| ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2003
or
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File #000-30521
Pavilion Bancorp, Inc.
(Exact name of registrant as specified in its charter)
|
Michigan (State or other jurisdiction of incorporation or organization) |
38-3088340 (I.R.S. Employer 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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý
As of November 6, 2003, there were 806,000 outstanding shares of the registrant’s common stock, no par value.
Page 1
| ITEM NO. | DESCRIPTION | PAGE NO. |
| Item 1. | Financial Statements (Condensed) | ||
| (a) | Condensed Consolidated Balance Sheets | 3 | |
| (b) | Condensed Consolidated Statements of Income and Comprehensive Income | 4 | |
| (c) | Condensed Consolidated Statements of Cash Flows | 5 | |
| (d) | Notes to Condensed Consolidated Financial Statements | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 | |
| Item 4. | Controls and Procedures | 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 | ||
| Exhibit Index | 18 | ||
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
| (a) CONDENSED CONSOLIDATED BALANCE SHEETS In thousands of dollars |
September 30, 2003 (unaudited) |
December 31, 2002 | ||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | 11,093 | $ | 11,223 | ||||
| Federal Funds Sold | 6,340 | _______ | ||||||
| Total Cash and Cash Equivalents | 17,433 | 11,223 | ||||||
| Securities available for sale | 17,283 | 25,216 | ||||||
| Federal Home Loan Bank stock, at cost | 2,504 | 2,504 | ||||||
| Federal Reserve Bank stock, at cost | 603 | 493 | ||||||
| Loans held for sale | 651 | 1,473 | ||||||
| Loans receivable, net of allowance for loan losses | 261,446 | 233,049 | ||||||
| Premises and equipment, net | 5,978 | 6,314 | ||||||
| Accrued interest receivable | 1,881 | 1,868 | ||||||
| Mortgage servicing asset | 2,806 | 2,715 | ||||||
| Other assets | 906 | 2,431 | ||||||
| Total Assets | $ | 311,491 | $ | 287,286 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Deposits | ||||||||
| Noninterest bearing | $ | 53,502 | $ | 48,827 | ||||
| Interest bearing | 208,091 | 192,893 | ||||||
| Total deposits | 261,593 | 241,720 | ||||||
| Borrowed funds | 12,119 | 8,635 | ||||||
| Accrued interest payable | 503 | 507 | ||||||
| Other liabilities | 2,222 | 2,255 | ||||||
| Trust preferred securities | 5,000 | 5,000 | ||||||
| Common stock subject to repurchase obligation in ESOP | 3,799 | 4,100 | ||||||
| Total liabilities | 285,236 | 262,217 | ||||||
| Shareholders' equity | ||||||||
| Common stock and paid-in capital, no par value | 8,822 | 9,712 | ||||||
| Retained earnings | 17,286 | 15,254 | ||||||
| Accumulated other comprehensive income, | ||||||||
| net of tax | 147 | 103 | ||||||
| Total shareholders' equity | 26,255 | 25,069 | ||||||
| Total liabilities and shareholders' equity | $ | 311,491 | $ | 287,286 | ||||
See accompanying notes to condensed consolidated financial statements.
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| (b) 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, | ||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||
| Interest and dividend income | ||||||||||||||
| Loans receivable, including fees | $ | 4,619 | $ | 4,540 | $ | 13,405 | $ | 13,239 | ||||||
| Securities available for sale | 206 | 302 | 734 | 1,028 | ||||||||||
| Federal funds sold and other | 9 | 29 | 35 | 71 | ||||||||||
| 4,834 | 4,871 | 14,174 | 14,338 | |||||||||||
| Interest expense | ||||||||||||||
| Deposits | 948 | 1,336 | 3,013 | 4,168 | ||||||||||
| Federal Home Loan Bank advances | 94 | 81 | 243 | 236 | ||||||||||
| Other | 80 | 78 | 233 | 238 | ||||||||||
| Total interest expense | 1,122 | 1,495 | 3,489 | 4,642 | ||||||||||
| Net interest income | 3,712 | 3,356 | 10,685 | 9,696 | ||||||||||
| Provision for loan losses | 184 | 417 | 619 | 673 | ||||||||||
| Net interest income after provision | ||||||||||||||
| for loan losses | 3,528 | 2,959 | 10,066 | 9,023 | ||||||||||
| Noninterest income | ||||||||||||||
| Service charges and fees | 479 | 583 | 1,420 | 1,721 | ||||||||||
| Gains on loan sales | 1,610 | 1,349 | 5,428 | 2,448 | ||||||||||
| Loan servicing fees, net of amortization | (319 | ) | (246 | ) | (1,575 | ) | (237 | ) | ||||||
| Other | (13 | ) | (34 | ) | (130 | ) | (23 | ) | ||||||
| 1,757 | 1,652 | 5,143 | 3,958 | |||||||||||
| Noninterest expense | ||||||||||||||
| Salaries and employee benefits | 2,428 | 2,196 | 6,917 | 6,041 | ||||||||||
| Occupancy and equipment | 588 | 586 | 1,706 | 1,774 | ||||||||||
| Other | 966 | 830 | 2,774 | 2,242 | ||||||||||
| 3,982 | 3,612 | 11,397 | 10,057 | |||||||||||
| Income before income tax | 1,303 | 999 | 3,812 | 2,924 | ||||||||||
| Income tax expense | 421 | 331 | 1,222 | 950 | ||||||||||
| Net income | $ | 882 | $ | 668 | $ | 2,590 | $ | 1,974 | ||||||
| Comprehensive income | $ | 66 | $ | 712 | $ | 2,634 | $ | 2,093 | ||||||
| Basic earnings per share | $ | 1.09 | $ | .80 | $ | 3.16 | $ | 2.34 | ||||||
| Diluted earnings per share | $ | 1.08 | $ | .79 | $ | 3.15 | $ | 2.32 | ||||||
| Dividends per share | $ | .23 | $ | .22 | $ | .68 | $ | .64 | ||||||
See accompanying notes to condensed consolidated financial statements.
Page 4
| (c) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) |
||||||||
| In thousands of dollars | Nine Months Ended September 30, | |||||||
| 2003 | 2002 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 2,590 | $ | 1,974 | ||||
| Adjustments to reconcile net income to | ||||||||
| net cash from operating activities | ||||||||
| Depreciation | 630 | 673 | ||||||
| Provision for loan losses | 619 | 673 | ||||||
| Net amortization and accretion on securities | ||||||||
| available for sale | 224 | 242 | ||||||
| Amortization of mortgage servicing rights | 2,100 | 691 | ||||||
| Loans originated for sale | (258,178 | ) | (125,596 | ) | ||||
| Proceeds from sale of mortgage loans | 262,237 | 124,356 | ||||||
| Net gains on sales of mortgage loans | (5,428 | ) | (2,448 | ) | ||||
| Net change in: | ||||||||
| Accrued interest receivable | (13 | ) | (127 | ) | ||||
| Other assets | 1,502 | 437 | ||||||
| Accrued interest payable | (4 | ) | (298 | ) | ||||
| Other liabilities | (33 | ) | 690 | |||||
| Net cash from operating activities | 6,246 | 1,267 | ||||||
| Cash flows from investing activities | ||||||||
| Proceeds from: | ||||||||
| Maturities, calls and principal payments on | ||||||||
| securities available for sale | 14,390 | 14,783 | ||||||
| Sales of securities available for sale | 3,500 | |||||||
| Purchases of: | ||||||||
| Federal Reserve Bank stock | (110 | ) | - | |||||
| Securities available for sale | (6,614 | ) | (16,605 | ) | ||||
| Premises and equipment, net | (294 | ) | (522 | ) | ||||
| Net increase in loans | (29,016 | ) | (19,759 | ) | ||||
| Net cash from investing activities | (21,644 | ) | (18,603 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net change in deposits | 19,873 | 15,757 | ||||||
| Net change in borrowed funds and capital securities | 3,484 | (531 | ) | |||||
| Change in shareholders' equity | (1,749 | ) | (1,014 | ) | ||||
| Net cash from financing activities | 21,608 | 14,212 | ||||||
| Net change in cash and cash equivalents | 6,210 | (3,124 | ) | |||||
| Cash and cash equivalents at beginning of period | 11,223 | 24,277 | ||||||
| Cash and cash equivalents at end of period | $ | 17,433 | $ | 21,153 | ||||
| Cash paid for: | ||||||||
| Interest | $ | 3,493 | $ | 4,490 | ||||
| Income taxes | 820 | 820 | ||||||
See accompanying notes to condensed consolidated financial statements.
Page 5
(d) 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 Pavilion 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, Pavilion Financial Services and Pavilion Mortgage Company (the “Mortgage Company”). The name changes to Pavilion Bancorp, Inc. and Pavilion Financial Services (previously Lenawee Bancorp, Inc. and Lenawee Financial Services) were approved by the shareholders on April 18, 2002. 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 range of banking services to individuals, commercial businesses, light industries and municipal entities located in their service areas. Each Bank maintains a diversified loan portfolio with loans to business enterprises for current operations and expansion and loans to individuals for home mortgages, automobiles and personal expenditures. The Banks offer traditional bank deposit products, including checking, savings, money market savings, individual retirement accounts, certificates of deposit as well as a mobile banking courier service.
NOTE 2 — BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Pavilion 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, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.
Page 6
NOTE 3 — EARNINGS 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, 2003 and 2002 is presented below in thousands, except for per share information:
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||
| Basic earnings per share | ||||||||||||||
| Net income available to common shareholders | $ | 882 | $ | 668 | $ | 2,590 | $ | 1,974 | ||||||
| Weighted average common shares outstanding | 809 | 839 | 819 | & | ||||||||||