Midland Capital (MCPH) 10QSB 2007 Q1 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 September 30, 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 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. 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 November 14, 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 — September 30, 2006 (unaudited) and June 30, 2006		1
Consolidated Statements of Earnings — Three Months Ended September 30, 2006 and 2005 (unaudited)		2
Consolidated Statements of Changes in Stockholders’ Equity — Three Months Ended September 30, 2006 (unaudited)		3
Consolidated Statements of Cash Flows — Three Months Ended September 30, 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		7-13
Item 3. Controls and Procedures		13
Part II. OTHER INFORMATION		14
Item 1. Legal Proceedings		14
Item 2. Changes in Securities		14
Item 3. Defaults Upon Senior Securities		14
Item 4. Submission of Matters to a Vote of Security Holders		14
Item 5. Other Information		14
Item 6. Exhibits		14
Index to Exhibits		15
Computation of Per Share Earnings
Certification
Section 906 Certification

MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Part I — FINANCIAL INFORMATION

Consolidated Statements of Financial Condition

	September 30,		June 30,
	2006		2006
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	2,588,163		2,204,602
Interest-bearing deposits		5,481,257		9,055,302
Total cash and cash equivalents		8,069,420		11,259,904
Investment securities available for sale, at fair value		20,938,000		21,021,975
Mortgage-backed securities, held to maturity (fair value: September 30, 2006 - $1,631,035; June 30, 2006 - $1,688,292)		1,622,353		1,684,228
Loans receivable (net of allowance for loan losses: September 30, 2006 - $421,920; June 30, 2006 - $415,666)		90,232,094		91,701,483
Loans receivable held for sale		398,200		843,090
Stock in Federal Home Loan Bank of Chicago		1,148,087		1,148,087
Accrued interest receivable		382,218		370,190
Office properties and equipment, net		2,195,285		2,240,702
Prepaid expenses and other assets		772,584		547,690
Total assets	$	125,758,241		130,817,349
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	111,445,203		115,971,229
Advance payments by borrowers for taxes and insurance		423,487		1,127,293
Other liabilities		424,664		422,743
Total liabilities		112,293,354		117,521,265
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 September 30, 2006 and June 30, 2006		3,726		3,726
Additional paid-in capital		3,395,580		3,395,580
Retained earnings — substantially restricted		9,896,027		9,764,211
Accumulated other comprehensive income, net of income taxes		169,554		132,567
Total stockholders’ equity		13,464,887		13,296,084
Total liabilities and stockholders’ equity	$	125,758,241		130,817,349

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
	September 30,
	2006		2005
Interest income:
Interest on loans	$	1,349,977		1,360,611
Interest on mortgage-backed securities		21,758		19,913
Interest on investment securities		259,544		121,552
Interest on interest-bearing deposits		107,597		178,128
Dividends on FHLB stock		8,873		13,920
Total interest income		1,747,749		1,694,124
Interest expense:
Interest on deposits		492,674		376,199
Total interest expense		492,674		376,199
Net interest income		1,255,075		1,317,925
Provision for loan losses		—		—
Net interest income after provision for loan losses		1,255,075		1,317,925
Non-interest income:
Loan fees and service charges		51,166		101,935
Commission income		11,594		10,638
Gain on sale of loans		26,296		9,233
Deposit related fees		94,892		113,145
Gain on sale of other assets		—		16,286
Other income		13,457		14,084
Total non-interest income		197,405		265,321
Non-interest expense:
Staffing costs		657,221		674,642
Advertising		17,895		16,905
Occupancy and equipment expenses		165,645		152,625
Data processing		44,008		54,370
Federal deposit insurance premiums		3,704		4,256
Other		228,795		265,526
Total non-interest expense		1,117,268		1,168,324
Income before income taxes		335,212		414,922
Income tax provision		113,972		141,073
Net income	$	221,240		273,849
Earnings per share (basic)	$	0.59		0.73
Earnings per share (diluted)	$	0.59		0.73
Dividends declared per common share	$	0.24		0.22

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, 2006	$	3,726		3,395,580		9,764,211			132,567		13,296,084
Comprehensive Income:
Net income						221,240					221,240
Other comprehensive income, net of tax:
Unrealized holding gain during the period									36,987		36,987
Total comprehensive income						221,240			36,987		258,227
Dividends declared on common stock ($0.24 per share)						(89,424	)				(89,424	)
Balance at September 30, 2006	$	3,726		3,395,580		9,896,027			169,554		13,464,887

See accompanying notes to consolidated financial statements.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended
	September 30,
	2006			2005
Cash flows from operating activities:
Net income	$	221,240			273,849
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		56,347			52,041
Net accretion on securities		(240,794	)		(102,802	)
Federal Home Loan Bank stock dividend		—			(13,900	)
Proceeds from sale of loans held for sale		2,115,888			581,861
Origination of loans held for sale		(1,654,050	)		(578,500	)
Gain on sale of loans		(26,296	)		(9,233	)
Gain on sale of other assets		—			(16,286	)
Increase in accrued interest receivable		(12,028	)		(4,358	)
Decrease in accrued interest payable		(750	)		(653	)
Increase (decrease) in deferred income on loans		11,364			(697	)
Increase in other assets		(234,600	)		(204,193	)
Increase in other liabilities		2,671			160,313
Net cash provided by operating activities		238,992			137,442
Cash flows from investing activities:
Proceeds from repayments of mortgage-backed securities, held to maturity		61,875			59,716
Proceeds from maturities of investment securities, available for sale		15,000,000			—
Purchase of investment securities, available for sale		(14,619,190	)		(19,632,588	)
Loan disbursements		(3,044,838	)		(6,891,282	)
Loan repayments		4,502,863			7,110,520
Proceeds from sale of other assets		—			16,286
Property and equipment expenditures		(10,930	)		(51,825	)
Net cash provided by (for) investing activities		1,889,780			(19,389,173	)
Cash flows from financing activities:
Deposit account receipts		79,945,771			93,906,798
Deposit account withdrawals		(84,929,223	)		(97,642,934	)
Interest credited to deposit accounts		457,426			359,301
Payment of dividends		(89,424	)		(81,972	)
(Decrease) increase in advance payments by borrowers for taxes and insurance		(703,806	)		297,258
Net cash provided for financing activities		(5,319,256	)		(3,161,549	)
Net change in cash and cash equivalents		(3,190,484	)		(22,413,280	)
Cash and cash equivalents at beginning of period		11,259,904			36,709,593
Cash and cash equivalents at end of period	$	8,069,420			14,296,313
Cash paid during the period for:
Interest	$	493,424			376,852
Income taxes		85,606			0

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 ended September 30, 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. All significant intercompany balances and transactions have been eliminated in consolidation.

Note C — Earnings Per Share

Earnings per share for the three month periods ended September 30, 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. 123R “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 adopted SFAS No. 123R effective July 1, 2006 and will use the “modified prospective” method. The Company does not expect the initial adoption of SFAS No. 123R to have any impact on its financial position or results of operations as there are currently no outstanding 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 after the adoption of this standard.

In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 156, “Accounting for Servicing of Financial Assets” (“SFAS No. 156”), which requires all separately recognized servicing assets and liabilities to be initially measured at fair value, if practical. An entity can elect either to (1) subsequently measure servicing rights at fair value and report changes in fair value in earnings, or (2) continue the current practice of amortizing servicing rights in proportion to and over the expected period of servicing income or loss. The statement also permits entities, at the date of adoption, a one-time option to reclassify certain available-for-sale (“AFS”) securities to trading securities, without calling into question the classification of other AFS securities under Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, provided that the AFS securities are identified as offsetting the entity’s exposure to changes in fair value of servicing assets or liabilities that the entity has elected to subsequently measure at fair value. This statement is effective for fiscal years beginning after September 15, 2006. The Company is currently evaluating the impact of the statement on its financial position and results of operations.

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

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 our ability to maintain and grow our retail loans and deposits, 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”). At September 30, 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.

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 September 30, 2006, Midland Federal’s capital ratios exceeded all of its regulatory capital requirements with both tangible and core capital ratios of 8.88% and a risk-based capital ratio of 20.62%.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION

At September 30, 2006, total assets of the Company decreased by $5.0 million to $125.8 million from $130.8 million at June 30, 2006. The decrease was the result of redemptions of cash equivalents and repayments of net loans receivable, the proceeds of which were used to fund a $4.5 million decline in deposit balances to $111.4 million at September 30, 2006.

Loans receivable decreased $1.5 million to $90.2 million at September 30, 2006 due to a decline in portfolio loan originations. The Company originated $3.0 million of portfolio loans during the quarter ended September 30, 2006 compared to portfolio loan originations of $6.9 million during the 2005 quarter. The decline in portfolio loan origination volume in the current quarter was due in part to an emphasis on originations of loans held for sale which increased to $1.7 million during the quarter ended September 30, 2006 compared to $579,000 during the prior year period. We increased our originations of loans held for sale as we determined to limit fixed rate portfolio loan originations in view of the possibility of an increase in long term interest rates. Proceeds from the sale of loans held for sale also increased to $2.1 million during the quarter ended September 30, 2006 compared to $582,000 during the 2005 quarter. Portfolio loan repayments declined to $4.5 million during the quarter ended September 30, 2006 compared with $7.1 million during the 2005 quarter. There were no new purchases of mortgage-backed securities during the quarter ended September 30, 2006 and as a result, the balance of mortgage-backed securities decreased by $62,000 to $1.6 million due to repayments.

The balance of investment securities available for sale remained stable at $20.9 million at September 30, 2006 compared to $21.0 million at June 30, 2006. The investment securities portfolio at September 30, 2006 was largely comprised of six month United States Treasury Securities in order to take advantage of higher short term interest rates. Gross unrealized gains in the available for sale investment securities portfolio were $257,000 at September 30, 2006 compared to gross unrealized gains of $201,000 at June 30, 2006, primarily reflecting the positive impact of lower long term interest rates on one 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 September 30, 2006 was 10 months.

The balance of interest bearing deposits decreased by $3.6 million to $5.5 million at September 30, 2006 from $9.1 million at June 30, 2006. The decrease in interest bearing deposits was used to partially fund the decline in deposit liabilities, discussed above.

Non-performing assets consisted of $278,000 in non-accruing loans at September 30, 2006 compared to $327,000 at June 30, 2006. The allowance for loan losses increased $6,000, due to net recoveries, and amounted to $422,000, or 0.46% of total loans, at September 30, 2006 as compared to $416,000, or .45%, at June 30, 2006. The Company made no loan loss provisions during the quarter ended September 30, 2006. Non-accruing loans at September 30, 2006 consisted of $252,000 in one-to-four family residential mortgage loans and $26,000 in non-mortgage loans. At September 30, 2006 the Company’s ratio of allowance for loan losses to non-performing loans was 151.73% compared to 127.27% at June 30, 2006. Management believes that the current allowance for loan losses at September 30, 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.

	September 30,			June 30,
	2006			2006
	(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family	$	252		$	295
Multi-family		—			—
Consumer		26			32
Commercial business		—			—
Total non-performing loans	$	278		$	327
Foreclosed Assets:
One-to-four family		—			—
Total foreclosed assets		—			—
Total non-performing assets	$	278		$	327
Total as a percentage of total assets		0.22	%		0.25	%

As of September 30, 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.

	Three Months Ended
	September 30,
	2006			2005
	(Dollars in Thousands)
Balance at beginning of period	$	416		$	457
Charge-offs:
One-to-four family loans		—			—
Consumer loans		—			1
Commercial business loans		—			—
Total charge-offs		—			1
Recoveries:
One-to-four family loans		—			—
Multi-family loans		—			—
Consumer loans		6			2
Total recoveries		6			2
Net (charge-offs) recoveries		6			1
Additions charged to operations		—			—
Balance at end of period	$	422		$	458
Ratio of net charge-offs during the period to average loans outstanding during the period		—	%		—	%
Ratio of net charge-offs during the period to average non-performing assets		—	%		—	%
Allowance for loan losses to non-performing loans		151.73	%		139.75	%
Allowance for loan losses to total loans		0.46	%		0.48	%

At September 30, 2006, 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 to be 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 quarter ended September 30, 2006 decreased $4.5 million to $111.4 million as a result of withdrawals, net of deposits, in the amount of $5.0 million, offset by interest credited to deposits in the amount of $457,000. The net decrease in deposits is primarily attributed to increased competition for deposit accounts in a flat yield curve environment. The decrease in deposits is the result of a $2.3 million decrease in passbook deposit accounts, a $1.3 million decrease in demand deposit accounts, a $793,000 decrease in money market accounts and a $657,000 decrease in NOW accounts offset by a $555,000 increase in certificate of deposit accounts.

Stockholders’ equity increased $169,000, or 1.3%, to $13.5 million at September 30, 2006 from $13.3 million at June 30, 2006. The increase in stockholders’ equity was due to net income of $221,000 and an increase in accumulated other comprehensive income of $37,000 offset by the payment of cash dividends in the amount of $89,000.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

RESULTS OF OPERATIONS

Net income for the quarter ended September 30, 2006 was $221,000 compared to net income of $274,000 for the quarter ended September 30, 2005. Net income in the current quarter was decreased as the result of a $63,000 decrease in net interest income and a $68,000 decrease in non-interest income, offset by a $51,000 decrease in non-interest expense and a $27,000 decrease in income taxes.

The Company’s interest rate spread decreased modestly to 3.77% for the quarter ended September 30, 2006 from 3.78% for the prior year period. The decrease in interest rate spread reflects an increase in the Company’s average yield paid on interest costing deposits to 1.93% in the current period from 1.37% in the prior year period. The increase in the average yield paid on interest costing deposits offset an increase in the average yield earned on interest earning assets to 5.70% in the current period from 5.15% in the prior year period. The average balance of net earning assets (average interest earning assets minus average interest bearing liabilities) also decreased by $993,000 to $20.6 million compared with the prior year period.

Interest Income

Interest income increased $54,000, or 3.2%, for the quarter ended September 30, 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 to 5.70% for the quarter ended September 30, 2006 from 5.15% in the prior year quarter. The increase in the average yield earned on interest earning assets offset an $8.8 million decline in the average balance of interest earning assets to $122.7 million for the quarter ended September 30, 2006 compared to $131.5 million for the quarter ended September 30, 2005.

Interest on loans receivable decreased $11,000 for the quarter ended September 30, 2006 from the comparable quarter in 2005. The decrease in interest income was primarily attributed to a $3.9 million decrease in the average outstanding balance of net loans receivable to $91.2 million for the quarter ended September 30, 2006 from $95.1 million for the quarter ended September 30, 2005. The decrease in the average outstanding balance of loans receivable offset an increase in the average yield earned on loans receivable to 5.92% for the quarter ended September 30, 2006 as compared to 5.72% for the quarter ended September 30, 2005.

Interest on mortgage-backed securities increased $2,000, or 9.3%, for the quarter ended September 30, 2006 from the comparable quarter in 2005. The increase in interest income is attributed to an increase in the average yield earned on mortgage-backed securities to 5.32% for the quarter ended September 30, 2006 from 4.24% in the year earlier period. The increase in the average yield earned on mortgage-backed securities was offset by a $241,000 decrease in the average balance of mortgage-backed securities to $1.6 million from $1.9 million in the prior year quarter. The increase in the average yield earned on mortgage-backed securities was the result of the Company’s adjustable rate mortgage-backed securities re-pricing at higher yields as market interest rates increased between the two quarterly periods.

Interest on investment securities increased $138,000 to $260,000 for the quarter ended September 30, 2006 from $122,000 for the prior year period due to increases in both the average outstanding balance of investment securities and the average yield earned on investment securities. For the quarter ended September 30, 2006 the average outstanding balance of investment securities increased $8.2 million to $20.5 million from $12.3 million in the 2005 quarter. The average yield earned on investment securities also increased to 5.05% for the quarter ended September 30, 2006 from 3.95% in the year earlier period.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Interest Income (continued)

Interest earned on interest bearing deposits decreased $70,000 to $108,000 for the quarter ended September 30, 2006 from $178,000 for the prior year period. The decrease in interest income is attributed to a $12.9 million decrease in the average outstanding balance of interest bearing deposits to $8.2 million for the quarter ended September 30, 2006 from $21.1 million in the 2005 quarter. The decrease in the average outstanding balance of interest bearing deposits offset an increase in the average yield earned on interest bearing deposits to 5.26% for the quarter ended September 30, 2006 from 3.38% in the 2005 quarter.

Interest Expense

Interest expense increased $117,000, or 30.9%, for the quarter ended September 30, 2006 compared with the prior year quarter. The increase in interest expense is attributable to an increase in the average yield paid on interest costing deposits to 1.93% from 1.37% for the quarter ended September 30, 2005. The increase in the average yield paid on interest costing deposits was offset by a decrease in the average balance of interest costing deposits. The average balance of interest costing deposits decreased by $7.8 million to $102.1 million for the quarter ended September 30, 2006 from $109.9 million in the prior year quarter.

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 $422,000, or .46% of total loans, at September 30, 2006 compared to $416,000, or .45% of total loans, at June 30, 2006. The $6,000 increase in the Company’s allowance for loan losses during the current quarter was the result of net recoveries. At September 30, 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 $422,000 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 quarter ended September 30, 2006.

Non-Interest Income

Non-interest income decreased $68,000 to $197,000 in the quarter ended September 30, 2006 as compared to the prior year quarter. The primary factors for the decrease in non-interest income were a $51,000 decrease in loan fees and service charges and an $18,000 decrease in deposit related fees offset by a $17,000 increase in gain on the sale of loans. The decrease in loan fees and service charges is primarily attributed to the decrease in portfolio loan originations, discussed above.

Non-Interest Expense

Non-interest expense decreased $51,000 to $1.1 million in the quarter ended September 30, 2006 as compared to the prior year quarter. The decrease in non-interest expense is primarily the result of a $20,000 decrease in computer software and support expense, a $17,000 decrease in staffing costs, a $15,000 decrease in professional fees and a $10,000 decrease in data processing fees, offset by a $13,000 increase in office occupancy expense. The decrease in staffing costs is primarily attributed to a $21,000 decrease in loan origination commissions and a $12,000 decrease in payroll expenses, offset by a $16,000 increase in the cost of employee benefits.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Income Taxes

Income taxes increased by $27,000 to $114,000 in the quarter ended September 30, 2006 from $141,000 for the same period last year. The decreased income tax provision was due to the decrease in operating income in the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005.

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 September 30, 2006 the Company had commitments to originate $667,000 in loans, all of which were one-to-four family loans as well as unused lines of credit of $4.5 million. At September 30, 2006 the Company had commitments to sell $398,000 in loans. Also on that date, the Company had $35.0 million of certificate of deposit accounts maturing within one year.

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 September 30, 2006, the Association had tangible and core capital of $11.2 million, or 8.88% of adjusted total assets, which was approximately $9.3 million and $7.4 million above the minimum requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets.

At September 30, 2006, the Association had total capital of $11.6 million (including $11.2 million in core capital) and risk-weighted assets of $56.3 million, or total capital of 20.62% of risk-weighted assets. This amount was $7.1 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 that will 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: November 14, 2006	BY:	/s/ Paul Zogas
		Paul Zogas
		President, Chief Executive Officer and Chief Financial Officer
DATE: November 14, 2006	BY:	/s/ Charles Zogas
		Charles Zogas
		Executive Vice President and Chief Operating Officer