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 September 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 November 2, 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. Condensed Financial Statements (Unaudited)
(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 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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 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 15
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 September 30, 2001, the related condensed consolidated statements of
income and comprehensive income for the quarter and year to date periods ended
September 30, 2001 and 2000 and the condensed consolidated statements of cash
flows for the year to date periods ended September 30, 2001 and 2000. These
financial statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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 30, 2001
Page 3
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
(b) CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
In thousands of dollars 2001 December 31,
(unaudited) 2000
----------- ----
ASSETS
Cash and due from banks $ 11,956 $ 7,842
Federal funds sold - 5,150
------------ ------------
Total cash and cash equivalents 11,956 12,992
Securities available for sale 25,970 19,321
Federal Home Loan Bank stock, at cost 2,504 2,504
Federal Reserve Bank stock, at cost 480 360
Loans, net of allowance for loan losses of $2,278 at September 30,
2001 (unaudited) and $2,287 at December 31, 2000 214,968 212,317
Loans held for sale 2,288 803
Premises and equipment, net 6,591 5,988
Accrued interest receivable 2,386 1,899
Mortgage servicing rights 1,894 1,516
Other assets 1,131 2,047
------------ ------------
Total assets $ 270,168 $ 259,747
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 44,601 $ 37,095
Interest bearing 188,802 187,047
------------ ------------
Total deposits 233,403 224,142
Borrowed funds 7,106 7,936
Accrued interest payable 831 946
Other liabilities 1,413 1,256
------------ ------------
Total liabilities 242,753 234,280
Common stock subject to repurchase obligation in ESOP 4,410 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 10,184 9,632
Retained earnings 12,474 10,755
Accumulated other comprehensive income (loss),
net of tax 347 (34)
------------ ------------
Total shareholders' equity 23,005 20,353
------------ ------------
Total liabilities and shareholders' equity $ 270,168 $ 259,747
============ ============
See accompanying notes to consolidated financial statements.
Page 4
(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,
---------------------------- ----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest and dividend income
Loans receivable, including fees $ 4,781 $ 4,952 $ 14,717 $ 14,196
Taxable securities 333 297 880 847
Nontaxable securities 60 42 187 192
Federal funds sold 44 86 222 116
Other 2 1 42 3
------------ ------------ ------------ ------------
Total interest and dividend income 5,220 5,378 16,048 15,354
Interest expense
Deposits 1,842 2,100 6,145 5,689
Federal Home Loan Bank advances 83 170 249 576
Other 25 68 84 147
------------ ------------ ------------ ------------
Total interest expense 1,950 2,338 6,478 6,412
------------ ------------ ------------ ------------
Net interest income 3,270 3,040 9,570 8,942
Provision for loan losses 119 - 263 30
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,151 3,040 9,307 8,912
Noninterest income
Service charges and fees 339 338 1,001 899
Net gains on loan sales 681 232 1,665 435
Other (4) (18) 120 104
------------ ------------ ------------ ------------
1,016 552 2,786 1,438
Noninterest expense
Salaries and employee benefits 1,813 1,421 5,148 4,040
Occupancy and equipment 542 389 1,517 1,235
Other 672 591 2,155 1,625
------------ ------------ ------------ ------------
3,027 2,401 8,820 6,900
------------ ------------ ------------ ------------
Income before income tax 1,140 1,191 3,273 3,450
Income tax expense 373 387 1,050 1,120
------------ ------------ ------------ ------------
Net income $ 767 $ 804 $ 2,223 $ 2,330
============ ============ ============ ============
Comprehensive income $ 916 $ 925 $ 2,604 $ 2,446
============ ============ ============ ============
Basic earnings per share $ .90 $ .94 $ 2.61 $ 2.73
============ ============ ============ ============
Diluted earnings per share $ .89 $ .93 $ 2.58 $ 2.69
============ ============ ============ ============
Dividends per share $ .20 $ .20 $ .60 $ .74
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
Page 5
(d) CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) Nine Months Ended
In thousands of dollars September 30,
-----------------------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 2,223 $ 2,330
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 732 523
Provision for loan losses 263 30
Net amortization and accretion on securities
available for sale 56 50
Amortization of mortgage servicing rights 480 231
Loans originated for sale (89,699) (32,513)
Proceeds from sale of mortgage loans 89,021 32,411
Net gains on sales of mortgage loans (1,665) (435)
Net change in:
Accrued interest receivable (487) (620)
Other assets 898 (1,049)
Accrued interest payable (115) 232
Other liabilities (21) 670
------------ ------------
Net cash from operating activities 1,686 1,860
------------ ------------
Cash flows from investing activities Proceeds from:
Maturities, calls and principal payments on
securities available for sale 4,397 2,745
Purchases of:
Federal Reserve Bank stock (120) -
Securities available for sale (10,525) -
Premises and equipment, net (1,335) (257)
Net increase in loans (2,914) (12,336)
------------ ------------
Net cash from investing activities (10,497) (9,848)
------------ ------------
Cash flows from financing activities
Net change in deposits 9,261 21,171
Net change in borrowed funds (830) (4,989)
Change in shareholders' equity (656) (667)
------------ ------------
Net cash from financing activities 7,775 15,515
------------ ------------
Net change in cash and cash equivalents (1,036) 7,527
Cash and cash equivalents at beginning of period 12,992 9,510
------------ ------------
Cash and cash equivalents at end of period $ 11,956 $ 17,037
============ ============
Cash paid for:
Interest $ 6,593 $ 6,180
Income taxes 762 737
See accompanying 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 and to reduce the Company's state tax liability. 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 nine-month
period ended September 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 nine months ended
September 30, 2001 and 2000 is presented below in thousands, except for per
share information:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Basic earnings per share
Net income available to common shareholders $ 767 $ 804 $ 2,223 $ 2,330
============ ============ ============ ============
Weighted average common shares outstanding 848 855 851 854
============ ============ ============ ============
Basic earnings per share $ .90 $ .94 $ 2.61 $ 2.73
============ ============ ============ ============
Diluted earnings per share
Net income available to common shareholders $ 767 $ 804 $ 2,223 $ 2,330
============ ============ ============ ============
Weighted average common shares outstanding 848 855 851 854
Add: Dilutive effects of exercise of stock options 11 10 10 11
------------ ------------ ------------ ------------
Weighted average common and dilutive
potential shares outstanding 859 865 861 865
============ ============ ============ ============
Diluted earnings per share $ .89 $ .93 $ 2.58 $ 2.69
============ ============ ============ ============
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 ("Banks"), as of September 30, 2001 and for the
three and nine month periods ended September 30, 2001 and 2000.
FINANCIAL CONDITION
Securities
The balance of our securities portfolio increased by $6.6 million during the
first three quarters 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 $4.4 million. The
net increase in securities was primarily related to the increase in customer
deposits.
Loans
Loan growth continued through the first three quarters of 2001. During the first
nine months of 2001, annualized loan growth was 2.6%. 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
three quarters of 2001 has also caused a decline in mortgage interest rates,
increasing consumer interest in refinancing existing mortgage loans.
Page 8
Credit Quality
We continue to monitor the asset quality of the loan portfolio utilizing a loan
administration 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 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 September 30, 2001 and 2000, and December 31, 2000.
9/30/2001 12/31/2000 9/30/2000
--------- ---------- ---------
Nonaccrual loans $ 248 $ 113 $ 230
90 days or more past due & still accruing 574 523 368
Other nonperforming loans - - 125
----------- ------------ ------------
Total nonperforming loans 822 636 723
Other real estate 771 294 393
----------- ------------ ------------
Total nonperforming assets $ 1,593 $ 930 $ 1,116
=========== ============ ============
Nonperforming loans as a percent of total loans .37% .30% .35%
Nonperforming assets as a percent of total loans .73% .43% .54%
Nonperforming loans as a percent of the allowance
for loan losses 36.08% 27.81% 31.79%
The following analysis summarizes the change in the allowance for loan losses
for the nine month periods ending September 30:
2001 2000 1999
---- ---- ----
Balance at beginning of period $ 2,287 $ 4,646 $ 2,182
Net charge-offs (272) (2,395) (83)
Provision charged to operations 263 30 155
----------- ------------ ------------
$ 2,278 $ 2,281 $ 2,254
=========== ============ ============
Page 9
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 determined a loss of approximately
$2.3 million was likely to be incurred from this relationship. Accordingly,
management recorded additional provision expense of $2.3 million during the
fourth quarter of 1999, and a charge-off of $2.3 million was recorded during
September 2000 for this loan relationship.
Provision for loan losses and net charge offs for the nine months ended
September 30, 2001, were $263,000 and $272,000 resulting in the allowance for
loan losses remaining relatively stable since December 31, 2000. Not including
the effect of the individual loan relationship discussed above, net charge-offs
for the nine months ended September 30, 2001 increased by approximately $176,000
and $188,000 when compared to the nine month periods ended September 30, 2000
and 1999. Similarly, provision expense increased $233,000 and $108,000 when
comparing the nine months ended September 30, 2001 to the same periods of 2000
and 1999. These increases are primarily related to the general downturn in the
economy.
Deposits
Total deposit growth for the first three quarters of 2001 was approximately $9.3
million. Annualized deposit growth for the first three quarters was 5.5%,
compared to 12.5% for all of 2000. This increase is primarily the result of a
significant increase in noninterest bearing deposits and a small increase in
interest bearing deposits. We anticipate moderate deposit growth during the
remainder of 2001 as a result of continued expansion in new and existing
markets.
Liquidity
We maintained an average federal funds sold position for the first three
quarters 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 is comfortable with the liquidity position
of the Company.
Capital Resources
The Company's total capital increased $2.6 million from $20.4 million at
December 31, 2000 to $23.0 million at September 30, 2001. The increase in
capital is primarily attributable to net income, an overall increase in the
market value of the Company's available for sale security portfolio and a
decrease in the number of shares of common stock subject to repurchase
obligations under the Company's employee stock ownership plan. These increases
were partially offset by quarterly dividends paid to shareholders. Based on the
prompt corrective action regulations, the Company and both Banks were
categorized as well capitalized at September 30, 2001.
Page 10
Results of Operations
Net Income
Net income decreased 4.6%, basic earnings per share decreased from $0.94 to
$0.90 and dividends per share remained at $0.20 when comparing the results of
the three months ended September 30, 2001 to the same period in 2000. Net income
decreased 4.6%, basic earnings per share decreased from $2.73 to $2.61 and
dividends per share decreased from $0.74 to $0.60 when comparing the results of
the nine months ended September 30, 2001 to the same period of 2000.
The decrease in net income for the three and nine months ended September 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 nine months ended September 30, 2001 was primarily related to a special
dividend 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 and the cost of funds decreased for the
three and nine months ended September 30, 2001 as compared to the same periods
in the prior year primarily as a result of the general decline in industry rates
during the first three quarters of 2001. The cost of funds has decreased at a
slower rate than the yield on interest earning assets as a result of increasing
time deposit rates during 2000. The 2001 declining interest rates have not fully
impacted our time deposits due to the varying contractual maturities of these
time deposits. This has resulted in decreases in our interest rate spread and
net interest margin. However, our net interest margin remains quite strong in
relation to our peer banks, 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 nine month periods ended
September 30, 2001 and 2000.
Page 11
Yield Analysis of Consolidated Average Assets and Liabilities
Dollars in thousands 9/30/2001 9/30/2000
--------- ---------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
Interest earning assets:
Loans (1) $ 217,546 $ 14,717 9.02% $ 201,953 $ 14,196 9.37%
Investment securities (2) (3) 26,147 1,067 5.44% 24,083 1,039 5.75%
Federal funds sold and other 7,536 264 4.67% 2,523 119 6.29%
----------- ----------- ----------- -----------
Total int. earning assets 251,229 16,048 8.52% 228,559 15,354 8.96%
Interest bearing liabilities:
Interest bearing demand
deposits $ 53,127 $ 1,003 2.52% $ 53,280 $ 1,382 3.46%
Savings deposits 24,194 269 1.48% 23,867 269 1.50%
Time deposits 116,424 4,873 5.58% 94,795 4,038 5.68%
Other borrowings 7,330 333 6.06% 16,161 723 5.96%
----------- ----------- ----------- -----------
Total int. bearing
liabilities 201,075 6,478 4.29% 188,103 6,412 4.55%
Net interest income (3) $ 9,570 $ 8,942
=========== ===========
Net spread (3) 4.23% 4.41%
====== =====
Net interest margin (3) 5.08% 5.22%
====== =====
Ratio of interest earning assets to
interest bearing liabilities 1.25 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 nine months ended September 30, 2001, noninterest income from
banking products and services has increased 84% and 94% as compared to the same
periods in 2000. Declining interest rates during the first three quarters of
2001 resulted in increases in the origination of residential mortgage loans and,
correspondingly, our volume of loan sales. Increases in net gains on loan sales
of $449 and $1,230 for the three and nine month periods ended September 30, 2001
compared to the same periods of 2000 were the primary factors contributing to
the overall noninterest income growth.
Noninterest Expenses
Noninterest expense has 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 nine month periods ended September
30, 2001 was 26% and 28% above the same periods for 2000. Increases in salaries
and employee benefits for the three and nine month periods ended September 30,
2001 of approximately 28% 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 has been no significant change in our income tax position during the third
quarter of 2001.
Page 12
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", "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 13
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 is included in our Form 10-K filed 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
No changes in the securities of the Company occurred during the quarter ended
September 30, 2001.
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, 2001.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for vote of security holders during the quarter.
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):
There were no exhibits required for the quarter ended September 30, 2001
(b) We have filed no reports on Form 8-K during the quarter ended September 30,
2001.
Page 14
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 8, 2001
/S/ Patrick K. Gill
Patrick K. Gill
President (Chief Executive Officer)
/S/ Loren Happel
Loren Happel
Treasurer (Chief Financial Officer)
Page 15