##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 0F 1934
 For the Quarter Ended March 31, 2009
 Commission File Number 333-135107
 LOTUS BANCORP, INC.
  Michigan
    
    20-2377468(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 44350 W. Twelve Mile Road, Novi, MI 48377
  (248) 735-1000
  þ o
 o o
 
 Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ




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##### 



INDEX
 PART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS


3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION


15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


18ITEM 4T CONTROLS AND PROCEDURES


18PART II OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS


19ITEM 1A. RISK FACTORS


19ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


19ITEM 3. DEFAULTS UPON SENIOR SECURITIES


19ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


19ITEM 5. OTHER INFORMATION


19ITEM 6. EXHIBITS


19SIGNATURES


20EX-31.1EX-31.2EX-32
  
 Information Concerning Forward-Looking Statements
 Statements contained in this Form 10-Q which are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements involve important known and unknown risks,
uncertainties and other factors and can be identified by phrases using estimate, anticipate,
believe, project, expect, intend, predict, potential, future, may, should and
similar expressions or words. Such forward-looking statements are subject to risk and
uncertainties which could cause actual results to differ materially from those projected. Such
risks and uncertainties include potential changes in interest rates, competitive factors in the
financial services industry, general economic conditions, the effect of new legislation and other
risks detailed in documents filed by the Company with the Securities and Exchange Commission from
time to time.
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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS.
 
 ASSETS
 March 31, 2009(unaudited)
    
    
    December 31, 2008Cash and cash equivalentsCash and due from banks
    
    $
    402,604
    
    
    $
    457,103Interest bearing balances due from banks
    
    
    3,920,000
    
    
    
    1,960,000Federal funds sold
    
    
    4,818,340
    
    
    
    3,194,033Total cash and cash equivalents
    
    
    9,140,944
    
    
    
    5,611,136Loans, less allowance for loan losses of
$347,918 and $314,000 at March 31, 2009 and
December 31, 2008, respectively (Note 2)
    
    
    27,441,214
    
    
    
    25,085,558Property & equipment, net of depreciation (Note 5)
    
    
    3,432,066
    
    
    
    3,478,775Accrued interest receivable and other assets
    
    
    160,019
    
    
    
    174,865Total assets
    
    $
    40,174,243
    
    
    $
    34,350,334
 LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
 March 31, 2009(unaudited)
    
    
    December 31, 2008Deposits (Note 3)Non-interest bearing
    
    $
    3,641,738
    
    
    $
    3,613,283Interest bearing
    
    
    26,124,208
    
    
    
    20,107,144Total deposits
    
    
    29,765,946
    
    
    
    23,720,427Accrued interest payable and other liabilities
    
    
    136,839
    
    
    
    103,520Total liabilities
    
    
    29,902,785
    
    
    
    23,823,947Stockholders equityCommon Stock, $0.01 par valueAuthorized 8,000,000 shares
Issued and outstanding  1,389,965
shares at March 31, 2009 and
at December 31, 2008, respectively
    
    
    13,899
    
    
    
    13,899Additional paid in capital
    
    
    14,003,763
    
    
    
    13,989,314Accumulated deficit
    
    
    (3,746,204
    )
    
    
    (3,476,827
    )Total stockholders equity
    
    
    10,271,458
    
    
    
    10,526,387Total liabilities and stockholders
equity
    
    $
    40,174,243
    
    
    $
    34,350,334
  3




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Three Months EndedMarch 31
    
    
    March 312009
    
    
    2008Interest income:Loans receivable, including fees
    
    $
    381,276
    
    
    $
    165,980Interest bearing balances due from banks
    
    
    10,911
    
    
    
    23,034Federal funds sold
    
    
    2,795
    
    
    
    31,525Total interest income
    
    
    394,982
    
    
    
    220,539Interest Expense:Deposits
    
    
    161,401
    
    
    
    53,216Other
    
    
    
    
    
    
    Total interest expense
    
    
    161,401
    
    
    
    53,216Net interest income
    
    
    233,581
    
    
    
    167,323Provision for loan losses
    
    
    36,000
    
    
    
    26,000Net interest income after provision
    
    
    197,581
    
    
    
    141,323Non-interest income:Service charges and fees
    
    
    6,440
    
    
    
    4,866Gain on sale of loans
    
    
    
    
    
    
    4,575Other income
    
    
    2,099
    
    
    
    Total non-interest income
    
    
    8,539
    
    
    
    9,441Non-interest expense:Compensation and employee benefits
    
    
    246,393
    
    
    
    255,228Occupancy and equipment
    
    
    74,750
    
    
    
    45,354Stock based compensation
    
    
    14,448
    
    
    
    Professional fees
    
    
    34,000
    
    
    
    45,000Data processing costs
    
    
    25,162
    
    
    
    24,921Advertising and promotion
    
    
    11,325
    
    
    
    12,644Travel and entertainment
    
    
    7,510
    
    
    
    12,270Michigan business tax
    
    
    7,000
    
    
    
    9,000ATM and debit card expenses
    
    
    9,331
    
    
    
    9,555Other
    
    
    45,578
    
    
    
    51,947Total non-interest expense
    
    
    475,497
    
    
    
    465,919Loss before income tax benefit
    
    
    (269,377
    )
    
    
    (315,155
    )Income tax benefit
    
    
    
    
    
    
    Net Loss
    
    $
    (269,377
    )
    
    $
    (315,155
    )Basic and Diluted Loss Per Share
    
    $
    (.19
    )
    
    $
    (.23
    )Weighted Average Shares Outstanding
    
    
    1,389,965
    
    
    
    1,389,965
  4




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Common
    
    Paid In
    
    AccumulatedStock
    
    Capital
    
    Deficit
    
    TotalBalance December 31, 2008
    
    $
    13,899
    
    
    $
    13,989,315
    
    
    $
    (3,476,827
    )
    
    $
    10,526,387Stock option expense
    
    
    
    
    
    
    14,448
    
    
    
    
    
    
    
    14,448Net loss
    
    
    
    
    
    
    
    
    
    
    (269,377
    )
    
    
    (269,377
    )Balance March 31, 2009
    
    $
    13,899
    
    
    $
    14,003,763
    
    
    $
    (3,746,204
    )
    
    $
    10,271,458
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Three Months EndedMarch 31, 2009
    
    March 31, 2008CASH FLOWS FROM OPERATING ACTIVITIESAdjustments to reconcile actual loss to
net cash from operating activities:Net loss
    
    $
    (269,377
    )
    
    $
    (315,155
    )Stock option expense
    
    
    14,448
    
    
    
    Depreciation
    
    
    47,310
    
    
    
    19,629Provision for loan losses
    
    
    36,000
    
    
    
    26,000Increase (decrease) in accrued interest receivable and other assets
    
    
    14,846
    
    
    
    (2,115
    )Decrease in accrued interest payable and other liabilities
    
    
    33,319
    
    
    
    49,497Net cash used in operating
activities
    
    
    (123,454
    )
    
    
    (222,144
    )CASH FLOWS FROM INVESTING ACTIVITIESNet increase in loans
    
    
    (2,389,574
    )
    
    
    (2,099,976
    )Net charge-offs on loans
    
    
    (2,082
    )
    
    
    Purchase of equipment
    
    
    (601
    )
    
    
    (625,811
    )Net cash used in investing
activities
    
    
    (2,392,257
    )
    
    
    (2,724,787
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease in non-interest bearing deposits
    
    
    28,455
    
    
    
    258,994Increase (decrease) in interest bearing deposits
    
    
    6,017,064
    
    
    
    (8,287
    )Net cash provided by
financing activities
    
    
    6,045,519
    
    
    
    250,707INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,529,808
    
    
    
    (2,697,224
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    5,611,136
    
    
    
    7,565,861CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    9,140,944
    
    
    $
    4,868,637Cash Paid for Interest
    
    $
    143,761
    
    
    $
    54,558
  6




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LOTUS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Financial Statement Presentation
  Principles of Consolidation
 Organization
 Use of Estimates
 Organization and Pre-opening costs
 Deferred Offering Costs
 Cash and Cash Equivalents
 Loans
  7




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Allowance for Loan Losses
      Off-balance-sheet Instruments
 Property and Equipment
 Income Taxes
 8




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Earnings per Share
 Reclassification
 Recent Accounting Pronouncements Fair Value Measurements Effective Date of FASB Statement
No. 157. Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active. .
   The Fair Value Option for Financial Assets and
Financial Liabilities
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Disclosures About Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement No. 133. Accounting for Derivative Instruments and Hedging Activities
 The Hierarchy of Generally Accepted Accounting
Principles.
 10




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NOTE 2  LOANS
  March 31, 2009
    
    
    December 31, 2008Mortgage loans on real estate:Residential 1 to 4 family
    
    $
    2,515,075
    
    
    $
    2,419,361Commercial
    
    
    14,994,150
    
    
    
    12,843,133Second mortgage
    
    
    208,248
    
    
    
    172,393Equity lines of credit
    
    
    1,248,038
    
    
    
    839,607Total mortgage loans on real estate
    
    
    18,965,511
    
    
    
    16,274,494Commercial loans
    
    
    8,060,372
    
    
    
    8,443,881Consumer installment loans
    
    
    793,499
    
    
    
    700,235Total loans
    
    
    27,819,382
    
    
    
    25,418,610Less:Allowance for loan losses
    
    
    347,918
    
    
    
    314,000Net deferred loan fees (costs)
    
    
    30,250
    
    
    
    19,052Net loans
    
    $
    27,441,214
    
    
    $
    25,085,558
  Maturing or repricing inless than
    
    1 to 5
    
    after1 year
    
    years
    
    5 years
    
    TotalCommercial and financial
    
    $
    11,758,442
    
    
    $
    7,214,366
    
    
    $
    4,081,714
    
    
    $
    23,054,522Real estate  mortgage
    
    
    2,039,529
    
    
    
    1,520,534
    
    
    
    411,298
    
    
    
    3,971,361Installment loans to individuals
    
    
    362,163
    
    
    
    422,100
    
    
    
    9,236
    
    
    
    793,499Total loans
    
    $
    14,160,134
    
    
    $
    9,157,000
    
    
    $
    4,502,248
    
    
    $
    27,819,382
  Fixed rate
    
    $
    8,926,008Variable rate
    
    $
    13,491,215
   March 31, 2009Balance at December 31, 2008
    
    $
    314,000Provision for loan losses
    
    
    36,000Loans charged-off
    
    
    (2,082
    )Recoveries on loans previously charged-off
    
    
    Balance at March 31, 2009
    
    $
    347,918
   11




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NOTE 3  DEPOSITS
  March 31, 2009
    
    
    December 31, 2008Non-interest bearing deposits
    
    $
    3,641,738
    
    
    $
    3,613,283NOW accounts
    
    
    419,056
    
    
    
    357,123Savings and money market accounts
    
    
    10,669,296
    
    
    
    9,505,159Certificates of deposit less than $100,000
    
    
    4,163,106
    
    
    
    2,718,608Certificates of deposit greater than $100,000
    
    
    10,872,750
    
    
    
    7,526,254Total
    
    $
    29,765,946
    
    
    $
    23,720,427
  Less than
    
    Greater than$100,000
    
    $100,000
    
    TotalLess than one year
    
    $
    3,855,106
    
    
    $
    10,770,664
    
    
    $
    14,625,770One through five years
    
    
    308,000
    
    
    
    102,086
    
    
    
    410,086Over five years
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,163,106
    
    
    $
    10,872,750
    
    
    $
    15,035,856
 NOTE 4  OFF BALANCE SHEET ARRANGEMENTS
 Credit Related Financial Instruments
   March 31, 2009
    
    
    December 31, 2008Commitments to extend credit
    
    $
    4,030,000
    
    
    $
    3,298,200Standby letters of credit
    
    
    908,798
    
    
    
    917,498Undisbursed lines of credit
    
    
    5,169,160
    
    
    
    5,241,053Total
    
    $
    10,107,958
    
    
    $
    9,456,751
    Collateral Requirements
 12




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NOTE 5  PROPERTY AND EQUIPMENT
  March 31, 2009
    
    
    December 31, 2008Building
    
    $
    2,212,089
    
    
    $
    2,212,089Land
    
    
    854,233
    
    
    
    854,233Office equipment
    
    
    633,555
    
    
    
    632,9543,699,877
    
    
    
    3,699,276Less: Accumulated depreciation
    
    
    267,811
    
    
    
    220,501Property and equipment net of depreciation
    
    $
    3,432,066
    
    
    $
    3,478,775
  NOTE 6  INCOME TAXES
   Deferred Tax Asset:Net Operating Loss Carryforward
    
    $
    1,273,709Less: Valuation Allowance
    
    
    (1,273,709
    )Total net deferred tax asset
    
    $
    
  2009
    
    
    2008Income tax benefit at federal statutory rate of 34 percent
    
    $
    91,588
    
    
    $
    107,153Change in valuation allowance
    
    
    (92,000
    )
    
    
    (107,000
    )Other  net
    
    
    (588
    )
    
    
    (153
    )Net income tax expense
    
    $
    
    
    
    $
    
 NOTE 7  STOCK BASED COMPENSATION
   13




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Weighted AverageRemaining
    
    
    
    
    
    AggregateNumber
    
    Contractual
    
    Exercise
    
    IntrinsicExercise Price
    
    Outstanding
    
    Life
    
    Price
    
    Value$10.00
    
    
    59,024
    
    
    9.3 years
    
    $
    10.00
    
    
    
    
       NOTE 8  MINIMUM REGULATORY CAPITAL REQUIREMENTS
   For Capital
    
    To BeActual
    
    Adequacy Purposes
    
    Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of March 31, 2009:Total Risk Based Capital
to Risk Weighted Assets
Lotus Bank
    
    $
    8,378
    
    
    
    24.64
    %
    
    $
    2,720
    
    
    
    8.00
    %
    
    $
    3,400
    
    
    
    10.00
    %Tier One Capital to Risk
Weighted Assets
Lotus Bank
    
    $
    8,030
    
    
    
    23.62
    %
    
    $
    1,360
    
    
    
    4.00
    %
    
    $
    2,040
    
    
    
    6.00
    %Tier One Capital to
Assets
Lotus Bank
    
    $
    8,030
    
    
    
    19.99
    %
    
    $
    1,607
    
    
    
    4.00
    %
    
    $
    2,009
    
    
    
    5.00
    %
 14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
  OVERVIEW
     PLAN OF OPERATION
    FINANCIAL RESULTS
  15




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FUNDING OF OPERATIONS AND LIQUIDITY
 
  CAPITAL EXPENDITURES
  16




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LIQUIDITY AND INTEREST RATE SENSITIVITY
        OFF BALANCE SHEET ARRANGEMENTS
  CAPITAL ADEQUACY
  17




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Tier 1 capital
    
    $
    8,030Total capital
    
    $
    8,378Tier 1 capital to risk-weighted assets
    
    
    23.62
    %Total capital to risk-weighted assets
    
    
    24.64
    %Tier 1 capital to average assets
    
    
    19.99
    %
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4T. CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
   Changes in Internal Controls
  18




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS.
 Exhibit number
    
    Description of Exhibit31.1
    
    Rule 13 a  14 (a) Certification of Chief Executive Officer31.2
    
    Rule 13 a  14 (a) Certification of Chief Financial Officer32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-OxleyAct of 2002.
 19




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SIGNATURES
  LOTUS BANCORP, INC.Date: May 14, 2009
    
    By:
    
    /s/ Satish B. Jasti

Satish B. JastiPresident and Chief Executive OfficerDate: May 14, 2009
    
    By:
    
    /s/ Richard E. Bauer

Richard E. BauerChief Financial Officer
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EXHIBIT INDEX
 Exhibit number
    
    Description of Exhibit31.1
    
    Certification pursuant to Rules 13a  15(e) and 15d  15(e) of the Securities Exchange Act31.2
    
    Certification pursuant to Rules 13a  15(e) and 15d  15(e) of the Securities Exchange Act32
    
    Certification pursuant to Rules 13a  14(b) or Rule 15d  14(b) of the Securities Exchange
Act and 18 U.S.C. §1350
 21