Washington, D.C.  20549

 

Form 10-Q

 

ý	Quarterly Report Pursuant To Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2004
Or
o	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)

 

 

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

 

Part I.  Financial Information
	Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003
		Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2004 and 2003
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003
		Notes to Consolidated Financial Statements
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk
	Item 4.		Controls and Procedures
Part II.			Other Information
	Item 1.		Legal Proceedings
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3.		Defaults Upon Senior Securities
	Item 4.		Submission of Matters to a Vote of Security Holders
	Item 5.		Other Information
	Item 6.		Exhibits and Reports on Form 8-K

 

 

PELICAN FINANCIAL, INC.
Consolidated Balance Sheets

 

		September 30, 2004						December 31, 2003
		(Unaudited)
ASSETS
Cash and cash equivalents
Cash and due from banks		$				7,814,919		$		6,354,416
Interest-bearing deposits		—						45,639,288
Federal funds sold		80,879,303						3,426,013
Total cash and cash equivalents		88,694,222						55,419,717
Securities available for sale		58,246,626						49,729,994
Federal Reserve & Federal Home Loan Bank Stock		1,192,200						949,000
Loans held for sale		—						141,200
Loans receivable, net		104,763,310						109,798,257
Other real estate owned		—						332,857
Premises and equipment, net		3,648,170						2,658,018
Other assets		2,339,341						2,486,592
		$			258,883,869			$		221,515,635
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing		$		66,003,472				$			74,004,969
Interest-bearing		163,914,319						117,907,625
Total deposits		229,917,791						191,912,594
Note payable		—						291,665
Federal Home Loan Bank borrowings		12,000,000						12,000,000
Other liabilities		328,918						421,088
Total liabilities		242,246,709						204,625,347
Shareholders’ equity
Preferred stock, 200,000 shares authorized; none outstanding		—						—
Common stock, $.01 par value 10,000,000 shares authorized; 4,490,158 and 4,488,351 outstanding at September 30, 2004 and December 31, 2003		44,902						44,884
Additional paid in capital		15,574,809						15,568,593
Retained earnings		1,107,719						1,183,546
Accumulated other comprehensive income (loss), net of tax		(90,270					)	93,265
Total shareholders’ equity		16,637,160						16,890,288
		$	258,883,869					$	221,515,635

 

See accompanying notes to the financial statements

 

3

 

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

 

		Three Months Ended September 30,											Nine Months Ended September 30,
		2004						2003					2004						2003
Interest income
Loans, including fees		$	1,810,314					$	2,192,205				$	5,712,140					$				7,077,306
Investment securities, taxable		853,184						80,333					2,124,366						284,594
Federal funds sold and overnight accounts		82,480						152,285					254,308						397,302
Total interest income		2,745,978						2,424,823					8,090,814						7,759,202
Interest expense
Deposits		1,016,584						574,782					2,883,814						1,707,516
Other borrowings		164,603						267,825					490,459						800,869
Total interest expense		1,181,187						842,607					3,374,273						2,508,385
Net interest income		1,564,791						1,582,216					4,716,541						5,250,817
Provision for loan losses		(300,000					)	518,000					(225,000					)	888,000
Net interest income after provision for loan losses		1,864,791						1,064,216					4,941,541						4,362,817
Noninterest income
Gain on sales of securities, net		310,456						—					313,315						129,360
Service charges on deposit accounts		52,303						40,950					118,793						141,159
Gain on sale of loans, net		4,587						21,240					24,345						92,044
Net gain (loss) on foreclosed assets and other income		36,262						(43,968				)	105,657						16,554
Total noninterest income		403,608						18,222					562,110						379,117
Noninterest expense
Compensation and employee benefits		1,032,321						834,957					2,899,231						2,718,447
Occupancy and equipment		352,557						254,809					939,756						730,574
Legal		67,886						86,368					175,336						288,727
Accounting and auditing		52,620						51,234					143,770						116,178
Data processing		69,669						30,511					161,301						88,178
Marketing and advertising		22,652						27,266					80,257						118,123
Loan and other real estate owned		70,590						53,861					272,229						360,360
Other noninterest expense		363,442						303,885					944,801						705,770
Total noninterest expense		2,031,737						1,642,891					5,616,681						5,126,357
Income (loss) from continuing operations before income taxes		236,662						(560,453				)	(113,030					)	(384,423					)
Income tax expense (benefit)		80,848						(190,175				)	(37,203					)	(129,396					)
Income (loss) from continuing operations		$		155,814				$	(370,278			)	$	(75,827				)	$			(255,027		)
Discontinued operations:
Income from operations of discontinued mortgage subsidiary		—						5,660,786					—						14,900,192
Income tax		—						1,916,412					—						5,082,920
Income from discontinued operations		—						3,744,374					—						9,817,272
Net income (loss)		$		155,814				$	3,374,096				$		(75,827			)	$	9,562,245
Basic earnings (loss) per share from continuing operations		$				0.03		$		(0.08		)	$			(0.02		)	$	(0.06				)
Basic earnings per share from discontinued operations		—						0.84					—						2.21
Basic earnings (loss) per share		$				0.03		$		0.76			$			(0.02		)	$	2.15
Diluted earnings (loss) per share from continuing operations		$				0.03		$		(0.08		)	$			(0.02		)	$	(0.06				)
Diluted earnings per share from discontinued operations		—						0.83					—						2.19
Diluted earnings (loss) per share		$				0.03		$		0.75			$			(0.02		)	$	2.13
Comprehensive income (loss)		$			685,552			$			3,203,071		$				(259,362	)	$		9,372,055

 

See accompanying notes to the financial statements

 

4

 

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

 

 

		2004					2003
Cash flows from operating activities
Net cash provided by operating activities of continuing operations		$		260,248			$	19,206,253
Net cash by operating activities of discontinued operations		—					13,043,714
Net cash provided by operating activities		$			260,248		$	32,249,967
Cash flows from investing activities
Loan originations, net		5,259,947					(5,953,240			)
Sale of real estate owned		321,396					122,475
Property and equipment expenditures, net		(1,217,456				)	(293,577			)
Purchase of securities available for sale		(86,897,656				)	(44,775,000			)
Proceeds from sales of securities available for sale		70,867,375					42,457,589
Proceeds from maturities and principal repayments of securities available for sale		7,204,085					14,795
Purchase and redemption of Federal Home Loan Bank Stock		(243,200				)	100,000
Investing activities of discontinued operations		—					22,130,000
Net cash provided (used) by investing activities		(4,705,509				)	13,803,042
Cash flows from financing activities
Increase in deposits		38,005,197					16,013,841
Cash dividends		—					(1,334,454			)
Decrease in note payable due on demand		(291,665				)	(375,000			)
Proceeds from exercise of stock options		6,234					108,666
Financing activities of discontinued operations		—					(30,135,534			)
Net cash provided (used) by financing activities		37,719,766					(15,722,481			)
Net change in cash and cash equivalents		33,274,505					30,330,528
Cash and cash equivalents at beginning of period		55,419,717					57,361,935
Cash and cash equivalents at end of period		$	88,694,222				$		87,692,463
Non-cash investing activities
Increase in real estate owned, net		—					1,116,347

 

See accompanying notes to the financial statements

 

5

 

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.

 

		Three Months Ended September 30,
		2004			2003
Net income as reported		$	155,814		$	3,374,096
Stock-based compensation expense, net of forfeitures, using fair value method		6,764			9,054
Pro forma net income		$	149,050		$	3,365,042
Basic earnings per share as reported		$	0.03		$	0.76
Pro forma basic earnings per share		0.03			0.75
Diluted earnings (loss) per share		$	0.03		$	0.75
Pro forma diluted earnings (loss) per share		0.03			0.75

 

		Nine Months Ended September 30,
		2004			2003
Net income (loss) as reported		$	(75,827	)	$	9,562,245
Stock-based compensation expense, net of forfeitures, using fair value method		14,032			8,330
Pro forma net income (loss)		$	(89,859	)	$	9,553,915
Basic earnings (loss) per share as reported		$	(0.02	)	$	2.15
Pro forma basic earnings (loss) per share		(0.02		)	2.15
Diluted earnings (loss) per share		$	(0.02	)	$	2.13
Pro forma diluted earnings (loss) per share		(0.02		)	2.13

 

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.

 

6

 

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:

 

		September 30, 2004				December 31, 2003
Commercial, financial and agricultural		$	1,655,845			$	1,619,450
Commercial real estate		40,853,417				43,850,625
Residential real estate		38,820,184				45,056,027
Consumer loans		24,371,749				20,602,267
		105,701,195				111,128,369
Deduct allowance for loan losses		(937,885			)	(1,330,112		)
Loans receivable, net		$		104,763,310		$	109,798,257

 

7

 

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

 

		2004				2003
Balance at beginning of period		$	1,228,053			$		1,128,137
Provision for loan losses		(300,000			)	518,000
Loans charged-off		(3,534			)	(468,919			)
Recoveries		13,366				26,489
Balance at end of period		$		937,885		$	1,203,707

 

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

 

		2004				2003
Balance at beginning of period		$	1,330,112			$		1,062,109
Provision for loan losses		(225,000			)	888,000
Loans charged-off		(245,677			)	(783,029			)
Recoveries		78,450				36,627
Balance at end of period		$		937,885		$	1,203,707

 

8

 

NOTE 5 - EARNINGS PER SHARE

 

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

 

		Three Months Ended September 30, 2004			Three Months Ended September 30, 2003
Basic earnings (loss) per share
Net income (loss) from continuing operations		$	155,814		$	(370,278	)
Income from discontinued operations		—			3,744,374
Net income applicable to common stock		155,814			3,374,096
Weighted average shares outstanding		4,488,994			4,459,284
Loss from continuing operations per share		$	0.03		$	(0.08	)
Income from discontinued operations per share		—			0.84
Basic earnings per share		$	0.03		$	0.76
Diluted earnings per share
Net income (loss) from continuing operations		$	155,814		$	(370,278	)
Income from discontinued operations		—			3,744,374
Net income applicable to common stock		155,814			3,374,096
Weighted average shares outstanding		4,488,994			4,459,284
Dilutive effect of assumed exercise of stock options		9,809			57,185
Diluted average shares outstanding		4,498,803			4,516,469
Income (loss) from continuing operations per share		$	0.03		$	(0.08	)
Income from discontinued operations per share		—			0.83
Diluted earnings per share		$	0.03		$	0.75

 

		Nine Months Ended September 30, 2004			Nine Months Ended September 30, 2003
Basic earnings (loss) per share
Income (loss) from continuing operations		$	(75,827	)	$	(255,027	)
Income from discontinued operations		—			9,817,272
Net income (loss) applicable to common stock		75,827			9,562,245
Weighted average shares outstanding		4,488,567			4,446,870
Income (loss) from continuing operations per share		$	(0.02	)	$	(0.06	)
Income from discontinued operations per share		—			2.21
Basic earnings (loss) per share		$	(0.02	)	$	2.15
Diluted earnings (loss) per share
Income (loss) from continuing operations		$	(75,827	)	$	(255,027	)
Income from discontinued operations		—			9,817,272
Net income (loss) applicable to common stock		(75,827		)	9,562,245
Weighted average shares outstanding		4,488,567			4,446,870
Dilutive effect of assumed exercise of stock options		—			39,920
Diluted average shares outstanding		4,488,567			4,486,790
Income (loss) from continuing operations per share		$	(0.02	)	$	(0.06	)
Income from discontinued operations per share		—			2.19
Diluted earnings (loss) per share		$	(0.02	)	$	2.13

 

9

 

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.

 

10

 

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.

 

 

		Three months ended September 30,
		2004								2003
		Average Volume			Interest			Yield/Cost		Average Volume			Interest			Yield/Cost
ASSETS
Interest-earning assets:
Federal funds sold		$	21,932		$	83		1.51	%	$	60,060		$	152		1.01	%
Securities		109,609			853			3.11		6,204			81			5.22
Loans held for sale		—			—			—		10,745			148			5.51
Loans receivable		105,596			1,810			6.85		110,182			2,044			7.42
Total interest-earning assets		237,137			2,746			4.63		187,191			2,425			5.18
Non-earning assets		12,472								15,055
Total assets		$	249,609							$	202,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
NOW accounts		$	1,865		3			0.64		$	1,549		3			0.77
Money market accounts		114,445			573			2.00		19,206			85			1.77
Savings deposits		9,462			32			1.35		12,263			43			1.40
Time deposits		36,040			409			4.54		41,531			444			4.28
Other borrowings		12,000			165			5.50		18,469			268			5.80
Total interest-bearing liabilities		173,812			1,182			2.72		93,018			843			3.63
Noninterest-bearing liabilities		59,757								91,578
Stockholders’ equity		16,040								17,650
Total liabilities and stockholders’ equity		$	249,609							$	202,246
Interest rate spread								1.91	%							1.56	%
Net interest income and net interest margin					$	1,564		2.64	%				$	1,582		3.38	%

 

11

 

		Nine months ended September 30,
		2004										2003
		Average Volume				Interest				Yield/Cost		Average Volume			Interest				Yield/Cost
ASSETS
Interest-earning assets:
Federal funds sold		$		30,318		$	254			1.12	%	$	46,066		$	397			1.15	%
Securities		92,774				2,125				3.05		7,366			285				5.16
Loans held for sale		59				2				4.52		12,902			530				5.48
Loans receivable		108,349				5,710				7.03		111,528			6,547				7.83
Total interest-earning assets		231,500				8,091				4.66		177,862			7,759				5.82
Non-earning assets		12,065										22,560
Total assets		$	243,565									$	200,422
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
NOW accounts		$		1,636		10				0.80		$	1,490		10				0.85
Money market accounts		99,468				1,556				2.09		13,488			166				1.64
Savings deposits		9,341				96				1.37		12,654			145				1.53
Time deposits		37,110				1,222				4.39		45,937			1,386				4.02
Other borrowings		12,000				490				5.44		18,594			801				5.74
Total interest-bearing liabilities		159,555				3,374				2.82		92,163			2,508				3.63
Noninterest-bearing liabilities		67,680										92,171
Stockholders’ equity		16,330										16,088
Total liabilities and stockholders’ equity		$	243,565									$	200,422
Interest rate spread										1.84									2.19
Net interest income and net interest Margin						$		4,717		2.72	%				$		5,251		3.94	%

 

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 FHLB borrowings, 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 September 30, 2004 was $404,000 compared to $18,000 for the same period in 2003, an increase of $386,000.  This increase was primarily due to the increase in the gain on sale of securities of approximately $310,000 and the increase in the net gain on foreclosed assets and other income of $80,000.  The increase in the gain on sale of securities resulted from the increase in the sale of securities for liquidity purposes.  The increase in net gain on foreclosed assets and other income resulted from gains recognized on the disposition of repossessed and foreclosed property as opposed to a loss reported in the prior period.

 

For the nine months ended September 30, 2004, noninterest income was $562,000 compared to $379,000 for the same period in 2003.  The increase of $183,000, or 48%, was primarily the result of fluctuations in operations as described above.

 

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