<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000
Or
[ ] Transition Report Pursuant To Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number 000-26601
Pelican Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware 58-2298215
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
315 East Eisenhower Parkway
Ann Arbor, Michigan 48108
(Address of Principal Executive Offices)
734-662-9733
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock Outstanding as of July 31, 2000
Common stock, $0.01 Par value ................................. 3,992,836 Shares
<PAGE>
Index
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Shareholders 17-18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PELICAN FINANCIAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,271,360 $ 1,883,472
Accounts receivable, net 3,875,694 2,289,682
Securities available for sale 5,706,041 5,877,013
Federal Reserve and Federal Home Loan Bank Stock 730,000 680,000
Loans Held for Sale 87,254,032 60,535,699
Loans receivable, net 78,539,825 68,582,378
Mortgage servicing rights, net 10,367,775 11,028,468
Mortgage loans in foreclosure and other real estate 72,524 539,869
Premises and equipment, net 893,481 863,815
Federal income taxes receivable 432,004 265,545
Other assets 1,900,384 3,307,011
------------ ------------
$202,043,120 $155,852,952
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 8,293,192 $ 3,911,558
Interest-bearing 68,192,695 58,398,604
------------ ------------
Total deposits 76,485,887 62,310,162
Due to bank 14,677,871 12,095,538
Notes payable 41,995,879 25,333,610
Repurchase agreements 30,781,880 21,844,801
Federal Home Loan Bank borrowings 11,000,000 8,000,000
Other liabilities 5,982,941 5,277,485
------------ ------------
Total liabilities 180,924,458 134,861,596
Commitments and contingencies
Shareholders' equity
Preferred stock, 200,000 shares authorized; none outstanding
Common stock, 10,000,000 shares authorized; 3,992,836
outstanding at June 30, 2000 and December 31, 1999. 39,928 39,928
Additional paid in capital 13,631,156 13,631,156
Retained earnings 7,628,967 7,504,631
Accumulated other comprehensive loss, net of tax (181,389) (184,359)
------------ ------------
Total shareholders' equity 21,118,662 20,991,356
------------ ------------
$202,043,120 $155,852,952
============ ============
</TABLE>
3
<PAGE>
PELICAN FINANCIAL, INC.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $3,857,254 $3,527,676 $7,488,591 $ 7,050,201
Investment securities, taxable 107,574 118,043 218,323 227,302
Federal funds sold and overnight accounts 173,388 34,319 199,418 72,837
---------- ---------- ---------- -----------
Total interest income 4,138,216 3,680,038 7,906,332 7,350,340
Interest expense
Deposits 856,258 421,624 1,603,446 736,436
Short-term borrowings 1,726,059 2,078,567 2,981,590 4,226,763
---------- ---------- ---------- -----------
Total interest expense 2,582,317 2,500,191 4,585,036 4,963,199
Net interest income 1,555,899 1,179,847 3,321,296 2,387,141
Provision for loan losses 37,000 5,155 127,000 13,145
---------- ---------- ---------- -----------
Net interest income after provision for loan losses 1,518,899 1,174,692 3,194,296 2,373,996
Noninterest income
Service charges on deposit accounts 15,585 12,976 26,048 22,362
Servicing income 719,941 1,169,426 1,495,770 2,028,650
Gain on sales of mortgage servicing rights and loans, net 1,703,415 6,458,942 3,429,042 11,933,963
Other income 215,947 398,604 418,580 850,638
---------- ---------- ---------- -----------
Total noninterest income 2,654,888 8,039,948 5,369,440 14,835,613
Noninterest expense
Compensation and employee benefits 2,106,516 4,243,659 4,357,342 7,964,736
Occupancy and equipment 375,523 355,084 753,159 749,006
Telephone 113,050 140,270 208,411 251,111
Postage 92,761 141,716 183,743 283,231
Amortization of mortgage servicing rights 557,285 823,674 1,105,724 1,483,002
Mortgage servicing rights valuation adjustment (28,255) (233,862) (84,908) (532,828)
Other noninterest expense 1,017,514 964,055 1,832,043 1,992,548
---------- ---------- ---------- -----------
Total noninterest expense 4,234,394 6,434,596 8,355,514 12,190,806
Income (loss) before income taxes and cumulative effect
of change in accounting principle (60,607) 2,780,044 208,222 5,018,803
Provision for income taxes (10,733) 964,713 83,886 1,709,916
---------- ---------- ---------- -----------
Income(loss) before cumulative effect of change in
accounting principle (49,874) 1,815,331 124,336 3,308,887
Cumulative effect of change in accounting principle - - - (97,119)
---------- ---------- ---------- -----------
Net income(loss) $ (49,874) $1,815,331 $ 124,336 $ 3,211,768
========== ========== ========== ===========
Comprehensive income(loss) $ (49,897) $1,717,807 $ 127,305 $ 3,090,948
========== ========== ========== ===========
Basic and diluted earnings per share before cumulative effect
of change in accounting principle $ (0.01) $ 0.60 $ 0.03 $ 1.06
Per share cumulative effect of change in accounting principle $ - $ - $ - $ (0.03)
---------- ---------- ---------- -----------
Basic and diluted earnings per share $ (0.01) $ 0.60 $ 0.03 $ 1.03
========== ========== ========== ===========
</TABLE>
4
<PAGE>
PELICAN FINANCIAL, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $(34,806,495) $ 18,130,929
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations, net (9,996,152) (18,571,585)
Proceeds from sales of mortgage servicing rights 9,458,960 32,051,170
Change in loans in foreclosure and other real estate, net 467,345 264,871
Property and equipment expenditures, net (235,164) (396,426)
Purchase of securities available for sale - (2,016,777)
Proceeds from maturities and principal repayments
of securities available for sale 191,988 1,311,853
Purchase of Federal Reserve Stock (50,000) (72,300)
------------ ------------
Net cash (used in)provided by investing activities (163,023) 12,570,806
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in noninterest-bearing deposits 4,381,634 1,981,900
Increase (decrease) in interest-bearing deposits 9,794,091 11,353,580
Increase in due to bank 2,582,333 (7,023,100)
Increase (decrease) in notes payable due on demand 16,662,269 (1,226,927)
Advances on Federal Home Loan Bank borrowings 3,000,000 -
Increase (decrease) in repurchase agreements 8,937,079 (41,536,644)
------------ ------------
Net cash provided by (used in) financing activities 45,357,406 (36,451,191)
------------ ------------
Net change in cash and cash equivalents 10,387,888 (5,749,456)
Cash and cash equivalents at beginning of period 1,883,472 10,180,034
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,271,360 $ 4,430,578
============ ============
Cash and equivalents is composed of:
Cash and demand deposits due from banks $ 2,467,360 $ 1,133,578
Interest-bearing deposits in banks 97,000 99,000
Federal funds sold 9,707,000 3,198,000
------------ ------------
Total cash and cash equivalents $ 12,271,360 $ 4,430,578
============ ============
Supplemental cash disclosures
Interest paid $ 4,444,548 $ 5,153,015
Income taxes paid 72,000 -
</TABLE>
5
<PAGE>
PELICAN FINANCIAL, INC.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three and six
months periods ended June 30, 2000 and 1999, include the accounts of Pelican
Financial Inc. ("Pelican Financial") and it's wholly owned subsidiaries Pelican
National Bank ("Pelican National") and Washtenaw Mortgage Company ("Washtenaw")
for all periods. All references herein to Pelican Financial include the
consolidated results of its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Assets held in an agency
or fiduciary capacity are not assets of Pelican Financial and, accordingly, are
not included in the accompanying consolidated financial statements.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments, consisting
of normal recurring accruals, which, in the opinion or management, are necessary
for fair presentation of the consolidated financial statements have been
included. The results of operations for the period ended June 30, 2000, are not
necessarily indicative of the results which may be expected for the entire
fiscal year or for any other period. For further information, refer to
consolidated financial statements and footnotes thereto for the year ended
December 31, 1999 included in Pelican Financial's Form 10-K.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
NOTE 3 - EARNINGS PER SHARE
At June 30, 2000, Pelican Financial had 10,000,000 shares of $.01 par value
common stock authorized with 3,992,836 shares issued and outstanding, and
200,000 shares of preferred stock authorized with none issued or outstanding. At
June 30, 1999, Pelican Financial had 5,000,000 shares of $.01 par value common
stock authorized with 3,032,836 shares issued and outstanding, and 200,000
shares of preferred stock authorized with none issued or outstanding.
The following summarizes the computation of basic and diluted earnings (loss)
per share before cumulative effect of change in accounting principle.
<TABLE>
<CAPTION>
Three Months Three Months
ended ended
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
Basic earnings per share
Net income (loss) $ (49,874) $1,815,331
---------- ----------
Weighted average shares outstanding 3,992,836 3,032,836
---------- ----------
Basic earnings (loss) per share $ (0.01) $ 0.60
========== ==========
Diluted earnings per share
Net income (loss) $ (49,874) $1,815,331
---------- ----------
Weighted average shares outstanding 3,992,836 3,032,836
---------- ----------
Dilutive effect of assumed exercise of stock options 196 6,775
---------- ----------
Diluted average shares outstanding 3,993,032 3,039,611
---------- ----------
Diluted earnings (loss) per share $ (0.01) $ 0.60
========== ==========
</TABLE>
6
<PAGE>
PELICAN FINANCIAL, INC.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 3 - EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
June 30, June 30,
2000 1999
---------- ----------
<S> <C> <C>
Basic earnings per share
Net income $ 124,336 $3,211,768
---------- ----------
Weighted average shares outstanding 3,992,836 3,032,836
---------- ----------
Basic earnings per share $ 0.03 $ 1.06
========== ==========
Diluted earnings per share
Net income $ 124,336 $3,211,768
---------- ----------
Weighted average shares outstanding 3,992,836 3,032,836
---------- ----------
Dilutive effect of assumed exercise of stock options 390 6,775
---------- ----------
Diluted average shares outstanding 3,993,226 3,039,611
---------- ----------
Diluted earnings per share $ 0.03 $ 1.06
========== ==========
</TABLE>
NOTE 4 - SEGMENT INFORMATION
Pelican Financial's operations include two primary segments: mortgage banking
and retail banking. The mortgage banking segment involves the origination and
purchase of single-family residential mortgage loans in approximately 41 states;
the sale of such loans in the secondary market, generally on a pooled and
securitized basis; and the servicing of mortgage loans for investors. The
retail-banking segment involves attracting deposits from the general public and
using such funds to originate and purchase existing consumer, commercial,
commercial real estate, residential construction, and single-family residential
mortgage loans, from its offices in Naples and Fort Myers, Florida.
Pelican Financial's reportable segments are its two subsidiaries. Washtenaw
comprises the mortgage-banking segment, with gains on sales of mortgage
servicing rights (MSR) and loans, as well as loan servicing income accounting
for its primary revenues. Pelican National comprises the retail-banking segment,
with net interest income from loans, investments and deposits accounting for its
primary revenues.
The following segment financial information has been derived from the internal
financial statements of Washtenaw and Pelican National, which are used by
management to monitor and manage the financial performance of Pelican Financial.
The accounting policies of the two segments are the same as those of Pelican
Financial. The evaluation process for segments does not include holding company
income and expense. Holding company amounts are the primary difference between
segment amounts and consolidated totals, and are reflected in the "Other" column
below, along with minor amounts to eliminate transactions between segments.
7
<PAGE>
PELICAN FINANCIAL, INC.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 4 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Dollars in thousands
Mortgage Retail Consolidated
Banking Banking Other Totals
<S> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
Net interest income $ 552 $ 1,050 $ (46) $ 1,556
Gain on sales of MSR and loans, net 1,690 15 - 1,705
Servicing income 720 - - 720
Noncash items:
Provision for loan losses - 37 - 37
MSR amortization and valuation 529 - - 529
Provision for income taxes (74) 130 (67) (11)
Segment profit /(loss ) (172) 251 (129) (50)
Segment assets 104,440 97,466 137 202,043
THREE MONTHS ENDED JUNE 30, 1999
Net interest income $ 575 $ 642 $ (37) $ 1,180
Gain on sales of MSR and loans, net 6,434 25 - 6,459
Servicing income 1,168 1 - 1,169
Noncash items:
Provision for loan losses - 5 - 5
MSR amortization and valuation 589 1 - 590
Provision for income taxes 920 63 (18) 965
Segment profit/loss 1,728 123 (36) 1,815
Segment assets 162,301 54,279 (98) 216,482
</TABLE>
<TABLE>
<CAPTION>
Dollars in thousands
Mortgage Retail Consolidated
Banking Banking Other Totals
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
Net interest income $ 1,061 $ 2,348 $ (88) $ 3,321
Gain on sales of MSR and loans, net 3,412 17 - 3,429
Servicing income 1,491 5 - 1,496
Noncash items:
Provision for loan losses - 127 - 127
MSR amortization and valuation 1,021 - - 1,021
Provision for income taxes (128) 323 (111) 84
Segment profit/loss (283) 622 (215) 124
Segment assets 104,440 97,466 137 202,043
SIX MONTHS ENDED JUNE 30, 1999
Net interest income $ 1,321 $ 1,141 $ (75) $ 2,387
Gain on sales of MSR and loans, net 11,875 59 - 11,934
Servicing income 2,026 3 - 2,029
Noncash items:
Provision for loan losses - 13 - 13
MSR amortization and valuation 948 2 - 950
Provision for income taxes 1,683 67 (40) 1,710
Segment profit/loss 3,160 130 (78) 3,212
Segment assets 162,301 54,279 (98) 216,482
</TABLE>
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Certain information in this Form 10-Q may constitute forward-looking information
that involves risks and uncertainties that could cause actual results to differ
materially from those estimated. Persons are cautioned that such forward-looking
statements are not guarantees of future performance and are subject to various
factors that could cause actual results to differ materially from those
estimated. These factors include, but are not limited to, changes in general
economic and market conditions, legislative and regulatory changes, monetary and
fiscal policies of the federal government, demand for loan and deposit products
and the development of an interest rate environment that adversely affects the
interest rate spread or other income from Pelican Financial's investments and
operations.
EARNINGS PERFORMANCE
Pelican Financial reported a net loss of $49,874 for the quarter ended June 30,
2000, a decrease of $1.9 million when compared to net income for the same period
in 1999. Earning per share, basic and diluted, were a loss of $ 0.01 per share
compared to income of $0.60 per share for the for the three months ended June
30, 2000 and 1999 respectively.
For the six months ended June 30, 2000 Pelican Financial reported net income of
$124,336 compared to $3.2 million for the same period in 1999. Earnings per
share, basic and diluted, were $ 0.03 per share compared to $1.06 for the six
months ended June 30, 2000 and 1999 respectively.
For further explanation of the earnings performance, please see the discussion
on the retail and mortgage banking segments to follow.
RESULTS OF OPERATIONS
RETAIL BANKING
The following discussion provides information that relates specifically to
Pelican Financial's retail banking line of business.
For the three months ended June 30, 2000, Pelican Financial's net income from
retail banking activities primarily conducted by Pelican National totaled
$251,000. For the three months ended June 30, 1999 Pelican National's comparable
net income was $123,000. For the six months ended June 30, 2000, Pelican
Financial's net income from retail banking activities primarily conducted by
Pelican National totaled $622,000. For the six months ended June 30, 1999
Pelican National's comparable net income was $130,000.
The increase in net income for both the three months and six months periods was
primarily attributable to an increase in net interest income which was partially
offset by an increase in total noninterest expense.
Net Interest Income
Net Interest Income was $1.0 million and $642,000 for the three months ended
June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000
and 1999 net interest income was $2.3 million and $1.1 million respectively.
The increase in net interest income was due primarily to rates on earning
assets increasing at a greater rate than those on liabilities, a larger
deployment of assets in higher yielding loans and an increase in the overall
balance of loans outstanding. The increase in the yield of the average
earning assets was 2.51% offset by an increase in the cost of the average
interest bearing liabilities of .86% for the three months ended June 30, 2000
as compared to the three months ended June 30, 1999. For the six months ended
June 30, 2000 as compared to the six months ended June 30, 1999, the increase
in the yield of average earning assets was 2.88% which was offset by a an
increase of the average interest bearing liabilities of .46%.
Average Balance Sheet
The following tables summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
dollars in thousands
2000 1999
---------------------------------- ----------------------------------
Summary of average rates/interest Average Average
earning assets: Volume Interest Yield/Cost Volume Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold ......................... $ 12,319 $ 173 5.62% $ 2,911 $ 34 4.67%
Investment securities ..................... 6,255 107 6.84% 7,681 118 6.15%
Loans receivable, net(1) .................. 156,034 3,858 9.89% 201,215 3,540 7.04%
-------- ------ -------- ------
Total interest-earning assets ............. 174,608 4,138 9.48% 211,807 3,692 6.97%
------ ----- ------ -----
Non-earning assets ........................ 20,651 30,692 -
-------- --------
Total average assets ...................... $195,259 $242,499
======== ========
Interest bearing liabilities:
NOW accounts .............................. $ 1,017 6 2.36% $ 823 4 1.94%
Money market accounts ..................... 2,576 26 4.04% 3,591 35 3.90%
Savings deposits .......................... 15,958 187 4.69% 12,362 76 2.46%
Time deposits ............................. 42,549 637 5.99% 23,122 306 5.29%
Short-term borrowings ..................... 11,000 170 6.18% - -
Long-term borrowings....................... 82,355 1,556 7.56% 133,171 2,079 6.24%
-------- ------ -------- ------
Total interest bearing liabilities .......... 155,455 2,582 6.64% 173,069 2,500 5.78%
------ ----- ------ -----
Non-interest bearing liabilities .......... 18,737 54,838
Stockholders' equity ...................... 21,067 14,592
-------- --------
Total liabilities and stockholders'
equity ..................................... $195,259 $242,499
Net interest income & net interest
spread ..................................... $ 1,556 2.84% $ 1,192 1.19%
======== ===== ======== =====
Net interest margin ......................... 3.56% 2.25%
===== =====
</TABLE>
(1) The balance includes the total from Washtenaw. The average balance related
to Washtenaw loans totaled $85.1million and $164.9 for the periods ended June
30, 2000 and 1999 respectively.
<TABLE>
<CAPTION>
Six Months Ended June 30,
dollars in thousands
2000 1999
---------------------------------- ----------------------------------
Summary of average rates/interest Average Average
earning assets: Volume Interest Yield/Cost Volume Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold ......................... $ 7,075 $ 199 5.63% $ 3,097 $ 73 4.71%
Investment securities ..................... 6,592 218 6.61% 6,074 227 7.47%
Loans receivable, net(1) .................. 145,473 7,489 10.30% 199,118 7,050 7.08%
-------- ------ -------- ------
Total interest-earning assets ............. 159,140 7,906 9.94% 208,289 7,350 7.06%
------ ----- ------ -----
Non-earning assets ........................ 19,026 29,314 -
-------- --------
Total average assets ...................... $178,166 $237,603
======== ========
Interest bearing liabilities:
NOW accounts .............................. $ 946 11 2.33% $ 849 9 2.12%
Money market accounts ..................... 2,632 52 3.95% 3,765 73 3.88%
Savings deposits .......................... 13,338 273 4.09% 11,062 136 2.46%
Time deposits ............................. 43,126 1,267 5.88% 19,471 518 5.32%
Short-term borrowings ..................... 10.011 309 6.17% - - -
Long-term borrowings....................... 74,303 2,673 7.19% 133,262 4,227 6.34%
-------- ------ -------- ------
Total interest bearing liabilities ........ 144,356 4,585 6.35% 168,409 4,963 5.89%
------ ----- ------ -----
Non-interest bearing liabilities .......... 12,473 55,306
Stockholders' equity ...................... 21,337 13,888
-------- --------
Total liabilities and stockholders'
equity ..................................... $178,166 $237,603
Net interest income & net interest
spread ..................................... $ 3,321 3.59% $ 2,387 1.17%
======== ===== ======== =====
Net interest margin ......................... 4.17% 2.29%
===== =====
</TABLE>
(1) The balance includes the total from Washtenaw. The average balance related
to Washtenaw loans totaled $75.6 million and $167.9 for the periods ended
June 30, 2000 and 1999 respectively.
10
<PAGE>
Net interest income represents the excess of income on interest-earning assets
over interest expense on interest bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of notes payable,
repurchase agreements, time deposits, interest-bearing checking accounts (NOW
accounts), savings, deposits and money market accounts. Funds attracted by these
interest-bearing liabilities are invested in interest-earning assets.
Accordingly, net interest income depends upon the volume of average
interest-earning assets and average interest bearing liabilities and the
interest rates earned or paid on them.
Noninterest Income
Noninterest income for the three months ended June 30, 2000 was $34,000,
compared to $41,000 for the same period in 1999, a decrease of $7,000 or 17%.
This decrease was primarily due to the decrease in net gains on sales of
mortgage servicing rights and loans, which decreased from $25,000 for the three
months ended June 30, 1999, to $13,000 for the same period of 2000, a decrease
of $12,000, or 48%. This was offset by an increase in service fees on deposit
accounts, which increased from $13,000 for the three months ended June 30, 1999,
to $16,000 for the same period of 2000, an increase of $3,000 or 23%.
For the six months ended June 30 2000, noninterest income was $56,000 compared
to $88,000 for the same period in 1999. The decrease of $32,000, or 36%, was the
result of a decrease in gain on sale of mortgage servicing rights and loans of
$42,000. The decrease in the gain on sale of mortgage servicing right and loans
is due to Pelican National focusing on the origination of loans which will be
held in the portfolio as opposed to being sold to the secondary market. The
decrease was offset by an increase in service charges on deposit accounts of
approximately $4,000 and other income by approximately $6,000.
Noninterest Expense
Total noninterest expense for the three months ended June 30, 2000 was $666,000,
compared to $491,000 for the same period in 1999, an increase of $175,000 or
36%. This increase was primarily due to the following; increases in compensation
and employee benefits of $52,000 or 19%, occupancy and equipment expense of
$55,000 or 77%, and other operating expenses of $63,000 or 48%. The increases
were the result of the growth of the bank and the opening of the second branch
located in Fort Myers, Florida.
For the six months ended June 30 2000, noninterest expense was $1.3 million
compared to $941,000 for the same period in 1999. The increase of $359,000 or
38% was also attributable to the expenses incurred as a result of the overall
growth of the bank and the opening of the Fort Myers, Florida branch location.
MORTGAGE BANKING
The following discussion provides information that relates specifically to
Pelican Financial's mortgage banking line of business.
For the three months ended June 30, 2000, Pelican Financial's net loss from
mortgage banking activities primarily conducted by Washtenaw totaled $172,000.
For the three months ended June 30, 1999 Washtenaw's comparable net income was
$1.7 million. For the six months ended June 30, 2000, the net loss from mortgage
banking activities totaled $283,000 compared to net income of $3.2 million for
the same period in 1999. The decrease in the pre-tax income for both periods was
primarily attributable to a decrease in mortgage loan production as a result of
the increase in mortgage interest rates.
The volume of loans produced for the three months ended June 30, 2000 totaled
$302.5 million as compared to $684.7 million for the three months ended June 30,
1999, a decrease of $382.2 million or 56%. For the six months ended June 30,
loan production totaled $565.1 million and $1.4 billion for 2000 and 1999
respectively. This represents a decrease of $834.9 million or 60%. The increase
in mortgage interest rates reduced the amount of loan refinancing that occurred
in the first six months of 2000. This is the primary factor for the decrease in
loan volume.
Noninterest Income
Total noninterest income for the three months ended June 30, 2000 was $2.7
million, compared to $8.0 million for the three months ended June 30, 1999, a
decrease of $5.3 million or 68%. This decrease was primarily due to a 74%
decrease in the gain on sales of mortgage servicing rights and loans of $4.7
million and a 38% decrease in other income
11
<PAGE>
of $448,000. For the six months ended June 30, 2000 noninterest income was $5.3
million, compared to $14.8 million for the six months ended June 30, 1999, a
decrease of $9.5 million or 64%. This decrease was primarily due to a 71%
decrease in the gain on sales of mortgage servicing rights and loans of $8.5
million and a 26% decrease in other income of $534,000.
The decrease in gain on sale of mortgage servicing rights and loans and the
decrease in other income was primarily due to a decrease in the overall new loan
origination volume in the first six months of 2000. In addition, the gains on
sale of mortgage servicing rights and loans was effected by a reduction of the
profit margins on each new loan origination as a result of the increased
competition for the existing loan origination volume. The decrease in new loan
originations and the reduced profit margins are the result of the increase in
mortgage interest rates and pricing concessions being made by Washtenaw in the
California market in order to attract new accounts from that region.
Loan Servicing
At June 30, 2000, Washtenaw serviced $1.1 billion of loans compared to $1.9
billion at June 30, 1999, a 42% decrease. The decrease in the servicing
portfolio reflects the normal portfolio runoff and management's decision to sell
the majority of new production in monthly concurrent transfers. At June 30, 2000
and 1999, with the exception of servicing related to loans held for sale in
Washtenaw's loan portfolio and servicing sold but not yet delivered, all loan
servicing was serviced for others.
Service fee income, net of amortization and impairment was $163,000 and $346,000
for the three months ended June 30, 2000 and 1999 respectively. For the six
months ended June 30, 2000 and 1999, service fee income net of amortization and
impairment was $385,000 and $545,000 respectively. The decrease was the result
of the reduction in the size of the servicing portfolio as previously discussed.
Noninterest Expense
Total noninterest expense for the three months ended June 30, 2000 was $4.2
million, compared to $5.9 million for the same period in 1999, a decrease of
$1.7 million or 29%. This decrease was primarily due to the decrease in employee
compensation and benefits expenses of approximately $1.9 million. For the six
months ended June 30, 2000 and 1999, noninterest expense was $6.8 million and
$11.2 million, a difference of $4.4 million between the comparable periods. The
decrease was primarily the result of a reduction in personnel and a reduction in
total commissions paid to the existing sales force as a result of the decrease
in new loan originations.
BALANCE SHEET ANALYSIS
The following is a discussion of the consolidated balance sheet of Pelican
Financial.
ASSETS
At June 30, 2000, total assets of Pelican Financial equaled $202.0 million as
compared to $155.9 million at December 31, 1999, an increase of $46.1 million or
30%. This increase is primarily due to increases in cash and cash equivalents,
loans held for sale and loans receivable.
Cash and Cash Equivalents
Cash and cash equivalents were $12.3 million at June 30, 2000 compared to $1.9
million at December 31, 1999. The increase of $10.4 million or 547% was
primarily the result of an increase in federal funds sold of $8.9 million.
Pelican National had excess liquidity resulting from increased deposits that
will be used to fund loan origination's in the future.
Investment Securities
Pelican National primarily utilizes investments in securities for liquidity
management and as a method of deploying excess funding not utilized for
investment in loans. Pelican National has invested primarily in U. S. government
and agency securities, federal funds, and U. S. government sponsored agency
issued mortgage-backed securities. As required by SFAS No. 115, Pelican National
classifies securities as held-to-maturity, available-for-sale, or trading. At
June 30, 2000 and at December 31, 1999, all of the investment securities held in
Pelican National's investment portfolio were classified as available for sale.
12
<PAGE>
The following table contains information on the carrying value of Pelican
National's investment portfolio at the dates indicated. At June 30, 2000, the
market value of Pelican National's investment portfolio totaled $6.4 million.
During the periods indicated and except as otherwise noted, Pelican National had
no securities of a single issuer that exceeded 10% of stockholders' equity.
<TABLE>
<CAPTION>
At At
June 30, December 31,
2000 1999
(Dollars in thousands)
<S> <C> <C>
U. S. Government agency (1) ..................... $3,855 $3,820
Mortgage-backed securities ...................... 1,851 2,057
Federal Reserve Bank and Federal Home
Loan Bank Stock .............................. 730 680
------ ------
Total investment securities ............. $6,436 $6,557
====== ======
</TABLE>
(1) At June 30, 2000 and December 31, 1999, includes a $2.0 million investment
in a Federal Home Loan Bank bond with a carrying value of $1.9 million.
Loans Held for Sale
Loans held for sale were $87.3 million at June 30, 2000 compared to $60.5
million at December 31, 1999. This increase of $26.8 million or 44% was caused
by an increase of loan production that will be sold to private investors. The
length of time required to prepare and sell loans to these investors is
typically longer than the length of time it takes to sell loans to Fannie Mae or
Freddie Mac. In addition, Washtenaw introduced a new product during the second
quarter. This loan product is for borrowers with credit scores that fail to meet
the conforming loan investor criteria. At June 30, 2000 Washtenaw had $3.3
million of these loans that will be sold in the third quarter.
Portfolio Loans
Total portfolio loans were $78.5 million at June 30, 2000, an increase of $9.9
million or 14% from $68.6 at December 31, 1999. This increase resulted primarily
from increases in commercial, residential real estate and boat lending
production at Pelican National.
The following table contains selected data relating to the composition of
Pelican Financial's loan portfolio by type of loan at the dates indicated. This
table includes mortgage loans available for sale and mortgage loans held for
investment. Pelican Financial had no concentration of loans exceeding 10% of
total loans that are not otherwise disclosed below.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
% of % of
Amount Total Amount Total
(Dollars In thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Residential, one to four units ............... $136,377 81.59% $111,646 84.49%
Commercial and industrial real estate ........ 23,849 14.27% 16,987 12.86%
Construction ................................. 2,382 1.42% 1,706 1.29%
-------- ------ -------- ------
Total real estate loans ...................... 162,608 97.28% 130,339 98.64%
Other loans:
Business, commercial ......................... 714 0.43% 679 0.51%
Automobile ................................... 209 0.12% 106 0.08%
Other consumer ............................... 3,620 2.17% 1,015 0.77%
-------- ------ -------- ------
4,543 2.72% 1,800 1.36%
-------- ------ -------- ------
167,151 100.00% 132,139 100.00%
====== -------- ======
Unearned fees, premiums and discounts, net ... (944) (2,647)
Allowance for loan losses .................... (413) (374)
-------- --------
Total Loans net (1) ......................... $165,794 $129,118
======== ========
</TABLE>
(1) Includes loans held for sale and loans receivable, net
13
<PAGE>
Asset Quality
Pelican Financial is exposed to certain credit risks related to the value of the
collateral that secures loans held in its portfolio and the ability of borrowers
to repay their loans during the term thereof. Pelican Financial's senior
officers closely monitor the loan and real estate owned portfolios for potential
problems on a continuing basis and report to the Board of Directors of Pelican
Financial at regularly scheduled meetings. These officers regularly review the
classification of loans and the allowance for losses. Pelican Financial also has
a quality control department, the function of which is to provide the Board of
Directors with an independent ongoing review and evaluation of the quality of
the process by which lending assets are generated.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. Pelican National, on a routine basis, monitors
these concentrations in order to consider adjustments in its lending practices
to reflect economic conditions, loan to deposit ratios, and industry trends.
Concentration of loans in the following categories constituted the total loans
receivable portfolio as of June 30, 2000:
<TABLE>
<S> <C>
Commercial loans 0.91%
Real estate mortgage loans 94.22%
Installment and other loans 4.87%
</TABLE>
The following table sets forth certain information on nonperforming loans and
other real estate owned, the ratio of such loans and other real estate owned to
total loans and total assets as of the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
2000 1999 1999
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans .................................... $ - $ 246 $ -
Loans past due 90 days or more but not on
nonaccrual ......................................... 1,027 - 1,084
Restructured loans .................................. - - -
------ ------ ------
Total nonperforming loans ................ 1,027 246 1,084
Other real estate owned ............................. 73 317 538
------ ------ ------
Total nonperforming assets ............... $1,100 $ 563 $1,622
====== ====== ======
Total nonperforming assets to total assets .......... 0.54% 0.26% 1.04%
Allowance for loan losses to
nonperforming loans ............................. 40.21% 57.32% 34.50%
Nonperforming loans to total assets ................. 0.51% 0.11% 0.69%
</TABLE>
Provision and Allowance for Loan Losses
Pelican National establishes an allowance for loan losses based upon a quarterly
or more frequent evaluation by management of various factors inherent in the
loan portfolio. These factors include the estimated market value of the
underlying collateral, the growth and composition of the portfolio, current
delinquency trends and prevailing and prospective economic conditions, including
property values, employment and occupancy rates, interest rates, and other
conditions that may affect the borrowers' ability to comply with repayment
terms. If actual losses exceed the amount of the allowance for loan losses,
earnings could be adversely affected. As Pelican National's provision for loan
losses is based on management's assessment of the general risk inherent in the
loan portfolio based on all relevant factors and conditions, the allowance for
loan losses represents both general and specific reserves. The provision for
loan losses for the three months ended June 30, 2000 was $37,000. The provision
for loan losses for the three months ended June 30, 1999 was $5,155. The
increase is due to the increase in the size of the loan portfolio and the
increase in total nonperforming loans.
14
<PAGE>
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of the risks inherent in its loan portfolio and
the general economy. The allowance for loan losses is maintained at an amount
management considers adequate to cover estimated losses in loans receivable
which are deemed probable and estimable based on information currently known to
management. The allowance is based upon a number of factors, including current
economic conditions, actual loss experience and industry trends. In addition,
the Comptroller of the Currency, as an integral part of their examination
process, periodically reviews Pelican National's allowance for loan losses.
These agencies may require Pelican National to make additional provisions for
estimated loan losses based upon their judgments about information available to
them at the time of their examination. Pelican National will continue to monitor
and modify its allowance for loan losses as conditions dictate. While management
believes the allowance for loan losses is sufficient to cover losses inherent in
it portfolio at this time, no assurances can be given that Pelican National's
level of allowance for loan losses will be sufficient to cover loan losses
incurred by Pelican National or that adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current amount of the allowance for loan losses.
The allowance for loan losses represented .52% of the loans receivable
outstanding as of June 30, 2000 compared with .54% of the loans receivable
outstanding as of December 31, 1999. The amount of the provision for loan losses
charged to expense in each of these periods represents management's best
estimate during those periods of the addition necessary to establish appropriate
allowances for estimated credit losses. Such estimates were based on
management's assessment of the current and future general economic conditions in
Pelican National's market areas, the risk levels associated with the particular
composition of the loan portfolio during such periods, and Pelican National's
past collection experience.
LIABIILITIES
At June 30, 2000, the total liabilities of Pelican Financial were $180.9 million
as compared to $134.9 million at December 31, 1999, an increase of $46.0 million
or 34%. This increase was primarily due to increases in deposits, notes payable
and repurchase agreements.
Deposits
Total deposits were $76.5 million at June 30, 2000 compared to $62.3 million at
December 31, 1999 which represents an increase of $14.2 million or 23%. The
increase was primarily due to several factors. Washtenaw transferred
approximately $9.0 million of principal and interest related to its servicing
portfolio during the second quarter. These deposits were previously at a
non-affiliated bank. The transfer was done to provide Pelican National with
additional liquidity to generate new loans and to allow Pelican National to earn
the interest spread on the additional deposits. Also, Pelican National was able
to develop a new relationship that has generated approximately $3.0 million in
new deposits. The remaining increase is the result of an increased focus on
generating new deposits.
Notes Payable
Notes payable was $42.0 million at June 30, 2000 compared to $25.3 million at
December 31, 1999. This increase of $16.7 million or 66% was primarily caused by
an increase of loans held for sale balance. Since the notes payable represent
the warehouse line of credit that Washtenaw uses to fund its loan production
until such time that the loans are sold to the secondary market, the balance
will generally move in direct correlation with the loans held for sale balance.
Repurchase Agreements
Repurchase agreements were $30.8 million at June 30, 2000 compared to $21.8
million at December 31, 1999. This increase of $9.0 million or 41% in the
repurchase agreements was primarily the result of an increase in the balance of
loans held for sale. Washtenaw uses repurchase agreements, in addition to its
warehouse line of credit, as a means to fund the loans that it purchases.
Therefore, much like the notes payable balance, the repurchase agreements
balance will move in direct correlation to the loans held for sale balance.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Management
The objective of liquidity management is to ensure the availability of
sufficient resources to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the ability
to
15
<PAGE>
meet deposit withdrawals either on demand or by contractual maturity, to
repay other borrowings as they mature and to make new loans and investments as
opportunities arise.
To date Pelican Financial has conducted no business other than managing its
investments in Pelican National and Washtenaw. Pelican Financial's source of
funds is dividends paid by Washtenaw and Pelican National. Washtenaw's sources
of funds include cash from gains on sales of mortgage loans and servicing, net
interest income, servicing fees and borrowings. Washtenaw sells its mortgage
loans generally on a monthly basis to generate cash for operations. Washtenaw's
uses of cash in the short-term include the funding of mortgage loan purchases
and origination's and purchases of mortgage servicing rights, payment of
interest, repayment of amounts borrowed pursuant to warehouse lines of credit,
operating and administrative expenses, income taxes and capital expenditures.
Long term uses of cash may also include the funding of securitization activities
or portfolios of loan or servicing assets.
Washtenaw funds its business through the use of a warehouse line of credit and
the use of agreements to repurchase. The warehouse line of credit has a limit of
$80 million, of which $15 million represents a sublimit for servicing under
contract for sale, and $6 million represents a working capital sublimit.
Borrowing pursuant to the warehouse line of credit totaled $40.0 million at June
30, 2000 and $23.3 million at December 31, 1999. The interest rate on the
warehouse line of credit is the Federal Funds Rate plus 1.50% resulting in an
effective rate of 8.62% at June 30, 2000 and 6.25% at December 31, 1999.
Washtenaw also enters into sales of mortgage loans pursuant to agreements to
repurchase. These agreements typically have terms of less than 90 days and are
treated as a source of financing. The effective interest rate on these
agreements to repurchase was 8.02% at June 30, 2000 and 5.65% at December 31,
1999.
Pelican National's sources of funds include net increases in deposits, principal
and interest payments on loans, proceeds from sales of loans held for sale,
proceeds from maturities and sales and calls of available for sale securities.
The liquidity reserve may consist of cash on hand, cash on demand deposits with
other correspondent banks, and other investments and short-term marketable
securities as determined by the rules of the Office of the Comptroller of the
Currency("OCC"), such as federal funds sold and United States securities and
securities guaranteed by the United States. At June 30, 2000, Pelican Financial
had a liquidity ratio of 6.76%. Liquidity, as measured in the form of cash and
cash equivalents totaled $12.3 million at June 30, 2000, an increase of $10.4
million from December 31, 1999 to June 30, 2000. The increase is primarily the
result of an $8.9 million increase in the outstanding federal funds sold at June
30, 2000.
Pelican Financial's ability to continue to purchase loans and mortgage servicing
rights and to originate new loans is dependent in large part upon its ability to
sell the mortgage loans at par or for a premium or to sell the mortgage
servicing rights in the secondary market in order to generate cash proceeds to
repay borrowings pursuant to the warehouse facility, thereby creating borrowing
capacity to fund new purchases and origination's. The value of and market for
Pelican Financial's loans and mortgage servicing rights are dependent upon a
number of factors, including the borrower credit risk classification,
loan-to-value ratios and interest rates, general economic conditions, warehouse
facility interest rates and governmental regulations
Washtenaw generally grants commitments to fund mortgage loans for up to 30 days
at a specified term and interest rate. The commitments are commonly known as
rate-lock commitments. At June 30, 2000, Washtenaw had outstanding rate-lock
commitments to lend $48.7 million for mortgage loans. Because these commitments
may expire without being drawn upon, they do not necessarily represent future
cash commitments. Also, as of June 30, 2000, Washtenaw had outstanding
commitments to sell $101.2 million of mortgage loans. These commitments usually
are funded within 90 days.
Capital Resources
The Board of Governors of the Federal Reserve System's (FRB) capital adequacy
guidelines mandate that minimum ratios be maintained by bank holding companies
such as Pelican Financial. Pelican National is governed by capital adequacy
guidelines mandated by the OCC.
Based upon their respective regulatory capital ratios at June 30, 2000 Pelican
Financial and Pelican National are both well capitalized, based upon the
definitions in the regulations issued by the FRB and the OCC setting forth the
general capital requirements mandated by the Federal Deposit Insurance
Corporation Improvement Act of 1991.
16
<PAGE>
The table below indicates the regulatory capital ratios of Pelican Financial and
Pelican National and the regulatory categories for a well capitalized and
adequately capitalized bank under the regulatory framework for prompt corrective
action (all three capital ratios) at June 30, 2000 and December 31, 1999,
respectively:
<TABLE>
<CAPTION>
Actual
June 30, December 31,
2000 1999
Required to be
Pelican Pelican Pelican Pelican Adequately Well
National Financial National Financial Capitalized Capitalized
<S> <C> <C> <C> <C> <C> <C>
Total Tier 1 Capital to risk-weighted assets 15.79% 17.06% 17.77% 21.23% 8.00% 10.00%
Total Equity Capital to risk-weighted assets 16.47% 17.40% 18.52% 21.63% 4.00% 6.00%
Tier 1 Capital to adjusted total assets 10.29% 10.43% 11.32% 11.52% 4.00% 5.00%
</TABLE>
Item 3: Quantitative and Qualitative Disclosure About Market Risk
For a discussion of Pelican Financial's asset/liability management policies as
well as the potential impact of interest rate changes upon the market value of
Pelican Financial's portfolio, see Pelican Financial's Annual Report to
Shareholders and Form 10-K. Management believes that there has been no material
change in Pelican Financial's asset/liability position or the market value of
Pelican Financial's portfolio since December 31, 1999.
Part II. Other Information
Item 1. Legal Proceedings
There has been no material changes to the pending legal proceedings to which
Pelican Financial is a party since the filing of the registrants Form 10-K.
Item 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Shareholders
Pelican Financial held its 2000 Annual Meeting of Shareholders on April 25,
2000. The following directors were elected at the annual meeting to serve a
three year term.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C> <C>
Charles C. Huffman 3,402,161 1,480 0
Michael D. Surgen 3,402,161 1,480 0
Brenda L. Jones 3,402,161 1,480 0
</TABLE>
17
<PAGE>
A vote was taken to ratify the appointment of Crowe Chizek and Company, LLP as
independent auditors for the fiscal year ending December 31, 2000. The
appointment was approved by the following votes: 3,396,801 for, 1,140 against,
and 5,700 abstained.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three month period
ending June 30, 2000.
Pelican Financial, Inc. and Subsidiaries
Signatures
Under the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 /s/ Charles C. Huffman
--------------------------------------------
Charles C. Huffman
President and Chief Executive Officer
Date: August 14, 2000 /s/ Howard M. Nathan
--------------------------------------------
Howard M. Nathan
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
