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     Corporate Profile
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     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 Glen, 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 Electronic
     Bulletin  Board  of  the  National   Association  of  Securities   Dealers.
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                  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................. 21

                  Consolidated Statements of
                    Financial Condition........................ 22

                  Consolidated Statements of Income............ 23

                  Consolidated Statements of Changes in
                    Stockholders' Equity....................... 24

                  Consolidated Statements of Cash Flows........ 25

                  Notes to Consolidated Financial
                    Statements................................. 26



                                        1
<PAGE>





                                        2
<PAGE>


--------------------------------------------------------------------------------
                              FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------


                                              Year Ended June 30,
                                    2002     2001     2000     1999     1998
                                 ____________________________________________

                                            (Dollars in Thousands)

Total assets.................... $150,589 $142,496  137,225  130,193  117,373
Loans receivable, net...........   86,087   68,486   53,030   49,349   39,173
Mortgage-backed securities......   10,360   17,310   21,854   15,882   20,845
Cash and cash equivalents.......   32,921   20,719   32,666   35,020   31,994
Investment securities ..........   16,306   31,338   25,033   25,092   21,185
Deposits........................  138,444  131,504  126,870  120,225  107,762
Stockholders' equity............   10,397    9,662    9,257    8,996    8,768

For the Period:
  Net interest income........... $  4,448    3,661    3,510    3,154    3,147
  Net income ...................      866      379      372      365      595

Per Common Share:
  Book value per share
    outstanding................. $  28.56    26.55    25.43    24.71    24.09

  Earnings per share outstanding
    basic....................... $   2.38     1.04     1.02     1.00     1.68
    diluted..................... $   2.36     1.03     1.01      .99     1.66

Financial Ratios:
  Stockholders' equity to
    total assets................     6.90%    6.78     6.75     6.91     7.47
  Non-performing assets to
    total assets................      .11%     .17      .21      .38      .86
  Net charge-offs to total loans      .03%     .04       --      .06       --
  Net interest margin...........     3.19%    2.73     2.65     2.73     3.01
  Operating expenses to
    average assets (1)..........     2.90%    2.85     2.75     3.01     2.90
  Return on average assets......      .59%     .27      .27      .30      .54
  Return on average
    Stockholders' equity........     8.69%    4.01     4.12     4.08     7.11


(1)  Exclusive of real estate owned expenses and losses.


                                       3
<PAGE>


--------------------------------------------------------------------------------
                   SELECTED CONSOLIDATED FINANCIAL INFORMATION
--------------------------------------------------------------------------------


SELECTED FINANCIAL CONDITION DATA:
                                                   At June 30,
                                    2002     2001     2000     1999     1998
                                 ____________________________________________

                                                 (In Thousands)

Total assets.................... $150,589  142,496  137,225  130,193  117,373
Loans receivable, net...........   86,087   68,486   53,030   49,349   39,173
Mortgage-backed securities......   10,360   17,310   21,854   15,882   20,845
Cash and cash equivalents.......   32,921   20,719   32,666   35,020   31,994
Investment securities ..........   16,306   31,338   25,033   25,092   21,185
Deposits........................  138,444  131,504  126,870  120,225  107,762
Stockholders' equity............ $ 10,397    9,662    9,257    8,996    8,768


SELECTED OPERATIONS DATA:                     Year Ended June 30,
                                    2002     2001     2000     1999     1998
                                 ____________________________________________

                                                 (In Thousands)

Total interest income........... $  8,282    8,975    8,473    7,333    7,016
Total interest expense..........    3,834    5,314    4,963    4,179    3,869
                                    -----    -----    -----    -----    -----
Net interest income.............    4,448    3,661    3,510    3,154    3,147

Provision for loan losses
  (recoveries)..................       15       --       --       --    (160)
  Net interest income after         -----    -----    -----    -----    -----
    provision for loan losses...    4,433    3,661    3,510    3,154    3,307

Non-interest income:
Loan related fees and charges...      429      269      198      300      238
Deposit related fees............      514      481      500      529      596
Commission income...............       74       73       64      105       95
Income from real estate owned...       --        1        7       89       70
Profit on sale of loans.........       44        7       36       45       29
Other income....................       67       87       75       87       88
                                    -----    -----    -----    -----    -----
Total non-interest income.......    1,128      918      880    1,155    1,116
                                    -----      ---      ---    -----    -----

Non-interest expense:
Staffing costs..................    2,381    2,163    1,956    2,008    1,789
Occupancy and equipment expense.      745      713      721      576      475
Deposit insurance premiums......       24       26       47       64       63
Advertising expense.............       57       82      119       93       89
Data processing fees............      209      195      176      200      153
Real estate owned expenses......       --       --        5       82      261
Other expense...................      832      825      815      734      660
                                    -----    -----    -----    -----    -----
  Total non-interest expense....    4,248    4,004    3,839    3,757    3,490
                                    -----    -----    -----    -----    -----



Income before income taxes......    1,313      575      551      552      933
Provision for income taxes......      447      196      179      187      338
                                    -----    -----    -----    -----    -----
Net income .....................      866      379      372      365      595
                                    =====    =====    =====    =====    =====


                                       4
<PAGE>


--------------------------------------------------------------------------------
                   SELECTED CONSOLIDATED FINANCIAL INFORMATION
--------------------------------------------------------------------------------


SELECTED FINANCIAL RATIOS:
                                        At or For the Year Ended June 30,
                                    2002     2001     2000     1999     1998
                                 ____________________________________________

Performance Ratios:
Return on average assets........     .59%     .27      .27      .30      .54
Return on average stockholders'
  equity........................    8.69%    4.01     4.12     4.08     7.11

Interest rate spread during
  period........................    2.89%    2.30     2.28     2.34     2.63
Net interest margin (1).........    3.19%    2.73     2.65     2.73     3.01
Ratio of operating expenses to
  average total assets (2)......    2.90%    2.85     2.75     3.01     2.90
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities..  110.76%  110.86   109.87   110.64   110.25

Asset Quality Ratios:
Non-performing assets to
  total assets..................     .11%     .16      .21      .38      .86
Allowance for loan losses to
  non-performing loans..........  213.29%  104.63    78.91    88.96    77.78
Allowance for loan losses to
  total loans...................     .41%     .52      .69      .74     1.00

Capital Ratios:
Stockholders' equity to
  total assets..................    6.90%    6.78     6.75     6.91     7.47
Average stockholders' equity to
  average assets................    6.80%    6.73     6.47     7.33     7.52


(1)  Net interest income divided by average interest-earning assets.
(2)  Exclusive of real estate owned expenses and losses.



                                       5
<PAGE>


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


Forward-Looking Statements

When  used  in this  filing  and in  future  filings  by the  Company  with  the
Securities  and Exchange  Commission,  in the Company's  press releases or other
public  or  shareholder  communications,  or in oral  statements  made  with the
approval of an authorized  executive  officer,  the words or phrases "would be",
"will  allow",  "intends to",  "will likely  result",  "are expected to",  "will
continue",  "is anticipated",  "estimate",  "project" or similar expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and  uncertainties,  including  but not  limited to  changes  in  economic
conditions  and real estate  values in the  Company's  market  area,  changes in
policies by regulatory  agencies,  fluctuations  in interest  rates,  demand for
loans in the Company's market area and  competition,  all or some of which could
cause actual results to differ  materially  from  historical  earnings and those
presently anticipated or projected.

The Company  wishes to caution  readers not to place undue  reliance on any such
forward-looking  statements,  which speak only as of the date made,  and advises
readers  that  various  factors,   including   regional  and  national  economic
conditions,  substantial  changes in levels of market interest rates, credit and
other risks of lending and investment  activities and competitive and regulatory
factors,  could affect the Company's  financial  performance and could cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated or projected.

The Company does not undertake,  and specifically  disclaims any obligation,  to
update any  forward-looking  statements to reflect  occurrences or unanticipated
events or circumstances after the date of such statements.


                                     GENERAL

Midland Capital Holdings  Corporation (the "Company") is a Delaware  corporation
that was  organized for the purpose of becoming the thrift  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 July 23, 1998, as a
result of a Holding  Company  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, 2002 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


                                       6
<PAGE>


funds, consisting of the interest paid on its deposits. 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, Homer Glen, 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 supplement loan production and manage interest rate risk.


                        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.

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


                                       7
<PAGE>


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.

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 maintains a
relatively high level of liquidity and has focused its investment  activities in
cash   equivalents,   two  year  U.S  Government   and  Agency  Notes,   balloon
mortgage-backed  securities  and  intermediate  term  investments.  Second,  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 in the
current interest rate environment and the potential for increased margin. 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, 2002 assuming an  instantaneous  and sustained 300 basis
point change in market interest rates,  measured in 100 basis point  increments.
As of December 31, 2001, due to the current level of interest rates, the OTS did
not provide NPV estimates for decreases in interest rates greater than 100 basis
points.

                      NET PORTFOLIO VALUE          NPV AS % OF ASSETS

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

(Basis Points)  (Thousands)
   +300 bp         11,829    -6,830      -37           7.70   -390 bp
   +200 bp         14,285    -4,374      -23           9.14   -246 bp
   +100 bp         16,627    -2,032      -11          10.47   -112 bp
      0 bp         18,659         -        -          11.60      - bp
   -100 bp         19,090       431      + 2          11.82   + 23 bp


                      FINANCIAL CONDITION AT JUNE 30, 2002

At June 30, 2002 total assets of the Company increased by $8.1 million to $150.6
million from $142.5  million at June 30, 2001.  This  increase was the result of
increases  in  loans  receivable  and  cash  equivalents  that  were  funded  by
reductions in investment securities and mortgage-backed  securities as well as a
$6.9 million increase in deposits to $138.4 million at June 30, 2002.

Loans receivable, including loans available for sale, increased $17.6 million to
$86.1 million at June 30, 2002.  The Company  originated  $41.8 million of loans
during the year ended  June 30,  2002  compared  to loan  originations  of


                                       8
<PAGE>


$27.1 million during the prior fiscal year. The higher loan  origination  volume
in fiscal 2002 was due in part to an increase in mortgage  refinancing  activity
as a result of the  decline  in  interest  rates  that  began in  January  2001.
Offsetting loan  originations in the current fiscal year were loan repayments of
$21.2 million as well as loan sales of $3.2 million. There were no new purchases
of mortgage-backed securities during fiscal 2002 and as a result, the balance of
mortgage-backed  securities  decreased by $6.9 million to $10.4  million at June
30, 2002 due to repayments and amortization.

Investment  securities  available  for sale  decreased  by $4.9  million to $6.3
million at June 30, 2002,  from $11.2 million at June 30, 2001.  The decrease is
attributable  to the  early  redemption  of $10.0  million  of  callable  agency
securities  offset  by the  purchase  of $5.0  million  in  non-callable  agency
securities.  Gross  unrealized  gains in the available for sale  portfolio  were
$301,000 at June 30, 2002 compared to gross unrealized gains of $247,000 at June
30, 2001, reflecting the positive impact of lower interest rates. The balance of
investment  securities classified as held to maturity decreased by $10.1 million
to $10.0  million at June 30, 2002 due to  maturities  of U. S.  Government  and
agency  securities.  The  weighted  average  remaining  term to  maturity of the
Company's total investment  securities  portfolio at June 30, 2002 was 1.6 years
compared to 1.9 years at June 30, 2001.

The Company  increased the balance of cash and cash equivalents by $12.2 million
to $32.9  million  at June 30,  2002  from  $20.7  million  at June 30,  2001 in
anticipation of an increase in economic activity and upward pressure on interest
rates in  fiscal  2003.  The  increase  in cash  equivalents  was  funded by the
reduction in investment securities, discussed above.

Non-performing  assets  consisted of $164,000 in non-accruing  loans at June 30,
2002  compared to  $344,000  at June 30,  2001.  The  allowance  for loan losses
decreased by $9,000 to $350,000 at June 30, 2002,  as a result of charge offs in
the amount of $38,000 net of $14,000 in loan loss recoveries and $15,000 in loan
loss  provisions  during  fiscal  2002.  Non-accruing  loans  at June  30,  2002
consisted of $148,000 in single-family residential mortgage loans and $16,000 in
non-mortgage  loans.  At June 30, 2002 the Company's ratio of allowance for loan
losses to non-performing loans was 213.29% compared to 104.63% at June 30, 2001.
Management  believes  that the current  allowance for loan losses is adequate to
cover probable accrued losses in the portfolio.

Deposits  for the year  ended June 30,  2002  increased  $6.9  million to $138.4
million  as a result of  interest  credited  to  deposits  in the amount of $3.6
million as well as actual deposit inflows, net of withdrawals,  in the amount of
$3.3 million. The net increase in deposits is primarily attributed to aggressive
pricing of  non-certificate  deposit  accounts  which may be less  sensitive  to
interest  rate risk.  The  increase in deposits is the result of an $8.0 million
increase  in  passbook  deposit  accounts  and a $3.0  million  increase  in NOW
accounts,  offset by a $3.9 million decrease in certificate of deposit accounts,
a $169,000  decrease in money market accounts and an $11,000  decrease in demand
deposit accounts.

Stockholders' equity increased $735,000,  or 7.60%, to $10.4 million at June 30,
2002 from $9.7 million at June 30, 2001.  The increase in  stockholders'  equity
was  due to  net  income  of  $866,000  and an  increase  in  accumulated  other
comprehensive  income of $36,000  offset by the payment of cash dividends in the
amount of $167,000.


                                       9
<PAGE>


                              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,
                     ________________________________________________________________________

                              2002                     2001                     2000
                     ______________________   ______________________   ______________________




                     Average Interest Yield   Average Interest Yield   Average Interest Yield
                     Balance  Earned/  and    Balance  Earned/  and    Balance  Earned/  and
                               Paid   Rates             Paid   Rates             Paid   Rates
                     ________ _______ _____   ________ _______ _____   ________ _______ _____

Interest-Earning                              (Dollars in Thousands)
  Assets:
<S>              <C> <C>       <C>    <C>     <C>       <C>    <C>     <C>       <C>    <C>
Loans receivable (1) $ 78,998  5,446  6.89%   $ 58,371  4,305  7.39%   $ 50,383  3,691  7.33%
Mortgage-backed
  securities........   13,656    875  6.40      19,088  1,299  6.81      21,688  1,409  6.49
Investment and other
  securities........   26,639  1,476  5.54      28,686  1,698  5.92      25,055  1,397  5.58
Interest-bearing
  deposits..........   19,449    441  2.27      27,059  1,619  5.98      34,785  1,930  5.55
FHLB stock..........      817     44  5.43         750     54  7.27         656     46  7.04
                        -----     --               ---     --               ---     --
    Total interest-
      earning assets  139,559  8,282  5.93%    133,954  8,975  6.70%    132,567  8,473  6.39%
Non-interest earning
  assets............    7,800                    7,042                    7,589
                        -----                    -----                    -----
    Total assets     $147,359                 $140,996                 $140,156
                     ========                 ========                 ========

Interest-Bearing
  Liabilities:
Certificates of
  deposit........... $ 57,235  2,189  3.82    $ 61,012  3,413  5.59    $ 61,878  3,120  5.04
Passbook accounts...   48,179  1,152  2.39      41,960  1,267  3.02      42,507  1,286  3.03
Money market and
  NOW accounts......   20,592    493  2.40      17,860    634  3.55      16,273    557  3.43
    Total interest-    ------   ----           -------  -----           -------  -----
      bearing
      liabilities...  126,006  3,834  3.04     120,832  5,314  4.40     120,658  4,963  4.11
                               -----                    -----                    -----
Non-interest bearing
  deposits              9,763                    9,485                    9,336
Other liabilities       1,565                    1,182                    1,109
                        -----                    -----                    -----
  Total liabilities   137,334                  131,499                  131,103
Stockholders' equity   10,025                    9,497                    9,053
                       ------                    -----                    -----
    Liabilities and
      stockholders'
      equity         $147,359                 $140,996                 $140,156
                     ========                 ========                 ========

Net earning assets.. $ 13,553                 $ 13,122                 $ 11,909
                     ========                 ========                 ========

Net-interest income           $4,448                   $3,661                   $3,510
                              ======                   ======                   ======

Net-interest rate spread              2.89%                    2.30%                    2.28%
                                      ====                     ====                     ====

Net-interest margin                   3.19%                    2.73%                    2.65%
                                      ====                     ====                     ====

Average interest-earning
  assets to average
  interest-bearing liabilities      110.76%                  110.86%                  109.87%
                                    ======                   ======                   ======
</TABLE>

(1)  Calculated  net of deferred yield  adjustments,  loan  discounts,  loans in
     process and loss reserves.



                                       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,


                      _____________________________________________________________________

                              2002   vs.   2001                      2001   vs.   2000
                      _________________________________      ______________________________

                         Increase (decrease) due to             Increase (decrease) due to

                      _________________________________      ______________________________

                                         Rate/                                 Rate/

                      Volume     Rate   Volume      Net      Volume    Rate   Volume    Net
                      ------     ----   ------      ---      ------    ----   ------    ---

                                                    (in Thousands)
<S>                  <C>      <C>      <C>      <C>        <C>       <C>     <C>
Interest-Earning
  Assets:
Loans Receivable.... $ 1,522  $  (281)  $(100)  $ 1,141     $   585   $  25   $   4   $ 614
Mortgage-backed
  securities........    (369)     (77)     22      (424)       (169)     67      (8)   (110)
Investment and other
  securities........    (121)    (109)      8      (222)        202      86      13     301
Interest-bearing
  deposits..........    (455)  (1,005)    282    (1,178)       (429)    151     (33)   (311)

FHLB stock..........       5      (14)     (1)      (10)          7       1      --       8
    Total interest-  -------  -------   -----   -------     -------   -----   -----   -----
      earning assets $   582  $(1,486)  $ 211   $  (693)    $   196   $ 330   $ (24)  $ 502
                     -------  -------   -----   -------     -------   -----   -----   -----

Interest-Bearing
  Liabilities:
Certificates of
  deposit........... $  (211) $(1,080)  $  67   $(1,224)    $   (44)  $ 342   $  (5)  $ 293

Passbook accounts...     188     (264)    (39)     (115)        (17)    ( 2)     --     (19)

Money market and
  NOW accounts......      97     (206)    (32)     (141)         54      21       2      77
    Total interest-  -------  -------   -----   -------     -------   -----   -----   -----
      bearing liab-
      ilities....... $    74  $(1,550)  $  (4)  $(1,480)    $    (7)  $ 361   $  (3)  $ 351
                     -------  -------   -----   -------     -------   -----   -----   -----
Net change in net
  interest income...                            $   787                               $ 151
                                                =======                               =====

</TABLE>



                                       12
<PAGE>



                         COMPARISON OF OPERATING RESULTS
                           FOR THE FISCAL YEARS ENDED
                         JUNE 30, 2002 AND JUNE 30, 2001

The Company had net income of $866,000 in fiscal 2002  compared to net income of
$379,000  for fiscal  2001.  The  increase  in net income is  attributable  to a
$787,000 increase in net interest income and a $209,000 increase in non-interest
income offset by a $244,000 increase in non-interest expense, a $15,000 increase
in provision for loan losses and a $250,000 increase in income taxes.

Net interest income increased  $787,000 to $4.4 million in fiscal 2002 from $3.7
million in fiscal  2001.  The average  balance of net earning  assets  increased
$431,000 to $13.6  million in fiscal 2002 from $13.1 million in the prior fiscal
year. Net interest  margin and interest rate spread  increased in fiscal 2002 to
3.19% and 2.89%,  respectively,  from 2.73% and 2.30%,  respectively,  in fiscal
2001.  The increases in net interest  income,  net interest  margin and interest
rate spread that  occurred in the  current  fiscal year were  attributable  to a
decline in the  Company's  aggregate  funding  costs that exceeded the aggregate
decline in earning assets yields.

INTEREST INCOME

Interest income decreased $694,000 in fiscal 2002 to $8.3 million. This decrease
in interest  income  resulted  from a decrease in the  average  yield  earned on
interest  earning  assets to 5.93% in fiscal 2002 from 6.70% in fiscal 2001. The
decrease in the average yield earned on interest  earning assets was offset by a
$5.6  million  increase in the average  balance of  interest  earning  assets to
$139.6 million in fiscal 2002 from $134.0 million in fiscal 2001.

Interest on loans receivable increased $1.1 million, or 26.5%, in fiscal 2002 to
$5.4  million  compared  with fiscal 2001.  The increase in interest  income was
attributed to a $20.6 million increase in the average outstanding balance of net
loans  receivable  to $79.0  million in fiscal 2002 from $58.4 million in fiscal
2001. The increase in the average  outstanding  balance of loans  receivable was
offset by a decrease in the average yield earned on loans receivable to 6.89% in
fiscal 2002 from 7.39% in fiscal 2001.

Interest on mortgage-backed securities decreased $424,000, or 32.7%, to $875,000
in fiscal 2002  compared with fiscal 2001.  The decrease in interest  income was
attributed  to a $5.4  million  decrease in the average  outstanding  balance of
mortgage-backed securities to $13.7 million in fiscal 2002 from $19.1 million in
fiscal 2001 as well as a decrease in the average yield earned on mortgage-backed
securities to 6.40% in fiscal 2002 from 6.81% in fiscal 2001.

Interest earned on investment  securities decreased $222,000,  or 13.1%, to $1.5
million in fiscal 2002.  The decrease in interest  income  resulted  from a $2.0
million decrease in the average outstanding balance of investment  securities to
$26.6  million  from the prior  fiscal year as well as a decrease in the average
yield earned on investment  securities to 5.54% in fiscal 2002 compared to 5.92%
in fiscal 2001.

Interest earned on interest bearing deposits  decreased $1.2 million,  or 72.7%,
to $441,000 in fiscal 2002 compared  with fiscal 2001.  The decrease in interest
income is  attributed  to a $7.6  million  decrease in the  average  outstanding
balance of interest  bearing deposits to $19.5 million in fiscal


                                       13
<PAGE>


2002 from $27.1  million in fiscal  2001 as well as a  decrease  in the  average
yield earned on interest  bearing deposits to 2.27% in fiscal 2002 from 5.98% in
fiscal  2001.  The  Company  reduced its  average  balance of  interest  bearing
deposits  during  fiscal 2002 in response to the  downward  pressure on interest
rates that occurred in calendar 2001.

INTEREST EXPENSE

Interest  expense  decreased $1.5 million,  or 27.9%,  to $3.8 million in fiscal
2002 from $5.3  million in fiscal  2001.  The  decrease in  interest  expense in
fiscal 2002 was the result of a decrease  in the average  yield paid on interest
costing  deposits to 3.04% in fiscal 2002 compared to 4.40% in fiscal 2001.  The
decrease in the average yield paid on interest  costing deposits was offset by a
$5.2 million  increase in the average  outstanding  balance of interest  costing
deposits to $126.0  million in fiscal 2002 compared to fiscal 2001. The decrease
in the average yield paid on interest costing  deposits is primarily  attributed
to the  general  decline in interest  rates as well as a shift in the  Company's
deposit liability mix out of higher yielding certificate of deposit accounts and
into lower yielding core deposit accounts.

PROVISIONS FOR LOSSES ON LOANS

The Company  maintains  an  allowance  for loan losses  based upon  management's
periodic  evaluation of probable  accrued losses in the portfolio based on known
and  inherent  risks  in the  loan  portfolio,  the  Company's  past  loan  loss
experience,  adverse  situations  that may  affect  borrowers'  ability to repay
loans,  estimated  value of the  underlying  collateral and current and expected
market  conditions.  After  considering  the  positive  trend  in the  level  of
non-performing  loans,  the high  concentration  of one-to-four  family mortgage
loans in the loan  portfolio,  the  level  and  nature  of its  charge  offs and
recoveries and the strong housing market,  the Company made $15,000 in loan loss
provisions  during fiscal 2002. The allowance for loan losses totaled  $350,000,
or .41% of total loans, at June 30, 2002 compared to $359,000,  or .52% of total
loans, at June 30, 2001.  Non-accruing  loans totaled  $164,000 at June 30, 2002
compared to $344,000 at June 30, 2001. The Company's ratio of allowance for loan
losses to non-performing  loans was 213.29% at June 30, 2002 compared to 104.63%
at June 30, 2001.  The $350,000  allowance  for loan losses at June 30, 2002 was
determined by the Company to be consistent with its policy for the establishment
and maintenance of adequate levels of loan loss reserves.

At June  30,  2002,  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 probable accrued losses, there can be
no assurance that such losses will not exceed the estimated amounts.

NON-INTEREST INCOME

Non-interest  income  increased  $210,000  to $1.1  million in fiscal  2002 from
$918,000 in fiscal 2001. The increase in  non-interest  income in fiscal 2002 is
primarily  attributed to a $160,000 increase in loan fees and service charges, a
$37,000  increase  in  profit on the sale of loans  and a  $33,000  increase  in
deposit  related fees offset by the elimination of $15,000 in profit on the sale
of assets in fiscal  2001.  The  increase  in loan fees and  service  charges in
fiscal 2002 is attributed to an increase in loan origination  activity  compared
to the prior fiscal year.


                                       14
<PAGE>


NON-INTEREST EXPENSE

Non-interest  expense increased $244,000 to $4.2 million in fiscal 2002 compared
with the prior fiscal year. The primary factors for the increase in non-interest
expense were a $218,000 increase in staffing costs, a $32,000 increase in office
occupancy and equipment  expense,  a $14,000 increase in data processing fees as
well  as  $14,000  in  non-recurring  charges  from  losses  on  demand  deposit
overdrafts.  These  increases in  non-interest  expense were offset by a $26,000
decrease in advertising  expense,  a $19,000 decrease in professional fees and a
$14,000  decrease in computer  software  and support  expense.  The  increase in
staffing  costs  was  primarily  the  result  of an  $80,000  increase  in  loan
origination  commissions,  due to an  increase  in  lending  volume,  a  $92,000
increase in employee benefit costs, primarily due to higher pension costs during
the current fiscal year, and a $46,000  increase in bonus  compensation  expense
compared with the prior fiscal year.

INCOME TAXES

Provisions  for income  taxes  increased  by $251,000 to $447,000 in fiscal 2002
from $196,000 in fiscal 2001  primarily due to the increase in operating  income
in the current fiscal year as compared to the prior year.


                         COMPARISON OF OPERATING RESULTS
                           FOR THE FISCAL YEARS ENDED
                         JUNE 30, 2001 AND JUNE 30, 2000

The Company had net income of $379,000 in fiscal 2001  compared to net income of
$372,000  for fiscal  2000.  The  increase  in net income is  attributable  to a
$151,000  increase in net interest income and a $38,000 increase in non-interest
income  offset by a $165,000  increase  in  non-interest  expense  and a $17,000
increase in income taxes.

Net interest income increased  $151,000 to $3.7 million in fiscal 2001 from $3.5
million in fiscal 2000. The average balance of net earning assets increased $1.2
million to $13.1  million in fiscal 2001 from $11.9  million in the prior fiscal
year. Net interest  margin and interest rate spread  increased in fiscal 2001 to
2.73% and 2.62%,  respectively,  from 2.65% and 2.57%,  respectively,  in fiscal
2000.  The increases in net interest  income,  net interest  margin and interest
rate spread that occurred in the current fiscal year were  attributable  in part
to the  higher  market  interest  rates that were  predominant  in the first six
months of the current  fiscal  year.  This  resulted in the  Company's  interest
earning  assets  re-pricing at higher market  interest  rates,  which offset the
negative  impact of  higher  deposit  interest  rates  during  that  period.  In
addition, the general decline in market interest rates during the second half of
the current fiscal year allowed the Company's deposit liabilities to re-price at
lower deposit  interest rates.  The ratio of average  interest earning assets to
average  interest  bearing  liabilities also increased to 110.86% in fiscal 2001
from 109.87% in fiscal 2000.

INTEREST INCOME
Interest income increased $502,000 in fiscal 2001 to $9.0 million. This increase
in interest  income  resulted  from an increase in the average  yield  earned on
interest  earning  assets to 6.70% in fiscal  2001 from 6.39% in fiscal  2000 as
well as a $1.4  million  increase  in the average  balance of  interest  earning
assets to $134.0 million in fiscal 2001 from $132.6 million in fiscal 2000.


                                       15
<PAGE>


Interest on loans  receivable  increased  $614,000,  or 16.6%, in fiscal 2001 to
$4.3  million  compared  with fiscal 2000.  The increase in interest  income was
attributed to an $8.0 million increase in the average outstanding balance of net
loans  receivable  to $58.4  million in fiscal 2001 from $50.4 million in fiscal
2000 as well as an increase in the average  yield earned on loans  receivable to
7.39% in fiscal 2001 from 7.33% in fiscal 2000.

Interest on  mortgage-backed  securities  decreased  $110,000,  or 7.8%, to $1.3
million in fiscal 2001  compared  with  fiscal  2000.  The  decrease in interest
income was  attributed  to a $2.6  million  decrease in the average  outstanding
balance of mortgage-backed securities to $19.1 million in fiscal 2001 from $21.7
million in fiscal  2000.  The  decrease  in the average  outstanding  balance of
mortgage-backed securities was offset by an increase in the average yield earned
on mortgage-backed securities to 6.81% in fiscal 2001 from 6.49% in fiscal 2000.

Interest earned on investment  securities increased $301,000,  or 21.5%, to $1.7
million in fiscal 2001.  The increase in interest  income  resulted  from a $3.6
million increase in the average outstanding balance of investment  securities to
$28.7  million  from the prior fiscal year as well as an increase in the average
yield earned on investment  securities to 5.92% in fiscal 2001 compared to 5.58%
in fiscal 2000.

Interest earned on interest bearing deposits  decreased  $311,000,  or 16.1%, to
$1.6 million in fiscal 2001 compared with fiscal 2000.  The decrease in interest
income is  attributed  to a $7.7  million  decrease in the  average  outstanding
balance of interest  bearing deposits to $27.1 million in fiscal 2001 from $34.8
million in fiscal  2000.  The  decrease  in the average  outstanding  balance of
interest  bearing deposits was offset by an increase in the average yield earned
on interest  bearing deposits to 5.98% in fiscal 2001 from 5.55% in fiscal 2000.
The Company reduced its investments in interest  bearing deposits in response to
declining short term market interest rates in the second half of fiscal 2001.

INTEREST EXPENSE
Interest  expense  increased  $351,000,  or 7.1%, to $5.3 million in fiscal 2001
from $5.0  million in fiscal 2000.  The  increase in interest  expense in fiscal
2001 was the result of an increase in the average yield paid on interest costing
deposits to 4.40% in fiscal  2001  compared to 4.11% in fiscal 2000 as well as a
$174,000  increase  in the  average  outstanding  balance  of  interest  costing
deposits to $120.8  million in fiscal 2001 compared to fiscal 2000. The increase
in the average yield paid on interest costing  deposits is primarily  attributed
to  aggressive  pricing and promotion of both  certificate  of deposit and money
market accounts at the Company's Homer Glen banking office.

PROVISIONS FOR LOSSES ON LOANS
The Company  maintains  an  allowance  for loan losses  based upon  management's
periodic  evaluation of probable  accrued losses in the portfolio based on known
and  inherent  risks  in the  loan  portfolio,  the  Company's  past  loan  loss
experience,  adverse  situations  that may  affect  borrowers'  ability to repay
loans,  estimated  value of the  underlying  collateral and current and expected
market  conditions.  At June 30, 2001 the  Company's  allowance  for loan losses
totaled  $359,000 as compared to $369,000 at the prior  fiscal year end.  During
fiscal  2001  the  Company  incurred  $24,000  in  loan  charge-offs  offset  by
recoveries  in the amount of $14,000  from loans  previously  charged  off.  The
Company made no loan loss  provisions  in fiscal  2001.  At fiscal year end, the


                                       16
<PAGE>


allowance for loan losses was  determined  by the Company to be consistent  with
its policy for the establishment and maintenance of adequate levels of loan loss
allowances.

At June  30,  2001,  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 probable accrued losses, there can be
no assurance that such losses will not exceed the estimated amounts.

NON-INTEREST INCOME
Non-interest  income increased  $38,000 to $918,000 in fiscal 2001 from $880,000
in fiscal 2000. The increase in non-interest  income in fiscal 2001 is primarily
attributed to a $71,000  increase in loan fees and service  charges and a $9,000
increase in commission income offset by a $29,000 decrease in profit on the sale
of loans and a $19,000  decrease in deposit  related fees.  The increase in loan
fees and service charges was the result of increased loan  origination  activity
in fiscal 2001 compared to fiscal 2000. The decrease in deposit  related fees in
fiscal 2001 is attributed to a decrease in the level of demand  deposit  service
charges  resulting  from a decline in overdraft  activity  compared to the prior
fiscal year.

NON-INTEREST EXPENSE
Non-interest  expense increased $165,000 to $4.0 million in fiscal 2001 compared
with the prior fiscal year. The primary factors for the increase in non-interest
expense  were a $207,000  increase in staffing  costs and a $19,000  increase in
data processing fees.  These increases in non-interest  expense were offset by a
$37,000  decrease  in  advertising  expense  and a $21,000  decrease  in deposit
insurance  premiums,  as compared  with the prior fiscal  year.  The increase in
staffing  costs was  primarily  the result of a $72,000  increase in the cost of
employee  benefits  as well as a $57,000  increase  in  commissions  paid to the
Company's  staff  loan  originators  due to an  increase  in  loan  originations
compared with the prior fiscal year.

INCOME TAXES
Provisions for income taxes increased by $17,000 to $196,000 in fiscal 2001 from
$179,000 in fiscal 2000 primarily due to the increase in operating income in the
current fiscal year as compared to the prior year.

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are deposits, loan and mortgage- backed
securities repayments, proceeds from the maturities of investment securities and
other funds provided by operations.

The Company  maintains  investments  in liquid  assets  based upon  management's
assessment of (i) the Company's  need for funds,  (ii) expected  deposit  flows,
(iii) the yields  available on short-term  liquid assets and (iv) the objectives
of the  Company's  asset/liability  management  program.  At June  30,  2002 the
Association  had commitments to originate $3.1 million in single family mortgage
loans and  commitments  to sell  $740,000 in 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


                                       17
<PAGE>


activities. These activities are summarized in the following table for the years
ended June 30, 2002 and 2001.


                                                      For the Year
                                                     Ended June 30,
                                                ______________________

                                                    2002          2001
                                                  ________      ________
                                                (Dollars in Thousands)

Net income.............................         $   866        $   379
Adjustments to reconcile net income
  to net cash provided by (for)
  operating activities.................             393           (514)
Net cash provided by (for)                       ------         ------
  operating activities.................           1,259           (135)
Net cash provided by (for)
  investing activities.................           4,054        (16,511)
Net cash provided by
  financing activities.................           6,889          4,699
                                                  -----          -----
Net change in cash and
  cash equivalents.....................          12,202        (11,947)
Cash and cash equivalents at
  beginning of period..................          20,719         32,666
                                                 ------         ------
Cash and cash equivalents at
  end of period........................         $32,921        $20,719
                                                =======        =======

At June 30, 2002 Midland  Federal had tangible and core capital of $9.3 million,
or 6.15% of adjusted total assets, which was approximately $7.0 million and $4.8
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,  2002  Midland  Federal  had  total  capital  of $9.6  million  and
risk-weighted   assets  of  $80.9   million,   or  total  capital  of  11.9%  of
risk-weighted  assets. This amount was approximately $3.2 million above the 8.0%
requirement for capital adequacy purposes in effect on that date.

                        DISCLOSURE AND INTERNAL CONTROLS

The Company has adopted interim disclosure  controls and procedures  designed to
facilitate the Company's  financial  reporting.  The interim disclosure controls
currently consist of communications between the Chief Executive Officer and each
department   head  to  identify  any  new   transactions,   events,   trends  or
contingencies which may be material to the Company's operations. The Company has
evaluated the effectiveness of these interim  disclosure  controls within the 90
days prior to the filing of this report.

The Company  maintains  internal controls and has evaluated such controls within
90 day of the filing of this report. There have not been any significant changes
in such internal controls subsequent to the date of their evaluation.


                                       18
<PAGE>


                       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 2001,  the FASB issued  SFAS No. 143  "Accounting  for Asset  Retirement
Obligations".  SFAS No. 143 addresses the financial accounting and reporting for
obligations  related to the  retirement  of tangible  long-lived  assets and the
related  asset  retirement  costs.  SFAS  No.  143 is  effective  for  financial
statements  issued for fiscal years  beginning after June 15, 2002. As such, the
Company will adopt the  provisions of SFAS No. 143 on July 1, 2002.  The Company
does not expect these  provisions to have a material impact on its  consolidated
financial statements.

In August 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment and
Disposal  of  Long-Term  Assets".   This  statement   supercedes  SFAS  No.  121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of" as well as the  accounting  and  reporting  of the  Accounting
Principles  Board (APB)  Opinion No. 30,  Reporting  the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and  Infrequently  Occurring  Events and  Transactions.  This  statement
eliminates  the  allocation  of goodwill to  long-lived  assets to be tested for
impairment and details both a probability-weighted  and "primary-asset" approach
to estimate cash flows in testing for impairment for long-lived assets. SFAS No.
144 is effective for financial statement issued for fiscal years beginning after
December 15, 2001.  As such,  the Company will adopt the  provisions of SFAS No.
144 on July 1, 2002.  The Company  does not expect  these  provisions  to have a
material impact on its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections".
This  Statement   rescinds  SFAS  No.  4,  "Reporting   Gains  and  Losses  from
Extinguishment  of  Debt,"  and an  amendment  of that  Statement,  SFAS No.  64
"Extinguishment  of  Debt  Made  to  Satisfy  Sinking-Fund  Requirements".  This
Statement also rescinds SFAS No. 44 "Accounting  for Intangible  Assets of Motor
Carriers".  This  Statement  amended  SFAS No. 13,  "Accounting  for Leases," to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects that are similar to  sale-leaseback  transactions.  This
Statement  also  amends  other  existing  authoritative  pronouncements  to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. This Statement is effective for fiscal years beginning
after May 15, 2002. As such,  the Company will adopt the  provisions of SFAS No.
145 on July 1,  2002.  Adoption  of this  statement  is not  expected  to have a
material effect on the Company's consolidated financial statements.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  Emerging  Issues  Task  Force  ("EITF")  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other


                                       19
<PAGE>


Costs  to  Exit  an   Activity   (including   Certain   Costs   Incurred   in  a
Restructuring)".  This  Statement is effective  for exit or disposal  activities
that are initiated  after  December 31, 2002.  Adoption of this statement is not
expected  to have a  material  effect on the  Company's  consolidated  financial
statements.

                     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
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,  2002,  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 Electronic  Bulletin Board of
the National Association of Securities Dealers, 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, 2000         $15.75           $14.00            $0.075

December 31, 2000           22.00            15.00             0.075

March 31, 2001              17.00            14.75             0.075

June 30, 2001               26.00            14.50             0.075

September 30, 2001          25.00            25.00             0.10

December 31, 2001           20.00            16.00             0.12

March 31, 2002              19.88            18.00             0.12

June 30, 2002               26.75            20.25             0.12

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


                                       20
<PAGE>



                  [ LETTERHEAD 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, 2002 and
2001,   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,  2002.  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, 2002 and 2001, and the
results of their  operations and their cash flows for each of the three years in
the  period  ending  June  30,  2002,  in  conformity  with  generally  accepted
accounting principles.





/s/ Cobitz, Vandenberg & Fennessy
---------------------------------
Cobitz, Vandenberg & Fennessy




August 13, 2002
Palos Hills, Illinois


                                       21


<PAGE>

<TABLE>
<CAPTION>

                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES
                                ----------------

                 Consolidated Statements of Financial Condition


                                                                      June 30,
                                                          ----------------------------
                                                                2002          2001
                                                                ----          ----
<S>                                                       <C>               <C>
Assets

Cash and amounts due from depository institutions         $   4,439,811     4,280,021
Interest-bearing deposits                                    28,481,627    16,438,650
                                                          -------------  ------------
   Total cash and cash equivalents                           32,921,438    20,718,671
Investment securities, held to maturity (fair value:
  2002 - $10,182,850; 2001 - $20,422,438) (note 2)           10,026,708    20,111,916
Investment securities available for sale,
  at fair value (note 3)                                      6,279,537    11,225,912
Mortgage-backed securities, held to maturity (fair value:
  2002 - $10,553,233; 2001 - $17,595,308) (note 4)           10,359,768    17,310,326
Loans receivable (net of allowance
  for loan losses:  2002 - $350,260;
  2001 - $359,445) (note 5)                                  85,346,846    68,034,401
Loans receivable held for sale (note 6)                         739,806       451,700
Stock in Federal Home Loan Bank of Chicago                      896,600       782,700
Accrued interest receivable (note 7)                            649,856       905,134
Office properties and equipment - net (note 8)                2,816,584     2,366,325
Prepaid expenses and other assets (note 9)                      551,805       588,553
                                                          -------------  ------------
   Total assets                                             150,588,948   142,495,638
                                                          =============  ============

Liabilities and Stockholders' Equity

Liabilities:
Deposits (note 10)                                          138,443,669   131,503,665
Advance payments by borrowers for taxes
  and insurance                                                 985,144       868,756
Other liabilities (note 11)                                     763,580       461,344
                                                          -------------  ------------
   Total liabilities                                        140,192,393   132,833,765
                                                          -------------  ------------

Stockholders' Equity:
Preferred stock, $.01 par value: authorized
  50,000 shares; none outstanding                                    --           --
Common stock, $.01 par value: authorized
  600,000 shares; issued and outstanding
  363,975 shares at June 30, 2002 and 2001                        3,640         3,640
Additional paid-in capital                                    3,276,855     3,276,855
Retained earnings - substantially restricted                  6,917,305     6,218,393
Accumulated other comprehensive income,
  net of income taxes                                           198,755       162,985
   Total stockholders' equity (notes 15 and 16)              10,396,555     9,661,873

Commitments and contingencies (notes 17 and 18)

   Total liabilities and stockholders' equity             $ 150,588,948   142,495,638
                                                          =============  ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       22

<PAGE>

<TABLE>
<CAPTION>


                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES

                        Consolidated Statements of Income


                                                          Years Ended June 30,
                                              ---------------------------------------
                                                   2002          2001          2000
                                                   ----          ----          ----
<S>                                           <C>             <C>           <C>
Interest income:
  Interest on loans                           $ 5,445,564     4,304,925     3,690,971
  Interest on mortgage-backed securities          874,514     1,299,368     1,408,639
  Interest on investment securities             1,475,782     1,697,770     1,397,537
  Interest on interest-bearing deposits           441,318     1,618,946     1,929,995
  Dividends on FHLB stock                          44,411        54,446        46,171
                                              -----------   -----------   -----------
    Total interest income                       8,281,589     8,975,455     8,473,313
                                              -----------   -----------   -----------

Interest expense:
  Interest on deposits (note 10)                3,834,055     5,314,492     4,963,447
                                              -----------   -----------   -----------
    Total interest expense                      3,834,055     5,314,492     4,963,447
                                              -----------   -----------   -----------

    Net interest income before
     provision for loan losses                  4,447,534     3,660,963     3,509,866
Provision for loan losses                          15,000            --            --
                                              -----------   -----------   -----------
    Net interest income after
     provision for loan losses                  4,432,534     3,660,963     3,509,866
                                              -----------   -----------   -----------
Non-interest income:
  Loan fees and service charges                   429,092       268,804       198,381
  Commission income                                73,868        73,242        64,205
  Profit on sale of loans (note 6)                 43,819         7,368        35,734
  Profit on sale of real estate owned - net          -              911         4,491
  Deposit related fees                            514,388       481,031       499,865
  Other income                                     66,901        87,378        77,734
                                              -----------   -----------   -----------
    Total non-interest income                   1,128,068       918,734       880,410
                                              -----------   -----------   -----------

Non-interest expense:
  Staffing costs (notes 12 and 13)              2,380,528     2,162,800     1,955,963
  Advertising                                      56,711        82,213       119,177
  Occupancy and equipment expenses (note 8)       745,486       712,872       720,895
  Data processing                                 209,141       195,330       175,752
  Federal deposit insurance premiums               24,238        25,548        47,428
  Legal, audit and examination services           124,521       139,672       139,952
  Real estate owned expense                            --            --         4,729
  Other                                           707,223       685,701       675,562
                                              -----------   -----------   -----------
    Total non-interest expense                  4,247,848     4,004,136     3,839,458
                                              -----------   -----------   -----------

  Income before income taxes                    1,312,754       575,561       550,818
Provision for income taxes (note 14)              446,414       196,307       178,884

      Net income                              $   866,340       379,254       371,934
                                              ===========   ===========   ===========

Earnings per share - basic                    $      2.38          1.04          1.02
                                              ===========   ===========   ===========

Earnings per share - diluted                  $      2.36          1.03          1.01
                                              ===========   ===========   ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       23
<PAGE>


<TABLE>
<CAPTION>

                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity



                                                                           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, 1999                $  3,640    3,271,315   5,685,591     80,030   (45,047)  8,995,529
                                        --------    ---------   ---------     ------   -------   ---------
 Comprehensive income:
  Net income                                                      371,934                          371,934
  Other comprehensive income,
    net of tax:
   Unrealized holding loss
    during the year                                                          (37,326)              (37,326)

 Total comprehensive income                                       371,934    (37,326)              334,608
                                                                  -------    -------               -------

  Tax benefit related to
   employee stock plan                                  3,339                                        3,339

  Amortization of award of BIP stock                                                    32,434      32,434

  Dividends declared on
   common stock ($.30 per share)                                 (109,193)                        (109,193)
                                        --------    ---------   ---------     ------   -------   ---------
Balance at June 30, 2000                   3,640    3,274,654   5,948,332     42,704   (12,613)  9,256,717
                                        --------    ---------   ---------     ------   -------   ---------

 Comprehensive income:
  Net income                                                      379,254                          379,254
  Other comprehensive income,
    net of tax:
   Unrealized holding gain
    during the year                                                          120,281               120,281

 Total comprehensive income                                       379,254    120,281               499,535

  Tax benefit related to
   employee stock plan                                  2,201                                        2,201

  Amortization of award of BIP stock                                                    12,613      12,613

  Dividends declared on
   common stock ($.30 per share)                                 (109,193)                        (109,193)
                                        --------    ---------   ---------     ------   -------   ---------
Balance at June 30, 2001                   3,640    3,276,855   6,218,393    162,985      -      9,661,873
                                        --------    ---------   ---------     ------   -------   ---------

 Comprehensive income:
  Net income                                                      866,340                          866,340
  Other comprehensive income,
    net of tax:
   Unrealized holding gain
    during the year                                                           35,770                35,770
                                                                ---------     ------             ---------
 Total comprehensive income                                       866,340     35,770               902,110

  Dividends declared on
   common stock ($.46 per share)                                 (167,428)                        (167,428)
                                        --------    ---------   ---------     ------   -------   ---------
Balance at June 30, 2002                $  3,640    3,276,855   6,917,305    198,755        --  10,396,555
                                        ========    =========   =========    =======   =======  ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       24

<PAGE>


                      MIDLAND CAPITAL HOLDINGS CORPORATION
                                AND SUBSIDIARIES
                                ----------------

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                  Years Ended June 30,
                                                                   -------------------------------------------------
                                                                       2002               2001              2000
                                                                       ----               ----              ----
<S>                                                                <C>                    <C>               <C>
Cash flows from operating activities:
  Net income                                                       $     866,340          379,254           371,934
  Adjustments to reconcile net income to net cash
   from operating activities:
    Depreciation                                                         322,450          314,158           311,378
    Amortization of premiums and discounts on securities                 (22,618)         (70,946)          (49,270)
    Amortization of cost of stock benefit plan                                --           12,613            32,434
    Federal Home Loan Bank stock dividend                                (44,200)         (54,200)          (23,600)
    Profit on sale of real estate owned                                       --             (911)           (4,491)
    Provision for loan losses                                             15,000               --                --
    Proceeds from sale of loans held for sale                          3,160,571          534,044         3,172,515
    Origination of loans held for sale                                (3,449,100)        (985,744)       (2,737,365)
    Profit on sale of loans                                              (43,819)          (7,368)          (35,734)
    Decrease (increase) in accrued interest receivable                   255,278         (254,180)          (38,988)
    (Decrease) increase in accrued interest payable                      (11,023)           1,689             5,101
    Decrease in deferred income on loans                                (140,684)         (90,246)          (26,666)
    Decrease in other assets                                              62,140           40,796           107,211
    Increase in other liabilities                                        289,074           45,220               877
                                                                   -------------       ----------        ----------
Net cash provided by (for) operating activities                        1,259,409         (135,821)        1,085,336
                                                                   -------------       ----------        ----------
Cash flows from investing activities:
    Purchase of mortgage-backed securities, held to maturity                  --               --       (10,007,275)
    Proceeds from repayments of mortgage-backed securities,
      held to maturity                                                 6,977,487        4,581,712         4,071,981
    Purchase of investment securities, held to maturity                       --      (10,089,131)       (9,985,251)
    Proceeds from maturities of investment securities,
      held to maturity                                                10,080,000       10,000,000        10,000,000
    Purchase of investment securities, available for sale             (4,998,531)     (10,000,000)               --
    Proceeds from maturities and early redemption of
      investment securities, available for sale                       10,000,000        4,000,000                --
    Purchase of Federal Home Loan Bank stock                             (69,700)              --           (68,900)
    Purchase of loans                                                         --       (1,007,054)               --
    Loan disbursements                                               (38,379,056)     (26,086,272)      (12,348,587)
    Loan repayments                                                   21,216,903       12,189,692         8,260,647
    Proceeds from sale of real estate owned                                   --               --           276,472
    Property and equipment expenditures                                 (772,709)        (100,422)         (297,389)
                                                                   -------------       ----------        ----------
Net cash provided by (for) investing activities                        4,054,394      (16,511,475)      (10,098,302)
                                                                   -------------       ----------        ----------

Cash flows from financing activities:
    Deposit receipts                                                 421,210,595      423,622,786       438,125,311
    Deposit withdrawals                                             (417,924,197)    (424,011,728)     (436,191,332)
    Interest credited to deposit accounts                              3,653,606        5,022,131         4,711,913
    Payment of dividends                                                (167,428)        (109,193)         (109,193)
    Increase in advance payments
      by borrowers for taxes and insurance                               116,388          175,454           122,488
                                                                   -------------       ----------        ----------
Net cash provided by financing activities                              6,888,964        4,699,450         6,659,187
                                                                   -------------       ----------        ----------

Net change in cash and cash equivalents                               12,202,767      (11,947,846)       (2,353,779)
Cash and cash equivalents at beginning of year                        20,718,671       32,666,517        35,020,296

Cash and cash equivalents at end of year                           $  32,921,438       20,718,671        32,666,517
                                                                   =============       ==========        ==========

Cash paid during the year for:
   Interest                                                        $   3,845,078        5,312,803         4,958,346
   Income taxes                                                          161,654          178,054            50,000
</TABLE>


See accompanying notes to consolidated financial statements.

                                       25

<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 No.  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 No. 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.

                                       26
<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,  2002 and 2001,  nor
     during the years ended June 30, 2002 and 2001,  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  generally  retains the right to service mortgage loans sold to
     others. The cost allocated to mortgage servicing rights has been recognized
     as a separate  asset and is being  amortized in  proportion to and over the
     period of estimated net servicing income,  using a method that approximates
     a level yield and taking into  consideration  prepayment of the  underlying
     loans. Mortgage servicing rights are periodically  evaluated for impairment
     based on the fair value of those rights.  Fair values are  estimated  using
     discounted  cash  flows  based on current  market  rates of  interest.  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.

                                       27
<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.

     Depreciation
     ------------

     Depreciation  of office  properties  and  equipment is  accumulated  on the
     straight  line basis over  estimated  lives of the various  assets.  Useful
     lives are 25 to 40 years for office properties, 5 to 15 years for leasehold
     improvements and 3 to 10 years for furniture, fixtures and equipment.

     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.

                                       28
<PAGE>


1)   Summary of Significant Accounting Policies (continued)
     ------------------------------------------------------

     Earnings Per Share
     ------------------

     Earnings per share is  determined  by dividing net income for the period by
     the  weighted  average  number of shares  outstanding.  Stock  options  are
     regarded as future  common  stock and are  considered  in the  earnings per
     share  calculations,  and are the only  adjustments  made to average shares
     outstanding in computing diluted earnings per share.

     Weighted  average  shares  used  in  calculating  earnings  per  share  are
     summarized below.

<TABLE>
<CAPTION>

                                                          Years Ended June 30,
                                                   -----------------------------------
                                                    2002          2001          2000
                                                    ----          ----          ----
     <S>                                        <C>             <C>           <C>
       Weighted average number of common shares
     outstanding used in basic EPS calculation    363,975       363,975       363,975
       Add common stock equivalents for shares
     issuable under Stock Option Plans              3,882         2,542         2,937
                                                  -------       -------       -------
       Weighted average number of shares
        outstanding adjusted for common
        stock equivalents                         367,857       366,517       366,912
                                                  =======       =======       =======

       Net income                               $ 866,340       379,254       371,934
       Basic earnings per share                 $    2.38          1.04          1.02
       Diluted earnings per share               $    2.36          1.03          1.01

</TABLE>


                                       29
<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>
     June 30, 2002
     -------------
     Federal Home Loan Mortgage
      Corporation notes                 $ 2,527,981     48,594         --       2,576,575
     Federal National Mortgage
      Association notes                   7,498,727    107,548         --       7,606,275

                                        $10,026,708    156,142         --      10,182,850
                                        ===========    =======    =======      ==========


     Weighted average interest rate            6.14%
                                               ====


     June 30, 2001

     United States Treasury notes       $ 7,497,706     76,519         --       7,574,225
     Federal Home Loan Mortgage
      Corporation notes                   5,115,457     96,431         --       5,211,888
     Federal National Mortgage
      Association notes                   7,498,753    137,572         --       7,636,325
                                        -----------    -------    -------      ----------
                                        $20,111,916    310,522         --      20,422,438
                                        ===========    =======    =======      ==========


     Weighted average interest rate            5.99%
                                               ====
</TABLE>

     The  contractual  maturity of  investment  securities  held to maturity are
     summarized as follows:

<TABLE>
<CAPTION>

                                         June 30, 2002            June 30, 2001
                                     --------------------     ---------------------
                                      Amortized     Fair       Amortized     Fair
     Term to Maturity                   Cost        Value        Cost        Value
     ----------------                   ----        -----        ----        -----
     <S>                           <C>           <C>          <C>         <C>
     Due in one year or less       $ 10,026,708  10,182,850   10,040,214  10,187,688
     Due after one year through
       two years                             --          --   10,071,702  10,234,750
                                   ------------  ----------   ----------  ----------
                                   $ 10,026,708  10,182,850   20,111,916  20,422,438
                                   ============  ==========   ==========  ==========
</TABLE>



                                       30
<PAGE>


3)   Investment Securities, Available for Sale
     -----------------------------------------

     Investment  securities  available  for sale are  recorded  at fair value in
     accordance with SFAS No. 115. This portfolio is summarized as follows:

<TABLE>
<CAPTION>

                                                        Gross       Gross
                                        Amortized     Unrealized  Unrealized     Fair
                                          Cost          Gains       Losses       Value
                                          ----          -----       ------       -----
     June 30, 2002
     -------------
<S>                                     <C>            <C>        <C>           <C>

     Federal National Mortgage
       Association notes                $ 4,998,470      75,755        --       5,074,225
     United States Treasury bond            979,923     225,389        --       1,205,312
                                       ------------  ----------   -------      ----------
                                        $ 5,978,393     301,144        --       6,279,537
                                       ============     =======   =======       =========


     Weighted average interest rate           4.23%
                                              ====

     June 30, 2001
     -------------

     Callable Agency Securities:
      Federal National Mortgage
       Association notes                $10,000,000      59,350        --      10,059,350
     United States Treasury bond            978,965     187,597        --       1,166,562
                                       ------------  ----------   -------      ----------

                                        $10,978,965     246,947        --      11,225,912
                                       ============  ==========   =======      ==========


     Weighted average interest rate           5.58%
                                              ====
</TABLE>


     The callable  agency  securities  at June 30, 2001,  have call  features at
     amounts not less than par and were not purchased with significant  premiums
     or discounts.  The contractual maturity of investment  securities available
     for sale are summarized as follows:

<TABLE>
<CAPTION>
                                          June 30, 2002                   June 30, 2001
                                      -----------------------       -------------------------
                                      Amortized         Fair         Amortized        Fair
     Term to Maturity                   Cost            Value           Cost          Value
     ----------------                   ----            -----           ----          -----
     <S>                              <C>             <C>           <C>            <C>
      Due after one year through
     two years                        $4,998,470      5,074,225             --             --
      Due after two years through
        three years                           --             --     10,000,000     10,059,350
      Due after ten years through
        fifteen years                    979,923      1,205,312             --             --
      Due after fifteen years                 --             --        978,965      1,166,562
                                      ----------      ---------     ----------     ----------
                                      $5,978,393      6,279,537     10,978,965     11,225,912
                                      ==========      =========     ==========     ==========
</TABLE>


     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  $54,197,  net of the tax  effect of  $18,427,
     resulted in a $35,770 credit 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, 2002
     -------------
     <S>                                  <C>                  <C>              <C>          <C>
     Participation certificates:
          FHLMC - Adjustable rate         $ 3,584,665           57,652              --       3,642,317
          FNMA  - Adjustable rate           1,460,768           11,253              --       1,472,021
          FHLMC - Fixed rate                4,708,821          106,419              --       4,815,240
          FNMA  - Fixed rate                  504,372           15,151              --         519,523
          GNMA  - Fixed rate                   92,404            2,908              --          95,312
     Investment in collateralized
         mortgage obligations:
       FHLMC                                    8,738               82              --           8,820
                                          -----------         --------        --------      ----------
                                          $10,359,768          193,465              --      10,553,233
                                          ===========         ========        ========      ==========

       Weighted average interest rate          5.70%
                                               ====


     June 30, 2001
     -------------

     Participation certificates:
          FHLMC - Adjustable rate         $ 4,984,222           49,086           1,984       5,031,324
          FNMA  - Adjustable rate           2,373,547           33,082              --       2,406,629
          FHLMC - Fixed rate                9,104,335          164,828              --       9,269,163
          FNMA  - Fixed rate                  700,954           39,970              --         740,924
          GNMA  - Fixed rate                  135,082               --              --         135,082
     Investment in collateralized
         mortgage obligations:
       FHLMC                                   12,186               --              --          12,186
                                          -----------         --------        --------      ----------
                                          $17,310,326          286,966           1,984      17,595,308
                                          ===========          =======        ========      ==========

       Weighted average interest rate          6.83%
                                               ====
</TABLE>


                                       32
<PAGE>

5)   Loans Receivable
     ----------------

     Loans receivable are summarized as follows:

                                                           June 30,
                                                 --------------------------
                                                      2002           2001
                                                      ----           ----
     Mortgage loans:
        One-to-four family                       $ 81,802,668    64,371,719
        Multi-family                                1,222,125     1,506,940
        Non-residential                               934,697       491,676
        Construction                                       --       828,000
                                                 ------------    ----------
     Total mortgage loans                          83,959,490    67,198,335
                                                 ------------    ----------


     Other loans:
        Loans on deposit accounts                     397,170       343,680
        Auto loans                                    320,556       469,329
        Education loans                               821,986       876,289
        Credit card loans                             116,532       123,654
        Other                                          19,750        63,720
                                                 ------------    ----------
     Total other loans                              1,675,994     1,876,672
                                                 ------------    ----------
     Commercial business loans                          7,926         6,671
                                                 ------------    ----------
     Total loans receivable                        85,643,410    69,081,678
                                                 ------------    ----------


     Less:
        Loans in process                               67,229       668,073
        Net deferred yield adjustments               (379,501)     (240,500)
        Allowance for uncollected interest            258,576       260,259
        Allowance for loan losses                     350,260       359,445
                                                 ------------    ----------
     Loans receivable, net                       $ 85,346,846    68,034,401
                                                 ============    ==========


     Weighted average interest rate                      6.91%         7.33%
                                                         ====          ====


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



                                                     Years Ended June 30,
                                           ------------------------------------
                                               2002          2001       2000
                                               ----          ----       ----
        Balance, beginning of year          $ 359,445      368,885     365,863
     Provision for loan losses                 15,000           --          --
        Recoveries previously charged-off      14,361       14,047       3,022
        Charge-offs                           (38,546)     (23,487)         --
                                            ---------      -------     -------

        Balance, end of year                $ 350,260      359,445     368,885
                                            =========      =======     =======


     Delinquent  loans (loans  having  payments past due ninety days or more) at
     June  30,  2002  amounted  to  $164,221  or .2% of total  loans  in  force.
     Comparable figures for 2001 were $343,533 or .5% of total loans.

     Loans to directors and executive officers  aggregated  $643,167 at June 30,
     2002 and  $417,506 at June 30, 2001.  Such loans are made on  substantially
     the same terms as those for other loan customers.

                                       33
<PAGE>


6)   Loans Receivable Held for Sale

     The Company  sells loans in the secondary  market under  various  programs.
     During the years ended June 30, 2002, 2001 and 2000, the Company sold first
     mortgage  loans  totaling  $3,160,571,   $534,044  and  $3,172,515  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, 2002,
     2001 and 2000 were $3,160,571, $534,044 and $3,172,515 with no gain or loss
     realized  on those  sales.  In  addition,  the  Company  recorded a gain of
     $43,819,  $7,368 and $35,734 for the years  ended June 30,  2002,  2001 and
     2000 on loan sales from the  establishment  of a mortgage  servicing  right
     asset.  During the years ended June 30,  2002,  2001 and 2000,  the Company
     amortized $19,468, $14,879 and $12,606 of mortgage servicing rights against
     current servicing fee income.

     As of June 30, 2002,  $739,806 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,
     2002 and 2001.

     At June 30, 2002,  2001 and 2000,  loans  serviced  for others  amounted to
     $11,277,638, $8,840,358 and $8,393,035 respectively.

7)   Accrued Interest Receivable

     Accrued interest receivable is summarized as follows:

                                                       June 30,
                                              ------------------------
                                                 2002           2001
                                                 ----           ----

     Investment securities                    $ 220,617       493,387
     Mortgage-backed securities                  66,262       126,201
     Loans receivable                           362,907       285,463
     Other investments                               70            83
                                              ---------       -------
                                              $ 649,856       905,134
                                              =========       =======

                                       34
<PAGE>

8)   Office Properties and Equipment

     Office properties and equipment are summarized as follows:

                                                             June 30,
                                                    -------------------------
                                                       2002            2001
                                                       ----            ----

     Land                                           $   416,595       416,595
     Buildings                                        2,329,939     1,708,108
     Easement for parking lot and driveway              223,050       223,050
     Leasehold improvements - Homer Glen                579,253       579,253
     Furniture, fixtures and equipment                2,716,539     2,565,661
                                                    -----------     ---------
                                                      6,265,376     5,492,667
     Less accumulated depreciation                    3,448,792     3,126,342
                                                    -----------     ---------

                                                    $ 2,816,584     2,366,325
                                                    ===========     =========


     Depreciation  of office  properties  and equipment for the years ended June
     30,  2002,  2001 and 2000  amounted  to  $322,450,  $314,158  and  $311,378
     respectively.

     During July 1998, the Association entered into a lease for retail space and
     vacant  land in Homer  Glen,  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 land previously purchased
     by the Association.

     The Association  established a full service branch banking facility at this
     location.  Rent expense at the Homer Glen,  Illinois location for the years
     ended June 30, 2002, 2001 and 2000 amounted to $46,495, $44,587 and $61,314
     respectively.  Rent  expense  includes  charges for real  estate  taxes and
     insurance,  and other costs of  occupancy  relating to common  areas shared
     with other tenants.

     Minimum  rental  commitments  under the above  leases,  exclusive of future
     escalation charges for real estate taxes, insurance and occupancy costs are
     approximately as follows:

            Year ended June 30, 2003                          $  39,229
            Year ended June 30, 2004                             41,173
            Year ended June 30, 2005                             43,213
            Thereafter through June 30, 2009                    190,831


     During the year ended June 30, 2002, the Association incurred  expenditures
     of  approximately  $700,000 to  renovate,  remodel and furnish the Brighton
     Park branch office facility. This location now features a drive-up facility
     as well as a new banking lobby, facade and signage.

                                       35
<PAGE>

9)   Prepaid Expenses and Other Assets
     ---------------------------------

     Prepaid expenses and other assets consist of the following:

                                                               June 30,
                                                      ------------------------
                                                         2002            2001
                                                         ----            ----

     Prepaid federal insurance premiums                $   5,975         6,172
     Prepaid insurance                                    27,372        44,939
     Other prepaid expenses                              123,937       131,504
     Mortgage servicing rights                           112,985        88,634
     Deferred federal income tax benefit - net (a)       155,961       199,307
     Accounts receivable and other assets                125,575       117,997

                                                       $ 551,805       588,553


(a)  Significant  components of the deferred tax assets and  liabilities  are as
     follows:

                                                               June 30,
                                                       ------------------------
                                                          2002          2001
                                                          ----          ----
     Deferred tax assets:
       Tax basis of office building in
        excess of book basis                           $ 433,160       453,488
       Book allowance for loan losses                    118,908        95,710
                                                       ---------       -------

        Total deferred tax assets                        552,068       549,198
                                                       ---------       -------


     Deferred tax liabilities:
       Loan fees deferred for financial
        reporting purposes, net of costs                 135,652        96,752
       Accelerated tax depreciation                       42,719        65,145
       Tax allowance for loan losses                      11,992        23,984
       FHLB stock dividends                               64,940        49,912
       Mortgage servicing rights                          38,415        30,136
       Unrealized gain on securities
        available for sale                               102,389        83,962
                                                       ---------       -------

        Total deferred tax liabilities                   396,107       349,891
                                                       ---------       -------

        Net deferred tax benefit                       $ 155,961       199,307
                                                       =========       =======

                                       36
<PAGE>

10)  Deposits
     --------

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

                                                                 June 30,
                                                        ---------------------------
                                                            2002          2001
                                                            ----          ----

     <S>                                                <C>              <C>
         Passbook accounts                              $  51,591,976    43,580,591
         NOW accounts                                      14,139,895    11,106,953
         Money market accounts                              7,792,826     7,961,509
      Non-interest bearing demand deposit accounts          9,997,978    10,009,373
                                                        -------------   -----------

                                                           83,522,675    72,658,426
                                                        -------------   -----------
         Certificates of deposit by interest rate:
           2.01 - 3.00%                                    40,560,981          -
           3.01 - 4.00                                      7,647,105     8,316,163
           4.01 - 5.00                                      2,669,730    29,200,659
           5.01 - 6.00                                      3,943,178    16,649,027
           6.01 - 7.00                                        100,000     4,679,390
                                                        -------------   -----------

                                                           54,920,994    58,845,239
                                                        -------------   -----------

                                                        $ 138,443,669   131,503,665
                                                        =============   ===========
</TABLE>


     The weighted average rate on deposit accounts at June 30, 2002 and 2001 was
     2.23% and 3.63% respectively.

     The aggregate amount of certificates of deposit with a minimum denomination
     of  $100,000  was  $9,134,000  and  $8,536,000  at June 30,  2002 and 2001,
     respectively.

     A summary of certificates of deposit by maturity is as follows:

                                                               June 30,
                                                    ---------------------------
                                                        2002            2001
                                                        ----            ----

     Within 12 months                               $  53,223,962    56,583,938
     12 months to 24 months                             1,253,284     1,746,792
     24 months to 36 months                               443,748       514,509
                                                    -------------    ----------

        Total                                       $  54,920,994    58,845,239
                                                    =============    ==========


     Interest expense on deposits consists of the following:

                                                    Years Ended June 30,
                                       --------------------------------------
                                           2002           2001          2000
                                           ----           ----          ----

     Passbook accounts                 $ 1,152,317     1,267,635     1,286,343
     Certificate accounts                2,188,361     3,412,921     3,119,648
     NOW and money market accounts         493,377       633,936       557,456
                                       -----------     ---------     ---------

        Total                          $ 3,834,055     5,314,492     4,963,447
                                       ===========     =========     =========


                                       37
<PAGE>


11)  Other Liabilities
     -----------------

     Other liabilities consist of the following:

                                                            June 30,
                                                   -------------------------
                                                      2002           2001
                                                      ----           ----

         Accrued interest on deposits               $  25,287        36,310
         Accrued real estate taxes                    134,093       134,016
         Accrued federal income taxes                 265,477         5,636
         Other accrued expenses                       150,872       153,653
         Outstanding bank drafts                       39,200        58,513
         Other accounts payable                       148,651        73,216
                                                    ---------       -------

                                                    $ 763,580       461,344
                                                    =========       =======

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 meets the criteria of a  multiemployer  pension plan as defined in
     Financial   Accounting   Standards  Board  Statement  No.  87,  "Employers'
     Accounting  for  Pensions" and as such,  does not make  separate  actuarial
     valuations  with  respect  to each  employer,  nor does it  segregate  plan
     assets. The practice with respect to multiemployer plans has been to accept
     employer's  contributions  that  are  paid as its  expense  for  accounting
     purposes.  A contribution of $106,874 and $10,542 were paid and expensed by
     the  Association  for the years ended June 30, 2002 and 2001.  There was no
     contribution  paid to the  Plan  for the year  ended  June 30,  2000 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 15% 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 $36,948, $34,900
     and $32,974 for the years ended June 30, 2002, 2001 and 2000, respectively.


                                       38
<PAGE>


13)  Stock Option 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.  Grantees of
     the  remaining  outstanding  shares at June 30, 2002 were  awarded  10-year
     options to acquire  shares at the market price on the date the options were
     granted.  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,  2002 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 June 30, 1999              8,625       10.00-16.25        97,031
         Granted                                       0
         Exercised                                     0
                                                   -----       -----------        ------

         Outstanding at June 30, 2000              8,625       10.00-16.25        97,031
         Granted                                       0
         Exercised                                     0
                                                   -----       -----------        ------

         Outstanding at June 30, 2001              8,625       10.00-16.25        97,031
         Granted                                       0
         Exercised                                     0
                                                   -----       -----------        ------

         Outstanding at June 30, 2002              8,625     $ 10.00-16.25     $  97,031
                                                   =====     =============     =========

         Exercisable at June 30, 2002              8,625     $ 10.00-16.25     $  97,031
                                                   =====     =============     =========
         Options available for future
           grants at June 30, 2002                 6,900
                                                   =====

</TABLE>

     As of June 30,  2002,  the  weighted  average  exercise  price for  options
     outstanding was $11.25 with a weighted average  remaining  contractual life
     of 1.67 years.

     The Company  accounts for its stock options in accordance  with  Accounting
     Principles  Board Opinion No. 25 "Accounting for Stock Issued to Employees"
     ("APB 25").  Under APB 25, as 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.

     The following  summarizes  the pro forma net income and earnings per shares
     as if the fair value  method of  accounting  for  stock-based  compensation
     plans had been utilized:


                                                        Years Ended June 30,
                                                  ------------------------------
                                                     2002       2001       2000
                                                     ----       ----       ----

     Net income (as reported)                     $ 866,340   379,254   371,934
     Pro forma net income                           866,340   379,254   371,934

     Earnings per share - diluted (as reported)   $    2.36      1.03      1.01
     Pro forma diluted earnings per share              2.36      1.03      1.01


                                       39
<PAGE>

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

14)  Income Taxes
     ------------

     As a result of legislation  that changed the method used by many thrifts to
     calculate  their bad debt  reserve for  federal  income tax  purposes,  the
     Association  must  recapture  that  portion of the reserve that exceeds the
     amount that could have been taken under the experience method for tax years
     beginning after December 31, 1987. The legislation also requires thrifts to
     account for bad debts for federal  income tax purposes on the same basis as
     commercial  banks for tax years  beginning  after  December 31,  1995.  The
     recapture is  occurring  over a six year period.  The  commencement  of the
     recapture by the  Association  was delayed two years as the Association met
     certain  residential lending  requirements.  For the three years ended June
     30, 2002, the Association  recaptured  approximately $114,000 in excess bad
     debt reserves resulting in tax payments of approximately $39,000 which were
     previously  accrued.  The pre-1988  reserve  provisions are subject only to
     recapture  requirements if the Association no longer qualifies as a thrift.
     Tax bad debt  deductions  accumulated  prior to 1988 by the Association and
     included in retained earnings total approximately  $1,100,000.  No deferred
     income  taxes  have been  provided  for these  bad debt  deductions  and no
     recapture of these amounts is anticipated.

                                                  Years Ended June 30,
                                         --------------------------------------
                                            2002          2001          2000
                                            ----          ----          ----

         Current                         $ 421,495       157,546       155,960
         Deferred                           24,919        38,761        22,924
                                         ---------       -------       -------

                                         $ 446,414       196,307       178,884
                                         =========       =======       =======


     A  reconciliation  of the  statutory  federal  income tax rate to effective
     income tax rate is as follows:

                                                   Years Ended June 30,
                                               ---------------------------
                                                2002       2001       2000
                                                ----       ----       ----

         Statutory federal income tax rate      34.0%      34.0%      34.0%
         Other                                    --         .1       (1.5)

         Effective income tax rate              34.0%      34.1%      32.5%


     Deferred  federal income tax expense  consists of the following tax effects
     of timing differences:

                                                     Years Ended June 30,
                                             ----------------------------------
                                                2002         2001        2000
                                                ----         ----        ----

         Loan fees net of costs              $  38,900      38,299      14,604
         Depreciation                           (2,098)      9,173       8,149
         FHLB stock dividends                   15,028      18,428       8,024
         Book loan loss recovery in excess
           of tax deduction                    (23,198)    (19,045)    (16,161)
         Recapture of bad debt reserve         (11,992)    (11,992)    (23,016)
         Other                                   8,279       3,898      31,324
                                             ---------      ------      ------

                                             $  24,919      38,761      22,924
                                             =========      ======      ======

                                       40
<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,
     2002, 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, 2002 and 2001, 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
                             ------    -----       ------     -----      ------     -----

        June 30, 2002
        -------------
        <S>                <C>          <C>      <C>           <C>     <C>           <C>
        Tangible          $ 9,295,261    6.15%   $ 2,269,000   1.50%   $    N/A       N/A %
        Core                9,295,261    6.15      4,537,000   3.00      7,562,000    5.00
        Risk-based          9,630,521   11.90      6,474,000   8.00      8,092,000   10.00


        June 30, 2001
        -------------

        Tangible          $ 8,806,579    6.15%   $ 2,146,000   1.50%   $    N/A       N/A %
        Core                8,806,579    6.15      4,292,000   3.00      7,154,000    5.00
        Risk-based          9,037,390   16.04      4,508,000   8.00      5,634,000   10.00

</TABLE>

                                       41
<PAGE>

15)  Regulatory Capital Requirements (continued)
     ------------------------------------------

<TABLE>
<CAPTION>
                                                  Tangible       Core     Risk-based
                                                   Capital      Capital     Capital
                                                   -------      -------     -------
    <S>                                          <C>            <C>         <C>
     June 30, 2002
     -------------

     Stockholders' equity                       $  9,505,314   9,505,314   9,505,314
     Unrealized gain on securities
      available for sale, net of taxes              (198,755)   (198,755)   (198,755)
     Retained mortgage servicing rights              (11,298)    (11,298)    (11,298)
     General loss allowances                              --          --     350,260
     Direct equity investments                            --          --     (15,000)
                                                ------------   ---------   ---------

     Regulatory capital computed                $  9,295,261   9,295,261   9,630,521
                                                ============   =========   =========
</TABLE>


     A reconciliation of the Association's equity capital at June 30, 2002 is as
     follows:

     Stockholders' equity                                         $ 10,396,555
     Less Company stockholders' equity not available
      for regulatory capital                                          (891,241)
                                                                  ------------
     Stockholders' equity of the Association                      $  9,505,314
                                                                  ============
<TABLE>
<CAPTION>


                                                       Tangible     Core     Risk-based
                                                       Capital     Capital     Capital
                                                       -------     -------     -------
     <S>                                            <C>            <C>         <C>
         June 30, 2001
         -------------

         Stockholders' equity                       $  8,978,427   8,978,427   8,978,427
         Unrealized gain on securities
          available for sale, net of taxes              (162,985)   (162,985)   (162,985)
         Retained mortgage servicing rights               (8,863)     (8,863)     (8,863)
         General loss allowances                              --          --     245,811
         Direct equity investments                            --          --     (15,000)
                                                    ------------   ---------   ---------
         Regulatory capital computed                $  8,806,579   8,806,579   9,037,390
                                                    ============   =========   =========
</TABLE>


     A reconciliation of the Association's equity capital at June 30, 2001 is as
     follows:

         Stockholders' equity                                     $  9,661,873
         Less Company stockholders' equity not available
          for regulatory capital                                      (683,446)
                                                                  ------------

         Stockholders' equity of the Association                  $  8,978,427
                                                                  ============

                                       42
<PAGE>

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.

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  $3,067,850  at June 30, 2002
     represents an amount which the Association  plans to fund within the normal
     commitment  period of 60 to 90 days. Of this amount,  $2,117,850  are fixed
     rate  commitments with rates ranging from 6.125% to 7.500% and $950,000 are
     in  adjustable  rate  commitments.  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 $1,720,000 at June 30, 2002. In addition, the Association has
     approved,   but  unused,   credit  card  lines  of  credit   amounting   to
     approximately $339,000. The Association has also issued outstanding letters
     of credit totaling $73,000.

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 2002  Board of  Directors'  meeting,  the  Company  declared  a
     quarterly dividend of $.15 per share, totaling $54,596,  payable August 15,
     2002 to shareholders of record as of August 5, 2002.

                                       43
<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.

     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.

     Accrued  interest  receivable  and payable:  The carrying  value of accrued
     interest  receivable,  net of the allowance for uncollected  interest,  and
     accrued  interest  payable  approximates  fair value due to the  relatively
     short period of time between accrual and expected realization.

     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, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>

                                                                  June 30, 2002
                                                          -----------------------------
                                                            Carrying            Fair
                                                             Amount             Value
                                                             ------             -----
     <S>                                                  <C>               <C>
      Financial assets:
     Cash and cash equivalents                            $ 32,921,438       32,921,438
     Investment securities, held to maturity                10,026,708       10,182,850
     Investment securities, available for sale               6,279,537        6,279,537
     Mortgage-backed securities, held to maturity           10,359,768       10,553,233
     Loans receivable, gross                                86,383,216       88,327,000
        Accrued interest receivable                            649,856          649,856

      Financial liabilities:
        Deposits                                           138,443,669      138,744,000
        Accrued interest payable                                25,287           25,287

</TABLE>

<TABLE>
<CAPTION>

                                                                  June 30, 2001
                                                          -----------------------------
                                                           Carrying            Fair
                                                            Amount             Value
                                                            ------             -----
     <S>                                                  <C>               <C>
      Financial assets:
     Cash and cash equivalents                            $ 20,718,671       20,718,671
     Investment securities, held to maturity                20,111,916       20,422,438
     Investment securities, available for sale              11,225,912       11,225,912
     Mortgage-backed securities, held to maturity           17,310,326       17,595,308
     Loans receivable, gross                                69,533,378       69,386,000
        Accrued interest receivable                            905,134          905,134

      Financial liabilities:
        Deposits                                           131,503,665      131,870,000
        Accrued interest payable                                36,310           36,310
</TABLE>


                                       44
<PAGE>


21)  Condensed Parent Company Only Financial Statements
     --------------------------------------------------

     The following condensed statements of financial  condition,  as of June 30,
     2002 and 2001 and  condensed  statements  of income  and cash flows for the
     years  ended  June 30 2002,  2001 and 2000  for  Midland  Capital  Holdings
     Corporation  should be read in conjunction with the consolidated  financial
     statements and the notes thereto.



<TABLE>
<CAPTION>

                        Statements of Financial Condition

                                                         June 30,
                                              ----------------------------
                                                  2002             2001
                                                  ----             ----
     Assets
     ------

     <S>                                      <C>                 <C>
     Cash and cash equivalents                $   889,315         668,667
     Equity investment in the Association       9,292,099       8,800,982
     Prepaid expenses and other assets              6,666          17,768
                                              -----------      ----------
                                               10,188,080       9,487,417
                                              ===========      ==========




     Liabilities and Stockholders' Equity
     ------------------------------------

     Liabilities:
     ------------
     Accrued taxes and other liabilities            4,740           2,989
                                              -----------      ----------

     Stockholders' Equity:
     ---------------------
     Common stock                                   3,640           3,640
     Additional paid-in capital                 3,262,395       3,262,395
     Retained earnings                          6,917,305       6,218,393
                                              -----------      ----------

       Total stockholders' equity              10,183,340       9,484,428
                                              -----------      ----------

                                              $10,188,080       9,487,417
                                              ===========       =========
</TABLE>


<TABLE>
<CAPTION>

                              Statements of Income


                                                             Years Ended June 30,
                                                    -------------------------------------
                                                       2002          2001          2000
                                                       ----          ----          ----
<S>                                                 <C>             <C>            <C>
         Interest income                            $  16,986       17,094         5,640
         Non-interest expense                          69,678       64,352        63,042
                                                    ---------      -------       -------

         Net loss before income tax benefit
          and equity in earnings of subsidiaries      (52,692)     (47,258)      (57,402)
         Benefit from income taxes                     17,915       16,068        19,517
                                                    ---------      -------       -------

         Net loss before equity in earnings
          of subsidiaries                             (34,777)     (31,190)      (37,885)
         Equity in earnings of subsidiaries           901,117      410,444       409,819
                                                    ---------      -------       -------

          Net income                                $ 866,340      379,254       371,934
                                                    =========      =======       =======
</TABLE>


                                       45
<PAGE>

21)  Condensed Parent Company Only Financial Statements (continued)
     --------------------------------------------------------------

<TABLE>
<CAPTION>
                            Statements of Cash Flows


                                                             Years Ended June 30,
                                                  ----------------------------------------
                                                     2002           2001            2000
                                                     ----           ----            ----
     <S>                                           <C>              <C>            <C>
     Cash flows from operating activities:
       Net income                                  $ 866,340        379,254        371,934
       Equity in earnings of the Association        (901,117)      (410,444)      (409,819)
       (Increase) decrease in prepaid expenses
         and other assets                             11,102        (17,768)        23,632
       Increase (decrease) in accrued taxes
         and other liabilities                         1,751        (44,938)        31,627

     Net cash provided by (for)
     operating activities                            (21,924)       (93,896)        17,374
                                                   ---------        -------        -------
     Cash flows from investing activities                 --             --             --
                                                   ---------        -------        -------
     Cash flows from financing activities:
       Dividends received from Association           410,000        560,000        265,000
       Dividends paid on common stock               (167,428)      (109,193)      (109,193)
                                                   ---------        -------        -------

     Net cash provided by financing activities       242,572        450,807        155,807
                                                   ---------        -------        -------
     Net increase in cash and cash equivalents       220,648        356,911        173,181
     Cash and cash equivalents at
       beginning of year                             668,667        311,756        138,575
                                                   ---------        -------        -------
     Cash and cash equivalents at
       end of year                                 $ 889,315        668,667        311,756
                                                   =========        =======        =======

</TABLE>



                                       46
<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

Donna Chmiel                        Michael J. Kukanza
Internal Auditor of the             Principal in Compass Asset
Company and the Association         Management, L.L.C.

Lois Gajdorus                       Jonas Vaznelis
Assistant Vice President            Retired businessman and Committee
of the Association                  member of the Board of Zoning Appeals
                                    for Beverly Shores, Indiana.


                                       47

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 16,  2002,  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.
         Jenkens & Gilchrist, P.C.
         1919 Pennsylvania Avenue, N.W. - Suite 600
         Washington, D.C. 20006

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


                                       48