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 September 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 October 27, 2000, there were 851,551 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 September 30, 2000, the related condensed consolidated statements of
income and comprehensive income for the quarter and year to date periods ended
September 30, 2000 and 1999 and the condensed consolidated statements of cash
flows for the year to date periods ended September 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.
Crowe, Chizek and Company LLP
South Bend, Indiana
October 27, 2000
Page 3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
<TABLE>
(b) CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
In thousands of dollars 2000 December 31,
(unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,705 $ 7,310
Federal funds sold 4,332 2,200
------------ ------------
Total cash and cash equivalents 17,037 9,510
Securities available for sale 20,405 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 205,027 192,721
Loans held for sale 905 759
Premises and equipment, net 6,255 6,521
Accrued interest receivable 2,196 1,576
Mortgage servicing asset 1,495 1,335
Other assets 2,583 1,594
------------ ------------
Total assets $ 258,767 $ 239,904
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 37,846 $ 36,687
Interest bearing 182,531 162,519
------------ ------------
Total deposits 220,377 199,206
Borrowed funds 11,188 16,177
Accrued interest payable 876 644
Other liabilities 1,772 1,102
------------ ------------
Total liabilities 234,213 217,129
Common stock subject to repurchase obligation in ESOP 4,175 4,326
Shareholders' Equity
Common stock and paid-in capital, no par value 10,547 10,430
Retained earnings 10,050 8,353
Accumulated other comprehensive income (loss),
net of tax (218) (334)
------------ ------------
Total shareholders' equity 20,379 18,449
------------ ------------
Total liabilities and shareholders' equity $ 258,767 $ 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 Nine Months Ended
In thousands of dollars, except per share data September 30, September 30,
---------------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 4,952 $ 4,213 $ 14,196 $ 11,573
Taxable securities 297 328 847 1,193
Nontaxable securities 42 39 192 190
Federal funds sold 86 27 116 100
Other 1 1 3 24
------------ ------------ ------------ ------------
Total interest and dividend income 5,378 4,608 15,354 13,080
Interest expense
Deposits 2,100 1,402 5,689 4,129
Federal Home Loan Bank advances 170 129 576 315
Other 68 42 147 111
------------ ------------ ------------ ------------
Total interest expense 2,338 1,573 6,412 4,555
------------ ------------ ------------ ------------
Net interest income 3,040 3,035 8,942 8,525
Provision for loan losses - 125 30 155
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,040 2,910 8,912 8,370
Noninterest income
Service charges and fees 338 286 899 751
Net gains on loan sales 232 222 435 815
Loan servicing fees, net of amortization (24) 21 75 73
Other 6 15 29 48
------------ ------------ ------------ ------------
552 544 1,438 1,687
Noninterest expense
Salaries and employee benefits 1,421 1,351 4,040 4,092
Occupancy and equipment 389 412 1,235 1,245
Other 591 423 1,625 1,316
------------ ------------ ------------ ------------
2,401 2,186 6,900 6,653
------------ ------------ ------------ ------------
Income before income tax 1,191 1,268 3,450 3,404
Income tax expense 387 424 1,120 1,111
------------ ------------ ------------ ------------
Net income $ 804 $ 844 $ 2,330 $ 2,293
============ ============ ============ ============
Comprehensive income $ 925 $ 807 $ 2,446 $ 1,829
============ ============ ============ ============
Basic earnings per share $ .94 $ .99 $ 2.73 $ 2.69
============ ============ ============ ============
Diluted earnings per share $ .93 $ .99 $ 2.69 $ 2.68
============ ============ ============ ============
Dividends per share $ .20 $ .17 $ .74 $ .56
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
<TABLE>
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Nine Months Ended
In thousands of dollars September 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,330 $ 2,293
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 523 533
Provision for loan losses 30 155
Loss on sale of securities available for sale - 5
Net amortization and accretion on securities
available for sale 50 51
Amortization of mortgage servicing rights 231 195
Loans originated for sale (32,513) (36,325)
Proceeds from sale of mortgage loans 32,411 39,032
Net gains on sales of mortgage loans (435) (815)
Net change in:
Deferred loan origination fees (32) (16)
Accrued interest receivable (620) (402)
Other assets (1,175) 179
Accrued interest payable 232 (5)
Other liabilities 670 257
------------ ------------
Net cash from operating activities 1,702 5,137
------------ ------------
Cash flows from investing activities Proceeds from:
Maturities, calls and principal payments on
securities available for sale 2,745 8,956
Sales of securities available for sale - 7,675
Purchases of:
Securities available for sale - (29,142)
Premises and equipment, net (257) (465)
Net increase in loans (12,178) (29,142)
------------ ------------
Net cash from investing activities (9,690) (23,421)
------------ ------------
Cash flows from financing activities
Net change in deposits 21,171 2,508
Net change in borrowed funds (4,989) 6,967
Change in shareholders' equity (667) (414)
------------ ------------
Net cash from financing activities 15,515 9,061
------------ ------------
Net change in cash and cash equivalents 7,527 (9,223)
Cash and cash equivalents at beginning of period 9,510 18,702
------------ ------------
Cash and cash equivalents at end of period $ 17,037 $ 9,479
============ ============
Cash paid for:
Interest $ 6,180 $ 4,560
Income taxes 737 1,050
Transfer from:
Loans to foreclosed real estate 126 126
</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 nine month
period ending September 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.
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), subsequently amended by SFAS No. 137 and 138, which the Company is
required to adopt effective January 1, 2001. SFAS 133 will require the company
to record all derivatives on the balance sheet at fair value. Changes in
derivative fair values will either be recognized in earnings as offsets to the
changes in fair value of related hedged assets, liabilities and firm commitments
or, for forecasted transactions, deferred and recorded as a component of other
stockholders' equity until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair value
will be immediately recognized in earnings. The impact of SFAS 133 on the
company's financial statements will depend on a variety of factors, including
future interpretative guidance from the FASB, the future level of forecasted and
actual foreign currency transactions, the extent of the Company's hedging
activities, the types of hedging instruments used and the effectiveness of such
instruments. However, the Company does not believe the effect of adopting SFAS
133 will be material to its financial position.
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 $207,426,000 and $172,359,000 at the end
of September 2000 and 1999. Mortgage servicing rights activity in thousands of
dollars for the nine months ended September 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 391 403
Amount amortized year to date (231) (195)
------------ -----------
Balance at period end $ 1,495 $ 1,306
============ ===========
</TABLE>
The valuation allowance relative to mortgage servicing rights was $214,000 and
$230,000 at period end 2000 and 1999, respectively.
Page 7
<PAGE>
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 nine months ended
September 30, 2000 and 1999 is presented below in thousands, except for per
share information:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
Net income available to common shareholders $ 804 $ 844 $ 2,330 $ 2,293
============ ============ ============ ============
Weighted average common shares outstanding 855 852 854 853
============ ============ ============ ============
Basic earnings per share $ .94 $ .99 $ 2.73 $ 2.69
============ ============ ============ ============
Diluted earnings per share
Net income available to common shareholders $ 804 $ 844 $ 2,330 $ 2,293
============ ============ ============ ============
Weighted average common shares outstanding 855 852 854 853
Add: Dilutive effects of exercise of stock options 10 5 11 4
------------ ------------ ------------ ------------
Weighted average common and dilutive
potential shares outstanding 865 857 865 857
============ ============ ============ ============
Diluted earnings per share $ .93 $ .99 $ 2.69 $ 2.68
============ ============ ============ ============
</TABLE>
Page 8
<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 September 30, 2000 for the three and nine month periods
ending September 30, 2000 and 1999.
FINANCIAL CONDITION
Securities
Investment securities decreased to $20.4 million at September 30, 2000 from
$23.0 million at December 31, 1999. With no purchases of securities during 2000,
this decline was solely the result of principal repayments on mortgage backed
securities and maturities within the portfolio. No securities were sold during
the nine months ended September 30, 2000. The mix of the securities portfolio
has remained relatively unchanged from December 31, 1999.
Loans
Net loans receivable increased 6% from $192.7 at December 31, 1999 to $205.0
million at September 30, 2000. This growth was primarily in commercial loans
with consumer and mortgage loans remaining relatively unchanged.
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 September 30, 2000 and 1999, and December 31,
1999.
<TABLE>
9/30/2000 12/31/1999 9/30/1999
--------- ---------- ---------
<S> <C> <C> <C>
Nonaccrual loans $ 230 $ 1,571 $ 71
90 days or more past due & still accruing 368 275 146
Other nonperforming loans 125 1,500 -
----------- ------------ ------------
Total nonperforming loans 723 3,346 217
Other real estate 393 255 377
----------- ------------ ------------
Total nonperforming assets $ 1,116 $ 3,601 $ 594
=========== ============ ============
Nonperforming loans as a percent of gross loans 0.35% 1.70% 0.12%
Nonperforming assets as a percent of gross loans .54% 1.82% 0.32%
Nonperforming loans as a percent of the allowance
for loan losses 31.79% 72.02% 9.63%
</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. In addition, these
loans were considered to be impaired at December 31, 1999. During September
2000, a charge-off of $2.3 million was recorded for this loan relationship
reducing the outstanding balance to $287,000 at September 30, 2000.
The provision for loan losses for the first nine months of 2000 was $30,000
compared to $155,000 for the same period in 1999. The provision provides for
currently anticipated losses in the loan portfolio. An analysis of the allowance
for loan losses, in thousands of dollars, for the nine months ended September
30, 2000 and 1999 follows:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 4,646 $ 2,182
Loans charged off (2,451) (112)
Recoveries credited to allowance 56 29
Provision charged to operations 30 155
------------ ------------
Balance at end of period $ 2,281 $ 2,254
============ ============
</TABLE>
Page 10
<PAGE>
Deposits
Total deposits at September 20, 2000 were $220.4 million at September 30, 2000,
an increase of 11% from December 31, 1999. The majority of this growth was in
certificates of deposit. Management anticipates deposit growth to continue at a
moderate rate due to continued expansion in new and existing markets.
Liquidity
The Bank maintained an average funds borrowed position for the nine months of
2000, although generally the Bank moves in and out of the fed funds market as
liquidity needs vary. Borrowings decreased from December 31, 1999 as deposit
growth exceeded loan growth, 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 September 30, 2000 and 1999 and December 31, 1999.
<TABLE>
Regulatory Guidelines Bank of Lenawee
--------------------- ---------------
Adequate Well 9/30/2000 12/31/1999 9/30/1999
-------- ---- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total risk adjusted capital ratio 8% 10% 11.7% 12.1% 12.5%
Tier 1 risk adjusted capital ratio 4% 6% 10.7% 10.8% 11.4%
Tier 1 capital to average assets 4% 5% 9.1% 9.3% 10.1%
</TABLE>
Results of Operations
Net Interest Income
Net interest margin and spread both decreased for the nine months ended
September 30, 2000 compared to the same period in 1999. This reduction, when
compared to 1999, is primarily a result of the increasing interest rate
environment. The Company's funding costs have risen at a faster pace than the
yield on earning assets. 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 nine month periods ended September 30, 2000 and 1999.
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<PAGE>
<TABLE>
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 9/30/2000 9/30/1999
--------- ---------
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) $ 201,953 $ 14,196 9.37% $ 165,696 $ 11,573 9.31%
Securities available for sale (2) 24,083 1,039 5.75% 32,499 1,383 5.67%
Federal funds sold and other 2,523 119 6.29% 2,702 124 6.12%
----------- ----------- ----------- -----------
Total int. earning assets 228,559 15,354 8.96% 200,897 13,080 8.68%
Noninterest-earning assets:
Cash and due from financial
institutions 8,513 8,259
Premises and equipment, net 6,369 6,587
Other assets 4,271 3,650
----------- -----------
Total Assets $ 247,712 $ 219,393
=========== ===========
Interest bearing liabilities:
Interest bearing demand
deposits $ 53,280 $ 1,382 3.46% $ 47,804 $ 953 2.66%
Savings deposits 23,867 269 1.50% 24,502 289 1.57%
Time deposits 94,795 4,038 5.68% 77,655 2,887 4.96%
Repurchase agreements and
other borrowings 3,916 147 5.01% 3,967 111 3.73%
FHLB advances 12,245 576 6.27% 7,191 315 5.84%
----------- ----------- ----------- -----------
Total int. bearing liabilities 188,103 6,412 4.55% 161,119 4,555 3.77%
Noninterest-bearing liabilities:
Demand deposits 35,097 33,845
Other liabilities 711 1,398
----------- -----------
Total liabilities 223,911 196,362
Shareholders' equity 23,801 23,031
----------- -----------
Total liabilities and
shareholders' equity $ 247,712 $ 219,393
=========== ===========
Net interest income (2) $ 8,942 $ 8,525
=========== ===========
Net spread (2) 4.41% 4.91%
===== =====
Net yield on interest
earning assets (2) 5.22% 5.66%
===== =====
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.
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<PAGE>
Noninterest Income
For the first nine months of 2000, noninterest income from banking products and
services has declined 15% 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 $380,000, or 47%, contributed significantly to the overall noninterest
income decline. This decrease was partially offset by an increase of 20% in
services charges and fees due to deposit growth. However, noninterest income for
the three months ended September 30, 2000 has increased over the same period in
1999 primarily due to increases in service charges and fees.
Noninterest Expenses
Noninterest expense has continued to increase over prior year periods,
reflecting continued growth and expansion of the Bank. Total noninterest
expense, excluding provision for loan losses, for the first nine months of 2000
increased 4% from the same period in 1999. Salaries and employee benefits
decreased 1% as compared to the nine months ended September 30, 1999. This was
mainly attributable to a decreased level of employee incentive compensation.
When compared to the nine months ended September 30, 1999, the category of other
noninterest expense increased 23% in 2000. This increase is due to increased
costs related to ATM service charges, insurance, donations, and mobile banking
security. 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 third 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 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.
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.
Page 13
<PAGE>
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 Company's Form 10 Registration Statement.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No litigation is pending against either the Company or the Bank of Lenawee which
is expected to result in any material adverse effect on the operations or
earnings of either of them. 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
September 30, 2000.
Page 14
<PAGE>
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 September 30, 2000.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
September 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.
November 13, 2000
/S/ Patrick K. Gill /S/ Loren Happel
Patrick K. Gill Loren Happel
President Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
---------- -----------
27 Financial Data Schedule
Page 15
