| ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 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 May 6, 2003 there were 820,380 outstanding shares of the registrant’s common stock, no par value.
Page 1
| ITEM NO. |
DESCRIPTION |
PAGE NO. |
|
Item 1. Item 2. Item 3. Item 4. |
Financial Statements (Condensed and Unaudited) (a) Report of Independent Accountants (b) Condensed Consolidated Balance Sheets (c) Condensed Consolidated Statements of Income and Comprehensive Income (d) Condensed Consolidated Statements of Cash Flows (e) Notes to Condensed Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures |
3 4 5 6 7 10 15 15 |
PART II -OTHER INFORMATION
|
Item 1. Item 2. Item 3. Item 4. Item 5. Item 6. |
Legal Proceedings Changes in Securities and Use of Proceeds Defaults Upon Senior Securities Submission of Matters to a Vote of Security Holders Other Information Exhibits and Reports on Form 8-K |
16 16 16 16 16 16 |
|
Signatures Certifications for Quarterly Report on Form 10-Q Exhibits |
18 19 21 |
|
Page 2
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of
Directors
Pavilion Bancorp, Inc.
Adrian, Michigan
We have reviewed the condensed consolidated balance sheet of Pavilion Bancorp, Inc. as of March 31, 2003, and the related condensed consolidated statements of income and comprehensive income and the statement of cash flows for the three months ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Pavilion Bancorp, Inc. as of December 31, 2002, and the related consolidated statement of income, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the year then ended (not presented herein); and in our report dated February 4, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
| Crowe, Chizek and Company LLP |
Grand Rapids, Michigan
May 12, 2003
Page 3
March 31,
In thousands of dollars, except share data 2003 December 31,
(unaudited) 2002
----------- ----
ASSETS
Cash and due from banks $ 9,784 $ 11,223
Federal funds sold 1,900 -
------------ ------------
Total cash and cash equivalents 11,684 11,223
Securities available for sale 24,707 25,216
Federal Home Loan Bank stock, at cost 2,504 2,504
Federal Reserve Bank stock, at cost 501 493
Loans held for sale 5,054 1,473
Loans receivable, net of allowance for loan losses 237,232 233,049
Premises and equipment, net 6,167 6,314
Accrued interest receivable 2,032 1,868
Mortgage servicing asset 2,827 2,715
Other assets 1,247 2,431
------------ ------------
Total assets $ 293,955 $ 287,286
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 49,585 $ 48,827
Interest bearing 200,076 192,893
------------ ------------
Total deposits 249,661 241,720
Borrowed funds 7,093 8,635
Accrued interest payable 492 507
Other liabilities 2,463 2,255
Trust preferred securities 5,000 5,000
Common stock subject to repurchase obligation in ESOP 4,100 4,100
------------ ------------
Total liabilities 268,809 262,217
Shareholders' equity
Common stock and paid-in capital, no par value 9,290 9,712
Retained earnings 15,927 15,254
Accumulated other comprehensive income (loss),
net of tax (71) 103
------------ ------------
Total shareholders' equity 25,146 25,069
------------ ------------
Total liabilities and shareholders' equity $ 293,955 $ 287,286
============ ============
See accompanying notes to consolidated financial statements.
Page 4
Three Months Ended
In thousands of dollars, except per share data March 31,
-----------------------------
2003 2002
---- ----
Interest and dividend income
Loans receivable, including fees $ 4,331 $ 4,372
Securities 283 388
Federal funds sold and other 18 21
------------ ------------
Total interest and dividend income 4,632 4,781
Interest expense
Deposits 1,059 1,448
Federal Home Loan Bank advances 46 78
Other 77 75
------------ ------------
Total interest expense 1,182 1,601
------------ ------------
Net interest income 3,450 3,180
Provision for loan losses 140 106
------------ ------------
Net interest income after provision for loan losses 3,310 3,074
Noninterest income
Service charges and fees 471 619
Gains on loan sales 1,608 536
Loan servicing fees, net of amortization (498) (4)
Other (83) 196
------------ ------------
1,498 1,347
Noninterest expense
Salaries and employee benefits 2,115 1,985
Occupancy and equipment 562 590
Other 886 745
------------ ------------
3,563 3,320
------------ ------------
Income before income tax 1,245 1,101
Income tax expense 389 354
------------ ------------
Net income $ 856 $ 747
============ ============
Comprehensive income $ 682 $ 632
============ ============
Basic earnings per share $ 1.03 $ .88
============ ============
Diluted earnings per share $ 1.03 $ .87
============ ============
Dividends per share $ .22 $ .20
============ ============
See accompanying notes to consolidated financial statements.
Page 5
Three Months Ended
In thousands of dollars March 31,
-----------------------------
2003 2002
---- ----
Cash flows from operating activities
Net income $ 856 $ 747
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 215 224
Provision for loan losses 140 106
Net amortization and accretion on securities
available for sale 88 72
Amortization of mortgage servicing rights 686 144
Loans originated for sale (75,547) (34,801)
Proceeds from sale of mortgage loans 72,776 34,987
Net gains on sales of mortgage loans (1,608) (676)
Net change in:
Accrued interest receivable (164) (152)
Other assets 1,336 (484)
Accrued interest payable (15) (38)
Other liabilities 298 11
------------ -----------
Net cash from operating activities (939) 140
------------ -----------
Cash flows from investing activities
Securities available for sale:
Maturities, calls and principal payments 3,157 3,117
Purchases (3,000) (7,725)
Purchase of Federal Reserve Bank stock (8) -
Net premises and equipment expenditures (68) (240)
Net increase in loans (4,475) (517)
------------ -----------
Net cash from investing activities (4,394) (5,365)
------------ -----------
Cash flows from financing activities
Net change in deposits 7,941 (2,303)
Net change in borrowed funds (1,542) 492
Change in shareholders' equity (605) (111)
------------ -----------
Net cash from financing activities 5,794 (1,922)
------------ -----------
Net change in cash and cash equivalents 461 (7,147)
Cash and cash equivalents at beginning of period 11,223 24,277
Cash and cash equivalents at end of period $ 11,684 $ 17,130
============ ===========
Cash paid for:
Interest $ 1,197 $ 1,654
Income taxes - 180
See accompanying notes to consolidated financial statements.
Page 6
(e) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (unaudited)
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"). Bank of Lenawee includes its wholly-owned
subsidiaries, Pavilion Financial Services and Pavilion Mortgage Company. 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, including loans to individuals for home mortgages,
automobiles and personal expenditures, and loans to business enterprises for current operations and expansion. 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 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 three month period ended March 31, 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 7
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
months ended March 31, 2003 and 2002 is presented below:
2003 2002
---- ----
Basic earnings per share
------------------------
Net income available to common shareholders $ 856,000 $ 747,000
========== ==========
Weighted average common shares outstanding 828,517 849,620
========== ==========
Basic earnings per share $ 1.03 $ 0.88
========== ==========
Diluted earnings per share
--------------------------
Net income available to common shareholders $ 856,000 $ 747,000
========== ==========
Weighted average common shares outstanding 828,517 849,620
Add: Dilutive effects of exercise of stock options 5,216 7,505
---------- ----------
Weighted average common and dilutive
potential shares outstanding 833,733 857,125
========== ==========
Diluted earnings per share $ 1.03 $ 0.87
========== ==========
Compensation expense under stock options is reported using the intrinsic value method. The exercise price of stock options is generally equivalent to the market price of the underlying common stock as of the date of grant. No stock-based compensation cost is reflected in net income, for stock options granted with an exercise price equal to or greater than the market price of the underlying common stock at date of grant. For stock options granted below market price, compensation expense is based upon the difference between the market price and the exercise price at the date of grant and is recorded over the vesting period of the options. Compensation expense actually recognized for the three months ending March 31, 2003 and 2002 was not significant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Three Months Ended
March 31,
2003 2002
---- ----
Net income as reported $ 856 $ 747
Less: Stock-based compensation
expense determined under fair value
based method $ 16 $ 23
---------- ----------
Pro forma net income $ 840 $ 724
========== ==========
Basic earnings per share as reported $ 1.03 $ .88
Pro forma basic earning per share 1.00 .85
Diluted earnings per share as reported 1.03 .87
Pro forma diluted earnings per share 1.00 .84
Page 8
The weighted average fair value of stock options granted during the three months ended March 31, 2003 and 2002 were $10.15 and $16.69. The fair value of options granted during the three months ended March 31, 2003 and 2002 were estimated using an option pricing model with the following weighted average information as of the grant dates:
2003 2002
---- ----
Risk free rate of interest 3.58% 4.78%
Expected option life 8 years 8 years
Expected dividend yield 1.96% 1.38%
Expected volatility 22.74% 22.92%
In future years, as additional options are granted, the proforma effect on net income and earnings per share may increase. Stock options are used to reward directors and certain executive officers and provide them with an additional equity interest. Options are issued for ten year periods and have varying vesting schedules.
Page 9
This discussion provides information about the consolidated financial condition and results of operations of the Company as of March 31, 2003 and for the three month periods ended March 31, 2003 and 2002.
Cash and cash equivalents
Cash and cash equivalents of $11.7
million declined a slight 4%, or $461,000, during the first three months of 2003
reflective of routine daily fluctuation.
Securities
Securities available for sale
declined $509,000 during the first quarter of 2003. Maturities, calls and principal
repayments of securities available for sale were offset by the purchase of $3 million of
like investments during the period. The mix of the securities portfolio remains relatively
unchanged from period to period over the long term.
Loans
During the first three months of
2003, loans, net of allowance for loan losses, remained relatively stable growing $4.2
million, or 2%. The mix of the loan portfolio continues to remain relatively unchanged
from prior periods. Over the long term, the trend continues toward an increased portion of
business loans.
Credit Quality
The Company continues to monitor the
asset quality of the loan portfolio utilizing a loan review officer who, combined with
external loan review specialists, periodically submits reports to the Chief Lending
Officer and to the Board of Directors regarding the credit quality of each loan portfolio.
This review is independent of the loan approval process. Also, management continues to
monitor delinquencies, nonperforming assets and potential problem loans to assess the
continued quality of the Company’s loan portfolios.
Nonperforming loans are comprised of (1) loans accounted for on a nonaccrual basis, (2) loans contractually past due 90 days or more as to interest or principal payments (but not included in the nonaccrual loans in (1) above) and (3) other nonperforming loans (but not included in (1) or (2) above) which consist of loan arrangements under the Business Manager program. The aggregate amount of nonperforming loans, in thousands of dollars, is shown in the table below. The Company’s classifications of nonperforming loans are generally consistent with loans identified as impaired. Management has been successful in a concerted effort to relieve the Company of the majority its other real estate holdings and reducing its other asset balances outstanding.
Page 10
The chart below shows the makeup of the Company’s nonperforming assets by type, in thousands of dollars, as of March 31, 2003 and 2002, and December 31, 2002.
3/31/02 12/31/02 3/31/02
------- -------- -------
Nonaccrual Loans $ 595 $ 648 $ 263
90 days or more past due & still accruing 1,495 949 1,800
-------- -------- --------
Total nonperforming loans 2,090 1,597 2063
Other real estate 643 1,783 1,888
-------- -------- --------
Total nonperforming assets $ 2,733 $ 3,380 $ 3,951
======== ======== ========
Nonperforming loans as a percent of total loans .87% .68% .96%
Nonperforming assets as a percent of total loans 1.14% 1.43% 1.84%
Nonperforming loans as a percent of the allowance for loan losses
101.04% 60.05% 93.95%
The Company increased its provision for loan losses over the same period in 2002 based on management’s assessment of the allowance for loan losses. The provision provides for probable incurred losses in the current portfolio over time. Near term activity is expected to remain similarly moderate in proportion as experienced this quarter. Activity in the allowance for loan losses, in thousands of dollars, for the three months ended March 31, 2003 and 2002 follows:
2003 2002
---- ----
Balance at beginning of period $ 2,660 $ 2,200
Loan charge-offs net of recoveries (95) (96)
Provision charged to operations 140 106
Balance at end of period $ 2,705 $ 2,210
Deposits
Total deposits increased 3.3% during
the quarter to $250 million at March 31, 2003 from $242 million at December 31, 2002. This
increase is considered to be normal and stable deposit activity. Management anticipates
similar deposit growth during the remainder of 2003 as a result of continued expansion in
the Company’s new and existing markets as well as an outcome of the economic effect
of current Federal Reserve monetary policy.
Liquidity
The Company’s average federal
funds sold position increased slightly during the first quarter of 2003 compared to year
end 2002. The increase is mainly attributable to deposit growth. Borrowings declined
slightly during the first quarter of 2003, and management anticipates loan and deposit
growth will cause continued variation in the short-term funds position of the Company. The
Company has a number of additional liquidity sources should the need arise, and management
presently has no concerns as to the liquidity position of the Company.
Capital Resources
At March 31, 2003 and December 31,
2002, equity capital increased $77,000. This increase is primarily the result of our net
income for the three months ended March 31, 2003 offset by dividends declared during the
three months ended March 31, 2003, the repurchase of 10,750 shares of common stock and a
decline in the market value of the Company’s available for sale securities. The
Company repurchases shares of its own stock from time to time according to the merit and
value of prevailing market conditions. We monitor the capital levels of the Company and
the Banks to provide for current and future business opportunities and to meet regulatory
guidelines for “well capitalized” institutions. “Well capitalized”
institutions are eligible for reduced FDIC premiums, and also enjoy other reduced
regulatory restrictions.
Page 11
At March 31, 2003 and December 31, 2002, the Company and the Banks exceeded all regulatory minimum capital requirements and are considered to be “well capitalized.”
Net Income
Net income increased 14.6%, basic
earnings per share increased from $.88 to $1.03 and dividends per share increased 10% to
$.22 when comparing the results of the first three months of 2003 to the same period in
2002.
Net Interest Income
The yield on interest earning assets
decreased for the quarter ended March 31, 2003 as compared to the same period in the prior
year primarily as a result of the general decline in industry rates during fiscal year
2002. The cost of funds on interest bearing liabilities also decreased for the quarter
ended March 31, 2003 as compared to the same period during the prior year due to the
continued declining rate environment. While interest rates have decreased, the Company has
been able to maintain the net interest margin by decreasing the cost of funds at a rate
proportional to the decline of yields on assets. Despite the economic challenges that have
been presented during the first three months of 2003, the Company’s net interest
margin remains quite strong, and management continues to take steps to neutralize some
portion of this risk.
Page 12
The following table shows the year to date daily average balances for interest earning assets and interest bearing liabilities, interest earned or paid, and the annualized effective rate or yield, for the three month periods ended March 31, 2003 and 2002.
Dollars in thousands 3/31/2003 3/31/2002
--------- ---------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
Interest earning assets:
Loans (1) $ 237,441 $ 4,331 7.30% $ 212,388 $ 4,372 8.23%
Investment securities (2) (3) 26,615 283 4.25% 32,772 388 4.74%
Federal funds sold and other 5,545 18 1.30% 5,916 21 1.42%
----------- ----------- ----------- -----------
Total int. earning assets 269,601 4,632 6.87% 251,076 4,781 7.62%
Interest bearing liabilities:
Interest bearing demand
deposits $ 60,266 $ 131 .87% $ 58,348 $ 178 1.22%
Savings deposits 30,637 53 .69% 25,886 67 1.04%
Time deposits 106,577 875 3.28% 103,646 1,203 4.64%
Other borrowings 12,165 123 4.04% 12,369 153 4.95%
----------- ----------- ----------- -----------
Total int. bearing liabilities 209,645 1,182 2.26% 200,249 1,601 3.20%
Net interest income (3) $ 3,450 $ 3,180
=========== ===========
Net spread (3) 4.61% 4.42%
===== =====
Net interest margin (3) 5.12% 5.05%
===== =====
Ratio of interest earning assets to
interest bearing liabilities 1.29 1.25
=========== ===========
| (1) | Non-accrual loans and overdrafts are included in the average balances of loans. |
| (2) | Includes Federal Home Loan Bank stock. |
| (3) | securities has not been adjusted to a taxable equivalent basis. |
Page 13
Noninterest Income
For the first quarter of 2003, noninterest income from banking products and services increased 11.2% as compared
to the same period in 2002. Continued low interest rates over the course of the first quarter of 2003 resulted
in increased originations of residential mortgage loans and, correspondingly, the Company's volume of loan
sales. An increase in net gains on loan sales of $1.1 million was one of the factors contributing to the overall
noninterest income growth. The significant decline in income from loan servicing fees, net of amortization is a
result of the continued low interest rate environment and related impact on mortgage servicing rights. the
Company continues to record additional amortization on mortgage servicing rights as a result of the low interest
rate environment. Losses on sales of other real estate owned created the net loss of $83,000 in the category of
other noninterest income during the first quarter of 2003. The Company continued to experience solid revenues
from service charges and fees during the first quarter of 2003. The service fees and charges are below the same
period in 2002 primarily due to a one-time increase of $283,000 in 2002.
Noninterest Expense
Noninterest expense has also
increased over the same period of 2002. Total noninterest expense for the first three
months of 2003 was 7.3% above the same period for 2002. An increase in salaries and
employee benefits of approximately 6.5% was the primary factor contributing to the overall
increase. This increase is primarily attributable to the larger than usual commissions
paid to the mortgage origination staff as an incentive for larger volumes of mortgage loan
sales.
Federal Income Tax
The 9.9% increase in federal income
taxes during the first quarter of 2003 is directly related to the increase in income
before income taxes.
Critical Accounting
Policies
Certain of the Company’s
accounting policies are important to the portrayal of the Company’s financial
condition, since they require management to make difficult, complex or subjective
judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes
in facts and circumstances. Facts and circumstances which could effect these judgments
include, but without limitation, changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that its critical
accounting policies include determining the allowance for loan losses, determining the
fair value of securities and other financial instruments and the valuation of mortgage
servicing rights.
Page 14
Forward-Looking
Statements
This discussion and analysis of
financial condition and results of operations and other sections of this Form 10-Q contain
forward looking statements that are based on management’s beliefs, assumptions,
current expectations, estimates and projections about the financial services industry, the
economy and about the Company itself. Words such as “anticipates”,
“believes”, “estimates”, “expects”, “forecasts”,
“foresee”, “intends”, “is likely”, “plans”,
“projects”, variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions (“Future
Factors”) that are difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. Therefore, actual results and outcomes may materially differ from
what may be expressed or forecast in such forward-looking statements. Furthermore,
the Company undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events or otherwise. Future
Factors include:
These are representative of the Future Factors that could cause a difference between an actual outcome and a forward-looking statement.
Page 15
The Company’s primary market risk exposure is interest rate risk and liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. The Company has a limited exposure to commodity prices and land values related to agricultural loans. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to not be significant.
Interest rate risk (IRR) is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and stockholder value; however, excessive levels of IRR could pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization’s quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.
The Company has not experienced a material change in its financial instruments that are sensitive to changes in interest rates since December 31, 2002, which information can be located in the Company’s annual report on Form 10-K.
| a) | Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of March 31, 2003, the Company's principal
executive officer and the principal financial officer have concluded that the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective
to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms. |
| b) | Changes in Internal Controls. Such officers have also concluded that there were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. |
Page 16
The Company is not involved in any material legal proceedings. The Company’s wholly-owned subsidiaries, Bank of Lenawee and Bank of Washtenaw, are involved in ordinary routine litigation incident to their business; however, no such proceedings are expected to result in any material adverse effect on the operations or earnings of the Banks. Neither the Banks nor the Company are involved in any proceedings to which any director, principal officer, affiliate thereof, or person who owns of record or beneficially five percent (5%) or more of the outstanding stock of the Company or the Banks, or any associate of the foregoing, is a party or has a material interest adverse to the Company or the Banks.
No changes in the securities of the Company occurred during the quarter ended March 31, 2003.
There have been no defaults upon senior securities relevant to the requirements of this section during the three months ended March 31, 2003.
No matters were submitted to a vote of security holders during the quarter ended March 31, 2003.
None.
| (a) | Listing of Exhibits (numbered as in Item 601 of Regulation S-K): |
|
| 99.1 | Certificate of the Chief Executive Officer of Pavilion Bancorp, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
| 99.2 | Certificate of Chief Financial Officer of Pavilion Bancorp, Inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
| (b) | The Company has filed two reports on Form 8-K during the quarter ended March 31, 2003: |
|
| (1) | An 8-K Report dated February 27, 2003, announcing the appointment of Richard J. DeVries as the new President and CEO
of Bank of Lenawee. |
|
| (2) | An 8-K Report dated January 31, 2003, filed a press release announcing fourth quarter 2002 earnings and a dividend. |
|
Page 17
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Pavilion Bancorp, Inc. |
|
| Date: May 15, 2003 |
/s/ Douglas L. Kapnick Douglas L. Kapnick Chief Executive Officer |
| Date: May 15, 2003 |
/s/ Loren V. Happel Loren V. Happel Chief Financial Officer |
Page 18
I, Douglas L. Kapnick, certify that:
| 1) | I have reviewed this quarterly report on Form 10-Q of Pavilion Bancorp, Inc.; |
|
| 2) | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report; |
|
| 3) | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report; |
|
| 4) | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
|
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this quarterly report is being prepared; |
|
| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and |
|
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date; |
|
| 5) | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
|
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and |
|
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and |
|
| 6) | The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
|
May 15, 2003 /s/ Douglas L. Kapnick Douglas L. Kapnick Chief Executive Officer |
Page 19
I Loren V. Happel , certify that:
| 1) | I have reviewed this quarterly report on Form 10-Q of Pavilion Bancorp, Inc.; |
|
| 2) | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report; |
|
| 3) | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report; |
|
| 4) | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
|
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this quarterly report is being prepared; |
|
| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and |
|
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date; |
|
| 5) | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
|
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and |
|
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and |
|
| 6) | The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
|
May 15, 2003 /s/ Loren V. Happel Loren V. Happel Chief Financial Officer |
Page 20
| Exhibit | Description |
| 99.1 | Certificate of the Chief Executive Officer of Pavilion Bancorp, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 99.2 | Certificate of the Chief Financial Officer of Pavilion Bancorp, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Page 21
Exhibit 99.1
I, Douglas L. Kapnick, Chief Executive Officer of Pavilion Bancorp, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 which this statement accompanies fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and |
| (2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Pavilion Bancorp, Inc. |
Dated: May 15, 2003
|
/s/ Douglas L. Kapnick Douglas L. Kapnick Chief Executive Officer |
Page 22
Exhibit 99.2
I, Loren V. Happel, Chief Financial Officer of Pavilion Bancorp, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 which this statement accompanies fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and |
| (2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Pavilion Bancorp, Inc. |
Dated: May 15, 2003
|
/s/ Loren V. Happel Loren V. Happel Chief Financial Officer |
Page 23