Over the third quarter of 2006, Pavilion Bancorp continued its strong performance, enabling the corporation to capitalize on the economic and organizational momentum that has been building over the past several years and deliver positive results to our shareholders.
Pavilion Bancorp’s total loan portfolio continued to grow in the third quarter to approximately $245.3 million, a portfolio increase of 5% from the same period last year, while total deposits have also increased by $5.2 million over the same period.
Comparing year-to-year, total assets have increased 3.6% to $298.4 million. In addition, our organization’s continued focus on reducing non-interest expenses, while growing the bank, has resulted in pre-tax savings of $1.0 million over the same nine month period last year – an improvement of 10.7%.
This performance contributed to Pavilion Bancorp’s net income for the nine months ended September 30, 2006, which increased significantly by $678,000 or 56.5% over the same nine month period in 2005. The net income for this period in 2006 was $1.9 million, compared to $1.2 million for the same period in 2005. This resulted in non-diluted net earnings per share of $2.55 in the first nine months of 2006, versus $1.50 per share for the same period in 2005.
The Pavilion Bancorp Board of Directors’ confidence in the continued strength of our organization was evident during the third quarter as they unanimously approved management’s strategic branch expansion plan, which includes the addition of three new offices to Bank of Lenawee’s current branch network. The implementation of this plan will begin during the fourth quarter of 2006 and continue through 2008, with the first new branch scheduled to open January 2, 2007 in the City of Hillsdale, Michigan followed by branch openings in Tecumseh, Michigan and Adrian, Michigan in the spring of 2007 and 2008, respectively.
We are excited to report to you, our shareholders, about these growth opportunities and the future of Pavilion Bancorp. As we enter into a new phase of expansion in Lenawee and Hillsdale counties, we do so prudently, focused on obtaining profitable and sustainable growth in the markets that we believe we can serve optimally. In addition, we remain committed to fostering deeper relationships with our existing customers through the introduction of innovative new products that meet their needs. One example of this is Online Express Deposit, a product which enables corporate customers to deposit their checks directly from their place of business.
With the fourth quarter of 2006 upon us, and 2007 on the horizon, management continues to plan and implement the strategic initiatives necessary to continue Pavilion Bancorp’s success and its shareholder’s satisfaction. In this regard, we are pleased to confirm the Board of Director’s approval of a 24 cent per share cash dividend, which is enclosed with this statement.
On behalf of the Board of Directors, Management and Staff, we thank you for your continued support.
| Douglas L. Kapnick Chairman of the Board | Richard J.DeVries President and CEO |
Note: 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.
| (000's omitted) | Unaudited | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | ||||||||
| 2006 | 2005 | |||||||
Assets | ||||||||
| Cash and due from banks | $ | 10,536 | $ | 10,316 | ||||
| Federal funds sold | 4,364 | 5,388 | ||||||
| Total cash and cash equivalents | 14,900 | 15,704 | ||||||
| Market value of securities available for sale | 26,914 | 29,394 | ||||||
| Loans held for sale | 615 | 874 | ||||||
| Total loans | 245,268 | 232,995 | ||||||
| Allowance for loan and lease losses | (2,759 | ) | (2,720 | ) | ||||
| Net loans | 242,510 | 230,275 | ||||||
| Premises and equipment, net | 7,363 | 5,735 | ||||||
| Accrued interest receivable | 2,186 | 1,841 | ||||||
| Mortgage servicing assets | 2,670 | 2,980 | ||||||
| Other assets | 1,272 | 1,181 | ||||||
| Total assets | $ | 298,430 | $ | 287,984 | ||||
| Liabilities and shareholders' equity | ||||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest - bearing | $ | 46,100 | $ | 46,731 | ||||
| Interest - bearing | 187,219 | 181,374 | ||||||
| Total deposits | 233,319 | 228,105 | ||||||
| Federal funds purchased | - | - | ||||||
| Repurchase agreements-customers | 2,751 | 3,837 | ||||||
| Repurchase agreements-financial institutions | 10,000 | 10,000 | ||||||
| Federal Home Loan Bank advances | 13,685 | 8,905 | ||||||
| Subordinated debentures | 5,000 | 5,000 | ||||||
| Accrued interest payable | 875 | 694 | ||||||
| Other liabilities | 2,149 | 2,535 | ||||||
| Common stock subject to repurchase obligation in ESOP | 2,817 | 4,654 | ||||||
| Total liabilities | 270,595 | 263,730 | ||||||
| Shareholders' equity | ||||||||
| Common stock and paid-in capital, No par value: | ||||||||
| 3,000,000 shares authorized; shares issued and | ||||||||
| outstanding 731,408 - 2006; 735,378 - 2005 | 10,519 | 9,056 | ||||||
| Retained earnings | 17,485 | 15,403 | ||||||
| Unrealized gain (loss) on securities available for sale | (169 | ) | (205 | ) | ||||
| Total shareholders' equity | 27,835 | 24,254 | ||||||
| Total liabilities and shareholders' equity | $ | 298,430 | $ | 287,984 | ||||
| (000's omitted except for earnings per share) | Unaudited | |||||||
|---|---|---|---|---|---|---|---|---|
| Nine months ended September 30, | ||||||||
| 2006 | 2005 | |||||||
Interest income | ||||||||
| Loans, including fees | $ | 13,083 | $ | 10,883 | ||||
| Securities | 745 | 803 | ||||||
| Federal funds sold and other | 190 | 70 | ||||||
| Total interest income | 14,018 | 11,756 | ||||||
| Interest expense | ||||||||
| Deposits | 3,885 | 2,308 | ||||||
| Subordinated debentures | 331 | 261 | ||||||
| Other borrowed funds | 920 | 493 | ||||||
| Total interest expense | 5,135 | 3,062 | ||||||
| Net interest income | 8,882 | 8,694 | ||||||
| Provision for loan losses | 225 | 285 | ||||||
| Net interest income after | ||||||||
| provision for loan losses | 8,657 | 8,409 | ||||||
| Noninterest income | ||||||||
| Service charges on deposit accounts | 1,005 | 978 | ||||||
| Net gains on sales of loans | 715 | 1,112 | ||||||
| Loan servicing fees, net of amortization | 139 | 275 | ||||||
| Other | 412 | 274 | ||||||
| Total other income | 2,272 | 2,639 | ||||||
| Noninterest expense | ||||||||
| Compensation and employee benefits | 4,850 | 5,512 | ||||||
| Premises and equipment | 1,291 | 1,060 | ||||||
| Other | 2,145 | 2,713 | ||||||
| Total other expenses | 8,285 | 9,285 | ||||||
| Income before income taxes | 2,644 | 1,763 | ||||||
| Federal income tax expense | 766 | 563 | ||||||
| Net income | $ | 1,878 | $ | 1,200 | ||||
| Earnings per common share: | $ | 2.57 | $ | 1.63 | ||||
