filed on January 15, 1993 as an exhibit to Midland Federal's initial Form
AC.

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

      ***Filed on June 22, 1998 as exhibits to Midland Capital'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.


                                       38
<PAGE>

      (b) Reports on Form 8-K:

      On May 2, 2003, the Company filed a report on Form 8-K attaching a press
release announcing its fiscal third quarter earnings and declaring a regular
dividend. No other reports on Form 8-K have been filed during the three-month
period ended June 30, 2003.

Item 14. Principal Accountant Fees and Services

      Information concerning principal accountant fees and services is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held in 2003, which will be filed
not later than 120 days following the close of the fiscal year end.


                                       39
<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 29, 2003                    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 and Financial Officer         Executive Vice President and
(Principal Executive and Financial and        Secretary
Accounting Officer)

Date: September 29, 2003                      Date: September 29, 2003


/s/ Jonas Vaznelis, Director                  /s/ Richard Taylor
---------------------------------------       ----------------------------------
Jonas Vaznelis, Director                      Richard Taylor, Director and
                                              Vice President

Date: September 29, 2003                      Date: September 29, 2003


/s/ Michael J. Kukanza                        /s/ Algerd Brazis
---------------------------------------       ----------------------------------
Michael J. Kukanza, Director                  Algerd Brazis, Director

Date: September 29, 2003                      Date: September 29, 2003