Corporate Profile

Midland Capital Holdings  Corporation (the "Company") is a Delaware  corporation
that was organized in 1998 by Midland Federal Savings and Loan  Association (the
"Association"  or "Midland  Federal")  for the  purpose of  becoming  its thrift
institution   holding  company.   Both  the  Company  and  the  Association  are
headquartered  in  Bridgeview,  Illinois,  a southwest  suburb of  Chicago.  The
Association  was founded in 1914 with the goal of providing  personal  financial
services and home mortgage  loans to  communities  located  within the southwest
side of the city of Chicago.  The Company  continues  to fulfill that role today
with two branch banking  offices located in the Brighton Park and Marquette Park
neighborhoods  of the city of Chicago,  its home office in Bridgeview,  Illinois
and a branch  banking office located in Homer  Township,  Illinois,  a southwest
suburb of Chicago.  Midland  Federal also  operates a wholly  owned  subsidiary,
Midland  Service   Corporation.   Common  stock  in  Midland  Capital   Holdings
Corporation is traded on the "pink sheets"  published by the National  Quotation
Bureau, Inc.


Table of Contents

Letter to Shareholders.......................  2

Financial Highlights.........................  3

Selected Consolidated Financial
  Information................................  4

Management's Discussion and Analysis.........  6

Independent Auditor's Report................. 22

Consolidated Statements of
  Financial Condition........................ 23

Consolidated Statements of Income............ 24

Consolidated Statements of Changes in
  Stockholders' Equity....................... 25

Consolidated Statements of Cash Flows........ 26

Notes to Consolidated Financial
  Statements................................. 27



<PAGE>

To Our Shareholders,

     The Company  completed fiscal 1999 with earnings of $365,000,  or $0.99 per
diluted share and a book value of $24.71 per share, a year-end record. This year
we also  completed  our  reorganization  as a unitary  thrift  holding  company,
successfully  undertook a data center conversion of our on-line customer account
data  processing  system with a new service  provider and opened our newest full
service banking facility in Homer Township,  Illinois.  While these  initiatives
were partially  responsible for a reduction in net income,  we believe that they
have positioned the Company to compete more effectively in the future.

     The adoption of a unitary thrift holding company  structure will afford the
Company greater flexibility in its future operations. The data center conversion
was a  major  operational  undertaking  that  required  additional  expenditures
related to data processing,  computer  software and support as well as staffing.
These  costs,  however,  were a  necessary  expenditure  in order  to bring  our
customers the latest in banking  technology and to prepare our mission  critical
data processing  systems for the Year 2000. We have  successfully  completed the
renovation and testing of all of our mission critical systems, which testing has
demonstrated  that these systems are ready to operate beyond the Year 2000. This
includes all of the computer and information  systems that maintain  information
about customers, their accounts, balances and transactions.  As a result, we are
confident  that the century date change will be transparent to our customers and
we do not anticipate problems resulting from our tested systems.  The opening of
our Homer Township banking facility is an important  investment in the growth of
the Company's  banking  franchise.  We are pleased with the positive response of
the community to the Homer Township facility, which opened on April 12, 1999 and
had deposit growth totaling $6.4 million at fiscal year end.

      The Company  continued to build upon its core  banking  business in fiscal
1999 with a 12% increase in total deposits to $120.2 million, a year-end record.
The Company's  lending  operations  achieved growth of 26% in total loans during
fiscal  1999,  our fourth  consecutive  annual  increase in the loan  portfolio.
Non-performing  assets  continued  to decline and amounted to just .38% of total
assets at fiscal year end. The Company also  continued to build its capital base
with stockholders' equity totaling $9.0 million, also a year-end record. At June
30, 1999 the Company's ratio of  stockholders'  equity to total assets was 6.91%
and its  banking  subsidiary,  Midland  Federal,  continued  to meet  all of the
regulatory criteria for a 'well capitalized' designation throughout fiscal 1999.

     Fiscal 1999 was an important year for our Company. Not only did it mark its
final fiscal year of the  millennium,  but it also laid the  groundwork  for its
successful  operations  into the 21st  century.  I would  like to thank  all our
shareholders for their support this year and into the new millennium.

                                          Sincerely,


                                          Paul Zogas
                                          Chairman and President


<PAGE>

FINANCIAL HIGHLIGHTS


                                              Year Ended June 30,
                                    1999     1998     1997     1996     1995
                                 --------------------------------------------

                                            (Dollars in Thousands)

Total assets.................... $130,193  117,373  111,678  116,460  113,364
Loans receivable, net...........   49,349   39,173   33,392   32,776   31,036
Mortgage-backed securities......   15,882   20,845   21,936   27,410   28,736
Cash and cash equivalents.......   35,020   31,994   30,903   30,918   28,022
Investment securities ..........   25,092   21,185   21,058   21,033   21,078
Deposits........................  120,225  107,762  102,973  107,914  105,090
Stockholders' equity............    8,996    8,768    7,971    7,740    7,412

For the Period:
  Net interest income........... $  3,154    3,147    3,124    3,186    3,272
  Net income ...................      365      595      296      575      692

Per Common Share:
  Book value per share
    outstanding................. $  24.71    24.09    22.99    22.32    21.48

  Earnings per share outstanding
    basic....................... $   1.00     1.68      .85     1.66     2.01
    diluted..................... $    .99     1.66      .83     1.64     2.00

Financial Ratios:
  Stockholders' equity to
    total assets................     6.91%    7.47     7.14     6.65     6.54
  Non-performing assets to
    total assets................      .38%     .86      .86     1.90     2.24
  Net charge-offs to total loans      .06%      --      .13      .21      .32
  Net interest margin...........     2.73%    3.01     2.96     2.96     3.07
  Operating expenses to
    average assets (1)..........     3.01%    2.90     2.72     2.69     2.56
  Return on average assets (2)..      .30%     .54      .66      .50      .61
  Return on average
    stockholders' equity (2)....     4.08%    7.11     9.21     7.62     9.89


(1)  Exclusive  of real  estate  owned  expenses  and  losses  and FDIC  special
     assessment.
(2) Exclusive of FDIC special assessment in the 1997 period.







                                       3
<PAGE>



SELECTED CONSOLIDATED FINANCIAL INFORMATION


SELECTED FINANCIAL CONDITION DATA:
                                                   At June 30,
                                    1999     1998     1997     1996     1995
                                 --------------------------------------------

                                                 (In Thousands)

Total assets.................... $130,193  117,373  111,678  116,460  113,364
Loans receivable, net...........   49,349   39,173   33,392   32,776   31,036
Mortgage-backed securities......   15,882   20,845   21,936   27,410   28,736
Cash and cash equivalents.......   35,020   31,994   30,903   30,918   28,022
Investment securities ..........   25,092   21,185   21,058   21,033   21,078
Deposits........................  120,225  107,672  102,973  107,914  105,090
Stockholders' equity............ $  8,996    8,768    7,971    7,740    7,412



SELECTED OPERATIONS DATA:                     Year Ended June 30,
                                    1999     1998     1997     1996     1995
                                 --------------------------------------------

                                                 (In Thousands)

Total interest income........... $  7,333    7,016    7,034    7,228    6,700
Total interest expense..........    4,179    3,869    3,910    4,042    3,428
                                    -----    -----    -----    -----    -----
Net interest income.............    3,154    3,147    3,124    3,186    3,272

Provision for loan losses
  (recoveries)..................       --     (160)      --       --      (80)
                                    -----    -----    -----    -----    -----
  Net interest income after
    provision for loan losses...    3,154    3,307    3,124    3,186    3,352

Non-interest income:
Loan related fees and charges...      300      238      146      102       32
Gain (loss) on sale of assets...       23       34       16       (7)       1
Deposit related fees  ..........      529      596      613      597      624
Other income....................      303      248      350      204      181
                                    -----    -----    -----    -----    -----
  Total non-interest income.....    1,155    1,116    1,125      896      838
                                    -----    -----    -----    -----    -----

Non-interest expense:
Staffing costs..................    2,008    1,789    1,670    1,546    1,393
Occupancy and equipment expense.      576      475      452      449      482
Federal deposit insurance
  premiums......................       64       63      142      239      263
FDIC special assessment.........       --       --      674       --       --
Real estate owned expenses......       82      261       98      129      222
Other expense...................    1,027      902      816      833      788
                                    -----    -----    -----    -----    -----
  Total non-interest expense....    3,757    3,490    3,852    3,196    3,148
                                    -----    -----    -----    -----    -----

Income before income taxes......      552      933      397      886    1,042
Provision for income taxes......      187      338      101      311      350
                                    -----    -----    -----    -----    -----
Net income ..................... $    365      595      296      575      692
                                    =====    =====    =====    =====    =====

                                       4
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION


SELECTED FINANCIAL RATIOS:
                                        At or For the Year Ended June 30,
                                    1999     1998     1997     1996     1995
                                 --------------------------------------------

Performance Ratios:
Return on average assets (1)....     .30%     .54      .66      .50      .61
Return on average stockholders'
  equity (1)....................    4.08%    7.11     9.21     7.62     9.89

Interest rate spread during
  period (2)....................    2.65%    2.92     2.91     2.90     3.05
Net interest margin (3).........    2.73%    3.01     2.96     2.96     3.07
Ratio of operating expenses to
  average total assets (4)......    3.01%    2.90     2.72     2.69     2.56
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities..  110.63%  110.25   108.76   108.34   107.33

Asset Quality Ratios:
Non-performing assets to
  total assets..................     .38%     .86      .86     1.90     2.24
Allowance for loan losses to
  non-performing loans (5)......   79.66%   57.16   274.39    22.00    18.84
Allowance for loan losses to
  total loans...................     .74%    1.00     1.62     1.78     2.10

Capital Ratios:
Stockholders' equity to
  total assets..................    6.91%    7.47     7.14     6.65     6.54
Average stockholders' equity to
  average assets................    7.33%    7.52     6.81     6.61     6.13


(1)  Exclusive of FDIC special assessment.
(2)  Interest  rate  spread  for  the  period  shown   includes  the  impact  of
     non-interest bearing demand deposits.
(3)  Net  interest  income  divided  by  average  interest-earning  assets.
(4)  Exclusive of real  estate  owned  expenses  and losses and FDIC  special
      assessment.
(5)  General  valuation  allowances  to  non-performing  loans (net of  specific
     allowances).







                                       5
<PAGE>


                          MANAGEMENT'S DISCUSSION AND
                      ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

                                    GENERAL

Midland Capital Holdings  Corporation (the "Company") is a Delaware  corporation
that was  organized in 1998 for the purpose of becoming  the thrift  institution
holding  company  for  Midland  Federal  Savings  and  Loan   Association   (the
"Association" or "Midland  Federal").  The Association  converted from a federal
mutual  savings  and  loan  association  to a  federal  stock  savings  and loan
association  on June 30, 1993 (the  "Conversion").  In the  Conversion,  345,000
shares of common stock,  par value of $.01 per share,  of the  Association  were
sold in an initial  public  offering  for an  aggregate  consideration  of $3.45
million.  On March 19, 1998 the Board of Directors of the Association  adopted a
proposal  to  reorganize  the  Association   into  a  holding  company  form  of
organization  in accordance with a Merger  Agreement and Plan of  Reorganization
(the  "Reorganization").  The holding company reorganization was approved by the
Association's  shareholders  on July 15, 1998 and became  effective  on July 23,
1998. As a result of the  Reorganization,  the Association became a wholly owned
subsidiary of Midland Capital Holdings  Corporation,  and each outstanding share
of common  stock of the  Association  became,  by operation of law, one share of
common stock of Midland  Capital  Holdings  Corporation.  At June 30, 1999 there
were 363,975 shares of the Company's common stock outstanding.

The  Company's  results of operations  are  dependent  primarily on net interest
income,  which is the difference between the interest income earned on its loan,
mortgage-backed  securities,  and  investment  portfolios and its cost of funds,
consisting of the interest paid on its deposits and borrowings.  In addition, to
a lesser extent,  the Company's  operating  results are affected by non-interest
income  and  non-interest  expense.   Non-interest  expense  includes  operating
expenses  consisting  primarily  of  employee  salaries  and  benefits,   office
occupancy expenses,  equipment costs,  federal deposit insurance  premiums,  and
other general and administrative expenses. Operational results are also affected
by  general  economic  conditions  (particularly  changes  in  interest  rates),
competition, government policies and actions of regulatory agencies.

The  Company's  operating  philosophy  is to provide,  in a safe and  profitable
manner,  financial  services to families and local businesses in the communities
served by its four  offices.  The  Company's  immediate  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.  Consistent with its operating philosophy,  the Company focuses upon
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 Company also makes substantial investments
in mortgage-backed  securities,  investment  securities  consisting primarily of
U.S. government and agency obligations and liquid assets in an effort to control
interest rate risk.

                                       6
<PAGE>

                        MANAGEMENT OF INTEREST RATE RISK

An  evaluation  of the interest  rate risk  position of a financial  institution
typically entails an examination of the sensitivity of the institution's balance
sheet to changes in interest rates and the capacity of the institution to absorb
losses  resulting  from  movements  in interest  rates.  The  sensitivity  of an
institution's  balance sheet depends upon the  composition of the  institution's
assets and liabilities.  The Company manages interest rate risk by analyzing the
extent to which its assets and  liabilities are interest rate sensitive and then
developing  strategies to reduce the  vulnerability of its operations to changes
in interest rates.

Management  uses analytical  tools provided by the Office of Thrift  Supervision
("OTS") to measure  and predict the  Association's  level of interest  rate risk
under a variety of market  scenarios.  In evaluating an  institution's  interest
rate risk profile,  the OTS focuses on Net Portfolio  Value ("NPV"),  which is a
proxy for the economic value, or net present value, of an  institution's  worth.
NPV is  defined  as the  present  value of  assets,  less the  present  value of
liabilities,  plus the net present  value of off balance  sheet  contracts.  OTS
measures an  institution's  vulnerability to interest rate risk by examining the
"Pre-Shock  NPV Capital  Ratio",  the  "Post-Shock  NPV  Capital  Ratio" and the
"Sensitivity  Measure". The Pre-Shock NPV Capital Ratio is the leverage ratio of
equity-to-assets  expressed in present value terms and is calculated by dividing
an  institution's  base-case  NPV by  the  present  value  of  its  assets.  The
Post-Shock NPV Capital Ratio, also referred to as the "Exposure Measure",  is an
estimate  of  what  an  institution's   NPV  capital  ratio  would  be  after  a
hypothetical  adverse 200 basis point shock in interest  rates.  The Sensitivity
Measure gauges the magnitude of loss that an institution would suffer from a 200
basis point movement in interest rates. The Sensitivity Measure is calculated as
the  difference  between the Post Shock NPV Capital  Ratio and the Pre-Shock NPV
Capital  Ratio,  expressed in basis points.  The OTS Interest Rate Risk Exposure
Model  measures an  institution's  interest rate risk by  approximating  its NPV
under various market  interest rate scenarios which range from a 300 basis point
increase to a 300 basis point decrease in market interest rates.

Certain  shortcomings  are  inherent in the  methodology  described in the above
interest  rate risk  measurements.  Measuring  changes in NPV  requires  certain
assumptions  that may tend to oversimplify the manner in which actual yields and
costs  respond to changes  in market  interest  rates.  For  example,  the model
assumes that the actual  composition  of the  Association's  interest  sensitive
assets and liabilities remain constant over the period being measured. Also, the
model assumes that a particular change in interest rates is reflected  uniformly
across the yield curve  regardless  of the duration to maturity or re-pricing of
specific assets and liabilities.  Finally,  the model does not take into account
the impact of the Association's  business or strategic plans on the structure of
interest-earning assets and interest-bearing liabilities.  Accordingly, although
the NPV measurement  provides an indication of the  Association's  interest rate
risk exposure at a particular  point in time,  such  measurement is not intended
to, and does not  provide,  a precise  forecast  of the effect of the changes in
market interest rates on the  Association's  net interest income and will differ
from  actual  results.  The  results  of the OTS's NPV  model are  monitored  by
management and presented to the Board of Directors quarterly.

                                       7
<PAGE>

The interest rate risk policy of the Association has established  Board approved
limits on interest rate risk that are defined in terms of net  portfolio  value.
These  limits  specify  the minimum NPV Ratio that the Board is willing to allow
under current interest rates and for a range of six  hypothetical  interest rate
scenarios  of plus and minus 100,  200 and 300 basis points from the actual term
structure of interest  rates  observed at quarter end.  The  Association  uses a
variety of tools to limit interest rate risk. First, the Association has focused
a  portion  of  its  residential  lending  and  investments  on  adjustable-rate
mortgages ("ARMs") and mortgage-backed securities, which generally both re-price
within one year,  although the  Association  continues  to  originate  long term
fixed-rate  mortgages in  recognition  of market  demand and the  potential  for
increased margin.  Second,  the Association  maintains a high level of liquidity
and has focused its  investment  activities  in cash  equivalents,  two year U.S
Treasury  Notes,  balloon  mortgage-backed   securities  and  intermediate  term
investments.  Third, the Association seeks to maintain a large percentage of its
deposit liabilities in passbook and transaction  accounts,  which are considered
to be relatively resistant to changes in interest rates.

The  Association's  interest rate sensitivity of net portfolio value is shown in
the following table,  which shows the NPV and projected change in the NPV of the
Association at June 30, 1999 assuming an  instantaneous  and sustained change in
market interest rates of 100, 200 and 300 basis points.

                      NET PORTFOLIO VALUE          NPV AS % OF ASSETS

Change in Rates   $ Amount  $ Change  % Change      NPV Ratio  Change

(Basis Points)  (Thousands)
   +300 bp          9,985    -1,510      -13           7.63   -102 bp
   +200 bp         10,656      -839       -7           8.09    -56 bp
   +100 bp         11,212      -283       -2           8.47    -18 bp
      0 bp         11,495        --       --           8.65     -- bp
   -100 bp         11,523        28        0           8.65      0 bp
   -200 bp         12,167       672        6           9.07    +42 bp
   -300 bp         12,974     1,479       13           9.60    +95 bp









                                       8
<PAGE>
                      FINANCIAL CONDITION AT JUNE 30, 1999

During the year ended June 30, 1999,  total  assets of the Company  increased by
$12.8  million to $130.2  million  from $117.4  million at June 30,  1998.  This
increase  was  primarily  the result of an increase in deposits in the amount of
$12.4 million to $120.2 million at June 30, 1999. Net loans receivable and loans
available  for sale  increased  $10.1 million to $49.3 million at June 30, 1999.
Loan  disbursements  totaled $24.96 million compared to $17.6 million during the
year ended June 30, 1998. Principal payments to loans during the year ended June
30, 1999 totaled  $11.5 million  compared to $9.8 million  during the year ended
June 30,  1998.  The balance of  mortgage-backed  securities  decreased  by $5.0
million to $15.9 million due to repayments of mortgage-backed  securities in the
amount of $6.1 million,  which exceeded purchases of mortgage-backed  securities
in the amount of $1.1 million during the fiscal year. The $10.1 million increase
in net  loans  receivable  was  funded  by both the  $5.0  million  decrease  in
mortgage-backed securities and the by the increase in deposits during the fiscal
year.

In fiscal 1999 the Company  originated  $3.1 million in single  family  mortgage
loans in conjunction with the Illinois Housing Development  Authority's ("IHDA")
first  time home  buyers  program.  As  required  by the  program,  the  Company
completed the sale of $3.3 million of these loans to the IHDA in fiscal 1999 and
will continue to service these loans for the IHDA and these customers. In fiscal
2000 the Company  plans to continue to  participate  in the IHDA first time home
buyers  program and to market its loan  products  to local real  estate  brokers
through Company loan origination personnel.

Cash and cash equivalents increased to $35.0 million at June 30, 1999 from $32.0
million at June 30, 1998. The balance of investment securities also increased by
$3.9 million to $25.1 million at June 30, 1999. The weighted  average  remaining
maturity of the Company's  investment  securities portfolio at June 30, 1999 was
2.1 years.  Both the $3.0 million  increase in cash and cash equivalents and the
$3.9 million  increase in investment  securities  were funded by the increase in
deposits, discussed above.

Deposits  for the year ended June 30, 1999  increased  $12.4  million as deposit
activity of $388.1  million  and  interest  credited to deposit  accounts in the
amount of $3.9  million  exceeded  withdrawal  activity of $379.6  million.  The
increase in deposits is the result of a $6.1 million  increase in certificate of
deposit  accounts,  a $3.6 million  increase in transaction  accounts  including
money market accounts and a $2.7 million increase in passbook deposit  accounts.
The net  increase in savings  deposits is  primarily  attributed  to  aggressive
pricing and promotion of  certificate  of deposit  accounts at the Company's new
branch office location in Homer Township, Illinois.

Stockholders'  equity  increased  $228,000 to $9.0 million at June 30, 1999 from
$8.8  million  at June 30,  1998.  The  increase  in  stockholders'  equity  was
primarily due to earnings in the amount of $365,000  offset by dividends paid on
common stock in the amount of $109,000 and a $65,000.00 decline in market value,
net of income taxes, from securities classified 'available for sale.

                                       9
<PAGE>

Non-performing  assets  totaled  $500,000  at June 30,  1999 as compared to $1.0
million at June 30,  1998.  Non-performing  assets at June 30,  1999  consist of
$263,000 in non-accruing loans and $276,000 in real estate owned property,  both
stated  net of  specific  reserves.  At June 30,  1999  non-accruing  loans  are
comprised of $162,000 in three single family residential mortgage loans, $38,000
in one multi-family residential mortgage loan and $24,000 in non-mortgage loans.
General   allowances   for  loan  losses   total   $178,000  or  79.66%  of  net
non-performing  loans at June 30,  1999.  At June 30,  1999  real  estate  owned
consist of one out-of-state  single family residential  property with a net book
value of $276,000.


                             RESULTS OF OPERATIONS

The  Company's  operating  results  depend  primarily  on the  level  of its net
interest  income and  non-interest  income as well as the level of its operating
expenses. Net interest income depends upon the volume of interest-earning assets
and  interest-costing  liabilities and the interest rate earned or paid on them.
The  Company  receives  non-interest  income  in the  form of fees  charged  for
services related to transaction and other deposit  accounts.  Fee income is also
generated by the Company's loan  origination and loan brokerage  operations,  as
well as its  loan  servicing  operations  in the form of late  payment  and loan
servicing fees.  Personnel costs,  office  occupancy and equipment  expenses and
deposit  insurance  premiums  comprise the largest  components  of the Company's
non-interest expense.

The  following  table  presents,  for the periods  indicated,  the total  dollar
amounts  of  interest  income  from  average  interest-earning  assets  and  the
resultant  yields,  as well as the interest expense on average  interest-bearing
liabilities,  expressed both in dollars and rates. No tax equivalent adjustments
were made.  All  average  balances  are  monthly  average  balances  and include
non-accruing loans.







                                       10

<PAGE>

<TABLE>
<CAPTION>


                                               Year Ended June 30,

                              1999                     1998                       1997
                     ----------------------   ----------------------   ----------------------
                     Average Interest Yield   Average Interest Yield   Average Interest Yield
                     Balance  Earned/  and    Balance  Earned/  and    Balance  Earned/  and
                               Paid   Rates             Paid   Rates             Paid   Rates
                     -------- ------- -----   -------- ------- -----   -------- ------- -----
<S>                      <C>    <C>    <C>    <C>       <C>    <C>       <C>      <C>     <C>

                                              (Dollars in Thousands)
Interest-Earning
  Assets:
Loans Receivable (1) $ 46,270 $3,442  7.44%     34,701 $2,792  8.04%   $ 32,868  $2,699  8.21%
Mortgage-backed
  securities........   18,457  1,214  6.58      23,065  1,552  6.73      24,518   1,604  6.54
Investment and other
  securities........   21,441  1,213  5.66      21,142  1,248  5.90      21,049   1,277  6.07
Interest-bearing
  deposits..........   28,826  1,426  4.95      25,234  1,387  5.50      26,549   1,416  5.33
FHLB stock..........      582     38  6.43         554     37  6.75         554      38  6.81
                      -------  -----  ----      ------  -----  ----     -------   -----  ----
    Total interest-
      earning assets $115,576 $7,333  6.34%   $104,696 $7,016  6.70%   $105,538  $7,034  6.67%
                      -------  -----  ----      ------  -----  ----     -------   -----  ----
Interest-Bearing
  Liabilities:
Certificates of
  deposit........... $ 50,000 $2,557  5.11%   $ 43,122 $2,330  5.40%   $ 43,264  $2,311  5.34%
Passbook accounts...   41,323  1,229  2.97      40,097  1,185  2.96      41,564   1,228  2.95%
Money market and
  NOW accounts......   13,151    393  2.99      11,744    354  3.02      12,214     371  3.04%
                      -------  -----  ----      ------  -----  ----     -------   -----  ----
    Total interest-
      bearing lia-
      bilities...... $104,474 $4,179  4.00%   $ 94,963 $3,869  4.07%   $ 97,042  $3,910  4.03%
                      =======  -----  ----      ======  -----  ----     =======   -----  ----

Net earning assets.. $ 11,102                 $  9,733                 $  8,496
                      =======                   ======                  =======
Net-interest income.          $3,154                   $3,147                    $3,124
                               =====                    =====                     =====
Net-interest rate
  spread (2)........                  2.34%                    2.63%                     2.64%
                                      ====                     ====                      ====
Net-interest margin.                  2.73%                    3.01%                     2.96%
                                      ====                     ====                      ====

Average interest-
  earning assets to
  average interest-
  bearing liabilities         110.63%                  110.25%                    108.76%
                              ======                   ======                     ======

</TABLE>

(1)  Calculated  net of deferred yield  adjustments,  loan  discounts,  loans in
     process and loss reserves.
(2)  Net-interest  rate spread would be increased to 2.65%,  2.92% and 2.91% for
     the periods shown if the positive  impact of average  non-interest  bearing
     demand  deposits  ($8,581,  $7,386  and $6,990  for the  periods  shown) is
     considered.

                                       11
<PAGE>

The following table  presents,  for the period  indicated,  the dollar amount of
changes  in  interest  income  and  interest  expense  for major  components  of
interest-earning  assets  and  interest-bearing  liabilities.  It  distinguishes
between the increase related to higher outstanding  balances and that due to the
unprecedented  levels and  volatility  of interest  rates.  For each category of
interest-earning  assets  and  interest-bearing   liabilities,   information  is
provided on changes  attributable  to (i) changes in volume  (changes in average
volume multiplied by old rate), (ii) changes in rate (changes in rate multiplied
by old  average  volume)  and (iii)  changes  in  rate-volume  (changes  in rate
multiplied by the change in average volume).

<TABLE>
<CAPTION>
                                               Year Ended June 30,


                             1999   vs.   1998                   1998   vs.  1997
                       ------------------------------    ------------------------------
                       Increase (decrease) due to          Increase (decrease) due to
                       ------------------------------    ------------------------------

                                        Rate/                               Rate/
                       Volume   Rate   Volume   Net        Volume   Rate   Volume   Net
                       ------  ------  ------  ------      ------  ------  ------  ------
<S>                      <C>    <C>    <C>        <C>       <C>       <C>   <C>     <C>

                                            (Dollars in Thousands)
Interest-Earning
  Assets:
Loans Receivable....   $ 931   $(211)  $( 70)  $ 650       $ 150   $( 54)  $(3)  $  93
Mortgage-backed
  securities........    (310)   ( 35)      7    (338)       ( 95)     46    (3)   ( 52)
Investment and other
  securities........      18    ( 52)   (  1)   ( 35)          6    ( 35)   --    ( 29)
Interest-bearing
  deposits..........     197    (138)   ( 20)     39        ( 70)     43    (2)   ( 29)
FHLB stock..........       1      --      --       1          --    (  1)   --    (  1)
                        ----    ----     ---     ---        ----     ---   ---    ----
    Total interest-
      earning assets   $ 837   $(436)  $( 84)  $ 317       $(  9)  $(  1)  $(8)  $( 18)
                        ----    ----     ---     ---        ----     ---   ---    ----
Interest-Bearing
  Liabilities:
Certificates of
  deposit...........   $ 372    (125)   ( 20)    227       $(  8)  $  27   $--   $  19
Passbook accounts...      36       8      --      44        ( 43)     --    --    ( 43)
Money market and
  NOW accounts......      42    (  3)     --      39        ( 14)   (  3)   --    ( 17)
                        ----    ----     ---     ---        ----     ---   ---    ----
    Total interest-
      bearing liab-
      ilities.......   $ 450   $(120)  $( 20)  $ 310       $( 65)  $  24   $--   $( 41)
                        ----    ----     ---     ---        ----     ---   ---    ----

Net change in net
  interest income...                           $   7                             $  23
                                                 ===                              ====


</TABLE>

                                       12
<PAGE>


                        COMPARISON OF OPERATING RESULTS
                           FOR THE FISCAL YEARS ENDED
                        JUNE 30, 1999 AND JUNE 30, 1998

The Company had net income of $365,000 in fiscal 1999  compared to net income of
$595,000 for fiscal 1998. The decrease in net income is primarily  attributed to
a $267,000  increase in  non-interest  expense and the elimination of a $160,000
recovery of loan loss  provisions  in the prior year period  offset by a $39,000
increase in  non-interest  income and a $151,000  reduction in the provision for
income taxes.

Net interest income before provision for loan losses remained  approximately the
same in fiscal 1999 and 1998,  totaling $3.2 million in both years.  The average
balance of net earning assets  increased $1.4 million to $11.1 million in fiscal
1999 from $9.7  million  in the prior  fiscal  year.  Net  interest  margin  and
interest rate spread decreased in fiscal 1999 to 2.73% and 2.65%,  respectively,
from 3.01% and 2.92%, respectively,  in fiscal 1998, as a result of lower market
interest  rates during the current  fiscal year.  The ratio of average  interest
earning assets to average interest bearing  liabilities  increased to 110.63% in
fiscal 1999 from 110.25% in fiscal 1998.

INTEREST INCOME
Interest income increased $317,000 in fiscal 1999 to $7.3 million. This increase
in interest income resulted from a $10.9 million increase in the average balance
of interest  earning assets to $115.6 million in fiscal 1999 from $104.7 million
in fiscal  1998.  The  increase in the average  outstanding  balance of interest
earnings  assets was partially  offset by a decrease in the average yield earned
on interest  earning assets to 6.34% in fiscal 1999 from 6.70% in fiscal 1998 as
a result of lower market interest rates.

Interest on loans  receivable  increased  $650,000,  or 23.3%, in fiscal 1999 to
$3.4  million  compared  with fiscal 1998.  The increase in interest  income was
attributed to an $11.6 million  increase in the average  outstanding  balance of
net loans  receivable  to $46.3  million in fiscal  1999 from  $34.7  million in
fiscal  1998.  The  increase  in loans was the result of a 42%  increase in loan
originations  which more than offset a 24% increase in loan  repayments and loan
sales during the current fiscal year. The increase in the average balance of net
loans  receivable was partially offset by a decrease in the average yield earned
on loans receivable to 7.44% in fiscal 1999 from 8.04% in fiscal 1998.

Interest on mortgage-backed  securities  decreased  $338,000,  or 21.7%, to $1.2
million in fiscal 1999  compared  with  fiscal  1998.  The  decrease in interest
income was  primarily  attributed  to a $4.6  million  reduction  in the average
outstanding  balance of  mortgage-backed  securities  to $18.5 million in fiscal
1999 from $23.1  million in fiscal  1998 as well as to a decrease in the average
yield earned on mortgage-backed securities to 6.58% in fiscal 1999 from 6.73% in
fiscal 1998.

Interest earned on investment  securities  decreased $35,000, or 2.8%, in fiscal
1999. The decrease in interest income resulted  primarily from a decrease in the
average yield on investment securities to 5.66% in fiscal 1999 compared to 5.90%
in fiscal 1998.

                                       13

<PAGE>

Interest earned on interest  bearing  deposits  increased  $39,000,  or 2.8%, in
fiscal 1999.  The increase in interest  income is  attributed  to a $3.6 million
increase in the average  outstanding  balance of  interest  bearing  deposits to
$28.8  million in fiscal 1999 from $25.2  million in fiscal 1998 which  offset a
decrease in the average  yield earned on interest  bearing  deposits to 4.95% in
fiscal 1999 from 5.50% in fiscal 1998. The Company maintained its investments in
interest  bearing  deposits in response to the  potential  for higher short term
market interest rates at the end of fiscal 1999 and into fiscal 2000.

INTEREST EXPENSE
Interest expense  increased  $310,000,  or 8.0%, to $4.2 million in fiscal 1999.
The increase in interest  expense in fiscal 1999 was  primarily  the result of a
$9.5 million  increase in the average  outstanding  balance of interest  costing
deposits  to $104.5  million in fiscal  1999 from $95.0  million in fiscal  1998
which was  partially  offset by a decrease in the average yield paid on interest
costing  deposits to 4.00% in fiscal 1999 compared to 4.07% in fiscal 1998.  The
increase in savings deposits is primarily  attributed to aggressive  pricing and
promotion of certificate of deposit accounts by the Company.

PROVISIONS FOR LOSSES ON LOANS
The Company  maintains  an  allowance  for loan losses  based upon  management's
periodic  evaluation  of known and  inherent  risks in the loan  portfolio,  the
Company's  past  loan  loss  experience,  adverse  situations  that  may  affect
borrowers' ability to repay loans,  estimated value of the underlying collateral
and current and expected market conditions. The Company incurred $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.

At June  30,  1999,  the  Company  was  aware  of no  regulatory  directives  or
suggestions  that the Company make  additional  provisions  for losses on loans.
Although the Company  believes its  allowance for loan losses is at a level that
it considers  to be adequate to provide for  potential  losses,  there can be no
assurance that such losses will not exceed the estimated amounts.

NON-INTEREST INCOME
Non-interest  income increased  $39,000 to $1.2 million in fiscal 1999 from $1.1
million in fiscal 1998.  The increase in  non-interest  income in fiscal 1999 is
primarily  attributed to a $63,000 increase in loan fees and service charges,  a
$22,000 profit on the sale of real estate owned  properties,  a $16,000 increase
in profit on sale of loans and an $11,000  increase in  commission  income.  The
increase  in loan fees and  service  charges  was the result of  increased  loan
brokerage  revenues  and loan  origination  activity in fiscal 1999  compared to
fiscal 1998,  as discussed  above.  The  increase in  commission  income was the
result of an increase in the sale of annuity products in fiscal 1999 compared to
the prior fiscal year.  These increases in non-interest  income were offset by a
$67,000  decrease in deposit  related fees in fiscal 1999  compared to the prior
fiscal year.  The decrease in deposit  related fees in fiscal 1999 is attributed
to a decrease in the level of demand  deposit  service  charges  resulting  from
decreased  overdraft activity compared to the prior fiscal year. Deposit related
fees also  declined as a result of the  implementation  of new customer  account
data  processing  systems in the fiscal  second  quarter  which  system  changes
negatively impacted fee income while these system changes were implemented.

NON-INTEREST EXPENSE
Non-interest  expense increased $267,000 to $3.8 million in fiscal 1999 compared
to $3.5 million in the prior fiscal year.  The primary  factors for the increase
in non-interest  expense were a $220,000  increase in staffing costs, a $101,000
increase in occupancy  and  equipment  expense,  a $52,000  increase in computer
software and support expense and a $47,000  increase in data processing fees, as
compared with the prior fiscal year.  These  increases in  non-interest  expense

                                       14
<PAGE>

were offset by a $165,000  reduction in provision for loss on real estate owned,
a $21,000  reduction  in legal  expense and a $14,000  reduction  in real estate
owned expenses in fiscal 1999 compared with the prior year period.  The increase
in  non-interest  expense in fiscal 1999 is primarily  attributed to the opening
and  operations  of the Company's  fourth  banking  facility in Homer  Township,
Illinois.  Non-interest  expense also increased as a result of the conversion of
the Company's  on-line  customer  account data processing and certain other data
processing  and  computer  systems to a new  service  provider in fiscal 1999 in
order to bring mission  critical data processing and computer  systems into year
2000 compliance.

INCOME TAXES
Provisions  for income  taxes  decreased  by $151,000 to $187,000 in fiscal 1999
from $338,000 in fiscal 1998. The decreased income tax provision for fiscal 1999
was due  primarily  to the  decrease in  operating  income as compared to fiscal
1998.

                        COMPARISON OF OPERATING RESULTS
                           FOR THE FISCAL YEARS ENDED
                        JUNE 30, 1998 AND JUNE 30, 1997

Midland Federal had net income of $595,000 in fiscal 1998 compared to net income
of $296,000 for fiscal 1997.  Net income for the fiscal year ended June 30, 1997
included an after tax charge in the amount of $445,000 for a special  assessment
levied by the Federal Deposit  Insurance  Corporation  ("FDIC") to re-capitalize
the Savings Association Insurance Fund ("SAIF").

Net income  increased in fiscal 1998 from the prior fiscal year as a result of a
$23,000 increase in net interest income.  The increase in net interest income is
primarily  the result of an increase in net  interest  margin to 3.01% in fiscal
1998  compared  to 2.96% in the prior  fiscal  year.  Interest  rate spread also
increased  by a single  basis  point to 2.92% for the fiscal year ended June 30,
1998.  The  increases in net interest  margin and interest rate spread offset an

                                       15
<PAGE>

$842,000  decrease in the average  balance of interest  earning assets to $104.7
million for the year ended June 30, 1998 from $105.5 million in the prior fiscal
year as interest  earning  assets were  reduced in order to fund a $1.7  million
decline in average deposit balances which occurred during the year.

Net income was  decreased  in fiscal  1998 as a result of a $9,000  decrease  in
non-interest  income. The decrease in non-interest  income in the current fiscal
year is primarily attributed to the elimination of a non-recurring recovery of a
prior period loss on the sale of real estate owned  properties  in the amount of
$143,000  which  occurred  in the prior  fiscal  year.  Non-interest  income was
increased in fiscal 1998 as a result of a $92,000  increase in loan related fees
and service  charges as well as a $26,000  increase in commission  income and an
$18,000 increase in profit on the sale of loans.

Net income was  increased  in fiscal 1998 as a result of a $363,000  decrease in
non-interest  expense.  The decrease in non-interest expense was attributable to
the elimination of a non-recurring  $674,000  special  assessment  levied by the
FDIC to re-capitalize  the SAIF as well as a $79,000 decrease in regular deposit
insurance  premiums.  These decreases in  non-interest  expense were offset by a
$167,000 provision for loss on real estate owned properties, a $119,000 increase
in staffing  costs,  and smaller  increases  in  computer  software  and support
expense,  occupancy and  equipment  expense,  legal expense and data  processing
costs.

INTEREST INCOME

Interest  income  decreased  $18,000 in fiscal 1998.  This  decrease in interest
income  resulted  from an $842,000  decrease in the average  balance of interest
earning  assets to $104.7  million in fiscal 1998 from $105.5  million in fiscal
1997.  The  decrease in the  average  outstanding  balance of interest  earnings
assets was  partially  offset by an  increase  in the  average  yield  earned on
interest earning assets to 6.70% in fiscal 1998 from 6.67% in fiscal 1997.

Interest on loans receivable increased $93,000, or 3.4%, in fiscal 1998 compared
with fiscal 1997. The increase in interest  income was attributed to an increase
in the average  outstanding  balance of net loans receivable to $34.7 million in
fiscal  1998 from $32.9  million in fiscal  1997.  The  increase  in the average
balance  of net loans  receivable  was  partially  offset by a  decrease  in the
average  yield earned on loans  receivable to 8.04% in fiscal 1998 from 8.21% in
fiscal 1997.

Interest on mortgage-backed  securities  decreased  $52,000,  or 3.2%, in fiscal
1998. The decrease in interest income was attributed to a $1.4 million reduction
in the  average  outstanding  balance  of  mortgage-backed  securities  to $23.1
million in fiscal  1998 from $24.5  million in fiscal  1997.  The lower  average
outstanding  balance of  mortgage-backed  securities was partially  offset by an
increase in the average yield earned on  mortgage-backed  securities to 6.73% in
fiscal 1998 from 6.54% in fiscal 1997.

                                       16
<PAGE>

Interest earned on investment  securities  decreased $29,000, or 2.3%, in fiscal
1998.  The decrease in interest  income  resulted from a decrease in the average
yield on  investment  securities  to 5.90% in fiscal  1998  compared to 6.07% in
fiscal 1997 which offset a $93,000 increase in the average  outstanding  balance
of  investment  securities to $21.1 million in fiscal 1998 from $21.0 million in
fiscal 1997.

Interest earned on interest  bearing  deposits  decreased  $29,000,  or 2.0%, in
fiscal 1998.  The decrease in interest  income is  attributed  to a $1.3 million
decrease in the average  outstanding  balance of  interest  bearing  deposits to
$25.2  million in fiscal 1998 from $26.6  million in fiscal 1997 which offset an
increase in the average  yield earned on interest  bearing  deposits to 5.50% in
fiscal  1998  from  5.33%  in  fiscal  1997.  The  Association   maintained  its
investments  in interest  bearing  deposits  in response to the Federal  Reserve
Board's reported bias toward a tighter monetary policy during fiscal 1998.

INTEREST EXPENSE

Interest  expense  decreased  $41,000,  or 1.0%, in fiscal 1998. The decrease in
interest  expense in fiscal  1998 was  primarily  the  result of a $2.0  million
decrease in the average  outstanding  balance of  interest  costing  deposits to
$95.0  million  in fiscal  1998 from  $97.0  million  in fiscal  1997  which was
partially  offset by an increase in the average  yield paid on interest  costing
deposits to 4.07% in fiscal 1998 compared to 4.03% in fiscal 1997.

PROVISIONS FOR LOSSES ON LOANS

The Association  maintains an allowance for loan losses based upon  management's
periodic  evaluation  of known and  inherent  risks in the loan  portfolio,  the
Association's  past loan loss  experience,  adverse  situations  that may affect
borrowers' ability to repay loans,  estimated value of the underlying collateral
and current and expected  market  conditions.  During fiscal 1998 a $1.2 million
multi-family  residential mortgage loan, which had been delinquent during fiscal
1997,  was brought  current by the  borrower as a result of improved  cash flows
derived  from  the  underlying  collateral.  The  Association  incurred  no loan
charge-offs during fiscal 1998. During fiscal 1998 the Association  reduced it's
general  allowance for loan losses from $282,000 at June 30, 1997 to $150,000 at
June 30, 1998,  which level was  determined by the  Association to be consistent
with its revised policy for the establishment and maintenance of adequate levels
of general loan loss  allowances  based upon an  assessment of the level of risk
inherent in the Association's loan portfolio including its classified loans. The
$132,000 decrease in the Association's  general allowance for loan losses during
fiscal  1998 was the result of a $160,000  recovery  of  previously  established
general  loan loss  provisions  which was offset by $26,000 in  recoveries  from
loans  previously   classified  'loss'  and  $2,000  in  recoveries  from  loans
previously charged off.

At June 30, 1998 the general  allowance  for loan losses  totaled  57.16% of net
non-performing  loans.  At June  30,  1998,  the  Association  was  aware  of no
regulatory  directives  or  suggestions  that the  Association  make  additional
provisions for losses on loans.  Although the Association believes its allowance
for loan  losses is at a level that it  considers  to be adequate to provide for
potential losses, there can be no assurance that such losses will not exceed the
estimated amounts.

                                       17
<PAGE>

NON-INTEREST INCOME

Non-interest  income decreased $9,000 in fiscal 1998. The decrease was primarily
due to the elimination of a non-recurring recovery of a prior period loss on the
sale of real  estate  owned  properties  in the amount of  $143,000 in the prior
fiscal year.  Non-interest  income was increased in fiscal 1998 as a result of a
$92,000  increase  in loan  related  fees and service  charges to $238,000  from
$146,000 in the prior fiscal year, a $26,000  increase in commission  income and
an $18,000  increase in profit on the sale of loans to the IHDA. The increase in
loan related fees and service charges was the result of increased loan brokerage
revenues in fiscal 1998  compared to fiscal  1997.  The  increase in  commission
income was the result of an increase  in the sale of annuity  products in fiscal
1998 compared to the prior fiscal year.  During fiscal 1998 deposit related fees
decreased $17,000 to $596,000 from $613,000 in fiscal 1997.

NON-INTEREST EXPENSE

Non-interest  expense decreased $363,000 during fiscal 1998 to $3.5 million from
$3.9 million in the prior fiscal year. The decrease in non-interest  expense was
primarily the result of the  elimination  of a  non-recurring  $674,000  special
assessment  levied  by the FDIC to  re-capitalize  SAIF,  along  with a  $79,000
decrease in regular deposit  insurance  premiums to $63,000 from $142,000 in the
prior fiscal year. The reduction in quarterly deposit insurance premiums was due
to a reduction  in the  Association's  FDIC  insurance  premium  rate  effective
January 1, 1997.  As of such date,  deposit  insurance  premium rates for highly
rated  institutions,  such as the  Association,  were reduced to zero due to the
re-capitalization   of  the  SAIF,   discussed  above.   However,   all  savings
associations,  including the Association,  continue to be charged a debt service
assessment  by the FDIC to fund  repayment  of certain debt  obligations  of the
Financing   Corporation   which  were  undertaken   pursuant  to  the  Financial
Institutions  Reform,  Recovery  and  Enforcement  Act of 1989 to fund the FSLIC
Resolution Fund.  Non-interest  expense was increased in fiscal 1998 as a result
of a $167,000  provision for loss on real estate owned properties,  as well as a
$119,000  increase in staffing  costs.  The $167,000  provision for loss on real
estate owned properties was made to further reduce the Association's  investment
in two out of state  condominium  properties  as a result of  recent  comparable
sales  activity  and  pending  sale  negotiations   regarding  such  properties.
Non-interest  expense was also increased in fiscal 1998 as a result of a $25,000
increase  in  computer  software  and  support  expense,  a $23,000  increase in
occupancy  and  equipment  expense,  a $20,000  increase in legal  expense and a
$16,000  increase in data  processing  expense.  The  $20,000  increase in legal
expense was the result of expenses associated with the Association's proposal to
adopt a holding company structure, discussed above.

INCOME TAXES

Provisions  for income  taxes  increased  by $237,000 to $338,000 in fiscal 1998
from $101,000 in fiscal 1997. The increased income tax provision for fiscal 1998
was due  primarily  to the  increase in  operating  income as compared to fiscal
1997.

                                       18
<PAGE>

                        LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are deposits, loan and mortgage- backed
securities repayments, proceeds from the maturities of investment securities and
other funds  provided by operations.  In addition,  the  Association  may borrow
funds from the Federal Home Loan Bank of Chicago (the "FHLB").

The Company  maintains  investments  in liquid  assets  based upon  management's
assessment of (i) the Company's  need for funds,  (ii) expected  deposit  flows,
(iii) the yields  available on short-term  liquid assets and (iv) the objectives
of the Company's asset/liability management program. The OTS requires members of
the FHLB system to maintain  minimum  levels of liquid assets.  OTS  regulations
currently require the Association to maintain an average daily balance of liquid
assets  equal to at  least 4% of the sum of its  average  daily  balance  of net
withdrawable  deposit  accounts and  borrowings  payable in one year or less. At
June 30, 1999, the Association's  regulatory  liquidity ratio was 56.5%. At such
date, the  Association  had  commitments to originate  $842,000 in single family
mortgage loans, commitments to sell $535,000 in single family mortgage loans and
no commitments to purchase loans.

The Company considers its liquidity and capital reserves  sufficient to meet its
outstanding short and long-term needs. The Company expects to be able to fund or
refinance,   on  a  timely  basis,   its  material   commitments  and  long-term
liabilities. The Company's liquidity,  represented by cash and cash equivalents,
is a combination of its  operating,  investing and financing  activities.  These
activities  are  summarized in the following  table for the years ended June 30,
1999 and 1998.
                                                      For the Year
                                                     Ended June 30,
                                                ----------------------
                                                  1999          1998
                                                --------      --------
                                                (Dollars in Thousands)

Net income.............................         $   365        $   595
Adjustments to reconcile net income
  to net cash provided by
  operating activities.................             308           (235)
                                                -------        -------
Net cash provided by
  operating activities.................             673            360
Net cash provided for
  investing activities.................         (10,124)        (4,233)
Net cash provided by
  financing activities.................          12,477          4,964
                                                -------        -------
Net change in cash and
  cash equivalents.....................           3,026          1,091
Cash and cash equivalents at
  beginning of period..................          31,994         30,903
                                                -------        -------
Cash and cash equivalents at
  end of period........................         $35,020        $31,994
                                                -------        -------

                                       19
<PAGE>
At June 30, 1999 Midland  Federal had tangible and core capital of $8.5 million,
or 6.52% of adjusted total assets, which was approximately $6.5 million and $4.6
million above the minimum  requirements for capital adequacy  purposes in effect
on that date of 1.5% and 3.0%, respectively, of adjusted total assets.

At June  30,  1999  Midland  Federal  had  total  capital  of $8.6  million  and
risk-weighted   assets  of  $42.1  million,   or  total  capital  of  20.54%  of
risk-weighted  assets. This amount was approximately $5.3 million above the 8.0%
requirement for capital adequacy purposes in effect on that date.


                       IMPACT OF NEW ACCOUNTING STANDARDS

The  following  does not  constitute  a  comprehensive  summary of all  material
changes or  developments  affecting  the manner in which the  Company  keeps its
books and records and performs its financial accounting responsibilities.  It is
intended  only as a summary  of some of the  recent  pronouncements  made by the
Financial  Accounting  Standards Board ("FASB") which are of particular interest
to financial institutions.

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


                    IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated  Financial  Statements and Notes thereto  presented herein have
been prepared in accordance with Generally Accepted Accounting Principles, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the  increased  cost of the  Company's  operations.  Unlike  most  industrial

                                       20
<PAGE>

companies,  nearly all of the assets and liabilities of the Company are monetary
in nature.  As a result,  interest  rates have a greater impact on the Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.


                                  COMMON STOCK

As of June 30,  1999,  there  were  approximately  60  holders  of record of the
Company's  common  stock and  363,975  shares of issued and  outstanding  common
stock.  The Company's  common stock is quoted on the 'pink sheets'  published by
the National Quotation Bureau Inc. under the symbol 'MCPH'.

The following table sets forth,  for the periods shown,  the high and low prices
of the common stock and cash  dividends per share  declared.  The prices reflect
inter-dealer quotations without retail mark-up,  mark-down or commissions and do
not necessarily represent actual transactions.


                                                        Cash dividends
Quarter ended            High               Low            declared
------------------       -----             -----        --------------

September 30, 1997       19.50             18.13             0.075

December 31, 1997        21.25             20.13             0.075

March 31, 1998           23.50             20.75             0.075

June 30, 1998            30.50             27.00             0.075

September 30, 1998       30.25             23.00             0.075

December 31, 1998        26.38             22.00             0.075

March 31, 1999           23.00             23.00             0.075

June 30, 1999            22.00             20.50             0.075

Dividend payment  decisions are made with  consideration of a variety of factors
including earnings,  financial condition,  market  considerations and regulatory
restrictions.



                                       21
<PAGE>



                 [LETTERHEAD OF COBITZ, VANDENBERG & FENNESSY]


                             INDEPENDENT AUDITORS' REPORT




The Board of Directors
Midland Capital Holdings Corporation
Bridgeview, Illinois

     We have  audited the  consolidated  statements  of  financial  condition of
Midland Capital  Holdings  Corporation and  subsidiaries as of June 30, 1999 and
1998,   and  the  related   consolidated   statements  of  income,   changes  in
stockholders'  equity and cash  flows for each of the three  years in the period
ending  June  30,  1999.  These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatements.  An audit includes examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Midland
Capital Holdings Corporation and subsidiaries at June 30, 1999 and 1998, and the
results of their  operations and their cash flows for each of the three years in
the  period  ending  June  30,  1999,  in  conformity  with  generally  accepted
accounting principles.


                                             /s/Cobitz, Vandenberg & Fennessey
                                             ---------------------------------

                                             COBITZ, VANDENBERG & FENNESSEY


August 13, 1999
Palos Hills, Illinois

                                       22
<PAGE>



                         MIDLAND CAPITAL HOLDINGS CORPORATION
                                   AND SUBSIDIARIES

                    Consolidated Statements of Financial Condition

<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
                                                          -------------   -------------
<S>                                                         <C>                 <C>
ASSETS

Cash and amounts due from depository institutions         $   3,933,658     2,656,448
Interest-bearing deposits                                    31,086,638    29,337,747
                                                            -----------   -----------
   Total cash and cash equivalents                           35,020,296    31,994,195
Investment securities,
held to maturity (fair value:
  1999 - $19,933,594; 1998 - $20,030,469) (note 2)           19,994,152    19,989,055
Investment securities available for sale,
  at fair value (note 3)                                      5,098,307     1,195,938
Mortgage-backed securities, held to maturity (fair value:
  1999 - $15,938,491; 1998 - $21,128,839) (note 4)           15,881,826    20,844,623
Loans receivable (net of allowance
  for loan losses:  1999 - $365,863;
  1998 - $393,884) (note 5)                                  48,914,195    38,513,121
Loans receivable held for sale (note 6)                         435,150       659,450
Real estate owned, net                                          276,372       746,522
Stock in Federal Home Loan Bank of Chicago                      636,000       554,000
Accrued interest receivable (note 7)                            611,966       619,464
Office properties and equipment - net (note 8)                2,594,050     1,567,285
Prepaid expenses and other assets (note 9)                      730,969       689,727
                                                            -----------   -----------

   Total assets                                             130,193,283   117,373,380
                                                            ===========   ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits (note 10)                                          120,224,584   107,761,846
Advance payments by borrowers for taxes
  and insurance                                                 570,814       447,668
Other liabilities (note 11)                                     402,356       396,229
                                                            -----------   -----------
   Total liabilities                                        121,197,754   108,605,743
                                                            -----------   -----------

Stockholders' Equity:
Preferred stock, $.01 par value: authorized
  1,000,000 shares; none outstanding                               -             -
Common stock, $.01 par value: authorized
  5,000,000 shares; issued and outstanding
  363,975 shares at June 30, 1999 and 1998                        3,640         3,640
Additional paid-in capital                                    3,271,315     3,266,315
Retained earnings - substantially restricted                  5,685,591     5,430,065
Accumulated other comprehensive income,
  net of income taxes                                            80,030       145,099
Common stock awarded by Bank Incentive Plan                     (45,047)      (77,482)
                                                            -----------   -----------
   Total stockholders' equity (notes 15 and 16)               8,995,529     8,767,637
                                                            -----------   -----------

Commitments and contingencies (notes 17 and 18)

   Total liabilities and stockholders' equity             $ 130,193,283   117,373,380
                                                            ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       23

<PAGE>
                         MIDLAND CAPITAL HOLDINGS CORPORATION
                                   AND SUBSIDIARIES

                           Consolidated Statements of Income

<TABLE>
<CAPTION>

                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
                                             -------------   ------------   -----------
<S>                                               <C>            <C>            <C>
Interest income:
  Interest on loans                           $ 3,442,351     2,791,590     2,699,211
  Interest on mortgage-backed securities        1,214,401     1,551,940     1,603,709
  Interest on investment securities             1,212,855     1,247,576     1,277,457
  Interest on interest-bearing deposits         1,425,567     1,387,391     1,416,267
  Dividends on FHLB stock                          37,435        37,401        37,717
                                                ---------     ---------     ---------
    Total interest income                       7,332,609     7,015,898     7,034,361
                                                ---------     ---------     ---------

Interest expense:
  Interest on deposits (note 10)                4,179,051     3,868,946     3,910,529
                                                ---------     ---------     ---------
    Total interest expense                      4,179,051     3,868,946     3,910,529
                                                ---------     ---------     ---------

    Net interest income before provision
     for loan losses                            3,153,558     3,146,952     3,123,832
Provision for loan losses (recoveries) (note 5)      -         (160,000)         -
                                                ---------     ---------     ---------
    Net interest income after provision
     for loan losses                            3,153,558     3,306,952     3,123,832
                                                ---------     ---------     ---------

Non-interest income:
  Loan fees and service charges                   300,328       237,768       145,586
  Commission income                               105,116        94,572        68,525
  Profit on sale of loans (note 6)                 45,154        29,076        10,802
  Profit on sale of real estate owned - net        21,602          -             -
  Recovery from litigation settlement                -             -          143,000
  Deposit related fees                            529,367       596,194       612,567
  Other income                                    153,777       158,233       144,820
                                                ---------     ---------     ---------
    Total non-interest income                   1,155,344     1,115,843     1,125,300
                                                ---------     ---------     ---------

Non-interest expense:
  Staffing costs (notes 12 and 13)              2,008,128     1,788,697     1,670,423
  Advertising                                      93,268        89,394        86,063
  Occupancy and equipment expenses (note 8)       576,094       474,947       451,507
  Data processing                                 199,828       152,830       136,634
  Federal deposit insurance premiums               64,047        63,090       142,377
  FDIC special assessment                            -             -          674,061
  Legal, audit and examination services           145,364       161,005       143,974
  Real estate owned expense                        80,418        93,917        97,602
  Provision for loss on
   real estate owned (note 1)                       1,527       167,000          -
  Other                                           588,608       498,968       449,862
                                                ---------     ---------     ---------
    Total non-interest expense                  3,757,282     3,489,848     3,852,503
                                                ---------     ---------     ---------

  Income before income taxes                      551,620       932,947       396,629
Provision for income taxes (note 14)              186,901       338,354       100,811
                                                ---------     ---------     ---------

      Net income                              $   364,719       594,593       295,818
                                                =========     =========     =========


Earnings per share - basic                    $      1.00          1.68           .85
                                                =========     =========     =========

Earnings per share - diluted                  $       .99          1.66           .83
                                                =========     =========     =========

</TABLE>
See accompanying notes to consolidated financial statements.

                                       24

<PAGE>
                         MIDLAND CAPITAL HOLDINGS CORPORATION
                                   AND SUBSIDIARIES

              Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                               Accumulated   Common
                                                      Additional                  Other       Stock
                                           Common     Paid-in       Retained  Comprehensive  Awarded
                                           Stock       Capital      Earnings      Income      by BIP    Total
                                        ----------   ----------    ---------  ------------ ---------- ---------
<S>                                    <C>            <C>            <C>       <C>             <C>       <C>

Balance at June 30, 1996                $    3,467    3,072,818     4,750,276    49,426    (136,275)  7,739,712
                                             -----    ---------     ---------    ------     -------   ---------
 Comprehensive income:
  Net income                                                          295,818                           295,818
  Other comprehensive income,
    net of tax:
   Unrealized holding gain
    during the year                                                              11,949                  11,949
                                                                    ---------    ------               ---------
 Total comprehensive income                                           295,818    11,949                 307,767

  Tax benefit related to
   employee stock plan                                      846                                             846

  Contribution to BIP trustee
   for purchase of BIP shares                                                                (6,922)     (6,922)

  Amortization of award of BIP
   stock                                                                                     33,280      33,280

  Dividends declared on
   common stock ($.30 per share)                                      (104,017)                          (104,017)
                                             -----     ---------     ---------     ------   -------    ---------

Balance at June 30, 1997                     3,467     3,073,664     4,942,077     61,375  (109,917)   7,970,666
                                             -----     ---------     ---------     ------   -------    ---------

 Comprehensive income:
  Net income                                                           594,593                           594,593
  Other comprehensive income,
    net of tax:
   Unrealized holding gain
    during the year                                                                83,724                 83,724
                                                                     ---------     ------              ---------
 Total comprehensive income                                            594,593     83,724                678,317

  Common stock issued in
   connection with stock
   options exercised                          173        189,577                                         189,750

  Tax benefit related to
   employee stock plan                                     3,074                                           3,074

  Amortization of award
   of BIP stock                                                                              32,435       32,435
  Dividends declared on
   common stock ($.30 per
    share)                                                            (106,605)                         (106,605)
                                             -----     ---------     ---------     ------   -------    ---------

Balance at June 30, 998                      3,640     3,266,315     5,430,065    145,099   (77,482)   8,767,637
                                             -----     ---------     ---------     ------   -------    ---------
 Comprehensive income:
  Net income                                                           364,719                           364,719
  Other comprehensive income,
    net of tax:
   Unrealized holding loss
    during the year                                                               (65,069)               (65,069)
                                                                     ---------     ------              ---------

 Total comprehensive income                                            364,719    (65,069)               299,650

  Tax benefit related to
   employee stock plan                                    5,000                                            5,000

  Amortization of award
   of BIP stock                                                                              32,435       32,435

  Dividends declared on
   common stock ($.30
   per share)                                                         (109,193)                         (109,193)
                                             -----     ---------     ---------     ------   -------    ---------

Balance at June 30, 1999               $     3,640     3,271,315     5,685,591     80,030   (45,047)   8,995,529
                                             =====     =========     =========     ======   =======    =========

</TABLE>

                                       25

See accompanying notes to consolidated financial statements.

<PAGE>



                         MIDLAND CAPITAL HOLDINGS CORPORATION
                                   AND SUBSIDIARIES

                         Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                         Years Ended June 30,
                                                           -------------------------------------------
                                                                 1999            1998            1997
                                                           --------------   -------------     ---------
<S>                                                         <C>                <C>                 <C>
Cash flows from operating activities:
  Net income                                               $    364,719        594,593         295,818
  Adjustments to reconcile net income
   to net cash from operating activities:
    Depreciation                                                203,398        148,118         117,169
    Amortization of premiums and discounts on securities          5,204         25,682          46,143
    Amortization of cost of stock benefit plan                   32,435         32,435          33,280
    Profit on sale of real estate owned                         (21,602)            --              --
    Provision for loss on real estate owned                       1,527        167,000              --
    Provision for loan losses (recoveries)                           --       (160,000)             --
    Proceeds from sale of loans held for sale                 3,298,250      2,196,672         831,600
    Origination of loans held for sale                       (3,073,950)    (2,625,722)     (1,062,000)
    Profit on sale of loans                                     (45,154)       (29,076)        (10,802)
    Decrease in accrued interest receivable                       7,498         18,832          49,023
    Increase (decrease) in accrued interest payable               4,731          4,672          (2,157)
    Decrease in deferred income on loans                       (114,528)       (79,462)        (28,405)
    Decrease in other assets                                      9,211         53,199          49,753
    Increase (decrease) in other liabilities                      1,396         13,332         (93,014)
                                                           ------------      ---------      ----------
Net cash provided by operating activities                       673,135        360,275         226,408
                                                           ------------      ---------      ----------

Cash flows from investing activities:
    Purchase of mortgage-backed securities,
     held   to   maturity                                    (1,101,593)     (4,610,445)             --
    Proceeds from repayments of mortgage-backed
     securities, held to maturity                             6,049,456       5,663,017       5,413,446
    Purchase of investment securities, held
     to maturity                                             (9,996,325)     (9,987,650)     (9,992,125)
    Proceeds from maturities of investment securities,
     held to maturity                                        10,000,000      10,000,000      10,000,000
    Purchase of investment securities, available
     for   sale                                              (4,000,000)             --              --
    Purchase of Federal Home Loan Bank stock                    (82,000)             --              --
    Loan disbursements                                      (21,806,872)    (14,927,543)     (6,636,897)
    Loan repayments                                          11,548,347       9,757,375       6,194,014
    Proceeds from sale of real estate owned                     495,425              --              --
    Property and equipment expenditures                      (1,230,163)       (127,379)       (191,221)
                                                           ------------       ---------      ----------
Net cash provided by (for) investing activities             (10,123,725)     (4,232,625)      4,787,217
                                                           ------------       ---------      ----------

Cash flows from financing activities:
    Proceeds from exercise of stock options                          --         189,750              --
    Deposit receipts                                        388,100,662     360,038,437     332,832,845
    Deposit withdrawals                                    (379,590,415)   (358,908,515)   (341,490,636)
    Interest credited to deposit accounts                     3,952,491       3,659,000       3,717,000
    Payment of dividends                                       (109,193)       (106,605)       (104,017)
    Purchase of BIP stock                                            --              --          (6,922)
    Increase in advance payments
     by borrowers for taxes and insurance                       123,146          91,903          22,962
                                                           ------------      ----------      ----------

Net cash provided by (for) financing activities              12,476,691       4,963,970      (5,028,768)
                                                           ------------      ----------      ----------
Net change in cash and cash equivalents                       3,026,101       1,091,620         (15,143)
Cash and cash equivalents at beginning of year               31,994,195      30,902,575      30,917,718
                                                           ------------      ----------      ----------

Cash and cash equivalents at end of year                   $ 35,020,296      31,994,195      30,902,575
                                                           ============      ==========      ==========

Cash paid during the year for:
   Interest                                                $  4,174,320       3,864,274       3,912,686
   Income taxes                                                 154,260         239,000          77,226
Non-cash investing activities:
   Transfer of loans to foreclosed real estate             $         --          58,022          85,500
                                                           ============      ==========      ==========
</TABLE>

                                       26
See accompanying notes to consolidated financial statements.

<PAGE>

                        MIDLAND CAPITAL HOLDINGS CORPORATION
                                   AND SUBSIDIARIES

                      Notes to Consolidated Financial Statements



1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Midland  Capital  Holdings  Corporation  (the  "Company")  is  a  Delaware
      corporation  incorporated  in April,  1998 for the purpose of becoming the
      unitary  thrift  holding  company  for  Midland  Federal  Savings and Loan
      Association  (the  "Association").   The  reorganization  transaction  was
      completed  pursuant  to a  Merger  Agreement  and  Plan of  Reorganization
      adopted by the  Association's  Board of  Directors  on March 19,  1998 and
      approved by the Association's shareholders on July 15, 1998. The effective
      date  of  the  reorganization  was  July  23,  1998.  As a  result  of the
      reorganization transaction,  each outstanding share of common stock of the
      Association  became, by operation of law, one share of common stock of the
      Company.

      The accounting and reporting  policies of the Company and its subsidiaries
      conform  to  generally  accepted  accounting  principles  and  to  general
      practice  within  the  thrift  industry.   The  preparation  of  financial
      statements in conformity  with generally  accepted  accounting  principles
      requires  management  to make  estimates and  assumptions  that affect the
      reported  amounts of assets and  liabilities  and disclosure of contingent
      assets and  liabilities  at the date of the financial  statements  and the
      reported  amounts of revenues and expenses  during the  reporting  period.
      Actual  results  could  differ from those  estimates.  The  following is a
      description of the more significant  policies which the Company follows in
      preparing and presenting its consolidated financial statements.

      PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of the Company,
      and  its  wholly  owned  subsidiary,  Midland  Federal  Savings  and  Loan
      Association  and  the  Association's  wholly-owned  subsidiaries,  Midland
      Service  Corporation,  MS  Insurance  Agency  and  Bridgeview  Development
      Company.  Significant  intercompany  transactions  and balances  have been
      eliminated in consolidation.

      INDUSTRY SEGMENTS

      The  Company  operates  principally  in the thrift  industry  through  its
      subsidiary  savings and loan. As such,  substantially all of the Company's
      revenues,  net income,  identifiable  assets and capital  expenditures are
      related to thrift operations.

      INVESTMENT SECURITIES, AVAILABLE FOR SALE

      Investment  securities  available for sale are recorded in accordance with
      Statement of Financial  Accounting  Standards ("SFAS") No. 115 "Accounting
      for Certain Investments in Debt and Equity Securities".  SFAS 115 requires
      the use of fair value  accounting  for  securities  available  for sale or
      trading and retains the use of the  amortized  cost method for  securities
      the Company has the positive ability and intent to hold to maturity.

      SFAS 115 requires the  classification  of debt and equity  securities into
      one of three categories: held to maturity, available for sale, or trading.
      Held to maturity  securities  are measured at amortized  cost.  Unrealized
      gains and losses for trading securities are included in income. Unrealized
      holding  gains and losses on available  for sale  securities  are excluded
      from  income  and  reported  net  of  taxes  as a  separate  component  of
      stockholders' equity.

      The Company has  designated  certain  investments  in U.S.  Government and
      Agency   securities  as  available  for  sale,   and  has  recorded  these
      investments  at their  current  fair value.  Premiums  and  discounts  are
      amortized and accreted into income over the remaining life of the security
      using the level yield method.  Unrealized gains and losses are recorded in
      a valuation account which is included,  net of income taxes, as a separate
      component of stockholders'  equity.  Gains and losses on the sale of these
      securities are determined using the specific identification method and are
      reflected in earnings when realized.

                                       27
<PAGE>



1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES, HELD TO MATURITY

      These  securities  are  carried  at cost,  adjusted  for  amortization  of
      premiums and  accretion of discounts  over the term of the security  using
      the level yield  method.  These  securities  are not carried at fair value
      because  the  Company  has both the ability and the intent to hold them to
      maturity.

      LOANS RECEIVABLE AND RELATED FEES

      Loans are  stated at the  principal  amount  outstanding,  net of loans in
      process,  net deferred  yield  adjustments  and the  allowance for losses.
      Interest  on loans is  credited  to income as earned and  accrued  only if
      deemed  collectible.  Loans are placed on  nonaccrual  status when, in the
      opinion of management, the full timely collection of principal or interest
      is in doubt.  As a general rule,  the accrual of interest is  discontinued
      when principal or interest  payments become 90 days past due or earlier if
      conditions warrant. When a loan is placed on nonaccrual status, previously
      accrued but unpaid interest is charged against current income.

      Loan  origination  fees and  certain  direct  loan  origination  costs are
      deferred in accordance with SFAS No. 91 "Accounting for Nonrefundable Fees
      and Costs  Associated  with  Originating  or  Acquiring  Loans and Initial
      Direct Costs of Leases".  This  statement  requires that loan  origination
      fees and direct loan origination  costs for a completed loan be netted and
      then  deferred  and   recognized  as  an  adjustment  to  yield  over  the
      contractual life of the loan.

      The  Company has adopted the  provisions  of SFAS No. 114  "Accounting  by
      Creditors  for  Impairment  of a Loan"  and SFAS No.  118  "Accounting  by
      Creditors for Impairment of a Loan - Income  Recognition and Disclosures".
      These  statements  apply to all loans that are  identified  for evaluation
      except  for large  groups of  smaller-balance  homogeneous  loans that are
      collectively  evaluated for impairment.  These loans include,  but are not
      limited to,  credit card,  residential  mortgage and consumer  installment
      loans. Of the loans which are to be evaluated for  impairment,  management
      has  determined  that there were no loans at June 30,  1999 and 1998,  nor
      during the years ended June 30, 1999 and 1998, which met the definition of
      an impaired loan. A loan is considered impaired when it is probable that a
      creditor will be unable to collect contractual  principal and interest due
      according to the contractual terms of the loan agreement.

      LOANS RECEIVABLE HELD FOR SALE

      That portion of loans receivable  designated as held for sale are recorded
      at the  lower  of cost or fair  value  in  accordance  with  SFAS  No.  65
      "Accounting for Certain Mortgage Banking  Activities". Unrealized declines
      in fair value are reflected as a charge to current earnings.

      MORTGAGE SERVICING RIGHTS

      The  Company  has  adopted the  provisions  of SFAS 122,  "Accounting  for
      Mortgage Servicing Rights". This statement amends SFAS 65, "Accounting for
      Certain  Mortgage  Banking  Activities" to require that a mortgage banking
      enterprise  recognize as separate assets rights to service  mortgage loans
      for others,  regardless of how those servicing  rights are acquired.  SFAS
      122 requires that a mortgage  banking  enterprise  assess its  capitalized
      mortgage  servicing rights for impairment based on the fair value of those
      rights. The mortgage servicing rights are to be amortized over the life of
      the asset in proportion to the estimated net servicing income.

      The Company  initially  accounts for mortgage  servicing  rights using the
      discounted  present value of estimated  expected  future cash flows.  This
      amount is initially capitalized in other assets and subsequently amortized
      over the estimated life of the loan servicing income stream.  The carrying
      value of the Company's  mortgage serving rights,  in relation to estimated
      servicing values,  and the related  amortization is reviewed by management
      on a quarterly  basis.  See note 6 for a  discussion  of the current  year
      impact on financial position and results of operations.

                                     28

<PAGE>

1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      ALLOWANCE FOR LOAN LOSSES

      The  determination  of the  allowance  for loan losses  involves  material
      estimates that are susceptible to significant change in the near term. The
      allowance for loan losses is maintained at a level adequate to provide for
      losses through charges to operating  expense.  The allowance is based upon
      past loss experience and other factors which,  in management's  judgement,
      deserve current  recognition in estimating losses. Such factors considered
      by management  include growth and composition of the loan  portfolio,  the
      relationship of the allowance for losses to outstanding loans and economic
      conditions.

      Management believes that the allowance is adequate.  While management uses
      available  information to recognize  losses on loans,  future additions to
      the allowance may be necessary based on changes in economic conditions. In
      addition,  various  regulatory  agencies,  as an  integral  part of  their
      examination process,  periodically review the Company's allowance for loan
      losses.  Such  agencies may require the Company to recognize  additions to
      the allowance based on their  judgements  about  information  available to
      them at the time of their examination.

      REAL ESTATE OWNED

      Real estate acquired through foreclosure or deed in lieu of foreclosure is
      carried at the lower of fair value  minus  estimated  costs to sell or the
      related  loan  balance  at  the  date  of   foreclosure.   Valuations  are
      periodically  performed  by  management  and  an  allowance  for  loss  is
      established  by a charge to operations if the carrying value of a property
      exceeds its fair value minus estimated costs to sell.

      DEPRECIATION

      Depreciation  of office properties  and  equipment is  accumulated  on the
      straight line basis over estimated lives of the various assets.

      INCOME TAXES

      The  Company  files a  consolidated  federal  income tax  return  with its
      subsidiaries. The provision for federal and state taxes on income is based
      on earnings  reported in the financial  statements.  Deferred income taxes
      arise from the  recognition of certain items of income and expense for tax
      purposes in years different from those in which they are recognized in the
      consolidated financial statements. Deferred tax assets and liabilities are
      recognized  for the  estimated  future tax  consequences  attributable  to
      differences  between the financial  statement  carrying amount of existing
      assets and liabilities and their respective tax bases. Deferred tax assets
      and  liabilities  are  measured  using tax rates in effect for the year in
      which those temporary differences are expected to be recovered or settled.
      The effect on deferred tax assets and liabilities of a change in tax rates
      is recognized in income in the period that includes the enactment date.

      CONSOLIDATED STATEMENTS OF CASH FLOWS

      For the purposes of reporting cash flows, the Company has defined cash and
      cash  equivalents  to include  cash on hand,  amounts due from  depository
      institutions,  interest-bearing  deposits in other financial  institutions
      and federal funds sold.


                                       29
<PAGE>



1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      EARNINGS PER SHARE

      The Company  computes its earnings per share (EPS) in accordance with SFAS
      No. 128, "Earnings Per Share". This statement simplifies the standards for
      computing EPS previously found in Accounting  Principles Board Opinion No.
      5,  "Earnings Per Share" and makes them  comparable to  international  EPS
      standards. It replaces the presentation of primary EPS with a presentation
      of basic EPS and fully diluted EPS with diluted EPS.

      Basic EPS,  unlike  primary  EPS,  excludes  dilution  and is  computed by
      dividing income available to common  stockholders by the  weighted-average
      number of common shares  outstanding for the period.  Diluted EPS reflects
      the potential  dilution that could occur if securities or other  contracts
      to issue  common stock were  exercised  or converted  into common stock or
      resulted in the  issuance of common stock that then shared in the earnings
      of the entity.

      The following presentation illustrates basic and diluted EPS in accordance
      with the provisions of SFAS 128:
<TABLE>
<CAPTION>

                                                         YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                               <C>            <C>            <C>
      Weighted average number of
        common shares outstanding used
        in basic EPS calculation                  363,975       354,948       346,725
      Add common stock equivalents
        for shares issuable under
        Stock Option Plans                          4,634         4,262         8,362
                                                ---------     ---------     ---------

      Weighted average number of shares
        outstanding adjusted for common
        stock equivalents                         368,609       359,210       355,087
                                                =========     =========     =========


      Net income                              $   364,719       594,593       295,818
      Basic earnings per share                $      1.00          1.68           .85
      Diluted earnings per share              $       .99          1.66           .83

</TABLE>

      EPS for prior periods has been  restated to comply with the  provisions of
      SFAS 128.

                                       30
<PAGE>



2)    INVESTMENT SECURITIES, HELD TO MATURITY

      Investment securities, held to maturity, are summarized as follows:

<TABLE>
<CAPTION>
                                                     Gross       Gross
                                        Amortized  Unrealized  Unrealized     Fair
                                          COST       GAINS       LOSSES       VALUE
<S>                                     <C>            <C>       <C>            <C>
    JUNE 30, 1999

      United States Treasury notes   $ 19,994,152     16,492      77,050   19,933,594
                                       ==========     ======      ======   ==========


      Weighted average interest rate         5.31%


      JUNE 30, 1998

      United States Treasury notes   $ 19,989,055     44,643       3,229   20,030,469
                                       ==========     ======      ======   ==========


      Weighted average interest rate         5.80%

</TABLE>
<TABLE>
<CAPTION>

     The  contractual  maturity of  investment  securities  held to maturity are
     summarized as follows:
                                           JUNE 30, 1999            JUNE 30, 1998
                                      ----------------------   ----------------------
                                       Amortized     Fair       Amortized     Fair
      TERM TO MATURITY                   COST        VALUE        COST        VALUE
<S>                                     <C>            <C>       <C>            <C>

      Due in one year or less       $  9,997,571  10,014,063    9,997,659  10,028,125
      Due after one year through
        two years                      9,996,581   9,919,531    9,991,396  10,002,344
                                      ----------  ----------   ----------  ----------

                                    $ 19,994,152  19,933,594   19,989,055  20,030,469
                                      ==========  ==========   ==========  ==========

</TABLE>

3)    INVESTMENT SECURITIES, AVAILABLE FOR SALE

      Investment  securities  available  for sale are  recorded at fair value in
      accordance with SFAS 115. This portfolio is summarized as follows:

<TABLE>
<CAPTION>
                                                     Gross       Gross
                                        Amortized  Unrealized  Unrealized     Fair
                                          COST       GAINS       LOSSES       VALUE
      JUNE 30, 1999
<S>                                     <C>            <C>       <C>            <C>
      Federal Home Loan Bank note    $  4,000,000       -         31,068    3,968,932
      United States Treasury bond         977,049    152,326        -       1,129,375
                                        ---------    -------     -------    ---------

                                     $  4,977,049    152,326      31,068    5,098,307
                                        =========    =======     =======    =========


      Weighted average interest rate         6.35%


      JUNE 30, 1998

      United States Treasury bond    $    976,091    219,847        -       1,195,938
                                        =========    =======     =======    =========


      Weighted average interest rate         7.68%

</TABLE>

      The contractual maturity of the Federal Home Loan Bank note is in the year
      2002 and the United States  Treasury bond is in the year 2016.  There were
      no sales of  investment  securities  available  for sale during any of the
      periods  presented.  The change in net unrealized  gains and losses during
      the current year of $98,589, net of the tax effect of $33,520, resulted in
      a $65,069 charge to stockholders' equity.

                                       31
<PAGE>



4)    MORTGAGE-BACKED SECURITIES, HELD TO MATURITY

      Mortgage-backed securities, held to maturity, are summarized as follows:

<TABLE>
<CAPTION>
                                                     Gross       Gross
                                        Amortized  Unrealized  Unrealized     Fair
                                          COST       GAINS       LOSSES       VALUE
      JUNE 30, 1999
<S>                                     <C>            <C>            <C>    <C>

      Participation certificates:
         FHLMC - Adjustable rate     $  7,795,118     75,402      64,833    7,805,687
         FNMA  - Adjustable rate        3,407,037     13,806       8,584    3,412,259
         FHLMC - Fixed rate             2,459,416        819        -       2,460,235
         FNMA  - Fixed rate             1,906,484     47,560       9,549    1,944,495
         GNMA  - Fixed rate               295,258      3,509       1,465      297,302
      Investment in collateralized
       mortgage obligations:
         FHLMC                             18,513       -           -          18,513
                                       ----------    -------     -------   ----------

                                     $ 15,881,826    141,096      84,431   15,938,491
                                       ==========    =======     =======   ==========


      Weighted average interest rate         6.45%
                                             ====

      JUNE 30, 1998

      Participation certificates:
         FHLMC - Adjustable rate     $ 10,269,222    109,291       4,352   10,374,161
         FNMA  - Adjustable rate        4,291,512     71,187        -       4,362,699
         FHLMC - Fixed rate             4,011,807     25,246        -       4,037,053
         FNMA  - Fixed rate             1,859,437     74,107        -       1,933,544
         GNMA  - Fixed rate               388,814      8,867         130      397,551
       Investment in collateralized
        mortgage obligations:
         FHLMC                             23,831       -           -          23,831
                                       ----------    -------     -------   ----------

                                     $ 20,844,623    288,698       4,482   21,128,839
                                       ==========    =======     =======   ==========


      Weighted average interest rate         6.82%
                                             ====
</TABLE>

                                       32

<PAGE>



5)    LOANS RECEIVABLE

      Loans receivable are summarized as follows:
<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>            <C>
      Mortgage loans:
         One-to-four family                                $ 45,597,198    34,370,408
         Multi-family                                         1,712,534     1,790,245
         Non-residential                                        223,276       244,232
         Construction                                              -          450,000
                                                             ----------    ----------

      Total mortgage loans                                   47,533,008    36,854,885
                                                             ----------    ----------



      Other loans:
         Loans on deposit accounts                              273,589       463,748
         Auto loans                                             274,213       371,743
         Education loans                                      1,167,143     1,316,022
         Mobile home loans                                        2,506        10,295
         Other                                                  140,681       138,825
                                                             ----------    ----------

      Total other loans                                       1,858,132     2,300,633
                                                             ----------    ----------

      Commercial business loans                                  58,022        70,988
                                                             ----------    ----------

      Total loans receivable                                 49,449,162    39,226,506
                                                             ----------    ----------



      Less:
         Loans in process                                         4,510        40,379
         Net deferred yield adjustments                         (95,151)       17,086
         Allowance for uncollected interest                     259,745       262,036
         Allowance for loan losses                              365,863       393,884
                                                             ----------    ----------

      Loans receivable, net                                $ 48,914,195    38,513,121
                                                             ==========    ==========


      Weighted average interest rate                               7.38%         7.85%
                                                                   ====          ====

</TABLE>

      Activity in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                               <C>            <C>            <C>
      Balance, beginning of year                $ 393,884       551,509       595,601
      Provision for loan losses (recoveries)         -         (160,000)         -
      Recoveries previously charged-off             1,876         2,375         1,629
      Charge-offs                                 (29,897)         -          (45,721)
                                                  -------       -------       -------

      Balance, end of year                      $ 365,863       393,884       551,509
                                                  =======       =======       =======

</TABLE>

     During the year ended June 30, 1998, the Association revised its policy for
     the  establishment  and maintenance of adequate levels of the allowance for
     loan and lease losses ("ALLL").  The loan loss recovery was the result of a
     reduction in the ALLL to a level consistent with the Association's  revised
     policy  based  upon as  assessment  of the  level of risk  inherent  in the
     Association's loan portfolio.

     Delinquent  loans (loans  having  payments past due ninety days or more) at
     June  30,  1999  amounted  to  $380,537  or .8% of total  loans  in  force.
     Comparable figures for 1998 were $465,323 or 1.2% of total loans.

     Loans to directors and executive officers  aggregated  $435,019 at June 30,
     1999 and  $444,842 at June 30, 1998.  Such loans are made on  substantially
     the same terms as those for other loan customers.

                                       33

<PAGE>



6)    LOANS RECEIVABLE HELD FOR SALE

      During the years ended June 30,  1999,  1998 and 1997,  the  Company  sold
      loans in the secondary market under various programs. As such, the Company
      has  designated a portion of the loan  portfolio to be  classified as held
      for sale. During the years ended June 30, 1999, 1998 and 1997, the Company
      sold first mortgage loans totaling $3,298,250,  $2,196,672 and $831,600 in
      the secondary  market.  The Company retained the servicing on these loans.
      Proceeds  from the sale of these  loans  during  the years  ended June 30,
      1999, 1998 and 1997 were $3,298,250,  $2,196,672 and $831,600 with no gain
      or loss realized on those sales. In addition,  the Company recorded a gain
      of $45,154,  $29,076 and $10,802 for the years ended June 30,  1999,  1998
      and 1997 on loan sales  from the  establishment  of a  mortgage  servicing
      right asset in accordance  with SFAS No. 122.  During the years ended June
      30, 1999, 1998 and 1997, the Company amortized $9,587,  $2,137 and $292 of
      mortgage servicing rights against current servicing fee income.

      As of June 30, 1999,  $435,150 of newly originated  fixed-rate thirty year
      original term loans  qualifying  for sale into the  secondary  market were
      classified in this portfolio.  Loans held for sale are valued at the lower
      of cost or fair value in accordance  with  generally  accepted  accounting
      principles.  There were no recognized, but unrealized,  losses at June 30,
      1999.

      At June 30, 1999,  1998 and 1997,  loans  serviced for others  amounted to
      $6,353,747, 3,841,991 and $1,045,553 respectively.

7)    ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                               <C>           <C>
      Investment securities                                   $ 246,509       252,060
      Mortgage-backed securities                                127,769       178,297
      Loans receivable                                          227,690       179,956
      Other investments                                           9,998         9,151
                                                                -------       -------

                                                              $ 611,966       619,464
                                                                =======       =======

</TABLE>

                                       34

<PAGE>



8)    OFFICE PROPERTIES AND EQUIPMENT

      Office properties and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>            <C>
      Land                                                  $   236,095       236,095
      Buildings                                               1,683,008     1,655,841
      Easement for parking lot and driveway                     223,050       223,050
      Leasehold improvements - Homer Township                   579,253          -
      Furniture, fixtures and equipment                       2,374,711     1,750,969
      Automobiles                                                17,993        17,993
                                                              ---------     ---------
                                                              5,114,110     3,883,948
      Less accumulated depreciation                           2,520,060     2,316,663
                                                              ---------     ---------

                                                            $ 2,594,050     1,567,285
                                                              =========     =========

</TABLE>

      Depreciation  of office  properties and equipment for the years ended June
      30,  1999,  1998 and 1997  amounted to  $203,398,  $148,118  and  $117,169
      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 retail space is leased for a period of ten
      years with a single ten year renewal option. The vacant land is leased for
      ten years with eight successive ten year renewal options and is contiguous
      to both the  leased  retail  space and the land  previously  leased by the
      Association.  The  Association  established a full service  branch banking
      facility at this location  which opened for business  during May 1999. The
      total  capitalized  cost to furnish,  equip and remodel the Homer Township
      branch location  amounted to $863,868 as of June 30, 1999. Rent expense at
      the Homer Township,  Illinois  location for the years ended June 30, 1999,
      1998 and 1997 amounted to $43,641, $17,256 and $17,256 respectively.

      Minimum rental  commitments  under the above leases are  approximately  as
follows:

            Year ended June 30, 2000                          $  53,336
            Year ended June 30, 2001                             55,004
            Year ended June 30, 2002                             56,758
            Thereafter through June 30, 2009                    468,525

                                       35
<PAGE>



9)    PREPAID EXPENSES AND OTHER ASSETS

      Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>            <C>
      Prepaid federal insurance premiums                      $  16,265        15,326
      Prepaid insurance                                          27,910        44,866
      Other prepaid expenses                                    111,966        72,422
      Mortgage servicing rights                                  73,017        37,449
      Overpayment of federal income tax                          74,277        40,184
      Deferred federal income tax benefit - net (a)             303,726       331,940
      Accounts receivable and other assets                      123,808       147,540
                                                                -------       -------

                                                              $ 730,969       689,727
                                                                =======       =======

</TABLE>

      (a)   The approximate tax effect of temporary  differences  that give rise
            to the  Company's  net deferred tax asset at June 30, 1999 and 1998,
            under SFAS 109 is as follows:
<TABLE>
<CAPTION>

                                                         ASSETS   LIABILITIES    NET
<S>                                                         <C>    <C>          <C>
            JUNE 30, 1999

              Loan fees deferred for financial
                reporting purposes, net of costs      $    -       (43,849)   (43,849)
              Accelerated depreciation for tax
                purposes                                   -       (88,478)   (88,478)
              Tax basis of office building in
                excess of book basis                    494,143       -       494,143
              Bad debt reserves established for
                financial reporting purposes             60,504       -        60,504
              Increases to tax bad debt reserves
                since January 1, 1988                      -       (58,992)   (58,992)
              Nondeductible incentive plan expense        6,451       -         6,451
              Unrealized gain on securities
                available for sale                         -       (41,228)   (41,228)
              Other                                        -       (24,825)   (24,825)
                                                        -------    -------    -------

                Total                                 $ 561,098   (257,372)   303,726
                                                        =======    =======    =======


            JUNE 30, 1998

              Loan fees deferred for financial
                reporting purposes, net of costs      $    -        (9,550)    (9,550)
              Accelerated depreciation for tax
                purposes                                   -       (67,750)   (67,750)
              Tax basis of office building in
                excess of book basis                    514,395       -       514,395
              Bad debt reserves established for
                financial reporting purposes             51,045       -        51,045
              Increases to tax bad debt reserves
                since January 1, 1988                      -       (73,740)   (73,740)
              Nondeductible incentive plan expense        6,451       -         6,451
              Unrealized gain on securities
                available for sale                         -       (74,748)   (74,748)
              Other                                        -       (14,163)   (14,163)
                                                        -------    -------    -------

                Total                                 $ 571,891   (239,951)   331,940
                                                        =======    =======    =======

</TABLE>

                                       36

<PAGE>



10)   DEPOSITS

      Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>           <C>
      Passbook accounts                                   $  43,455,797    40,716,178
      NOW accounts                                            8,754,952     8,265,836
      Money market accounts                                   5,343,706     3,705,954
      Non-interest bearing demand deposit accounts            9,277,757     7,823,387
                                                            -----------   -----------

                                                             66,832,212    60,511,355

      Certificates of deposit by original maturity:
        7-91 days                                             2,713,083     2,630,620
        6-11 months                                          24,554,159    20,796,435
        12-29 months                                         14,720,322    13,286,120
        30 months and over                                    7,552,838     7,183,846
        Jumbo                                                 3,851,970     3,353,470
                                                            -----------   -----------

                                                          $ 120,224,584   107,761,846
                                                            ===========   ===========

</TABLE>

     The weighted average rate on deposit accounts at June 30, 1999 and 1998 was
     3.61% and 3.85% respectively.

     A summary of certificates of deposit by maturity is as follows:
<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>            <C>
      Within 12 months                                    $  50,407,705    40,712,462
      12 months to 24 months                                  2,301,944     3,940,613
      24 months to 36 months                                    682,723     2,597,416
                                                             ----------    ----------

         Total                                            $  53,392,372    47,250,491
                                                             ==========    ==========

</TABLE>

      Interest expense on deposits consists of the following:

<TABLE>
<CAPTION>
                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                               <C>            <C>            <C>
      Passbook accounts                       $ 1,229,227     1,184,927     1,228,031
      Certificate accounts                      2,547,398     2,329,762     2,311,239
      NOW and money market accounts               402,426       354,257       371,259
                                                ---------     ---------     ---------

        Total                                 $ 4,179,051     3,868,946     3,910,529
                                                =========     =========     =========
</TABLE>


     The  aggregate  amount of deposit  accounts  with a balance of  $100,000 or
     greater was approximately  $14,176,000 and $11,417,000 at June 30, 1999 and
     1998  respectively.  Deposits in excess of $100,000  are not insured by the
     Federal Deposit Insurance Corporation.

                                       37

<PAGE>



11)   OTHER LIABILITIES

      Other liabilities consist of the following:
<TABLE>
<CAPTION>

                                                                      JUNE 30,
                                                                 1999          1998
<S>                                                              <C>            <C>
      Accrued interest on deposits                            $  29,520        24,789
      Accrued real estate taxes                                 125,795       130,218
      Other accrued expenses                                    100,469        90,076
      Outstanding bank drafts                                    68,215        85,404
      Other accounts payable                                     78,357        65,742
                                                                -------       -------

                                                              $ 402,356       396,229
                                                                =======       =======
</TABLE>

12)   RETIREMENT PLANS AND OTHER EMPLOYEE BENEFITS

      The  Association  participates in the Financial  Institution's  Retirement
      Fund, a tax-qualified  pension trust, which covers all eligible employees.
      The Plan is considered a  multi-employer  plan and as such,  does not make
      separate actuarial  valuations with respect to each employer,  nor does it
      segregate plan assets. The procedures followed by the Retirement Fund meet
      the requirements of Financial Accounting Standards Board Statement No. 87,
      "Employers'  Accounting  for  Pensions".  The  practice  with  respect  to
      multiemployer  plans has been to accept employer's  contributions that are
      paid  as  its  expense  for  accounting  purposes.   There  have  been  no
      contributions paid to the Plan for the years ended June 30, 1999, 1998 and
      1997 as the amount  necessary to fund the Plan was  eliminated by previous
      years' overfunding of the Plan.

      In addition, the Association  established a qualified defined contribution
      plan (401(k) Plan) which covers all full-time  employees  having a minimum
      of twelve months of service and who are at least  twenty-one years of age.
      Eligible  employees  may  contribute  from  2% to  12%  of  their  monthly
      salaries.  The Association  will contribute an amount equal to 50%, 75% or
      100% of the monthly contribution up to 3% of salary,  depending upon years
      of  employment.  Employer  contributions  to the Plan amounted to $36,660,
      $34,580  and $30,678  for the years  ended June 30,  1999,  1998 and 1997,
      respectively.

                                       38

<PAGE>



13)   OFFICER AND DIRECTOR PLANS

      STOCK OPTION AND INCENTIVE PLAN

      In conjunction  with the  Conversion,  the Company  adopted the 1993 Stock
      Option and Incentive Plan (the "Stock Option Plan") for the benefit of the
      senior  officers and  directors  of the  Company.  The number of shares of
      common stock authorized  under the Stock Option Plan was 34,500,  equal to
      10.0% of the total number of shares issued in the Conversion.  At the date
      of  Conversion,  8,625 options were granted at $10 per share.  The term of
      these options expire ten years from the date of grant. In addition, 17,250
      options were granted to individuals  who, at the time such incentive stock
      options were granted,  owned stock  possessing  more than 10% of the total
      combined  voting  power of all  classes  of stock  of the  Company.  These
      options  were  granted  at a price of at least  110% of the fair value per
      share at the date of grant.  These options had a five year expiration from
      the date of grant and were  subsequently  exercised  during the year ended
      June 30, 1998.  Future grants are  determined by the Board of Directors at
      option prices that are not less than the fair market value of the stock at
      the grant  date and expire no later than ten years from the date of grant.
      All  options  granted  under  the Stock  Option  Plan  become  exercisable
      immediately. The following is an analysis of the stock option activity for
      each of the years in the three year  period  ended  June 30,  1999 and the
      stock options outstanding at the end of the respective periods:
<TABLE>
<CAPTION>

                                                                EXERCISE PRICE
                                               Number
      OPTIONS                                OF SHARES       PER SHARE        TOTAL
<S>                                               <C>       <C>                 <C>
      Outstanding at July 1, 1996              24,150     $ 10.00-11.00     $ 258,750
      Granted                                   1,725             16.25        28,031
      Exercised                                     0
                                               ------       -----------       -------

      Outstanding at June 30, 1997             25,875       10.00-16.25       286,781
      Granted                                       0
      Exercised                               (17,250)            11.00      (189,750)
                                               ------       -----------       -------

      Outstanding at June 30, 1998              8,625       10.00-16.25        97,031
      Granted                                       0
      Exercised                                     0
                                               ------       -----------       -------

      Outstanding at June 30, 1999              8,625     $ 10.00-16.25     $  97,031
                                               ======       ===========       =======

      Exercisable at June 30, 1999              8,625     $ 10.00-16.25     $  97,031
                                               ======       ===========       =======

      Options available for future
        grants at June 30, 1999                 6,900

</TABLE>

      As of June 30,  1999,  the  weighted  average  exercise  price for options
      outstanding was $11.25 with a weighted average remaining  contractual life
      of 4.67 years.

      The Company has elected to follow Accounting  Principles Board Opinion No.
      25  "Accounting  for Stock  Issued to  Employees"  ("APB 25") and  related
      interpretations  in accounting for its employee  stock options.  Under APB
      25,  because the exercise  price of the Company's  employee  stock options
      equals the market price of the underlying  stock on the date of grant,  no
      compensation expense is recognized.

      The Company  has  implemented  SFAS No. 123  "Accounting  for  Stock-Based
      Compensation".  The Company will retain its current  accounting method for
      its stock based  compensation  plans.  This  statement will only result in
      additional  disclosures for the Company,  and as such, its adoption is not
      expected to have a material impact on the Company's financial condition or
      its results of operations.


                                       39

<PAGE>



13)  OFFICER AND DIRECTOR PLANS (CONTINUED)

     The  following  summarizes  the pro forma net  income as if the fair  value
     method of accounting for stock-based compensation plan had been utilized:
<TABLE>
<CAPTION>

                                                             YEARS ENDED JUNE 30,
                                                         1999       1998       1997
<S>                                                         <C>    <C>          <C>
      Net income (as reported)                        $ 364,719    594,593    295,818
      Pro forma net income                              364,719    594,593    293,041

      Earnings per share - diluted (as reported)          $ .99       1.66        .83
      Pro forma diluted earnings per share                  .99       1.66        .82

</TABLE>

     The pro forma  results  presented  above may not be  representative  of the
     effects reported in pro form net income for future years.

     The fair value of the option grants during the year ended June 30, 1997 was
     estimated using the Black Scholes Method, using the following  assumptions:
     dividend yield of approximately  2.00%,  expected volatility of 20.0%, risk
     free interest rate of 6.25%, and an expected life of approximately 10 years
     period.

     BANK INCENTIVE PLAN

     In  conjunction  with the  Conversion,  the Company formed a Bank Incentive
     Plan  ("BIP"),  which was  authorized  to acquire 3% of the total number of
     shares of common stock  issued in the  Conversion.  The 10,350  shares were
     purchased for $162,172 with funds  contributed to the BIP from the Company.
     This plan was  established  to award shares to employees in key  management
     positions  in order to  provide  them with a  proprietary  interest  in the
     Company and to encourage  them to remain with the Company.  The shares have
     all been awarded and are vesting at a rate of 20% per year.

     The $162,172  contributed  to the BIP is being  amortized  to  compensation
     expense as the plan  participants  become vested in those  shares.  For the
     years ended June 30, 1999, 1998 and 1997, $32,435,  $32,435 and $33,280 had
     been amortized to expense.  The  unamortized  cost,  which is comparable to
     deferred compensation, is reflected as a reduction of stockholders'equity.

                                       40

<PAGE>



14)   INCOME TAXES

      The  Company  has  adopted  SFAS No. 109 which  requires a change from the
      deferred  method to the liability  method of accounting  for income taxes.
      Under the liability  method,  deferred income taxes are recognized for the
      tax  consequences  of "temporary  differences"  by applying  statutory tax
      rates  applicable  to future years to  differences  between the  financial
      statement   carrying   amounts  and  tax  bases  of  existing  assets  and
      liabilities.

      Among the  provisions  of SFAS 109 which  impact  the  Company  is the tax
      treatment  of bad debt  reserves.  SFAS 109  provides  that a deferred tax
      asset  is to be  recognized  for  the bad  debt  reserve  established  for
      financial  reporting  purposes and requires a deferred tax liability to be
      recorded for  increases in the tax bad debt reserve since January 1, 1988,
      the effective  date of certain  changes made by The Tax Reform Act of 1986
      to  the   calculation  of  savings   institutions'   bad  debt  deduction.
      Accordingly,  retained  earnings at June 30, 1999  includes  approximately
      $1,100,000  for which no deferred  federal  income tax  liability has been
      recognized. The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                                 <C>          <C>          <C>
      Current                                   $ 125,167       281,295        12,262
      Deferred                                     61,734        57,059        88,549
                                                  -------       -------       -------

                                                $ 186,901       338,354       100,811
                                                  =======       =======       =======

</TABLE>

      A  reconciliation  of the statutory  federal  income tax rate to effective
      income tax rate is as follows:
<TABLE>
<CAPTION>

                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                               <C>               <C>           <C>
      Statutory federal income tax rate            34.0%         34.0%         34.0%
      Provision for loss on real estate owned        -            6.0            -
      Recovery of loss on previous
        disposition of real estate owned             -             -          (10.3)
      Other                                         (.1)         (3.7)          1.7
                                                   ----          ----          ----

      Effective income tax rate                    33.9%         36.3%         25.4%
                                                   ====          ====          ====
</TABLE>


Deferred  federal  income tax expense  consists of the  following tax effects of
timing differences:
<TABLE>
<CAPTION>

                                                          YEARS ENDED JUNE 30,
                                                   1999          1998          1997
<S>                                               <C>            <C>            <C>
      Loan fees                                 $  34,299        23,650        23,600
      Depreciation                                 40,980        23,745        34,830
      Book loan loss recovery (in excess of)
        less than tax deduction                    (9,459)       44,920        12,260
      Recapture of bad debt reserve               (14,748)      (31,560)         -
      Other                                        10,662        (3,696)       17,859
                                                   ------        ------        ------

                                                $  61,734        57,059        88,549
                                                   ======        ======        ======
</TABLE>

                                         41

<PAGE>



15)   REGULATORY CAPITAL REQUIREMENTS

      The  Association  is subject to various  regulatory  capital  requirements
      administered  by the federal  banking  agencies.  Failure to meet  minimum
      total requirements can initiate certain mandatory and possible  additional
      discretionary  actions by  regulators  that, if  undertaken,  could have a
      direct material effect on the Association's  financial  statements.  Under
      capital  adequacy  guidelines  and the  regulatory  framework  for  prompt
      correction  action,  the Association must meet specific capital guidelines
      that  involve   quantitative   measures  of  the   Association's   assets,
      liabilities,  and  certain  off-balance-sheet  items as  calculated  under
      regulatory  accounting  practices.  The Association's  capital amounts and
      classification   are  also  subject  to  quantitative   judgments  by  the
      regulators about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require all savings  institutions to maintain  minimum amounts and ratios,
      set forth in the table below of the total  risk-based,  tangible  and core
      capital, as defined in the regulations.  Management  believes,  as of June
      30, 1999, that the Association meets all capital adequacy  requirements to
      which it is subject.

      The   Association,   according  to  federal   regulatory   standards,   is
      well-capitalized  under the  regulatory  framework  for prompt  corrective
      action. To be categorized as adequately capitalized,  the Association must
      maintain minimum total risk-based,  tangible, and core ratios as set forth
      in the table.  There are no conditions  or events since that  notification
      that management believes have changed the institution's category.

      At June 30, 1999 and 1998, the  Association's  actual capital  amounts and
      ratios,  minimum amounts and ratios required for capital adequacy purposes
      and minimum amounts and ratios to meet the well-capitalized criteria under
      prompt corrective action provisions, are as follows:
<TABLE>
<CAPTION>

                                                                        To Be Well-
                                                                     Capitalized Under
                                                  For Capital        Prompt Corrective
                                ACTUAL         ADEQUACY PURPOSES     ACTION PROVISIONS
                           AMOUNT    RATIO       AMOUNT   RATIO       AMOUNT    RATIO
<S>                           <C>    <C>          <C>    <C>              <C>    <C>

      JUNE 30, 1999

      Tangible          $ 8,485,918   6.53%   $ 1,950,000  1.50%   $    N/A      N/A %
      Core                8,485,918   6.53      3,900,000  3.00      6,500,000   5.00
      Risk-based          8,648,872  20.54      3,367,976  8.00      4,209,971  10.00

      JUNE 30, 1998

      Tangible          $ 8,622,538   7.33%   $ 1,765,110  1.50%   $    N/A      N/A %
      Core                8,622,538   7.33      3,530,220  3.00      5,883,700   5.00
      Risk-based          8,757,669  23.36      2,999,165  8.00      3,748,955  10.00
</TABLE>

                                       42

<PAGE>



15)   REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
<TABLE>
<CAPTION>

                                                    Tangible      Core     Risk-based
                                                     CAPITAL     CAPITAL     CAPITAL
<S>                                                    <C>       <C>            <C>
      JUNE 30, 1999

      Stockholders' equity                        $ 8,849,622   8,849,622   8,849,622
      Unrealized gain on securities
       available for sale, net of taxes               (80,030)    (80,030)    (80,030)
      Net book value of real estate owned
       held greater than five years                  (276,372)   (276,372)   (276,372)
      Retained mortgage servicing rights               (7,302)     (7,302)     (7,302)
      General loss allowances                            -           -        177,954
      Direct equity investments                          -           -        (15,000)
                                                    ---------   ---------   ---------

      Regulatory capital computed                 $ 8,485,918   8,485,918   8,648,872
                                                    =========   =========   =========

</TABLE>

      A reconciliation of the  Association's  equity capital at June 30, 1999 is
as follows:
<TABLE>
<CAPTION>
<S>                                                                        <C>
      Stockholders' equity                                                $ 8,995,529
      Less Company stockholders' equity not available
       for regulatory capital                                                (145,907)
                                                                            ---------
      Stockholders' equity of the Association                             $ 8,849,622
                                                                            =========
</TABLE>
<TABLE>
<CAPTION>


                                                    Tangible      Core     Risk-based
                                                     CAPITAL     CAPITAL     CAPITAL
<S>                                                    <C>       <C>            <C>
      JUNE 30, 1998

      Stockholders' equity                        $ 8,767,637   8,767,637   8,767,637
      Unrealized gain on securities
       available for sale, net of taxes              (145,099)   (145,099)   (145,099)
      General loss allowances                            -           -        150,131
      Direct equity investments                          -           -        (15,000)
                                                    ---------   ---------   ---------

      Regulatory capital computed                 $ 8,622,538   8,622,538   8,757,669
                                                    =========   =========   =========
</TABLE>


16)   STOCKHOLDERS' EQUITY

      As part of the  Conversion,  the  Association  established  a  liquidation
      account  for the  benefit  of all  eligible  depositors  who  continue  to
      maintain their deposit accounts in the Association  after  conversion.  In
      the unlikely  event of a complete  liquidation  of the  Association,  each
      eligible depositor will be entitled to receive a liquidation  distribution
      from the  liquidation  account,  in the  proportionate  amount of the then
      current adjusted balance for deposit  accounts held,  before  distribution
      may  be  made  with  respect  to  the  Association's  capital  stock.  The
      Association  may not declare or pay a cash dividend on, or repurchase  any
      of, its  capital  stock if the effect  thereof  would  cause the  retained
      earnings of the  Association  to be reduced below the amount  required for
      the liquidation  account.  Except for such restrictions,  the existence of
      the  liquidation  account  does not  restrict  the use or  application  of
      retained earnings.

      In addition,  the  Association may not declare or pay cash dividends on or
      repurchase  any of its shares of common stock if the effect  thereof would
      cause  stockholders'  equity to be  reduced  below  applicable  regulatory
      capital maintenance  requirements or if such declaration and payment would
      otherwise violate regulatory requirements.

      Unlike the  Association,  the Company is not  subject to these  regulatory
      restrictions on the payment of dividends to its stockholders. However, the
      Company's  source of funds for future  dividends may depend upon dividends
      received by the Company from the Association.

                                       43

<PAGE>



17)  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

     The Association is a party to various  transactions  with off-balance sheet
     risk in the normal  course of business.  These  transactions  are primarily
     commitments to originate loans and to extend credit on previously  approved
     unused lines of credit.  These financial  instruments carry varying degrees
     of credit  and  interest-rate  risk in excess of  amounts  recorded  in the
     consolidated financial statements.

     Commitments  to  originate  mortgage  loans of  $842,100  at June 30,  1999
     represents an amount which the Association  plans to fund within the normal
     commitment  period of 60 to 90 days. All of the commitments are fixed rates
     ranging from 6.75% to 8.50%. Because the credit worthiness of each customer
     is  reviewed  prior  to  extension  of  the  commitment,   the  Association
     adequately controls their credit risk on these commitments,  as it does for
     loans recorded on the balance sheet.  The  Association  conducts all of its
     lending  activities  in  the  Chicagoland  area.  Management  believes  the
     Association  has a  diversified  loan  portfolio and the  concentration  of
     lending  activities in these local  communities does not result in an acute
     dependency upon economic conditions of the lending region.

     The  Association  has  approved,  but  unused,  equity  lines of  credit of
     approximately  $475,000 at June 30, 1999. In addition,  the Association has
     approved,   but  unused,   credit  card  lines  of  credit   amounting   to
     approximately $287,000. The Association has also issued outstanding letters
     of credit totaling $50,000.

     At June 30, 1999, the  Association  had committed to sell mortgage loans to
     the Illinois Housing Development Authority in the amount of $416,700 and to
     other third party lenders in the amount of $118,450.

18)  CONTINGENCIES

     The Association is, from time to time, a party to certain  lawsuits arising
     in the ordinary  course of its  business,  wherein it enforces its security
     interest.  Management believes that the Company and the Association are not
     engaged in any legal proceedings of a material nature at the present time.

19)  SUBSEQUENT EVENT

     At the July 1999  Board of  Directors'  meeting,  the  Company  declared  a
     quarterly dividend of $.075 per share, totaling $27,298, payable August 20,
     1999 to shareholders of record as of August 10, 1999.

                                       44
<PAGE>



20)  DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following  methods and assumptions were used to estimate the fair value
     of each  class of  financial  instruments  for which it is  practicable  to
     estimate that value:

     CASH AND CASH  EQUIVALENTS:  For cash and  interest-bearing  deposits,  the
     carrying amount is a reasonable estimate of fair value.

     INVESTMENT  SECURITIES:  Fair  values  for  securities  are based on quoted
     market  prices as  published in  financial  publications  or on quotes from
     third-party brokers.

     SECURITIES  AVAILABLE FOR SALE:  Fair values for  securities  available for
     sale  are  based  on  quoted   market  prices  as  published  in  financial
     publications or broker quotes.

     MORTGAGE-BACKED  SECURITIES: Fair values for mortgage-backed securities are
     based on the lower of quotes received from various third-party brokers.

     LOANS  RECEIVABLE:  The fair value for fixed and  adjustable  rate mortgage
     loans are estimated  using  discounted  cash flow analyses,  using interest
     rates  currently  being offered for loans with similar terms and collateral
     to borrowers of similar credit quality.

     DEPOSIT  LIABILITIES:  The fair value of demand deposits,  savings accounts
     and money market  deposits is the amount payable on demand at the reporting
     date. The fair value of fixed maturity certificates of deposit is estimated
     by discounting the future cash flows using the rates currently  offered for
     deposits of similar original maturities.

     The  fair  value  of the  Association's  off-balance-sheet  instruments  is
     nominal.

     The estimated fair value of the Association's  financial  instruments as of
     June 30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                  JUNE 30, 1999
                                                              Carrying       Fair
                                                               AMOUNT        VALUE
<S>                                                               <C>         <C>

      Financial assets:
        Cash and cash equivalents                         $  35,020,296    35,020,296
        Investment securities, held to maturity              19,994,152    19,933,594
        Investment securities, available for sale             5,098,307     5,098,307
        Mortgage-backed securities, held to maturity         15,881,826    15,938,491
        Loans receivable, gross                              49,884,312    49,281,000

      Financial liabilities:
        Deposits                                            120,224,584   120,261,000

</TABLE>
<TABLE>
<CAPTION>

                                                                  JUNE 30, 1998
                                                              Carrying       Fair
                                                               AMOUNT        VALUE
<S>                                                               <C>         <C>

      Financial assets:
        Cash and cash equivalents                         $  31,994,195    31,994,195
        Investment securities, held to maturity              19,989,055    20,030,469
        Investment securities, available for sale             1,195,938     1,195,938
        Mortgage-backed securities, held to maturity         20,844,623    21,128,839
        Loans receivable, gross                              39,885,956    40,353,000

      Financial liabilities:
        Deposits                                            107,761,846   107,831,000
</TABLE>

                                       45

<PAGE>



21)   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

      The following condensed statement of financial  condition,  as of June 30,
      1999 and condensed statements of income and cash flows for the period from
      July 23, 1998 to June 30, 1999 for Midland  Capital  Holdings  Corporation
      should be read in conjunction with the consolidated  financial  statements
      and the notes thereto.




                           Statement of Financial Condition
                                     JUNE 30, 1999

<TABLE>
<CAPTION>

      ASSETS
<S>                                                                       <C>


      Cash and cash equivalents                                           $   138,575
      Equity investment in the Association                                  8,805,719
      Prepaid expenses and other assets                                        23,632
                                                                            ---------

                                                                            8,967,926
                                                                            ---------



      LIABILITIES AND STOCKHOLDERS' EQUITY

      Other liabilities                                                        16,300
      Common stock                                                              3,640
      Additional paid-in capital                                            3,262,395
      Retained earnings                                                     5,685,591
                                                                            ---------

                                                                          $ 8,967,926
                                                                            ---------



                                  Statement of Income
                      PERIOD FROM JULY 23, 1998 TO JUNE 30, 1999


      Interest income                                                     $     2,920
      Non-interest expense                                                     91,099
                                                                              -------

      Net loss before income tax benefit
       and equity in earnings of subsidiaries                                 (88,179)
      Benefit from income taxes                                                29,981
                                                                              -------
      Net loss before equity in earnings
       of subsidiaries                                                        (58,198)
      Equity in earnings of subsidiaries                                      422,917
                                                                              -------
       Net income                                                         $   364,719
                                                                              =======
</TABLE>

                                       46

<PAGE>



21)   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)




                                Statement of Cash Flows
                      PERIOD FROM JULY 23, 1998 TO JUNE 30, 1999

<TABLE>
<CAPTION>
<S>                                                                           <C>

      Cash flows from operating activities:
        Net income                                                        $   364,719
        Equity in earnings of the Association                                (422,917)
        Increase in prepaid expenses and other assets                         (23,632)
        Increase in other liabilities                                          16,300
                                                                              -------

      Net cash provided for operating activities                              (65,530)
                                                                              -------

      Cash flows from investing activities:
        Purchase of common stock of the Association                            (4,000)
                                                                              -------

      Net cash provided for investing activities                               (4,000)
                                                                              -------

      Cash flows from financing activities:
        Dividends received from Association                                   317,298
        Dividends paid on common stock                                       (109,193)

      Net cash provided by financing activities                               208,105
                                                                              -------

      Net increase in cash and cash equivalents                               138,575
      Cash and cash equivalents at beginning of period                           -
                                                                              -------
      Cash and cash equivalents at end of period                          $   138,575
                                                                              =======
</TABLE>

                                       47

<PAGE>



                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES

                 Consolidating Statement of Financial Condition

                                  JUNE 30, 1999

<TABLE>
<CAPTION>
                                     Midland
                                     Capital    Midland Federal   Midland      MS      Bridgeview
                                     Holdings   Savings and Loan  Service   Insurance  Development
                                  Corporation    Association     Corporation  Agency     Company       Eliminations  Consolidated
                                  -----------   ---------------- ----------- --------  -----------    -------------- ------------
<S>                                <C>                <C>            <C>       <C>       <C>             <C>            <C>

Cash and amounts due from
 depository institutions           $     1,612      3,933,558        501       3,703       2,246     (c)     7,962     3,933,658
Interest-bearing deposits              136,963     31,086,638    197,425                   4,628     (c)   339,016    31,086,638
                                   -----------   ------------    -------      ------      ------        ----------   -----------
   Total cash and cash
    equivalents                        138,575     35,020,196    197,926       3,703       6,874           346,978    35,020,296
Investment securities, held
 to maturity                                       19,994,152                                                         19,994,152
Investment securities available
 for sale                                           5,098,307                                                          5,098,307
Mortgage-backed securities,
 held to maturity                                  15,881,826                                                         15,881,826
Loans receivable                                   48,914,195                                                         48,914,195
Loans receivable held for sale                        435,150                                                            435,150
Real estate owned                                     276,372                                                            276,372
Stock in Federal Home Loan Bank
 of Chicago                                           636,000                                                            636,000
Accrued interest receivable                           611,966                                                            611,966
Office properties and equipment                     2,588,362                  5,688                                   2,594,050
Investment in subsidiary             8,805,719        180,880     (8,739)                            (a)     6,640            --
                                                                                                     (b) 8,971,220
Prepaid expenses and other assets       23,632        749,205                 10,487      46,217     (d)    98,572       730,969
                                   -----------   ------------    -------      ------      ------        ----------   -----------

   Total assets                      8,967,926    130,386,611    189,187      19,878      53,091         9,423,410   130,193,283
                                   ===========   ============    =======      ======      ======        ==========   ===========

LIABILITIES AND STOCKHOLDERS'
 EQUITY

Deposits                                          120,571,562                                        (c)   346,978   120,224,584
Advance payments by borrowers for
  taxes and insurance                                 570,814                                                            570,814
Other liabilities                       16,300        394,613      8,307      79,760       1,948     (d)    98,572       402,356

Common stock                             3,640          3,640      1,000       1,000       1,000     (a)     6,640         3,640
Additional paid-in capital           3,262,395      3,275,315                                        (b) 3,266,395     3,271,315
Retained earnings                    5,685,591      5,535,684    179,880     (60,882)     50,143     (b) 5,704,825     5,685,591
Accumulated other comprehensive
 income, net of income taxes                           80,030                                                             80,030
Common stock awarded by Bank
 Incentive Plan                                       (45,047)                                                           (45,047)
                                   -----------   ------------    -------      ------      ------        ----------   -----------

Total liabilities and
 stockholders' equity              $ 8,967,926    130,386,611    189,187      19,878      53,091         9,423,410   130,193,283
                                   ===========   ============    =======      ======      ======        ==========   ===========


Elimination of intercompany items:
(a)  Common Stock
(b)  Investment in subsidiaries
(c)  Deposit accounts
(d)  Accounts receivable and payable
</TABLE>

                                       48

<PAGE>
                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES

                        Consolidating Statement of Income

                            Year ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
                                     Midland
                                     Capital    Midland Federal   Midland      MS      Bridgeview
                                     Holdings   Savings and Loan  Service   Insurance  Development
                                  Corporation    Association     Corporation  Agency     Company       Eliminations  Consolidated
                                  -----------   ---------------- ----------- --------  -----------    -------------- ------------
<S>                                <C>                <C>            <C>       <C>       <C>             <C>            <C>
Interest income:
  Interest on loans               $                 3,442,351                                                          3,442,351
  Interest on mortgage-backed
   securities                                       1,214,401                                                          1,214,401
  Interest on investment
   securities                                       1,212,855                                                          1,212,855
  Interest on interest-bearing
   deposits                             2,920       1,425,567       6,564                    154     (c)   9,638       1,425,567
  Dividends on FHLB stock                              37,435                                                             37,435
                                   ----------    ------------     -------      ------     ------      ----------     -----------
     Total interest income              2,920       7,332,609       6,564          --        154           9,638       7,332,609
                                   ----------    ------------     -------      ------     ------      ----------     -----------
Interest expense:
  Interest on deposits                              4,188,689                                        (c)   9,638       4,179,051
                                   ----------    ------------     -------      ------     ------      ----------     -----------

     Total interest expense                         4,188,689          --          --         --           9,638       4,179,051
                                   ----------    ------------     -------      ------     ------      ----------     -----------
  Net interest income before
   provision for loan losses            2,920       3,143,920       6,564          --        154              --       3,153,558
Provision for loan losses                                  --                                                                 --
                                   ----------    ------------     -------      ------     ------      ----------     -----------
  Net interest income after
   provision for loan losses            2,920       3,143,920       6,564          --        154              --       3,153,558
                                   ----------    ------------     -------      ------     ------      ----------     -----------
Non-interest income:
  Loan fees and service charges                       300,328                                                            300,328
  Commission income                                                           105,116                                    105,116
  Profit on sale of loans                              45,154                                                             45,154
  Profit on sale of real estate
   owned - net                                         21,602                                                             21,602
  Profit (loss) from subsidiary       422,917             913      (2,759)                           (a) 422,917              --
                                                                                                     (a)     913
                                                                                                     (a)  (2,759)
  Deposit related fees and other
   income                                             752,719                              1,537     (b)  71,112         683,144
                                   ----------    ------------     -------      ------     ------      ----------     -----------
     Total non-interest income        422,917       1,120,716      (2,759)    105,116      1,537         492,183       1,155,344
                                   ----------    ------------     -------      ------     ------      ----------     -----------
Non-interest expense:
  Staffing costs                                    1,914,672                  93,456                                  2,008,128
  Advertising                                          92,771                     497                                     93,268
  Occupancy and equipment
   expenses                                           571,715                   6,179                (b)   1,800         576,094
  Data processing                                     199,828                                                            199,828
  Federal deposit insurance
   premiums                                            64,047                                                             64,047
  Provision for loss on real
   estate owned                                         1,527                                                              1,527
  Other                                91,099         780,719       1,000      10,369        515     (b)  69,312         814,390
                                   ----------    ------------     -------      ------     ------      ----------     -----------
     Total non-interest
      expense                          91,099       3,625,279       1,000     110,501        515          71,112       3,757,282
                                   ----------    ------------     -------      ------     ------      ----------     -----------
  Income (loss) before
   income taxes                       334,738         639,357       2,805      (5,385)     1,176         421,071         551,620
Provision for income taxes
 (benefit)                            (29,981)        216,440       1,892      (1,850)       400                         186,901
                                   ----------    ------------     -------      ------     ------      ----------     -----------
  Net income (loss)                $  364,719         422,917         913      (3,535)       776         421,071         364,719
                                   ==========    ============     =======      ======     ======      ==========     ===========
Elimination of intercompany items:
  (a) Income of subsidiary
  (b) Office rental and fees
  (c) Interest on deposits
</TABLE>
                                       49


<PAGE>

Officers and Directors

Officers                            Directors

Paul Zogas                          Paul Zogas
President,                          President, Chief Executive Officer,
Chief Executive Officer             Chief Financial Officer and
and Chief Financial Officer of      Chairman of the Board for
the Company and the Association     the Company and the Association

Charles Zogas                       Charles Zogas
Executive Vice President,           Executive Vice President,
Chief Operating Officer,            Chief Operating Officer,
Secretary and Treasurer of          Secretary and Treasurer
the Company and the Association

Richard Taylor                      Richard Taylor
Vice President, Trust Officer       Vice President, Trust Officer
and Assistant Secretary of          and Assistant Secretary
the Company and the Association

Janice Cecott                       Algerd Brazis
Controller of the Company           Retired businessman and
and the Association                 Director, Knights of Lithuania
                                    Mid-America District

Muriel Kowalski                     Michael J. Kukanza
Assistant Vice President of         Principal in Compass Asset
the Company and the Association     Management, L.L.C.

Donna Chmiel                        Jonas Vaznelis
Internal Auditor of the             Retired businessman and Committee
Company and the Association         member of the Board of Zoning Appeals
                                    for Beverly Shores, Indiana.
                                       50

<PAGE>

Corporate Information

Investor Information
Midland Capital Holdings Corporation is the thrift holding company for Midland
Federal Savings and Loan Association.  Shareholders, investors and analysts
interested in additional information may contact at the Corporate Office: Paul
Zogas, President, 8929 S. Harlem Avenue, Bridgeview, Illinois 60455

Annual Report on Form 10-KSB
A copy of Midland Capital  Holdings  Corporation's  Annual Report on Form 10-KSB
including  financial  statements,  as filed with the SEC, is  available  without
charge by writing to our Corporate Office,  Attn: Charles Zogas,  Executive Vice
President, 8929 S. Harlem Avenue, Bridgeview, Illinois 60455.

Annual Meeting of Shareholders
The Annual Meeting of the Shareholders of Midland Capital  Holdings  Corporation
will be held at 2:00 p.m.,  October 20,  1999,  at the  Corporate  Office of the
Company,  8929 S. Harlem Avenue,  Bridgeview,  Illinois.  All  shareholders  are
cordially invited to attend.

Stock Transfer Agent
Midland Capital Holdings  Corporation's  transfer agent,  Registrar and Transfer
Company,  maintains all  stockholder  records and can assist with stock transfer
and registration, lost certificates or address change, changes or corrections in
social security or tax identification numbers, and 1099 tax reporting questions.
If you have questions, please contact the stock transfer agent in writing at the
address below:

      Registrar and Transfer Company
      10 Commerce Drive
      Cranford, New Jersey 07016-3572
      Attn: Corporate Relations

Corporate Counsel/Washington, D.C.
      Silver, Freedman & Taff, L.L.P.
      1100 New York Avenue, N.W.
      Washington, D.C. 20005-3934

Corporate Counsel/Chicago, Illinois
      Kamm & Shapiro, Ltd.
      230 West Monroe Street - Suite 1100
      Chicago, Illinois 60606

Independent Auditors
      Cobitz, VandenBerg & Fennessy
      9944 South Roberts Road - Suite 202
      Palos Hills, Illinois 60465





                                       51