SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended June 30, 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 South Harlem Avenue
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Bridgeview, Illinois
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60455
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(Address of Principal Executive Offices)
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Zip Code
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Registrants telephone number, including area code:
(708) 598-9400
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
o
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past twelve 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
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
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
o
The Issuer had $698,000 in net income for the fiscal year ended June 30, 2007.
As of June 30, 2007, there were issued and outstanding 372,600 shares of the Issuers Common
Stock. The Issuers voting stock is not regularly and actively traded, and there are no regularly
quoted bid and asked prices for the Issuers voting stock. Accordingly, the Issuer is unable to
determine the aggregate market value of the voting stock held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II and IV of Form 10-KSB Annual Report to Stockholders for the Fiscal Year Ended
June 30, 2007 and certain parts of Proxy Statement for 2007 Annual Meeting of Stockholders.
PART III of Form 10-KSB Proxy Statement for the 2007 Annual Meeting of Stockholders.
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Midland Capital Holdings Corporation, which we refer to as Midland Capital, is a Delaware
corporation which was organized in 1998 by Midland Federal Savings and Loan Association, which we
refer to as Midland Federal, for the purpose of becoming a thrift institution holding company.
Midland Capital and Midland Federal are headquartered in Bridgeview, Illinois.
The principal asset of Midland Capital is the outstanding stock of Midland Federal. Midland
Capital presently has no separate operations and its business consists only of the business of
Midland Federal. All references to Midland Capital, unless otherwise indicated, at or before July
23, 1998 refer to Midland Federal.
Midland Federal has been principally engaged in the business of attracting deposits from the
general public and using such deposits to originate residential mortgage and, to a lesser extent,
consumer, multi-family, and other loans in its primary market area. Midland Federal also has
substantial investments in short term U.S. governmental agency obligations and, to a lesser extent,
mortgage-backed securities and investment securities.
Midland Federals primary market area consists of southwest Chicago, and the southwest
suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory Hills, Burbank, Chicago Ridge,
Homer Glen, Lockport, Orland Park and Lemont which it serves through its main office in Bridgeview
and three branch offices in southwest Chicago. Its deposits are insured up to applicable limits by
the Federal Deposit Insurance Corporation. At June 30, 2007, Midland Federal had $124.9 million of
assets, deposits of $109.7 million and stockholders equity of $13.7 million.
The main offices of Midland Capital and Midland Federal are located at 8929 South Harlem
Avenue, Bridgeview, Illinois 60455 and their telephone number at that address is (708) 598-9400.
Forward-Looking Statements
When used in this Form 10-KSB and in future filings by Midland Capital with the SEC, in
Midland Capitals press releases or other public or shareholder communications, and in oral
statements made with the approval of an authorized executive officer, the words or phrases 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 in Midland Capitals
market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for
loans, real estate values and competition in Midland Capitals market area, all or some of which
could cause actual results to differ materially from historical earnings and those presently
anticipated or projected. Midland Capital wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made and are subject to the
above-stated qualifications in any event. Midland Capital wishes to advise readers that the
factors listed above could affect Midland Capitals financial performance and could cause Midland
Capitals actual results for future
periods to differ materially from any opinions or statements expressed with respect to future
periods in any current statements.
2
Midland Capital does not undertake and specifically declines any obligation to publicly
release the result of any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Lending Activities
General
. The principal lending activity of Midland Federal has been the origination
for its portfolio of conventional first mortgage real estate loans secured by owner occupied one-
to four-family residential property. Midland Federal also originates consumer, multi-family,
non-residential real estate, construction and other loans.
Loan originations come primarily from walk-in customers, continued business from customers and
referrals from local real estate brokers. Midland Federals loan originators earn a base salary
plus commissions based upon first mortgage loans generated by the originator. All completed loan
applications are reviewed by Midland Federals salaried loan officers. As part of the application
process, information is obtained concerning the income, financial condition, employment and credit
history of the applicant. If multi-family or commercial real estate is involved, information is
also obtained concerning cash flow after debt service. Loan applications are analyzed based on
Midland Federals credit underwriting guidelines as well as, in the case of residential loans, the
guidelines issued by the Federal Home Loan Mortgage Corporation.
Midland Federal has established correspondent lending relationships with other lenders in
order to take applications which either do not conform to its underwriting guidelines or are
mortgage loan products that it does not offer, such as FHA and VA insured mortgage loans. In
consideration of a loan broker fee paid by the lender to Midland Federal, it processes the loan
application and forwards a completed loan application package to the lender, who underwrites and
originates the loan.
All real estate loans are appraised by independent fee appraisers approved by the Board of
Directors. Midland Federal obtains current financial statements in connection with the
underwriting process as well as annual financial statements for borrowers with loans secured by
commercial real estate.
Residential real estate loans are generally approved by the Loan Committee in amounts up to
$500,000. Residential real estate loans may also be approved by the Chief Lending Officer in
amounts up to $350,000 or the President in amounts up to $425,000, and then ratified by the Loan
Committee or the Board of Directors. Residential real estate loans in amounts over $500,000 must
be approved by the Board of Directors. Non-residential real estate loans are generally approved by
the Board of Directors. Non-residential real estate loans may also be approved by the President in
amounts up to $500,000 and then ratified by the Board of Directors. The Chief Lending Officer and
the President each have approval authority for any consumer loans.
3
Midland Federal generally requires, in connection with the origination of real estate loans,
fire and casualty insurance coverage, as well as flood insurance where appropriate, to protect its
interest. The cost of this insurance coverage is paid by the borrower. Midland Federal also
requires title insurance coverage on all real estate loans except for second mortgage loans in
amounts of less than $25,000 for which loans it only requires that good and marketable title be
verified by an independent title search. The cost of title insurance coverage is paid for by the
borrower, except in the case of second mortgage loans for which Midland Federal may, from time to
time, absorb such costs for promotional purposes.
The aggregate amount of loans that Midland Federal is permitted to make under applicable
federal regulations to any one borrower, including related entities, and the aggregate amount that
it could have invested in any one real estate project is generally the greater of 15% of unimpaired
capital and surplus or $500,000. See Regulation Federal Regulation of Savings Associations.
At June 30, 2007, Midland Federal had five borrowers with outstanding loan balances in excess
of $500,000. The borrowers loans totaled $3.7 million and were secured by single-family
residences and multi-family buildings. The highest concentration of loans to one borrower as of
June 30, 2007 was $1.5 million. These loans were current and performing in accordance with their
terms at June 30, 2007. See Non-Performing Assets, Classified Assets, Loan Delinquencies and
Defaults.
4
Loan and Mortgage-backed Securities Portfolio Composition
. The following table sets
forth information concerning the composition of Midland Federals loan and mortgage-backed
securities portfolios in dollar amounts and in percentages as of the dates indicated.
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June 30,
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2007
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2006
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2005
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in Thousands)
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Real Estate Loans
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One-to four-family
(1)
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Held for investment
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$
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79,749
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93.90
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%
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$
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88,618
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95.55
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%
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$
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91,558
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96.46
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%
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Available for sale
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1,012
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1.19
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843
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0.91
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250
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0.26
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Multi-family
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1,610
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1.90
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1,642
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1.77
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1,125
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1.19
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Non-Residential
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1,839
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2.17
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750
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0.81
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805
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0.85
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Total real estate loans
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84,210
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99.16
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91,853
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99.04
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93,738
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98.76
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Other Loans
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Consumer Loans:
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Deposit accounts
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126
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0.14
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188
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0.20
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269
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0.28
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Student
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108
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0.13
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161
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0.18
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247
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0.26
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Automobile
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296
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0.34
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355
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0.38
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448
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0.47
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Credit card
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188
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0.22
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149
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0.16
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189
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0.20
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Other
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1
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0.00
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2
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0.00
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12
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0.01
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Total consumer loans
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719
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0.83
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855
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0.92
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1,165
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1.22
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Commercial business loans
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5
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0.01
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38
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0.04
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17
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0.02
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Total loans receivable
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84,934
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100.00
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%
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92,746
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100.00
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%
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94,920
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100.00
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%
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Less
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Loans in process
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7
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172
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25
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Deferred yield adjustments
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(364
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)
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(407
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)
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(405
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Allowance for uncollected interest
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14
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20
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14
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Allowance for loan losses
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420
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416
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457
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Loans receivable, net
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$
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84,857
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$
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92,545
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$
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94,829
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Mortgage-backed securities:
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FHLMC
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$
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898
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60.88
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%
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$
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1,065
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63.24
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%
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$
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1,219
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63.49
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%
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FNMA
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577
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39.12
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615
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36.52
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680
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35.42
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GNMA
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4
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0.24
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21
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1.09
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Total mortgage-backed securities
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1,475
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100.00
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%
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1,684
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100.00
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%
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1,920
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100.00
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%
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Net discounts
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Net mortgage-backed securities
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$
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1,475
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$
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1,684
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$
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1,920
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(1)
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Includes $3,707 of home equity loans and lines of credit at June 30, 2007.
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5
The following table shows the composition of Midland Federals loan portfolio by fixed and
adjustable-rate at the dates indicated.
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June 30,
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2007
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2006
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2005
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in Thousands)
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Fixed-Rate Loans
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Real Estate:
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One-to four-family
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$
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73,781
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86.87
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%
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$
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78,961
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85.14
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%
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$
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81,686
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86.06
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%
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Multi-family
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853
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1.01
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872
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0.94
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|
415
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0.44
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Non-Residential
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217
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0.26
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|
522
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0.56
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|
|
574
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0.61
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Total real estate loans
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74,851
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88.14
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80,355
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86.64
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82,675
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87.11
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Consumer
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610
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0.71
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|
692
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0.74
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|
906
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0.95
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Total fixed-rate loans
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75,461
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88.85
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81,047
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87.38
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83,581
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88.06
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-Rate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
6,980
|
|
|
|
8.22
|
|
|
|
10,500
|
|
|
|
11.32
|
|
|
|
10,122
|
|
|
|
10.66
|
|
Multi-family
|
|
|
757
|
|
|
|
0.89
|
|
|
|
770
|
|
|
|
0.83
|
|
|
|
710
|
|
|
|
0.53
|
|
Non-Residential
|
|
|
1,622
|
|
|
|
1.91
|
|
|
|
228
|
|
|
|
0.25
|
|
|
|
231
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
9,359
|
|
|
|
11.02
|
|
|
|
11,498
|
|
|
|
12.40
|
|
|
|
11,063
|
|
|
|
11.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
109
|
|
|
|
0.12
|
|
|
|
163
|
|
|
|
0.18
|
|
|
|
259
|
|
|
|
0.27
|
|
Commercial business
|
|
|
5
|
|
|
|
0.01
|
|
|
|
38
|
|
|
|
0.04
|
|
|
|
17
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustable-rate loans
|
|
|
9,473
|
|
|
|
11.15
|
|
|
|
11,699
|
|
|
|
12.62
|
|
|
|
11,339
|
|
|
|
11.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
84,934
|
|
|
|
100.00
|
%
|
|
|
92,746
|
|
|
|
100.00
|
%
|
|
|
94,920
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in process
|
|
|
7
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
Deferred yield adjustments
|
|
|
(364
|
)
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
(405
|
)
|
|
|
|
|
Allowance for uncollected interest
|
|
|
14
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Allowance for loan losses
|
|
|
420
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
84,857
|
|
|
|
|
|
|
$
|
92,545
|
|
|
|
|
|
|
$
|
94,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007, there were no concentrations of loans in any types of industry which
exceeded 10% of Midland Federals total loans that are not included as a loan category in the
preceding table.
6
The following schedule illustrates the contractual maturity of Midland Federals loan
portfolio at June 30, 2007. Mortgages which have adjustable or renegotiable interest rates are
shown as maturing in the period during which the contract is due. The schedule does not reflect
the effects of possible prepayments or enforcements of due-on-sale clauses or interest rate
adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family and
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
One-to-Four Family
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Business
|
|
|
Total
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Due During Years
Ending June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
(1)
|
|
$
|
474
|
|
|
|
6.81
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
212
|
|
|
|
10.82
|
%
|
|
$
|
5
|
|
|
|
0.00
|
%
|
|
|
691
|
|
|
|
7.99
|
%
|
2009
|
|
|
284
|
|
|
|
7.70
|
%
|
|
|
|
|
|
|
|
%
|
|
|
119
|
|
|
|
6.32
|
%
|
|
|
|
|
|
|
|
%
|
|
|
403
|
|
|
|
7.29
|
%
|
2010
|
|
|
458
|
|
|
|
7.74
|
%
|
|
|
|
|
|
|
|
%
|
|
|
128
|
|
|
|
5.81
|
%
|
|
|
|
|
|
|
|
%
|
|
|
586
|
|
|
|
7.32
|
%
|
2011 to 2012
|
|
|
1,577
|
|
|
|
7.70
|
%
|
|
|
1,138
|
|
|
|
7.65
|
%
|
|
|
189
|
|
|
|
6.89
|
%
|
|
|
|
|
|
|
|
%
|
|
|
2,904
|
|
|
|
7.63
|
%
|
2013 to 2016
|
|
|
3,030
|
|
|
|
5.97
|
%
|
|
|
|
|
|
|
|
%
|
|
|
71
|
|
|
|
7.58
|
%
|
|
|
|
|
|
|
|
%
|
|
|
3,101
|
|
|
|
6.01
|
%
|
2017 to 2031
|
|
|
28,032
|
|
|
|
5.72
|
%
|
|
|
294
|
|
|
|
5.75
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
28,326
|
|
|
|
5.72
|
%
|
2032 and following
|
|
$
|
46,906
|
|
|
|
5.86
|
%
|
|
|
2,017
|
|
|
|
7.29
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
48,923
|
|
|
|
5.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,761
|
|
|
|
|
|
|
$
|
3,449
|
|
|
|
|
|
|
$
|
719
|
|
|
|
|
|
|
$
|
5
|
|
|
|
|
|
|
$
|
84,934
|
|
|
|
5.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes demand loans, loans having no stated maturity and overdraft loans.
|
The total amount of loans due after June 30, 2008 which have predetermined interest rates is
approximately $74.97 million, while the total amount of loans due after such date which have
floating or adjustable interest rates is approximately $9.27 million.
7
One- to Four-Family Residential Real Estate Lending
Midland Federals primary lending activity has been the origination and purchase of permanent loans
secured by mortgages on owner-occupied one- to four-family residences. At June 30, 2007, $80.8
million or 95.1% of our gross loan portfolio consisted of permanent loans on one- to four-family
residences. All of these loans were secured by properties located in the State of Illinois, with a
substantial majority located in Midland Federals primary market area.
Historically, Midland Federal originated for retention in its own portfolio 30-year fixed-rate
loans secured by one- to four-family residential real estate. Beginning in the early 1980s, in
order to reduce its exposure to changes in interest rates, Midland Federal began to originate
adjustable-rate mortgages (ARMs) and shorter term fixed rate loans, subject to market conditions
and consumer preference. However, as a result of continued consumer demand, Midland Federal has
continued to originate for retention in its portfolio primarily fixed-rate-residential loans,
although in amounts and at rates which are monitored for compliance with Midland Federals
asset/liability management policy.
Most of Midland Federals fixed rate residential loans have terms up to 30 years although
approximately 2% of Midland Federals fiscal 2007 originations had terms of 15 year or less.
Midland Federal establishes interest rates on its fixed rate residential loans based on published
agency pricing, an analysis of its asset/liability needs and competitive factors.
Midland Federals current one- to four-family residential ARMs are fully amortizing loans with
contractual maturities of up to 30 years. The interest rates on substantially all the ARMs
originated by Midland Federal are subject to adjustment at one-year intervals. Midland Federals
ARM products generally carry interest rates which are reset to a stated margin over the one-year
U.S. Treasury Rate. Adjustments in the interest rate of Midland Federals ARMs are generally
limited to 2% at any adjustment date and 6% over the life of the loan. At June 30, 2007, the total
balance of one- to four-family ARMs was $7.0 million, or 8.2% of our gross loan portfolio.
From time to time, Midland Federal will make owner-occupied one- to four-family construction loans
for a six-month interest only term, which Midland Federal will convert to a permanent mortgage for
a fee generally of one point. Midland Federal requires the interest on such loans during the
construction term to be paid or placed in escrow when the loan is funded.
Midland Federals one- to four-family residential loan portfolio includes home equity lines of
credit, which were funded in the amount of $2.1 million at June 30, 2007, and home equity loans,
which were $1.6 million at June 30, 2007. Our unfunded commitments on home equity lines of credit
totaled $3.3 million at June 30, 2007. Midland Federals home equity lines of credit are five year
interest-only balloon loans secured by second liens on the property, and are made in amounts of up
to 75% of the appraised value of the property (including first lien amounts). Midland Federals
home equity loans are three to 15 year fixed-rate loans secured by second liens on the property,
and are made in amounts up to 80% of the appraised value of the property (including first lien
amounts).Midland Federals fixed rate residential loans are generally underwritten and documented
to permit their sale in the secondary market. Midland Federal evaluates both the borrowers
ability to make principal and interest payments and the value of the property that will secure the
loan. Midland
Federal generally originates residential mortgage loans with loan-to-value ratios of up to 80%,
although the Board of Directors has authorized originations of mortgage loans with loan-to-value
ratios up to 95%. On any mortgage loan exceeding an 80% loan-to-value ratio at the time of
origination, Midland Federal generally requires private mortgage insurance on the excess.
8
Midland Federals residential mortgage loans customarily include due-on-sale clauses, which are
provisions that give Midland Federal the right to declare a loan immediately due and payable in the
event the borrower sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
Multi-Family Residential Lending
Midland Federals multi-family residential portfolio at June 30, 2007 included $1.6 million in
loans secured by residential buildings with 5 or more units located in Midland Federals primary
market area. Midland Federal originates primarily adjustable-rate, multi-family real estate loans.
Rates on Midland Federals adjustable-rate, multi-family real estate loans generally adjust in a
manner consistent with Midland Federals ARMs.
Multi-family real estate loans are generally underwritten in amounts of up to 75% of the appraised
value of the underlying property. Midland Federals underwriting procedures for multi-family
generally require verification of the borrowers credit history, income and financial statements,
banking relationships, references and income projections for the property. Personal guarantees are
generally obtained for Midland Federals multi-family real estate loans.
Midland Federal monitors the cash flow and operating performance of borrowers through inspection of
collateral, calls on borrowers, inspection of business premises and evaluation of interim financial
statements.
Multi-family residential real estate loans generally present a higher level of risk than loans
secured by one- to four-family residences. The risk is greater due to several factors, including
the concentration of principal in a limited number of loans and borrowers, the effects of general
economic conditions on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family
residential real estate is typically dependent upon the successful operation of the related real
estate project. If the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrowers ability to repay the loan may be impaired.
Consumer Lending
Management believes that consumer loans help Midland Federal expand its customer base and create
stronger ties to its existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential loans, they can be
valuable asset/liability management tools.
Midland Federal offers a variety of secured consumer loans, including educational loans (which are
guaranteed from a State agency), automobile loans and loans secured by savings deposits. In
addition, Midland Federal offers unsecured consumer loans through its Visa credit card program.
Midland Federal currently originates substantially all of its consumer loans in its principal
market area.
9
Consumer loan terms vary according to the type of collateral, term of the loan and creditworthiness
of the borrower. The underwriting standards employed by Midland Federal for consumer loans include
a determination of the applicants payment history on other debts and an assessment of the
applicants ability to meet payments on the proposed loan along with other existing obligations.
In addition to the creditworthiness of the applicant, the underwriting process also includes a
comparison of the value of the security, if any, in relation to the proposed loan amount.
Student loans are originated by Midland Federal in compliance with the guidelines established by
the Illinois Student Assistance Commission (ISAC). Under this program, ISAC is notified when a
loan becomes 60 to 120 days delinquent and a default claim notice is filed with ISAC when a loan
becomes 270 days delinquent. The default claim is considered for payment by ISAC when a loan is
delinquent for more than 360 days. As of June 30, 2007, student loans amounted to $108,000, or
0.13%, of Midland Federals gross loan portfolio.
Midland Federal also originates consumer loans secured by used and, to a lesser extent, new
automobiles in its primary market area. Underwriting standards employed by Midland Federal in
connection with these loans include a review of the borrowers creditworthiness, verification of
collateral value and perfection of a lien against the collateral. Midland Federal requires vehicle
insurance on all loans secured by automobiles. At June 30, 2007, Midland Federal had $296,000, or
0.34%, of its gross loan portfolio in automobile loans.
Lines of credit extended through Midland Federals Visa credit card program are offered in amounts
up to $10,000. Midland Federal requires a credit card application, verifies employment and
obtains a credit report on all credit card applicants. At June 30, 2007, Midland Federal had
$188,000, or 0.22%, of its gross loan portfolio in credit card loans.
Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of
consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles.
In such cases, any repossessed collateral for defaulted consumer loans may not provide adequate
sources of repayment for the outstanding loan balances as a result of the greater likelihood of
damage, loss or depreciation. In addition, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. Although the level of delinquencies in Midland Federals consumer loan
portfolio has generally been low, there can be no assurance that delinquencies will not increase in
the future.
Commercial Real Estate Lending
Midland Federal maintains a portion of its portfolio in permanent loans secured by commercial real
estate. Midland Federals commercial real estate portfolio consists of loans on a variety of
non-residential property, including an automobile repair center and office properties. The terms
of the commercial real estate loans that we have recently originated have generally been similar to
those of our multifamily residential loans. Commercial real estate loans generally carry risks
similar to those described above with respect to multifamily residential loans. At June 30, 2007,
$1.8 million, or 2.2%, of Midland Federals gross loan portfolio consisted of permanent loans secured by commercial
real estate.
10
In the future, Midland Federal intends to continue to engage in a modest level of commercial real
estate lending, subject to regulatory restrictions. In view of the risk generally associated with
commercial real estate lending, there can be no assurance that Midland Federal will not experience
delinquencies on its commercial real estate portfolio.
Mortgage-Backed Securities
Midland Federal has a portfolio of mortgage-backed securities totaling $1.5 million at June 30,
2007. All of Midland Federals mortgage-backed securities are pass-through certificates issued by
federal agencies.
Midland Federal utilizes its mortgage-backed securities to supplement loan production and to meet
its asset/liability management objectives. Mortgage-backed securities can also serve as collateral
for borrowings and, through repayments, as a source of liquidity. For information regarding the
carrying and fair values of Midland Federals mortgage-backed securities portfolio, see Note 3 of
the Notes to Financial Statements in the Annual Report to Stockholders filed as Exhibit 13 hereto.
See Regulation.
The following table sets forth the contractual maturities of Midland Federals mortgage-backed
securities at June 30, 2007. It should be noted that, due to prepayments, the actual maturity of
Midland Federals long-term mortgage-backed securities will likely be significantly shorter than
the contractual maturities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due In
|
|
|
Balance Outstanding
|
|
|
|
1 to 5
|
|
|
6 to 20
|
|
|
Over 20
|
|
|
|
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
|
(In Thousands)
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
|
|
|
$
|
820
|
|
|
$
|
78
|
|
|
$
|
|
|
|
$
|
898
|
|
Federal National Mortgage Association
|
|
|
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
|
577
|
|
Total
|
|
$
|
|
|
|
$
|
1,489
|
|
|
$
|
78
|
|
|
$
|
|
|
|
$
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Originations, Purchases and Sales
Real estate loans are originated by Midland Federals staff of salaried loan officers. In
addition, Midland Federal utilizes commissioned loan originators. Loan applications are taken at
each office, processed in Midland Federals main office and then submitted to the Chief Lending
Officer, the President or the Loan Committee for approval.
Midland Federals ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is also affected by the interest rate environment. Loan sales consist
of loans sold to the Illinois Housing Development Authority and other lenders under various
government programs as well as sales of fixed rate one-to-four family mortgage loans in the
secondary market in order to reduce interest rate risk.
11
The following tables set forth our loan and mortgage-backed securities activity for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
Originations by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate one- to- four family
|
|
$
|
2,498
|
|
|
$
|
5,437
|
|
|
$
|
5,905
|
|
Real estate multi-family
|
|
|
|
|
|
|
318
|
|
|
|
222
|
|
Non-Residential
|
|
|
1,330
|
|
|
|
225
|
|
|
|
|
|
Non-real estate consumer
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustable rate
|
|
|
3,828
|
|
|
|
5,980
|
|
|
|
6,142
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate one- to- four family
|
|
|
12,440
|
|
|
|
15,479
|
|
|
|
14,943
|
|
Real estate multi-family
|
|
|
|
|
|
|
575
|
|
|
|
|
|
Non-Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-real estate consumer
|
|
|
829
|
|
|
|
934
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate
|
|
|
13,269
|
|
|
|
16,988
|
|
|
|
16,139
|
|
|
|
|
|
|
|
|
|
|
|
Total loans originated
|
|
|
17,097
|
|
|
|
22,968
|
|
|
|
22,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Repayments
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans sold
|
|
|
(7,877
|
)
|
|
|
(5,145
|
)
|
|
|
(1,823
|
)
|
Principal repayments
|
|
|
(17,031
|
)
|
|
|
(19,998
|
)
|
|
|
(20,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
|
|
$
|
(7,811
|
)
|
|
$
|
(2,175
|
)
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and repayments
|
|
|
(209
|
)
|
|
|
(236
|
)
|
|
$
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease
|
|
$
|
(209
|
)
|
|
$
|
(236
|
)
|
|
$
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
12
Non-Performing Assets, Classified Assets, Loan Delinquencies and Defaults
When a borrower fails to make a required payment on a loan, Midland Federal attempts to cause the
deficiency to be cured by contacting the borrower. A notice is mailed to the borrower and late
charges are assessed after a payment is 30 days past due. Five days after the late notice is
mailed, the Loan Service Counselor/Collector will contact the borrower by telephone. After a
payment is 60 days past due, the Loan Service Counselor/Collector conducts a personal interview
with the borrower after which if the loan continues to be delinquent, it is referred to the Loan
Service Manager. After the 90th day of delinquency, Midland Federal institutes action to foreclose
on the property or to acquire it by deed in lieu of foreclosure. If foreclosed on, real property
is sold at a public sale and may be purchased by Midland Federal. A decision as to whether and
when to initiate foreclosure proceedings is based on such factors as the amount of the outstanding
loan in relation to the original indebtedness and the current value of the property, the extent of
delinquency and the borrowers ability and willingness to cooperate in curing delinquencies.
Generally, when a loan becomes delinquent 90 days or more, Midland Federal will place the loan on a
non-accrual status and, as a result, previously accrued interest income on the loan is taken out of
current income. Future interest income is recognized on a cash basis. The loan will remain on a
non-accrual status as long as the loan is 90 days delinquent, unless a repayment plan is being
followed.
13
The amounts presented represent the total remaining principal balances of the related loans, rather
than actual payment amounts which are overdue and are reflected as a percentage of total loans.
The following table sets forth information concerning delinquent mortgage and other loans at June
30, 2007 and June 30, 2006. The balances included in the table do not reflect specific reserves.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007
|
|
|
|
Loans Delinquent For:
|
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90 days and over
|
|
|
Total
|
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
11
|
|
|
$
|
918
|
|
|
|
1.15
|
%
|
|
|
2
|
|
|
$
|
128
|
|
|
|
0.16
|
%
|
|
|
4
|
|
|
$
|
484
|
|
|
|
0.61
|
%
|
|
|
17
|
|
|
$
|
1,530
|
|
|
|
1.92
|
%
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
4
|
|
|
|
27
|
|
|
|
3.67
|
%
|
|
|
4
|
|
|
|
27
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11
|
|
|
$
|
918
|
|
|
|
1.08
|
%
|
|
|
2
|
|
|
$
|
128
|
|
|
|
0.15
|
%
|
|
|
8
|
|
|
$
|
511
|
|
|
|
0.60
|
%
|
|
|
21
|
|
|
$
|
1,557
|
|
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006
|
|
|
|
Loans Delinquent For:
|
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90 days and over
|
|
|
Total
|
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
12
|
|
|
$
|
1,107
|
|
|
|
1.24
|
%
|
|
|
1
|
|
|
$
|
50
|
|
|
|
0.05
|
%
|
|
|
4
|
|
|
$
|
295
|
|
|
|
0.33
|
%
|
|
|
17
|
|
|
$
|
1,452
|
|
|
|
1.62
|
%
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
6
|
|
|
|
64
|
|
|
|
7.49
|
%
|
|
|
6
|
|
|
|
64
|
|
|
|
7.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12
|
|
|
$
|
1,107
|
|
|
|
1.19
|
%
|
|
|
1
|
|
|
$
|
50
|
|
|
|
0.05
|
%
|
|
|
10
|
|
|
$
|
359
|
|
|
|
0.39
|
%
|
|
|
23
|
|
|
$
|
1,516
|
|
|
|
1.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The table below sets forth the amounts and categories of non-performing assets in Midland
Federals loan 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. For all
of the indicated periods, the Company had no accruing loans 90 or more days delinquent. Foreclosed
assets include assets acquired in settlement of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in Thousands)
|
|
|
Non-Accruing Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
485
|
|
|
$
|
295
|
|
|
$
|
316
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
26
|
|
|
|
32
|
|
|
|
64
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
|
511
|
|
|
|
327
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
511
|
|
|
$
|
327
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as a percentage of total assets
|
|
|
0.41
|
%
|
|
|
0.25
|
%
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007, non-accruing one-to-four family loans totaled $485,000 and consisted of
four loans secured by properties located in Midland Federals primary market area.
For the fiscal year ended June 30, 2007, gross interest income which would have been recorded
had the non-accruing loans been current in accordance with their original terms amounted to
$15,900, which interest income was not accrued into interest income for the fiscal year ended June
30, 2007.
As of June 30, 2007, there were no other loans not included in the table or discussed above
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.
Classified Assets
. Federal regulations require that each savings institution classify its own
assets on a regular basis. In addition, in connection with examinations of savings institutions,
OTS and Federal Deposit Insurance Corporation examiners have authority to identify problem assets
and, if appropriate, require them to be classified. There are three classifications for problem
assets: substandard, doubtful or loss. An asset is considered substandard if it is
inadequately protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by the distinct
possibility that the savings association will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets
15
classified as loss are those considered uncollectible and of such little value that their
continuance as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not currently expose the savings association to sufficient risk to warrant
classification in one of the aforementioned categories, but possess weaknesses, are required to be
designated special mention by management.
When a savings association classifies problem assets as either substandard or doubtful, it may
establish general allowances for loan losses in an amount deemed prudent by management. General
allowances represent loss allowances which have been established to recognize the inherent risk
associated with lending activities, but unlike specific allowances, have not been allocated to
particular problem assets. When a savings association classifies problem assets as a loss, it is
required either to establish a specific allowance for losses equal to 100% of that portion of the
asset so classified or to charge-off such amount. An associations determination as to the
classification of its assets and the amount of its valuation allowances is subject to review by the
OTS which may order the establishment of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in accordance with its
classification of assets policy, Midland Federal regularly reviews the assets in its portfolio to
determine whether any assets require classification in accordance with applicable regulations. On
the basis of managements review of its assets, at June 30, 2007, Midland Federal had classified a
total of $713,000 of its assets as substandard, none as doubtful, none as loss and $26,000 as
special mention.
Allowance for Losses on Loans and Real Estate
The allowance for loan losses is established through a provision for loan losses based on
managements evaluation of the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activity. Such evaluation, which includes a review of all loans where full
collectibility may not be reasonably assured, considers among other matters, the estimated fair
value of the underlying collateral, economic conditions, historical loan loss experience and other
factors that warrant recognition in providing for a loan loss allowance adequate to cover probable
accrued losses in the portfolio.
Midland Capitals allowance for loan losses increased by $4,000 to $420,000 at June 30, 2007
from $416,000 at the prior fiscal year end. At fiscal year end, the $420,000 in general allowance
for loan losses was determined by Midland Capital to be consistent with its policy for the
establishment and maintenance of adequate levels of general loan loss allowances. The $4,000
increase in loan loss allowances was the result of net loan recoveries. Although management
believes that it uses the best information available to determine the allowances, unforeseen market
conditions could result in adjustments and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in making the final determination.
Future additions to Midland Federals allowances will be the result of periodic loan, property and
collateral reviews and thus cannot be predicted in advance. At June 30, 2007 Midland Federal had a
total allowance for losses on loans of $420,000 or 0.49% of total loans. See Note 4 of the Notes
to Financial Statements in the Annual Report to Stockholders filed as Exhibit 13 hereto.
16
The following table sets forth an analysis of Midland Federals allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in Thousands)
|
|
|
Balance at beginning of period
|
|
$
|
416
|
|
|
$
|
457
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
2
|
|
|
|
43
|
|
|
|
3
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
2
|
|
|
|
43
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
4
|
|
|
|
(41
|
)
|
|
|
(3
|
)
|
Additions charged to operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
420
|
|
|
$
|
416
|
|
|
$
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the year to
average loans outstanding during the period
|
|
|
|
%
|
|
|
0.04
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the year to
average non-performing assets
|
|
|
|
%
|
|
|
13.35
|
%
|
|
|
1.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing loans
|
|
|
82.22
|
%
|
|
|
127.27
|
%
|
|
|
120.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
0.49
|
%
|
|
|
0.45
|
%
|
|
|
0.48
|
%
|
17
The following table presents the portions of the allowance for loan losses applicable to each
loan category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
Loans in
|
|
|
|
|
|
|
Loans in
|
|
|
|
|
|
|
Loans in
|
|
|
|
|
|
|
|
Each
|
|
|
|
|
|
|
Each
|
|
|
|
|
|
|
Each
|
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
to Total
|
|
|
|
|
|
|
Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
One- to four-family
|
|
$
|
186
|
|
|
|
95.09
|
%
|
|
$
|
140
|
|
|
|
96.46
|
%
|
|
$
|
154
|
|
|
|
96.72
|
%
|
Multi-family
|
|
|
3
|
|
|
|
1.90
|
|
|
|
3
|
|
|
|
1.77
|
|
|
|
2
|
|
|
|
1.19
|
|
Non-residential
|
|
|
4
|
|
|
|
2.17
|
|
|
|
2
|
|
|
|
0.81
|
|
|
|
2
|
|
|
|
0.85
|
|
Consumer
|
|
|
3
|
|
|
|
0.83
|
|
|
|
3
|
|
|
|
0.92
|
|
|
|
4
|
|
|
|
1.22
|
|
Commercial business
|
|
|
|
|
|
|
0.01
|
|
|
|
1
|
|
|
|
0.04
|
|
|
|
|
|
|
|
0.02
|
|
Unallocated
|
|
|
224
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
420
|
|
|
|
100.00
|
%
|
|
$
|
416
|
|
|
|
100.00
|
%
|
|
$
|
457
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
As a part of its asset/liability management strategy, its liquidity policy, and as a response
to a high level of competition for loans and low level of loan demand in parts of Midland Federals
market area, Midland Federal invests in various types of liquid assets, short and medium term
government securities as well as smaller amounts of other assets.
At June 30, 2007, Midland Federals interest-bearing deposits in other financial institutions
totaled $11.2 million, or 9.0% of its total assets, and investment securities totaled $21.0
million, or 16.8% of its total assets. As of such date, Midland Federal also had a $1.1 million
investment in the common stock of the FHLB of Chicago in order to satisfy the requirement for
membership in this institution. At June 30, 2007, the average term to maturity or repricing of the
investment securities portfolio was approximately 7.9 months due to the large balance of short-term
U.S. Treasury Bills.
18
The following table sets forth the composition of Midland Federals investment portfolio at
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
$
|
21,020
|
|
|
$
|
21,020
|
|
|
$
|
20,821
|
|
|
$
|
21,022
|
|
|
$
|
983
|
|
|
$
|
1,311
|
|
FHLB Chicago stock
|
|
|
1,148
|
|
|
|
1,148
|
|
|
|
1,148
|
|
|
|
1,148
|
|
|
|
1,124
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
22,168
|
|
|
$
|
22,168
|
|
|
$
|
21,969
|
|
|
$
|
22,170
|
|
|
$
|
2,107
|
|
|
$
|
2,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB daily investment
|
|
$
|
6,234
|
|
|
$
|
6,234
|
|
|
$
|
3,488
|
|
|
$
|
3,488
|
|
|
$
|
3,909
|
|
|
$
|
3,909
|
|
Other daily investments
|
|
|
4,998
|
|
|
|
4,998
|
|
|
|
5,567
|
|
|
|
5,567
|
|
|
|
30,160
|
|
|
|
30,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
11,232
|
|
|
$
|
11,232
|
|
|
$
|
9,055
|
|
|
$
|
9,055
|
|
|
$
|
34,069
|
|
|
$
|
34,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition and maturities of the investment securities portfolio, excluding FHLB of
Chicago stock, are indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
|
1 Year or
|
|
|
1 to 5
|
|
|
Over 10
|
|
|
Total Investment
|
|
|
|
Less
|
|
|
Years
|
|
|
Years
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Book
|
|
|
Book
|
|
|
Book
|
|
|
Book
|
|
|
Fair
|
|
|
Average
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Yield
|
|
|
|
(Dollars in Thousands)
|
|
U.S. government securities
|
|
$
|
19,841
|
|
|
$
|
|
|
|
$
|
1,179
|
|
|
$
|
21,020
|
|
|
$
|
21,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,841
|
|
|
$
|
|
|
|
$
|
1,179
|
|
|
$
|
21,020
|
|
|
$
|
21,020
|
|
|
|
5.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds
General
. Deposit accounts have traditionally been the principal source of Midland Federals
funds for use in lending and for other general business purposes. In addition to deposits, Midland
Federal derives funds from loan repayments and cash flows generated from operations. Scheduled
loan payments are a relatively stable source of funds, while deposit inflows and outflows and the
related cost of such funds have varied. Borrowings may be used on a short-term basis to compensate
for seasonal reductions in deposits or deposit inflows at less than projected levels and may be
used on a longer term basis to support expanded lending activities.
Deposits
. Midland Federal attracts principally short-term and intermediate-term deposits from
Midland Federals primary market area. Midland Federal offers regular passbook accounts, NOW
accounts, money market deposit accounts, fixed interest rate certificates of deposit with varying
maturities and rates including certificates of deposit with balances in excess of $100,000.
19
Deposit account terms vary, according to the minimum balance required, the time period the
funds must remain on deposit and the interest rate, among other factors. Midland Federal has not
actively sought deposits outside of its primary market area.
The flow of deposits is influenced significantly by general economic conditions, changes in
money market and prevailing interest rates, competition and Midland Federals pricing policies and
capital requirements. Midland Federal regularly evaluates the internal cost of funds, surveys
rates offered by competing institutions, reviews its cash flow requirements for liquidity and
executes rate changes when deemed appropriate.
Midland Federal has utilized high quality service and promotion in an attempt to attract and
retain passbook and transaction accounts. Midland Federal believes that some of these accounts may
be somewhat less interest rate sensitive and, in certain interest rate environments, carry lower
interest charges than certificate accounts. While there are costs associated with offering
transaction accounts, Midland Federal believes that the fee income and enhanced spread outweigh any
additional administrative expense. Midland Federal does not have any brokered deposits and has no
present intention to accept or solicit such deposits.
The following table sets forth the savings flows at Midland Federal during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in Thousands)
|
|
Opening balance
|
|
$
|
115,971
|
|
|
$
|
124,836
|
|
|
$
|
140,437
|
|
Deposits
|
|
|
313,331
|
|
|
|
353,793
|
|
|
|
380,517
|
|
Withdrawals
|
|
|
(321,479
|
)
|
|
|
(364,207
|
)
|
|
|
(397,415
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance before interest credited
|
|
|
107,823
|
|
|
|
114,422
|
|
|
|
123,539
|
|
Interest credited
|
|
|
1,922
|
|
|
|
1,549
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
109,745
|
|
|
$
|
115,971
|
|
|
$
|
124,836
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease
|
|
$
|
(6,226
|
)
|
|
$
|
(8,865
|
)
|
|
$
|
(15,601
|
)
|
|
|
|
|
|
|
|
|
|
|
Percent decrease
|
|
|
(5.37
|
)%
|
|
|
(7.10
|
)%
|
|
|
(11.11
|
)%
|
|
|
|
|
|
|
|
|
|
|
20
The following table sets forth the dollar amount of savings deposits in the various types of
deposit programs offered by Midland Federal at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Percent of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
Passbook accounts
|
|
$
|
43,694
|
|
|
|
39.81
|
%
|
|
$
|
48,439
|
|
|
|
41.77
|
%
|
|
$
|
52,859
|
|
|
|
42.34
|
%
|
NOW accounts
|
|
|
10,032
|
|
|
|
9.14
|
|
|
|
10,855
|
|
|
|
9.36
|
|
|
|
12,029
|
|
|
|
9.64
|
|
Money market accounts
|
|
|
3,751
|
|
|
|
3.42
|
|
|
|
5,106
|
|
|
|
4.40
|
|
|
|
6,108
|
|
|
|
4.89
|
|
Non-interest bearing deposits
|
|
|
9,971
|
|
|
|
9.09
|
|
|
|
11,783
|
|
|
|
10.16
|
|
|
|
13,528
|
|
|
|
10.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-certificates
|
|
|
67,448
|
|
|
|
61.46
|
|
|
|
76,183
|
|
|
|
65.69
|
|
|
|
84,524
|
|
|
|
67.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.01 2.00%
|
|
|
|
|
|
|
|
|
|
|
818
|
|
|
|
0.70
|
|
|
|
14,589
|
|
|
|
11.68
|
|
2.01 3.00%
|
|
|
2,142
|
|
|
|
1.95
|
|
|
|
8,212
|
|
|
|
7.08
|
|
|
|
23,220
|
|
|
|
18.60
|
|
3.01 4.00%
|
|
|
20,536
|
|
|
|
18.71
|
|
|
|
21,533
|
|
|
|
18.57
|
|
|
|
2,503
|
|
|
|
2.01
|
|
4.01 5.00%
|
|
|
5,961
|
|
|
|
5.43
|
|
|
|
6,768
|
|
|
|
5.84
|
|
|
|
|
|
|
|
|
|
5.01 6.00%
|
|
|
13,658
|
|
|
|
12.45
|
|
|
|
2,457
|
|
|
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates
|
|
|
42,297
|
|
|
|
38.54
|
|
|
|
39,788
|
|
|
|
34.31
|
|
|
|
40,312
|
|
|
|
32.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
109,745
|
|
|
|
100.00
|
%
|
|
$
|
115,971
|
|
|
|
100.00
|
%
|
|
$
|
124,836
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table shows rate and maturity information for Midland Federals time deposits as
of June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01-
|
|
|
3.01-
|
|
|
4.01-
|
|
|
5.01-
|
|
|
|
|
|
|
Percent of
|
|
|
|
3.00%
|
|
|
4.00%
|
|
|
5.00%
|
|
|
6.00%
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate
Accounts Maturing
in Quarter Ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
$
|
1,643
|
|
|
$
|
5,425
|
|
|
|
1,802
|
|
|
|
4,860
|
|
|
$
|
13,730
|
|
|
|
32.46
|
%
|
December 31, 2007
|
|
|
499
|
|
|
|
7,229
|
|
|
|
2,197
|
|
|
|
2,895
|
|
|
|
12,820
|
|
|
|
30.31
|
|
March 31, 2008
|
|
|
|
|
|
|
2,932
|
|
|
|
1,203
|
|
|
|
3,132
|
|
|
|
7,267
|
|
|
|
17.18
|
|
June 30, 2008
|
|
|
|
|
|
|
1,846
|
|
|
|
286
|
|
|
|
2,305
|
|
|
|
4,437
|
|
|
|
10.49
|
|
September 30, 2008
|
|
|
|
|
|
|
695
|
|
|
|
102
|
|
|
|
142
|
|
|
|
939
|
|
|
|
2.22
|
|
December 31, 2008
|
|
|
|
|
|
|
754
|
|
|
|
207
|
|
|
|
109
|
|
|
|
1,070
|
|
|
|
2.53
|
|
March 31, 2009
|
|
|
|
|
|
|
684
|
|
|
|
149
|
|
|
|
32
|
|
|
|
865
|
|
|
|
2.05
|
|
June 30, 2009
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
183
|
|
|
|
664
|
|
|
|
1.57
|
|
September 30, 2009
|
|
|
|
|
|
|
292
|
|
|
|
15
|
|
|
|
|
|
|
|
307
|
|
|
|
0.72
|
|
December 31, 2009
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,142
|
|
|
$
|
20,536
|
|
|
|
5,961
|
|
|
|
13,658
|
|
|
$
|
42,297
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
|
5.07
|
|
|
|
48.55
|
|
|
|
14.09
|
|
|
|
32.29
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates the amount of Midland Federals certificates of deposit and
other deposits by time remaining until maturity as of June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
|
|
|
|
|
Over
|
|
|
Over
|
|
|
Over
|
|
|
|
|
|
|
3 Months
|
|
|
3 to 6
|
|
|
6 to 12
|
|
|
12
|
|
|
|
|
|
|
or Less
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit less than $100,000
|
|
$
|
10,221
|
|
|
$
|
9,070
|
|
|
$
|
9,697
|
|
|
$
|
2,408
|
|
|
$
|
31,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit of $100,000 or more
|
|
|
3,509
|
|
|
|
3,750
|
|
|
|
2,007
|
|
|
|
1,635
|
|
|
|
10,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit
|
|
$
|
13,730
|
|
|
$
|
12,820
|
|
|
$
|
11,704
|
|
|
$
|
4,043
|
|
|
$
|
42,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
Midland Federals other available sources of funds include advances from the Federal Home Loan
Bank (FHLB) of Chicago and collateralized borrowings. As a member of the FHLB of Chicago,
Midland Federal is required to own capital stock in the FHLB of Chicago and is authorized to apply
for advances from the FHLB of Chicago. Each FHLB credit program has its own interest rate, which
may be fixed or variable, and range of maturities. The FHLB of Chicago may prescribe the
acceptable uses for these advances, as well as limitations on the size of the advances and
repayment provisions. Midland Federal has not had significant borrowings in recent years.
22
Competition
Midland Federal faces strong competition in originating loans and in attracting deposits.
Competition in originating loans comes primarily from other thrift institutions, commercial banks
and mortgage bankers which make loans secured by real estate located in Midland Federals primary
market area. Midland Federal competes for loans principally on the basis of the interest rates and
loan fees it charges, the types of loans it originates and the quality of service it provides to
borrowers.
Midland Federal faces substantial competition in attracting deposits from other thrift
institutions, commercial banks, money market and mutual funds, credit unions and other investment
vehicles. The ability of Midland Federal to attract and retain deposits depends on its ability to
provide an investment opportunity that satisfies the requirements of investors as to rate of
return, liquidity, risk and other factors. Midland Federal competes for these deposits by offering
a variety of deposit accounts at competitive rates and convenient business hours. Midland Federal
estimates its share of deposits in its primary market area to be less than 3%.
Service Corporation
Federal associations generally may invest up to 2% of their assets in service corporations,
plus an additional 1% of assets if for community purposes. In addition, federal associations may
invest up to 50% of their regulatory capital in conforming loans to their service corporations. In
addition to investments in service corporations, federal associations are permitted to invest an
unlimited amount in operating subsidiaries engaged solely in activities which a federal association
may engage in directly.
Midland Federal has one service corporation, Midland Federal Service Corporation, located in
Bridgeview, Illinois, which was organized to act as a holding company for Midland Federals other
subsidiaries. At June 30, 2007, Midland Federals equity investment in Midland Federal Service
Corporation was approximately $242,000. During fiscal 2007, Midland Federal Service Corporation
recorded a loss of $3,000.
Midland Federal Service Corporation owns Midland Insurance Services, Inc., an insurance agency
which provides insurance products to customers of Midland Federal and to members of the general
public in Midland Federals market area. Insurance products offered by this agency, include credit
life, health, homeowners and disability. Midland Insurance Services, Inc. had a loss of $3,000
for the 2007 fiscal year, all of which is included in the Midland Federal Service Corporation
income amounts reported above.
REGULATION
General
. Midland Federal is a federally chartered savings and loan association, the deposits
of which are federally insured and backed by the full faith and credit of the U. S. government.
Accordingly, Midland Federal is subject to broad federal regulation and oversight extending to all
its operations. Midland Federal is a member of the FHLB of Chicago and is subject to certain
limited
23
regulation by the Board of Governors of the Federal Reserve System (Federal Reserve
Board). Midland Federal is a member of the Deposit Insurance Fund (DIF) which is the deposit
insurance fund administered by the FDIC, and the deposits of Midland Federal are insured by the
FDIC. As a result, the FDIC has certain regulatory and examination authority over Midland Federal.
Midland Federals primary federal regulator is the OTS.
Certain of these regulatory requirements and restrictions are discussed below or elsewhere in
this document.
Federal Regulation of Savings Associations
. The OTS has extensive authority over the
operations of savings associations. As part of this authority, Midland Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS. When these
examinations are conducted, the examiners may require Midland Federal to provide for higher general
or specific loan loss reserves. Midland Federal is also subject to back-up examination by the
FDIC.
All savings associations are subject to an OTS assessment, based upon the savings
associations total assets which are payable semi-annually. The OTS also has extensive enforcement
authority over all savings institutions. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound banking practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS
is required.
In addition, the investment and lending authority of Midland Federal is prescribed by federal
laws and regulations, and it is prohibited from engaging in any activities not permitted by such
laws and regulations. For instance no savings association may invest in corporate debt securities
not rated in one of the four highest rating categories by a nationally recognized rating
organization. Further, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of regulatory capital, except with
approval of the OTS. Midland Federal is in compliance with each of these restrictions.
Midland Federals permissible lending limit for loans-to-one-borrower is equal to the greater
of $500,000 or 15% of capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of capital and surplus). At
June 30, 2007, Midland Federals lending limit under this restriction was $1.7 million. Midland
Federal is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted guidelines establishing
safety and soundness standards on such matters as loan underwriting and documentation, asset
quality, internal controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these standards must submit a
capital compliance plan. A failure to submit a plan or to comply with an approved plan will
subject the institution to further enforcement action.
24
Insurance of Accounts and Regulation by the FDIC
. Deposit accounts at Midland Federal are
insured by the DIF of the FDIC. Midland Federals deposits, therefore, are subject to FDIC deposit
insurance assessments and the FDIC has adopted a risk-based system for determining deposit
insurance assessments. Under this system, FDIC-insured depository institutions pay insurance
premiums at rates based on their risk classification. Institutions assigned to higher risk
classifications (that is, institutions that pose a higher risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a lower risk. An
institutions risk classification is assigned based on its capital levels and the level of
supervisory concern the institution poses to the regulators. In addition, the FDIC can impose
special assessments in certain instances. The FDIC may terminate its insurance of deposits if it
finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC. An institutions deposit insurance assessments may increase or
decrease depending on the risk assessment classification to which it is assigned by the FDIC. Any
increase in insurance assessments could have an adverse effect on Midland Federals earnings.
Regulatory Capital Requirements
. Federally insured savings associations, such as Midland
Federal, are required to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as
defined by regulation). Tangible capital generally includes common stockholders equity and
retained income, and certain noncumulative perpetual preferred stock and related income. In
addition, all intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with the requirement.
Further, any unrealized holding gains or losses, net of income taxes, on securities classified as
available for sale in accordance with SFAS No. 115 are excluded from regulatory capital
calculations. At June 30, 2007, Midland Federal had deductible retained mortgage servicing assets
and an unrealized gain, net of tax, under SFAS No. 115 in the amount of $214,000.
The OTS regulations establish special capitalization requirements for savings associations
that own subsidiaries. In determining compliance with the capital requirements, all subsidiaries
engaged solely in activities permissible for national banks or engaged in certain other activities
solely as agent for its customers are includable subsidiaries that are consolidated for capital
purposes in proportion to Midland Federals level of ownership. For excludable subsidiaries the
debt and equity investments in such subsidiaries are deducted from assets and capital.
At June 30, 2007, Midland Federal had tangible capital of $11.1 million, or 8.85% of adjusted
total assets, which is approximately $9.2 million above the minimum requirement of 1.5% of adjusted
total assets in effect on that date.
25
The capital standards also require core capital or Tier 1 Capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally consists of tangible
capital plus certain intangible assets, including supervisory goodwill and a limited amount of
purchased credit card relationships and purchased mortgage servicing rights. As a result of the
prompt corrective action provisions, discussed below, a savings association must maintain a core
capital ratio of at least 4% to be considered adequately capitalized unless its supervisory
condition is such so as to allow it to maintain a 3% ratio. At June 30, 2007, Midland Federal had
retained mortgage servicing assets which were subject to these tests.
At June 30, 2007, Midland Federal had core capital equal to $11.1 million, or 8.85% of
adjusted total assets, which is $7.3 million above the minimum leverage ratio requirement of 3% in
effect on that date. In addition, on such date Midland Federal had Tier 1 Risked-Based Capital
equal to $11.1 million or 20.44% of Risk-Weighted Assets, which is $8.9 million above the
requirement of 4% on effect on that date.
The OTS risk-based requirement requires savings associations to have total capital of at least
8% of risk-weighted assets. Total capital consists of core capital, as defined above and
supplementary capital. Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and lease loss
allowances up to a maximum of 1.25% of risk-weighted assets and up to 45% of pretax unrealized
gains, net of unrealized losses, on available for sale equity securities. Supplementary capital
may be used to satisfy the risk-based requirement only to the extent of core capital. At June 30,
2007, Midland Federal had no capital instruments that qualify as supplementary capital, $420,000 of
general loss reserves, which was less than 1.25% of risk-weighted assets and $47,000 of allowable
pretax net unrealized gains on available for sale equity securities.
Certain exclusions from capital and assets are required to be made for the purpose of
calculating total capital. Such exclusions consist of equity investments (as defined by
regulation) and that portion of land loans and nonresidential construction loans in excess of an
80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. There were
$1,000 in equity investments at June 30, 2007.
In determining the amount of risk-weighted assets, all assets, including certain off-balance
sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk
inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for
prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90
days delinquent and having a loan-to-value ratio of not more than 80% at origination unless the
loan amount in excess of such ratio is insured by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more than normal interest
rate risk exposure to deduct from its total capital, for purposes of determining compliance with
such requirement, an amount equal to 50% of its interest-rate risk exposure multiplied by the
present value of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value of its assets, based
upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a
greater decline). Net portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule will not become effective until the
OTS evaluates the process by which
26
savings associations may appeal an interest rate risk deduction determination. It is
uncertain as to when this evaluation may be completed. Any savings association with less than $300
million in assets and a total capital ratio in excess of 12% is exempt from this requirement unless
the OTS determines otherwise.
On June 30, 2007, Midland Federal had total capital of $11.6 million (including $11.1 million
in core capital and $420,000 of qualifying general loss reserves) and risk-weighted assets of $54.3
million or total capital of 21.30% of risk-weighted assets. This amount was $7.2 million above the
8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances required, to take certain
actions against associations that fail to meet their capital requirements. The OTS is generally
required to take action to restrict the activities of an undercapitalized association (generally
defined to be one with less than either a 4% core ratio, a 4% Tier 1 risk based capital ratio, a
Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such association must
submit a capital restoration plan and until such plan is approved by the OTS may not increase its
assets, acquire another institution, establish a branch or engage in any new activities, and
generally may not make capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
Any savings association that fails to comply with its capital plan or is significantly
undercapitalized (i.e., Tier 1 or Tier 1 risk-based or core capital ratios of less than 3% or a
risk-based capital ratio of less than 6%) must be subject to one or more of additional specified
actions and operating restrictions, which may cover all aspects of its operations and include a
forced merger or acquisition of Midland Federal.
An association that becomes critically undercapitalized (i.e., a tangible capital ratio of
2% or less) is subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS must appoint a
receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain
limited exceptions, within 90 days after it becomes critically undercapitalized. Any
undercapitalized association is also subject to the general enforcement activity of the OTS and the
FDIC, including the appointment of a receiver or conservator.
The imposition by the OTS or the FDIC of any of these measures on Midland Federal may have a
substantial adverse effect on Midland Federals operations and profitability and the value of its
stock. If the OTS or the FDIC require an association such as Midland Federal, to raise additional
capital through the issuance of stock or other capital instruments such issuance may result in the
dilution in the percentage of ownership of Midland Federal.
Limitations on Dividends and Other Capital Distributions
. OTS regulations impose various
restrictions on savings associations with respect to their ability to make distributions of
capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a savings association
from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the
regulatory capital of Midland Federal would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock conversion.
27
Generally, savings associations, such as Midland Federal, that before and after the proposed
distribution remain well-capitalized, may make capital distributions during any calendar year equal
to 100% of net income for the year-to-date plus retained net income for the two preceding years
that is available for dividend. However, an institution deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS. Midland Federal may
pay dividends in accordance with this general authority.
Any savings association that is a subsidiary of a holding company and proposes to make any
capital distribution need only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum capital requirements
following a proposed capital distribution, however, must obtain OTS approval prior to making such
distribution. The OTS may object to the distribution during that 30-day notice period based on
supervisory concerns. See Regulatory Capital Requirements.
Accounting
. An OTS policy statement applicable to all savings associations clarifies and
re-emphasizes that the investment activities of a savings association must be in compliance with
approved and documented investment policies and strategies, and must be accounted for in accordance
with GAAP. Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held for investment, sale or trading) with
appropriate documentation.
OTS accounting regulations, which may be made more stringent than GAAP, require that
transactions be reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting regulations or
orders prescribed by the OTS. Midland Federal is in compliance with these rules.
Qualified Thrift Lender Test
. All savings associations, including Midland Federal, are
required to meet a qualified thrift lender test to avoid certain restrictions on their operations.
This test requires a savings association to have at least 65% of its portfolio assets (as defined
by regulation) in qualified thrift investments for nine out of every 12 months on a rolling basis.
As an alternative, the savings association may maintain 60% of its assets in those assets specified
in Section 7701(a)(19) of the 1986 Internal Revenue Code, as amended. Under either test, such
assets primarily consist of residential housing related loans and investments. At June 30, 2007
Midland Federal was in compliance with the test.
Any savings association that fails to meet the QTL test must convert to a national bank
charter, unless it requalifies as a QTL and thereafter remains a QTL. If an association that fails
the test has not yet requalified and has not converted to a national bank, its new investments and
activities are limited to those permissible for both a savings association and a national bank, and
it is limited to national bank branching rights in its home state. In addition, Midland Federal is
immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits
for payment of dividends. If such association has not requalified or converted to a national bank
within three years after the failure, it must divest all investments and cease all activities not
permissible for a national bank.
28
Community Reinvestment Act
. Under the Community Reinvestment Act, every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and sound banking
practices to help meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institutions discretion to develop the types of products and
services that it believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with the examination of Midland Federal, to assess the
institutions record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a merger or the establishment of a
branch, by Midland Federal. An unsatisfactory rating may be used as the basis for the denial of an
application such as a branch or merger application by the OTS.
Due to the heightened attention being given to the CRA in the past few years, Midland Federal
may be required to devote additional funds for investment and lending in its local community.
Midland Federal was last examined for CRA compliance in 2007 and received a rating of
satisfactory.
Transactions with Affiliates and Insiders
. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms as favorable to
Midland Federal as transactions with non-affiliates. In addition, certain of these transactions
are restricted to a percentage of Midland Federals capital. Affiliates of Midland Federal include
any company which is under common control with Midland Federal as well as Midland Federals parent
holding company. In addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities of most affiliates.
Midland Federals subsidiaries are not deemed affiliates. However, the OTS has the discretion to
treat subsidiaries as affiliates on a case-by-case basis.
Certain transactions with directors, officers or controlling persons are also subject to
regulations enforced by the OTS. These regulations impose restrictions on loans to such persons
and their related interests. Among other things, such loans must be made on terms substantially
the same as for loans to unaffiliated persons.
Anti-Money Laundering
. For years, FDIC insured institutions, such as Midland Federal, have
been required to establish anti-money laundering programs. In 2001, the USA PATRIOT Act was
enacted. This Act significantly enhanced the powers of the federal government and law enforcement
organizations to combat terrorism, organized crime and money laundering. While the Act imposed
additional anti-money laundering requirements on FDIC insured institutions, these additional
requirements are not material to Midland Federals operations.
Aside from the above, the Act also requires the federal banking regulators to assess the
effectiveness of an institutions anti-money laundering program in connection with merger and
acquisition transactions. Failure to maintain an effective anti-money laundering program is
grounds for the denial of merger or acquisition transactions.
Holding Company Regulation
Midland Capital is a grandfathered unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, Midland Capital is required to register and file reports
with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over Midland Capital and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
29
As a grandfathered unitary savings and loan holding company, Midland Capital generally is not
subject to activity restrictions. If Midland Capital acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and loan holding company,
and the activities of Midland Capital and any of its subsidiaries (other than Midland Federal or
any other FDIC-insured savings association) would become subject to such restrictions unless such
other associations each qualify as a QTL and were acquired in a supervisory acquisition.
If Midland Federal fails the QTL test, Midland Capital must obtain the approval of the OTS
prior to continuing after such failure, directly or through its other subsidiaries, any business
activity other than those approved for multiple savings and loan holding companies or their
subsidiaries. In addition, within one year of such failure Midland Capital must register as, and
will become subject to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities authorized for a
unitary or multiple savings and loan holding company. See - Qualified Thrift Lender Test.
Midland Capital must obtain approval from the OTS before acquiring control of any other
FDIC-insured association. Such acquisitions are generally prohibited if they result in a multiple
savings and loan holding company controlling savings associations in more than one state. However,
such interstate acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
Federal Securities Law
. The stock of Midland Capital is registered with the SEC under the
Securities Exchange Act of 1934, as amended. Midland Capital is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC under the Exchange
Act.
Midland Capital stock held by persons who are affiliates (generally officers, directors and
principal stockholders) of Midland Capital may not be resold without registration or unless sold in
accordance with certain resale restrictions. If Midland Capital meets specified current public
information requirements, each affiliate of Midland Capital is able to sell in the public market,
without registration, a limited number of shares in any three-month period.
Federal Reserve System
. The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts) and non-personal time deposits. At June
30, 2006 Midland Federal was in compliance with these reserve requirements.
Savings associations are authorized to borrow from the Federal Reserve Bank discount window,
but Federal Reserve Board regulations require associations to exhaust other reasonable alternative
sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Bank.
30
Federal Home Loan Bank System
. Midland Federal is a member of the FHLB of Chicago which is
one of 12 regional FHLBs that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and
procedures established by the board of directors of the FHLB. These policies and procedures are
subject to the regulation and oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In
addition, all long-term advances are required to provide funds for residential home financing.
While a member of the FHLB of Chicago at June 30, 2007, Midland Federal had not entered into a
credit arrangement with the FHLB of Chicago and, as such, could not obtain funds from the FHLB of
Chicago.
As a member, Midland Federal is required to purchase and maintain stock in the FHLB of
Chicago. At June 30, 2007 Midland Federal had $1.1 million in FHLB stock, which was in compliance
with this requirement. In past years, Midland Federal has received substantial dividends on its
FHLB stock. Over the past five calendar years the dividend rate averaged 5.13% and was 3.075% for
calendar year 2006.
Under federal law, the FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to low and moderately priced housing programs through direct
loans or interest subsidies on advances targeted for community investment and low and moderate
income housing projects. These contributions have affected adversely the level of FHLB dividends
paid and could continue to do so in the future. These contributions could also have an adverse
effect on the value of FHLB stock in the future. A reduction in value of Midland Federals FHLB
stock may result in a corresponding reduction in its capital.
For the year ended June 30, 2007, dividends paid by the FHLB of Chicago to Midland Federal
totaled $35,000, which was a $7,000 decrease from the amount of dividends received in fiscal year
2006. The $8,000 dividend received in the quarter ended June 30, 2007 reflects an annualized rate
of 2.80%, or 0.275% below the rate for calendar year 2006.
Federal Taxation
. Savings institutions that met certain definitional tests relating to the
composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as
amended, had been permitted to establish reserves for bad debts and to make annual additions which
could, within specified formula limits, be taken as a deduction in computing taxable income for
federal income tax purposes. As a result of tax legislation enacted in 1996, the amount of the bad
debt reserve deduction is now computed under the experience method.
In addition to the regular income tax, corporations, including savings institutions generally
are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20%
on alternative minimum taxable income, which is the sum of a corporations regular taxable
income (with certain adjustments) and tax preference items, less any available exemption. The
alternative minimum tax is imposed to the extent it exceeds the corporations regular income tax
and net operating losses can offset no more than 90% of alternative minimum taxable income.
31
To the extent earnings appropriated to a savings institutions bad debt reserves for
qualifying real property loans and deducted for federal income tax purposes exceed the allowable
amount of such reserves computed under the experience method and to the extent of the institutions
supplemental reserves for losses on loans, such excess may not, without adverse tax consequences,
be utilized for the payment of cash dividends or other distributions to a shareholder (including
distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb
bad debt losses). As of June 30, 2007, Midland Federals excess for tax purposes totaled
approximately $1.2 million.
Midland Capital and its subsidiaries file consolidated federal income tax returns on a fiscal
year basis using the accrual method of accounting.
Midland Capital and its consolidated subsidiaries have never been audited by the IRS with
respect to federal income tax returns. The statute of limitations has passed for tax years ending
on or prior to June 30, 2004, for Midland Capital and its consolidated subsidiaries.
Illinois Taxation
. Midland Capital and its subsidiaries file separate Illinois income tax
returns. For Illinois income tax purposes, Midland Capital and its subsidiaries are taxed at an
effective rate equal to 7.30% of Illinois taxable income. For these purposes, Illinois Taxable
Income generally means federal taxable income, subject to certain adjustments (including the
addition of interest income on state and municipal obligations and the exclusion of interest income
on United States Treasury obligations). The exclusion of income on United States Treasury
obligations has the effect of reducing significantly the Illinois taxable income of savings
associations.
Employees
At June 30, 2007, Midland Federal had a total of 36 full-time employees and 54 part-time
employees. None of Midland Federals employees are represented by any collective bargaining group.
Management considers its employee relations to be good.
Item 2. Description of Property
Offices
Midland Federal owns the building and land for its main office at 8929 South Harlem Avenue,
Bridgeview, Illinois. This office has 18,000 square feet and a net book value of $746,000 at June
30, 2007. Midland Federal also has an easement on land adjacent to its main office which expires
in the year 2078. Midland Federal also owns the building and land for its two branch offices in
Chicago at 4040 South Archer Avenue in Brighton Park and 2657 West 69th Street in Marquette Park
which have 2,000 and 2,500 square feet and $518,000 and $16,000 net book values at June 30, 2007,
respectively.
Midland Federal leases retail office space in Homer Glen, Illinois for a full service branch
banking facility that it established in April 1999. The net book value of remodeling and leasehold
improvements cost at this leased office facility was approximately $59,000 at June 30, 2007.
Midland Federal also owns a parcel of land contiguous to this office for future expansion which it
currently uses for a drive-up banking facility and parking with a net book value of $324,000 at
June 30, 2007.
32
In addition, Midland Federal owns three ATMs located at its Bridgeview, Chicago/Brighton Park
and Homer Glen offices.
Computer Equipment
Midland Federals recordkeeping activities are maintained on an on-line basis with an
independent service bureau. Midland Federals accounting and loan origination activities are
maintained on an in-house computer network. The net book value of Midland Federals computer
equipment at June 30, 2007 was $134,000.
Item 3. Legal Proceedings
Midland Federal is, from time to time, a defendant to certain lawsuits arising in the ordinary
course of its business. Midland Federal believes that there is no litigation pending which, if
adversely determined, would have a material adverse effect on its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the three months ended June 30, 2007.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Page 21 of the 2007 Annual Report to Stockholders is herein incorporated by reference.
Item 6. Managements Discussion and Analysis or Plan of Operation
Pages 6 through 21 of the 2007 Annual Report to Stockholders is herein incorporated by
reference.
Item 7. Financial Statements
Pages 22 through 45 of the 2007 Annual Report to Stockholders are herein incorporated by
reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no changes in or disagreements with Midland Federals accountants on
accounting and financial disclosure matters.
Item 8A. Controls and Procedures
The Company has adopted disclosure controls and procedures designed to facilitate the
Companys financial reporting. The disclosure controls currently consist of periodic
communications among the Chief Executive and Financial Officer and each department head to identify
any 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.
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.
33
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.
Item 8B. Other Information
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
Information concerning Directors of the Issuer is incorporated herein by reference from
Midland Capitals definitive proxy statement for the Annual Meeting of Stockholders, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by reference from Midland
Capitals definitive proxy statement for the Annual Meeting of Stockholders, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and management is
incorporated herein by reference from Midland Capitals definitive Proxy Statement for the Annual
Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of
the fiscal year.
34
The following table sets forth information with respect to securities to be issued under
Midland Capitals equity compensation plans as of June 30, 2007.
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(c)
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|
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Number of securities
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|
|
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remaining available
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(a)
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for future issuance
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Number of securities
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under equity
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|
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to be issued upon
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(b)
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compensation plans
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exercise of
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Weighted-average
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[excluding
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|
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outstanding
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exercise price of
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securities
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options, warrants and
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outstanding options,
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reflected in column
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Plan Category
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rights
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warrants and rights
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(a)]
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Equity compensation plans approved by
securities holders:
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1. 1993 Stock Option and Incentive Plan.
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1. None
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1. N/A
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1. 6,900
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2. Recognition and Retention Plan
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2. N/A
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2. N/A
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2. N/A
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Equity compensation plans not approved
by security holders
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N/A
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N/A
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N/A
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Total
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None
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N/A
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None
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(1)
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Information regarding these plans is set forth under Item 10 to this Report.
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(2)
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Awards under this plan consist of restricted stock.
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Item 12. Certain Relationships and Related Transactions
Information concerning relationships and transactions is incorporated herein by reference from
Midland Capitals definitive proxy statement for the Annual Meeting of Stockholders, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
35
PART IV
Item 13. Exhibits
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Reference to Prior
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Filing
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Regulation
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or Exhibit
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S-K Exhibit
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Number Attached
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Number
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Document
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Hereto
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2
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Plan of acquisition, reorganization, arrangement, liquid, or succession
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None
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3
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Articles of Incorporation and Bylaws
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**
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4
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Instruments defining the rights of security holders,
including indentures:
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Common Stock Certificate
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**
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9
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Voting trust agreement
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None
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10
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Material contracts:
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Employee Stock Ownership Plan
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**
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1993 Stock Option and Incentive Plan
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*
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Employment Agreements
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**
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Recognition and Retention Plan
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*
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401(k) Retirement/Savings Plan
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**
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11
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Statement re computation of per share earnings
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***
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13
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Annual Report to Security Holders
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13
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14
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Code of Ethics
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****
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16
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Letter on change in certifying accountant
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None
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18
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Letter on change in accounting principles
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None
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21
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Subsidiaries of Registrant
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21
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22
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Published report regarding matters submitted to vote of security holders
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None
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23
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Consent of Experts and Counsel
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None
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24
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Power of Attorney
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Not required
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31.1
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Certification of Paul M. Zogas pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934
|
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31.1
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32.1
|
|
Certification of Paul M. Zogas pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
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32.1
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*
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Filed on March 19, 1993 as an exhibit to Midland Federals Pre-Effective Amendment No. One
to the Form AC.
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**
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Filed on June 22, 1998 as exhibits to Midland Capitals Registration Statement No.
333-57399 on Form S-4. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
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***
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See Note 1 of the Notes to be Consolidated Financial Statements included in the Annual
Report under Exhibit 13.
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****
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Filed on September 28, 2004 as Exhibit 14 to Midland Capitals Annual Report on Form
10-QSB for the year ended June 30, 2004.
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36
Item 14. Principal Accountant Fees and Services
Information concerning principal accountant fees and services is incorporated herein by
reference from the Companys definitive Proxy Statement for the Annual Meeting of Stockholders to
be held in 2007, which will be filed not later than 120 days following the close of the fiscal year
end.
37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
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MIDLAND CAPITAL HOLDINGS CORPORATION
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Date: September 28, 2007
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By:
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/s/ Paul M. Zogas
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Paul M. Zogas
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Chairman, President and Chief Executive Officer
(
Duly Authorized Representative
)
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In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
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/s/ Paul M. Zogas
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/s/ Charles A. Zogas
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Paul M. Zogas, Chairman, President and
Chief Executive and Financial Officer
(Principal Executive and Financial and
Accounting Officer)
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Charles A. Zogas, Director, Executive
Vice President and Secretary
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Date: September 28, 2007
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Date: September 28, 2007
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/s/ Jonas Vaznelis
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/s/ Richard Taylor
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Jonas Vaznelis, Director
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Richard Taylor, Director and Vice
President
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Date: September 28, 2007
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Michael J. Kukanza, Director
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38
EXHIBIT INDEX
|
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Exhibit
|
|
|
No.
|
|
Description
|
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|
|
13
|
|
Annual Report to Security Holders
|
|
|
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21
|
|
Subsidiaries of Registrant
|
|
|
|
31.1
|
|
Certification of Paul M. Zogas pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934
|
|
|
|
32.1
|
|
Certification of Paul M. Zogas pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
|
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