Midland Capital Holdings Corp - Quarterly Report of Financial Condition (10QSB)

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, 2007


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 (State or Other Jurisdiction of Incorporation or Organization)		36-4238089 (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. Yes þ No o

Transitional Small Business Disclosure Format. Yes o No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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, 2007, 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, 2007 (unaudited) and June 30, 2007		1

Consolidated Statements of Earnings — Three Months Ended September 30, 2007 and 2006 (unaudited)		2

Consolidated Statements of Changes in Stockholders’ Equity — Three Months Ended September 30, 2007 (unaudited)		3

Consolidated Statements of Cash Flows — Three Months Ended September 30, 2007 and 2006 (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

Exhibit 11
Exhibit 31.1
Exhibit 32.1

MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Part I — FINANCIAL INFORMATION

Consolidated Statements of Financial Condition


	September 30,		June 30,
	2007		2007
	(Unaudited)

Assets

Cash and amounts due from depository institutions	$	1,982,224		2,224,076
Interest-bearing deposits		16,782,732		11,231,760

Total cash and cash equivalents		18,764,956		13,455,836
Investment securities available for sale, at fair value		16,063,331		21,019,975
Mortgage-backed securities, held to maturity (fair value:
September 30, 2007 - $1,361,863;
June 30, 2007 - $1,482,977)		1,351,683		1,474,504
Loans receivable (net of allowance for loan losses:
September 30, 2007 - $419,701;
June 30, 2007 - $420,079)		83,103,788		83,844,418
Loans receivable held for sale		1,026,400		1,012,200
Other Investments — available for sale, at fair value		41,835		106,633
Stock in Federal Home Loan Bank of Chicago		1,148,087		1,148,087
Accrued interest receivable		373,795		333,666
Office properties and equipment, net		2,030,377		2,071,621
Prepaid expenses and other assets		647,179		425,814

Total assets	$	124,551,431		124,892,754


Liabilities and Stockholders’ Equity

Liabilities:
Deposits	$	108,855,151		109,744,662
Advance payments by borrowers for taxes and insurance		1,318,448		998,142
Other liabilities		564,574		439,476

Total liabilities		110,738,173		111,182,280


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, 2007 and June 30, 2007		3,726		3,726
Additional paid-in capital		3,395,580		3,395,580
Retained earnings — substantially restricted		10,206,251		10,104,065
Accumulated other comprehensive income, net of income taxes		207,701		207,103

Total stockholders’ equity		13,813,258		13,710,474

Total liabilities and stockholders’ equity	$	124,551,431		124,892,754

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,
	2007		2006
Interest income:
Interest on loans	$	1,241,260		1,349,977
Interest on mortgage-backed securities		20,016		21,758
Interest on investment securities		240,233		259,544
Interest on interest-bearing deposits		166,992		107,597
Dividends on FHLB stock		8,014		8,873

Total interest income		1,676,515		1,747,749


Interest expense:
Interest on deposits		561,807		492,674

Total interest expense		561,807		492,674


Net interest income		1,114,708		1,255,075
Provision for loan losses		—		—

Net interest income after provision for loan losses		1,114,708		1,255,075


Non-interest income:
Loan fees and service charges		49,970		51,166
Gain on sale of other investments		66,726		—
Commission income		16,275		11,594
Gain on sale of loans		35,735		26,296
Deposit related fees		79,255		94,892
Other income		13,864		13,457

Total non-interest income		261,825		197,405


Non-interest expense:
Staffing costs		619,698		657,221
Advertising		16,206		17,895
Occupancy and equipment expenses		166,120		165,645
Data processing		44,076		44,008
Federal deposit insurance premiums		3,241		3,704
Other		236,895		228,795

Total non-interest expense		1,086,236		1,117,268


Income before income taxes		290,297		335,212
Income tax provision		98,687		113,972

Net income	$	191,610		221,240


Earnings per share (basic)	$	0.51		0.59

Earnings per share (diluted)	$	0.51		0.59

Dividends declared per common share	$	0.24		0.24

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, 2007	$	3,726		3,395,580		10,104,065			207,103			13,710,474


Comprehensive Income:

Net income						191,610						191,610

Other comprehensive income, net of tax:

Unrealized holding gain during the period									42,820			42,820

Reclassification adjustment of gain included in net income									(42,222	)		(42,222	)


Total comprehensive income						191,610			598			192,208

Dividends declared on common stock ($0.24 per share)						(89,424	)					(89,424	)

Balance at September 30, 2007	$	3,726		3,395,580		10,206,251			207,701			13,813,258

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,
	2007			2006
Cash flows from operating activities:
Net income	$	191,610			221,240
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		55,380			56,347
Net accretion on securities		(221,423	)		(240,794	)
Proceeds from sale of loans held for sale		2,906,378			2,115,888
Origination of loans held for sale		(2,898,300	)		(1,654,050	)
Gain on sale of loans		(35,735	)		(26,296	)
Gain on sale of other investments		(66,726	)		—
Increase in accrued interest receivable		(40,129	)		(12,028	)
Decrease in accrued interest payable		(801	)		(750	)
Increase in deferred income on loans		7,542			11,364
Increase in other assets		(208,216	)		(234,600	)
Increase in other liabilities		125,899			2,671

Net cash provided (for) by operating activities		(184,521	)		238,992


Cash flows from investing activities:
Proceeds from repayments of mortgage-backed securities, held to maturity		122,821			61,875
Proceeds from maturities of investment securities, available for sale		15,000,000			15,000,000
Purchase of investment securities, available for sale		(9,757,333	)		(14,619,190	)
Loan disbursements		(2,118,586	)		(3,044,838	)
Loan repayments		2,851,674			4,502,863
Proceeds from sale of other investments		67,830			—
Property and equipment expenditures		(14,136	)		(10,930	)

Net cash provided by (for) investing activities		6,152,270			1,889,780


Cash flows from financing activities:
Deposit account receipts		74,604,836			79,945,771
Deposit account withdrawals		(76,019,059	)		(84,929,223	)
Interest credited to deposit accounts		524,712			457,426
Payment of dividends		(89,424	)		(89,424	)
Increase (decrease) in advance payments by borrowers for taxes and insurance		320,306			(703,806	)

Net cash provided for financing activities		(658,629	)		(5,319,256	)


Net change in cash and cash equivalents		5,309,120			(3,190,484	)
Cash and cash equivalents at beginning of period		13,455,836			11,259,904


Cash and cash equivalents at end of period	$	18,764,956			8,069,420


Cash paid during the period for:
Interest	$	562,608			493,424
Income taxes		3,924			85,606

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, 2007 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, 2007 and 2006 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 September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Earlier application is encouraged provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statement for an interim period within that fiscal year. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial condition or results of operations.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Note E — Effect of New Accounting Pronouncements (continued)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”) which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities. Subsequent changes in fair value of these financial assets and liabilities would be recognized in earnings when they occur. SFAS 159 further establishes certain additional disclosure requirements. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management is currently evaluating the impact and timing of the adoption of SFAS 159 on the Company’s financial condition 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 the holding company for Midland Federal Savings and Loan Association (the “Association” or “Midland Federal”). At September 30, 2007, 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, multi-family, commercial real estate, consumer, 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, 2007, Midland Federal’s capital ratios exceeded all of its regulatory capital requirements with both tangible and core capital ratios of 8.89% and a risk-based capital ratio of 21.15%.

-7-

MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL CONDITION

At September 30, 2007, total assets of the Company decreased by $341,000 to $124.6 million from $124.9 million at June 30, 2007. The decrease was the result of a $741,000 decline in net loans receivable to $83.1 million, the proceeds of which were used to fund an $890,000 decline in deposit balances to $108.9 million at September 30, 2007.

Loans receivable decreased $741,000 to $83.1 million at September 30, 2007 due to a decline in portfolio loan originations. The Company originated $2.1 million of portfolio loans during the quarter ended September 30, 2007 compared to portfolio loan originations of $3.0 million during the 2006 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 $2.9 million during the quarter ended September 30, 2007 compared to $1.7 million during the prior year quarter. 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 $2.9 million during the quarter ended September 30, 2007 compared to $2.1 million during the 2006 quarter. Portfolio loan repayments declined to $2.9 million during the quarter ended September 30, 2007 compared with $4.5 million during the 2006 quarter. There were no new purchases of mortgage-backed securities during the quarter ended September 30, 2007 and as a result, the balance of mortgage-backed securities decreased by $123,000 to $1.4 million due to repayments.

The balance of investment securities available for sale declined by $4.9 million to $16.1 million at September 30, 2007 compared to $21.0 million at June 30, 2007. During the current quarter the Company reinvested $5.0 million in maturing United States Treasury securities into other short term investment funds. The investment securities portfolio at September 30, 2007 was largely comprised of six month United States Treasury Securities. Gross unrealized gains in the available for sale investment securities portfolio were $273,000 at September 30, 2007 compared to gross unrealized gains of $208,000 at June 30, 2007, primarily reflecting the positive impact of lower interest rates on the Company’s $1.0 million long term United States Treasury bond. The weighted average remaining term to maturity of the Company’s total investment securities portfolio at September 30, 2007 was 11 months.

The balance of interest bearing deposits increased by $5.6 million to $16.8 million at September 30, 2007 from $11.2 million at June 30, 2007. The increase in interest bearing deposits was primarily due to the reinvestment of maturing investment securities, discussed above.

Non-performing assets consisted of non-accruing loans totaling $516,000 at September 30, 2007 compared to $511,000 at June 30, 2007. The allowance for loan losses totaled $420,000, or 0.50% of total loans, at September 30, 2007 as compared to $420,000, or .49% of total loans, at June 30, 2007. The Company made no loan loss provision during the quarter ended September 30, 2007. Non-accruing loans at September 30, 2007 consisted of $483,000 in one-to-four family residential mortgage loans and $33,000 in non-mortgage loans. At September 30, 2007 the Company’s ratio of allowance for loan losses to non-performing loans was 81.34% compared to 82.22% at June 30, 2007. Management believes that the current allowance for loan losses at September 30, 2007 is adequate to cover probable accrued losses in the portfolio.

Midland Federal owns $1.1 million of stock in the Federal Home Loan Bank of Chicago (“FHLBC”) as a member institution. The FHLBC has announced that it will not declare a quarterly dividend on its stock for the third quarter, payable in the fourth quarter. The Company has no information on when dividends payments on FHLBC stock will resume or the amount of any future dividends.

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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,
	2007			2007
	(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family	$	483		$	484
Multi-family		—			—
Consumer		33			27
Commercial business		—			—

Total non-performing loans	$	516		$	511


Foreclosed Assets:
One-to-four family		—			—

Total foreclosed assets		—			—


Total non-performing assets	$	516		$	511

Total as a percentage of total assets		0.41	%		0.41	%

As of September 30, 2007, 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,
	2007			2006
	(Dollars in Thousands)

Balance at beginning of period	$	420		$	416


Charge-offs:
One-to-four family loans		—			—
Consumer loans		—			—
Commercial business loans		—			—

Total charge-offs		—			—


Recoveries:
One-to-four family loans		—			—
Multi-family loans		—			—
Consumer loans		—			6

Total recoveries		—			6


Net (charge-offs) recoveries		—			6
Additions charged to operations		—			—

Balance at end of period	$	420		$	422



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		81.34	%		151.73	%

Allowance for loan losses to total loans		0.50	%		0.46	%

At September 30, 2007, 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, 2007 decreased $890,000 to $108.9 million as a result of withdrawals, net of deposits, in the amount of $1.4 million, offset by interest credited to deposits in the amount of $525,000. The net decrease in deposits is primarily attributed to continued intense competition for deposit accounts in a flat yield curve environment. The decrease in deposits is the result of a $583,000 decrease in demand deposit accounts, a $437,000 decrease in passbook deposit accounts, a $256,000 decrease in money market accounts and a $101,000 decrease in NOW accounts offset by a $487,000 increase in certificate of deposit accounts.

Stockholders’ equity increased $103,000 to $13.8 million at September 30, 2007 from $13.7 million at June 30, 2007. The increase in stockholders’ equity was due to net income of $192,000 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, 2007 was $192,000 compared to net income of $221,000 for the quarter ended September 30, 2006. Net income in the current quarter was decreased as the result of a $140,000 decrease in net interest income offset by a $65,000 increase in non-interest income, a $31,000 decrease in non-interest expense and a $15,000 decrease in income taxes.

The Company’s interest rate spread decreased to 3.36% for the quarter ended September 30, 2007 from 3.77% for the prior year quarter and largely reflects the flat yield curve environment. The decrease in interest rate spread reflects an increase in the Company’s average yield paid on interest costing deposits to 2.25% in the current quarter from 1.93% in the prior year quarter as well as a decrease in the average yield earned on interest earning assets to 5.61% in the current quarter from 5.70% in the prior year quarter. The average balance of net earning assets (average interest earning assets minus average interest bearing liabilities) also decreased by $1.0 million to $19.6 million compared with the prior year quarter.

Interest Income

Interest income decreased $71,000, or 4.1%, for the quarter ended September 30, 2007 as compared to the same period last year. The decrease in interest income is primarily attributed to a $3.2 million decline in the average balance of interest earning assets to $119.5 million for the quarter ended September 30, 2007 compared to $122.7 million for the quarter ended September 30, 2006. The average yield on interest earning assets also decreased to 5.61% for the quarter ended September 30, 2007 from 5.70% in the prior year quarter.

Interest on loans receivable decreased $109,000, or 8.1%, for the quarter ended September 30, 2007 from the comparable quarter in 2006. The decrease in interest income is primarily attributed to a $6.7 million decrease in the average outstanding balance of net loans receivable to $84.5 million for the quarter ended September 30, 2007 from $91.2 million for the quarter ended September 30, 2006. The average yield earned on loans receivable also decreased to 5.88% for the quarter ended September 30, 2007 as compared to 5.92% for the quarter ended September 30, 2006.

Interest on mortgage-backed securities decreased $2,000, or 8.0%, for the quarter ended September 30, 2007 from the comparable quarter in 2006. The decrease in interest income is attributed to a $264,000 decrease in the average balance of mortgage-backed securities to $1.4 million from $1.6 million in the prior year quarter. The decrease in the average balance of mortgage-backed securities was offset by an increase in the average yield earned on mortgage-backed securities to 5.84% for the quarter ended September 30, 2007 from 5.32% in the year earlier period. 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 applicable to the interest rate indices used for these securities increased between the two quarterly periods.

Interest on investment securities decreased $20,000 to $240,000 for the quarter ended September 30, 2007 from $260,000 for the prior year quarter due to a decrease in the average outstanding balance of investment securities. For the quarter ended September 30, 2007 the average outstanding balance of investment securities decreased $1.6 million to $19.0 million from $20.6 million in the 2006 quarter as a result of maturities. The average yield earned on investment securities increased slightly to 5.06% for the quarter ended September 30, 2007 from 5.05% in the year earlier period.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Interest Income (continued)

Interest earned on interest bearing deposits increased $59,000 to $167,000 for the quarter ended September 30, 2007 from $108,000 for the prior year quarter. The increase in interest income is attributed to a $5.3 million increase in the average outstanding balance of interest bearing deposits to $13.5 million for the quarter ended September 30, 2007 from $8.2 million in the 2006 quarter. Management decided to increase the Company’s investment in interest bearing deposits in order to capture slightly higher yields compared to direct investment in short term United States Treasury Securities. The increase in the average outstanding balance of interest bearing deposits offset a decrease in the average yield earned on interest bearing deposits to 4.94% for the quarter ended September 30, 2007 from 5.26% in the 2006 quarter.

Interest Expense

Interest expense increased $69,000, or 14.0%, for the quarter ended September 30, 2007 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 2.25% from 1.93% for the quarter ended September 30, 2006. 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 $2.2 million to $99.9 million for the quarter ended September 30, 2007 from $102.1 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 $420,000, or .50% of total loans, at September 30, 2007 compared to $420,000, or .49% of total loans, at June 30, 2007. After considering the low level of non-performing loans, the high concentration of one-to-four family mortgage loans in the loan portfolio, the level and nature of its charge offs and recoveries, the stable housing market in its primary lending area and the volume of its loan activity, the Company determined that the $420,000 allowance for loan losses was 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 provisions during the quarter ended September 30, 2007.

Non-Interest Income

Non-interest income increased $64,000 to $262,000 in the quarter ended September 30, 2007 as compared to the prior year quarter. The primary factors for the increase in non-interest income were a $67,000 gain on the sale of a marketable equity, a $9,000 increase in gain on the sale of loans, as the Company continues to emphasize loan sale activity, and a $5,000 increase in commission income, offset by a $16,000 decrease in deposit related fees.

Non-Interest Expense

Non-interest expense decreased $31,000 to $1.1 million in the quarter ended September 30, 2007 as compared to the prior year quarter. The decrease in non-interest expense is primarily the result of a $38,000 decrease in staffing costs offset by a $9,000 increase in computer software and support expense and an $8,000 increase in professional fees. The decrease in staffing costs is primarily attributed to a $31,000 decrease in the cost of employee pension and health insurance benefits.

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MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES

Income Taxes

Income taxes increased by $15,000 to $99,000 in the quarter ended September 30, 2007 from $114,000 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, 2007 as compared to the quarter ended September 30, 2006.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of funds are deposits, loan and mortgage backed securities repayments, proceeds from the sale and 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, 2007 the Company had commitments to originate $225,000 in loans, all of which were one-to-four family loans as well as unused lines of credit of $3.9 million. At September 30, 2007 the Company had commitments to sell $1.0 million in loans. Also on that date, the Company had $32.4 million of certificate of deposit accounts maturing within one year. The Company anticipates that it will retain a majority of such funds.

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, 2007, the Association had tangible and core capital of $11.1 million, or 8.89% of adjusted total assets, which was approximately $9.2 million and $7.3 million above the minimum requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets.

At September 30, 2007, the Association had total capital of $11.5 million (including $11.1 million in core capital) and risk-weighted assets of $54.5 million, or total capital of 21.15% of risk-weighted assets. This amount was $7.2 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, 2007	BY: /s/ Paul Zogas

		Paul Zogas
		President, Chief Executive Officer
		and Chief Financial Officer