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, 2001
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 May 11, 2001, there were 849,095 outstanding shares of the registrant's
common stock, no par value.
Page 1
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 14
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 15
Page 2
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, 2001 and the related condensed consolidated statements of income and
comprehensive income and cash flows for the three month periods ended March 31,
2001 and 2000. 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 2, 2001
Page 3
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
(b) CONDENSED CONSOLIDATED BALANCE SHEETS March 31,
In thousands of dollars 2001 December 31,
(unaudited) 2000
----------- ----
ASSETS
Cash and due from banks $ 19,472 $ 7,842
Federal funds sold 8,780 5,150
------------ ------------
Total cash and cash equivalents 28,252 12,992
Securities available for sale 20,610 19,321
Federal Home Loan Bank stock, at cost 2,504 2,504
Federal Reserve Bank stock, at cost 480 360
Loans receivable, net of allowance for loan losses 215,534 212,317
Loans held for sale 1,270 803
Premises and equipment, net 6,325 5,988
Accrued interest receivable 1,976 1,899
Mortgage servicing asset 1,589 1,516
Other assets 1,864 2,047
------------ ------------
Total assets $ 280,404 $ 259,747
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 39,933 $ 37,095
Interest bearing 204,686 187,047
------------ ------------
Total deposits 244,619 224,145
Borrowed funds 7,064 7,936
Accrued interest payable 962 946
Other liabilities 1,479 1,256
------------ ------------
Total liabilities 254,124 234,280
Common stock subject to repurchase obligation in ESOP 5,191 5,114
Shareholders' Equity
Common stock and paid-in capital, no par value 9,634 9,632
Retained earnings 11,324 10,755
Accumulated other comprehensive income (loss),
net of tax 131 (34)
------------ ------------
Total shareholders' equity 21,089 20,353
------------ ------------
Total liabilities and shareholders' equity $ 280,404 $ 259,747
============ ============
See accompanying notes to consolidated financial statements.
Page 4
(c) CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME (unaudited) Three Months Ended
In thousands of dollars, except per share data March 31,
-----------------------------
2001 2000
---- ----
Interest and dividend income
Loans receivable, including fees $ 4,996 $ 4,451
Taxable securities 245 260
Nontaxable securities 65 100
Federal funds sold 93 21
Other 10 1
------------ ------------
Total interest and dividend income 5,409 4,833
Interest expense
Deposits 2,174 1,745
Federal Home Loan Bank advances 82 174
Other 18 25
------------ ------------
Total interest expense 2,274 1,944
------------ ------------
Net interest income 3,135 2,889
Provision for loan losses 100 30
------------ ------------
Net interest income after provision for loan losses 3,035 2,859
Noninterest income
Service charges and fees 237 268
Net gains on loan sales 405 60
Other 115 98
------------ ------------
757 426
Noninterest expense
Salaries and employee benefits 1,545 1,313
Occupancy and equipment 477 404
Other 692 524
------------ ------------
2,714 2,241
------------ ------------
Income before income tax 1,078 1,044
Income tax expense 345 340
------------ ------------
Net income $ 733 $ 704
============ ============
Comprehensive income $ 898 $ 628
============ ============
Basic earnings per share $ 0.86 $ 0.83
============ ============
Diluted earnings per share $ 0.85 $ 0.81
============ ============
Dividends per share $ 0.20 $ 0.34
============ ============
See accompanying notes to consolidated financial statements.
Page 5
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Three Months Ended
In thousands of dollars March 31,
-----------------------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 733 $ 704
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 177 182
Provision for loan losses 100 30
Net amortization and accretion on securities
available for sale 14 16
Amortization of mortgage servicing rights 132 22
Loans originated for sale (47,188) (4,221)
Proceeds from sale of mortgage loans 46,921 4,322
Net gains on sales of mortgage loans (405) (60)
Net change in:
Accrued interest receivable (77) (209)
Other assets 165 152
Accrued interest payable 16 73
Other liabilities 156 (237)
------------ ------------
Net cash from operating activities 744 774
------------ ------------
Cash flows from investing activities Securities available for sale:
Maturities, calls and principal payments 947 1,814
Purchases (2,000) -
Purchase of Federal Reserve Bank stock (120) -
Net premises and equipment expenditures (514) (54)
Net increase in loans (3,317) (5,766)
------------ ------------
Net cash from investing activities (5,004) (4,006)
------------ ------------
Cash flows from financing activities
Net change in deposits 20,477 6,684
Net change in borrowed funds (872) (3,293)
Change in shareholders' equity (85) (220)
------------ ------------
Net cash from financing activities 19,520 3,171
------------ ------------
Net change in cash and cash equivalents 15,260 (61)
Cash and cash equivalents at beginning of period 12,992 9,510
------------ ------------
Cash and cash equivalents at end of period $ 28,252 $ 9,449
============ ============
Cash paid for:
Interest $ 2,258 $ 1,871
Income taxes - -
See accompanying notes to consolidated financial statements.
Page 6
(e) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The unaudited condensed consolidated financial statements include the accounts
of Lenawee Bancorp, Inc. (the "Company") and its wholly-owned subsidiaries, Bank
of Lenawee and Bank of Washtenaw (together "the Banks"). The Bank of Lenawee
includes its wholly-owned subsidiaries, Lenawee Financial Services and Pavilion
Mortgage Company (the "Mortgage Company"). The Mortgage Company began operations
on January 2, 2001 and was formed to provide a broader array of products for
expanding market needs. The Bank of Washtenaw began operations on January 8,
2001 and was formed to expand the Company's market presence. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company is a two-bank holding company which conducts limited business
activities. The Banks perform the majority of the Company's business activities.
The Banks provide a full range of banking services to individuals, agricultural
businesses, commercial businesses and light industries located in its service
area. It maintains a diversified loan portfolio, including loans to individuals
for home mortgages, automobiles and personal expenditures, and loans to business
enterprises for current operations and expansion. The Banks offer a variety of
deposit products, including checking, savings, money market, individual
retirement accounts and certificates of deposit.
NOTE 2 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of 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, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
Page 7
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,
2001 and 2000 is presented below:
2001 2000
---- ----
Basic earnings per share
Net income available to common shareholders $ 733,000 $ 704,000
============ ============
Weighted average common shares outstanding 851,884 852,939
============ ============
Basic earnings per share $ 0.86 $ 0.83
============ ============
Diluted earnings per share
Net income available to common shareholders $ 733,000 $ 704,000
============ ============
Weighted average common shares outstanding 851,884 852,939
Add: Dilutive effects of exercise of stock options 9,951 12,343
------------ ------------
Weighted average common and dilutive
potential shares outstanding 861,835 865,282
============ ============
Diluted earnings per share $ 0.85 $ 0.81
============ ============
NOTE 4 - ACCOUNTING FOR STOCK BASED COMPENSATION
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 is generally
equivalent to the market value of the underlying stock at the grant date. For
stock options granted below market price, compensation expense is based upon the
difference between the market value and the exercise price at the date of grant
and is recorded over the vesting period of the options. Compensation expense
actually recognized for stock options was not significant for the three months
ended March 31, 2001 and 2000.
2001 2000
---- ----
Net income as reported $ 733,000 $ 704,000
Proforma net income 721,000 691,000
Reported earnings per common share
Basic $ 0.86 $ 0.83
Diluted 0.85 0.81
Proforma earnings per common share
Basic 0.85 0.81
Diluted 0.84 0.80
No options were granted during the three months ended March 31, 2001. The
weighted average fair value of stock options granted during the three months
ended March 31, 2000 was $21.43 and was estimated using an option pricing model
with the following weighted average information as of the grant date; risk-free
interest rate of 6.65%, expected option life of 8 years, expected stock price
volatility of 0.21 and expected dividends of 1.35%. In future years, as
additional options are granted, the proforma effect on net income and earnings
per share may increase.
Page 8
NOTE 4 - ACCOUNTING FOR STOCK BASED COMPENSATION (Continued)
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:
Weighted-
Average
Available Options Exercise
For Grant Outstanding Price
--------- ----------- ------
Balance at January 1, 2000 27,460 22,160 $ 25.14
Options issued (5,720) 5,720 44.00
------------ ------------ ------------
Balance at March 31, 2000
and December 31, 2000
and March 31, 2001 21,740 27,880 $ 29.01
============ ============ ============
At March 31, 2001, options outstanding had a weighted average remaining life of
6.9 years. There were 21,180 options exercisable at March 31, 2001 with a
weighted-average exercise price of $25.68.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENT
Beginning January 1, 2001, a new accounting standard required all derivatives to
be recorded at fair value. Unless designated as hedges, changes in these fair
values are required to be recorded in the income statement. Fair value changes
involving hedges will be recorded by offsetting gains or losses on the hedges
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. Adoption of this standard on January 1, 2001 did not have a
material effect on the Company's financial condition or results of operations.
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 the Company as of March 31, 2001 and for the three
month periods ended March 31, 2001 and 2000.
FINANCIAL CONDITION
Cash and cash equivalents
The increase in cash and cash equivalents of approximately 117%, or $15.2
million, during the first three months of 2001 was primarily related to the
significant growth in the Company's deposits, as discussed more fully below.
Securities
The Company's investment securities portfolio increased slightly during the
first quarter of 2001. Principal repayments on mortgage-backed securities were
more than offset by the
Page 9
purchase of a $2.0 million government agency securities during the period. The
mix of the securities portfolio remains relatively unchanged from period to
period over the long term.
Loans
Loan growth continued through the first quarter of 2001. During the first three
months, annualized loan growth was approximately 6%. The mix of the loan
portfolio continues to remain relatively unchanged from prior periods. Over the
long term, the trend continues toward an increased percentage of residential
mortgage and business loans.
In addition to the increase in loans for the portfolio, the Company experienced
a significant increase in the volume of its residential mortgage loans sold into
the secondary market. The significant decreases in short-term interest rates
during the first quarter has also caused a decline in mortgage interest rates,
increasing consumers interest in refinancing existing mortgage loans. Management
expects this trend to continue into the second quarter of 2001.
Credit Quality
The Company continues to monitor the asset quality of the loan portfolio
utilizing a loan review officer who, combined with an external loan review team,
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, 2001 and 2000, and December 31, 2000.
3/31/2001 12/31/2000 3/31/2000
--------- ---------- ---------
Nonaccrual loans $ 112 $ 113 $ 1,571
90 days or more past due & still accruing 214 523 85
Other nonperforming loans - - 1,148
----------- ------------ ------------
Total nonperforming loans 326 636 2,804
Other real estate 583 294 377
----------- ------------ ------------
Total nonperforming assets $ 909 $ 930 $ 3,181
=========== ============ ============
Nonperforming loans as a percent of total loans .15% .30% 1.38%
Nonperforming assets as a percent of total loans .41% .43% 1.57%
Nonperforming loans as a percent of the allowance
for loan losses 14.04% 27.81% 60.18%
During the first quarter of 2001, the Company increased its provision for loan
losses over the same period in 2000 due to increases in loan volume and net
charge-offs. The provision provides for currently anticipated
Page 10
losses inherent in the current portfolio. Activity in the allowance for loan
losses, in thousands of dollars, for the three months ended March 31, 2001 and
2000 follows:
2001 2000
---- ----
Balance at beginning of period $ 2,287 $ 4,646
Loans charged off (135) (44)
Recoveries credited to allowance 70 27
Provision charged to operations 100 30
------------ ------------
Balance at end of period $ 2,322 $ 4,659
============ ============
The decrease in non-performing loans and the allowance for loan losses from
March 31, 2000 to March 31, 2001 is primarily related to the charge-off of loans
related to a single borrower subsequent to March 31, 2000 as described in prior
filings of the Company.
Deposits
Total deposits increased significantly during the quarter at a rate higher than
experienced in recent periods. Annualized deposit growth for the quarter was
33.5%, compared to 12.5% for all of 2000. Interest bearing deposits experienced
the majority of the increase during the period. The increase was a combination
of promotions related to the opening of the Bank of Washtenaw and a shift in
consumer preferences to short-term deposit investments due to the decline in the
capital markets during the period. Management anticipates moderate deposit
growth during 2001 as a result of continued expansion in the Company's new and
existing markets.
Liquidity
The Bank maintained an average funds sold position for the first quarter of 2001
primarily related to the increase in deposits as discussed above, although
generally the Bank moves in and out of the fed funds market as liquidity needs
vary. Borrowings declined slightly from December 31, 2000, and management
anticipates that deposit and loan growth will cause continued variation in the
short term funds position of the Company. The Company has a number of additional
liquidity sources should the need arise, and management has no concerns of the
liquidity position of the Company.
Page 11
Capital Resources
The Company and both Banks were categorized as well capitalized at March 31,
2001. Actual and required capital levels (in millions) and ratios were:
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital (to risk weighted assets)
Consolidated $ 28.5 11.4% $ 20.1 8.0% $ 25.1 10.0%
Bank of Lenawee 23.2 10.1% 18.4 8.0% 23.0 10.0%
Bank of Washtenaw 4.2 20.7% 1.6 8.0% 2.0 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated 26.1 10.4% 10.0 4.0% 15.0 6.0%
Bank of Lenawee 21.1 9.2% 9.2 4.0% 13.8 6.0%
Bank of Washtenaw 4.0 19.8% .8 4.0% 1.2 6.0%
Tier 1 capital (to average assets)
Consolidated 26.1 9.5% 11.0 4.0% 13.7 5.0%
Bank of Lenawee 21.1 8.3% 10.1 4.0% 12.6 5.0%
Bank of Washtenaw 4.0 19.2% .8 4.0% 1.0 5.0%
Page 12
Results of Operations
Net Income
Net income increased 4%, basic earnings per share increased from $0.83 to $0.86
and dividends per share decreased from $0.34 to $0.20 when comparing the results
of the first three months of 2001 to the same period in 2000.
The increase in net income and earnings per share was primarily related to
continued growth in net interest income and a significant increase in the gain
on sales of mortgage loans which were offset by an increase in non-interest
expense, as more fully discussed below. The decrease in dividends per share was
related to a special dividend of $0.15 per share that was paid during the three
months ended March 31, 2000 which was not paid this year in order to preserve
the Corporation's capital base for the formation of the Bank of Washtenaw during
the first quarter of 2001.
Net Interest Income
The yield on interest earning assets decreased for the quarter ended March 31,
2001 as compared to the same period in the prior year primarily as a result of
the general decline in industry rates during the first quarter of 2001. However,
the cost of funds on interest bearing liabilities increased for the quarter
ended March 31, 2001 as compared to the same period during the prior year
primarily as a result of increasing time deposit rates during 2000 for which
2001 declining interest rates have not fully impacted due to the varying
contractual maturities of these time deposits. The combination of higher cost of
funds and a lower yield on interest earning assets has resulted in decreases in
the interest rate spread and net interest margin of the Company. However, the
Company's net interest margin remains quite strong, and management continues to
take steps to neutralize some portion of this risk.
Page 13
The following table shows the year to date daily average balances for interest
earning assets and interest bearing liabilities, interest earned or paid, and
the annualized effective rate or yield, for the three month periods ended March
31, 2001 and 2000.
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 3/31/2001 3/31/2000
--------- ---------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
Interest earning assets:
Loans (1) $ 217,001 $ 4,996 9.21% $ 192,514 $ 4,451 9.25%
Investment securities (2) (3) 22,048 310 5.62% 24,684 360 5.83%
Federal funds sold and other 7,883 103 5.23% 1,688 22 5.21%
----------- ----------- ----------- -----------
Total int. earning assets 246,932 5,409 8.76% 218,886 4,833 8.83%
Interest bearing liabilities:
Interest bearing demand
deposits $ 55,532 $ 378 2.72% $ 51,792 $ 422 3.26%
Savings deposits 23,215 85 1.46% 23,486 88 1.50%
Time deposits 113,657 1,711 6.02% 89,980 1,235 5.49%
Other borrowings 7,782 100 5.15% 13,336 199 5.97%
----------- ----------- ----------- -----------
Total int. bearing
liabilities 200,186 2,274 4.54% 178,594 1,944 4.35%
Net interest income (3) $ 3,135 $ 2,889
=========== ===========
Net spread (3) 4.22% 4.48%
====== ======
Net interest margin (3) 5.08% 5.28%
====== ======
Ratio of interest earning assets to
interest bearing liabilities 1.23 1.23
======= ========
(1) Non-accrual loans and overdrafts are included in the average balances of
loans.
(2) Includes Federal Home Loan Bank stock.
(3) Interest income on tax-exempt securities has not been adjusted to a taxable
equivalent basis.
Noninterest Income
For the first quarter of 2001, noninterest income from banking products and
services increased 78% as compared to the same period in 2000. Declining
interest rates during the first quarter of 2001 resulted in an increase in
originations of residential mortgage loans and, accordingly, the Company's
volume of loan sales. An increase in net gains on loan sales of $345,000 was the
primary factor contributing to the overall noninterest income growth.
Noninterest Expense
Noninterest expense has also increased over the same period of 2000, reflecting
continued growth and expansion of the Company. Total noninterest expense,
excluding provision for loan losses, for the first three months of 2001 was 21%
above the same period for 2000. An increase in salaries and employee benefits of
approximately 18% was the primary factor contributing to the overall increase.
This increase, along with slight increases in occupancy and equipment and other
expense, are mainly attributable to the staffing and start-up costs related to
the formation of the Bank of Washtenaw and general Company growth. Management
expects these costs to continue rising as the Company experiences continued
growth consistent with its Strategic Plan.
Federal Income Tax
The slight increase in federal income taxes during the first quarter of 2001 is
directly related to the increase in income before income taxes.
Forward-Looking Statements
This discussion and analysis of financial condition and results of operations
and other sections of this Form 10-Q contain forward looking statements that are
based on management's beliefs,
Page 14
assumptions, current expectations, estimates and projections about the financial
services industry, the economy and about the Company itself. Words such as
"anticipates", "believes", "estimates", "expects", "forecasts", "foresee",
"intends", "is likely", "plans", "product", "projects", variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") 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.
Furthermore, the Company undertakes no obligation to update, amend or clarify
forward-looking statements, whether as a result of new information, future
events or otherwise. Future Factors include:
o changes in interest rates and interest rate relationships; demand for
products and services;
o the degree of competition by traditional and non-traditional competitors;
o changes in banking regulations;
o changes in tax laws;
o changes in prices, levies and assessments;
o the impact of technology, governmental and regulatory policy changes;
o the outcome of pending and future litigation and contingencies;
o trends in customer behavior as well as their ability to repay loans; and
o changes in the national and local economies.
These are representative of the Future Factors that could cause a difference
between an actual outcome and a forward-looking statement.
Page 15
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, 2000, which
information can be located in the Form 10-K document.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 2 - CHANGES IN SECURITIES
None.
Page 16
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
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: None
(b) Report on Form 8-K: None
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 14, 2001
/s/ Patrick K. Gill
Patrick K. Gill
President
/s/ Loren V. Happel
Loren V. Happel
Chief Financial Officer
Page 17