**U.S.Securities and Exchange Commission**

**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 June 30,2005**

** **

**Or**

** **
| **o** | ** ** | **Transition Report Pursuant To  Section 13 or 15 (d) of the Securities Exchange Act of 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**Commission file number 1-31795**

 

**TheWashtenaw Group, Inc.**

(Exact name of registrantas specified in its charter)

 
| **Michigan**                                                    | ** ** | ** ** | ** ** | **20-0126218**                      |
|-----------------------------------------------------------------|------------|------------|------------|-------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |       |       |       | (IRS Employer   Identification No.) |

 

**3767 Ranchero Drive**

**Ann Arbor, Michigan  48108**

(Address of Principal Executive Offices)

 

**734-662-9733**

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý    No o

 

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

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:

 

 

 

Common Stock Outstandingas of July 31, 2005

 

Commonstock, $0.01 Par value                                                         4,488,351Shares

 

 

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Index

 
| Part I.  Financial Information |                                                                                                                        |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                        |
|                                | Item 1.  Financial Statements (unaudited)                                                                                   |   |
|                                |                                                                                                                        |   |
|                                | Consolidated  Balance Sheets as of June 30, 2005 and December 31, 2004                                            |   |
|                                |                                                                                                                        |   |
|                                | Consolidated  Statements of Income and Comprehensive Income for the Three and Six Months  Ended June 30, 2005 and 2004 |   |
|                                |                                                                                                                        |   |
|                                | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004                                 |   |
|                                |                                                                                                                        |   |
|                                | 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 Shareholders                                                                    |   |
|                                |                                                                                                                        |   |
|                                | Item 5. Other Information                                                                                                   |   |
|                                |                                                                                                                        |   |
|                                | Item 6. Exhibits                                                                                                            |   |

 

2

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**THE WASHTENAW GROUP, INC.**

Consolidated Balance Sheets

 
| ** **                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2005**          | ** ** | **2004**              | ** ** |
| ** **                                                                                                          | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                          |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                          |       | $                 | 100,000    |                  | $          | 100,000 |   |
| Accounts  Receivable, net                                                                                           |       | 5,044,669         |       | 7,107,462             |       |
| Loans held for  sale                                                                                                |       | 45,256,674        |       | 68,518,733            |       |
| Securities  available for sale                                                                                      |       | —            |       | 22,234,244            |       |
| Mortgage  servicing rights, net                                                                                     |       | 14,196,524        |       | 17,240,953            |       |
| Other real  estate owned                                                                                            |       | 1,261,210         |       | 1,589,591             |       |
| Premises and  equipment, net                                                                                        |       | 1,379,829         |       | 1,678,252             |       |
| Other assets                                                                                                        |       | 524,121           |       | 835,787               |       |
|                                                                                                                |       | $                 | 67,763,027 |                  | $          | 119,305,022 |   |
|                                                                                                                |       |              |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                      |       |              |       |                  |       |
| Liabilities                                                                                                         |       |              |       |                  |       |
| Due to bank                                                                                                         |       | $                 | 6,435,752  |                  | $          | 6,507,279 |   |
| Notes payable                                                                                                       |       | 22,165,473        |       | 59,952,788            |       |
| GNMA Repurchase  Liability                                                                                          |       | 1,998,982         |       | 6,465,538             |       |
| Repurchase  agreements                                                                                              |       | 21,061,183        |       | 22,390,336            |       |
| Other  liabilities                                                                                                  |       | 4,980,511         |       | 8,000,486             |       |
| Total  liabilities                                                                                                  |       | 56,641,901        |       | 103,316,427           |       |
|                                                                                                                |       |              |       |                  |       |
| Shareholders’  equity                                                                                          |       |              |       |                  |       |
| Preferred stock,  $.01 par value 1,000,000 shares authorized; none outstanding                                      |       | —            |       | —                |       |
| Common stock,  $.01 par value 9,000,000 shares authorized 4,488,351 outstanding at  December 31, 2004 and 2003 |       | 44,884            |       | 44,884                |       |
| Additional  paid-in capital                                                                                         |       | 2,006,816         |       | 2,006,816             |       |
| Retained  earnings                                                                                                  |       | 9,069,426         |       | 13,797,423            |       |
| Unrealized gain  on securities available for sale                                                                   |       | —            |       | 139,472               |       |
| Total  shareholders’ equity                                                                                    |       | 11,121,126        |       | 15,988,595            |       |
|                                                                                                                |       |              |       |                  |       |
|                                                                                                                |       | $                 | 67,763,027 |                  | $          | 119,305,022 |   |

 

See accompanying notes toconsolidated financial statements

 

3

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**THE WASHTENAW GROUP, INC.**

Consolidated Statementsof Income (Unaudited)

 
| ** **                                                                                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                                    | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                                                                    | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                    | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                                                                               |       | $                      | 757,635    |                 | $          | 1,205,151 |   | $ | 1,941,992 |   | $ | 2,413,992 |   |
| Interest expense                                                                                              |       | 461,520                |       | 845,919              |       | 931,138 |   | 887,552 |   |
| Net interest  income                                                                                          |       | 296,115                |       | 359,232              |       | 1,010,854 |   | 1,526,440 |   |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| Noninterest  income                                                                                           |       |                   |       |                 |       |   |   |   |   |
| Servicing income                                                                                              |       | 1,200,475              |       | 2,222,773            |       | 2,518,639 |   | 3,831,521 |   |
| Gain (loss) on  sales of mortgage servicing rights and loans, net                                             |       | (516,888               | )          | 1,879,114            |       | (31,953 | ) | 4,624,586 |   |
| Gain/(loss) on  sales of securities                                                                           |       | (64,890                | )          | —               |       | 57,218 |   | — |   |
| Other income                                                                                                  |       | 164,148                |       | 291,292              |       | 351,736 |   | 580,340 |   |
| Total  noninterest income                                                                                     |       | 782,845                |       | 4,393,179            |       | 2,895,642 |   | 9,036,447 |   |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| Noninterest  expense                                                                                          |       |                   |       |                 |       |   |   |   |   |
| Compensation and  employee benefits                                                                           |       | 1,768,900              |       | 2,632,013            |       | 3,889,585 |   | 5,965,099 |   |
| Occupancy and  equipment                                                                                      |       | 454,888                |       | 452,490              |       | 904,115 |   | 871,838 |   |
| Telephone                                                                                                     |       | 43,685                 |       | 76,827               |       | 85,025 |   | 155,207 |   |
| Postage                                                                                                       |       | 52,642                 |       | 112,370              |       | 143,323 |   | 260,294 |   |
| Amortization of  mortgage servicing rights                                                                    |       | 1,048,677              |       | 1,967,709            |       | 1,918,886 |   | 3,920,936 |   |
| Mortgage  servicing rights valuation adjustment and change in fair value of mortgage  servicing rights hedges |       | 265,402                |       | (3,943,903           | )          | 213,861 |   | (1,041,589 | ) |
| Loss and  provision for loss on loan repurchases and other real estate                                        |       | 1,197,077              |       | 2,248,651            |       | 2,001,169 |   | 2,865,485 |   |
| Other  noninterest expense                                                                                    |       | 846,821                |       | 1,045,101            |       | 1,881,489 |   | 2,015,570 |   |
| Total  noninterest expense                                                                                    |       | 5,678,092              |       | 4,591,258            |       | 11,037,453 |   | 15,012,840 |   |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| **Income  (loss) before income taxes**                                                                        |       | (4,599,132             | )          | 161,153              |       | (7,130,957 | ) | (4,449,953 | ) |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| Provision for  income taxes                                                                                   |       | (1,544,624             | )          | 44,397               |       | (2,402,959 | ) | (1,463,371 | ) |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| **Net  income (loss)**                                                                                        |       | $                      | (3,054,508 | )                    | $          | 116,756 |   | $ | (4,727,998 | ) | $ | (2,986,582 | ) |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| Basic and  diluted earnings (loss) per share                                                                  |       | $                      | (0.68      | )                    | $          | 0.03 |   | $ | (1.05 | ) | $ | (0.67 | ) |
|                                                                                                          |       |                   |       |                 |       |   |   |   |   |
| **Comprehensive  income (loss)**                                                                              |       | $                      | (3,054,508 | )                    | $          | 116,756 |   | $ | (4,588,526 | ) | $ | (2,986,582 | ) |

 

See accompanying notes toconsolidated financial statements

 

4

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**THE WASHTENAW GROUP, INC.**

Consolidated Statementsof Cash Flows (Unaudited)

Six Months Ended June 30,

 
| ** **                                            | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|-------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **Cash  flows from operating activities**             |       |        |       |        |       |
| Net cash  provided by operating activities            |       | $           | 11,715,196 |        | $          | 23,350,342 |   |
|                                                  |       |        |       |        |       |
| **Cash  flows from investing activities**             |       |        |       |        |       |
| Proceeds from  sales of securities available for sale |       | 22,234,244  |       | —      |       |
| Proceeds from  sales of mortgage servicing rights     |       | 4,958,146   |       | 8,852,931   |       |
| Other real  estate owned, net                         |       | 328,382     |       | (110,933    | )          |
| Property and  equipment expenditures                  |       | (47,973     | )          | (448,434    | )          |
| Net cash provided  by investing activities            |       | 27,472,799  |       | 8,293,564   |       |
|                                                  |       |        |       |        |       |
| **Cash  flows from financing activities**             |       |        |       |        |       |
| Increase  (Decrease) in due to bank                   |       | (71,527     | )          | (204,590    | )          |
| Increase  (Decrease) in notes payable due on demand   |       | (37,787,315 | )          | (4,562,843  | )          |
| Decrease in  repurchase agreements                    |       | (1,329,153  | )          | (26,876,473 | )          |
| Net cash  provided (used) by financing activities     |       | (39,187,995 | )          | (31,643,906 | )          |
|                                                  |       |        |       |        |       |
| Net change in  cash and cash equivalents              |       | —      |       | —      |       |
|                                                  |       |        |       |        |       |
| Cash and cash  equivalents at beginning of period     |       | 100,000     |       | 100,000     |       |
| **Cash  and cash equivalents at end of period**       |       | $           | 100,000    |        | $          | 100,000 |   |

 

See accompanying notes toconsolidated financial statements

 

5

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**THEWASHTENAW GROUP, INC.**

Notesto the Consolidated Financial Statements (Unaudited)

 

**NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES**

 

Principlesof Consolidation:

Theunaudited consolidated financial statements as of and for the Six month periodended June 30, 2005 and 2004, include the accounts of The Washtenaw Group, Inc.(“The Washtenaw Group”) and its wholly owned subsidiary Washtenaw MortgageCompany  (“Washtenaw”) for allperiods.  All references herein to TheWashtenaw Group include the consolidated results of its subsidiary.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

OperatingSegments:

Washtenaw’soperations include one primary segment: mortgage banking.

 

StockCompensation:

Compensation expenseunder stock options is reported using the intrinsic value method.  Stock-based compensation reflected in netincome for the three and six months ended June 30, 2005 is zero as optionsgranted had an exercise price less than the market price of the underlyingcommon stock at date of grant.  Thefollowing table illustrates the effect on net income and earnings per share ifexpense was measured using the fair value recognition provisions of FASBStatement No. 123, *Accounting forStock-Based Compensation*.

 
| ** **                                                                                                | ** ** | **Three Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Net income  (loss) as reported                                                                            |       | $                                    | (3,054,508 | ) | $ | 116,756 |   |
| Deduct:  Incremental stock-based compensation expense (benefit) determined under fair  value based method |       | (782                                 | )          | (3,078 | ) |
| Pro forma net  income (loss)                                                                              |       | $                                    | (3,053,726 | ) | $ | 119,834 |   |
|                                                                                                      |       |                                 |       |   |   |
| Basic earnings  (loss) per share as reported                                                              |       | $                                    | (0.68      | ) | $ | 0.03 |   |
| Pro forma basic  earnings (loss) per share                                                                |       | (0.68                                | )          | 0.03 |   |
|                                                                                                      |       |                                 |       |   |   |
| Diluted earnings  (loss) per share as reported                                                            |       | $                                    | (0.68      | ) | $ | 0.03 |   |
| Pro forma  diluted earnings (loss) per share                                                              |       | (0.68                                | )          | 0.03 |   |

 
| ** **                                                                                                | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| ** **                                                                                                | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Net income  (loss) as reported                                                                            |       | $                                  | (4,727,998 | ) | $ | (2,986,581 | ) |
| Deduct:  Incremental stock-based compensation expense (benefit) determined under fair  value based method |       | (9,409                             | )          | (2,280 | ) |
| Pro forma net  income (loss)                                                                              |       | $                                  | (4,718,589 | ) | $ | (2,984,571 | ) |
|                                                                                                      |       |                               |       |   |   |
| Basic (loss) per  share as reported                                                                       |       | $                                  | (1.05      | ) | $ | (0.67 | ) |
| Pro forma basic  (loss) per share                                                                         |       | (1.05                              | )          | (0.67 | ) |
|                                                                                                      |       |                               |       |   |   |
| Diluted (loss)  per share as reported                                                                     |       | $                                  | (1.05      | ) | $ | (0.67 | ) |
| Pro forma  diluted (loss) per share                                                                       |       | (1.05                              | )          | (0.67 | ) |

 

Dueto the spin-off (see Note 3), options outstanding of Pelican Financial, Inc.(“Pelican Financial”) at December 31, 2003 included 10,735 options thatwere held by employees of Washtenaw. These options were cancelled during the first quarter of 2004 andreplaced with 21,470 options on stock of The Washtenaw Group at an exerciseprice of $3.25.  These options weregranted with an intrinsic value (market value per share, less option exerciseprice) substantially equal to the intrinsic value of the cancelled PelicanFinancial options.

 

6

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**NOTE 2 – BASIS OF PRESENTATION**

 

Theaccompanying unaudited consolidated financial statements were prepared inaccordance with instructions for Form 10-Q and, therefore, do not includeinformation or footnotes necessary for a complete presentation of consolidatedfinancial condition, results of operations, and cash flows in conformity withaccounting principles generally accepted in the United States of America.  However, all adjustments, consisting ofnormal recurring accruals, which, in the opinion of management, are necessaryfor fair presentation of the consolidated financial statements have beenincluded.  The results of operations forthe period ended June 30, 2005, are not necessarily indicative of theresults which may be expected for the entire fiscal year or for any otherperiod.  For further information, referto the consolidated financial statements and footnotes thereto for the yearended December 31, 2003 included in The Washtenaw Group’s Form 10-K.

 

**NOTE 3 – SPIN-OFF**

 

OnDecember 31, 2003, Pelican Financial, the former parent company ofWashtenaw, distributed all of the outstanding shares of Washtenaw to theholders of Pelican Financial common stock on a share for share basis based onPelican 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.  During the periods presented in the financialstatements, Pelican Financial did not incur any expenses on behalf ofWashtenaw.

 

Followingthe distribution certain individuals continue to serve as officers of bothWashtenaw and Pelican Financial. Washtenaw pays their salaries and all other compensation, and PelicanFinancial 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 otheremployees providing services to both companies maintain records of their timespent on the affairs of each company as a basis for determining thereimbursements.

 

**NOTE 4 - EARNINGS PER SHARE**

 

Thefollowing summarizes the computation of basic and diluted earnings per share.

 
| ** **                                            | ** ** | **Three Months**  | ** ** | **Three Months**  | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                            | ** ** | **ended**         | ** ** | **ended**         | ** ** |
| ** **                                            | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                            | ** ** | **2005**          | ** ** | **2004**          | ** ** |
|                                                  |       |              |       |              |       |
| Basic earnings  (loss) per share                      |       |              |       |              |       |
| Net income  (loss)                                    |       | $                 | (3,054,508 | )                 | $          | 116,756 |   |
| Weighted average  shares outstanding                  |       | 4,488,351         |       | 4,488,351         |       |
| Basic earnings  (loss) per share                      |       | $                 | (0.68      | )                 | $          | 0.03 |   |
|                                                  |       |              |       |              |       |
| Diluted earnings  (loss) per share                    |       |              |       |              |       |
| Net income  (loss)                                    |       | $                 | (3,054,508 | )                 | $          | 116,756 |   |
| Weighted average  shares outstanding                  |       | 4,488,351         |       | 4,488,351         |       |
| Dilutive effect  of assumed exercise of stock options |       | —            |       | 2,509             |       |
| Diluted average  shares outstanding                   |       | 4,488,351         |       | 4,490,860         |       |
| Diluted earnings  (loss) per share                    |       | $                 | (0.68      | )                 | $          | 0.03 |   |

 

7

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| ** **                                            | ** ** | **Six Months**    | ** ** | **Six Months**    | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                            | ** ** | **ended**         | ** ** | **ended**         | ** ** |
| ** **                                            | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                            | ** ** | **2005**          | ** ** | **2004**          | ** ** |
|                                                  |       |              |       |              |       |
| Basic earnings  (loss) per share                      |       |              |       |              |       |
| Net income  (loss)                                    |       | $                 | (4,727,998 | )                 | $          | (2,986,581 | ) |
| Weighted average  shares outstanding                  |       | 4,488,351         |       | 4,488,351         |       |
| Basic earnings  (loss) per share                      |       | $                 | (1.05      | )                 | $          | (0.67 | ) |
|                                                  |       |              |       |              |       |
| Diluted earnings  (loss) per share                    |       |              |       |              |       |
| Net income  (loss)                                    |       | $                 | (4,727,998 | )                 | $          | (2,986,581 | ) |
| Weighted average  shares outstanding                  |       | 4,488,351         |       | 4,488,351         |       |
| Dilutive effect  of assumed exercise of stock options |       | —            |       | —            |       |
| Diluted average  shares outstanding                   |       | 4,488,351         |       | 4,488,351         |       |
| Diluted earnings  (loss) per share                    |       | $                 | (1.05      | )                 | $          | (0.67 | ) |

 

AtJune 30, 2005 there were 15,730 and 21,470 stock options outstanding thatwere not considered dilutive. There were no options outstanding during 2004.

 

**NOTE 5 – RELATED PARTY TRANSACTIONS**

 

On June 30, 2005,The Washtenaw Group, Inc.’s operating subsidiary, Washtenaw MortgageCompany, entered into a subordinated promissory note with Charles C. Huffmanfor the purpose of borrowing $1.0 million from Mr. Huffman.  The loan is secured by a security interest inall mortgage servicing rights owned by Washtenaw Mortgage Company. The terms ofthe note call for a maturity on June 1, 2006 with interest payable monthlyat a rate of prime plus 3%.

 

Mr. Huffman is theChief Executive Officer and Chairman of the Board as well as a direct owner ofapproximately 44% of the outstanding shares of The Washtenaw Group, Inc.  Mr. Huffman received a 1% commitment feeupon execution of the note.

 

Pursuant to aSubordination Agreement among Washtenaw Mortgage Company, Mr. Huffman andNational City Bank, the promissory note and the related security interest aresubordinate to all liabilities now existing or hereafter arising under theSecond Amended and Restated Warehousing Credit Agreement in place betweenWashtenaw Mortgage Company and its lenders. Under the Subordination Agreement, payments under the note may only bemade by the Company from the proceeds of the sale of servicing by the Company,such sale to be approved by the lenders as provided in the Warehousing CreditAgreement, and only after the occurrence of each of the following events: (i) allof the servicing advances under the Warehousing Credit Agreement have beenrepaid in full by the Company, (ii) the 2004 tax refund which is due tothe Company has been received by the Company and immediately deposited by theCompany into the collateral proceeds account under the Warehousing CreditAgreement, and (iii) all pending interest payments due and payable underthe Warehousing Credit Agreement and related notes have been fully paid by theCompany through such date.   TheSubordination Agreement also provides, among other things, that thecommencement of any foreclosure proceeding, or the enforcement of any otherremedy under the subordinated promissory note by Mr. Huffman willconstitute a default under the Warehousing Credit Agreement at the time of suchcommencement or enforcement.

 

8

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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

 

Forward LookingStatements

 

Certain information in this Form 10-Q may constituteforward-looking information that involves risks and uncertainties that couldcause actual results to differ materially from those estimated.  Persons are cautioned that suchforward-looking statements are not guarantees of future performance and aresubject to various factors that could cause actual results to differ materiallyfrom those estimated.  These factorsinclude, but are not limited to, changes in general economic and marketconditions, legislative and regulatory changes, monetary and fiscal policies ofthe federal government, demand for loan and deposit products and thedevelopment of an interest rate environment that adversely affects the interestrate spread or other income from The Washtenaw Group’s investments andoperations.

 

**OVERVIEW**

 

The Washtenaw Groupserves as the holding company of Washtenaw.  The Washtenaw Group’s operations involve correspondent, wholesale andretail mortgage banking.  The operationinvolves the origination and purchase of single-family residential mortgageloans in approximately 40 states, the sale of these loans, usually on a pooledand securitized basis, in the secondary market, and the servicing of mortgageloans for investors.

 

The Washtenaw Group’searnings are primarily dependent upon three sources: net interest income, whichis the difference between interest earned on interest-earning assets andinterest paid on interest-bearing liabilities; fee income from servicing mortgagesheld by investors; and gains realized on sales of mortgage loans and mortgageservicing rights.  These revenues are inturn significantly affected by factors such as changes in prevailing interestrates and in the yield curve (that is, the difference between prevailingshort-term and long-term interest rates), as well as changes in the volume ofmortgage originations nationwide and prepayments of outstanding mortgages.

 

To address thedeterioration in operating performance, management has initiated plans to: (a) consolidatedepartments and cross train employees to further reduce employee headcount; (b) rationalizeand reduce capital expenditures to more closely align capital spending withexpected incremental loan production volume; (c) consider alternative loansale mechanisms to improve profit margin per loan; (d) implementtechnological tools and provide further training to its loan underwriters toreduce future loan repurchases; (e) expand the loan products offered to itcustomers to increase loan production; and (f) implement a number of othercost reduction initiatives.

 

The Washtenaw Group iscurrently in discussion with various parties in an attempt to increase thecapital of the company.  At this time,management is uncertain if this process will be successful.

 

If The Washtenaw Group isnot successful, and possibly even if it is successful, in implementing theseactions, it may continue to experience operating losses, which would hinder itsability to pay down existing indebtedness, fund future growth and providereturns to stockholders.

 

**CRITICALACCOUNTING POLICIES**

 

## **Theaccounting policies that have the greatest impact on the Washtenaw Group’sfinancial condition and results of operations and that require the mostjudgment relate to its mortgage activities. The Washtenaw Group’s accounting policy for gain on sale of loans,mortgage servicing rights (MSR), interest rate risk management activities andlitigation and claims and estimate of losses on future loan repurchases havenot changed since December 31, 2004. These accounting policies are described more fully in the annual reporton Form 10-K for the year ended December 31, 2004.**

## ** **

## **EARNINGS PERFORMANCE**

## ** **

The Washtenaw Groupreported net loss of $3.1 million for the three months ended June 30,2005, compared to net income of $117,000 for the three months ended June 30,2004.  Basic and diluted earnings pershare was a loss of $0.68 per share compared to earnings of  $0.03 per share for the quarters ended June 30,2005 and June 30, 2004, respectively. The Washtenaw Group reported netloss of $4.7 million for the six months ended June 30, 2005, compared tonet loss of $3.0 million for the six months ended June 30, 2004.  Basic and diluted earnings per share

 

9

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was a loss of $1.05 pershare compared to a loss of  $0.67 pershare for the six months ended June 30, 2005 and 2004 respectively.

 

## **RESULTS OF OPERATIONS**

## ** **

Loan Production

Loan production was $155million and $384 million for the three months ended June 30, 2005 and2004, respectively.  The volume of loansproduced for the six months ended June 30, 2005 totaled $324 million ascompared to $778 million for the six months ended June 30, 2004, adecrease of $454 million or 58%.  Thedecrease was the result higher interest rates during the respective periods aswell as increased price competition from Washtenaw’s competitiors.

 

Noninterest Income

Noninterest Income was$783,000 and $4.4 million for the three months ended June 30, 2005 and2004, respectively. Total noninterest income for the six months ended June 30,2005 was $2.9 million, compared to $9.0 million for the six months ended June 30,2004, a decrease of $6.1 million or 68%. This decrease was primarily due to a101% decrease in the gain on sales of MSRs and loans.  The decrease in gain on sale of MSRs andloans was primarily due to a decrease in the overall new loan originationvolume in the first six months of 2005. In addition, the gains on sale of MSRs and loans was affected by reducedprofit margins on each new loan origination as a result of the current interestrate environment.   Finally, Washtenawincurred a loss on a sale of MSRs of approximately $500,000 in the quarterended June 30, 2005.  This sale wasconsummated to generate immediate cash flow for operating purposes.

 

Loan Servicing

At June 30, 2005,Washtenaw serviced $1.8 billion of loans compared to $2.5 billion at June 30,2004, a 29% decrease.  This is the resultof bulk servicing sales totaling $665 million in the second half of the yearended December 31, 2004 and two additional bulk sales totaling $335.7million in the six months ended June 30, 2005.  In addition, Washtenaw is currently retaininga very small amount of servicing rights on current production

 

At June 30, 2005 and2004, with the exception of servicing related to loans held for sale inWashtenaw’s loan portfolio and servicing sold but not yet delivered, all loanservicing was serviced for others. Service fee income, net of amortization was $152,000 and $255,000 forthe three months ended June 30, 2005 and $600,000 and $717,000 for the sixmonths ended June 30, 2005 and June 30, 2004, respectively.  Servicing income decreased $1.0 million forthe three months ended and $1.3 million for the six months ended June 30,2005 due to the decrease in the servicing portfolio.

 

Noninterest Expense

Noninterest expense was$5.7 million and $4.6 million for the three months ended June 30, 2005 and2004, respectively. Total noninterest expense for the six months ended June 30,2005 was $11.0 million, compared to $15.0 million for the same period in 2004,a decrease of $4.0 million or 26%. The increase for the three month period isdue to the change from a credit to a charge in the MSRs valuation adjustment of$4.2 million for the three month ended June 30, 2005.  Excluding the MSR valuation adjustment,noninterest expense decreased $3.1 million for the three months ended June 30,2005 compared to the three months ended June 30, 2004   The decrease was primarily due to the decreasein employee compensation and benefits expenses, amortization of MSRs and adecrease in the loan loss and provision for loss on loan repurchases and otherreal estate. The decrease in employee compensation and benefits was the resultof a decrease in operations staff due to attrition, a reduction in overtimeexpense, a 20% reduction in officer compensation and reduced commissions paiddue to decreasing volume. The decrease in amortization of MSRs is the result ofthe decrease in mortgage loan servicing. The decrease in the loss and provision for loss on loan repurchases andother real estate was due to a decrease in repurchase requests. Washtenawestablishes a reserve for repurchases based on mortgage loan production.  The reserve is established based onhistorical repurchase experience and current repurchase requests.

 

10

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**BALANCESHEET ANALYSIS**

 

The following is adiscussion of the consolidated balance sheet of The Washtenaw Group.

 

## **ASSETS**

At June 30, 2005,total assets of The Washtenaw Group equaled $67.8 million as compared to $119.3million at December 31, 2004, a decrease of $51.5 million or 43%. Thedecrease is primarily due to the decrease in loans held for sale and securitiesavailable for sale.

 

LoansHeld for Sale

Loansheld for sale were $45.3 million at June 30, 2005 compared to $68.5million at December 31, 2004.  Thisdecrease of $23.2 million or 34% was the result of a decrease in mortgage loanproduction.

 

SecuritiesAvailable for Sale

Securities available forsale were zero at June 30, 2005, compared to $22.2 million at December 31,2004. During the fourth quarter in 2004, Washtenaw initiated a strategy to holdor buy in the open market variable rate mortgage-backed securities.  The securities were primarily obtained in asecuritization of loans held for sale in exchange for 100% of the beneficialinterests in the form of mortgage backed securities.  The securities are pledged as collateral forrepurchase agreements used to fund the mortgage-backed securities.  Management uses various derivativeinstruments to hedge the interest rate risks that exists.  The risk is due to the duration of therepurchase agreements being different than the related time until theunderlying loans in the mortgage-backed securities reach their adjustmentdate.  Due to the increase in theborrowing costs and the flattening of the yield curve, it is no longerbeneficial to continue holding securities available for sale.  Washtenaw discontinued holding securitiesavailable for sale in April 2005.

 

Mortgage Servicing Rights

Total MSRs were $14.2million at June 30, 2005, a decrease of $3.0 million or 18% from $17.2million at December 31, 2004.  Thedecrease is primarily the result of a bulk servicing sale of $242.3 million inthe quarter ended June 30, 2005. The MSR asset was decreased by approximately $2.4 million as a result ofthe sale.  In addition $1.9 million ofamortization was recorded for the six months ended June 30, 2005.  This was offset by an increase in the fairvalue of $214,000 in the remaining MSRs as mortgage interest ratesincreased.  In general, servicing rightvalues tend to decline in a falling interest rate environment and increase in arising interest rate environment. Management cannot predict future market interest rate levels or themagnitude of future servicing valuation adjustments; however, the potential forfurther impairment charges exist depending on the mortgage interest rateenvironment.  The MSRs asset alsoincreased due to the retention of a small amount of MSRs on newly originatedloans.

 

In April 2004,Washtenaw began hedging a portion of its mortgage loan servicingportfolio.   During the quarter,management has used ten year Treasury futures contracts and ten year Treasuryput and call options to hedge against the reduction in the value of the MSRsdue to a decline in mortgage interest rates. The derivative instruments were purchased to protect between 20% and 25%of the MSRs that can be hedged against declining interest rates.  All fixed rate loan servicing can be hedgedwhile arms and balloons are not.  For thesix months ended June 30, 2005, Washtenaw recognized a $500,000unfavorable MSR valuation adjustment. During the same period, Washtenaw realized a $286,000 gain on MSR hedgingactivity.

 

Washtenaw intends to sellapproximately $900 million in MSRs during the quarter ending September 30,2005.  Management anticipates this willreduce the MSR asset by approximately $9.0 million at the sale date.  At the time of the sale, management willreduce its hedge position accordingly in an effort to hedge the same overallpercentage of the MSRs.

 

## **LIABILITIES**

## ** **

At June 30, 2005,the total liabilities of The Washtenaw Group were $56.6 million as compared to$103.3 million at December 31, 2004, a decrease of $46.7 million or 45%.This decrease was primarily due to decreases in notes payable, GNMA repurchaseliability, repurchase agreements and other liabilities.

 

11

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Notes Payable

Notes payable was $22.2million at June 30, 2005 compared to $59.9 million at December 31,2004.  This decrease of $37.7 million or63% was primarily due to the to the decrease in loan originations during thequarter ended June 30, 2005 and the increased use of repurchase agreementsas a source of funding the loans held for sale. The notes payable represent the warehouse line of credit that Washtenawuses to fund its loan production until such time that the loans are sold to thesecondary market.   Washtenaw receives anearnings credit calculated on the average balance of the custodial accountsmaintained with its warehouse lender.  AsWashtenaw has sold MSRs, the average balances have decreased and the result hasbeen that the use of repurchase agreements has become a lower cost fundingsource.

 

GNMA Repurchase Liability

GNMA repurchase liabilitywas $1.9 million at June 30, 2005, compared to $6.5 million at December 31,2004.  This decrease of $4.6 million or70% was the result of the sale of approximately 90% of all the GNMA MSRs in2005.  The GNMA repurchase liabilityrepresents Washtenaw’s right, but not an obligation, to repurchase eligibleGNMA loans from the securities that Washtenaw services.

 

Repurchase Agreements

Repurchase agreementswere $21.1 million at June 30, 2005, compared to $22.4 million at December 31,2004.  At December 31, 2004, $21.4million of the repurchase agreements were being used to fund securitiesavailable for sale were subsequently sold. As describe above, Washtenaw is now making greater use of repurchaseagreements as a source of funding for loans held for sale.

 

Other Liabilities

Other liabilities alsodecreased from $8.0 million at December 31, 2004 to $5.0 million or 38% asof June 30, 2005.  This decrease wasprimarily due to the reduction of the federal income tax liability and reservefor repurchase.  The federal income taxliability decreased $2.3 million and the reserve for repurchase decreased$211,100 as a result of fewer repurchase requests from investors and thepayment of existing obligations.

 

 LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity Management

The objective ofliquidity management is to ensure the availability of sufficient resources tomeet all financial commitments and to capitalize on opportunities for businessexpansion.  Liquidity managementaddresses the ability to meet deposit withdrawals either on demand or bycontractual maturity, to repay other borrowings as they mature and to make newloans and investments as opportunities arise.

 

To date The WashtenawGroup has conducted no business other than managing its investments inWashtenaw.  The Washtenaw Group’s sourceof funds is dividends paid by Washtenaw. Washtenaw’s sources of funds includecash from gains on sales of mortgage loans and servicing, net interest income,and servicing fees and borrowings. Washtenaw sells its mortgage loans generallyon a monthly basis to generate cash for operations. Washtenaw’s uses of cash inthe short-term include the funding of mortgage loan purchases and originationsand purchases of MSRs, payment of interest, repayment of amounts borrowedpursuant 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 securitizationactivities or portfolios of loan or servicing assets.

 

Washtenaw funds itsbusiness through the use of a warehouse line of credit and the use ofagreements to repurchase.  The agreementsto repurchase typically have terms of less than 90 days and are treated as a sourceof financing.  The warehouse line ofcredit has a limit of $40 million, of which $8.0 million represents a sublimitfor servicing under contract for sale. The warehouse line of credit and sublimit for servicing advance will bereduced to $27,500,000 and zero over the next 90 days. Borrowing pursuant tothe warehouse line of credit totaled $22.2 million at June 30, 2005 and$60.0 million at December 31, 2004, which included advances on theservicing sublimit of $6.3 million and $8.3 million for the aforementionedperiods, respectively.  The interest rateon the warehouse line of credit is the Federal Funds Rate plus 1.875% resultingin effective rates of 5.13% and 3.75% at June 30, 2005 and December 31,2004, respectively.  The effectiveinterest rate paid on the warehouse line of credit is reduced by compensatingbalances related to Washtenaw’s loan servicing portfolio.  The warehouse line of credit is payable ondemand.  The terms of the warehouse lineof credit impose certain limitations on the operations of Washtenaw.  Pursuant to the warehouse

 

12

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line of credit, Washtenawmust maintain a minimum net worth of $9.0 million plus 50% of net income,calculated in accordance with U.S. generally accepted accounting principles,and a minimum adjusted tangible net worth of $9.0 million plus 50% of netincome.  Washtenaw must also maintain aratio of total indebtedness to adjusted tangible net worth of no more thaneight to one and maintain a ratio of adjusted total indebtedness to adjustedtangible net worth of no more than one to one. For purposes of the warehouse line of credit, adjusted tangible networth is defined as the excess of total assets over total liabilities, withcertain additions and subtractions as specified in the warehouse line of creditagreement, primarily related to MSRs and deferred taxes.  As of June 30, 2005, Washtenaw’s, networth calculated in accordance with U.S. generally accepted accountingprinciples was $11.5 million and adjusted tangible net worth was $12.0million.  Washtenaw’s ratio of totalindebtedness to adjusted tangible net worth was 2.73 and adjusted totalindebtedness to adjusted tangible net worth was 0.52.  Washtenaw met all of these covenants duringall time periods reported.  The maturitydate of the warehouse line of credit agreement is November 1, 2005.

 

Washtenaw continues toconsider other alternatives permitted by its warehouse line of credit agreementto improve liquidity. These actions include, but are not limited to, factoringof accounts receivable and establishing a line of credit collateralized by itsoutstanding real estate owned.

 

Washtenaw is alsoattempting to manage its liquidity requirements through the prudent use of itscash resources, effective management of working capital and capitalexpenditures and periodic sales of mortgage servicing rights.

 

Washtenaw also entersinto sales of mortgage loans pursuant to agreements to repurchase.  These agreements typically have terms of lessthan 90 days and are treated as a source of financing.  The weighted average interest rate on theseagreements to repurchase was 4.15% at June 30, 2005, and 3.15% at December 31,2004.

 

Washtenaw’s ability tocontinue to purchase loans and MSRs and to originate new loans is dependent inlarge part upon its ability to sell the mortgage loans at par or for a premiumor to sell the MSRs in the secondary market in order to generate cash proceedsto repay borrowings pursuant to the warehouse credit facility, thereby creatingborrowing capacity to fund new purchases and originations.  The value of and market for The WashtenawGroup’s loans and MSRs are dependent upon a number of factors, including theborrower credit risk classification, loan-to-value ratios and interest rates,general economic conditions, warehouse facility interest rates, Washtenaw’sfinancial condition and governmental regulations.  A significant amount of Washtenaw’s loanproduction in any month is funded during the last several business days of thatmonth.

 

Washtenaw generallygrants commitments to fund mortgage loans for up to 60 days at a specified termand interest rate.  The commitments arecommonly known as rate-lock commitments. At June 30, 2005 and December 31, 2004, Washtenaw hadoutstanding rate-lock commitments to lend of $60.5 million and $52.7 million,respectively for mortgage loans.  Becausethese commitments may expire without being drawn upon, they do not necessarilyrepresent future cash commitments.  Also,as of June 30, 2005 and December 31, 2004, Washtenaw had outstandingcommitments to sell $62.6 million and $64.9 million of mortgage loans,respectively.  These commitments will befunded within 90 days.

 

Washtenaw purchases itsloans either by wiring funds to the closing agent or sending a draft.  The decision is based on the requirements ofthe state where the loan is being purchased. When a draft is used, Washtenaw begins earning interest on the day thedraft is issued but does not incur any cost of funds until the draft ispresented to bank.  When the draft clearsthe bank, Washtenaw will either borrow money on its warehouse line of credit orthrough its agreements to repurchase depending on the type of loan.  Outstanding drafts totaled $6.4 million at June 30,2005 and $6.5 million at December 31, 2004.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

For a discussion of TheWashtenaw Group’s asset/liability management policies as well as the potentialimpact of interest rate changes upon the market value of The Washtenaw Group’sportfolio, see The Washtenaw Group’s Annual Report to Shareholders and Form 10-K.  Management believes that there has been nomaterial change in The Washtenaw Group’s asset/liability position or the marketvalue of The Washtenaw Group’s portfolio since December 31, 2004.

 

13

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Item 4. Controls and Procedures

 

The Washtenaw Group,under the supervision and with the participation of its management, includingits principal executive officer and principal financial officer, evaluated theeffectiveness of the design and operation of its disclosure controls andprocedures as of the end of the period covered by this report.  Based on this evaluation, the principalexecutive officer and principal financial officer concluded that The WashtenawGroup’s disclosure controls and procedures are effective in reaching areasonable level of assurance that information required to be disclosed by TheWashtenaw Group in the reports that it files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime period specified in the Securities and Exchange Commission’s rules andforms.

 

The principal executiveofficer and principal financial officer also conducted an evaluation ofinternal control over financial reporting (“Internal Control”) to determinewhether any changes in Internal Control occurred during the fiscal quarter thathave materially affected or which are reasonably likely to materially affectInternal Control.  Based on thatevaluation, there has been no such change during the quarter covered by thisreport.

 

A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within The Washtenaw Grouphave been detected.  Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and not be detected. The Washtenaw Group conducts periodic evaluations to enhance, wherenecessary, its procedures and controls.

 

Part II. Other Information

 

Item1.   LegalProceedings

 

There have been no othermaterial changes to the pending legal proceedings to which The Washtenaw Groupis a party since the filing of the registrant’s Form 10-K for the yearended December 31, 2004 or the filing of the registrant’s Form 10-Qfor the quarterly period ended March 31, 2005. In addition, there havebeen no material legal proceedings to which The Washtenaw Group is a partyinstituted since that date.  The *Washtenaw Mortgage Co. v Chase Manhattan Mortgage Corp.*,Civil Action No. 04-73451, United States District Court for the EasternDistrict of Michigan (Southern Division) was settled as described in the March 31,2005 Form 10-Q.

 

Item2.  Unregistered Sales ofEquity Securities and Use of Proceeds

 

None

 

Item3.   Defaults Upon Senior Securities

 

NotApplicable.

 

Item4.   Submission of Matters to aVote of Shareholders

 

The Washtenaw Group, Incheld its 2005 Annual Meeting of Shareholders on April 28, 2005 at whichthe shareholders voted (a) to elect three persons to the Board ofDirectors to serve for a term of three years, and (b) to ratify the appointmentof Crowe Chizek and Company, LLC as independent public accountants for the yearending December 31, 2005.

 

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(a) The followingdirectors were elected at the annual meeting to serve  three-year terms.

 
| ** **       | ** ** | **For**   | ** ** | **Against** | ** ** | **Abstentions** | ** ** |
|------------------|------------|-----------|------------|-------------|------------|-----------------|------------|
| Raleigh E. Allen |       | 3,543,857 |       | 390,141     |       | 0               |       |
| Timothy J. Ryan  |       | 3,544,057 |       | 389,941     |       | 0               |       |
| S. Lynn Stokes   |       | 3,544,057 |       | 389,941     |       | 0               |       |

 

The names of thedirectors elected whose term of office continued after the annual meeting areas follows:

 

Robert C. Huffman

Charles C. Huffman

Howard M. Nathan

Scott D. Miller

 

(b) The shareholdersratified the appointment of Crowe Chizek and Company LLC as independentauditors for the fiscal year ending December 31, 2005 by the following votes:  3,740,478 for, 8,300 against, and 185,220abstained.

 

Item5.   OtherInformation

 

(a)          Notapplicable

 

(b)         Notapplicable

 

15

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Item6.   Exhibits

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                   |
|-------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                              |
| 2.1                     |       | Plan of Distribution  (1)                                                                                                         |
|                    |       |                                                                                                                              |
| 3.1                     |       | Articles  Incorporation of The Washtenaw Group, Inc. (1)                                                                     |
|                    |       |                                                                                                                              |
| 3.2                     |       | Bylaws of The  Washtenaw Group, Inc. (1)                                                                                     |
|                    |       |                                                                                                                              |
| 4                       |       | Form of  Common Stock Certificate of The Washtenaw Group, Inc. (1)                                                      |
|                    |       |                                                                                                                              |
| 10.1                    |       | Master Agreement  between Federal National Mortgage Association and Washtenaw Mortgage Company  dated December 21, 1998 (1)  |
|                    |       |                                                                                                                              |
| 10.2                    |       | Transitional  Services Agreement between Pelican Financial, Inc. and The Washtenaw  Group, Inc. (1)                     |
|                    |       |                                                                                                                              |
| 10.3                    |       | The Washtenaw  Group, Inc. Stock Option and Incentive Plan (1)                                                               |
|                    |       |                                                                                                                              |
| 10.4                    |       | Second Amended  and Restated Warehousing Credit Agreement                                                                         |
|                    |       |                                                                                                                              |
| 10.5                    |       | Subordinated  Promissory Note in Favor of Washtenaw Mortgage Company                                                              |
|                    |       |                                                                                                                              |
| 10.6                    |       | Subordination  Agreement among Washtenaw Mortgage Company, Charles C. Huffman and National  City Bank                             |
|                    |       |                                                                                                                              |
| 31.1                    |       | Certification of  Principal Executive Officer                                                                                     |
|                    |       |                                                                                                                              |
| 31.2                    |       | Certification of  Principal Financial Officer                                                                                     |
|                    |       |                                                                                                                              |
| 32                      |       | Certification  Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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(1)                                  Incorporatedby reference to Exhibit bearing the same number in The Washtenaw Group, Inc.’sRegistration Statement on Form 10, filed on September 11, 2004, asamended (Reg. No. 001-31795)

 

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The Washtenaw Group, Inc. and Subsidiary

Signatures

 

Under the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this Reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| Date:  August 12, 2005 | /s/ Charles C.  Huffman                       |   |
|-----------------------------|-----------------------------------------------|--------|
|                        | Charles  C. Huffman                           |
|                        | President and  Chief Executive Officer        |
|                        | (Principal  Executive Officer)                |
|                        |                                          |
|                        |                                          |
| Date:  August 12, 2005 | /s/ Howard M.  Nathan                         |   |
|                        | Howard M. Nathan                              |
|                        | Vice President  and Chief Financial Officer   |
|                        | (Principal  Financial and Accounting Officer) |

 

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Exhibit Index

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                   |
|-------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                              |
| 2.1                     |       | Plan of  Distribution (1)                                                                                                         |
|                    |       |                                                                                                                              |
| 3.1                     |       | Articles  Incorporation of The Washtenaw Group, Inc. (1)                                                                     |
|                    |       |                                                                                                                              |
| 3.2                     |       | Bylaws of The  Washtenaw Group, Inc. (1)                                                                                     |
|                    |       |                                                                                                                              |
| 4                       |       | Form of  Common Stock Certificate of The Washtenaw Group, Inc. (1)                                                      |
|                    |       |                                                                                                                              |
| 10.1                    |       | Master Agreement  between Federal National Mortgage Association and Washtenaw Mortgage Company  dated December 21, 1998 (1)  |
|                    |       |                                                                                                                              |
| 10.2                    |       | Transitional  Services Agreement between Pelican Financial, Inc. and The Washtenaw  Group, Inc. (1)                     |
|                    |       |                                                                                                                              |
| 10.3                    |       | The Washtenaw  Group, Inc. Stock Option and Incentive Plan (1)                                                               |
|                    |       |                                                                                                                              |
| 10.4                    |       | Second Amended  and Restated Warehousing Credit Agreement                                                                         |
|                    |       |                                                                                                                              |
| 10.5                    |       | Subordinated  Promissory Note in Favor of Washtenaw Mortgage Company                                                              |
|                    |       |                                                                                                                              |
| 10.6                    |       | Subordination  Agreement among Washtenaw Mortgage Company, Charles C. Huffman and National  City Bank                             |
|                    |       |                                                                                                                              |
| 31.1                    |       | Certification of  Principal Executive Officer                                                                                     |
|                    |       |                                                                                                                              |
| 31.2                    |       | Certification of  Principal Financial Officer                                                                                     |
|                    |       |                                                                                                                              |
| 32                      |       | Certification  Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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(1)          Incorporatedby reference to Exhibit bearing the same number in The Washtenaw Group, Inc.’sRegistration Statement on Form 10, filed on September 11, 2004, asamended (Reg. No. 001-31795).

 

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