================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20552


                                  FORM 10-KSB

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

            FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                      OR

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

         FOR THE TRANSITION PERIOD FROM           TO
                                        ----------   -----------

                              COMMISSION FILE NUMBER 1-14343

                     MIDLAND CAPITAL HOLDINGS CORPORATION
                (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

         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

       ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (708) 598-9400

        SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:

                                     NONE

     SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

                    COMMON STOCK, PAR VALUE $ .01 PER SHARE
                                (TITLE OF CLASS)

     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve  months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. YES X NO

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. X

     The Issuer had  $365,000  in net income for the fiscal  year ended June 30,
1999.

     As of June 30, 1999,  there were issued and  outstanding  363,975 shares of
the Issuer's  Common  Stock.  The Issuer's  voting  stock is not  regularly  and
actively traded,  and there are no regularly quoted bid and asked prices for the
Issuer's  voting  stock.  Accordingly,  the  Issuer is unable to  determine  the
aggregate market value of the voting stock held by non-affiliates.

                         DOCUMENTS INCORPORATED BY REFERENCE

      PARTS II and IV of Form  10-KSB - Annual  Report to  Stockholders  for the
Fiscal Year Ended June 30, 1999.

     PART III of Form 10-KSB - Proxy  Statement  for the 1999 Annual  Meeting of
Stockholders.
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<PAGE>
                                    PART I


ITEM 1.  DESCRIPTION OF BUSINESS

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

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

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

     Midland Federal has been principally  engaged in the business of attracting
deposits  from  the  general   public  and  using  such  deposits  to  originate
residential mortgage and, to a lesser extent,  consumer,  multi-family and other
loans in its primary  market area.  The  Association  has also made  substantial
investments  in  mortgage-backed  securities,  investment  securities and liquid
assets.

     The Association's  primary market area consists of southwest  Chicago,  and
the southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Burbank, Chicago Ridge, 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  ("FDIC").  At June 30, 1999,  Midland Federal had $130.2
million of assets,  deposits of $120.2 million and  stockholders  equity of $9.0
million.

     The main  offices of the  Company and the  Association  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 the Company with the
Securities and Exchange  Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications,  and in oral statements made with
the approval of an  authorized  executive  officer,  the words or phrases  "will
likely  result",   "are  expected  to",  "will  continue",   "is   anticipated",
"estimate",   "project"  or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995.  Such  statements  are  subject  to  risks  and
uncertainties,  including  but not limited to changes in economic  conditions in
the  Company's  market  area,  changes  in  policies  by  regulatory   agencies,

                                      2
<PAGE>

fluctuations  in interest rates,  demand for loans in the Company's  market area
and  competition,  all or some of which  could  cause  actual  results to differ
materially  from  historical   earnings  and  those  presently   anticipated  or
projected.  The Company wishes to caution readers not to place undue reliance on
any such  forward-looking  statements,  which speak only as of the date made and
are subject to the above-stated  qualifications in any event. The Company wishes
to advise  readers  that the factors  listed  above could  affect the  Company's
financial  performance  and could cause the Company's  actual results for future
periods to differ  materially  from any opinions or  statements  expressed  with
respect to future periods in any current statements.

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

YEAR 2000 ISSUE

      GENERAL.  The year 2000  ("Y2K")  issue  confronting  the  Company and its
suppliers,  customers,  customers'  suppliers  and  competitors  centers  on the
inability of computer systems to recognize the year 2000. Many existing computer
programs  and  systems  originally  were  programmed  with six digit  dates that
provided only two digits to identify the calendar  year in the date field.  With
the impending new  millennium,  these programs and computers will recognize "00"
as the year 1900 rather than the year 2000.

     Financial  institution  regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance  concerning the  responsibilities
of  senior  management  and  directors.   The  Federal  Financial   Institutions
Examination  Council has issued  several  interagency  statements on Y2K project
management awareness.  These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect to the data exchange and the potential  impact of the Y2K issue on their
customers,   suppliers,  and  borrowers.  These  statements  also  require  each
federally  regulated  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the Association,  to assure resolution of any
Y2K problems.  The federal  banking  agencies have assessed that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and thus, that an institution's  failure to address  appropriately the Y2K
issue  could  result  in  supervisory   action,   including   reduction  of  the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.

     RISKS.  Like  most  financial  service  providers,   the  Company  and  its
operations may be significantly  affected by the Y2K issue due to its dependence
on technology and date-sensitive  data. Computer software and hardware and other
equipment,  both within and  outside the  Company's  direct  control,  and third
parties  with  whom  the  Company  electronically  or  operationally  interfaces
(including  without limitation its customers and third party vendors) are likely
to be  affected.  If computer  systems  are not  modified in order to be able to
identify  the  year  2000,  many  computer  applications  could  fail or  create
erroneous  results.  As a result,  many  calculations,  which rely on date field
information such as interest, payment on due dates, and all operating functions,
could generate results which are significantly  misstated, and the Company could
experience an inability to process transactions, prepare statements or engage in
similar normal business activities.  Likewise,  under certain  circumstances,  a
failure to adequately address the Y2K issue could adversely affect the viability
of the  Company's  suppliers  and  creditors  and  the  creditworthiness  of its
borrowers.  Thus, if not adequately  addressed,  the Y2K issue could result in a
significant  adverse  impact  on the  Company's  operations  and,  in turn,  its
financial condition and results of operations.

     STATE OF READINESS.  In September 1998, the Company  formulated its plan to
address the Y2K issue.  Since that time,  the  Company  has taken the  following
steps:

     *    Established management advisory and review responsibilities;
     *    Completed  a  company-wide   inventory  of  applications   and  system
          software;
     *    Completed a computer network, hardware, and software upgrade;
     *    Completed in-house testing of all mission critical systems;

                                       3
<PAGE>

     *    Obtained data processor vendor compliance certification;
     *    Completed data processor vendor testing;
     *    Began  awareness and  educational  activities  for  employees  through
          existing internal communication channels; and
     *    Developed a process to respond to customer  inquiries  as well as help
          educate customers on the Y2K issue.

      The following paragraphs summarize the phases of the Company's Y2K plan:

     AWARENESS PHASE. The Company formally established a Y2K plan, and a project
team was assembled for management of the Y2K project. The project team created a
plan of action that  includes  milestones,  budget  estimates,  strategies,  and
methodologies  to track and report the status of the project.  The Company's Y2K
project team has been assigned the task of ensuring that all systems  across the
Company are  identified,  analyzed for Y2K  compliance,  corrected if necessary,
tested,  and have  the  changes  into  service.  The Y2K  project  team  members
represent  all  functional  areas  of  the  Company,  including  branches,  data
processing,  loan  administration,  accounting,  item processing and operations,
compliance,  internal audit, human resources, and marketing. The Chief Operating
Officer heads the team. The Company's  Board of Directors  oversees the Y2K plan
and provides guidance and resources to, and receives updates from, the Y2K team.
This phase is substantially complete.

     ASSESSMENT  PHASE.  The Company's  strategies  were further  developed with
respect  to how the  objectives  of the Y2K plan  would be  achieved,  and a Y2K
business risk  assessment  was conducted to quantify the extent of the Company's
Y2K  exposure.  A  corporate  inventory  (which is  periodically  updated as new
technology is acquired and as systems  progress through  subsequent  phases) was
developed  to  identify  and  monitor  Y2K  readiness  for  information  systems
(hardware,  software,  vendors, and utilities) as well as environmental  systems
(security systems, facilities, etc.). Systems were prioritized based on business
impacts and available alternatives. Mission critical systems supplied by vendors
were  researched  to determine  Y2K  readiness.  If Y2K ready  versions were not
available,  the Company began  identifying  functional  replacements  which were
either  upgradable or Y2K ready, and a plan was developed to repair,  upgrade or
replace all mission critical systems. This phase is substantially complete.

     RENOVATION PHASE. The Company has verified that Y2K upgrades were available
for all vendor supplied mission critical  systems.  All these Y2K ready versions
have been  delivered and placed into  production  and each upgraded  version has
entered the validation process.

     IMPLEMENTATION  PHASE.  Y2K ready  modified or upgraded  versions have been
installed  and placed  into  production  with  respect to all  mission  critical
systems.  In October 1998, in order to prepare the  Company's  mission  critical
data processing  systems for the Y2K century date change,  the Company converted
its on-line  customer  account data  processing  systems to a new national  data
service  provider.  At that  time the  Company  also  installed  new,  Year 2000
compliant,  computer  hardware  at each of its  offices.  In October  1998,  the
Company's  data center also replaced its existing  mainframe  computers with new
Year 2000 compliant, computer mainframes in order to prepare for the Y2K century


                                       4
<PAGE>

date change. The Company's data center has also completed necessary  renovations
to their system  software and has tested their computer  hardware,  software and
data  communication   systems  for  Year  2000  compliance.   These  tests  were
successfully  completed and the Company's  data center has certified that all of
its data  processing  systems are Y2K ready.  The Company has also  successfully
completed  its own  testing  of all of its  mission  critical  data  processing,
communication  and computer  systems,  which testing has demonstrated that these
systems are ready to operate with accuracy  beyond the year 2000.  These systems
include all of the computer and  information  systems that maintain  information
about the Company's customers,  their accounts,  balances and transactions.  The
Company does not anticipate problems resulting from its tested systems.

     VALIDATION  PHASE.  The validation phase is designed to test the ability of
hardware and software to accurately process date-sensitive data. The Company has
substantially  completed the validation testing of each mission critical system.
During  the  validation  testing  process,  no  significant  Y2K  problems  were
identified relating to any modified or upgraded mission critical systems.

     COMPANY  RESOURCES  INVESTED.  Since the commencement of the Y2K project in
September 1998 the Company incurred  approximately  $105,000 in costs associated
with required system  changes,  which costs were expensed as they were incurred.
As part of its Y2K plan, the Company also made additional  capital  expenditures
for computer  and related  equipment  in the  approximate  amount of $225,000 in
order to convert its  existing  on-line  data  processing  systems to a new data
services  provider  which costs are being  amortized over the useful life of the
equipment purchased. The Company does not expect significant increases in future
data processing costs related to Y2K compliance.

     CONTINGENCY   PLANS.   During  the  assessment  phase,  the  Company  began
developing  back-up  or  contingency  plans  for  each of its  mission  critical
systems.  Virtually all of the Company's  mission critical systems are dependent
upon third party vendors or service  providers.  For some  systems,  contingency
plans consist of using spreadsheet software or reverting to manual systems until
system problems can be corrected.

                                      5

<PAGE>
LENDING ACTIVITIES

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

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

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

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

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

                                      6

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

     At June 30, 1999,  the  Association  had two borrowers  with an outstanding
loan  balances in excess of $500,000.  One loan totaled  $1.1  million,  and was
secured by a 43 unit  multi-family  residential  property  in the  Association's
market area. This loan was made prior to the imposition of the regulatory limits
described above, and is  grandfathered.  The other loan totaled $532,000 and was
secured by a single family  residence.  Both loans are current and performing in
accordance  with their terms at June 30, 1999.  See "--  Non-Performing  Assets,
Classified Assets, Loan Delinquencies and Defaults."


                                      7

<PAGE>
     LOAN AND MORTGAGE-BACKED  SECURITIES PORTFOLIO  COMPOSITION.  The following
table sets forth  information  concerning the  composition of the  Association's
loan  and  mortgage-backed  securities  portfolios  in  dollar  amounts  and  in
percentages as of the dates indicated.

<TABLE>
<CAPTION>
                                                            June 30,
                                       -----------------------------------------------------

                                             1999            1998              1997
                                       -----------------------------------------------------

                                        Amount Percent Amount   Percent  Amount   Percent
                                       -----------------------------------------------------
<S>                                     <C>    <C>     <C>       <C>       <C>       <C>
                                                             (Dollars in Thousands)
REAL ESTATE LOANS
 One- to four-family................... $46,032  92.28% $35,030   87.82% $29,018    84.26%
 Multi-family..........................   1,713   3.43    1,790    4.49    2,201     6.39
 Non-residential.......................     223   0.45      244     .61      264     0.77
 Construction..........................     ---    ---      450    1.13      300     0.87
                                        -------  -----  -------   -----  -------    -----
    Total mortgage loans...............  47,968  96.16   37,514   94.05   31,783    92.29
                                        -------  -----  -------   -----  -------    -----
 OTHER LOANS
 Consumer Loans:
  Deposit accounts.....................     274   0.55      464    1.16      425     1.23
  Student..............................   1,167   2.34    1,316    3.30    1,542     4.48
  Automobile...........................     274   0.55      372     .93      456     1.33
  Mobile home..........................       2    ---       10     .03       21      .06
  Other................................     141   0.28      139     .35      138      .40
                                        -------  -----  -------   -----  -------    -----

     Total consumer loans..............   1,858   3.72    2,301    5.77    2,582     7.50
                                        -------  -----  -------   -----  -------    -----

  Commercial business loans............      58   0.12       71     .18       74      .21
                                        -------  -----  -------   -----  -------    -----

     Total loans receivable............  49,884 100.00   39,886  100.00   34,439   100.00%
                                        ------- ======  -------  ======  -------   ======

LESS
 Loans in process......................       4              41              137
 Deferred yield adjustments............     (95)             17               97
 Allowance for uncollected interest....     260             262              262
 Allowance for loan losses.............     366             394              551
                                        -------         -------          -------
     Loans receivable, net............. $49,349         $39,172          $33,392
                                        =======         =======          =======

Mortgage-backed securities:
  FHLMC................................ $10,245  64.53% $14,256   68.49% $14,234    65.03%
  FNMA.................................   5,318  33.49    6,147   29.53    7,097    32.43
  GNMA.................................     295   1.86      389    1.87      520     2.38
  Collateralized mortgage obligation...      19   0.12       24     .11       36      .16
                                        -------  -----  -------   -----  -------    -----
     Total mortgage-backed securities..  15,877 100.00%  20,816  100.00%  21,887   100.00%
                                                ======           ======            ======
  Net premiums.........................       5              29               49
                                        -------         -------          -------
  Net mortgage-backed securities....... $15,882         $20,845          $21,936
                                        =======         =======          =======
</TABLE>
                                            8

<PAGE>
     The  following  table  shows  the  composition  of the  Association's  loan
portfolio by fixed and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                            June 30,
                                                       ---------------------------------------------------

                                                             1999              1998            1997
                                                       ---------------------------------------------------

                                                        Amount  Percent  Amount  Percent  Amount Percent
                                                       ---------------------------------------------------
<S>                                                    <C>       <C>       <C>    <C>     <C>       <C>
                                                                     (Dollars in Thousands)
FIXED-RATE LOANS
Real Estate:
  One- to four-family.................................   $42,988  86.18% $32,057   80.37% $24,517  71.19%
  Multi-family........................................       178   0.36      179     .45      181    .53
                                                         ------- ------  -------  ------  ------- ------
      Total real estate loans.........................    43,166  86.54   32,236   80.82   24,698  71.72
                                                         ------- ------  -------  ------  ------- ------
  Consumer............................................         2    ---       10     .03       21    .06
                                                         ------- ------  -------  ------  ------- ------
     Total fixed-rate loans...........................    43,168  86.54   32,246   80.85   24,719  71.78
                                                         ------- ------  -------  ------  ------- ------
ADJUSTABLE-RATE LOANS
Real estate:
  One- to four-family.................................     3,044   6.10    2,973    7.45    4,501  13.07
  Multi-family........................................     1,535   3.07    1,611    4.04    2,020   5.86
  Non-residential.....................................       223   0.45      244     .61      264    .77
  Construction........................................       ---    ---      450    1.13      300    .87
                                                         ------- ------  -------  ------  ------- ------
     Total real estate loans..........................     4,802   9.62    5,278   13.23    7,085  20.57
                                                         ------- ------  -------  ------  ------- ------
  Consumer............................................     1,856   3.72    2,291    5.74    2,561   7.44
  Commercial business.................................        58   0.12       71     .18       74    .21
                                                         ------- ------  -------  ------  ------- ------
     Total adjustable-rate loans......................     6,716  13.46    7,640   19.48    9,720  28.22
                                                         ------- ------  -------  ------  ------- ------
     Total loans, net.................................    49,884 100.00%  39,886  100.00%  34,439 100.00%
                                                                 ======           ======          ======
LESS:
  Loans in process....................................         4              41              137
  Deferred yield adjustments..........................       (95)             17               97
  Allowance for uncollected interest..................       260             262              262
  Allowance for loan losses...........................       366             394              551
                                                         -------         -------          -------
     Loans receivable, net............................   $49,349         $39,172          $33,392
                                                         =======         =======          =======
</TABLE>

                                      9

<PAGE>
      The following  schedule  illustrates the interest rate  sensitivity of the
Association's  loan portfolio at June 30, 1999.  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                       Commercial
                      One-to Four-Family    and Commercial        or 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
                   -------------------     ------------------- ------------------  --------------- -------------- ------------------
<S>                 <C>      <C>            <C>       <C>       <C>       <C>       <C>     <C>     <C>     <C>    <C>       <C>
Due During Years
ENDING JUNE 30,

2000(1)........$   300         8.97%      $645         10.07%    ---      ---%      $488   9.08%   $58      ---%  $1,492     9.13%
2001...........     58         8.44        178          9.75     ---      ---        204   7.85    ---      ---      440     8.70
2002...........    212         8.68        ---           ---     ---      ---        228   7.71    ---      ---      440     8.18
2003 to 2004...  1,572         7.88         26         10.00     ---      ---        277   8.01    ---      ---    1,875     7.93
2005 to 2008...  3,172         7.95      1,086          7.78     ---      ---        523   8.20    ---      ---    4,782     7.94
2009 to 2023... 17,697         7.23        ---           ---     ---      ---        138   8.24    ---      ---   17,836     7.24
2024 and
 following..... 23,020         7.18        ---           ---     ---      ---        ---    ---    ---      ---   23,020     7.18

               $46,032                  $1,936                  $---              $1,858           $58           $49,884     7.38%
</TABLE>
-----------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.


     The total amount of loans due after June 30, 2000 which have  predetermined
interest rates is  approximately  $44.05 million while the total amount of loans
due after  such  date  which  have  floating  or  adjustable  interest  rates is
approximately $4.34 million.


                                      10

<PAGE>

ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING

      The  Association's  primary lending  activity has been the origination and
purchase of  permanent  loans  secured by mortgages  on  owner-occupied  one- to
four-family  residences.  At June 30,  1999,  $46.0  million  or  92.3%,  of the
Association's  gross loan  portfolio  consisted  of  permanent  loans on one- to
four-family  residences.  Most of these loans were secured by properties located
in  the  State  of  Illinois,   with  a  substantial  majority  located  in  the
Association's primary market area. At June 30, 1999,  approximately $719,000 was
secured by one-to four-family residential properties located in Florida.

      Historically,   Midland  Federal  originated  for  retention  in  its  own
portfolio  30-year  fixed-rate loans secured by one- to four-family  residential
real estate.  Beginning  in 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  fixed-rate  residential  loans in
amounts and at rates which are monitored for compliance  with the  Association's
asset/liability  management policy. From time to time, the Association will make
owner-occupied  one- to four-family  construction loans for a six-month interest
only term, which the Association will convert to a permanent  mortgage for a fee
generally  of one point.  The  Association  requires  the interest on such loans
during  the  construction  term to be paid or placed in escrow  when the loan is
funded.

     The  Association's  current one- to four-family  residential ARMs are fully
amortizing  loans with  contractual  maturities of up to 30 years.  The interest
rates on substantially all the ARMs originated by Midland Federal are subject to
adjustment at one-year intervals. The Association's ARM products generally carry
interest  rates  which  are  reset to a stated  margin  over the  one-year  U.S.
Treasury Rate.  Adjustments in the interest rate of the  Association's  ARMs are
generally limited to 2% at any adjustment date and 6% over the life of the loan.
At June  30,  1999,  the  total  balance  of one- to  four-family  ARMs was $3.0
million, or 6.1% of the Association's gross loan portfolio.

      The  Association  also  originates  home equity lines of credit which were
funded in the amount of $644,000 at June 30, 1999, and home equity loans,  which
were $1.9 million at June 30, 1999. Unfunded commitments on home equity lines of
credit totaled $475,000 at June 30, 1999. The Association's home equity lines of
credit are five year interest-only  balloon loans secured by second liens on the
property,  and are  made in  amounts  up to 75% of the  appraised  value  of the
property (including first lien amounts). The Association's home equity loans are
three to 15 year fixed-rate  loans secured by second liens on the property,  and
are made in amounts up to 80% of the appraised value of the property  (including
first lien amounts).

      The  Association's   residential  loans  are  generally  underwritten  and
documented  to  permit  their  sale in the  secondary  market.  The  Association
evaluates  both the borrower's  ability to make principal and interest  payments
and the  value of the  property  that will  secure  the  loan.  Midland  Federal
generally originates  residential mortgage loans with loan-to-value ratios of up
to 80%, although the Board of Directors has authorized  originations of mortgage
loans with loan-to-value

                                      11

<PAGE>



ratios of up to 90%. On any mortgage loan exceeding an 80%  loan-to-value  ratio
at the time of origination,  Midland Federal generally requires private mortgage
insurance on the excess.

      The  Association's   residential   mortgage  loans   customarily   include
"due-on-sale"  clauses, which are provisions that give Midland Federal the right
to declare a loan immediately due and payable in the event the borrower sells or
otherwise  disposes of the real property subject to the mortgage and the loan is
not repaid.

MULTI-FAMILY RESIDENTIAL LENDING

      The Association's multi-family residential portfolio includes $1.7 million
in loans secured by residential buildings (5 or more units) located primarily in
the  Association's  primary market area. The  Association  originates  primarily
adjustable-rate,  multi-family  real estate  loans.  Rates on the  Association's
adjustable-rate,  multi-family  real estate loans  generally  adjust in a manner
consistent with the Association's ARMs.

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

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

      Midland  Federal had six  multi-family  real estate  loans  totaling  $1.7
million at June 30, 1999. The net amount of such loans which was  non-performing
at June 30, 1999 was $38,000. See "-- Non-Performing Assets,  Classified Assets,
Loan   Delinquencies  and  Defaults"  for  a  discussion  of  the  Association's
non-performing, multi-family residential loans.

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


                                      12

<PAGE>



CONSUMER LENDING

      Management  believes that consumer loans help the  Association  expand its
customer  base and  create  stronger  ties to its  existing  customer  base.  In
addition,  because  consumer loans  generally have shorter terms to maturity and
carry higher rates of interest than do residential  loans,  they can be valuable
asset/liability management tools.

      Midland  Federal  offers a variety of secured  consumer  loans,  including
educational loans (which carry a guaranty from a State agency), automobile loans
and loans  secured by savings  deposits.  In addition,  the  Association  offers
unsecured consumer loans through its  Visa/MasterCard  credit card program.  The
Association currently originates  substantially all of its consumer loans in its
principal market area.

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

      Student  loans are  originated by Midland  Federal in compliance  with the
guidelines  established by the Illinois  Guaranteed Loan Program ("IGLP").  As a
result,  any loans  that  become  delinquent  30-90  days are sold to IGLP.  The
Association's  student  loan volume may decline in the future as a result of new
legislative  proposals  that  the  U.S.  government  provide  direct  loans  for
education.  As of June 30, 1999,  student loans amounted to $1.2 million or 2.3%
of the Association's gross loan portfolio.

      The Association  also originates  consumer loans secured by automobiles in
its primary market area.  Underwriting  standards employed by the Association in
connection with these loans include a review of the borrowers' creditworthiness,
verification  of  collateral   value  and  perfection  of  a  lien  against  the
collateral.  The Association  requires vehicle insurance on all loans secured by
automobiles.  At June 30, 1999,  the  Association  had $274,000,  or .55% of its
gross loan portfolio in automobile loans.

      Lines of credit extended through the Association's  Visa/MasterCard credit
card  program are  generally  limited to  $10,000.  The  Association  obtains an
application  from the  borrower,  a credit  report on the  borrower and verifies
employment  for credit card  borrowers.  At June 30, 1999, the  Association  had
$85,000 or .17% of its gross loan portfolio in credit card loans.

      Consumer loans may entail greater risk than  residential  mortgage  loans,
particularly  in the case of consumer  loans which are  unsecured  or secured by
rapidly  depreciable assets such as automobiles.  In such cases, any repossessed
collateral  for defaulted  consumer  loans may not provide  adequate  sources of
repayment  for  the  outstanding  loan  balances  as a  result  of  the  greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore, the application of various federal and state laws, including

                                      13

<PAGE>



federal and state bankruptcy and insolvency laws, may limit the amount which can
be  recovered  on  such  loans.  Although  the  level  of  delinquencies  in the
Association's  consumer loan  portfolio has generally  been low, there can be no
assurance that delinquencies will not increase in the future.

COMMERCIAL BUSINESS LOANS


     The  Association  also maintains a small  portfolio of commercial  business
loans , principally  overdraft loans. At June 30, 1999, $24,000 or approximately
41.38% of commercial business portfolio was delinquent 90 days or more.

COMMERCIAL REAL ESTATE LENDING

     Midland  Federal  maintains a portion of its  portfolio in permanent  loans
secured by commercial  real estate.  The  Association's  commercial  real estate
portfolio consists of loans on a variety of non-residential property,  including
an automobile repair center and churches. At June 30, 1999, $223,000, or .45% of
the Association's  gross loan portfolio  consisted of permanent loans secured by
commercial real estate.  In the future,  the Association  intends to continue to
engage  in a  modest  level  of  commercial  real  estate  lending,  subject  to
regulatory  restrictions.  Management  intends that any future  commercial  real
estate loans carry adjustable interest rates and a loan-to-value ratio of 70% or
less.  Nevertheless,  in  view  of the  significant  amount  of  risk  generally
associated with  commercial real estate lending,  there can be no assurance that
the Association will not experience  delinquencies on its commercial real estate
portfolio.

MORTGAGE-BACKED SECURITIES

      Midland Federal has a substantial portfolio of mortgage-backed  securities
totaling  $15.9  million  at  June  30,  1999.   Midland  Federal  utilizes  its
mortgage-backed  securities  to  supplement  loan  production  and to  meet  its
asset/liability management objectives. Mortgage-backed securities can also serve
as collateral for borrowings and, through repayments,  as a source of liquidity.
For  information  regarding  the carrying  and fair values of Midland  Federal's
mortgage-backed  securities  portfolio,  see Note  4  of the Notes to  Financial
Statements in the Annual Report to Stockholders  filed as Exhibit 13 hereto. See
"Regulation."

      The  following  table  sets  forth  the  contractual   maturities  of  the
Association's  mortgage-backed  securities  at June 30, 1999. It should be noted
that, due to  prepayments,  the actual maturity of the  Association's  long term
mortgage-backed  securities  will  likely  be  significantly  shorter  than  the
contractual maturities.

                                             Due in          Balance Outstanding
                                    -----------------------  -------------------
                                    3 to 5  6 to 20 Over 20
                                     Years   Years   Years    Fixed  Adjustable
                                    ------- ------- -------  ------- -----------

Federal Home Loan Mortgage
Corporation.........................$2,459  $ 2,138  $5,658   $2,460  $  7,795
Federal National Mortgage
Association.........................   763    3,682     868    1,906     3,407
Government National Mortgage
Association.........................   ---      295     ---      295       ---
Collateralized Mortgage Obligations.   ---       19     ---       19       ---
                                    ------   ------  ------   ------   -------
     Total..........................$3,222   $6,134  $6,526   $4,680   $11,202
                                    ======   ======  ======   ======   =======




                                      14

<PAGE>

LOAN ORIGINATIONS, PURCHASES AND SALES

      Real estate loans are  originated by Midland  Federal's  staff of salaried
loan  officers.  In addition,  in order to increase loan volumes,  commencing in
1995, the Association hired commissioned loan originators. Loan applications are
taken at each  office,  processed  in the  Association's  main  office  and then
submitted to the Chief Lending Officer,  the President or the Loan Committee for
approval.

      While the  Association  originates  both  adjustable-rate  and  fixed-rate
loans,  its ability to originate  loans is dependent upon the relative  customer
demand for loans in its market.  Demand is also  affected by the  interest  rate
environment. The Association has not purchased loans in recent years. During the
years ended June 30,  1999,  1998 and 1997,  the  Association  sold loans to the
Illinois  Housing  Development  Authority  and  other  lenders,   under  various
programs.

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


                                    Year Ended June 30,
                                   ---------------------
                                   1999     1998    1997
                                   -----   ------   ----
                                  (Dollars in Thousands)
 LOAN RECEIVABLE:
 Adjustable-Rate:
  Real estate - one- to
   four-family.................. $     784 $   239 $   986
                  - construction       ---     408     300
  Non-real estate - consumer....     1,386   1,770   1,113
                                   ------- ------- -------
          Total adjustable rate.     2,170   2,417   2,399
                                   ------- ------- -------
 Fixed-Rate:
  Real estate - One- to
   four-family..................    22,503  14,916   5,172
  Non-real estate - consumer....       173     173     254
                                   ------- ------- -------
          Total fixed-rate......    22,676  15,089   5,426
                                   ------- ------- -------
          Total loans originated    24,846  17,506   7,825
                                   ------- ------- -------

Real estate loans sold..........    (3,298) (2,197)   (832)
Transfer of loans to foreclosed
real estate.....................       ---     (58)    (85)
Principal repayments............   (11,549) (9,804) (6,238)
                                   ------- -------  ------

Net increase (decrease).........   $ 9,999  $5,447 $   670
                                   =======  ====== =======

MORTGAGE-BACKED SECURITIES:
     Mortgage-backed securities
      purchased.................   $ 1,102  $4,592 $   ---
     Mortgage-backed securities
      sold......................       ---     ---     ---
     Amortization and repayments    (6,065) (5,663) (5,413)
                                   ------- -------  ------

  Net increase (decrease).......  $ (4,963)$(1,071)$(5,413)
                                  ======== ======= =======

     The Association's  total loan originations  increased primarily as a result
of lower interest rates which  increased  demand for mortgage  loans,  including
mortgage loan refinancing.

NON-PERFORMING ASSETS, CLASSIFIED ASSETS, LOAN DELINQUENCIES AND DEFAULTS

     When a borrower fails to make a required payment on a loan, the Association
attempts to cause the  deficiency  to be cured by  contacting  the  borrower.  A
notice is mailed to the borrower  and late charges are assessed  after a payment
is 30 days past due. Five days after the late notice is mailed, the Loan Service
Counselor/Collector  will contact the borrower by telephone.  After a payment is
60 days past due,  the Loan  Service  Counselor/Collector  conducts  a  personal
interview

                                      15

<PAGE>



with the  borrower  after which if the loan  continues to be  delinquent,  it is
referred to the Loan Service  Manager.  After the 90th day of  delinquency,  the
Association  institutes  action to foreclose on the property or to acquire it by
deed in lieu of foreclosure. If foreclosed on, real property is sold at a public
sale and may be purchased by the Association.  A decision as to whether and when
to initiate  foreclosure  proceedings  is based on such factors as the amount of
the outstanding  loan in relation to the original  indebtedness  and the current
value of the property,  the extent of delinquency and the borrower's ability and
willingness to cooperate in curing delinquencies. Generally, when a loan becomes
delinquent 90 days or more, the Association will place the loan on a non-accrual
status and, as a result, previously accrued interest income on the loan is taken
out of current income. Future interest income is recognized on a cash basis. The
loan  will  remain  on a  non-accrual  status  as  long  as the  loan is 90 days
delinquent, unless a repayment plan is being followed.


                                      16

<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, 1999 and
June 30,  1998.  The  balances  included  in the table do not  reflect  specific
reserves.

<TABLE>
<CAPTION>

                                                             At June 30, 1999
                                                          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
                       ----------------------------------------------------------------------------------------------
<S>                     <C>    <C>    <C>    <C>    <C>           <C>  <C>    <C>      <C>     <C>   <C>    <C>
                                                         (Dollars in Thousands)
Real estate:
  One- to four-family.      14   $763   1.66%    5   $221      .48%    3    $  162      .35%   22   $ 1,146   2.49%
  Multi-family........     ---    ---    ---   ---    ---      ---     3       194    11.35     3       194  11.35
Consumer..............       2     12    .65   ---    ---      ---     2         1      .05     4        13    .70
Commercial business...     ---    ---    ---   ---    ---      ---    13        24    41.38    13        24  41.38
                          ----   ----         ----   ----            ---    ------            ---   -------
     Total............      16   $775   1.55%    5   $221      .44%   21    $  381     0.77%   42   $ 1,377   2.76%
                          ====   ====         ====   ====            ===    ======            ===   =======
</TABLE>
<TABLE>
<CAPTION>

                                                              At June 30, 1998
                                                           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
                       ----------------------------------------------------------------------------------------------------
<S>                      <C>    <C>    <C>    <C>      <C>    <C>      <C>      <C>       <C>   <C>    <C>     <C>

                                                           (Dollars in Thousands)
Real estate:
  One- to four-family..      7   $237      .68%      6   $485    1.38%      3    $220     .63%     16  $   942   2.69%
  Multi-family.........    ---    ---       ---    ---    ---      ---      4     237    13.24      4      237  13.24
Consumer...............      4     11       .48    ---    ---      ---      6       5      .22     10       16    .70
Commercial business....    ---    ---       ---    ---    ---      ---      1       3     4.23      1        3   4.23
                         -----   ----      ----   ----   ----   ------    ---    ----   ------    ---  -------  -----
     Total.............     11   $248      .62%      6   $485    1.22%     14    $465    1.16%     31  $ 1,198   3.00%
                          ====   ====      ===    ====   ====    ====     ===    ====   =====     ===  =======  =====


</TABLE>


                                         17

<PAGE>



      The table below sets forth the amounts and  categories  of  non-performing
assets,  shown net of specific  reserves,  in the Association's  loan portfolio.
Loans are placed on non-accrual  status when the collection of principal  and/or
interest  becomes  doubtful,  generally  when the loan is  delinquent 90 days or
more. Foreclosed assets include assets acquired in settlement of loans.



                                           At June 30,
                                ---------------------------------

                                   1999       1998        1997
                                ---------------------------------

                                     (Dollars in Thousands)
Non-Accruing Loans:
  One- to four-family..........       $162    $    220     $   58
  Multi-family.................         38          38         42
  Consumer.....................        ---           2          3
   Commercial business.........         24           3        ---
                                    ------  ----------     ------
     Total.....................        224         263        103
                                     -----    --------       ----

Accruing loans delinquent
 90 days or more:
  Multi-family.................        ---         ---        ---
                                   -------  ----------     ------
     Total.....................        ---         ---        ---
                                   -------  ----------     ------

Foreclosed Assets:
  One- to four-family..........        276         747        855
                                     -----    --------      -----
     Total.....................        276         747        855
                                     -----    --------      -----

Total non-performing assets....       $500      $1,010       $958
                                      ====      ======       ====

Total as a percentage of total
assets.........................        .38%        .86%       .86%
                                     =====       =====       ====


      As of June 30, 1999, there were no concentrations of loans in any types of
industry  which  exceeded  10% of the  Association's  total  loans  that are not
included as a loan category in the preceding table.

      For the fiscal year ended June 30, 1999, gross interest income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their original terms amounted to $11,000,  which interest income was not accrued
into interest income for the fiscal year ended June 30, 1999.

      REAL ESTATE OWNED.  As of June 30, 1999, the Company owned one real estate
owned property totaling  $276,400.  This asset derived from a $426,000 loan made
in 1985 for a penthouse  condominium  located in Ft.  Lauderdale,  Florida.  The
Association obtained title to the property on November 19, 1991. The Association
entered  into a one year lease of the  property  for  $36,000  per year and also
granted the lessee an option to purchase the property for $286,500. The purchase
option was  subsequently  exercised by the Lessee and the  Association  sold the
property in July 1999 for the option price in an all cash transaction.

      NON-ACCRUING LOANS. As of June 30, 1999,  non-accruing  multi-family loans
consisted of one loan in the amount of $38,000  secured by a five unit  property
located in Chicago,  Illinois.  Nonaccruing  one- to-four  family loans  totaled
$162,000  and  consisted  of three loans  secured by  properties  located in the
Association's primary market area.

                                      18

<PAGE>



      As of June 30,  1999,  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 (the "FDIC") examiners have authority to identify problem
assets and,  if  appropriate,  require  them to be  classified.  There are three
classifications  for problem  assets:  "substandard,"  "doubtful"  or "loss." An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying  capacity of the obligor or of the collateral  pledged,  if
any.   "Substandard"   assets  include  those  characterized  by  the  "distinct
possibility"  that the  savings  association  will  sustain  "some  loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard,"   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
which do not currently  expose the savings  association  to  sufficient  risk to
warrant  classification  in one of the  aforementioned  categories,  but possess
weaknesses, are required to be designated "special mention" by management.

      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 the
association's  District  Director at the regional OTS office,  who may order the
establishment of additional general or specific loss allowances.

      In connection with the filing of its periodic  reports with the OTS and in
accordance with its classification of assets policy,  the Association  regularly
reviews the assets in its  portfolio  to  determine  whether any assets  require
classification  in  accordance  with  applicable  regulations.  On the  basis of
management's  review  of its  assets,  at June 30,  1999,  the  Association  had
classified a total of $212,000 of its assets as  substandard,  none as doubtful,
$188,000 as loss (which have been fully reserved), 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  risk  inherent  in its loan
portfolio  and  changes  in the nature  and  volume of its loan  activity.  Such
evaluation,  which includes a review of all loans where full  collectibility may
not be reasonably  assured,  considers  among other matters,  the estimated fair
value

                                      19

<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.

      The Company  incurred  $30,000 in loan  charge-offs  during  fiscal  1999.
During fiscal 1999, the Company  increased its general allowance for loan losses
to $178,000 at fiscal  year end from  $150,000 at the prior  fiscal year end. At
fiscal year end, the $178,000  general  allowance for loan losses was determined
by the  Company  to be  consistent  with its policy  for the  establishment  and
maintenance  of adequate  levels of general  loan loss  allowances.  The $28,000
increase in the Company's  general  allowance for loan losses during fiscal 1999
was the result of $54,000 in  recoveries  from fully  reserved  loans which loss
reserves  were  transferred  from  specific  allowance  to general and $2,000 in
recoveries  from loans  previously  charged off. These loan loss recoveries were
offset by $28,000 in loans that were  charged off out of the  general  allowance
for loan losses during the current  fiscal year.  Although  management  believes
that it uses  the  best  information  available  to  determine  the  allowances,
unforeseen  market conditions could result in adjustments and net earnings could
be  significantly  affected  if  circumstances  differ  substantially  from  the
assumptions  used in making the final  determination.  Future  additions  to the
Association's  allowances  will be the result of  periodic  loan,  property  and
collateral reviews and thus cannot be predicted in advance. At June 30, 1999 the
Association  had a total  allowance  for losses on loans of  $366,000 or .73% of
total  loans.  See Note 5 of the Notes to  Financial  Statements  in the  Annual
Report to Stockholders filed as Exhibit 13 hereto.



                                      20

<PAGE>



      The following table sets forth an analysis of the Association's  allowance
for loan losses.


                                         Year Ended June 30,
                                     ------------------------------

                                       1999      1998     1997
                                     ------------------------------

                                        (Dollars in Thousands)

Balance at beginning of period......      $394     $ 551     $596

Charge-offs:
 One- to four-family................       ---       ---       43
 Consumer...........................         7       ---        3
 Commercial business................        23       ---      ---
                                        ------   -------  -------
                                            30       ---       46
                                        ------   -------   ------
Recoveries:
 One- to four-family................       ---       ---      ---
 Consumer...........................         2         3        1
                                       -------   -------  -------
     Total recoveries...............         2         3        1
                                       -------   -------  -------

Net charge-offs.....................       (28)        3      (45)
Additions charged to operations.....       ---      (160)     ---
                                       -------     -----  -------
Balance at end of period............      $366     $ 394     $551
                                          ====     =====     ====

Ratio of net charge-offs during the
period to average loans outstanding
during the period...................       .06%      ---%     .13%

Ratio of net charge-offs during the
period to average non-performing
assets..............................      2.68%      ---%    2.56%

Allowance for loan losses to
 non-performing loans(1)............    79.66%   57.16 %  274.39%

Allowance for loan losses to total
loans...............................      .74%    1.00 %    1.62%

(1)   General  valuation  allowances  to  non-performing  loans (net of specific
      allowances).



                                      21

<PAGE>



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


                                            June 30,
                       --------------------------------------------------------

                             1999             1998            1997
                       --------------------------------------------------------

                               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)

One- to four-family...   $  70  92.28%  $ 78    87.82%   $129       84.26%
Multi-family..........     166   3.43    208     4.49     219        6.39
Non-residential.......     ---   0.45    ---      .61       1         .77
Construction..........     ---    ---    ---     1.13     ---         .87
Consumer..............      35   3.72     48     5.77      59        7.50
Commercial business...     ---   0.12    ---      .18     ---         .21
Unallocated...........      95    ---     60      ---     143         ---
                         ----- ------   ----   ------    ----      ------
     Total............    $366 100.00%  $394   100.00%   $551      100.00%
                         ===== ======   ====   ======    ====      ======

INVESTMENT ACTIVITIES

     As a part of its asset/liability management strategy and as a response to a
relatively high level of competition for loans and low level of loan demand, the
Association  invests in various  types of liquid  assets,  short and medium term
government   securities  as  well  as  smaller  amounts  of  other  assets.  The
Association  is required by federal  regulations to maintain a minimum amount of
liquid assets that may be invested in specified securities and is also permitted
to make certain other security investments.  The Association maintains liquidity
in excess  of  regulatory  requirements.  Cash flow  projections  are  regularly
reviewed and updated to assure that adequate  liquidity is provided.  As of June
30, 1999, the Association's  liquidity ratio (liquid assets maturing within five
years as a percentage of net  withdrawable  savings and current  borrowings) was
56.5%.

      At June 30, 1999,  the  Association's  interest-bearing  deposits in other
financial  institutions totaled $31.1 million, or 23.9% of its total assets, and
investment securities totaled $25.0 million, or 19.2% of its total assets. As of
such date, the Association also had a $636,000 investment in the common stock of
the FHLB of Chicago in order to satisfy the  requirement  for membership in this
institution.  At June 30, 1999, the average term to maturity or repricing of the
investment securities portfolio was approximately two years.



                                      22

<PAGE>

      The  following  table  sets  forth the  composition  of the  Association's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>

                                                     At June 30,
                                 ----------------------------------------------

                                       1999             1998             1997
                                 ----------------------------------------------

                                 Carrying   Fair  Carrying   Fair  Carrying   Fair
                                  VALUE    VALUE   VALUE    VALUE    VALUE   VALUE
                                 --------  -----  --------  -----  --------  -----
<S>                                <C>     <C>    <C>       <C>     <C>      <C>

Investment Securities:
 U.S. government securities...... $20,971  $21,063 $21,185  $21,226  $21,058 $21,057
 U.S. agency securities..........   4,000    3,969     ---      ---      ---     ---
 FHLB - Chicago stock............     636      636     554      554      554     554
                                  -------  ------- -------  -------  ------- -------
   Total investment securities... $25,607  $25,668 $21,739  $21,780  $21,612 $21,611
                                  =======  ======= =======  =======  ======= =======

Interest-bearing deposits:

 FHLB daily investment........... $19,723  $19,723 $18,522  $18,522  $17,825 $17,825
 Other daily investments.........  11,364   11,364  10,816   10,816   10,241  10,241
                                  -------  ------- -------  -------  ------- -------
  Total interest-bearing deposits $31,087  $31,087 $29,338  $29,338  $28,066 $28,066
                                  =======  ======= =======  =======  ======= =======
</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, 1999
                                 --------------------------------------------------

                                  1 Year  1 to 5   Over     Total Investment
                                 or Less  Years   10 Years    Securities
                                                   Years
                                 ------- -------  --------  ----------------

                                                                          Weighted
                                   Book    Book    Book     Book    Fair   Average
                                  Value   Value    Value   Value   Value    Yield
                                 --------------------------------------------------
                                               (Dollars in Thousands)
<S>                                <C>    <C>         <C>    <C>    <C>    <C>

U.S. government and agency
securities.......................  $9,997 $13,997    $977  $24,971 $25,032    5.52%

</TABLE>

SOURCES OF FUNDS

     GENERAL.  Deposit accounts have  traditionally been the principal source of
the  Association's  funds  for use in  lending  and for other  general  business
purposes.  In addition to  deposits,  the  Association  derives  funds from loan
repayments and cash flows generated from operations. Scheduled loan payments are
a relatively stable source of funds,  while deposit inflows and outflows and the
related cost of such funds have varied.  Borrowings  may be used on a short-term
basis to compensate  for seasonal  reductions in deposits or deposit  inflows at
less than  projected  levels  and may be used on a longer  term basis to support
expanded lending activities.


                                      23

<PAGE>



      DEPOSITS.    The   Association   attracts   principally   short-term   and
intermediate-term  deposits  from the  Association's  primary  market area.  The
Association offers regular passbook accounts, NOW accounts, money market deposit
accounts,  fixed interest rate certificates of deposit with varying  maturities,
and negotiated rate $100,000 jumbo certificates of deposit ("Jumbo CDS").

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

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

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

      The following table sets forth the savings flows at the Association during
the periods indicated.


                                                    Year Ended June 30,
                                            -----------------------------------

                                               1999        1998       1997
                                            -----------------------------------


Opening balance............................    $107,762  $102,973   $107,914
Deposits...................................     388,101   360,039    332,833
Withdrawals................................    (379,590) (358,909)  (341,491)
                                               --------  --------   --------
Balance before interest credited...........     116,273   104,103     99,256
Interest credited..........................       3,952     3,659      3,717
                                               --------  --------   --------
Ending balance.............................    $120,225  $107,762   $102,973
                                               ========  ========   ========
Net increase (decrease)....................    $ 12,463  $  4,789   $ (4,941)
                                               ========  ========   ========
Percent increase (decrease)................       11.57%     4.65%     (4.58)%
                                                  =====    ======      =====



                                      24

<PAGE>



      The following  table sets forth the dollar  amount of savings  deposits in
the various types of deposit  programs  offered by the  Association at the dates
indicated.
<TABLE>
<CAPTION>

                                                        June 30,
                               ---------------------------------------------------------

                                      1999                1998               1997
                               ---------------------------------------------------------

                                          Percent            Percent            Percent
                                 Amount  of Total   Amount   of Total  Amount   of Total
                               ---------------------------------------------------------
<S>                                <C>    <C>          <C>    <C>        <C>    <C>

INTEREST RATE RANGE:

Passbook accounts..............   $43,456   36.15% $  40,716    37.78% $ 40,984      39.80%
NOW accounts...................     8,755    7.28      8,266     7.67     8,468       8.22
Money market accounts..........     5,343    4.44      3,706     3.44     3,769       3.66
Non-interest bearing deposits..     9,278    7.72      7,823     7.26     7,327       7.12
                                 --------  ------  ---------   ------  --------     ------
  Total non-certificates.......    66,832   55.59     60,511    56.15    60,548      58.80
                                 --------  ------  ---------   ------  --------     ------

CERTIFICATES:

Interest rate range:
 0.00 - 3.99%..................                          ---      ---       ---        ---
 4.00 - 4.99%..................    36,937   30.72        ---      ---       ---        ---
 5.00 - 5.99%..................    16,456   13.69     47,151    43.75    40,438      39.27
 6.00 - 6.99%..................       ---     ---        100      .10     1,987       1.93
                                 --------  ------  ---------   ------  --------     ------
   Total certificates..........    53,393   44.41     47,251    43.85    42,425      41.20
                                 --------  ------  ---------   ------  --------     ------

   Total deposits..............  $120,225  100.00% $ 107,762   100.00% $102,973     100.00%
                                 ========  ======  =========   ======  ========     ======
</TABLE>

      The  following  table  shows  rate  and  maturity  information  for  the
Association's time deposits as of June 30, 1999.


                             4.00-    5.00-                      Percent
                             4.99     5.99          TOTAL       OF TOTAL
                           ---------------------------------------------
                                       (Dollars in Thousands)

Certificate Accounts
Maturing
IN QUARTER ENDING:


September 30, 1999.........  $14,634  $ 3,700      $18,334       34.34%
December 31, 1999..........   13,269    4,302       17,571       32.91
March 31, 2000.............    4,879    6,249       11,128       20.84
June 30, 2000..............    3,042      333        3,375        6.32
September 30, 2000.........      228      983        1,211        2.27
December 31, 2000..........       49      386          435        0.82
March 31, 2001.............       25      367          392        0.73
June 30, 2001..............      128      136          264        0.49
September 30, 2001.........      438                   438        0.82
December 31, 2001..........      245                   245        0.46
                           ---------               -------     -------

     Total.................  $36,937  $16,456      $53,393      100.00%
                             =======  =======      =======      ======


     Percent of total......   69.18%   30.82%       100.00%
                              =====    =====        ======



                                      25

<PAGE>



      The following table indicates the amount of the Association's certificates
of deposit and other  deposits by time  remaining  until maturity as of June 30,
1999.


                                                    Maturity
                                   -----------------------------------------

                                              Over    Over    Over
                                   3 Months  3 to 6  6 to 12   12
                                   or Less   Months  Months  Months   Total
                                   -----------------------------------------

                                             (Dollars in Thousands)

Certificates of deposit less than
$100,000........................... $16,635  $14,574 $13,620  $2,630  $47,459

Certificates of deposit of $100,000
or more............................   1,699    2,997     883     355    5,934
                                    -------   ------ ------- -------  -------


   Total certificates of deposit... $18,334  $17,571 $14,503  $2,985  $53,393
                                    =======  ======= =======  ======  =======


BORROWINGS

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

COMPETITION

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

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

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

                                      26

<PAGE>



unlimited amount in operating  subsidiaries engaged solely in activities which a
federal association may engage in directly.

      Midland Federal has one service corporation,  Midland Service Corporation,
located in Bridgeview,  Illinois, which was organized by the Association in 1976
to act as a holding company for the Association's  other  subsidiaries.  At June
30, 1999, Midland Federal's equity investment in Midland Service Corporation was
approximately $181,000. During fiscal 1999, Midland Service Corporation recorded
a profit of $1,000.

      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 loss of $3,500 for the 1999 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. The Association is a member of the FHLB of Chicago and is subject to
certain  limited  regulation  by the Board of Governors  of the Federal  Reserve
System  ("Federal  Reserve  Board").  Midland Federal is a member of the Savings
Association Insurance Fund ("SAIF"), which together with the Bank Insurance Fund
(the "BIF") are the two deposit  insurance  funds  administered by the FDIC, and
the deposits of Midland  Federal are insured by the FDIC. As a result,  the FDIC
has certain regulatory and examination authority over the Association.

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

      FEDERAL  REGULATION  OF  SAVINGS  ASSOCIATIONS.   The  OTS  has  extensive
authority  over  the  operations  of  savings  associations.  As  part  of  this
authority, Midland Federal is required to file periodic reports with the OTS and
is  subject  to  periodic  examinations  by the OTS and the  FDIC.  The last OTS
examination  commenced  on June 21,  1999 using  financial  data as of March 31,
1999, and the last regular OTS and FDIC joint  examination was on June 30, 1993.
When these examinations are conducted by the OTS and the FDIC, the examiners may
require  the  Association  to provide for higher  general or specific  loan loss
reserves.

      All savings  associations  are subject to semi-annual  assessments,  based
upon the savings  associations  total assets.  The Association's paid assessment
during the fiscal year ended June 30, 1999 was $35,000.

      The  OTS  also  has  extensive  enforcement  authority  over  all  savings
institutions,  including Midland Federal.  This enforcement  authority includes,
among other  things,  the  ability to assess  civil  money  penalties,  to issue
cease-and-desist  or  removal  orders and to  initiate  injunctive  actions.  In
general,  these enforcement  actions may be initiated for violations of laws and
regulations  and unsafe or unsound  practices.  Other  actions or inactions  may
provide the basis for enforcement action,

                                      27

<PAGE>



including  misleading  or  untimely  reports  filed with the OTS.  Except  under
certain circumstances, public disclosure of final enforcement actions by the OTS
is required.

      In addition,  the investment and lending  authority of the  Association is
prescribed by federal laws and  regulations,  and it is prohibited from engaging
in any activities not permitted by such laws and regulations.  For instance,  no
savings  association may invest in corporate debt securities not rated in one of
the  four  highest  rating   categories  by  a  nationally   recognized   rating
organization.  In  addition,  the  permissible  level of  investment  by federal
associations  in loans secured by  non-residential  real property may not exceed
400% of regulatory capital,  except with approval of the OTS. Midland Federal is
in compliance with each of these restrictions.

      The Association's  permissible lending limit for  loans-to-one-borrower is
equal to the  greater of  $500,000  or 15% of  unimpaired  capital  and  surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1999, the  Association's  lending limit under this restriction was $1.3
million.  The  Association  is  in  compliance  with  the  loans-to-one-borrower
limitation.

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

      INSURANCE OF ACCOUNTS AND  REGULATION  BY THE FDIC.  Midland  Federal is a
member of the SAIF,  which is  administered  by the FDIC.  Savings  deposits are
insured up to applicable  limits by the FDIC and such insurance is backed by the
full faith and credit of the 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 of at least 6% and a risk-based capital ratio of
at least  10%)  and  considered  healthy  would  pay the  lowest  premium  while
institutions that are less than "adequately  capitalized"  (I.E., a core capital
or core capital to  risk-based  capital  ratios of less than 4% or a risk- based
capital ratio of less than 8%) and considered of substantial supervisory concern
would pay the highest premium.  Risk classification of all insured  institutions
will be made by the FDIC for each semi-annual assessment period.

      The FDIC is  authorized  to increase  assessment  rates,  on a 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

                                      28

<PAGE>



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.

      In order to equalize the deposit  insurance  premium schedules for BIF and
SAIF insured institutions, the FDIC imposed a one-time special assessment on all
SAIF-assessable deposits pursuant to federal legislation passed on September 30,
1996. The  Association's  special  assessment,  which was $674,061,  was paid in
November 1996.  Effective January 1, 1997, the premium schedule for BIF and SAIF
insured  institutions  ranged from 0 to 27 basis points.  However,  SAIF-insured
institutions are required to pay a Financing  Corporation (FICO) assessment,  in
order to fund the  interest on bonds  issued to resolve  thrift  failures in the
1980s,  equal to 6.48 basis  points for each $100 in  domestic  deposits,  while
BIF-insured  institutions  pay an assessment equal to 1.52 basis points for each
$100 in domestic  deposits.  The assessment is expected to be reduced to 2.43 no
later than January 1, 2000, when BIF insured  institutions  fully participate in
the assessment. These assessments,  which may be revised based upon the level of
BIF and SAIF deposits will continue until the bonds mature in the year 2015.

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

      The  capital  regulations  require  tangible  capital  of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement.  Further, any unrealized holding gains or losses, net of income
taxes,  on securities  classified as available for sale in accordance  with SFAS
No. 115 are excluded from regulatory capital calculations. At June 30, 1999, the
Association had retained  mortgage  servicing assets and an unrealized gain, net
of tax, under SFAS No. 115 in the amount of $80,000.

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

      At June 30, 1999, the Association had tangible capital of $8.5 million, or
6.53% of adjusted total assets,  which is  approximately  $6.5 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.


                                      29

<PAGE>



      The capital  standards  also require core capital  equal to at least 3% of
adjusted  total  assets  (as  defined by  regulation).  Core  capital  generally
consists  of  tangible  capital  plus  certain  intangible   assets,   including
supervisory goodwill (which is phased-out over a five-year period) and a limited
amount of purchased credit card  relationships and purchased  mortgage servicing
rights.  As a result  of the  prompt  corrective  action  provisions  of  FDICIA
discussed below, 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,  1999,  the
Association had retained  mortgage  servicing assets which were subject to these
tests.

      At June 30, 1999, the  Association had core capital equal to $8.5 million,
or 6.53% of  adjusted  total  assets,  which is $4.6  million  above the minimum
leverage ratio requirement of 3% in 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,  1999,  Midland  Federal  had no capital  instruments  that  qualify as
supplementary capital and $178,000 of general loss reserves, which was less than
1.25% of risk-weighted assets.

     Certain  exclusions from capital and assets are required to be made for the
purpose  of  calculating  total  capital.  Such  exclusions  consist  of  equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital instruments.  There was $15,000 equity
investments at June 30, 1999. OTS regulations also require  deduction from total
capital and total  assets the net book value of real estate  owned  greater than
five years, unless the OTS provides otherwise. During the fiscal year ended June
30, 1999, the Company deducted $276,400 from its total capital and total assets.

      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

                                      30

<PAGE>



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,  1999,  the  Association  had total  capital  of $8.6  million
(including $8.5 million in core capital and $178,000 of qualifying  general loss
reserves) and  risk-weighted  assets of $42.1 million or total capital of 20.54%
of risk-weighted  assets.  This amount was $5.3 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. Effective December 19, 1992, the federal banking agencies,
including   the  OTS,  were  given   additional   enforcement   authority   over
undercapitalized depository institutions.  The OTS is generally required to take
action  to  restrict  the  activities  of  an   "undercapitalized   association"
(generally  defined to be one with less than  either a 4% core  ratio,  a Tier 1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.

      Any savings  association  that fails to comply with its capital plan or is
"significantly undercapitalized" (I.E., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based  capital  ratio of less than 6%) must be subject
to one or more of additional specified actions and operating restrictions, which
may  cover  all  aspects  of its  operations  and  include  a forced  merger  or
acquisition of the association.

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

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

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

      LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS.  OTS regulations
impose  various  restrictions  on  savings  associations  with  respect to their
ability  to make  distributions  of  capital,  which  include  dividends,  stock
redemptions or repurchases,  cash-out mergers and other transactions  charged to
the capital account.  OTS regulations  also prohibit a savings  association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory

                                      31

<PAGE>



capital of the  association  would be reduced  below the amount  required  to be
maintained for the liquidation account established in connection with its mutual
to stock conversion.

     Generally, savings associations,  such as the Association,  that before and
after  the  proposed  distribution  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.  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.
The Association may pay dividends in accordance with this general authority.

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

      LIQUIDITY.  All  savings  associations,  including  Midland  Federal,  are
required  to  maintain  an average  daily  balance of liquid  assets  equal to a
certain  percentage of the sum of its average daily balance of net  withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion of
what the Association includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" in the Annual Report to Stockholders filed as Exhibit 13 hereto. This
liquid asset ratio  requirement  may vary from time to time (between 4% and 10%)
depending   upon   economic   conditions   and  savings  flows  of  all  savings
associations.  At the  present  time,  the  minimum  liquid  asset  ratio is 4%.
Penalties may be imposed upon  associations  for  violations of the liquid asset
ratio requirement.  At June 30, 1999, the Association was in compliance with the
requirement, with an overall liquid asset ratio of 56.5% .

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

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


                                      32

<PAGE>



     QUALIFIED  THRIFT  LENDER TEST.  All savings  associations,  including  the
Association,  are  required to meet a qualified  thrift  lender  ("QTL") test to
avoid certain  restrictions  on their  operations.  This test requires a savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments for nine out of every 12 months on a
rolling basis.  As an alternative,  the savings  association may maintain 60% of
its assets in those assets specified in Section 7701(a)(19) of the 1986 Internal
Revenue Code, as amended.  Under either test, such assets  primarily  consist of
residential  housing  related  loans  and  investments.  At June  30,  1999  the
Association  met the test and has always  met the test since its  effectiveness.

     Any savings  association  that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF. If an association  that fails the test has not yet  requalified and has
not converted to a national bank, its new investments and activities are limited
to those permissible for both a savings  association and a national bank, and it
is limited to national bank branching rights in its home state. In addition, the
association is immediately  ineligible to receive any new 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. In addition,  it must repay promptly any  outstanding  FHLB
borrowings, which may result in prepayment penalties.

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

     The federal banking agencies,  including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's  compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years,  the  Association  may be  required  to devote  additional  funds for
investment and lending in its local community.  The Association was examined for
CRA  compliance  in  1998  and  received  a  rating  of  "unsatisfactory."   The
Association is  intensifying  its efforts to improve its  performance  under the
CRA.

     TRANSACTIONS  WITH AFFILIATES.  Generally,  transactions  between a savings
association or its  subsidiaries  and its affiliates are required to be on terms
as  favorable  to  the  association  as  transactions  with  non-affiliates.  In
addition,  certain of these  transactions  are restricted to a percentage of the
association's  capital.  Affiliates of Midland Federal include any company which
is under common control with the Association. In addition, a savings association
may not lend to any affiliate  engaged in activities not  permissible for a bank
holding company or acquire the

                                      33

<PAGE>



securities of most  affiliates.  The  Association's  subsidiaries are not deemed
affiliates,  however;  the OTS has  the  discretion  to  treat  subsidiaries  as
affiliates on a case-by-case basis.

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

     FEDERAL RESERVE  SYSTEM.  The Federal Reserve Board requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts)  and  non-personal  time  deposits.  At June  30,  1999  the
Association  was in  compliance  with these reserve  requirements.  The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy  liquidity  requirements  that may be imposed by the OTS.
See "--Liquidity."

     Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust  other  reasonable   alternative   sources  of  funds,   including  FHLB
borrowings, before borrowing from the Federal Reserve Bank.

     FEDERAL HOME LOAN BANK SYSTEM.  The  Association is a member of the FHLB of
Chicago,  which is one of 12 regional FHLBs that  administers the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and  procedures  are  subject to the  regulation  and  oversight  of the Federal
Housing  Finance  Board.  All  advances  from the FHLB are  required to be fully
secured by sufficient  collateral  as  determined by the FHLB. In addition,  all
long-term advances are required to provide funds for residential home financing.
While a member of the FHLB of Chicago at June 30, 1999, the  Association had not
entered into a credit  arrangement  with the FHLB of Chicago and, as such, could
not obtain funds from the FHLB of Chicago.

     As a member,  Midland Federal is required to purchase and maintain stock in
the FHLB of Chicago.  At June 30,  1999  Midland  Federal  had  $636,000 in FHLB
stock,  which  was in  compliance  with this  requirement.  In past  years,  the
Association has received substantial  dividends on its FHLB stock. Over the past
five  calendar  years  such  dividends  have  averaged  6.55% and were 6.63% for
calendar year 1998.

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


                                      34

<PAGE>

      For the year ended June 30, 1999, dividends paid by the FHLB of Chicago to
Midland Federal totaled $37,000, which was identical to the amount of dividends
received in fiscal year 1998.
The $10,000  dividend  received for the quarter  ended June 30, 1999 reflects an
annualized rate of 6.50%, or .13% below the rate for calender year 1998.

      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. 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,
1999,  the  Association's  excess for tax purposes  totaled  approximately  $1.4
million.

      The Association and its subsidiaries file consolidated  federal income tax
returns on a fiscal year basis using the accrual method of  accounting.  Savings
institutions  that file  federal  income tax  returns as part of a  consolidated
group are required by applicable  Treasury  regulations  to reduce their taxable
income for purposes of computing the  percentage  bad debt  deduction for losses
attributable  to  activities  of  the  non-savings  association  members  of the
consolidated  group  that are  functionally  related  to the  activities  of the
savings association member.

      The Association and its consolidated  subsidiaries have never been audited
by the  IRS  with  respect  to  federal  income  tax  returns.  The  statute  of
limitations  has passed for tax years ending on or prior to June 30,  1996,  for
the Association and its consolidated subsidiaries.

                                       35
<PAGE>

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

IMPACT OF NEW ACCOUNTING STANDARDS

     ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND FOR HEDGING ACTIVITIES.  In June
1998,  the FASB issued  Statement  of  Financial  Accounting  Standards  No. 133
"Accounting for Derivative  Instruments and for Hedging  Activities"  ("SAFS No.
133").  SFAS No. 133 provides a  comprehensive  and consistent  standard for the
recognition and measurement of derivatives and hedging activities. The statement
requires all  derivatives  to be recorded on the balance sheet at fair value and
establishes  special  accounting  for the  following  three  different  types of
hedges:  hedges of  changes in the fair  value of  assets,  liabilities  or firm
commitments  (referred to as fair value  hedges);  hedges of the  variable  cash
flows of  forecasted  transactions  (cash  flow  hedges);  and hedges of foreign
currency  exposures  of  net  investments  in  foreign  operations.  Though  the
accounting treatment and criteria for each of the three


                                      36

<PAGE>



types of hedges is unique, they all result in recognizing  offsetting changes in
value or cash flows of both the hedge and the  hedged  item in  earnings  in the
same  period.  Changes  in the fair  value of  derivatives  that do not meet the
criteria of one of these three  categories of hedges are included in earnings in
the period of the change.  SFAS No. 133 is effective for years  beginning  after
June 15, 1999,  but  companies can early adopt as of the beginning of any fiscal
quarter that begins after June 1998.  Management does not expect the adoption of
this  statement  to have a  material  impact on the  Association's  consolidated
financial condition or results of operations.

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

                                  MANAGEMENT

EMPLOYEES

      At June 30, 1999, the  Association  had a total of 48 full-time  employees
and 48 part-time employees.  None of the Association's employees are represented
by any collective bargaining group.  Management considers its employee relations
to be good.

ITEM 2.  DESCRIPTION OF PROPERTY

OFFICES

      Midland  Federal  owns the  building  and land for its main office at 8929
South Harlem Avenue,  Bridgeview,  Illinois.  This office has 18,000 square feet
and a net book value of $973,000 at June 30, 1999. The Association also has a 99
year  easement on land  adjacent to its main  office  which  expires in the year
2078. The  Association  owns the building and land for its two branch offices in
Chicago at 4040 South Archer  Avenue in Brighton  Park and 2657 West 69th Street
in Marquette Park which have 5,000 and 2,500 square feet and $53,000 and $29,000
net book values at June 30, 1999, respectively.

      The  Association has had a lease on vacant land located in Homer Township,
Illinois since 1989. During July 1998, the Association  entered into a lease for
retail space and additional  vacant land at the same location in Homer Township,
Illinois. The Association  established a full service branch banking facility at
this location  which opened for business  during May 1999. The net book value of
remodeling and leasehold  improvement  costs at this 32,846 square foot location
amount to approximately $567,000 at June 30, 1999.

                                      37

<PAGE>



COMPUTER EQUIPMENT

      The  Association's  recordkeeping  activities are maintained on an on-line
basis  with  an  independent   service  bureau.  The  Association's   accounting
activities  are  maintained on an in-house  computer.  The net book value of the
Association's computer equipment at June 30, 1999 was $361,000.

ITEM 3.  LEGAL PROCEEDINGS

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

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,
1999.

                                    PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Pages  21 and 49 of the  1999  Annual  Report  to  Stockholders  is  herein
incorporated by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     Pages 6 through  18 of the 1999  Annual  Report to  Stockholders  is herein
incorporated by reference.

ITEM 7.  FINANCIAL STATEMENTS

     Pages 23 through 47 of the 1999 Annual Report to Stockholders  are herein
incorporated by reference.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

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


                                      38

<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 the  Association's  definitive  proxy  statement  for the Annual
Meeting of  Stockholders,  a copy of which will be filed not later than 120 days
after the close of the fiscal year.

ITEM 10.  EXECUTIVE COMPENSATION

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

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Association's definitive
proxy statement for the Annual Meeting of Stockholders,  a copy of which will be
filed not later than 120 days after the close of the fiscal year.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       39
<PAGE>

                                    PART IV


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

      (A) EXHIBITS:


                                                               Reference to
                                                               Prior Filing
Regulation                                                      or Exhibit
S-K Exhibit                                                  Number Attached
  NUMBER                 DOCUMENT                                HERETO


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

     --------------------

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

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

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

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

      (b) Reports on Form 8-K:

      No reports on Form 8-K have been filed during the three-month period ended
June 30, 1999.

                                       40
<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 28, 1999                  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          Charles A. Zogas, Director,
and Chief Executive Officer                 Executive Vice
(PRINCIPAL FINANCIAL AND ACCOUNTING         President and Secretary
 OFFICER)

Date: September 28, 1999                    Date: September 28, 1999


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

Date: September 28, 1999                    Date: September 28, 1999


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

Date: September 28, 1999                    Date: September 28, 1999

                                       41