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 March 31, 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 [ ] No [X]
As of May 11, 2000, there were 853,913 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) Consolidated Balance Sheets 4
(c) Consolidated Statements of Income and Comprehensive Income 5
(d) 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 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II -OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 16
Page 2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Lenawee Bancorp, Inc.
Adrian, Michigan
We have reviewed the consolidated balance sheet of Lenawee Bancorp, Inc. as of
March 31, 2000 and the related condensed consolidated statements of income and
comprehensive income and cash flows for the periods ended March 31, 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
South Bend, Indiana
May 5, 2000
Page 3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
<TABLE>
(b) CONDENSED CONSOLIDATED BALANCE SHEETS March 31,
In thousands of dollars 2000 December 31,
(unaudited) 1999
--------- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 9,449 $ 7,310
Federal funds sold - 2,200
---------- ----------
Total cash and cash equivalents 9,449 9,510
Securities available for sale 21,078 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 198,457 192,721
Loans held for sale 691 759
Premises and equipment, net 6,393 6,521
Accrued interest receivable 1,785 1,576
Mortgage servicing asset 1,340 1,335
Other assets 1,482 1,594
---------- ----------
Total assets $ 243,539 $ 239,904
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 36,024 $ 36,687
Interest bearing 169,866 162,519
---------- ----------
Total deposits 205,890 199,206
Borrowed funds 12,884 16,177
Accrued interest payable 717 644
Other liabilities 865 1,102
---------- ----------
Total liabilities 220,356 217,129
Common stock subject to repurchase obligation in ESOP 4,326 4,326
Shareholders' Equity
Common stock and paid-in capital, no par value 10,500 10,430
Retained earnings 8,767 8,353
Accumulated other comprehensive income (loss),
net of tax (410) (334)
---------- ----------
Total shareholders' equity 18,857 18,449
---------- ----------
Total liabilities and shareholders' equity $ 243,539 $ 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
In thousands of dollars, except per share data March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 4,451 $ 3,556
Taxable securities 260 437
Nontaxable securities 100 76
Federal funds sold 21 59
Other 1 21
--------- ---------
Total interest and dividend income 4,833 4,149
Interest expense
Deposits 1,745 1,390
Federal Home Loan Bank advances 174 93
Other 25 28
--------- ---------
Total interest expense 1,944 1,511
--------- ---------
Net interest income 2,889 2,638
Provision for loan losses 30 -
--------- ---------
Net interest income after provision for loan losses 2,859 2,638
Noninterest income
Service charges and fees 268 219
Net gains on loan sales 60 299
Loan servicing fees, net of amortization 79 16
Other 19 20
--------- ---------
426 554
Noninterest expense
Salaries and employee benefits 1,313 1,363
Occupancy and equipment 404 419
Other 524 448
--------- ---------
2,241 2,230
--------- ---------
Income before income tax 1,044 962
Income tax expense 340 306
--------- ---------
Net income $ 704 $ 656
========= =========
Comprehensive income $ 628 $ 501
========= =========
Basic earnings per share $ 0.83 $ 0.77
========= =========
Diluted earnings per share $ 0.81 $ 0.77
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
<TABLE>
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Three Months Ended
In thousands of dollars March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 704 $ 656
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 182 186
Provision for loan losses 30 -
Net amortization and accretion on securities
available for sale 16 44
Amortization of mortgage servicing rights 22 69
Loans originated for sale (4,221) (12,460)
Proceeds from sale of mortgage loans 4,322 13,848
Net gains on sales of mortgage loans (60) (299)
Net change in:
Deferred loan origination fees (19) 26
Accrued interest receivable (209) (76)
Other assets 152 424
Accrued interest payable 73 (14)
Other liabilities (237) (613)
-------- --------
Net cash from operating activities 755 1,791
-------- --------
Cash flows from investing activities Proceeds from:
Maturities, calls and principal payments on
securities available for sale 1,814 5,655
Purchases of:
Securities available for sale - (9,980)
Premises and equipment (54) (109)
Net increase in loans (5,747) (698)
-------- --------
Net cash from investing activities (3,987) (5,132)
-------- --------
Cash flows from financing activities
Net change in deposits 6,684 (3,913)
Net change in borrowed funds (3,293) 69
Change in shareholders' equity (220) (96)
-------- --------
Net cash from financing activities 3,171 (3,840)
-------- --------
Net change in cash and cash equivalents (61) (7,181)
Cash and cash equivalents at beginning of period 9,510 18,702
-------- --------
Cash and cash equivalents at end of period $ 9,449 $ 11,521
======== ========
Cash paid for:
Interest $ 2,816 $ 2,652
Income taxes - -
</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 three month
period ended March 31, 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 $183,269,000 and $150,900,000 at the end
of March 2000 and 1999. Mortgage servicing rights activity in thousands of
dollars for the three months ended March 31, 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 27 141
Amount amortized year to date (22) (69)
--------- ---------
Balance at period end $ 1,340 $ 1,170
========= =========
</TABLE>
No valuation allowance was considered necessary for mortgage servicing rights at
period end 2000 and 1999.
NOTE 3 - EARNING PER SHARE
A reconciliation of the numerators and denominators of the basic earnings and
diluted earnings per share computations for the three months ended March 31,
2000 and 1999 is presented below:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Basic earnings per share
------------------------
Net income available to common shareholders $ 704,000 $ 656,000
========== ==========
Weighted average common shares outstanding 852,939 852,481
========== ==========
Basic earnings per share $ 0.83 $ 0.77
========== ==========
Diluted earnings per share
--------------------------
Net income available to common shareholders $ 704,000 $ 656,000
========== ==========
Weighted average common shares outstanding 852,939 852,481
Add: Dilutive effects of exercise of stock options 12,343 79
---------- ----------
Weighted average common and dilutive
potential shares outstanding 865,282 853,273
========== ==========
Diluted earnings per share $ 0.81 $ 0.77
========== ==========
</TABLE>
Page 7
<PAGE>
NOTE 4 - ACCOUNTING FOR STOCK BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, requires proforma
disclosures for companies that do not adopt its fair value accounting method for
stock-based compensation. Accordingly, the following proforma information
presents net income and basic and diluted earnings per share had the fair value
method been used to measure compensation for stock options granted. The exercise
price of options granted in years prior to 2000 is equivalent to the market
value of the underlying stock at the grant date. Accordingly, no compensation
expense was actually recognized for stock options granted in the three months
ended March 31, 2000 and 1999.
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Net income as reported $ 704,000 $ 656,000
Proforma net income 691,000 649,000
Reported earnings per common share
Basic $ 0.83 $ 0.77
Diluted 0.81 0.77
Proforma earnings per common share
Basic 0.81 0.76
Diluted 0.80 0.76
</TABLE>
The fair value of options granted is estimated using option pricing models,
using the following weighted average information:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Risk-free interest rate 6.65% 5.10%
Expected option life 8 years 8 years
Expected stock price volatility 0.21 Nominal
Expected dividends 1.35% 1.86%
</TABLE>
The weighted average fair value of stock options granted was $21.43 and $7.09
for 2000 and 1999, respectively. At March 31, 2000, options outstanding had a
weighted average remaining life of 8.4 years.
In future years, as additional options are granted, the proforma effect on net
income and earnings per share may increase. The Company granted 5,720 stock
options during the first quarter of 2000 with an exercise price below the market
value of the underlying stock at the grant date. Accordingly, compensation
expense equal to the difference between the fair value and exercise price will
be recorded over the vesting period of the options, which is 5 years.
Stock options are used to reward directors and certain executive officers and
provide them with an additional equity interest. Options are issued for ten year
periods and vest over five years. Information about options available for grant
and options granted follows:
Page 8
<PAGE>
<TABLE>
Weighted-
Average
Available Options Exercise
For Grant (1) Outstanding Price (1)
------------- ----------- --------
<S> <C> <C> <C>
Balance at December 31, 1998 33,180 16,440 $ 21.37
Options issued (5,720) 5,720 36.00
Options exercised - - -
--------- -------- ---------
Balance at March 31, 1999
and December 31, 1999 27,460 22,160 25.14
Options issued (5,720) 5,720 44.00
Options exercised - - -
--------- -------- ---------
Balance at March 31, 2000 21,740 27,880 $ 29.01
========= ======== =========
</TABLE>
(1) Restated for a two-for-one stock split in 1998 and 1999.
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 March 31, 2000 for the three month periods ending March
31, 2000 and 1999.
FINANCIAL CONDITION
Securities
The Company's investment securities portfolio continued to decline during the
first quarter of 2000. Principal repayments on mortgage backed securities, as
well as a maturity within the portfolio, contributed to the decrease in
balances, as nothing was replaced 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 first quarter of 2000, and
exceeded the levels achieved in 1999. During the first three months, annualized
loan growth was 11.7%, compared to 1.7% for the same period last year.
Commercial and mortgage loans led the increases, while consumer loans remained
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 business loans.
Page 9
<PAGE>
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.
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 March 31, 2000 and 1999, and December 31, 1999.
<TABLE>
3/31/2000 12/31/1999 3/31/1999
--------- ---------- ---------
<S> <C> <C> <C>
Nonaccrual loans $ 1,571 $ 1,571 $ 71
90 days or more past due & still accruing 85 275 383
Other nonperforming loans 1,148 1,500 -
--------- ---------- ---------
Total nonperforming loans 2,804 3,346 454
Other real estate 377 255 291
--------- ---------- ---------
Total nonperforming assets $ 3,181 $ 3,601 $ 745
========= ========== =========
Nonperforming loans as a percent of total loans 1.38% 1.73% 0.29%
Nonperforming assets as a percent of total loans 1.57% 1.87% 0.47%
Nonperforming loans as a percent of the allowance
for loan losses 60.18% 72.02% 20.90%
</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 March 31, 2000. The
outstanding balance of the loan relationship has decreased approximately
$350,000 since December 31, 1999. In addition, these loans were considered to be
impaired at December 31, 1999 and continue to be impaired at March 31, 2000. The
foregoing explains the large variance noted above in nonperforming loans as
compared to March 31, 1999.
Page 10
<PAGE>
The Company has increased its provision for loan losses over the same period in
1999 as a result of the increase in loan volume. 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 three months
ended March 31, 2000 and 1999 follows:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 4,646 $ 2,182
Loans charged off (44) (20)
Recoveries credited to allowance 27 10
Provision charged to operations 30 -
--------- ----------
Balance at end of period $ 4,659 $ 2,172
========= ==========
</TABLE>
Deposits
Total deposits increased during the quarter at a rate higher than experienced in
recent periods. Annualized deposit growth for the quarter was 13.4%, 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 quarter of
2000, although generally the Bank moves in and out of the fed funds market as
liquidity needs vary. Borrowings declined 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 has no concerns for the
liquidity position of the Company.
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 March 31, 2000 and 1999 and December 31, 1999.
<TABLE>
Regulatory Guidelines Bank of Lenawee
--------------------- ---------------
Adequate Well 3/31/2000 12/31/1999 3/31/1999
-------- ---- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total risk adjusted capital ratio 8% 10% 11.9% 12.1% 13.3%
Tier 1 risk adjusted capital ratio 4% 6% 10.7% 10.8% 12.1%
Tier 1 capital to average assets 4% 5% 9.4% 9.3% 9.8%
</TABLE>
Page 11
<PAGE>
Results of Operations
Net Interest Income
Both yields on earning assets and cost of funds increased from December 31,
1999. The net result was a tightening of spread and net interest margin. This
tightening 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 periods ended March 31, 2000 and 1999.
<TABLE>
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 3/31/2000 3/31/1999
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) $ 192,514 $ 4,451 9.25% $ 155,564 $ 3,556 9.14%
Securities available for sale (2) 22,180 310 5.59% 33,927 463 5.46%
Federal funds sold 1,607 21 5.23% 4,628 59 5.10%
Federal Home Loan Bank stock 2,504 50 7.99% 2,504 50 7.99%
Interest-bearing balances with
other financial institutions 81 1 4.94% 1,840 21 4.57%
--------- -------- ---------- --------
Total int. earning assets 218,886 4,833 8.83% 198,463 4,149 8.36%
Noninterest-earning assets:
Cash and due from financial
institutions 7,911 7,758
Premises and equipment, net 6,466 6,610
Other assets 4,351 3,548
--------- ----------
Total Assets $ 237,614 $ 216,379
========= ==========
Interest bearing liabilities:
Interest bearing demand
deposits $ 51,792 $ 427 3.30% $ 49,201 $ 324 2.63%
Savings deposits 23,486 88 1.50% 24,386 104 1.71%
Time deposits 89,980 1,235 5.49% 77,317 964 4.99%
Repurchase agreements and
other borrowings 1,655 20 4.83% 2,967 26 3.51%
FHLB advances 11,681 174 5.96% 6,554 93 5.68%
--------- -------- ---------- --------
Total int. bearing liabilities 178,594 1,944 4.35% 160,425 1,511 3.77%
Noninterest-bearing liabilities:
Demand deposits 34,411 31,961
Other liabilities 1,630 1,444
--------- ----------
Total liabilities 214,635 193,830
Shareholders' equity 22,979 22,549
--------- ----------
Total liabilities and
shareholders' equity $ 237,614 $ 216,379
========= ==========
Net interest income (2) $ 2,889 $ 2,638
======== ========
Net spread (2) 4.48% 4.59%
===== =====
Net yield on interest earning assets (2) 5.28% 5.32%
===== =====
Ratio of interest earning assets to
interest bearing liabilities 1.23 1.24
========= ====
</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 12
<PAGE>
Noninterest Income
For the first quarter of 2000, noninterest income from banking products and
services has declined 23.1% as compared to the same period in 1999. Rising
interest rates have 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 $169 thousand, or 79.9%, contributed significantly to the overall
noninterest income decline. This decrease was partially offset by an increase of
22.4% in services charges and fees due tO deposit growth.
Noninterest Expenses
Noninterest expense has increased slightly over the same period of 1999,
reflecting continued growth and expansion of the Bank. Total noninterest
expense, excluding provision for loan losses, for the first three months of 2000
was 0.5% above the same period for 1999. Salaries and employee benefits
decreased 3.7% as compared to the three months ended March 31, 1999. This was
mainly attributable to a decreased level of employee incentive compensation
during the first quarter of 2000 as compared to the first quarter of 1999. When
compared to the three months ended March 31, 1999, the category of other
noninterest expense increased 17.0% for 2000. This increase is due to increased
costs during the first quarter of 2000 for ATM service charges, insurance,
education and training 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 first 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; the ability of other companies on
which the Company relies to be Year 2000 compliant; the ability of the Company
to locate and correct all data sensitive computer code; 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 13
<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 located in the Form 10 document.
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.
Page 14
<PAGE>
ITEM 2 - CHANGES IN SECURITIES
No changes in the securities of the Company occurred during the quarter ended
March 31, 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 March 31, 2000.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
March 31, 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 has filed no reports on Form 8-K during the quarter ended
March 31, 2000.
Page 15
<PAGE>
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.
May 11, 2000
/S/ Patrick K. Gill
Patrick K. Gill
President
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
Page 16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,449
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,078
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 203,116
<ALLOWANCE> 4,659
<TOTAL-ASSETS> 243,539
<DEPOSITS> 205,890
<SHORT-TERM> 12,884
<LIABILITIES-OTHER> 1,582
<LONG-TERM> 0
0
0
<COMMON> 10,500
<OTHER-SE> 8,357
<TOTAL-LIABILITIES-AND-EQUITY> 243,539
<INTEREST-LOAN> 4,451
<INTEREST-INVEST> 360
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 4,833
<INTEREST-DEPOSIT> 1,745
<INTEREST-EXPENSE> 1,944
<INTEREST-INCOME-NET> 2,889
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,241
<INCOME-PRETAX> 1,044
<INCOME-PRE-EXTRAORDINARY> 1,044
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704
<EPS-BASIC> 0.83
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 5.28
<LOANS-NON> 1,571
<LOANS-PAST> 85
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,646
<CHARGE-OFFS> 44
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 4,659
<ALLOWANCE-DOMESTIC> 4,320
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 339
</TABLE>
