Amendment No. 1

10QSB/A 1 form10qsba9701.htm LENOX BANCORP, INC. FORM 10-QSB/A AMENDMENT NO. 1 Amendment No. 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB/A
Amendment No.1

(Mark One)

[   X   ]   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

For the transition period from ________________ to ______________

Commission File Number 0-28162

LENOX BANCORP, INC.
(Exact name of small business issuer as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)

4730 Montgomery Road, Norwood, Ohio
(Address of principal executive offices)

31-1445959
(I.R.S. Employer
Identification No.)

45212
(Zip Code)

(513) 531-8655
(Issuer's telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changes since last report)

Check whether the issuer: (1) filed all documents and reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period 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 September 14, 2001, the Company had 285,028 shares of common stock, par value $0.01 per share, outstanding.

Transitional
Small Business Disclosure Format (check one): Yes No X

This Amendment No.1 to Form 10-QSB is being filed solely for the purpose of amending Part I, Item 1 - Financial Statements and Part I, Item 2 - Management Discussion and Analysis of Financial Condition and Results of Operations.

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS.





                        LENOX BANCORP, INC.CONSOLIDATED
                                 BALANCE SHEETS

                             (DOLLARS IN THOUSANDS)
                                                                   June 30, 2001    Dec. 31, 2000
                                                                   -------------    -------------

                                                                    Unaudited
Assets

Cash and due from                                                          $938          $2,591
Certificates of deposit                                                       0              98
Investment securities - available for sale,
   at fair value (amortized cost of  $1,500
   and $2,700 at June 30, 2001 and Dec. 31, 2000)                         1,487           2,661
Mortgage-backed securities - available for sale,
   at fair value (amortized cost of
   $430 and $501 at June 30, 2001 and Dec. 31, 2000)                        434             509
Collateralized mortgage obligations - available for
   sale, at fair value  (amortized
   cost of $4,142 and $4,098 at June 30, 2001 and Dec. 31, 2000)          4,116           4,050
                                                                  --------------   ------------
Total Investment Securities                                               6,037           7,220

Loan receivable, net                                                     55,721          54,251
Loans held for sale - at lower of cost or market                              0           3,711
Accrued interest receivable:
         Loans                                                              332             421
         Mortgage-backed securities                                           3               4
         Collateralized mortgage obligation                                  20              26
         Investments and certificates of deposit                             31              50
Property and equipment, net                                               1,232           1,266
Federal Home Loan Bank stock - at cost                                    1,738           1,765
Other Real Estate Owned                                                      91               0
Prepaid expenses and other assets                                           526             336
Prepaid federal income taxes                                                166              90
                                                                        $66,833         $71,829
                                                                  ==============    ============

Liabilities and Stockholders' Equity
Liabilities:
     Deposits:
          Savings, club and other accounts                               $8,222          $7,274
          Money market and NOW accounts                                   3,557           4,668
          Certificate accounts                                           23,278          24,603
                                                                 --------------     -----------
               Total deposits                                            35,057          36,544
Advances from Federal Home Loan Bank                                     26,294          29,864
Advance payments by borrowers for taxes and insurance                       107             257
Accrued expenses                                                            618             286
Deferred federal income taxes                                               115              75
                                                                  --------------   ------------
          Total liabilities                                             $62,191         $67,026

Stockholders' equity
   Common Stock - no par value: 2,000,000 authorized,
   425,677 issued and 285,028 outstanding at June 30,
   2001 and at December 31, 2000                                            426             426
   Additional paid in capital                                            $3,341          $3,341
   Retained earnings - substantially restricted                           3,811           4,058
   Unearned ESOP shares                                                    -171            -171
   Share acquired for Stock Incentive Plan                                 -174            -184
   Treasury stock 140,649 shares at June 30, 2001
   and 140,649 shares at December 31, 2000                               -2,567          -2,567
   Accumulated other comprehensive income:
   Unrealized (loss) on available for sale
   securities net of taxes                                                  -23            -100
                                                                  --------------    ------------
         total stockholders' equity                                      $4,642          $4,803
                                                                  --------------    ------------

Total liabilities and stockholders' equity                              $66,833         $71,829
                                                                  ==============    ============





                               LENOX BANCORP, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                  (Dollars in Thousands Except Per Share Data)

                                          Three months ending  Six months ending
                                               June 30,              June 30,
                                          2001        2000      2001       2000
                                          ----        ----      ----       ----
                                              Unaudited            Unaudited

Interest Income and Dividend Income
     Loans                                 $1,092    $1,178    $2,183    $2,379
     Mortgage-backed securities                 7         8        14        18
     Collateralized mortgage obligations       63        75       136       142
     Investments and interest bearing          43        75       124       109
     FHLB stock dividends                      32        29        64        58
                                          --------  --------  --------  --------
          Total                             1,237     1,363     2,521     2,707

Interest Expense
     Deposits                                 427       480       863       931
     Borrowed money                           379       499       822       957
                                          --------  --------  --------  --------
          Total                               806       979     1,685     1,887

     Net interest income before               431       384       836       820
        provision for loan losses

Provision for loan losses                     220         9       229        32
                                          --------  --------  --------  --------

    Net interest income after                 210       375       607       788
       provision for loan losses

Other Income
     Service fee income                        49        43        91        78
     Gain on sale of loans and securities      69         0        97        23
     Mortgage Corp. Operations                106        76       166       125
                                          --------  --------  --------  --------
          Total                               224       120       354       227

General and Administrative Expenses
     Compensation and employee benefits       524       263       736       479
     Occupancy and equipment                   74        84       129       133
     Federal insurance premium                  6         2        11         4
     Franchise taxes                            8        13        23        29
     Other expenses                           238       172       420       356
                                          --------  --------  --------  --------
          Total                               850       534     1,318     1,001

     Income (Loss) before provision          -417       -37      -357        14
        for income taxes

Provision (Credit) for income taxes          -133       -12      -110         7
                                          --------  --------  --------  --------

     Net Income (Loss)                      -$284      -$25     -$247        $7
                                          ========  ========  ========  ========

    Basic Income (Loss) per share          -$1.00    -$0.09    -$0.87     $0.02
                                          ========  ========  ========  ========

    Diluted Income (Loss) per share        -$1.00    -$0.09    -$0.87     $0.02
                                          ========  ========  ========  ========




                               LENOX BANCORP, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  JUNE 30, 2001
                                                       For the Six Months Ended
                                                                June 30
                                                         2001             2000
                                                     ===========       =========
                                                               Unaudited
Cash flows from operating activities
   Net income (loss)                                      -$247              $7
Adjustments to reconcile net income to net cash
      provided (used) by operating activities
   Depreciation and amortization                             44              36
   Provision (credit) for losses on loans                   229              32
   Amortization of deferred loan fees                        25              34
   Deferred loan origination fees (cost)                    -18             -27
   FHLB stock dividends                                     -64             -58
   Gain on sale of investments and loans                    -97            -126
   Amortization of stock incentive plan award                10              10
   ESOP expense, net of tax benefit                           -               -
   Effect of change in operating assets and
        liabilities
     Accrued interest receivable                            115             -65
     Prepaid expenses                                      -190            -185
     Prepaid federal income tax                             -76              31
     Advances by borrowers for taxes and
        insurance                                          -150            -226
     Accrued expenses                                       332              84
                                                    ------------    ------------
            Net cash provided (used) by
                operating activities                        -87            -453

Cash flow from Investing activities
   Property and equipment additions                          -5            -955
   Repayments of mortgage backed securities                  82              57
   Purchase of certificates of deposit                       -2              -3
   Maturity of certificates of deposit                      100             100
   Net change in loans                                   -5,455          -4,573
   Proceeds from sale of investments                        711               0
   Proceeds from sale of mortgage loans                   7,460           6,778
   Purchase of FHLB stock                                     -             -40
   Maturity of investments - AFS                            600               -
                                                    ------------    ------------
            Net cash provided (used) by
                investing activities                      3,491           1,364

Cash Flows from financing activities
   Net increase (decrease) in deposits                   -1,487          -1,983
   Borrowings from FHLB                                       -          13,000
   Repayments of FHLB advances                           -3,570         -11,429
                                                    ------------    ------------
           Net cash provided (used) by investing
                activities                               -5,057            -412

Increase (decrease) in cash and cash equivalents         -1,653             499
Cash and cash equivalents at beginning of period          2,591             738
                                                    ------------    ------------

Cash and cash equivalents at end of period                  938           1,237
                                                    ============    ============

Supplemental disclosure
   Cash Paid for:
     Interest expense                                     1,724           1,864
     Income taxes                                             -               -

LENOX BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000

PRINCIPLES OF CONSOLIDATION
        The consolidated financial statements include the accounts of Lenox Bancorp, Inc. (“Lenox” or the “Company”) and its wholly owned subsidiary Lenox Savings Bank (the “Bank”), which includes Lenox Mortgage Corporation. All significant intercompany transactions have been eliminated in consolidation. The investment in the Bank on Lenox’s financial statements is carried at the parent company’s equity in the underlying net assets.

       The consolidated balance sheet as of June 30, 2001, and the consolidated statement of income and cash flows for the six months ending June 30, 2001, and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year,

       The financial statements and notes are presented as permitted by Form 10-QSB. The interim statements are unaudited and should be read in conjunction with the financial statements and notes thereto contained in the Company’s annual report for the year ended dated December 31, 2000.
CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On July 17, 1996, the Bank converted from an Ohio chartered mutual savings bank to an Ohio chartered capital stock savings bank, with the concurrent formation of the holding company. Lenox was capitalized through the initial sale of 425,677 shares of common stock. Lenox then used a portion of the proceeds from the sale to purchase all of the outstanding shares of the Bank. This transaction was accounted for in a manner similar to the pooling of interest method.

The Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements
EARNINGS PER SHARE
The net loss for the six months ended June 30, 2001, was ($0.87) per share or ($247,000) on an average of 285,028 shares, compared to net income for the six months ended June 30, 2000, of $7,000 or $.02 per share.

Item 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND DECEMBER 31, 2000

Assets. Total assets decreased 7% to $66.8 million at June 30, 2001 from $71.8 million at December 31, 2000. This decrease was due to a 3.9% decrease in loans receivable from $58.0 million at December 31, 2000, to $55.7 million at June 30, 2001 and was the combined effect of loan sales, early payoffs, and new loan activity. Total Investment Securities decreased 16.4% to $6.0 million at June 30, 2001 from $7.2 million at December 31, 2000. Most of this decrease was due to the callable features of two of the banks’ agency bonds called during the second quarter and the sale of an one-time only callable agency that had passed its’ call date and was sold at a premium. The remainder of the change was due to fluctuations in the market valuation of securities. Cash due from banks decreased $1.7 million to $938,000 at June 30, 2001 from $2.6 million at December 31, 2000 as the previous excess funds were applied to paying down Federal Home Loan Bank advances.

Liabilities. Total liabilities decreased 7.2% from $67.0 million at December 31, 2000, to $62.1 million at June 30, 2001, primarily due to a decrease in Federal Home Loan Bank (FHLB) Advances of 12.0%, from $29.9 million at December 31, 2000, to $26.3 million at June 30, 2001. The ongoing process of restructuring the FHLB advances from a short term variable rate base to a longer term fixed rates base and the several successful sales of small blocks of loans has allowed the bank to resize the FHLB advance portfolio. The second quarter allowed the Bank to address the prepayment of its’ last LIBOR based advance. This was accomplished with the end result being a reduction in the interest rate and the lengthening of the maturity of this item.

The deposit base decreased 4.1% from $36.5 million at December 31, 2000, to $35.0 million at June 30, 2001,and the make up of the deposit base has changed. Certificate of deposit accounts declined 5.4% from $24.6 million at December 31, 2000 to $23.3 million at June 30, 2001 due to lower pricing in an effort to reduce the Banks’ cost of funds. In addition, Money Market and NOW accounts declined 23.8% from $4.7 million at December 31, 2000, to $3.6 million at June 30, 2001. The decline in these accounts is based on a combination of falling interest rates and the more temporary nature of the balances in these accounts. This decrease, however, was partially offset by savings, club and other accounts increasing 13.0% from $7.3 million at December 31, 2000, to $8.2 million at June 30, 2001. This repositioning helps to improve the Banks’ interest rate risk position in that many of these accounts are either tied to a lower yielding account or to an account that will reprice when rates change. Accrued expenses and other liabilities increased to $618,000 at June 30, 2001 from $286,000 at December 31, 2000. This increase relates to the Shareholders Meeting discussed in Part II, Item 4. The bulk of the increases in accrued expenses represent two different items. The first portion of the accrual is additional $300,000 for the potential payout of the employment contract of the banks’ former President and CEO. The second portion of the accrual of $24,000 relates to legal expenses incurred from the 2001 Annual Shareholders Meeting.

Stockholders’ Equity. Stockholders’ equity decreased 3.4% from $4.8 million at December 31, 2000 to $4.6 million at June 30, 2001. The decrease was primarily due to a $247,000 decrease in retained earnings for net loss generated for the period offset by a $77,000 decrease in the unrealized loss on available for sale securities. The Bank’s capital position as of June 30, 2001 was $4.6 million, which is 6.9% of the assets.

Liquidity and Capital Resources. The Company’s primary sources of funds are deposits, FHLB advances, principal and interest payments on loans and loan sales in the secondary market. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flow and mortgage prepayments are strongly influenced by changes in general interest rates, economic conditions and competition.

The primary investment activity of the Company for the six months ended June 30, 2001, was the origination of mortgage and consumer loans. The most significant source of funds for the six months ending June 30, 2001, was the repayment of mortgage loans and the sale of mortgage loans.

Liquid assets (cash and investment securities) decreased $2.9 million during the six months ended June 30, 2001 to $2.4 million. This decrease reflects net loan increase of $5.6 million, a $1.5 million decrease in deposits and repayment of $3.6 million in FHLB advances offset by loans sales of $7.6 million, repayments on mortgage-backed securities of $82,000 and the maturity and sale of investments of $1.4 million. Liquid assets represent 3.6% of total assets as of June 30, 2001.

The net change in loans before sales was $5.5 million for the six months ended June 30, 2001 as compared to $4.6 million for the period ended June 30, 2000. The increase in loan demand from the current low rate interest environment is the reason for the increase in the loans prior to the sale of loans on the secondary market. The Bank continues to sell loans with servicing retained on the secondary market. The Bank sold $7.5 million of loans during the six months ended June 30, 2001 as compared to $6.8 million of loans for the prior six-month period. The loans sold represented loans classified as available for sale by management. The loan sale proceeds were used to repay FHLB advances that the Bank had utilized to fund the loans upon origination.

The Bank is required to maintain a minimum level of liquidity consistent with safe and sound operation of the institution. The Bank’s most liquid assets are cash, federal funds sold, and unpledged marketable securities. The levels of the Bank’s liquid assets are dependent on the Bank’s operation, financing, lending and investing activities during any given period. In addition the bank has a ready source of Federal Home Loan Bank (FHLB) Advance borrowing capacity. These funds can be accessed quickly and at competitively rates to meet liquidity needs. At June 30, 2000, an additional $7.7 million was available to be drawn as additional advances from the FHLB representing a total liquidity source of $10.1 million.

As of June 30, 2001, the Bank’s capital did not meet all the capital requirements stipulated in the Memorandum of Understanding dated May 4, 2001 with the FDIC and the State Department of Commerce. The Bank’s tier 1 leverage and total capital to risk-weighted capital ratios was 6.82% and 13.06%, respectively. Additional expenses provided to the provision for loan loss as well as additional expenses relating to the accruals detailed above were sufficient to cause the Bank’s capital to not meet the capital requirements stipulated. With the recognition of the extra expenses and plans in place to add to the Bank’s capitalization in the near future, the Bank should be able to meet the stated capital requirements.

Comprehensive loss for the six months ending June 30, 2001, and 2000 was $177,000 and $77,000, respectively. The difference between net loss and comprehensive income consists solely of the effect of unrealized gain and losses, net of taxes, on available for sale securities.

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001, AND 2000.

Interest and Dividend Income. Interest and dividend income for the six months ended June 30, 2001 declined when compared with the six months ended June 30, 2000 by 6.9% from $2.7 million at June 30, 2000 to $2.5 million at June 30, 2001. Interest income on loans decreased 8.2% from $2.4 million as of June 30, 2000 compared to $2.2 million as of June 30, 2001. This decrease is the combined effect of a lower loan portfolio base in 2001 compared to 2000 and a decreasing interest rate environment. Other investments and investment bearing deposits increased 13.8% from $109,000 as of June 30, 2000 and $124,000 as of June 30, 2001, mainly due to the banks’ excess funds being placed in FHLB overnight interest bearing IFTS account. FHLB stock dividends increased 10.3% due to an increase in the number of outstanding shares owned.

Interest Expense. Interest expense for the six months ended June 30, 2001, was $1.7 million compared to $1.9 million for the six months ended June 30, 2000, a decrease of 10.7%. The decrease in deposit expense took place during a time period where actual deposit levels were decreasing accompanied by a downward trend on rates paid on these deposits. In the past the Bank has utilized FHLB advances to fund much of the asset growth but with recent sales of loans and the subsequent repayment of FHLB advances, the average balance on FHLB advances has decreased by 24.3% to $26.3 million for the period ended June 30, 2001 from $32.7 million for the period ended June 30, 2000. This reduction in the level of FHLB advances as well as the lower rates associated on the restructured advance portfolio led to the reduction in borrowed money expenses.

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased 2.0% for the six months ended June 30, 2001, to $836,000 from $820,000 for the six months ended June 30, 2000. This improvement indicates a closer alignment with and recognition of interest spreads and margins in controlling interest related costs.

Provision for Loan Losses . The provision for loan losses increased from $32,000 for the six months ending June 30, 2000, to $229,000 for the six months ended June 30, 2001. The loan loss was increased to reflect management’s best estimate of probable losses inherent in the loan portfolio as of June 30, 2001. At the board’s request management evaluated the recent changes in the loan portfolio.

                   Allocation of the Allowance for Loan Losses

Balance at End of Period        2001                       2000


                   Amount       % of total loans    Amount      % of total loans

Real Estate        290,000      96%                 82,000      97%

Installment         16,000       4%                 40,000       3%

Unallocated           0          0%                    0         0%

                   306,000      100%                122,000     100%

The increase in the allowance for loan losses was based on the increase in the amount of loans secured by non-owner occupied real estate located outside the Cincinnati lending area. The Bank has experienced an increase in the concentration of its non-owner occupied real estate portfolio from 30% as of June 2000 to approximately 50% as of June 2001. The majority of this increase is secured by real estate outside the Cincinnati lending area. The Bank has also experienced an increase in the amount of loans to multiple borrowers that are secured by non-owner occupied property outside the local area. This increase in non-owner occupied real estate loans and the increased inherent risk in this type of lending caused management to perform an expanded analysis of the loan portfolio. The expanded analysis included a review of the recent changes in the loan portfolio from lending to borrowers on owner occupied properties to non-owner occupied properties. The loan portfolio was analyzed and loans were classified as "unclassified", "special mention", "substandard", "doubtful" and "loss". The classification was determined by evaluating the risk for each loan group and individually once classified. "Unclassifed" loans are assets of sound quality with no current or potential weakness which may jeopardize collection. "Special mention" loans are assets that have a potential weakness or pose an unwarranted financial risk that, if not corrected, could weaken the asset and increase the risk in the future. "Substandard" loans are assets that are 90 days or more delinquent or 60 days delinquent if less than a 12 months, are inadequately protected by the current new worth and paying capacity of the obligor or of the collateral pledged, have a well defined weakness based upon objective evidence, and are characterized by the distinct possibility of sustaining some loss if the deficiencies are not corrected. "Doubtful" loans are assets that have all the weaknesses in those classified "substandard", with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable. "Loss" are assets considered uncollectible and of such little value that their continuance as assets is not warranted.

Loans 90 days delinquent were placed in non-accrual status, and classified as substandard, doubtful, or loss. Classified assets as of June 30, 2001 were $2.7 million as compared to $218,000 as of June 30, 2000. As of June 30, 2001 classified assets categories were special mention of $2.1 million, substandard of $454,000, doubtful of $28,000 and loss of $17,000. Classified assets as of June 30, 2000 were $218,000, with special mention of $113,000, substandard of $102,000, doubtful of $777 and loss of $2,000.

The new management installed after the 2001 Shareholders Meeting determined that the change in the loan portfolio from owner-occupied real estate lending to non-owner occupied real estate lending was a significant change in the loan portfolio. Management believes this significant change in the loan portfolio warrants the increase in the allowance for loan losses. Management established allowances related to the classified assets based on the total of each classification. Classified loans are based on management's analysis of the individual loans and the underlying collateral. The general reserve includes all other unclassified loans as part of the calculation for evaluating the inherent risk in lending. Management also considered the past loan loss experience, the current economic conditions and the requirements of the regulatory agencies in determining the appropriate level of the allowance for loan losses.

Management on a periodic basis evaluates the loan portfolio and specific loans that indicate situations that may affect the borrower's ability to pay and the estimated underlying collateral. Once classified by management all assets are analyzed on a quarterly basis to monitor the differences between actual losses and the estimated losses. The Bank currently has not experienced a significant increase in non-performing loans or actual observed losses as compared to prior periods but the increase in inherent risk, as a result of increased non-owner occupied real estate loans added to the loan portfolio, warrants the increase provision for loan losses.

                       Analysis of Allowance for Loan Loss

Balance at beginning period                 June 2001                 June 2000
of January:                                 $125,000                  $ 90,000
Charge offs:
Real Estate-mortgage                        $ 48,000                  $      0
Installment loans to individuals            $  2,000                  $  3,000

Recoveries:
Real Estate-mortgage                        $      0                  $      0
Installment loans to individuals            $  2,000                  $  3,000

Net charge-offs:                            $ 48,000                  $      0

Additions charged to operations             $229,000                  $ 32,000

Balance at end of period                    $306,000                  $122,000

Ratio of net charge-offs during the period to average loans outstanding
during the period:                          .08%                      .0%

Net Interest Income After Provision for Loan Losses . Net interest income after provision for loan losses decreased $181,000 or 23.0% for the six months ended June 30, 2001, to $607,000 from $788,000 for the six months ended June 30, 2000. As indicated in the above paragraph above, the change in net interest income after provision for loan losses was due to the increase in the loan loss provision.

Other Income. Other income increased 55.9% for the six months ending June 30, 2001, to $354,000 from $227,000 for June 30, 2000. Service fee income increased 16.7% from $78,000 at June 30, 2000 to $91,000 at June 30, 2001. This increase was due to increases in bank service charges and increased efforts by bank employees in expanding bank fee income. The gain on sale of loans and securities increased from $23,000 for the six months ended June 30, 2000, to $97,000 for the six months ended 2001. This gain was predominately from the sale of loans and the sale of a security that had passed its call date.

General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2001 were $1.3 million compared to $1.0 million for the six months ended June 30, 2000 representing an increase of 31.7%. Compensation and benefits increased by a net of $257,000. This is primarily due to the identification and accrual of the potential payout of the employment contract of the former President and CEO of the bank. The increase in other expenses from $356,000 for the six months ended June 30, 2000, to $420,000 for the six months ended June 30, 2001 is due to increases in professional and legal fees incurred due to the settlement of litigation related to the year 2000 Annual Shareholders Meeting.

Income Taxes. Income taxes for the six months ended June 30, 2001 was a tax benefit of $110,000 compared to a tax expense of $7,000 for the six months ending June 30, 2000. This change is due to the effect of the additional provision for loan losses and compensation expense.

Recent Accounting Pronouncements. In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes for derivative instruments, including derivative instruments imbedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management adopted this standard without a material effect on the Company’s financial position or results of operations.

On July 29, 2001 the FASB issued SFAS 141 and 142. SFAS 141 requires that all business combinations be accounted for under a single method, the purchase method. The use of the pooling of interest is no longer permitted. SFAS 141 requires that the purchase method be used for combinations initiated after June 30, 2001.

SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement, which for most companies will be January 1, 2002.

Contingencies. Director John C. Lame has submitted a request for approval of approximately $273,000 for the reimbursement of expenses incurred in connection with the 2001 Annual Shareholders Meeting. The proposed reimbursement, if approved, will be made in the form of an issue of unregistered Common Stock at an appraised value. The entire reimbursement is subject to regulatory approval. $145,000 of the reimbursement is also subject to shareholder approval, which will be sought at the 2002 Annual Shareholders Meeting. The remainder of $128,000 will not be subject to shareholder approval as it relates to direct proxy solicitation expenses, which were noticed to shareholders in Mr. Lame’s proxy materials issued in connection with the 2001 Annual Shareholders Meeting. Approval of the expenses for reimbursement will result in a charge to earnings at the time of approval.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

September 14, 2001
Date

September 14, 2001
Date

LENOX BANCORP, INC.

By: /s/ John C. Lame
John C. Lame
President & Chief Executive Officer

By: /s/ David K. Brown
David K. Brown
Chief Financial Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-QSB/A Amendment No.1

SIGNATURES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB/A
Amendment No.1