Midland Capital (MCPH) 10QSB 2006 Q3 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 March 31, 2006

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	(I.R.S. Employer
Incorporation or Organization)	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. Yeso       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 May 15, 2006, the Issuer had
372,600 shares of Common Stock issued and outstanding.

MIDLAND CAPITAL HOLDINGS CORPORATION

			PAGE
Part I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Financial Condition - March 31, 2006 (unaudited) and June 30, 2005	1
		Consolidated Statements of Earnings - Three months ended March 31, 2006 and 2005 and Nine months ended March 31, 2006 and 2005 (unaudited)	2
		Consolidated Statements of Changes in Stockholders’ Equity - Nine months ended March 31, 2006 (unaudited)	3
		Consolidated Statements of Cash Flows - Nine months ended March 31, 2006 and 2005 (unaudited)	4
		Notes to Consolidated Financial Statements	5-6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7-15
	Item 3.	Controls and Procedures	15
Part II. OTHER INFORMATION			16
	Item 1.	Legal Proceedings	16
	Item 2.	Changes in Securities	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	16
	Index to Exhibits		17
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

	March 31,		June 30,
	2006		2005
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	2,244,257		2,640,369
Interest-bearing deposits		13,847,899		34,069,224
Total cash and cash equivalents		16,092,156		36,709,593
Investment securities available for sale, at fair value		15,965,137		1,310,937
Mortgage-backed securities, held to maturity (fair value:
March 31, 2006 - $1,731,719;
June 30, 2005 - $1,938,460)		1,723,269		1,920,221
Loans receivable (net of allowance for loan losses:
March 31, 2006 - $441,980;
June 30, 2005 - $456,550)		93,238,521		94,578,810
Loans receivable held for sale		506,400		250,500
Stock in Federal Home Loan Bank of Chicago		1,148,087		1,123,500
Accrued interest receivable		370,633		367,351
Office properties and equipment, net		2,230,590		2,240,391
Prepaid expenses and other assets		716,828		477,467
Total assets	$	131,991,621		138,978,770
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	117,624,391		124,836,132
Advance payments by borrowers for taxes and insurance		788,525		1,060,670
Other liabilities		445,086		385,286
Total liabilities		118,858,002		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 March 31, 2006 and June 30, 2005		3,726		3,726
Additional paid-in capital		3,395,580		3,395,580
Retained earnings — substantially restricted		9,585,448		9,080,803
Accumulated other comprehensive income, net of income taxes		148,865		216,573
Total stockholders’ equity		13,133,619		12,696,682
Total liabilities and stockholders’ equity	$	131,991,621		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				Nine Months Ended
	March 31,				March 31,
	2006		2005		2006		2005
Interest income:
Interest on loans	$	1,370,266		1,378,263		4,079,774		4,135,905
Interest on mortgage-backed securities		20,547		19,908		60,958		68,413
Interest on investment securities		192,526		18,990		518,793		56,969
Interest on interest-bearing deposits		122,097		202,838		389,475		524,902
Dividends on FHLB stock		8,642		15,010		33,248		46,882
Total interest income		1,714,078		1,635,009		5,082,248		4,833,071
Interest expense:
Interest on deposits		425,659		332,686		1,192,765		1,015,622
Total interest expense		425,659		332,686		1,192,765		1,015,622
Net interest income		1,288,419		1,302,323		3,889,483		3,817,449
Provision for loan losses		—		—		—		—
Net interest income after provision for loan losses		1,288,419		1,302,323		3,889,483		3,817,449
Non-interest income:
Loan fees and service charges		46,019		38,182		201,918		180,806
Commission income		19,192		16,689		40,661		41,932
Gain on sale of loans		13,381		2,150		32,426		16,002
Gain on sale of other assets		—		—		16,286		—
Deposit related fees		109,491		104,226		338,529		324,076
Other income		11,200		18,114		36,802		47,707
Total non-interest income		199,283		179,361		666,622		610,523
Non-interest expense:
Staffing costs		653,719		640,335		1,958,929		1,937,629
Advertising		15,512		15,171		48,517		48,766
Occupancy and equipment expenses		177,276		162,714		492,785		484,275
Data processing		52,721		57,004		150,854		156,254
Federal deposit insurance premiums		4,029		4,864		12,460		15,124
Other		246,081		221,999		755,347		689,234
Total non-interest expense		1,149,338		1,102,087		3,418,892		3,331,282
Income before income taxes		338,364		379,597		1,137,213		1,096,690
Income tax provision		115,044		129,089		386,652		372,900
Net income	$	223,320		250,508		750,561		723,790
Earnings per share (basic)	$	.60		.67		2.01		1.94
Earnings per share (diluted)	$	.60		.67		2.01		1.94
Dividends declared per common share	$	.22		.20		.66		.60

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						750,561						750,561
Other comprehensive income, net of tax:
Unrealized holding loss during the period									(67,708	)		(67,708	)
Total comprehensive income						750,561			(67,708	)		682,853
Dividends declared on common stock ($0.66 per share)						(245,916	)					(245,916	)
Balance at March 31, 2006	$	3,726		3,395,580		9,585,448			148,865			13,133,619

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	750,561			723,790
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		158,305			161,240
Net (accretion) amortization on securities		(462,543	)		(1,988	)
Federal Home Loan Bank stock dividend		(24,587	)		(46,800	)
Proceeds from sale of loans held for sale		2,534,462			1,140,050
Origination of loans held for sale		(2,769,703	)		(715,050	)
Gain on sale of loans		(32,426	)		(4,346	)
Gain on sale of other assets		(16,286	)		—
Increase in accrued interest receivable		(3,281	)		(22,209	)
Increase in accrued interest payable		300			493
Increase (decrease) in deferred income on loans		3,470			(14,987	)
Increase in other assets		(187,995	)		(54,024	)
Increase in other liabilities		59,500			101,492
Net cash provided by operating activities		9,777			1,267,661
Cash flows from investing activities:
Proceeds from repayments of mortgage backed securities, held to maturity		196,952			870,756
Proceeds from maturities of investment securities, available for sale		20,000,000			—
Purchase of investment securities, available for sale		(34,294,245	)		—
Loan disbursements		(14,608,912	)		(16,686,784	)
Loan repayments		15,941,011			14,430,509
Proceeds from sale of other assets		16,286			—
Property and equipment expenditures		(148,504	)		(71,522	)
Net cash provided for investing activities		(12,897,412	)		(1,457,041	)
Cash flows from financing activities:
Deposit account receipts		268,426,852			286,705,343
Deposit account withdrawals		(276,764,413	)		(300,634,980	)
Interest credited to deposit accounts		1,125,820			959,348
Payment of dividends		(245,916	)		(223,560	)
Decrease in advance payments by borrowers for taxes and insurance		(272,145	)		(176,955	)
Net cash provided for financing activities		(7,729,802	)		(13,370,804	)
Net change in cash and cash equivalents		(20,617,437	)		(13,560,184	)
Cash and cash equivalents at beginning of period		36,709,593			50,496,629
Cash and cash equivalents at end of period	$	16,092,156			36,936,445
Cash paid during the period for:
Interest	$	1,192,465			1,015,129
Income taxes		327,049			337,329

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 nine months ended March 31, 2006 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 nine month periods ended March 31, 2006 and 2005 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 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.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Note E — Effect of New Accounting Pronouncements (continued)

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.

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 March 31, 2006, 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 March 31, 2006, Midland Federal’s capital ratios exceeded all of its regulatory capital requirements with both tangible and core capital ratios of 8.40% and a risk-based capital ratio of 18.93%.

FINANCIAL CONDITION

At March 31, 2006, total assets of the Company decreased by $7.0 million to $132.0 million from $139.0 million at June 30, 2005. Loans receivable, including loans available for sale, declined by $1.1 million to $93.7 million at March 31, 2006 from $94.8 million at June 30, 2005. The Company originated $17.4 million of primarily fixed rate loans during the nine months ended March 31, 2006. Offsetting loan originations in the current nine month period were loan repayments of $16.0 million as well as loan sales of $2.5 million. There were no new purchases of mortgage-backed securities during the nine months ended March 31, 2006 and as a result, the balance of mortgage-backed securities decreased by $197,000 to $1.7 million due to repayments.

During the nine months ended March 31, 2006 the Company changed its mix of short term investments to take advantage of higher short term interest rates and made $14.3 million of net purchases of short term United States Treasury Bills. These net purchases of United States Treasury securities resulted in a $14.7 million increase in the balance of investment securities available for sale to $16.0 million at March 31, 2006 compared to $1.3 million at June 30, 2005. Gross unrealized gains in the available for sale investment securities portfolio were $226,000 at March 31, 2006 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 March 31, 2006 was 13 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 $20.3 million to $13.8 million at March 31, 2006 from $34.1 million at June 30, 2005.

Non-performing assets consisted of $233,000 in non-accruing loans at March 31, 2006 compared to $380,000 of non-accruing loans and $5,000 in a repossessed automobile at June 30, 2005. The allowance for loan losses decreased $15,000, due to net charge-offs, and amounted to $442,000, or 0.47% of total loans, at March 31, 2006 as compared to June 30, 2005. The Company made no additional loan loss provisions during the nine months ended March 31, 2006. Non-accruing loans at March 31, 2006 consisted of $175,000 in one-to-four family residential mortgage loans and $58,000 in non-mortgage loans. At March 31, 2006 the Company’s ratio of allowance for loan losses to non-performing loans was 189.79% compared to 120.06% at June 30, 2005. Management believes that the allowance for loan losses at March 31, 2006 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.

	March 31,			June 30,
	2006			2005
	(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family	$	175		$	316
Multi-family		—			—
Consumer		58			64
Commercial business		—			—
Total non-performing loans	$	233		$	380
Repossessed Assets:
Automobile		5			—
Total repossessed assets		5			—
Total non-performing assets	$	238		$	380
Total as a percentage of total assets		0.18	%		0.27	%

As of March 31, 2006, 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.

	Nine Months Ended
	March 31,
	2006			2005
	(Dollars in Thousands)
Balance at beginning of period	$	457		$	460
Charge-offs:
One-to-four family loans		—			—
Consumer loans		17			1
Commercial business loans		—			—
Total charge-offs		17			1
Recoveries:
One-to-four family loans		—			—
Multi-family loans		—			—
Consumer loans		2			—
Total recoveries		2			—
Net (charge-offs) recoveries		(15	)		(1	)
Additions charged to operations		—			—
Balance at end of period	$	442		$	459
Ratio of net charge-offs during the period to average loans outstanding during the period		.02	%		.01	%
Ratio of net charge-offs during the period to average non-performing assets		5.32	%		.46	%
Allowance for loan losses to non-performing loans		189.79	%		151.69	%
Allowance for loan losses to total loans		0.47	%		0.47	%

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 nine months ended March 31, 2006 decreased $7.2 million to $117.6 million as a result of withdrawals, net of deposits, in the amount of $8.3 million, offset by interest credited to deposits in the amount of $1.1 million. The net decrease in deposits is primarily attributed to increased competition from special rate promotions and management’s view that current asset yields did not justify aggressive deposit pricing. The decrease in deposits is the result of a $3.6 million decrease in passbook deposit accounts, a $1.3 million decrease in certificate of deposit accounts, a $1.5 million decrease in demand deposit accounts, a $663,000 decrease in NOW accounts and a $147,000 decrease in money market accounts.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION (continued)

Stockholders’ equity increased $437,000, or 3.4%, to $13.1 million at March 31, 2006 from $12.7 million at June 30, 2005. The increase in stockholders’ equity was due to net income of $751,000 offset by a decrease in accumulated other comprehensive income of $68,000 and the payment of cash dividends in the amount of $246,000.

RESULTS OF OPERATIONS

The Company had net income of $223,000 for the quarter ended March 31, 2006 compared to net income of $250,000 for the quarter ended March 31, 2005. The decrease in net income in the current quarter is the result of a $47,000 increase in non-interest expense and a $14,000 decrease in net interest income, offset by a $20,000 increase in non-interest income and a $14,000 decrease in income taxes.

For the nine months ended March 31, 2006 the Company had net income of $751,000 compared to net income of $724,000 for the nine months ended March 31, 2005. Net income in the nine months ended March 31, 2006 was increased by a $72,000 increase in net interest income and a $56,000 increase in non-interest income, offset by an $87,000 increase in non-interest expense and a $14,000 increase in income taxes.

The Company’s interest rate spread increased to 3.81% for the quarter ended March 31, 2006 from 3.66% 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 5.43% in the quarter ended March 31, 2006 from 4.81% in the prior year quarter which offset an increase in the Company’s average cost of interest costing deposits to 1.62% in the quarter ended March 31, 2006 from 1.15% in the prior year quarter. Other factors included the 2006 reinvestment of cash equivalents into higher yielding investment securities and disciplined deposit pricing. The increase in interest rate spread was offset by a decrease in the average outstanding balance of interest earning assets to $126.3 million for the quarter ended March 31, 2006 compared to $135.9 million for the prior year quarter. The average balance of net earning assets (average interest earning assets minus average interest bearing liabilities) increased by $558,000 to $20.9 million compared with the prior year period.

For the nine months ended March 31, 2006, interest rate spread increased to 3.81% compared to 3.50% in the prior year nine month period. Interest rate spread increased in the nine months ended March 31, 2006 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 nine months ended March 31, 2006, the average outstanding balance of interest earning assets decreased to $128.1 million from $139.5 million for the prior year period. The average balance of net earning assets in the nine months ended March 31, 2006 increased by $1.5 million to $21.0 million compared with the prior year period.

Interest Income

Interest income increased $79,000, or 4.8%, for the quarter ended March 31, 2006 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 5.43% for the quarter ended March 31, 2006 from 4.81% in the prior year quarter. The average outstanding balance of interest earning assets decreased by $9.7 million to $126.3 million for the quarter ended March 31, 2006 compared to $135.9 million for the quarter ended March 31, 2005. 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 nine months ended March 31, 2006, interest income increased $249,000, or 5.2%, from the 2005 period. The increase in interest income for the current nine 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 5.29% compared to 4.62% for the year earlier period. The average outstanding balance of interest earning assets decreased by $11.4 million to $128.1 million for the nine months ended March 31, 2006 from $139.5 million for the prior year period.

Interest on loans receivable decreased $8,000, or 0.6%, in the quarter ended March 31, 2006, compared with the prior year quarter, as a result of a $2.2 million decrease in the average outstanding balance of loans receivable to $94.2 million. The decrease in the average outstanding balance of loan receivable was offset by an increase in the average yield earned on loans receivable to 5.76% for the quarter ended March 31, 2006 from 5.66% for the prior year period.

Interest on mortgage-backed securities decreased $1,000 for the quarter ended March 31, 2006 from the comparable quarter in 2005. 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 March 31, 2006, the average balance of mortgage-backed securities decreased $379,000 to $1.8 million from $2.1 million in the prior year quarter. The average yield earned on mortgage-backed securities increased to 4.70% for the quarter ended March 31, 2006 from 3.74% for the quarter ended March 31, 2005. 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 $174,000 to $193,000 for the quarter ended March 31, 2006 from $19,000 for the prior year period due to a $16.9 million increase in the average outstanding balance of investment securities to $18.2 million from $1.3 million in the 2005 quarter. The increase in the average balance of investment securities was the result of net purchases of $14.3 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 4.23% for the quarter ended March 31, 2006 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 $81,000, or 39.8%, to $122,000 for the quarter ended March 31, 2006 from the same quarter in 2005. The decrease in interest income is attributed to a decrease in the average balance of interest bearing deposits to $11.0 million from $35.1 million in the 2005 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 March 31, 2006, the average yield earned on interest bearing deposits increased to 4.44% from 2.31% for the quarter ended March 31, 2005, 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 net 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 nine months ended March 31, 2006, interest on loans receivable decreased $56,000, or 1.4%, compared with the prior year period. The decrease in interest income was primarily attributed to a $1.6 million decrease in the average outstanding balance of net loans receivable to $94.5 million for the nine months ended March 31, 2006 from $96.1 million for the nine months ended March 31, 2005. The average yield earned on loans receivable increased slightly to 5.76% for the nine months ended March 31, 2006 as compared to 5.74% for the prior year period.

For the nine months ended March 31, 2006 interest earned on mortgage backed securities decreased $7,000 to $61,000. The decrease in interest income is attributed to a $548,000 decrease in the average outstanding balance of mortgage-backed to $1.8 million for the nine months ended March 31, 2006 from $2.4 million for the nine months ended March 31, 2005. 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 4.47% for the nine months ended March 31, 2006 from 3.85% for the comparable prior year period.

For the nine months ended March 31, 2006 interest earned on investment securities increased $462,000 to $519,000. The increase in interest income is attributed to a $15.9 million increase in the average outstanding balance of investment securities to $17.2 million for the nine months ended March 31, 2006 from $1.3 million in the prior year period resulting from the net purchase of $14.3 million of United States Treasury Bills in the current nine 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 4.02% for the nine months ended March 31, 2006 from 5.96% in the comparable prior year period.

For the nine months ended March 31, 2006 interest earned on interest bearing deposits decreased $135,000 from the year earlier period. The decrease in interest income was primarily due to a $25.3 million decrease in the average outstanding balance of interest bearing deposits to $13.4 million for the nine months ended March 31, 2006 from $38.7 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 3.85% for the nine months ended March 31, 2006 from 1.81% for the prior year period.

Interest Expense

Interest expense increased $93,000, or 27.9%, for the quarter ended March 31, 2006 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 caused primarily by the general rise in interest rates offset by a decline in the average outstanding balance of interest costing deposits. For the quarter ended March 31, 2006 the average yield paid on interest costing deposits increased to 1.62% from 1.15% for the quarter ended March 31, 2005 and the average outstanding balance of interest costing deposits decreased by $10.2 million to $105.4 million from $115.6 million for the prior year quarter.

For the nine months ended March 31, 2006 interest expense increased $177,000 to $1.2 million from $1.0 million for the prior year period. The increase in interest expense in the current nine 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 nine months ended March 31, 2006 the average yield paid on interest costing deposits increased to 1.48% from 1.13% for the nine months ended March 31, 2005 and the average outstanding balance of interest costing deposits decreased by $12.9 million to $107.2 million from $120.1 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, the estimated value of the underlying collateral and current and expected market conditions. The allowance for loan loses totaled $442,000, or .47% of total loans, at March 31, 2006 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 nine month period was the result of $15,000 in net loan charge offs. At March 31, 2006, 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 $442,000 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 nine months ended March 31, 2006.

Non-Interest Income

Non-interest income increased $20,000 to $199,000 in the quarter ended March 31, 2006 from $179,000 in the quarter ended March 31, 2005. The primary factors for the increase in non-interest income in the current quarter were an $11,000 increase in profit on the sale of loans, an $8,000 increase in loan fees and service charges and a $5,000 increase in deposit related fees. The increase in loan fees and service charges is attributed to an increase in brokered loan activity from the prior year quarter.

For the nine months ended March 31, 2006 non-interest income increased $56,000 to $667,000 from $611,000 in the prior year period. The primary factors for the increase in non-interest income were a $21,000 increase in loan fees and service charges, a $16,000 increase in profit on the sale of loans, 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 and a $14,000 increase in deposit related fees. 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 increased $47,000 to $1.1 million in the quarter ended March 31, 2006 compared to the prior year quarter. The increase in non-interest expense is primarily the result of a $15,000 increase in office occupancy expense, a $13,000 increase in staffing costs and a $6,000 increase in computer software and support expense offset by a $4,000 decrease in data processing expense. The increase in staffing costs is primarily attributed to an increase in employee benefits expense.

For the nine months ended March 31, 2006 non-interest expense increased $88,000 to $3.4 million from $3.3 million in the prior year period. The primary factors for the increase in non-interest expense in the current nine month period were a $51,000 increase in computer software and support expense, a $21,000 increase in staffing costs, a $9,000 increase in office occupancy expense and a $7,000 increase in professional fees. The increase in computer software and support expense is primarily attributed to computer upgrades and software licensing costs.

Income Taxes

Income taxes decreased $14,000 to $115,000 in the quarter ended March 31, 2006 from $129,000 for the prior year quarter as a result of the decrease in operating income from the prior year quarter.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Income Taxes (continued)

For the nine months ended March 31, 2006 income taxes increased $14,000 to $387,000 compared to $373,000 in the prior year period. The increased income tax provision was due to the increase in operating income in the nine months ended March 31, 2006 as compared to the nine months ended March 31, 2005. 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 March 31, 2006 the Company had commitments to originate $1.3 million in one-to-four family loans and $100,000 in multi-family loans as well as unused lines of credit of $4.6 million. At March 31, 2006 the Company had commitments to sell $761,000 in loans. Also on that date, the Company had $27.1 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 March 31, 2006, the Association had tangible and core capital of $11.1 million, or 8.40% of adjusted total assets, which was approximately $9.1 million and $7.1 million above the minimum requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets.

At March 31, 2006, the Association had total capital of $11.5 million (including $11.1 million in core capital) and risk-weighted assets of $60.9 million, or total capital of 18.93% 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

Not applicable.

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: May 15, 2006	BY:	/s/ Paul Zogas
		Paul Zogas
		President, Chief Executive Officer and Chief Financial Officer
DATE: May 15, 2006	BY:	/s/ Charles ZogasCharles Zogas
		Executive Vice President and Chief Operating Officer