Washington, D.C.  20549

Form 10-Q

Commission file number  000-26601

Pelican Financial, Inc.

(Exact name of registrant as specified in its charter)

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  ý     No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes  o     No  ý

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 October 31, 2004

Common stock, $0.01 Par value                                                      4,490,158 Shares

Index

PELICAN FINANCIAL, INC.
Consolidated Balance Sheets

See accompanying notes to the financial statements

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PELICAN FINANCIAL, INC.
Consolidated Statements of Income and Comprehensive Income (Unaudited)

See accompanying notes to the financial statements

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PELICAN FINANCIAL, INC.
Consolidated Statements of Cash Flows (Unaudited)

See accompanying notes to the financial statements

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PELICAN FINANCIAL, INC.
Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The unaudited consolidated financial statements as of and for the three and nine month periods ended September 30, 2004 and 2003, include the accounts of Pelican Financial Inc. (“Pelican Financial”) and its wholly owned subsidiary Pelican National Bank (“Pelican National”).  All references herein to Pelican Financial include the consolidated results of its subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The Washtenaw Group, Inc.  (“Washtenaw”) is included in the 2003 financial statements as a discontinued operation (See Note 3).

Stock Compensation:

Compensation expense under stock options is reported using the intrinsic value method.  No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant.  The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.

Due to the spin-off (see Note 3), options outstanding at December 31, 2003 included 10,735 options that were held by employees of Washtenaw.  These options were cancelled during the first quarter of 2004 and replaced with options on stock of Washtenaw.  While employees and directors of Pelican Financial and Pelican National held the remaining options, the intrinsic value (market value per share, less option exercise price) of these options was significantly reduced by the effect of the spin-off.  As a result of the spin-off, the number and exercise price of these options was modified in January 2004 to restore the options to substantially the same intrinsic value as existed at the date of the spin-off.  Accordingly, the options outstanding at December 31, 2003 were replaced with 288,385 options at an exercise price of $3.45.  Since the options were modified to offset the effect of the spin-off on the stock price per share, no compensation expense has been recognized for the modification.

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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 U.S. generally accepted accounting principles.  However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for fair presentation of the consolidated financial statements have been included.  The results of operations for the period ended September 30, 2004, 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 the consolidated financial statements and footnotes thereto for the year ended December 31, 2003 included in Pelican Financial’s Form 10-K.

Certain prior year amounts have been reclassified to conform to the 2004 presentation.

NOTE 3 – SPIN-OFF

On December 31, 2003, Pelican Financial, the former parent company of Washtenaw, distributed all of the outstanding shares of Washtenaw to the holders of Pelican Financial common stock on a share for share basis (based on Pelican Financial shareholders of record on December 22, 2003).  Upon completion of the distribution on December 31, 2003, Washtenaw is no longer a subsidiary of Pelican Financial.  The consolidated statements of income and consolidated statements of cash flows, include the activity of Washtenaw as a discontinued operation during 2003.

During the periods presented in the financial statements, Pelican Financial did not incur any expenses on behalf of Washtenaw and no allocation of parent company expenses has been reflected in discontinued operations.

Following the distribution, certain individuals continue to serve as officers of both Washtenaw and Pelican Financial.  Washtenaw pays their salaries and all other compensation, and Pelican Financial reimburses Washtenaw, as part of the transitional services agreement, for time spent on Pelican Financial matters.  Prior to 2004, Pelican did not reimburse Washtenaw for these services.  Beginning in 2004, officers and other employees providing services to both companies will maintain records of their time spent on the affairs of each company as a basis for determining the reimbursements.

NOTE 4 – LOANS RECEIVABLE

Loans receivable consist of the following:

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Activity in the allowance for loan losses for the quarter ended September 30, are as follows:

Activity in the allowance for loan losses for the nine months ended September 30, are as follows:

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NOTE 5 - EARNINGS PER SHARE

The following summarizes the computation of basic and diluted earnings per share.

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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.

OVERVIEW

Pelican Financial currently serves as the holding company of Pelican National and until the spin-off on December 31, 2003, Washtenaw Mortgage Company.  Pelican National business activities involve attracting deposits from the general public and using these funds to originate consumer, commercial, commercial real estate, residential construction, and single-family residential mortgage loans, from its offices in Cape Coral, Naples, Fort Myers (two), Bonita Springs and San Carlos, Florida

Pelican Financial’s earnings are primarily dependent upon three sources: net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities; fee income from customers; and gains realized on sales of loans.  These revenues are in turn significantly affected by factors such as changes in prevailing interest rates and in the yield curve (that is, the difference between prevailing short-term and long-term interest rates).

The earnings performance of the continuing operations of Pelican Financial is a concern to management.  Management is attempting to improve this through a variety of factors including liquidity management, cross selling of products and managing operating expenses.  Pelican Financial achieved an operating profit during the quarter ended September 30, 2004 but continues to be in a net loss position for the year.

Management is also focusing on increasing core deposits to allow the opportunity to cross sell other products and services.  As part of this objective, Pelican National has aggressively marketed a money market deposit account in its local markets during the first nine months of the year.  Management has recently decided to reduce the interest rate being paid on the money market accounts in an effort to increase its interest margin.  It is anticipated that this will result in the withdrawal of some deposits.

Management anticipates that Washtenaw will transfer all of its’ custodial account balances out of Pelican National prior to December 31, 2004.  At September 30, 2004, this represented $51.6 million of non-interest bearing deposits.  It is anticipated that the reduction in interest rate paid on the money market accounts will partially offset the loss of these accounts and that the overall cost of funds will not increase significantly.

EARNINGS PERFORMANCE

Pelican Financial reported net income from operations of $156,000 for the quarter ended September 30, 2004 compared to a net loss of $370,000 for the quarter ended September 30, 2003.  Basic and diluted earnings per share from continuing operations was $0.03 for the three months ended September 30, 2004 and a loss of $0.08 per share for the same period in 2003.

For the nine months ended September 30, 2004 Pelican Financial reported a net loss from continuing operations of approximately $76,000 compared to a net loss of approximately $255,000 for the same period in 2003.  Basic and diluted earnings per share from continuing operations was a $0.02 and $0.06 loss per share for the nine months ended September 30, 2004 and 2003.

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The earnings performance was improved for the three and nine month periods due to a $300,000 and $225,000 credit to the provision for loan losses.  This was primarily due to the improvement in loan quality.  For further discussion see “Provision and Allowance for Loan Losses.”

RESULTS OF OPERATIONS

Net Interest Income

Net interest income was $1.6 million for the three months ended September 30, 2004 and 2003, respectively.  For the nine months ended September 30, 2004 and 2003, net interest income was $4.7 million and $5.3 million respectively.  For the three months ended September 30, 2004, net interest income remained constant due to the rise in interest bearing assets being offset by the decrease in net interest margin.  For the nine months ended September 30, 2004, net interest income decreased primarily as a result of the decrease in the yield on interest-earning assets.  This was due to the payoff of high interest rate loans being replaced with lower yielding loans and investment securities.  This was partially offset by an increase in the total interest earning assets.  In addition, the custodial deposits from Washtenaw negatively impacted net interest margin.  While Pelican National was able to earn a positive spread, the volatility in the balance of the accounts results in Pelican National investing the Washtenaw deposits primarily in federal funds sold and investment securities.  The increase in the federal funds sold rate by the Federal Reserve Board is expected to improve the yield earned by Pelican National and improve net interest margin.

Average Balance Sheet

The following tables summarize the average yields earned on interest-earning assets and the average rates paid on interest-bearing liabilities for Pelican Financial.

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