UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2007
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number 1-14343
MIDLAND CAPITAL HOLDINGS CORPORATION
(Name of Small Business Issuer in its Charter)
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Delaware
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36-4238089
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification Number)
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8929 S. Harlem Avenue, Bridgeview, Illinois 60455
(Address of Principal Executive Offices) (Zip Code)
Issuers 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 Issuers classes of common stock as of the latest
practicable date:
Common Stock, par value $.01
(Title of Class)
As of February 14, 2008, the Issuer had
372,600 shares of Common Stock issued and outstanding.
MIDLAND CAPITAL HOLDINGS CORPORATION
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
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December 31,
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June 30,
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2007
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2007
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(Unaudited)
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Assets
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Cash and amounts due from depository institutions
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$
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2,356,472
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2,224,076
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Interest-bearing deposits
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19,881,618
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11,231,760
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Total cash and cash equivalents
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22,238,090
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13,455,836
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Investment securities available for sale, at fair value
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11,230,381
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21,019,975
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Mortgage-backed securities, held to maturity (fair value:
December 31, 2007 - $1,326,780;
June 30, 2007 - $1,482,977)
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1,317,902
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1,474,504
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Loans receivable (net of allowance for loan losses:
December 31, 2007 - $410,845;
June 30, 2007 - $420,079)
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82,089,023
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83,844,418
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Loans receivable held for sale
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187,200
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1,012,200
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Stock in Federal Home Loan Bank of Chicago
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1,148,087
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1,148,087
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Other investments, available for sale
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48,439
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106,633
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Accrued interest receivable
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316,502
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333,666
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Office properties and equipment, net
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1,978,232
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2,071,621
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Prepaid expenses and other assets
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511,221
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425,814
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Total assets
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$
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121,065,077
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124,892,754
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Liabilities and Stockholders Equity
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Liabilities:
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Deposits
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$
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105,852,495
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109,744,662
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Advance payments by borrowers for taxes and insurance
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951,247
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998,142
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Other liabilities
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373,648
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439,476
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Total liabilities
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107,177,390
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111,182,280
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Stockholders equity:
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Preferred stock, $.01 par value:
authorized 50,000 shares; none outstanding
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Common stock, $.01 par value: authorized 600,000
shares; issued and outstanding 372,600 shares
at December 31, 2007 and June 30, 2007
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3,726
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3,726
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Additional paid-in capital
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3,395,580
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3,395,580
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Retained earnings substantially restricted
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10,264,400
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10,104,065
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Accumulated other comprehensive income, net of income taxes
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223,981
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207,103
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Total stockholders equity
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13,887,687
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13,710,474
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Total liabilities and stockholders equity
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$
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121,065,077
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124,892,754
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See accompanying notes to consolidated financial statements.
-1-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
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Three Months Ended
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Six Months Ended
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December 31,
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December 31,
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2007
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2006
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2007
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2006
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Interest income:
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Interest on loans
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$
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1,225,765
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1,298,862
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2,467,024
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2,648,839
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Interest on mortgage-backed securities
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19,917
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22,700
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39,934
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44,459
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Interest on investment securities
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167,857
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274,309
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408,089
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533,852
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Interest on interest-bearing deposits
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215,297
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87,832
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382,289
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195,429
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Dividends on FHLB stock
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9,410
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8,015
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18,283
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Total interest income
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1,628,836
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1,693,113
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3,305,351
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3,440,862
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Interest expense:
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Interest on deposits
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557,414
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515,178
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1,119,221
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1,007,852
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Total interest expense
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557,414
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515,178
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1,119,221
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1,007,852
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Net interest income
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1,071,422
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1,177,935
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2,186,130
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2,433,010
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Provision for loan losses
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Net interest income after provision
for loan losses
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1,071,422
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1,177,935
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2,186,130
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2,433,010
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Non-interest income:
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|
|
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|
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|
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Loan fees and service charges
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|
53,761
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35,975
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|
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|
103,731
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87,141
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Gain on sale of other investments
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66,726
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|
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Commission income
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23,677
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|
10,756
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39,952
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|
22,350
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|
Gain on sale of loans
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41,379
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|
|
24,767
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77,114
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51,063
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Deposit related fees
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83,122
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83,544
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162,377
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178,436
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Other income
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|
13,332
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37,002
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27,195
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50,459
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|
|
|
|
|
|
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Total non-interest income
|
|
|
215,271
|
|
|
|
192,044
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|
|
|
477,095
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389,449
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Non-interest expense:
|
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|
|
|
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Staffing costs
|
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|
613,498
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|
|
626,761
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1,233,196
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|
1,283,982
|
|
Advertising
|
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|
13,795
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|
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17,696
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30,000
|
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|
35,591
|
|
Occupancy and equipment expenses
|
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|
173,222
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|
|
169,894
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|
|
|
339,342
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|
335,539
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|
Data processing
|
|
|
43,367
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|
|
45,425
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|
|
|
87,443
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|
|
|
89,432
|
|
Federal deposit insurance premiums
|
|
|
6,484
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|
|
|
3,613
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|
|
|
9,726
|
|
|
|
7,318
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|
Professional fees
|
|
|
18,841
|
|
|
|
27,488
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|
|
|
51,612
|
|
|
|
51,940
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Other
|
|
|
193,977
|
|
|
|
219,433
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|
|
|
398,101
|
|
|
|
423,776
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total non-interest expense
|
|
|
1,063,184
|
|
|
|
1,110,310
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|
|
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2,149,420
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|
|
2,227,578
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before income taxes
|
|
|
223,509
|
|
|
|
259,669
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|
|
|
513,805
|
|
|
|
594,881
|
|
Income tax provision
|
|
|
75,936
|
|
|
|
88,183
|
|
|
|
174,622
|
|
|
|
202,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
147,573
|
|
|
|
171,486
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|
|
|
339,183
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|
|
|
392,726
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|
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Earnings per share (basic)
|
|
$
|
.40
|
|
|
|
.46
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|
|
|
0.91
|
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings per share (diluted)
|
|
$
|
.40
|
|
|
|
.46
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|
|
|
0.91
|
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
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|
Dividends declared per common share
|
|
$
|
.24
|
|
|
|
.24
|
|
|
|
.48
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|
|
|
.48
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-2-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity (Unaudited)
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
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|
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|
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Additional
|
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Other
|
|
|
|
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|
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Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
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|
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|
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
|
|
|
|
|
|
|
|
|
|
|
339,183
|
|
|
|
|
|
|
|
339,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain
during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,878
|
|
|
|
16,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
339,183
|
|
|
|
16,878
|
|
|
|
356,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common
stock ($0.48 per share)
|
|
|
|
|
|
|
|
|
|
|
(178,848
|
)
|
|
|
|
|
|
|
(178,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
3,726
|
|
|
|
3,395,580
|
|
|
|
10,264,400
|
|
|
|
223,981
|
|
|
|
13,887,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-3-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
339,183
|
|
|
|
392,726
|
|
Adjustments to reconcile net income to net cash from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
110,504
|
|
|
|
113,051
|
|
Net accretion on securities
|
|
|
(370,410
|
)
|
|
|
(496,352
|
)
|
Proceeds from sale of loans held for sale
|
|
|
6,463,185
|
|
|
|
3,670,916
|
|
Origination of loans held for sale
|
|
|
(5,592,600
|
)
|
|
|
(2,934,750
|
)
|
Gain on sale of loans
|
|
|
(77,114
|
)
|
|
|
(51,063
|
)
|
Gain on sale of other investments
|
|
|
(66,726
|
)
|
|
|
|
|
Decrease in accrued interest receivable
|
|
|
17,164
|
|
|
|
12,820
|
|
(Decrease) increase in accrued interest payable
|
|
|
(1,401
|
)
|
|
|
645
|
|
Increase in deferred income on loans
|
|
|
16,750
|
|
|
|
25,449
|
|
Increase in other assets
|
|
|
(62,573
|
)
|
|
|
(137,650
|
)
|
Decrease in other liabilities
|
|
|
(64,427
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
711,535
|
|
|
|
595,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from repayments of mortgage backed securities,
held to maturity
|
|
|
156,602
|
|
|
|
110,311
|
|
Proceeds from maturities of investment securities,
available for sale
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
Purchase of investment securities, available for sale
|
|
|
(9,757,333
|
)
|
|
|
(19,493,307
|
)
|
Loan disbursements
|
|
|
(4,159,394
|
)
|
|
|
(4,774,609
|
)
|
Loan repayments
|
|
|
5,898,039
|
|
|
|
8,034,913
|
|
Proceeds from sale of other investments
|
|
|
67,830
|
|
|
|
|
|
Property and equipment expenditures
|
|
|
(17,115
|
)
|
|
|
(24,379
|
)
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
12,188,629
|
|
|
|
3,852,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Deposit account receipts
|
|
|
150,877,448
|
|
|
|
153,681,353
|
|
Deposit account withdrawals
|
|
|
(155,816,070
|
)
|
|
|
(160,615,507
|
)
|
Interest credited to deposit accounts
|
|
|
1,046,455
|
|
|
|
935,426
|
|
Payment of dividends
|
|
|
(178,848
|
)
|
|
|
(178,848
|
)
|
Decrease in advance payments by borrowers for taxes
and insurance
|
|
|
(46,895
|
)
|
|
|
(94,953
|
)
|
|
|
|
|
|
|
|
Net cash provided for financing activities
|
|
|
(4,117,910
|
)
|
|
|
(6,272,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
8,782,254
|
|
|
|
(1,824,361
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
13,455,836
|
|
|
|
11,259,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
22,238,090
|
|
|
|
9,435,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,120,622
|
|
|
|
1,007,207
|
|
Income taxes
|
|
|
187,587
|
|
|
|
183,501
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-4-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
instructions to Form 10-QSB and therefore, do not include information or footnotes necessary for
fair presentation of financial condition, results of operations and changes in financial position
in conformity with accounting principles generally accepted in the United States of America.
However, in the opinion of management, all adjustments (which are normal and recurring in nature)
necessary for a fair presentation have been included. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The results of operations for the three months and six
months ended December 31, 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 Associations wholly-owned subsidiaries,
Midland Federal Service Corporation, Midland Insurance Services, Inc. and Bridgeview Development
Company, Inc. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Note C Earnings Per Share
Earnings per share for the three month and six month periods ended December 31, 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 Companys 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.
-5-
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 Companys 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.
-6-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENTS 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 Companys 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 Companys 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 Companys 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 Companys financial performance and could cause the Companys
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 December 31, 2007, there
were 372,600 shares of the Companys 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, consumer and other loans in its
primary market area. The Association also has made substantial investments in investment
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 Associations 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 Associations deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation (FDIC). At December 31, 2007, Midland
Federals capital ratios exceeded all of its regulatory capital requirements with both tangible and
core capital ratios of 9.14% and a risk-based capital ratio of 21.29%.
-7-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION
At December 31, 2007, total assets of the Company decreased by $3.8 million to $121.1 million from
$124.9 million at June 30, 2007. The decrease was the result of a $2.6 million decline in net
loans receivable, including loans held for sale, to $82.3 million at December 31, 2007 from $84.9
million at June 30, 2007 and a $1.2 million decline in the combined balance of interest bearing
cash deposits and short term investment securities to $29.8 million at December 31, 2007 from $31.0
million at June 30, 2007. These proceeds were used to fund a $3.9 million decline in deposit
balances to $105.9 million at December 31, 2007 from $109.7 million at June 30, 2007.
Loans receivable decreased $1.7 million to $82.1 million at December 31, 2007 from $83.8 millions
at June 30, 2007 due to a decline in portfolio loan originations. The Company originated $4.2
million of portfolio loans during the six months ended December 31, 2007 compared to portfolio loan
originations of $4.8 million during the 2006 period. The decline in portfolio loan origination
volume in the current six month period was due in part to an emphasis on originations of loans held
for sale which increased to $5.6 million during the six months ended December 31, 2007 compared to
$2.9 million during the prior year period. We increased our originations of loans held for sale as
we determined to limit fixed rate portfolio loan originations to mitigate interest rate risk.
Proceeds from the sale of loans held for sale also increased to $6.5 million during the six months
ended December 31, 2007 compared to $3.7 million during the 2006 period. Portfolio loan repayments
declined to $5.9 million during the six months ended December 31, 2007 compared with $8.0 million
during the 2006 period. There were no new purchases of mortgage-backed securities during the six
months ended December 31, 2007 and as a result, the balance of mortgage-backed securities decreased
by $157,000 to $1.3 million due to repayments.
The balance of investment securities available for sale declined by $9.8 million to $11.2 million
at December 31, 2007 compared to $21.0 million at June 30, 2007. During the current six month
period the Company reinvested $10.0 million in maturing United States Treasury securities into
other short term investment funds with better returns. The investment securities portfolio at
December 31, 2007 was largely comprised of six month United States Treasury Securities. Gross
unrealized gains in the available for sale investment securities portfolio were $291,000 at
December 31, 2007 compared to gross unrealized gains of $208,000 at June 30, 2007, primarily
reflecting the positive impact of lower interest rates on the Companys $1.0 million long term
United States Treasury bond. The weighted average remaining term to maturity of the Companys
total investment securities portfolio at December 31, 2007 was 11 months.
The balance of interest bearing deposits increased by $8.7 million to $19.9 million at December 31,
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 $597,000 at December 31, 2007
compared to $511,000 at June 30, 2007. The allowance for loan losses decreased $9,000 during the
six months ended December 31, 2007 due to net charge offs of consumer loans, and amounted to
$411,000, or 0.50% of total loans, at December 31, 2007 as compared to $420,000, or .49% of total
loans, at June 30, 2007. The Company made no loan loss provision during the six months ended
December 31, 2007. Non-accruing loans at December 31, 2007 consisted of $573,000 in one-to-four
family residential mortgage loans and $24,000 in non-mortgage loans. At December 31, 2007 the
Companys ratio of allowance for loan losses to non-performing loans was 68.87% compared to 82.22%
at June 30, 2007. Management believes that the current allowance for loan losses at December 31,
2007 is adequate to cover probable accrued losses in the portfolio.
-8-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION (continued)
Midland Federal owns $1.1 million of stock in the Federal Home Loan Bank of Chicago (FHLBC) as a
member institution. The FHLBC did not declare a quarterly dividend on its stock in the third
quarter and has announced that it will not declare a quarterly dividend on its stock for the fourth
quarter. The Company has no information on when dividend payments on FHLBC stock will resume or
the amount of any future dividends.
The following table sets forth the amounts and categories of non-performing assets in the Companys
portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest
becomes doubtful, generally when the loan is delinquent 90 days or more. Foreclosed assets, if
any, include assets acquired in settlement of loans.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in Thousands)
|
|
Non-Accruing Loans:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
573
|
|
|
$
|
484
|
|
Multi-family
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
24
|
|
|
|
27
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
597
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed Assets:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
597
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
Total as a percentage of total assets
|
|
|
0.49
|
%
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
As of December 31, 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.
-9-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION (continued)
The following table sets forth an analysis of the Companys allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
420
|
|
|
$
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
One-to-four family loans
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
9
|
|
|
|
|
|
Commercial business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
One-to-four family loans
|
|
|
|
|
|
|
|
|
Multi-family loans
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(9
|
)
|
|
|
6
|
|
Additions charged to operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
411
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to
average loans outstanding during the period
|
|
|
.01
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to
average non-performing assets
|
|
|
1.66
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans
|
|
|
68.87
|
%
|
|
|
80.07
|
%
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
0.50
|
%
|
|
|
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 six months ended December 31, 2007 decreased $3.9 million to $105.8 million from
$109.7 million at June 30, 2007 as a result of withdrawals, net of deposits, in the amount of $4.9
million, offset by interest credited to deposits in the amount of $1.0 million. The net decrease
in deposits is primarily attributed to continued intense competition for deposit accounts in the
current interest rate environment. The decrease in deposits is the result of a $2.6 million
decrease in passbook deposit accounts, a $679,000 decrease in money market accounts, a $484,000
decrease in NOW accounts and a $221,000 decrease in demand deposit accounts offset by a $135,000
increase in certificate of deposit accounts.
Stockholders equity increased $177,000, or 1.3%, to $13.9 million at December 31, 2007 from $13.7
million at June 30, 2007. The increase in stockholders equity was due to net income of $339,000
and an increase in accumulated other comprehensive income of $17,000 offset by the payment of cash
dividends in the amount of $179,000.
-10-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Net income for the quarter ended December 31, 2007 was $147,000 compared to net income of $171,000
for the quarter ended December 31, 2006. Net income decreased in the current quarter, compared to
the prior year quarter, as the result of a $106,000 decrease in net interest income, offset by a
$23,000 increase in non-interest income, a $47,000 decrease in non-interest expense and a $12,000
decrease in income taxes.
For the six months ended December 31, 2007 the Company had net income of $339,000 compared to net
income of $393,000 for the six months ended December 31, 2006. Net income decreased in the six
months ended December 31, 2007, compared to the prior year period, as the result of a $247,000
decrease in net interest income, offset by an $88,000 increase in non-interest income, a $78,000
decrease in non-interest expense and a $27,000 decrease in income taxes.
The Companys interest rate spread decreased to 3.23% for the quarter ended December 31, 2007 from
3.58% for the prior year quarter. The decrease in interest rate spread reflects an increase in the
Companys average yield paid on interest costing deposits to 2.30% in the current quarter from
2.06% in the prior year quarter as well as a decrease in the average yield earned on interest
earning assets to 5.53% in the current quarter from 5.64% in the prior year quarter. The average
balance of net earning assets (average interest earning assets minus average interest bearing
liabilities) increased by $852,000 to $21.0 million compared with the prior year quarter.
For the six months ended December 31, 2007, interest rate spread decreased to 3.29% compared to
3.67% in the prior year six month period. Interest rate spread also decreased in the six months
ended December 31, 2007 compared with the prior year period as a result of an increase in the
average yield paid on interest costing deposits combined with a decrease in the average yield
earned on interest earning assets. For the six months ended December 31, 2007 the average yield
paid on interest costing deposits increased to 2.28% from 2.00% in the prior year period while the
average yield earned on interest earning assets decreased to 5.57% for the six months ended
December 31, 2007 from 5.67% in the prior year period.
Interest Income
Interest income decreased $64,000, or 3.8%, for the quarter ended December 31, 2007 as compared to
the same period last year. The decrease in interest income is attributed to a $2.3 million decline
in the average balance of interest earning assets to $117.8 million for the quarter ended December
31, 2007 compared to $120.1 million for the quarter ended December 31, 2006 as well as a decrease
in the average yield earned on interest earning assets to 5.53% for the quarter ended December 31,
2007 from 5.64% in the prior year quarter.
For the six months ended December 31, 2007, interest income decreased $136,000, or 3.9%, from the
2006 period. The decrease in interest income for the current six month period was the result of a
decrease in the average yield earned on interest earning assets as well as a decrease in the
average outstanding balance of interest earning assets. The average yield on interest earning
assets decreased to 5.57% compared to 5.67% for the year earlier period. The average outstanding
balance of interest earning assets decreased by $2.7 million to $118.7 million for the six months
ended December 31, 2007 from $121.4 million for the prior year period.
-11-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest on loans receivable decreased $73,000, or 5.6%, for the quarter ended December 31, 2007
from the comparable quarter in 2006. The decrease in interest income was primarily attributed to a
$6.1 million decrease in the average outstanding balance of net loans receivable to $83.4 million
for the quarter ended December 31, 2007 from $89.5 million for the quarter ended December 31, 2006.
The decrease in the average outstanding balance of loans receivable offset an increase in the
average yield earned on loans receivable to 5.88% for the quarter ended December 31, 2007 as
compared to 5.81% for the quarter ended December 31, 2006.
Interest on mortgage-backed securities decreased $3,000, or 12.3%, for the quarter ended December
31, 2007 from the comparable quarter in 2006. The decrease in interest income is attributed to a
$263,000 decrease in the average balance of mortgage-backed securities to $1.3 million from $1.6
million in the prior year quarter. The decrease in the average outstanding balance of
mortgage-backed securities offset an increase in the average yield earned on mortgage-backed
securities to 6.00% for the quarter ended December 31, 2007 from 5.71% in the year earlier period.
The increase in the average yield earned on mortgage-backed securities was the result of the
Companys adjustable rate mortgage-backed securities re-pricing at higher yields.
Interest on investment securities decreased $106,000, or 38.8%, to $168,000 for the quarter ended
December 31, 2007 from $274,000 for the prior year quarter due to a decrease in the average
outstanding balance of investment securities. For the quarter ended December 31, 2007 the average
outstanding balance of investment securities decreased $7.7 million to $13.3 million from $21.0
million in the 2006 quarter as a result of maturities. The average yield earned on investment
securities also decreased to 5.03% for the quarter ended December 31, 2007 from 5.22% due to
reinvestment of maturing treasury securities at lower yields.
Interest earned on interest bearing deposits increased $127,000 to $215,000 for the quarter ended
December 31, 2007 from $88,000 for the prior year quarter. The increase in interest income is
attributed to an $11.8 million increase in the average outstanding balance of interest bearing
deposits to $18.6 million for the quarter ended December 31, 2007 from $6.8 million in the 2006
quarter. Management decided to increase the Companys 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 4.64% for the quarter
ended December 31, 2007 from 5.16% in the 2006 quarter.
For the six months ended December 31, 2007, interest on loans receivable decreased $182,000, or
6.9%, compared with the prior year period. The decrease in interest income was primarily
attributed to a $6.3 million decrease in the average outstanding balance of net loans receivable to
$84.0 million for the six months ended December 31, 2007 from $90.3 million for the six months
ended December 31, 2006. The decline in the average outstanding balance of net loans receivable
was slightly offset by an increase in the average yield earned on loans receivable to 5.88% for the
six months ended December 31, 2007 as compared to 5.86% for the prior year period.
For the six months ended December 31, 2007 interest earned on mortgage backed securities decreased
$4,000 to $40,000. The decrease in interest income is attributed to a decrease in the average
outstanding balance of mortgage-backed securities to $1.3 million for the six months ended December
31, 2007 from $1.6 million for the six months ended December 31, 2006. The decrease in the average
outstanding balance of mortgage-backed securities offset an increase in the average yield earned on
mortgage-backed securities to 5.92% for the six months ended December 31, 2007 from 5.51% for the
comparable prior year period.
-12-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
For the six months ended December 31, 2007 interest earned on investment securities decreased
$126,000, or 23.6%, to $408,000 from $534,000 for the 2006 period. The decrease in interest income
is attributed to decreases in both the average outstanding balance of investment securities and the
average yield earned on investment securities. For the six months ended December 31, 2007 the
average outstanding balance of investment securities decreased $4.6 million to $16.2 million from
$20.8 million in the 2006 period. The average yield earned on investment securities also decreased
to 5.05% for the six months ended December 31, 2007 from 5.14% in the year earlier period.
For the six months ended December 31, 2007 interest earned on interest bearing deposits increased
$187,000, or 95.6%, to $382,000 from $195,000 for the 2006 period. The increase in interest income
was due to an $8.5 million increase in the average outstanding balance of interest bearing deposits
to $16.0 million for the six months ended December 31, 2007 from $7.5 million for the comparable
prior year period. The increase in the average outstanding balance of interest bearing deposits
offset a decrease in the average yield earned on interest bearing deposits to 4.77% for the six
months ended December 31, 2007 from 5.22% for the prior year period.
Interest Expense
Interest expense increased $42,000, or 8.2%, to $557,000 for the quarter ended December 31, 2007
compared with $515,000 in the prior year quarter. The increase in interest expense is attributable
to an increase in the average yield paid on interest costing deposits to 2.30% for the quarter
ended December 31, 2007 from 2.06% for the quarter ended December 31, 2006. The increase in average
yield was the result of increased competition for deposit liabilities from special rate promotions.
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 $3.2 million to $96.8 million for the quarter ended December 31, 2007 from $100.0
million in the prior year quarter.
For the six months ended December 31, 2007 interest expense increased $111,000, or 11.1%, to $1.1
million from $1.0 million for the prior year period. The increase in interest expense in the six
month period is the result of an increase in the average yield paid on interest costing deposits
offset by a decline in the average outstanding balance of interest costing deposits. For the six
months ended December 31, 2007 the average yield paid on interest costing deposits increased to
2.28% from 2.00% for the six months ended December 31, 2006 while the average outstanding balance
of interest costing deposits decreased by $2.6 million to $98.4 million from $101.0 million for the
comparable prior year period.
Provisions for Losses on Loans
The Company maintains an allowance for loan losses based upon managements periodic evaluation of
probable accrued losses in the portfolio based on known and inherent risks in the loan portfolio,
the Companys 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 $411,000, or .50% of total loans, at December 31,
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
$411,000 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 three and six
months ended December 31, 2007.
-13-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Non-Interest Income
Non-interest income increased $23,000 to $215,000 in the quarter ended December 31, 2007 as
compared to the prior year quarter. The primary factors for the increase in non-interest income
were an $18,000 increase in loan fees and service charges, a $17,000 increase in gain on the sale
of loans and a $13,000 increase in commission income. The increases in loan fees and service
charges and gain on the sale of loans both resulted from an increase in the origination and sale of
loans held for sale in the current quarter compared with the prior year quarter. Non-interest
income was increased in the 2006 quarter by a $24,000 recovery of data communication charges billed
in error in previous periods.
For the six months ended December 31, 2007 non-interest income increased $88,000 to $477,000 from
$389,000 in the prior year period. The primary factors for the increase in non-interest income
were a $67,000 gain on the sale of a marketable equity security, a $26,000 increase in gain on the
sale of loans and a $17,000 increase in loan fees and service charges. Non-interest income was
increased in the prior year period as a result of the $24,000 recovery of data communication
charges, discussed above.
Non-Interest Expense
Non-interest expense decreased $47,000 to $1.1 million in the quarter ended December 31, 2007 as
compared to the prior year quarter. The decrease in non-interest expense is primarily the result
of a $14,000 decrease in computer software and support expenses, a $13,000 decrease in staffing
costs and a $9,000 decrease in professional fees.
For the six months ended December 31, 2007 non-interest expense decreased $78,000 to $2.1 million
compared with the prior year period. The primary factors for the decrease in non-interest expense
in the current six month period were a $51,000 decrease in staffing expense, a $6,000 decrease in
advertising expense and a $5,000 decrease in computer software and support expense. The decrease
in staffing expense is primarily attributed to a $63,000 decrease in the cost of employee pension
and health insurance benefits, offset by normal increases in payroll expenses.
Income Taxes
Income taxes decreased by $12,000 to $76,000 in the quarter ended December 31, 2007 from $88,000
for the same period last year. The decreased income tax provision was due to the decrease in
operating income in the quarter ended December 31, 2007 as compared to the quarter ended December
31, 2006.
For the six months ended December 31, 2007 income taxes decreased $27,000 to $175,000 compared to
$202,000 in the prior year period. The decreased income tax provision was due to the decrease in
operating income in the six months ended December 31, 2007 as compared to the six months ended
December 31, 2006. The effective income tax rate in all periods presented was 34.0%.
-14-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Companys 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 managements assessment
of (i) the Companys need for funds, (ii) expected deposit flows, (iii) the yields available on
short-term liquid assets and (iv) the objectives of the Companys asset/liability management
program. At December 31, 2007 the Company had commitments to originate $147,000 in loans for the
portfolio and unused lines of credit in the amount of $3.7 million. At December 31, 2007 the
Company had commitments to sell $298,000 in loans. Also on that date, the Company had $32.2
million of certificate of deposit accounts maturing within one year, which management generally
expects to retain.
The Company uses its capital resources principally to meet its ongoing commitments to fund maturing
certificate of deposits and deposit withdrawals, fund existing and continuing loan commitments,
maintain its liquidity and meet operating expenses. The Company considers its liquidity and
capital reserves sufficient to meet its outstanding short and long-term needs. The Company expects
to be able to fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
At December 31, 2007, the Association had tangible and core capital of $11.0 million, or 9.14% of
adjusted total assets, which was approximately $9.2 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 December 31, 2007, the Association had total capital of $11.5 million (including $11.0 million
in core capital) and risk-weighted assets of $53.9 million, or total capital of 21.29% 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 Companys
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 Companys operations. In addition, the
Chief Executive and Financial Officer and the Companys independent auditors also meet on a
quarterly basis and discuss the Companys material accounting policies. Finally, the Chief
Executive and Financial Officer and certain of the Companys other Officers meet on a regular basis
to review the Companys financial statements and certain documents related to material
transactions. The Companys 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 Companys internal controls
over financial reporting.
-15-
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
On October 17, 2007 the shareholders held their annual meeting to consider and act upon the
election of Mr. Jonas Vaznelis and Mr. Paul Zogas to serve as directors for terms of three years
and the ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors for the
Company for the fiscal year ending June 30, 2008. Both of the foregoing items were approved by the
shareholders at the meeting by the following vote totals based upon 372,600 shares outstanding and
entitled to vote at the meeting.
|
|
|
|
|
|
|
I.
|
|
Election of Directors
|
|
|
|
332,061 shares voted, as follows:
|
|
|
Jonas Vaznelis:
|
|
|
|
316,261 votes FOR; 15,800 votes WITHHELD.
|
|
|
Paul Zogas:
|
|
|
|
316,261 votes FOR; 15,800 votes WITHHELD.
|
|
|
|
|
|
|
|
II.
|
|
Ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors
for the Company for the fiscal year ending June 30, 2008 332,061 shares
voted, as follows:
|
|
|
|
|
|
FOR:
|
|
|
332,061
|
|
AGAINST:
|
|
|
-0-
|
|
ABSTAIN:
|
|
|
-0-
|
|
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
See Exhibit Index.
-16-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
MIDLAND CAPITAL HOLDINGS CORPORATION
Registrant
|
|
DATE: February 14, 2008
|
BY:
|
/s/ Paul Zogas
|
|
|
Paul Zogas
|
|
|
President, Chief Executive Officer
and Chief Financial Officer
|
|
|
|
|
DATE: February 14, 2008
|
BY:
|
/s/ Charles Zogas
|
|
Charles Zogas
|
|
|
Executive Vice President,
and Chief Operating Officer
|
|
|
-17-
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
|
-18-
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