EXHIBIT 99.1
SECOND QUARTER STATEMENT
June 30, 2005
World Class, Community Driven.
Pavilion Bancorp, Inc.
Chairman’s Message
To Our Shareholders:
At the end of the second quarter, our earnings continue to be less than those of the same period last year. As we noted in our first quarter report, much of the differential is due to some one-time expenses. However, the financial picture for Pavilion Bancorp remains strong, due in part to our aggressive commercial loan portfolio growth and the ability of our mortgage division to maintain a steady stream of revenue despite a softer mortgage market. An equally important positive influence on our year-to-date earnings has been the consistent control over expenses that Pavilion Bancorp has exercised.
As you may be aware, on May 20 Pavilion Bancorp completed the tender offer to purchase 128,832 shares of our common stock. The final count by the depositary of the tender offer showed that 193,279 shares of common stock were properly tendered and not withdrawn. Therefore, Pavilion Bancorp bought 128,832 shares of common stock at a purchase price of $66.00 per share. Following this purchase, there are 735,379 shares of Pavilion Bancorp common stock issued and outstanding as of June 30, 2005. To you who hold these shares, I am also pleased to confirm the Board’s approval of the 24 cent per share cash dividend enclosed with this statement.
Another noteworthy development this quarter was the launch of Bank of Lenawee’s newly redesigned and enhanced website,www.bankoflenawee.com. If you have not already visited this site, I encourage you to do so to see some of the new features available—and to link directly to thewww.pavilionbancorp.comfor the latest Pavilion Bancorp news.
In sum, I am proud of what Pavilion Bancorp has accomplished in the first half of 2005. As we continue to build momentum as a community-driven organization, we do so with the goal of providing you, our shareholders, with a strong return on your investment.
On behalf of the Board of Directors, Management and Staff, we thank you for your continued support.
Douglas L. Kapnick
Chairman of the Board
This letter contains certain forward-looking statements that involve risks and uncertainties. When used in this letter, the words “believe”, “expect”, or “anticipate” and similar expressions identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including but not limited to, economic, competitive, governmental and technological factors affecting the company’s operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements.
| Officers: Pavilion Bancorp, Inc Douglas L. Kapnick Chairman Richard J. DeVies President and Chief Executive Officer Board of Directors Pavilion Bancorp, Inc. and Bank of Lenawee Douglas L. Kapnick Chairman, Pavilion Bancorp, Inc. President, Kapnick and Company, Inc. Emory M. Schmidt Chairman, Bank of Lenawee Richard J. DeVries President and CEO Pavilion Bankcorp, Inc. and Bank of Lenawee Fred R. Duncan Retired Edward J. Engle, Jr. President, Rima Manufacturing Company Dan R. Hupp President, Dan's Farm Supply | Pamela S. Fisher Corporate Secretary Mark D. Wolfe Interim Chief Financial Officer Barbara A. Mitzel Area Manager, Consumers Energy Margaret M.S. Noe, J.D. Attorney Terence R. Sheehan Vice President and Chief Financial Officer, Brazeway, Inc. J. David Stutzman General Manager Raymond and Stutzman, LLC Dr. Marinus VanOoyen Chief of Radiology, Lenawee Health Alliance |
 World Class, Community Driven. 135 East Maumee Street Adrian, MI 49221 pavilionbancorp.com |
CONSOLIDATED BALANCE SHEET
| (000's omitted) | June 30 (Unaudited) | |||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Assets | ||||||||
| Cash and due from banks | $ | 10,005 | $ | 10,923 | ||||
| Market value of securities available for sale | 29,950 | 24,921 | ||||||
| Loans held for sale | 792 | 2,593 | ||||||
| Total loans | 221,839 | 214,738 | ||||||
| Less: allowance for loan losses | (2,649 | ) | (2,353 | ) | ||||
| Net loans | 219,190 | 212,385 | ||||||
| Premises and equipment, net | 5,626 | 5,664 | ||||||
| Accrued interest receivable | 1,611 | 1,562 | ||||||
| Mortgage servicing assets | 3,031 | 2,796 | ||||||
| Other assets | 1,380 | 1,019 | ||||||
| Assets of discontinued operation | - | 72,713 | ||||||
| Total assets | $ | 271,585 | $ | 334,576 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | 42,473 | $ | 44,708 | ||||
| Interest-bearing | 164,248 | 161,986 | ||||||
| Total deposits | 206,721 | 206,694 | ||||||
| Federal funds purchase | 4,520 | 9,080 | ||||||
| Repurchase agreements | 15,074 | 2,676 | ||||||
| Federal Home Loan Bank advances | 8,905 | 6,586 | ||||||
| Accrued interest payable | 392 | 208 | ||||||
| Other liabilities | 2,322 | 7,697 | ||||||
| Subordinated debentures | 5,000 | 5,000 | ||||||
| Common stock subject to repurchase obligation in ESOP | 4,654 | 4,115 | ||||||
| Liabilities of discontinued operation | - | 65,441 | ||||||
| Total liabilities | 247,588 | 307,497 | ||||||
| Shareholders' equity | ||||||||
| Common stock and paid-in capital, nOpar value: | ||||||||
| 3,000,000 shares authorized; shares issued and | ||||||||
| outstanding 735,379 - 2005; 845,420 - 2004 | 9,054 | 10,377 | ||||||
| Retained earnings | 15,102 | 16,835 | ||||||
| Unrealized (loss) on securities available for sale | (159 | ) | (133 | ) | ||||
| Total shareholders' equity | 23,997 | 27,079 | ||||||
| Total liabilities and shareholders' equity | $ | 271,585 | $ | 334,576 | ||||
CONSOLIDATED STATEMENTS OF INCOME
| (000's omitted except for earnings per share) | (Unaudited) Six Months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Interest income | ||||||||
| Loans, including fees | $ | 6,955 | $ | 6,908 | ||||
| Securities | 541 | 463 | ||||||
| Federal funds sold and other | 64 | 16 | ||||||
| Total interest income | 7,560 | 7,387 | ||||||
| Interest expense | ||||||||
| Deposits | 1,392 | 1,074 | ||||||
| Borrowed funds | 414 | 314 | ||||||
| Total interest expense | 1,806 | 1,388 | ||||||
| Net interest income | 5,754 | 5,999 | ||||||
| Provision for loan losses | 180 | 152 | ||||||
| Net interest income after | ||||||||
| provision for loan losses | 5,574 | 5,847 | ||||||
| Noninterest income | ||||||||
| Service charges on deposit accounts | 624 | 709 | ||||||
| Net gains on sale of loans | 756 | 865 | ||||||
| Loan servicing fees, net of amortization | 271 | 224 | ||||||
| Other income | 187 | 171 | ||||||
| Total other income | 1,838 | 1,969 | ||||||
| Noninterest expense | ||||||||
| Salaries and employee benefits | 3,825 | 3,352 | ||||||
| Premises and equipment | 877 | 826 | ||||||
| Other expenses | 1,645 | 1,557 | ||||||
| Total other expenses | 6,347 | 5,735 | ||||||
| Income before income taxes | 1,065 | 2,081 | ||||||
| Federal income tax expense | 342 | 661 | ||||||
| Net income from continuing operations | 723 | 1,420 | ||||||
| Discontinued operations: | ||||||||
| Income from operation of discontinued component | - | 238 | ||||||
| Provision for income taxes | - | 40 | ||||||
| Income from discontinued operation | - | 198 | ||||||
| Net income | $ | 723 | $ | 1,618 | ||||
| Earnings per common share: | ||||||||
| From continuing operation | $ | 0.98 | $ | 1.68 | ||||