FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
-------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------------
Commission File #000-30521
Lenawee Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Michigan 38-3088340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 East Maumee Street, Adrian, Michigan 49221
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (517) 265-5144,
Fax (517) 265-3926
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 shorter periods that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
As of August 8, 2000, there were 854,913 outstanding shares of the registrant's
common stock, no par value.
Page 1
<PAGE>
CROSS REFERENCE TABLE
ITEM NO. DESCRIPTION PAGE NO.
--------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Condensed)
(a) Report of Independent Accountants 3
(b) Condensed Consolidated Balance Sheets 4
(c) Condensed Consolidated Statements of Income
and Comprehensive Income 5
(d) Condensed Consolidated Statements of Cash Flows 6
(e) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II -OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
Exhibit Index 14
Page 2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Lenawee Bancorp, Inc.
Adrian, Michigan
We have reviewed the condensed consolidated balance sheet of Lenawee Bancorp,
Inc. as of June 30, 2000, the related condensed consolidated statements of
income and comprehensive income for the quarter and year to date periods ended
June 30, 2000 and 1999 and the condensed consolidated statements of cash flows
for the year to date periods ended June 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
August 8, 2000
Page 3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
<TABLE>
(b) CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
In thousands of dollars 2000 December 31,
(unaudited) 1999
----------- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 10,598 $ 7,310
Federal funds sold 3,550 2,200
----------- -----------
Total cash and cash equivalents 14,148 9,510
Securities available for sale 20,353 23,024
Federal Home Loan Bank stock, at cost 2,504 2,504
Federal Reserve Bank stock, at cost 360 360
Loans receivable, net of allowance for loan losses 208,968 192,721
Loans held for sale 1,001 759
Premises and equipment, net 6,297 6,521
Accrued interest receivable 1,597 1,576
Mortgage servicing asset 1,534 1,335
Other assets 1,774 1,594
----------- -----------
Total assets $ 258,536 $ 239,904
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 38,402 $ 36,687
Interest bearing 174,353 162,519
----------- -----------
Total deposits 212,755 199,206
Borrowed funds 20,335 16,177
Accrued interest payable 672 644
Other liabilities 827 1,102
----------- -----------
Total liabilities 234,589 217,129
Common stock subject to repurchase obligation in ESOP 4,326 4,326
Shareholders' Equity
Common stock and paid-in capital, no par value 10,544 10,430
Retained earnings 9,416 8,353
Accumulated other comprehensive income (loss),
net of tax (339) (334)
----------- -----------
Total shareholders' equity 19,621 18,449
----------- -----------
Total liabilities and shareholders' equity $ 258,536 $ 239,904
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
<TABLE>
(c) CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (unaudited) Three Months Ended Six Months Ended
In thousands of dollars, except per share data June 30, June 30,
------------------------------ -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 4,793 $ 3,804 $ 9,244 $ 7,360
Taxable securities 290 428 550 865
Nontaxable securities 50 75 150 151
Federal funds sold 9 14 30 73
Other 1 2 2 23
------------ ------------ ------------ ------------
Total interest and dividend income 5,143 4,323 9,976 8,472
Interest expense
Deposits 1,844 1,337 3,589 2,727
Federal Home Loan Bank advances 232 93 406 186
Other 54 41 79 69
------------ ------------ ------------ ------------
Total interest expense 2,130 1,471 4,074 2,982
------------ ------------ ------------ ------------
Net interest income 3,013 2,852 5,902 5,490
Provision for loan losses - 30 30 30
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,013 2,822 5,872 5,460
Noninterest income
Service charges and fees 293 246 561 465
Net gains on loan sales 143 294 203 593
Loan servicing fees, net of amortization 20 36 99 52
Other 4 13 23 33
------------ ------------ ------------ ------------
460 589 886 1,143
Noninterest expense
Salaries and employee benefits 1,306 1,378 2,619 2,741
Occupancy and equipment 442 414 846 833
Other 510 445 1,034 893
------------ ------------ ------------ ------------
2,258 2,237 4,499 4,467
------------ ------------ ------------ ------------
Income before income tax 1,215 1,174 2,259 2,136
Income tax expense 393 381 733 687
------------ ------------ ------------ ------------
Net income $ 822 $ 793 $ 1,526 $ 1,449
============ ============ ============ ============
Comprehensive income $ 893 $ 521 $ 1,521 $ 1,022
============ ============ ============ ============
Basic earnings per share $ .96 $ .93 $ 1.79 $ 1.70
============ ============ ============ ============
Diluted earnings per share $ .95 $ .93 $ 1.76 $ 1.70
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
<TABLE>
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Six Months Ended
In thousands of dollars June 30,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,526 $ 1,449
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 356 363
Provision for loan losses 30 30
Loss on sale of securities available for sale - 5
Net amortization and accretion on securities
available for sale 32 85
Amortization of mortgage servicing rights 103 124
Loans originated for sale (15,435) (27,227)
Proceeds from sale of mortgage loans 15,094 29,055
Net gains on sales of mortgage loans (203) (593)
Net change in:
Deferred loan origination fees (11) (2)
Accrued interest receivable (21) 201
Other assets (50) 443
Accrued interest payable 28 (57)
Other liabilities (275) (101)
----------- ------------
Net cash from operating activities 1,174 3,775
----------- ------------
Cash flows from investing activities Proceeds from:
Maturities, calls and principal payments on
securities available for sale 2,630 8,570
Sales of securities available for sale - 7,675
Purchases of:
Securities available for sale - (10,445)
Premises and equipment, net (132) (397)
Net increase in loans (16,392) (13,693)
----------- ------------
Net cash from investing activities (13,894) (8,290)
----------- ------------
Cash flows from financing activities
Net change in deposits 13,549 (3,152)
Net change in borrowed funds 4,158 692
Change in shareholders' equity (349) (276)
----------- ------------
Net cash from financing activities 17,358 (2,736)
----------- ------------
Net change in cash and cash equivalents 4,638 (7,251)
Cash and cash equivalents at beginning of period 9,510 18,702
----------- ------------
Cash and cash equivalents at end of period $ 14,148 $ 11,451
=========== ============
Cash paid for:
Interest $ 4,046 $ 3,039
Income taxes 230 625
Transfer from:
Loans to foreclosed real estate 126 161
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
(e) NOTES TO FINANCIAL STATEMENT (unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Lenawee Bancorp,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10 for the year ended December 31, 1999.
NOTE 2 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements. The unpaid principal balances of mortgage loans
serviced for others was approximately $200,102,000 and $163,144,000 at the end
of June 2000 and 1999. Mortgage servicing rights activity in thousands of
dollars for the six months ended June 30, 2000 and 1999 follows:
<TABLE>
Unamortized cost of mortgage servicing rights 2000 1999
--------------------------------------------- ---- ----
<S> <C> <C>
Balance at January 1 $ 1,335 $ 1,098
Amount capitalized year to date 302 279
Amount amortized year to date (103) (124)
------------ -----------
Balance at period end $ 1,534 $ 1,253
============ ===========
</TABLE>
The valuation allowance relative to mortgage servicing rights was $219,000 and
$221,000 at period end 2000 and 1999, respectively.
NOTE 3 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic earnings and
diluted earnings per share computations for the three and six months ended June
30, 2000 and 1999 is presented below in thousands, except for per share
information:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
Net income available to common shareholders $ 822 $ 793 $ 1,526 $ 1,449
============ ============ ============ ============
Weighted average common shares outstanding 854 853 854 853
============ ============ ============ ============
Basic earnings per share $ .96 $ .93 $ 1.79 $ 1.70
============ ============ ============ ============
Diluted earnings per share
Net income available to common shareholders $ 822 $ 793 $ 1,526 $ 1,449
============ ============ ============ ============
Weighted average common shares outstanding 854 853 854 853
Add: Dilutive effects of exercise of stock options 14 2 13 1
------------ ------------ ------------ ------------
Weighted average common and dilutive
potential shares outstanding 868 855 867 854
============ ============ ============ ============
Diluted earnings per share $ .95 $ .93 $ 1.76 $ 1.70
============ ============ ============ ============
</TABLE>
Page 7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion provides information about the consolidated financial condition
and results of operations of Lenawee Bancorp, Inc. and its subsidiary, Bank of
Lenawee ("Bank"), as of June 30, 2000 for the three and six month periods ended
June 30, 2000 and 1999.
FINANCIAL CONDITION
Securities
The balance of the Company's investment securities portfolio continued to
decline during the second quarter of 2000. Principal repayments on mortgage
backed securities, as well as maturities within the portfolio, contributed to
the decrease in balances, as there were no purchases during the quarter. In
spite of this decline, the mix of the securities portfolio remains relatively
unchanged from period to period over the long term.
Loans
Loan growth continued to be strong during the second quarter of 2000, and
exceeded the levels achieved in 1999. During the second three months, annualized
loan growth was 20.6%, compared to 11.7% for the first quarter of the year.
Commercial and consumer loans led the increases, while mortgage loans remained
relatively unchanged.
The mix of the loan portfolio reflected this growth trend, although overall the
mix has remained relatively unchanged from prior periods. Over the long term,
the trend is toward an increased percentage of residential mortgage and business
loans.
Loans held for sale grew 31.9% when compared to year-end 1999. Continued strong
loan growth prompted this increase. As of June 30, 2000, there existed
approximately $9,800,000 of loans committed to be sold. A loss of $196,000 is
reflected in the income statement for the three and six months ended June 30,
2000 relative to this pending loan sale. This loss is partially offset by an
addition to the mortgage servicing asset, net of any remaining unamortized
deferred fees and costs, of approximately $173,000.
Credit Quality
The Company continues to monitor the asset quality of the loan portfolio
utilizing a loan review officer who, combined with external loan review
specialists, periodically submits reports to the Chief Lending Officer and to
the Board of Directors regarding the credit quality of the loan portfolio. This
review is independent of the loan approval process. Also, management continues
to monitor delinquencies, nonperforming assets and potential problem loans to
assess the continued quality of the Company's loan portfolio.
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<PAGE>
Nonperforming loans are comprised of (1) loans accounted for on a nonaccrual
basis, (2) loans contractually past due 90 days or more as to interest or
principal payments (but not included in the nonaccrual loans in (1) above) and
(3) other nonperforming loans (but not included in (1) or (2) above) which
consist of loan arrangements under the Business Manager program. The aggregate
amount of nonperforming loans, in thousands of dollars, is shown in the table
below. The Company's classifications of nonperforming loans are generally
consistent with loans identified as impaired.
The chart below shows the makeup of the Company's nonperforming assets by type,
in thousands of dollars, as of June 30, 2000 and 1999, and December 31, 1999.
<TABLE>
6/30/2000 12/31/1999 6/30/1999
--------- ---------- ---------
<S> <C> <C> <C>
Nonaccrual loans $ 1,571 $ 1,571 $ 71
90 days or more past due & still accruing 203 275 179
Other nonperforming loans 1,069 1,500 -
----------- ------------ ------------
Total nonperforming loans 2,843 3,346 250
Other real estate 377 255 452
----------- ------------ ------------
Total nonperforming assets $ 3,220 $ 3,601 $ 702
=========== ============ ============
Nonperforming loans as a percent of total loans 1.33% 1.73% 0.15%
Nonperforming assets as a percent of total loans 1.51% 1.87% 0.41%
Nonperforming loans as a percent of the allowance
for loan losses 61.46% 72.02% 11.60%
</TABLE>
Subsequent to December 31, 1999, the Company became aware of circumstances which
occurred in 1999, involving loans to a single borrower in which the Bank had
purchased a participating interest from another financial institution. As a
result of these circumstances, management concluded that a loss was probable
and, accordingly, recorded an additional provision for loan losses of $2.3
million for 1999 on loans outstanding of approximately $3 million. This loan
relationship is reflected in the above table in the categories of nonaccrual
loans and other nonperforming loans at December 31, 1999 and June 30, 2000. The
outstanding balance of the loan relationship has decreased approximately
$429,000 since December 31, 1999. In addition, these loans were considered to be
impaired at December 31, 1999 and continue to be impaired at June 30, 2000. The
foregoing explains the large variance noted above in nonperforming loans as
compared to June 30, 1999.
The provision for loan losses for the first six months of 2000 remained
unchanged when compared to the same period in 1999. The provision provides for
currently anticipated losses inherent in the current portfolio. An analysis of
the allowance for loan losses, in thousands of dollars, for the six months ended
June 30, 2000 and 1999 follows:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 4,646 $ 2,182
Loans charged off (89) (78)
Recoveries credited to allowance 39 21
Provision charged to operations 30 30
------------ -----------
Balance at end of period $ 4,626 $ 2,155
============ ===========
</TABLE>
Page 9
<PAGE>
Deposits
Total deposit growth for the second quarter was slightly below the first quarter
growth. Annualized deposit growth for the quarter was 13.2%, compared to 7.2%
for all of 1999. Interest bearing deposits experienced the majority of the
increase during the period. Management anticipates moderate deposit growth
during 2000 as a result of continued expansion in new and existing markets.
Liquidity
The Bank maintained an average funds borrowed position for the first half of
2000, although generally the Bank moves in and out of the fed funds market as
liquidity needs vary. Borrowings increased from December 31, 1999, and
management anticipates that deposit and loan growth will cause continued
variation in the short term funds position of the Bank. The Company has a number
of additional liquidity sources should the need arise, and management believes
that the liquidity position of the Company is good.
Capital Resources
The capital ratios of the Bank exceed the regulatory guidelines for well
capitalized institutions. The following table shows the Bank's capital ratios
and ratio calculations at June 30, 2000 and 1999 and December 31, 1999.
<TABLE>
Regulatory Guidelines Bank of Lenawee
--------------------- ---------------
Adequate Well 6/30/2000 12/31/1999 6/30/1999
-------- ---- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total risk adjusted capital ratio 8% 10% 11.7% 12.1% 12.7%
Tier 1 risk adjusted capital ratio 4% 6% 10.5% 10.8% 11.5%
Tier 1 capital to average assets 4% 5% 9.2% 9.3% 9.6%
</TABLE>
Results of Operations
Net Interest Income
Net interest margin remained relatively unchanged for the second quarter
compared to the first quarter of 2000, but has declined from the same period in
1999. The same holds true for the spread. This tightening, when compared to
1999, is primarily a result of the Company's interest liability-sensitive
position, reflecting a risk to earnings when interest rates rise. In fact,
interest rates have risen during recent periods, resulting in the expected
decline in margin. However, the Company's margin remains quite strong, and
management continues to take steps to neutralize some portion of this risk.
The following table shows the year to date daily average Consolidated Balance
Sheet, interest earned or paid, and the annualized effective rate or yield, for
the six month periods ended June 30, 2000 and 1999.
Page 10
<PAGE>
<TABLE>
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 6/30/2000 6/30/1999
--------- ---------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) $ 198,919 $ 9,244 9.29% $ 159,206 $ 7,360 9.25%
Securities available for sale (2) 21,953 600 5.47% 33,505 917 5.47%
Federal funds sold 1,121 30 5.35% 2,924 73 4.99%
Federal Home Loan Bank stock 2,504 100 7.99% 2,504 99 7.91%
Interest-bearing balances with
other financial institutions 83 2 4.82% 1,014 23 4.54%
----------- --------- ----------- ---------
Total int. earning assets 224,580 9,976 8.88% 199,153 8,472 8.50%
Noninterest-earning assets:
Cash and due from financial
institutions 7,971 7,568
Premises and equipment, net 6,406 6,563
Other assets 4,050 3,731
----------- ----------
Total Assets $ 243,007 $ 217,015
=========== ==========
Interest bearing liabilities:
Interest bearing demand
deposits $ 52,696 $ 883 3.35% $ 47,743 $ 618 2.59%
Savings deposits 23,817 179 1.50% 24,476 195 1.59%
Time deposits 91,705 2,527 5.51% 77,450 1,914 4.94%
Repurchase agreements and
other borrowings 2,945 79 5.37% 3,811 69 3.62%
FHLB advances 13,169 406 6.17% 6,250 186 5.95%
----------- --------- ---------- ---------
Total int. bearing
liabilities 184,332 4,074 4.42% 159,730 2,982 3.74%
Noninterest-bearing liabilities:
Demand deposits 34,576 33,028
Other liabilities 693 1,230
----------- ----------
Total liabilities 219,601 193,988
Shareholders' equity 23,406 23,027
----------- ----------
Total liabilities and
shareholders' equity $ 243,007 $ 217,015
=========== ==========
Net interest income (2) $ 5,902 $ 5,490
========= =========
Net spread (2) 4.46% 4.76%
===== =====
Net yield on interest
earning assets (2) 5.26% 5.51%
===== =====
Ratio of interest earning assets to
interest bearing liabilities 1.22 1.25
=========== ==========
</TABLE>
(1) Non-accrual loans and overdrafts are included in the average balances of
loans.
(2) Interest income on tax-exempt securities has not been adjusted to a taxable
equivalent basis.
Page 11
<PAGE>
Noninterest Income
For the first half of 2000, noninterest income from banking products and
services declined 22.5% as compared to the same period in 1999. Rising interest
rates slowed the originations of residential mortgage loans and, accordingly,
the Company's volume of loan sales. A decrease in net gains on loan sales of
$390 thousand, or 65.8%, contributed significantly to the overall noninterest
income decline. This decrease was partially offset by an increase of 20.6% in
services charges and fees due to deposit growth. Noninterest income for the
three months ended June 30, 2000 also decreased over the same period in 1999 for
the same reasons noted above. Noninterest income for the second three months of
2000 was slightly higher when compared to the first quarter. This can be
explained mostly by increased loan sale activity for the second quarter relative
to the first quarter of 2000.
Noninterest Expenses
Noninterest expense continued to increase over prior periods, reflecting
continued growth and expansion of the Bank. Total noninterest expense, excluding
provision for loan losses, for the first six months of 2000 was 0.7% above the
same period for 1999. Salaries and employee benefits decreased 4.5% as compared
to the six months ended June 30, 1999. This was mainly attributable to a
decreased level of employee incentive compensation during the first and second
quarters of 2000 as compared to the first and second quarters of 1999. When
compared to the six months ended June 30, 1999, the category of other
noninterest expense increased 15.8% for 2000. This increase is due to increased
costs during the first half of 2000 for ATM service charges, insurance,
donations, mobile banking security expenses and expenses relative to the
Business Manager program. Management expects these costs to continue rising as
the Bank experiences continued growth.
Federal Income Tax
There has been no significant change in the income tax position of the Company
during the second quarter of 2000.
Forward-Looking Statements
Statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Company itself. Words such as "anticipate," "believe," "determine," "estimate,"
"expect," "forecast," "intend," "is likely," "plan," "project," "opinion,"
variations of such terms, and similar expressions are intended to identify such
forward-looking statements. The presentations and discussions of the provision
and allowance for loan losses, and determinations as to the need for other
allowances presented in this report are inherently forward-looking statements in
that they involve judgements and statements of belief as to the outcome of
future events. These statements are not guarantees of future performance and
involve certain risks, uncertainties, and assumptions that are difficult to
predict with regard to timing, extent, likelihood, and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what may be
expressed or forecasted in such forward-looking statements. Internal and
external factors that may cause such a difference include changes in interest
rates and interest rate relationships; demand for products and services; the
degree of competition by traditional and non-traditional competitors; changes in
banking laws and regulations; changes in tax laws; changes in prices, levies,
and assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of pending and future litigation and
contingencies; trends in customer behavior and customer ability to repay loans;
software failure, errors or miscalculations; and the vicissitudes of the
national economy. The Company undertakes no obligation to update, amend or
clarify forward-looking statements, whether as a result of new information,
future events, or otherwise.
Page 12
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and liquidity
risk. All of the Company's transactions are denominated in U.S. dollars with no
specific foreign exchange exposure. The Company has a limited exposure to
commodity prices related to agricultural loans. Any impacts that changes in
foreign exchange rates and commodity prices would have on interest rates are
assumed to be insignificant.
Interest rate risk (IRR) is the exposure of a banking organization's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and stockholder value; however, excessive
levels of IRR could pose a significant threat to the Company's earnings and
capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Company's safety and soundness.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistence and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
The Company has not experienced a material change in its financial instruments
that are sensitive to changes in interest rates since December 31, 1999, which
information can be found in the Company's Registration Statement on Form 10, as
amended.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings. The Company's
sole subsidiary, Bank of Lenawee, is involved in ordinary routine litigation
incident to its business; however, no such proceedings are expected to result in
any material adverse effect on the operations or earnings of the Bank. Neither
the Bank nor the Company is involved in any proceedings to which any director,
principal officer, affiliate thereof, or person who owns of record or
beneficially five percent (5%) or more of the outstanding stock of the Company
or the Bank, or any associate of the foregoing, is a party or has a material
interest adverse to the Company or the Bank.
ITEM 2 - CHANGES IN SECURITIES
No changes in the securities of the Company occurred during the quarter ended
June 30, 2000.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the three months ended June 30, 2000.
Page 13
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 20, 2000. At
that meeting, the following matters were submitted to a vote of the shareholders
VOTE
1. Election of Two Directors for Terms AGAINST OR
Expiring in 2003 FOR WITHHELD ABSTENTION
--- ---------- ----------
Patrick K. Gill 617,765 1,559 -0-
David J. Stutzman 610,515 8,080 -0-
2. Appointment of Crowe, Chizek and
Company LLP as auditors for the
fiscal year ending December 31, 2000 613,438 3,105 2,781
There were 854,913 voting shares outstanding on April 20, 2000.
ITEM 5 - OTHER INFORMATION None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K):
27. Financial Data Schedule.
(b) The Company filed no reports on Form 8-K during the quarter ended
June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lenawee Bancorp, Inc.
August 14, 2000
/S/ Patrick K. Gill /s/ Loren J. Happel
Patrick K. Gill Loren J. Happel
President Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
Page 14
