Midland Capital (MCPH) 10QSB 2006 Q2 Quarterly report (small business)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2005

OR

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

For the transition period from                    to                    

Commission File Number 1-14343

MIDLAND CAPITAL HOLDINGS CORPORATION

(Name of Small Business Issuer in its Charter)

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

8929 S. Harlem Avenue, Bridgeview, Illinois 60455

(Address of Principal Executive Offices) (Zip Code)

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

     Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

     Transitional Small Business Disclosure Format. Yes Noþ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     Indicate the number of shares of each of the Issuer’s classes of common stock as of the latest practicable date:

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

As of February 14, 2006, the Issuer had
372,600 shares of Common Stock issued and outstanding.

MIDLAND CAPITAL HOLDINGS CORPORATION

Part I. FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements Consolidated Statements of Financial Condition — December 31, 2005 (unaudited) and June 30, 2005		1
Consolidated Statements of Earnings — Three months ended December 31, 2005 and 2004 and Six months ended December 31, 2005 and 2004 (unaudited)		2
Consolidated Statements of Changes in Stockholders’ Equity — Six months ended December 31, 2005 (unaudited)		3
Consolidated Statements of Cash Flows — Six months ended December 31, 2005 and 2004 (unaudited)		4
Notes to Consolidated Financial Statements		5-7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8-16
Item 3. Controls and Procedures		16
Part II. OTHER INFORMATION		17
Item 1. Legal Proceedings		17
Item 2. Changes in Securities		17
Item 3. Defaults Upon Senior Securities		17
Item 4. Submission of Matters to a Vote of Security Holders		17
Item 5. Other Information		17
Item 6. Exhibits		17
Index to Exhibits		18
Computation of Per Share Earnings
Certification
Certification

MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Part I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition

	December 31,		June 30,
	2005		2005
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	3,934,388		2,640,369
Interest-bearing deposits		8,910,247		34,069,224
Total cash and cash equivalents		12,844,635		36,709,593
Investment securities available for sale, at fair value		21,177,712		1,310,937
Mortgage-backed securities, held to maturity (fair value:
December 31, 2005 - $1,810,113;
June 30, 2005 - $1,938,460)		1,799,857		1,920,221
Loans receivable (net of allowance for loan losses:
December 31, 2005 - $449,787;
June 30, 2005 -$456,550)		94,094,233		94,578,810
Loans receivable held for sale		145,000		250,500
Stock in Federal Home Loan Bank of Chicago		1,148,087		1,123,500
Accrued interest receivable		344,569		367,351
Office properties and equipment, net		2,216,166		2,240,391
Prepaid expenses and other assets		687,687		477,467
Total assets	$	134,457,946		138,978,770
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	119,915,333		124,836,132
Advance payments by borrowers for taxes and insurance		1,033,184		1,060,670
Other liabilities		485,473		385,286
Total liabilities		121,433,990		126,282,088
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 372,600 shares at December 31, 2005 and June 30, 2005		3,726		3,726
Additional paid-in capital		3,395,580		3,395,580
Retained earnings — substantially restricted		9,444,100		9,080,803
Accumulated other comprehensive income, net of income taxes		180,550		216,573
Total stockholders’ equity		13,023,956		12,696,682
Total liabilities and stockholders’ equity	$	134,457,946		138,978,770

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2005		2004		2005		2004
Interest income:
Interest on loans	$	1,348,897		1,382,873		2,709,508		2,757,642
Interest on mortgage-backed securities		20,497		22,475		40,410		48,506
Interest on investment securities		204,715		18,990		326,267		37,979
Interest on interest-bearing deposits		89,250		176,954		267,379		322,064
Dividends on FHLB stock		10,686		16,140		24,606		31,871
Total interest income		1,674,045		1,617,432		3,368,170		3,198,062
Interest expense:
Interest on deposits		390,907		335,789		767,106		682,937
Total interest expense		390,907		335,789		767,106		682,937
Net interest income		1,283,138		1,281,643		2,601,064		2,515,125
Provision for loan losses		—		—		—		—
Net interest income after provision for loan losses		1,283,138		1,281,643		2,601,064		2,515,125
Non-interest income:
Loan fees and service charges		53,966		71,609		155,900		142,624
Commission income		10,832		12,991		21,470		25,243
Profit on sale of loans		9,811		4,148		19,044		13,852
Profit on sale of other assets		—		—		16,286		—
Deposit related fees		115,892		106,827		229,038		219,850
Other income		11,518		12,203		25,602		29,593
Total non-interest income		202,019		207,778		467,340		431,162
Non-interest expense:
Staffing costs		630,568		667,511		1,305,209		1,297,294
Advertising		16,099		15,478		33,005		33,595
Occupancy and equipment expenses		162,884		157,233		315,510		321,561
Data processing		43,763		48,901		98,133		99,250
Federal deposit insurance premiums		4,176		5,102		8,431		10,260
Other		243,740		241,232		509,266		467,235
Total non-interest expense		1,101,230		1,135,457		2,269,554		2,229,195
Income before income taxes		383,927		353,964		798,850		717,092
Income tax provision		130,535		120,348		271,609		243,811
Net income	$	253,392		233,616		527,241		473,281
Earnings per share (basic)	$	.68		.63		1.42		1.27
Earnings per share (diluted)	$	.68		.63		1.42		1.27
Dividends declared per common share	$	.22		.20		.44		.40

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

								Accumulated
			Additional					Other
	Common		Paid-In		Retained			Comprehensive
	Stock		Capital		Earnings			Income			Total
Balance at June 30, 2005	$	3,726		3,395,580		9,080,803			216,573			12,696,682
Comprehensive Income:
Net income						527,241						527,241
Other comprehensive income, net of tax:
Unrealized holding loss during the period									(36,023	)		(36,023	)
Total comprehensive income						527,241			(36,023	)		491,218
Dividends declared on common stock ($0.44 per share)						(163,944	)					(163,944	)
Balance at December 31, 2005	$	3,726		3,395,580		9,444,100			180,550			13,023,956

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
	December 31,
	2005			2004
Cash flows from operating activities:
Net income	$	527,241			473,281
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		105,009			108,060
Net accretion on securities		(288,766	)		(1,748	)
Federal Home Loan Bank stock dividend		(24,587	)		(31,800	)
Proceeds from sale of loans held for sale		1,318,782			987,050
Origination of loans held for sale		(1,204,400	)		(405,550	)
Gain on sale of loans		(19,044	)		(2,196	)
Gain on sale of other assets		(16,286	)		—
Decrease in accrued interest receivable		22,782			21,953
Increase in accrued interest payable		1,276			806
Decrease in deferred income on loans		(1	)		(17,381	)
Increase in other assets		(181,502	)		(90,231	)
Increase in other liabilities		98,911			1,685
Net cash provided by operating activities		339,415			1,043,929
Cash flows from investing activities:
Proceeds from repayments of mortgage backed securities, held to maturity		120,364			684,559
Purchase of investment securities, available for sale		(19,632,588	)		—
Loan disbursements		(11,892,152	)		(11,817,108	)
Loan repayments		12,376,730			10,001,263
Proceeds from sale of other assets		16,286			—
Property and equipment expenditures		(80,784	)		(39,449	)
Net cash provided for investing activities		(19,092,144	)		(1,170,735	)
Cash flows from financing activities:
Deposit account receipts		183,923,004			193,315,852
Deposit account withdrawals		(189,571,970	)		(203,590,175	)
Interest credited to deposit accounts		728,167			644,363
Payment of dividends		(163,944	)		(149,040	)
(Decrease) increase in advance payments by borrowers for taxes and insurance		(27,486	)		72,252
Net cash provided for financing activities		(5,112,229	)		(9,706,748	)
Net change in cash and cash equivalents		(23,864,958	)		(9,833,554	)
Cash and cash equivalents at beginning of period		36,709,593			50,496,629
Cash and cash equivalents at end of period	$	12,844,635			40,663,075
Cash paid during the period for:
Interest	$	765,830			682,131
Income taxes		214,361			218,069

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note A — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-QSB and therefore, do not include information or footnotes necessary for fair presentation of financial condition, results of operations and changes in financial position in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (which are normal and recurring in nature) necessary for a fair presentation have been included. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 results of operations for the three months and six months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the entire year.

Note B — Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Midland Capital Holdings Corporation (the “Company”) and its wholly-owned subsidiary, Midland Federal Savings and Loan Association (the “Association”) and the Association’s wholly-owned subsidiaries, Midland Federal Service Corporation, Midland Insurance Services, Inc. and Bridgeview Development Company, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Note C — Earnings Per Share

Earnings per share for the three month and six month periods ended December 31, 2005 and 2004 were determined by dividing net income for the period by the weighted average number of shares of common stock outstanding (see Exhibit 11 attached). Stock options are regarded as common stock equivalents and are therefore considered in diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method.

Note D — 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.

Note E — Effect of New Accounting Pronouncements

In March 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides guidance for determining when an investment is considered impaired, whether that impairment is other-than-temporary, and measuring an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (a) the investor has the ability an intent to hold an investment for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the cost of the investment; and (b) evidence indicating that the cost of the investment is recoverable within a reasonable period to time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value. The guidance also includes accounting considerations subsequent to recognition of an other-than-temporary impairment and requires disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.

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Note E — Effect of New Accounting Pronouncements (continued)

With the release of FASB Staff Position (“FSP”) EITF 03-1 on September 30, 2004, the FASB staff delayed the effective date of the other-than-temporary impairment evaluation guidance of EITF 03-1 (which was initially to be applied prospectively to all current and future investments in interim and annual reporting periods beginning after June 15, 2004). FSP EITF 03-1 delays the effective date of the measurement and recognition guidance until certain implementation issues are addressed and a final FSP providing implementation guidance is issued. The amount of any other-than-temporary impairment that may need to be recognized in the future will be dependent on market conditions, the occurrence of certain events or changes in circumstances relative to an investee, the final guidance issued by the FASB, and the Company’s intent and ability to hold the impaired investments at the time of the valuation.

In June 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed the staff to issue proposed FSP EITF 03-1a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1” as final. The final FSP (re-titled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”) clarifies that impairment loss should be recognized no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made. The statement will be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. Adoption of this Statement did not have a material affect on the Company’s consolidated financial statements.

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Shared-Based Payment” (“SFAS No. 123R”). SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, supersedes APB 25, and amends FASB Statement No. 95, “Statement of Cash Flows.” SFAS No. 123R establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS No. 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. The effective date of SFAS No. 123R is the beginning of the Company’s next fiscal year that begins after December 15, 2005. SFAS No. 123R permits companies to adopt the recognition requirements using either a “modified prospective” method or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all shared-based payments granted after that date, and based on the requirements of SFAS No. 123R for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123.

The Company currently expects to adopt SFAS No. 123R effective July 1, 2006. The Company currently uses the intrinsic value method as permitted by APB 25 to account for its shared-based payments to employees, and as such, generally recognizes no compensation expense for employee stock options. Accordingly, adopting of SFAS No. 123R will result in the Company recording compensation cost for employee stock options. Future levels of compensation cost recognized related to shared-based compensation awards may be impacted by new awards and/or modification, repurchases, and cancellations of existing awards before and after the adoption of this standard.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Note E — Effect of New Accounting Pronouncements (continued)

In May 2005, the FASB issued Statement No. 154 “Accounting Changes and Error Corrections,” which provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the require method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The reporting of a correction of an error by restating previously issued financial statements is also addressed by this Statement. This Statement is effective on a prospective basis, for fiscal years beginning after December 15, 2005.

The foregoing 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 particular interest to financial institutions.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

When used in this Form 10-QSB 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 including the relationship between long and short term 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 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 re-organization, the Association became a wholly owned subsidiary of the Company, and each outstanding share of common stock of the Association became, by operation of law, one share of common stock of the Company. At December 31, 2005, there were 372,600 shares of the Company’s common stock outstanding.

The principal asset of the Company is the outstanding stock of the Association. The Company presently has no separate operations and its business consists only of the business of the Association and its subsidiaries. Midland Federal has been principally engaged in the business of attracting deposits from the general public and using such deposits to originate one to four family residential mortgage loans, and to a lesser extent, consumer, multi-family and other loans in its primary market area. The Association also has made substantial investments in investment securities, mortgage-backed securities and liquid assets. Midland Federal also operates a wholly-owned subsidiary, Midland Federal Service Corporation that owns and operates Midland Insurance Services, Inc., a full service retail insurance agency.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

GENERAL (continued)

The Association’s primary market area consists of Southwest Chicago, and the southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory Hills, Justice, Burbank, Chicago Ridge, Homer Glen, Lockport, Orland Park and Lemont. The Company serves these communities through its main office in Bridgeview, two branch banking offices in southwest Chicago and a third branch banking office in Homer Glen, Illinois. The Association’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2005, Midland Federal’s capital ratios exceeded all of its regulatory capital requirements with both tangible and core capital ratios of 8.21% and a risk-based capital ratio of 19.25%.

FINANCIAL CONDITION

At December 31, 2005, total assets of the Company decreased by $4.5 million to $134.5 million from $139.0 million at June 30, 2005. Loans receivable, including loans available for sale, declined by $590,000 to $94.2 million at December 31, 2005 from $94.8 million at June 30, 2005. The Company originated $13.1 million of primarily fixed rate loans during the six months ended December 31, 2005 compared to loan originations of $12.2 million during the prior year period. Offsetting loan originations in the current six month period were loan repayments of $12.4 million as well as loan sales of $1.3 million. There were no new purchases of mortgage-backed securities during the six months ended December 31, 2005 and as a result, the balance of mortgage-backed securities decreased by $120,000 to $1.8 million due to repayments.

During the six months ended December 31, 2005 the Company changed its mix of short term investments to take advantage of higher short term interest rates and purchased $19.6 million of six month United States Treasury Bills. This purchase of United States Treasury securities primarily resulted in a $19.9 million increase in the balance of investment securities available for sale to $21.2 million at December 31, 2005 compared to $1.3 million at June 30, 2005. Gross unrealized gains in the available for sale investment securities portfolio were $274,000 at December 31, 2005 compared to gross unrealized gains of $328,000 at June 30, 2005, primarily reflecting the negative impact of higher long term interest rates on a $1.0 million long term investment security in the available for sale portfolio. The weighted average remaining term to maturity of the Company’s total investment securities portfolio at December 31, 2005 was 8 months.

The Company reduced its balance of interest bearing deposits in order to fund the increase in investment securities, discussed above. The balance of interest bearing deposits decreased by $25.2 million to $8.9 million at December 31, 2005 from $34.1 million at June 30, 2005.

Non-performing assets consisted of $262,000 in non-accruing loans at December 31, 2005 compared to $380,000 at June 30, 2005. The allowance for loan losses decreased $7,000, due to net charge-offs, and amounted to $450,000, or 0.48% of total loans, at December 31, 2005 as compared to June 30, 2005. The Company made no additional loan loss provisions during the six months ended December 31, 2005. Non-accruing loans at December 31, 2005 consisted of $197,000 in one-to-four family residential mortgage loans and $65,000 in non-mortgage loans. At December 31, 2005 the Company’s ratio of allowance for loan losses to non-performing loans was 171.95% compared to 120.06% at June 30, 2005. Management believes that the allowance for loan losses at December 31, 2005 was adequate to cover probable accrued losses in the portfolio.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION (continued)

The following table sets forth the amounts and categories of non-performing assets in the Company’s portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest becomes doubtful, generally when the loan is delinquent 90 days or more. Foreclosed assets, if any, include assets acquired in settlement of loans.

	December 31,			June 30,
	2005			2005
	(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family	$	197		$	316
Multi-family		—			—
Consumer		65			64
Commercial business		—			—
Total non-performing loans	$	262		$	380
Foreclosed Assets:
One-to-four family		—			—
Total foreclosed assets		—			—
Total non-performing assets	$	262		$	380
Total as a percentage of total assets		0.19	%		0.27	%

As of December 31, 2005, there were no loans not included in the above table where known information about the possible credit problems of borrowers caused management to have serious doubts as to the ability of the borrower to comply with present loan repayment terms and which may result in disclosure of such loans in the future.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION (continued)

The following table sets forth an analysis of the Company’s allowance for loan losses.

	Six Months Ended
	December 31,
	2005			2004
	(Dollars in Thousands)
Balance at beginning of period	$	457		$	460
Charge-offs:
One-to-four family loans		—			—
Consumer loans		9			1
Commercial business loans		—			—
Total charge-offs		9			1
Recoveries:
One-to-four family loans		—			—
Multi-family loans		—			—
Consumer loans		2			—
Total recoveries		2			—
Net (charge-offs) recoveries		(7	)		(1	)
Additions charged to operations		—			—
Balance at end of period	$	450		$	459
Ratio of net charge-offs during the period to average loans outstanding during the period		.01	%		.01	%
Ratio of net charge-offs during the period to average non-performing assets		2.29	%		.56	%
Allowance for loan losses to non-performing loans		171.95	%		190.78	%
Allowance for loan losses to total loans		0.48	%		0.48	%

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

Deposits for the six months ended December 31, 2005 decreased $4.9 million to $119.9 million as a result of withdrawals, net of deposits, in the amount of $5.6 million, offset by interest credited to deposits in the amount of $728,000. The net decrease in deposits is primarily attributed to increased competition for certificate of deposit accounts from special rate promotions and management’s view that current asset yields did not justify aggressive pricing for these deposits. The decrease in deposits is the result of a $2.3 million decrease in certificate of deposit accounts, a $2.2 million decrease in passbook deposit accounts, a $1.3 million decrease in demand deposit accounts and a $361,000 decrease in NOW accounts offset by a $1.2 million increase in money market accounts.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION (continued)

Stockholders’ equity increased $327,000, or 2.6%, to $13.0 million at December 31, 2005 from $12.7 million at June 30, 2005. The increase in stockholders’ equity was due to net income of $527,000 offset by a decrease in accumulated other comprehensive income of $36,000 and the payment of cash dividends in the amount of $164,000.

RESULTS OF OPERATIONS

The Company had net income of $253,000 for the quarter ended December 31, 2005 compared to net income of $234,000 for the quarter ended December 31, 2004. The increase in net income in the current quarter is primarily the result of a $34,000 decrease in non-interest expense offset by a $6,000 decrease in non-interest income and an $11,000 increase in income taxes. Net interest income increased by $2,000 and totaled $1.3 million for the quarter ended December 31, 2005 compared to the prior year quarter.

For the six months ended December 31, 2005 the Company had net income of $527,000 compared to net income of $473,000 for the six months ended December 31, 2004. Net income in the six months ended December 31, 2005 was increased by an $86,000 increase in net interest income and a $36,000 increase in non-interest income, offset by a $40,000 increase in non-interest expense and a $28,000 increase in income taxes.

The Company’s interest rate spread increased to 3.82% for the quarter ended December 31, 2005 from 3.53% for the prior year quarter. The increase in interest rate spread was due to an increase in the average yield earned on interest earning assets to 5.29% in the quarter ended December 31, 2005 from 4.65% in the prior year quarter which offset an increase in the Company’s average cost of interest costing deposits to 1.47% in the quarter ended December 31, 2005 from 1.12% in the prior year quarter. The increase in interest rate spread was offset by a decrease in the average outstanding balance of interest earning assets to $126.5 million for the quarter ended December 31, 2005 compared to $139.2 million for the prior year quarter. The average balance of net earning assets (average interest earning assets minus average interest bearing liabilities) increased by $1.0 million to $20.4 million compared with the prior year period.

For the six months ended December 31, 2005, interest rate spread increased to 3.80% compared to 3.41% in the prior year six month period. Interest rate spread increased in the six months ended December 31, 2005 compared with the prior year period as a result of an increase in yields on interest earning assets which offset an increase in the average yield paid on interest costing deposits. For the six months ended December 31, 2005, the average outstanding balance of interest earning assets decreased to $129.0 million from $141.3 million for the prior year period. The average balance of net earning assets in the six months ended December 31, 2005 increased by $2.0 million to $21.0 million compared with the prior year period.

Interest Income

Interest income increased $57,000, or 3.5%, for the quarter ended December 31, 2005 as compared to the same period last year. The increase in interest income is attributed to an increase in the average yield earned on interest earning assets which offset a decline in the average outstanding balance of interest earning assets. The average yield on interest earning assets increased to 5.29% for the quarter ended December 31, 2005 from 4.65% in the prior year quarter. The average outstanding balance of interest earning assets decreased by $12.7 million to $126.5 million for the quarter ended December 31, 2005 compared to $139.2 million for the quarter ended December 31, 2004. The decline in the average outstanding balance of interest earning assets funded a decline in deposit liabilities that occurred between the two periods.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Interest Income (continued)

For the six months ended December 31, 2005, interest income increased $170,000, or 5.3%, from the 2004 period. The increase in interest income for the current six month period was the result of an increase in the average yield earned on interest earning assets which offset a decrease in the average outstanding balance of interest earning assets. The average yield on interest earning assets increased to 5.22% compared to 4.53% for the year earlier period. The average outstanding balance of interest earning assets decreased by $12.3 million to $129.0 million for the six months ended December 31, 2005 from $141.3 million for the prior year period.

Interest on loans receivable decreased $34,000, or 2.5%, in the quarter ended December 31, 2005, compared with the prior year quarter, primarily as a result of a $2.1 million decrease in the average outstanding balance of loans receivable to $94.1 million. The average yield earned on loans receivable also decreased slightly to 5.67% for the quarter ended December 31, 2005 from 5.69% for the prior year period.

Interest on mortgage-backed securities decreased $2,000 for the quarter ended December 31, 2005 from the comparable quarter in 2004. The decrease in interest income is attributed to a decrease in the average balance of mortgage-backed securities due to repayments which offset an increase in the average yield earned on mortgage-backed securities. For the quarter ended December 31, 2005, the average balance of mortgage-backed securities decreased $541,000 to $1.8 million from $2.4 million in the prior year quarter. The average yield earned on mortgage-backed securities increased to 4.49% for the quarter ended December 31, 2005 from 3.80% for the quarter ended December 31, 2004. The increase in the average yield earned on mortgage-backed securities was primarily the result of upward re-pricing of adjustable rate mortgage-backed securities in the portfolio as market interest rates moved higher.

Interest on investment securities increased $186,000 to $205,000 for the quarter ended December 31, 2005 from $19,000 for the prior year period due to a $19.8 million increase in the average outstanding balance of investment securities to $21.1 million from $1.3 million in the 2004 quarter resulting from the purchase of $19.6 million of United States Treasury Bills for the portfolio between the two periods. The increase in the average balance of investment securities was offset by a decrease in the average yield earned on investment securities to 3.88% for the quarter ended December 31, 2005 from 5.98% in the year earlier period as a result of the purchase of lower yielding short term investment securities for the portfolio between the two periods, discussed above.

Interest earned on interest bearing deposits decreased $88,000, or 49.6%, for the quarter ended December 31, 2005 from the same quarter in 2004. The decrease in interest income is attributed to a decrease in the average balance of interest bearing deposits to $8.4 million from $38.2 million in the 2004 quarter. The decrease in average outstanding balance of interest bearing deposits was offset by an increase in the average yield earned on interest bearing deposits. For the quarter ended December 31, 2005, the average yield earned on interest bearing deposits increased to 4.28% from 1.85% for the quarter ended December 31, 2004, resulting from the increase in short term interest rates that occurred between the two periods. The Company decreased its balance of interest bearing deposits in order to fund the $19.6 million purchase of United States Treasury Bills, discussed above, as well as to fund the decrease in deposit liabilities, discussed below.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Interest Income (continued)

For the six months ended December 31, 2005, interest on loans receivable decreased $48,000, or 1.7%, compared with the prior year period. The decrease in interest income was primarily attributed to a $1.4 million decrease in the average outstanding balance of net loans receivable to $94.6 million for the six months ended December 31, 2005 from $96.0 million for the six months ended December 31, 2004. The average yield earned on loans receivable decreased slightly to 5.73% for the six months ended December 31, 2005 as compared to 5.75% for the prior year period.

For the six months ended December 31, 2005 interest earned on mortgage backed securities decreased $8,100 to $40,000. The decrease in interest income is attributed to a $634,000 decrease in the average outstanding balance of mortgage-backed to $1.9 million for the six months ended December 31, 2005 from $2.5 million for the six months ended December 31, 2004. The decline in the average outstanding balance of mortgage-backed securities was offset by an increase in the average yield earned on mortgage-backed securities to 4.37% for the six months ended December 31, 2005 from 3.90% for the comparable prior year period.

For the six months ended December 31, 2005 interest earned on investment securities increased $288,000 to $326,000. The increase in interest income is attributed to a $15.4 million increase in the average outstanding balance of investment securities to $16.7 million for the six months ended December 31, 2005 from $1.3 million in the prior year period resulting from the purchase of $19.6 million of United States Treasury Bills in the current six month period. The increase in the average outstanding balance of investment securities was offset by a decrease in the average yield earned on investment securities to 3.91% for the six months ended December 31, 2005 from 5.96% in the comparable prior year period.

For the six months ended December 31, 2005 interest earned on interest bearing deposits decreased $55,000 from the year earlier period. The decrease in interest income was primarily due to a $25.8 million decrease in the average outstanding balance of interest bearing deposits to $14.7 million for the six months ended December 31, 2005 from $40.5 million for the comparable prior year period. 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 3.63% for the six months ended December 31, 2005 from 1.59% for the prior year period.

Interest Expense

Interest expense increased $55,000, or 16.4%, for the quarter ended December 31, 2005 compared with the prior year quarter. The increase in interest expense is the result of an increase in the average yield paid on interest costing deposits offset by a decline in the average outstanding balance of interest costing deposits. For the quarter ended December 31, 2005 the average yield paid on interest costing deposits increased to 1.47% from 1.12% for the quarter ended December 31, 2004 and the average outstanding balance of interest costing deposits decreased by $13.7 million to $106.1 million from $119.8 million for the prior year quarter.

For the six months ended December 31, 2005 interest expense increased $84,000 to $767,000 from $683,000 for the prior year period. The increase in interest expense in the six month period is also the result of an increase in the average yield paid on interest costing deposits offset by a decline in the average outstanding balance of interest costing deposits. For the six months ended December 31, 2005 the average yield paid on interest costing deposits increased to 1.42% from 1.12% for the six months ended December 31, 2004 and the average outstanding balance of interest costing deposits decreased by $14.3 million to $108.0 million from $122.3 million for the comparable prior year period.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

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. The allowance for loan loses totaled $450,000, or .48% of total loans, at December 31, 2005 compared to $457,000, or .48% of total loans, at June 30, 2005. The decrease in the Company’s allowance for loan losses during the current six month period was the result of $7,000 in net loan charge offs. At December 31, 2005, after consideration of the high concentration of one-to-four family mortgage loans in the loan portfolio, peer data, current economic conditions, trends in the portfolio, the low level of loan charge offs and the strong housing market, the $450,000 allowance for loan losses was determined by the Company to be sufficient to cover probable accrued losses in the loan portfolio consistent with its policy for the establishment and maintenance of adequate levels of loan loss reserves. As a result, the Company made no loan loss provision during the six months ended December 31, 2005.

Non-Interest Income

Non-interest income decreased $6,000 to $202,000 in the quarter ended December 31, 2005 from $208,000 in the quarter ended December 31, 2004. The primary factor for the decrease in non-interest income in the current quarter was an $18,000 decrease in loan fees and service charges offset by a $9,000 increase in deposit related fees and a $6,000 increase in profit on the sale of loans. The decrease in loan fees and service charges is attributed to a decrease in loan origination activity from the prior year quarter.

For the six months ended December 31, 2005 non-interest income increased $36,000 to $467,000 from $431,000 in the prior year period. The primary factors for the increase in non-interest income were a $16,000 gain from additional proceeds received on the sale of Midland Federal’s investment in Intrieve, Incorporated, Midland Federal’s data processing provider, a $13,000 increase in loan fees and service charges, a $9,000 increase in deposit related fees and a $5,000 increase in profit on the sale of loans offset by a $4,000 decrease in commission income. The increase in loans fees and service charges is primarily attributed to an increase in brokered loan activity compared with the prior year period.

Non-Interest Expense

Non-interest expense decreased $34,000 to $1.1 million in the quarter ended December 31, 2005 compared to the prior year quarter. The decrease in non-interest expense is primarily the result of a $37,000 decrease in staffing costs, a $9,000 decrease in professional fees and a $5,000 decrease in data processing expense offset by a $16,000 increase in computer software and support expense and a $6,000 increase in office occupancy expense. The decrease in staffing costs is primarily attributed to employee benefits expense that was lower than the comparable prior year quarter and a decrease in loan origination commissions, due to a decrease in lending volume.

For the six months ended December 31, 2005 non-interest expense increased $40,000 to $2.3 million from $2.2 million in the prior year period. The primary factors for the increase in non-interest expense in the current six month period were a $45,000 increase in computer software and support expense, a $9,000 increase in professional fees and an $8,000 increase in staffing costs offset by a $6,000 decrease in office occupancy expense. The increase in computer software and support expense is primarily attributed to computer upgrades and software licensing costs.

Income Taxes

Income taxes increased $11,000 to $131,000 in the quarter ended December 31, 2005 from $120,000 for the prior year quarter as a result of the increase in operating income from the prior year quarter.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Income Taxes (continued)

For the six months ended December 31, 2005 income taxes increased $28,000 to $272,000 compared to $244,000 in the prior year period. The increased income tax provision was due to the increase in operating income in the six months ended December 31, 2005 as compared to the six months ended December 31, 2004. The effective income tax rate in all periods presented was 34.0%.

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 December 31, 2005 the Company had commitments to originate $816,000 million in loans, all of which were one-to-four family loans as well as unused lines of credit of $5.0 million. At December 31, 2005 the Company had commitments to sell $145,000 in loans. Also on that date, the Company had $26.4 million of certificate of deposit accounts maturing within one year, which management generally expects to retain.

The Company uses its capital resources principally to meet its ongoing commitments to fund maturing certificate of deposits and deposit withdrawals, fund existing and continuing loan commitments, maintain its liquidity and meet operating expenses. 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.

At December 31, 2005, the Association had tangible and core capital of $11.1 million, or 8.21% of adjusted total assets, which was approximately $9.0 million and $7.0 million above the minimum requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets.

At December 31, 2005, the Association had total capital of $11.5 million (including $11.1 million in core capital) and risk-weighted assets of $59.8 million, or total capital of 19.25% of risk-weighted assets. This amount was $6.7 million above the 8.0% requirement in effect on that date.

Item 3. CONTROLS AND PROCEDURES

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

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

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, the Association is a party to legal proceedings wherein it enforces its security interest or is a defendant to certain lawsuits arising out of the ordinary course of its business. Neither the Company nor the Association believes that it is a party to any legal proceedings which if adversely determined would have a material adverse effect on its financial condition at this time.

Item 2. CHANGES IN SECURITIES

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 19, 2005 the shareholders held their annual meeting to consider and act upon the election of Mr. Michael J. Kukanza and Mr. Richard Taylor to serve as directors for terms of three years and the ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors for the Company for the fiscal year ending June 30, 2006. Both of the foregoing items were approved by the shareholders at the meeting by the following vote totals based upon 372,600 shares outstanding and entitled to vote at the meeting.

I.	Election of Directors —	351,641 shares voted, as follows:
	Michael J. Kukanza:	351,641 votes FOR; -0- votes WITHHELD.
	Richard Taylor:	351,641 votes FOR; -0- votes WITHHELD.

II.	Ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors for the Company for the fiscal year ending June 30, 2006 — 351,641 shares voted, as follows:
	FOR:	351,541
	AGAINST:	100
	ABSTAIN:	-0-

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

See Exhibit Index.

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INDEX TO EXHIBITS

Exhibit Number	Description
11	Computation of Per Share Earnings
31.1	Rule 13a-14(a)/15d-14(a) Certification
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MIDLAND CAPITAL HOLDINGS CORPORATION Registrant
DATE: February 14, 2006	BY:	/s/ Paul Zogas
		Paul Zogas
		President, Chief Executive Officer
		and Chief Financial Officer
DATE: February 14, 2006	BY:	/s/ Charles Zogas
		Charles Zogas
		Executive Vice President and
		Chief Operating Officer