FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
-------------------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 August 7, 2001, there were 848,537 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) 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 Condensed Consolidated 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 15
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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Page 2
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Lenawee Bancorp, Inc.
Adrian, Michigan
We have reviewed the condensed consolidated balance sheet of Lenawee Bancorp,
Inc. as of June 30, 2001, the related condensed consolidated statements of
income and comprehensive income for the quarter and year to date periods ended
June 30, 2001 and 2000 and the condensed consolidated statements of cash flows
for the year to date periods ended June 30, 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.
Crowe, Chizek and Company LLP
South Bend, Indiana
August 7, 2001
Page 3
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
(b) CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
In thousands of dollars 2001 December 31,
(unaudited) 2000
----------- ----
ASSETS
Cash and due from banks $ 9,005 $ 7,842
Federal funds sold - 5,150
------------ ------------
Total cash and cash equivalents 9,005 12,992
Securities available for sale 26,259 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 of $2,321 at June 30,
2001 (unaudited) and $2,287 at December 31, 2000 215,170 212,317
Loans held for sale 1,872 803
Premises and equipment, net 6,594 5,988
Accrued interest receivable 1,755 1,899
Mortgage servicing rights 1,725 1,516
Other assets 1,656 2,047
------------ ------------
Total assets $ 267,020 $ 259,747
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 44,655 $ 37,095
Interest bearing 186,464 187,047
------------ ------------
Total deposits 231,119 224,142
Borrowed funds 6,930 7,936
Accrued interest payable 915 946
Other liabilities 1,387 1,256
------------ ------------
Total liabilities 240,351 234,280
Common stock subject to repurchase obligation in ESOP 4,619 5,114
Shareholders' Equity
Common stock and paid-in capital, no par value: 3,000,000 shares
authorized; shares issued and outstanding: 848,537 - 2001 (unaudited);
851,551 - 2000 9,975 9,632
Retained earnings 11,877 10,755
Accumulated other comprehensive income (loss),
net of tax 198 (34)
------------ ------------
Total shareholders' equity 22,050 20,353
------------ ------------
Total liabilities and shareholders' equity $ 267,020 $ 259,747
============ ============
See accompaying notes to consolidated financial statements.
Page 4
(c) CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (unaudited) Three Months Ended Six Months Ended
In thousands of dollars, except per share data June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest and dividend income
Loans receivable, including fees $ 4,940 $ 4,793 $ 9,936 $ 9,244
Taxable securities 302 290 547 550
Nontaxable securities 62 50 127 150
Federal funds sold 85 9 178 30
Other 30 1 40 2
------------ ------------ ------------ ------------
Total interest and dividend income 5,419 5,143 10,828 9,976
Interest expense
Deposits 2,129 1,844 4,303 3,589
Federal Home Loan Bank advances 84 232 166 406
Other 41 54 59 79
------------ ------------ ------------ ------------
Total interest expense 2,254 2,130 4,528 4,074
------------ ------------ ------------ ------------
Net interest income 3,165 3,013 6,300 5,902
Provision for loan losses 44 - 144 30
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,121 3,013 6,156 5,872
Noninterest income
Service charges and fees 372 293 662 561
Net gains on loan sales 579 143 984 203
Other 62 24 124 122
------------ ------------ ------------ ------------
1,013 460 1,770 886
Noninterest expense
Salaries and employee benefits 1,790 1,306 3,335 2,619
Occupancy and equipment 498 442 975 846
Other 791 510 1,483 1,034
------------ ------------ ------------ ------------
3,079 2,258 5,793 4,499
------------ ------------ ------------ ------------
Income before income tax 1,055 1,215 2,133 2,259
Income tax expense 332 393 677 733
------------ ------------ ------------ ------------
Net income $ 723 $ 822 $ 1,456 $ 1,526
============ ============ ============ ============
Comprehensive income $ 790 $ 893 $ 1,688 $ 1,521
============ ============ ============ ============
Basic earnings per share $ .85 $ .96 $ 1.71 $ 1.79
============ ============ ============ ============
Diluted earnings per share $ .84 $ .95 $ 1.69 $ 1.76
============ ============ ============ ============
Dividends per share $ .20 $ .20 $ .40 $ .54
============ ============ ============ ============
See accompaying notes to consolidated financial statements.
Page 5
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Six Months Ended
In thousands of dollars June 30,
-----------------------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 1,456 $ 1,526
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 395 356
Provision for loan losses 144 30
Net amortization and accretion on securities
available for sale 37 32
Amortization of mortgage servicing rights 274 103
Loans originated for sale (58,644) (15,435)
Proceeds from sale of mortgage loans 58,076 15,094
Net gains on sales of mortgage loans (984) (203)
Net change in:
Accrued interest receivable 144 (21)
Other assets 373 (50)
Accrued interest payable (31) 28
Other liabilities 29 (275)
------------ ------------
Net cash from operating activities 1,269 1,185
------------ ------------
Cash flows from investing activities Proceeds from:
Maturities, calls and principal payments on
securities available for sale 3,902 2,630
Purchases of:
Federal Reserve Bank stock (120) -
Securities available for sale (10,525) -
Premises and equipment, net (1,001) (132)
Net increase in loans (2,997) (16,403)
------------ ------------
Net cash from investing activities (10,741) (13,905)
Cash flows from financing activities
Net change in deposits 6,977 13,549
Net change in borrowed funds (1,006) 4,158
Change in shareholders' equity (486) (349)
------------ ------------
Net cash from financing activities 5,485 17,358
------------ ------------
Net change in cash and cash equivalents (3,987) 4,638
Cash and cash equivalents at beginning of period 12,992 9,510
------------ ------------
Cash and cash equivalents at end of period $ 9,005 $ 14,148
============ ============
Cash paid for:
Interest $ 4,559 $ 4,046
Income taxes 662 230
Transfer from:
Loans to foreclosed real estate - 126
See accompaying notes to consolidated financial statements.
Page 6
(e) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (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. They maintain diversified loan portfolios, 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 Lenawee Bancorp,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ended June 30, 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 and six months ended June
30, 2001 and 2000 is presented below in thousands, except for per share
information:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Basic earnings per share
Net income available to common shareholders $ 723 $ 822 $ 1,456 $ 1,526
============ ============ ============ ============
Weighted average common shares outstanding 850 854 851 854
============ ============ ============ ============
Basic earnings per share $ .85 $ .96 $ 1.71 $ 1.79
============ ============ ============ ============
Diluted earnings per share
Net income available to common shareholders $ 723 $ 822 $ 1,456 $ 1,526
============ ============ ============ ============
Weighted average common shares outstanding 850 854 851 854
Add: Dilutive effects of exercise of stock options 10 14 10 13
------------ ------------ ------------ ------------
Weighted average common and dilutive
potential shares outstanding 860 868 861 867
============ ============ ============ ============
Diluted earnings per share $ .84 $ .95 $ 1.69 $ 1.76
============ ============ ============ ============
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 based on an
independent appraisal 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 and six
months ended June 30, 2001 and 2000.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net income as reported $ 723,000 $ 822,000 $ 1,456,000 $ 1,526,000
Proforma net income 704,000 809,000 1,425,000 1,499,000
Reported earnings per common share
Basic $ .85 $ .96 $ 1.71 $ 1.79
Diluted .84 .95 1.69 1.76
Proforma earnings per common share
Basic $ .83 $ .95 $ 1.67 $ 1.76
Diluted .82 .93 1.66 1.73
Page 8
NOTE 4 - ACCOUNTING FOR STOCK BASED COMPENSATION (Continued)
The weighted average fair value of stock options granted during the three months
ended June 30, 2001 was $20.18 and was estimated using an option pricing model
with the following weighted average information as of the grant date: risk-free
interest rate of 4.88%, expected option life of 8 years, expected stock price
volatility of 23% and expected dividends of 1.44%. In future years, as
additional options are granted, the proforma effect on net income and earnings
per share may increase.
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. As of January 1, 2001, the Company's original
stock option plan expired, and on April 18, 2001 the shareholders of the Company
approved a new plan allowing for up to 50,000 stock options to be granted over
the next 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, 2001 21,740 27,880 $ 29.01
Expiration of non-granted
options (21,740) - -
Options approved 50,000 - -
Options issued (7,200) 7,200 51.00
------------ ------------ ------------
Balance at June 30, 2001 42,800 35,080 $ 33.53
============ ============ ============
At June 30, 2001, options outstanding had a weighted average remaining life of
7.2 years. There were 22,332 options exercisable at June 30, 2001 with a
weighted-average exercise price of $27.64.
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 subsidiaries, Bank of
Lenawee and Bank of Washtenaw (the "Banks"), as of June 30, 2001 for the three
and six month periods ended June 30, 2001 and 2000.
FINANCIAL CONDITION
Securities
The balance of our securities portfolio increased by $6.9 million during the
first half of 2001. Purchases of securities available for sale totaling $10.5
million were partially offset by principal repayments on mortgage backed
securities and maturities within the portfolio totaling $3.9 million. The net
increase in securities was primarily related to the increase in customer
deposits.
Page 9
Loans
Loan growth continued through the first half of 2001. During the first six
months of 2001, annualized loan growth was 3.7%. The mix of the loan portfolio
remains relatively unchanged from prior periods.
In addition to the increase in portfolio loans, we experienced a significant
increase in the volume of our residential mortgage loans sold into the secondary
market. The significant decrease in short-term interest rates during the first
half of 2001 also caused a decline in mortgage interest rates, increasing
consumer interest in refinancing existing mortgage loans.
Credit Quality
We continue 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 our 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. Our classifications of nonperforming loans are generally consistent with
loans identified as impaired.
The chart below shows the makeup of our nonperforming assets by type, in
thousands of dollars, as of June 30, 2001 and 2000, and December 31, 2000.
6/30/2001 12/31/2000 6/30/2000
--------- ---------- ---------
Nonaccrual loans $ 145 $ 113 $ 1,571
90 days or more past due & still accruing 535 523 203
Other nonperforming loans - - 1,069
----------- ----------- ------------
Total nonperforming loans 680 636 2,843
Other real estate 435 294 377
----------- ----------- ------------
Total nonperforming assets $ 1,115 $ 930 $ 3,220
=========== =========== ============
Nonperforming loans as a percent of total loans .31% .30% 1.33%
Nonperforming assets as a percent of total loans .51% .43% 1.51%
Nonperforming loans as a percent of the allowance
for loan losses 29.3% 27.81% 61.46%
Page 10
We increased our provision for loan losses for the first six months of 2001
compared to the same period in 2000 due to increases in loan volume and net
charge-offs. The provision provides for anticipated losses in our current
portfolio.
Deposits
Total deposit growth for the first half of 2001 was approximately $7.0 million.
Annualized deposit growth for the half was 6.2%, compared to 12.5% for all of
2000. This increase is primarily the result of a significant increase in
noninterest bearing deposits which was partially offset by a small decrease in
interest bearing deposits. We anticipate moderate deposit growth during 2001 as
a result of continued expansion in new and existing markets.
Liquidity
We maintained an average funds sold position for the first half of 2001,
although we generally move in and out of the fed funds market as liquidity needs
vary. Borrowings decreased from December 31, 2000, and we anticipate that
deposit and loan growth will cause continued variation in our short term funds
position. We have 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 Company and both Banks were categorized as well capitalized at June 30,
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 $ 28.7 12.2% $ 18.8 8.0% $ 23.5 10.0%
Bank of Lenawee 23.9 11.3% 16.9 8.0% 21.1 10.0%
Bank of Washtenaw 4.3 17.8% 1.9 8.0% 2.4 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated 26.5 11.3% 9.4 4.0% 14.1 6.0%
Bank of Lenawee 21.9 10.4% 8.4 4.0% 12.7 6.0%
Bank of Washtenaw 4.1 16.9% 1.0 4.0% 1.4 6.0%
Tier 1 capital (to average assets)
Consolidated 26.5 9.3% 11.4 4.0% 14.3 5.0%
Bank of Lenawee 21.9 8.6% 10.2 4.0% 12.8 5.0%
Bank of Washtenaw 4.1 13.5% 1.2 4.0% 1.5 5.0%
Page 11
Results of Operations
Net Income
Net income decreased 4.6%, basic earnings per share decreased from $1.79 to
$1.71 and dividends per share decreased from $0.54 to $0.40 when comparing the
results of the six months ended June 30, 2001 to the same period of 2000. Net
income decreased 12%, basic earnings per share decreased from $0.96 to $0.85 and
dividends per share remained at $0.20 when comparing the results of the three
months ended June 30, 2001 to the same period in 2000.
The decrease in net income for the three and six months ended June 30, 2001 when
compared to the same periods of 2000, is primarily the result of increased
noninterest expenses partially offset by increased net interest income and
increased gains on the sales of loans. The decrease in dividends per share for
the six months ended June 30, 2001 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 our 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 three and six months
ended June 30, 2001 as compared to the same periods in the prior year primarily
as a result of the general decline in interest rates during the first half of
2001. However, the cost of funds on interest bearing liabilities increased
slightly for the six months ended June 30, 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 resulted in
decreases in our interest rate spread and net interest margin. However, our net
interest margin remains quite strong, and we continue to take steps to
neutralize some portion of this risk.
The following table shows the year to date daily average balances for interest
bearing assets and interest bearing liabilities, interest earned or paid, and
the annualized effective rate or yield, for the six month periods ended June 30,
2001 and 2000.
Page 12
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 6/30/2001 6/30/2000
--------- ---------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
Interest earning assets:
Loans (1) $ 215,639 $ 9,936 9.22% $ 198,919 $ 9,244 9.29%
Investment securities (2) (3) 24,670 678 5.50% 24,457 700 5.72%
Federal funds sold and other 8,860 214 4.83% 1,204 32 5.32%
----------- ----------- ----------- -----------
Total int. earning assets 249,169 10,828 8.70% 224,580 9,976 8.88%
Interest bearing liabilities:
Interest bearing demand
deposits $ 54,573 $ 712 2.61% $ 52,696 $ 883 3.35%
Savings deposits 23,787 176 1.48% 23,817 179 1.50%
Time deposits 118,133 3,415 5.78% 91,705 2,527 5.51%
Other borrowings 7,650 225 5.88% 16,114 485 6.02%
----------- ----------- ----------- -----------
Total int. bearing
liabilities $ 204,143 4,528 4.44% $ 184,332 4,074 4.42%
=========== ===========
Net interest income (3) $ 6,300 $ 5,902
=========== ===========
Net spread (3) 4.26% 4.46%
====== =====
Net interest margin (3) 5.06% 5.16%
====== =====
Ratio of interest earning assets
to interest bearing liabilities 1.22 1.22
========== ===========
(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 three and six months ended June 30, 2001, noninterest income from
banking products and services increased 120% and 100% as compared to the same
periods in 2000. Declining interest rates during the first half of 2001
increased the originations of residential mortgage loans and, accordingly, our
volume of loan sales. Increases in net gains on loan sales of $436,000 and
$781,000 for the three and six month periods end June 30, 2001 compared to the
same periods of 2000 were the primary factors contributing to the overall
noninterest income growth.
Noninterest Expenses
Noninterest expense also increased over the same periods of 2000, reflecting our
continued growth and expansion. Total noninterest expense, excluding provision
for loan losses, for the three and six month periods ended June 30, 2001 was 36%
and 29% above the same periods for 2000. Increases in salaries and employee
benefits for the three and six month periods ended June 30, 2001 of
approximately 37% and 27% were the primary factors contributing to the overall
increase. These increases, along with 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 our general growth. We
expect these costs to continue to rise as we experience continued growth
consistent with our Strategic Plan.
Federal Income Tax
There was no significant change in our income tax position during the second
quarter of 2001.
Page 13
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, 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, we undertake 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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is interest rate risk and liquidity risk. All
of our transactions are denominated in U.S. dollars with no specific foreign
exchange exposure. We have 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 our earnings and capital base.
Accordingly, effective risk management that maintains IRR at prudent levels is
essential to our 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, we seek 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 us to assess the existing and
potential future effects of changes in interest rates on our consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
Page 14
We have not experienced a material change in our financial instruments that are
sensitive to changes in interest rates since December 31, 2000, which
information can be located in our report on Form 10-K for the year ended
December 31, 2000.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company. Our
wholly-owned subsidiaries, Bank of Lenawee and Bank of Washtenaw, are involved
in ordinary routine litigation incident to their business; however, no such
proceedings are expected to result in any material adverse effect on the
operations or earnings of the Banks. Neither the Banks nor the Company are
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 Banks, or any associate of the
foregoing, is a party or has a material interest adverse to the Company or the
Banks.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of our shareholders was held on April 18, 2001. At that
meeting, the following matters were submitted to a vote of the shareholders.
There were 854,156 voting shares outstanding on March 8, 2001, the record date
for the meeting. 695,934 shares, or 81% of the shares eligible to vote, were
voted at the meeting.
The following directors were elected at the meeting, each for a term expiring in
2004, based on the vote stated opposite their names:
Authority Abstentions and
For Withheld Broker Non-votes
--- -------- ----------------
Fred R. Duncan 685,701 10,233 -0-
J. Paul Rupert 688,747 7,187 -0-
Emory M. Schmidt 671,520 24,414 -0-
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A proposal to approve the Lenawee Bancorp 2001 Stock Option Plan was adopted at
the meeting, based on the following vote:
Authority Abstentions and
For Withheld Broker Non-votes
--- -------- ----------------
609,889 68,772 17,273
A proposal to approve the Corporation's auditors for the 2001 fiscal year was
adopted at the meeting based on the following vote:
Authority Abstentions and
For Withheld Broker Non-votes
--- -------- ----------------
689,584 6,350 -0-
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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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.
(Registrant)
Date: August 13, 2001 /s/ Patrick K. Gill
Patrick K. Gill
President
Date: August 13, 2001 /s/ Loren V. Happel
Loren V. Happel
Chief Financial Officer
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