# UNITED STATES SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549

_________________

# FORM 10-K/A (AMENDMENT NO. 1)

For
Annual and Transaction Reports Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

[X] ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year
ended December 31, 2004 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition
period from _______ to ________

Commission file number
000-30521

PAVILION BANCORP, INC.(Exact name of
registrant as specified in its charter)

|Michigan             
  (State or other jurisdiction of  
   Incorporation or organization)
       135 East Maumee Street      
          Adrian, Michigan (Address
of principal executive offices) | 38-3088340
(I.R.S. Employer Identification No.)49221
             (Zip Code)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------

517-265-5144;
517-265-3926 (FAX)(Registrants
telephone number, including area code)

Securities registered
pursuant to Section 12(b) of the Act: None

Securities registered
pursuant to Section 12(g) of the Act: Common Stock, no par value

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 such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YesX No ____

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. ____

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  No X.

State the aggregate market value of
the voting and nonvoting common equity held by nonaffiliates computed by reference to the
price at which the common equity was sold, or the average bid and asked prices of such
common equity, as of the last business day of the registrants most recently
completed second fiscal quarter.

# Aggregate Market Value
as of June 30, 2004: $45,652,680

Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the latest
practicable date.

# Common stock
outstanding at March 3, 2005: 852,770 shares.

# Documents Incorporated
by Reference

Portions of the Companys Proxy
Statement for the Annual Meeting of Shareholders to be held April 21, 2005 are
incorporated by reference into Parts II and III of this report.

-1-

---



# Explanatory Note

Pavilion
 Bancorp,  Inc. (the "Company") is filing this Amendment No. 1 to its Annual Report on
Form 10-K for the year ended  December  31,  2004,  which was  originally  filed on  March 21,
 2005,  to  include  the Report of Independent  Registered  Public  Accounting  Firm
 issued by Crowe  Chizek  and  Company  LLC with  respect  to the Company's  consolidated
 financial  statements  for the years ended  December  31,  2003 and 2002.  This Report
was inadvertently omitted from the Form 10-K.

This
Amendment No. 1 does not change the Company's  consolidated  financial  statements in any
way. This Form 10-K/A  does not  reflect  events  occurring  after the  filing  of the
2004  Form  10-K or modify or update  those disclosures affected by subsequent events or
discoveries.

The
following items have been amended as a result of the revisions described above:

Part
II, Item 8 - Financial Statements and Supplementary Data

Part
III, Item 15 - Exhibits and Financial Statement Schedules

-2-

---



# Item 8. Financial
Statements and Supplementary Data.

-3-

---



# MANAGEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management  is responsible  for the  preparation of Pavilion
Bancorp, Inc.s (the
Company) consolidated financial statements and related information appearing
in this Annual Report. Management believes that the consolidated financial statements
fairly reflect the form and substance of transactions and reasonably present Pavilion
Bancorps financial position and results of operations and were prepared in
conformity with accounting principles generally accepted in the United States of America.
Management also has included in the Companys financial statements, amounts that are
based on estimates and judgments which it believes are reasonable under the
circumstances.

The Company maintains a system of internal controls designed to provide
reasonable assurance that all assets are safeguarded and financial records are reliable
for preparing the consolidated financial statements. The Company complies with laws and
regulations relating to safety and soundness which are designated by the FDIC and other
appropriate federal and state banking agencies. The selection and training of qualified
personnel and the establishment and communication of accounting and administrative
policies and procedures are elements of this control system. The effectiveness of internal
controls is monitored by a program of internal audit. Management recognizes that the cost
of a system of internal controls should not exceed the benefits derived and that there are
inherent limitations to be considered in the potential effectiveness of any system.
Management believes that the Companys system provides the appropriate balance
between costs of controls and the related benefits.

The independent auditors have audited
the Companys consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America and provide an objective, independent
review of the fairness of the reported operating results and financial position. The
Companys Board of Directors has established an Audit Committee composed of five
non-management Directors. The Audit Committee meets periodically with the internal
auditors and the independent auditors.

|/s/  Richard J. DeVries   Richard J. DeVries               
President and Chief Executive Officer | /s/ Mark D. Wolfe  Mark D. Wolfe
 Interim Chief Financial Officer
|------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------

-4-

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Shareholders Pavilion Bancorp, Inc. Adrian, Michigan

We have audited the accompanying
 consolidated  balance sheet of Pavilion  Bancorp,  Inc. as of December 31,  2003, and
the related  consolidated  statements of income,  changes in shareholders'  equity and
cash flows for the years ended  December  31,  2003  and  2002.  These  financial
  statements  are  the  responsibility  of  the  Company's management.  Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company  Accounting  Oversight Board (United
States).  Those standards require that we plan and perform the audit to obtain
 reasonable  assurance about whether the  financial  statements  are free of  material
 misstatement.  An audit  includes  examining,  on a test  basis, evidence  supporting
the amounts and  disclosures  in the financial  statements.  An audit also includes
 assessing the accounting  principles  used and  significant  estimates made by
management,  as well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the consolidated
 financial statements referred to above present fairly, in all material respects, the
financial  position of Pavilion  Bancorp,  Inc. as of December 31, 2003,  and the results
of its operations and its cash  flows  for the years  ended  December  31,  2003 and 2002
in  conformity  with  U.S.  generally  accepted accounting principles.

| | /s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
| | -------------------------------------------------------------

Grand Rapids, Michigan
January 13, 2004

-5-

---



Report
of Independent Registered Public Accounting Firm

To
The Board of Directors and StockholdersPavilion Bancorp, Inc.

We have audited the
accompanying balance sheet of Pavilion Bancorp, Inc. as of December 31, 2004, and the
related statements of income, stockholders equity, and cash flow for the year then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audit. The financial statements of Pavilion Bancorp, Inc. as of December 31,
2003 and for the years ended December 31, 2003 and 2002, before the restatement described
in Note 15, were audited by other auditors whose report dated January 13, 2004 expressed
an unqualified opinion on those financial statements.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement preparation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the 2004
financial statements referred to above present fairly, in all material respects, the
financial position of Pavilion Bancorp, Inc. at December 31, 2004, and the results of its
operations and its cash flows for the year ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.

We also audited the
adjustments described in Note 15 that were applied to restate the 2003 and 2002 financial
statements. In our opinion, such adjustments are appropriate and have been properly
applied.

/s/ Plante & Moran, PLLC Plante & Moran, PLLC

Auburn Hills, Michigan

March 9, 2005

-6-

---



# PAVILION BANCORP, INC.CONSOLIDATED BALANCE
SHEET

|(000's omitted)                                                       | December 31, 2004 | December 31, 2003
|--------------------------------------------------------------------- | ----------------- | -----------------
|ASSETS                                                                |                   |                  
|Cash and cash equivalents                                             |                   | $   11,700       
|                                                                      |                   |                  
|Total cash and cash equivalents                                       |                   | 11,700           
|Securities available for sale (Note 2)                                |                   | 27,886           
|Federal Home Loan Bank, Freddie Mac, FNMA stock                       |                   | 2,738            
|Federal Reserve Bank stock                                            |                   | 360              
|Loans held for sale                                                   |                   | 322              
|Loans (Note 3)                                                        |                   | 207,159          
|Less: allowance for loan losses (Note 4)                              |                   | (2,495           
|                                                                      |                   |                  
|Net loans                                                             |                   | 204,664          
|Premises and equipment - Net (Note 6)                                 |                   | 5,727            
|Accrued interest receivable                                           |                   | 1,429            
|Mortgage servicing rights (Note 5)                                    |                   | 2,827            
|Other assets                                                          |                   | 1,669            
|Assets of discontinued operation (Note 15)                            |                   | -                
|                                                                      |                   |                  
|Total assets                                                          |                   | $ 259,322        
|                                                                      |                   |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                  |                  
|LIABILITIES                                                           |                  
|Deposits                                                              |                  
|Noninterest bearing                                                   |                   | $   44,207       
|Interest-bearing (Note 7)                                             |                   | 155,785          
|                                                                      |                   |                  
|Total deposits                                                        |                   | 199,992          
|Federal funds purchased (Note 8)                                      |                   | 1,450            
|Repurchase agreements (Note 8)                                        |                   | 2,482            
|Federal Home Loan Bank advances (Note 8)                              |                   | 8,586            
|Accrued interest payable                                              |                   | 233              
|Other liabilities                                                     |                   | 5,178            
|Subordinated debentures (Note 9)                                      |                   | 5,000            
|Common stock in ESOP subject to repurchase obligation (Note 11)       |                   | 4,544            
|Liabilities of discontinued operation (Note 15)                       |                   | -                
|                                                                      |                   |                  
|Total liabilities                                                     |                   | 227,465          
|SHAREHOLDERS' EQUITY (Notes 16 and 17)                                |                  
|Common stock and paid-in capital, no par value: 3,000,000 shares      |                  
|authorized; shares issued and outstanding: 852,140-2004; 845,420-2003 |                   | 10,190           
|Retained earnings                                                     |                   | 21,713           
|Accumulated other comprehensive income (loss)                         |                   | (46              
|                                                                      |                   |                  
|Total shareholders' equity                                            |                   | 31,857           
|                                                                      |                   |                  
|Total liabilities and shareholders' equity                            |                   | $ 259,322        
|                                                                      |                   |                  
|See
accompanying notes to the consolidated financial statements.     

-7-

---



# PAVILION BANCORP, INC.CONSOLIDATED
STATEMENTS OF INCOME Years ended December
31, 2004, 2003, 2002

|(000's omitted, except per share data)                | 2004 | 2003      | 2002
|----------------------------------------------------- | ---- | --------- | ----
|Interest and Dividend Income                          |      |           |     
|Loans receivable, including fees                      |      | $13,914   |     
|Debt securities:                                      |     
|Taxable                                               |      | 664       |     
|Tax-exempt                                            |      | 120       |     
|Federal funds sold                                    |      | 47        |     
|Dividend income                                       |      | 140       |     
|                                                      |      |           |     
|Total interest and dividend income                    |      | 14,885    |     
|Interest Expense                                      |     
|Deposits                                              |      | 2,144     |     
|Subordinated debentures                               |      | 285       |     
|Other borrowed funds                                  |      | 366       |     
|                                                      |      |           |     
|Total interest expense                                |      | 2,795     |     
|                                                      |      |           |     
|Net interest income                                   |      | 12,090    |     
|Provision for Loan Losses (Note 4)                    |      | 693       |     
|                                                      |      |           |     
|Net interest income after provision for loan losses   |      | 11,397    |     
|Noninterest Income                                    |     
|Service charges and fees                              |      | 1,431     |     
|Net gain on sale of loans                             |      | 1,516     |     
|Loan servicing fees, net of amortization (Note 5)     |      | 500       |     
|Gain on sale of available-for-sale securities         |      | -         |     
|Other                                                 |      | 119       |     
|                                                      |      |           |     
|Total noninterest income                              |      | 3,566     |     
|Noninterest Expenses                                  |     
|Compensation and employee benefits (Note 11)          |      | 7,209     |     
|Occupancy and equipment                               |      | 1,664     |     
|Printing, postage and supplies                        |      | 500       |     
|Professional services                                 |      | 446       |     
|Outside services                                      |      | 547       |     
|Marketing and Advertising                             |      | 356       |     
|Loan financing services                               |      | 214       |     
|Other                                                 |      | 873       |     
|                                                      |      |           |     
|Total noninterest expense                             |      | 11,809    |     
|                                                      |      |           |     
|Income from continuing operations before income taxes |      | 3,154     |     
|Income taxes from continuing operations (Note 10)     |      | 1,001     |     
|                                                      |      |           |     
|Income from continuing operations                     |      | 2,153     |     
|                                                      |      |           |     
|Discontinued operations:                              |     
|Income (loss) from disconnected operations,           |     
|net of income taxes of $162; ($49) and ($263)         |      | 562       |     
|Gain on sale of discontinued component, net of        |     
|income tax expense of $2,573; $0 and $0               |      | 4,417     |     
|                                                      |      |           |     
|Income (loss) from discontinued operation             |      | 4,979     |     
|                                                      |      |           |     
|Net Income                                            |      | $  7,132  |     
|                                                      |      |           |     
|                                                     
|                                                      |      | 2004      |     
|Earnings per share from continuing operations         |     
|Basic                                                 |      | $    2.54 |     
|Diluted                                               |      | $    2.52 |     
|Earnings per share from discontinued operations       |     
|Basic                                                 |      | $    5.88 |     
|Diluted                                               |      | $    5.82 |     
|Net earnings per share                                |     
|Basic                                                 |      | $    8.42 |     
|Diluted                                               |      | $    8.34 |     

See
accompanying notes to the consolidated financial statements.

-8-

---



# PAVILION BANCORP, INC. CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Years ended December
31, 2004, 2003, and 2002

|(000's omitted)                              | CommonStockPaid-InCapital | RetainedEarnings | AccumulatedOtherComprehensiveIncome (Loss) | TotalShareholdersEquity
|-------------------------------------------- | ------------------------- | ---------------- | ------------------------------------------ | -----------------------
|Balance January 1, 2002                      |                           | $  10,187        |                                            | $   13,124             
|Comprehensive income:                        |                          
|Net income                                   |                           | -                |                                            | 2,855                  
|Establish minimum pension liability          |                           | -                |                                            | -                      
|Unrealized gains (losses) on securities      |                           | -                |                                            | -                      
|Tax effect                                   |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total other comprehensive income             |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total comprehensive income                   |                           | -                |                                            | -                      
|Change in common stock subject to repurchase |                           | 344              |                                            | -                      
|Retirement of stock - 21,423 shares          |                           | (1,019           | )                                          | -                      
|Proceeds from sale of stock - 2,044 shares   |                           | 105              |                                            | -                      
|Stock option expense                         |                           | 34               |                                            | -                      
|Stock options exercised                      |                           | 60               |                                            | -                      
|Cash dividends - $.82 per share              |                           | -                |                                            | (725                   
|                                             |                           |                  |                                            |                        
|Balance December 31, 2002                    |                           | 9,711            |                                            | 15,254                 
|Comprehensive income:                        |                          
|Net income                                   |                           | -                |                                            | 3,235                  
|Net change in minimum pension liability      |                           | -                |                                            | -                      
|Unrealized gains (losses) on securities      |                           | -                |                                            | -                      
|Tax effect                                   |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total other comprehensive income             |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total comprehensive income                   |                           | -                |                                            | -                      
|Change in common stock subject to repurchase |                           | 301              |                                            | -                      
|Retirement of stock - 28,238 shares          |                           | (1,384           | )                                          | -                      
|Stock option expense                         |                           | 43               |                                            | -                      
|Stock options exercised                      |                           | 60               |                                            | -                      
|Cash dividends - $1.09 per share             |                           | -                |                                            | (929                   
|Payment of 5% stock dividend                 |                           | 1,944            |                                            | (1,944                 
|                                             |                           |                  |                                            |                        
|Balance December 31, 2003                    |                           | 10,675           |                                            | 15,616                 
|Comprehensive income:                        |                          
|Net income                                   |                           | -                |                                            | 7,132                  
|Unrealized gains (losses) on securities      |                           | -                |                                            | -                      
|Tax effect                                   |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total other comprehensive                    |                           | -                |                                            | -                      
|                                             |                           |                  |                                            |                        
|Total comprehensive income                   |                           | -                |                                            | -                      
|Change in common stock subject to repurchase |                           | (745             | )                                          | -                      
|Retirement of stock                          |                           | (1               | )                                          | -                      
|Stock option expense                         |                           | 43               |                                            | -                      
|Stock options exercised                      |                           | 218              |                                            | -                      
|Cash dividends - $1.22 per share             |                           | -                |                                            | $   (1,035             
|                                             |                           |                  |                                            |                        
|Balance December 31, 2004                    |                           | $  10,190        |                                            | $   21,713             
|                                             |                           |                  |                                            |                        

-9-

---



# PAVILION BANCORP, INC. CONSOLIDATED
STATEMENTS OF CASH FLOW Years Ended December
31, 2004, 2003 and 2002

|(000's omitted)                                     | 2004 | 2003        | 2002
|--------------------------------------------------- | ---- | ----------- | ----
|Cash flows from operating activities                |      |             |     
|Net income                                          |      | $   7,132   |     
|Adjustments to reconcile net income to              |     
|net cash from operating activities                  |     
|Depreciation                                        |      | 579         |     
|Stock option expense                                |      | 43          |     
|Provision for loan losses                           |      | 693         |     
|Gain on sale of discontinued operation              |      | (6,990      | )   
|Deferred income tax benefit                         |      | 997         |     
|Amortization (accretion) on investment securities   |     
|available for sale                                  |      | 188         |     
|Net realized (gain) loss on sales of securities     |      | -           |     
|Amortization of mortgage servicing rights           |      | 444         |     
|Origination of mortgage loans held for sale         |      | (85,788     | )   
|Proceeds from sales of mortgage loans held for sale |      | 86,884      |     
|Net gains on sale of mortgage loans                 |      | (1,207      | )   
|Net change in:                                      |     
|Deferred loan origination fees                      |      | -           |     
|Accrued interest receivable                         |      | 2           |     
|Other assets                                        |      | 394         |     
|Accrued interest payable                            |      | (61         | )   
|Other liabilities                                   |      | (7,374      | )   
|                                                    |      |             |     
|Net cash (used in) provided by operating activities |      | (4,064      | )   
|Cash flows from Investing Activities                |     
|Proceeds from:                                      |     
|Maturities, calls and principal payments on         |     
|securities available for sale                       |      | 8,349       |     
|Sales of securities available for sale              |      | -           |     
|Federal Reserve Bank Stock                          |      | 21          |     
|Proceeds from sale of discontinued operation        |      | 15,101      |     
|Purchases of:                                       |     
|Securities available for sale                       |      | (16,410     | )   
|Federal Home Loan Bank Stock                        |      | (137        | )   
|Federal Reserve Bank Stock                          |      | -           |     
|Premises and equipment, net                         |      | (896        | )   
|Net change in discontinued operation                |      | -           |     
|Net increase (decrease) in loans                    |      | 1,726       |     
|Recoveries on loans charged-off                     |      | 82          |     
|                                                    |      |             |     
|Net cash provided by (used in) investing activities |      | 7,836       |     
|Cash flows from financing activities                |     
|Net change in deposits                              |      | (2,374      | )   
|Net change in short term borrowings                 |      | 682         |     
|Proceeds from FHLB advances                         |      | 2,000       |     
|Repayment of FHLB advances                          |      | (635        | )   
|Repurchase of common stock                          |      | -           |     
|Issuance of common stock                            |      | -           |     
|Stock options exercised                             |      | 218         |     
|Dividends paid                                      |      | (1,035      | )   
|                                                    |      |             |     
|Net cash provided by (used in) financing activities |      | (1,144      | )   
|                                                    |      |             |     
|Net change in cash and cash equivalents             |      | 2,628       |     
|Cash and cash equivalents at beginning of year      |      | 9,072       |     
|                                                    |      |             |     
|Cash and cash equivalents at  end of year           |      | $  11,699   |     
|                                                    |      |             |     
|Supplemental schedule of noncash activities         |     
|Transfer from:                                      |     
|Loans to foreclosed real estate                     |      | $       914 |     
|Cash paid for:                                      |     
|Interest                                            |      | $    3,894  |     
|Income taxes                                        |      | $       805 |     

-10-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies
of Pavilion Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Bank
of Lenawee (the Bank), conform to accounting principles generally accepted in
the United States of America and to general practice within the banking industry. The
following describes the significant accounting and reporting policies which are employed
in the preparation of the consolidated financial statements.

Principles of Consolidation:
The consolidated financial statements include the accounts of the Company, the Bank and
the Banks wholly-owned subsidiaries, Pavilion Mortgage Company and Pavilion
Financial Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.

Discontinued Operations: In
accordance with Statement of Financial Accounting Standards No. 144, on July 16, 2004
Pavilion Bancorp, Inc. announced that it had signed a definitive agreement to sell the
Bank of Washtenaw for $15,101,000 in cash. The sale was completed on October 29, 2004. In
accordance with Financial Accounting Standard 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which became effective for the Company on January 1,
2002, the financial position and results of operations of the Bank of Washtenaw are
removed from the detail line items in the Companys consolidated financial statements
and presented separately as discontinued operations. Please refer to Note 15
to the Companys Consolidated Financial Statements for additional information.

Nature of Operations and Industry
Segments: The Company is a one-bank holding Company which conducts limited business
activities. The Bank performs the majority of business activities.

The Bank provides a full range of
banking services to individuals, agricultural businesses, commercial businesses and light
industries located in its service area. The 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 Bank offers a
variety of deposit products, including checking accounts, savings accounts, money market
accounts, individual retirement accounts and certificates of deposit. Pavilion Mortgage
Company originates personal mortgage loans, and the majority of the mortgage loans
originated are sold on the secondary market. Pavilion Financial Services, Inc. owns an
interest in a title insurance agency. While the Company monitors the revenue stream of
various Company products and services, operations are managed and financial performance is
evaluated on a Company-wide basis. Accordingly, all of the Companys banking
operations are considered by management to be aggregated into one operating segment. The
principal markets for the Banks financial services are the communities in which the
Bank is located and the areas immediately surrounding these communities. The Bank serves
these markets through their offices located in Lenawee and Hillsdale Counties in Michigan.

Use of Estimates: The
accounting and reporting policies of the Company conform to accounting principles
generally accepted in the United States of America. Management is required to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates and assumptions.
Material estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan losses, foreclosed assets,
impaired loans, deferred tax assets, mortgage servicing rights and fair value of
securities and other financial instruments.

Cash and Cash Equivalents: For
the purpose of the consolidated statement of cash flow cash and cash equivalents include
cash on hand, demand deposits with other financial institutions, federal funds sold and
commercial paper, all of which mature within 90 days.

Stock Dividend On December 19,
2003, the Company declared a 5% stock dividend payable on January 30, 2004 to shareholders
as of January 16, 2004. All per share data has been restated to reflect the stock
dividend.

-11-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Securities: Debt securities
that management has the positive intent and ability to hold to maturity are classified as
held-to-maturity and recorded at amortized cost. Securities not classified as
held-to-maturity, including equity securities with readily determinable fair values, are
classified as available-for-sale and recorded at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the interest
method over the terms of the securities. Declines in the fair value of securities
held-to-maturity and securities available-for-sale below their cost that are deemed to be
other than temporary (if any) are reflected in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers (1) the length of time and
the extent to which the fair value has been impacted, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value. Gains and losses on the sale of securities are recorded on the
trade date and are determined using the specific identification method.

Federal Home Loan Bank Stock:
Federal Home Loan Bank stock (FHLB stock) is considered a restricted
investment security and is carried at cost. Purchases and sales of FHLB stock are made
directly with the FHLB at par value.

Loans Held for Sale: Loans
originated and intended for sale in the secondary market are carried at the lower of cost
or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized in
a valuation allowance by charges to income.

Mortgage loans held for sale are
generally sold with the mortgage servicing rights retained by the Company. The carrying
value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the
difference between the selling price and the adjusted carrying value of the related
mortgage loans sold.

Loans: The Company grants
mortgage, commercial and consumer loans to customers. Loans that management has the intent
and ability to hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for
loan losses and any deferred fees or costs on originated loans. Interest income is accrued
on the unpaid principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized as an adjustment of the related loan yield using the
interest method.

Accrual of interest on loans is
generally discontinued at the time a loan becomes 90 days delinquent in its payments,
unless the credit is well-secured and in the process of collection. Loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or interest is
considered doubtful.

Uncollected accrued interest
attributable to the current fiscal year on loans that are placed on nonaccrual or
charged-off is reversed against interest income. Uncollected accrued interest attributable
to prior fiscal year(s) is reversed against the allowance for loan losses. The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until qualifying
for return to accrual status. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments are
reasonably assured.

Allowance for Loan Losses: The
allowance for loan losses (the allowance) is established as losses are
estimated to have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management determines the uncollectibility
of a loan balance. Subsequent recoveries, if any, are credited to the allowance. The
allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectibility of the loans in light of
historical experience, industry experience, regulatory guidance, the nature and volume of
the loan portfolio, adverse situations that may affect the borrowers ability to
repay, estimated value of any underlying collateral, and prevailing economic conditions.
This evaluation is inherently subjective, as it requires estimates that are susceptible to
significant revision as more information becomes available.

-12-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

The allowance consists of specific,
general, and unallocated components. The specific components relate to certain loans that
are classified as doubtful, substandard, or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower that the
carrying value of that loan. The general component covers classified and non-classified
loans and is based on industry experience, regulatory guidance, and historical loss
experience, adjusted for qualitative factors. An unallocated component is maintained to
cover uncertainties that could affect managements estimate of probable losses. The
unallocated component of the allowance reflects the imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses in the
portfolio.

A loan is considered impaired when,
based on current information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the
borrower including length of the delay, the reasons for the delay, the borrowers
prior payment record and the amount of the shortfall in relation to the principal and
interest owed. Impairment is measured on a loan-by-loan basis for commercial and
construction loans by either the present value of expected future cash flows discounted at
the loans effective interest rate, the loans obtainable market price or the
fair value of the collateral, if the loan is collateral dependent.

Large groups of homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment disclosures.

Significant Group Concentrations
of Credit Risk: Most of the Companys activities are with customers located in
Michigan. Note 2 discusses the types of securities in which the Company invests. Note 3
discusses the types of lending in which the Company engages. The Company does not have any
significant concentrations to any one industry or customer.

Premises and Equipment: Land
is carried at cost. Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using a combination of straight-line and
accelerated methods over the estimated useful lives of the assets.

Servicing Rights: Servicing
assets are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Capitalized servicing rights are reported as other
assets and are amortized into noninterest expense in proportion to, and over the period
of, the estimated future net servicing income of the underlying financial assets.
Servicing assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is determined using prices
for similar assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. Impairment is recognized through a valuation
allowance for an individual stratum, to the extent that fair value is less than the
capitalized amount for the stratum.

Foreclosed Assets: Assets
acquired through, or in lieu of, foreclosure are held-for-sale and are initially recorded
at fair value (less cost to sell) at the date of the foreclosure, establishing a new cost
basis. Subsequent to foreclosure, valuations are periodically performed by management and
the assets are carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance are included
in net expenses from foreclosed assets. Other real estate owned amounts to $715,000 and
$181,000 at December 31, 2004 and 2003 and are included in other assets.

Repurchase Agreements:
Substantially all repurchase agreement liabilities represent amounts advanced by various
customers. Repurchase agreements are collateralized with securities owned by the Bank of
Lenawee. Securities pledged as collateral for repurchase agreements are held in
safekeeping at independent correspondent banks. Repurchase agreements are not covered by
federal deposit insurance.

-13-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Benefit Plans: A defined
benefit pension plan covers substantially all employees, with benefits based on years of
service and compensation prior to retirement. The Company also maintains a profit-sharing
and 401(k) plan. The profit-sharing and 401(k) plan expense and the amount contributed are
determined by the Board of Directors. Employee benefits are discussed further in Note 11.

Stock-Based Compensation:
Stock-based compensation expense is determined under the fair value-based method, net of
related tax effects. No stock-based compensation cost is reflected in net income unless
options granted have an exercise price that is less than the market price of the
underlying common stock at date of grant. During 2001 stock options were granted with
exercise prices that were less than the fair market value of the underlying common stock
as of the grant date; therefore, the Company is recording compensation expense for the
difference between the strike price and fair market value of the underlying common stock
as of the respective grant dates for the 2001 and earlier stock option grants. Accordingly
compensation expense for these stock options has been recorded during 2004, 2003 and 2002
based on the vesting schedules of the related stock options. Compensation expense for
stock options was $43,000, $43,000 and $34,000 during 2004, 2003 and 2002, respectively.

The following table illustrates the
effect on net income and earnings per share if expense was measured using the fair value
recognition provision of FASB Statement No. 123, Accounting for Stock-Based Compensation
(000s omitted):

|                                         | 2004 | 2003               | 2002
|---------------------------------------- | ---- | ------------------ | ----
|Net income as reported                   |      | $      7,132       |     
|Less: Stock-based compensation expense   |     
|Determined under fair value based method |      | (37                | )   
|                                         |      |                    |     
|Pro forma net income                     |      | $      7,095       |     
|                                         |      |                    |     
|Basic earnings per share - As Reported   |      | $             8.42 |     
|Basic earnings per share - Pro forma     |      | $             8.34 |     
|Diluted earnings per share - As Reported |      | $             8.34 |     
|Diluted earnings per share - Pro forma   |      | $             8.30 |     

The fair value of each option grant
is estimated on the date of grant using the Black-Scholes pricing model with the following
weighted-average assumptions:

|                                | 2004 | 2003 | 2002
|------------------------------- | ---- | ---- | ----
|Risk-free interest rate         |      | 3    | .75%
|Expected option life            |      | 8 y  | ears
|Expected dividend yield         |      | 1    | .73%
|Expected stock price volatility |      | 19   | .86%

Advertising Expenses:
Advertising expenses are expensed as incurred.

Income Taxes: Deferred income
tax assets and liabilities are determined using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is determined based on the tax
effects of the various temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to changes in tax rates
and laws.

Earnings per Common Share:
Basic earnings per share represents income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Diluted earnings
per share reflect additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be issued by the
Company relate solely to outstanding stock options and are determined using the treasury
stock method.

-14-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings per common share have been
computed based on the following (000s omited):

|                                            | 2004 | 2003       | 2002
|------------------------------------------- | ---- | ---------- | ----
|Net income                                  |      | $    7,132 |     
|                                            |      |            |     
|Average number of common shares outstanding |     
|used to calculate basic earnings per share  |      | 846,221    |     
|Effect of dilutive options                  |      | 8,682      |     
|                                            |      |            |     
|Average number of common shares outstanding |     
|used to calculate diluted earnings per      |     
|common share                                |      | 854,903    |     
|                                            |      |            |     

Other Comprehensive Income:
Accounting principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet. Such items, along with net income,
are components of comprehensive income.

Financial Instruments with
Off-Balance Sheet Risk: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and standby letters of credit issued to
meet customers needs. The face amount for these items represents the exposure to
loss before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.

Fair Values of Financial
Instruments: Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair value
estimates involve uncertainties and matters of significant judgment regarding interest
rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on and
off-balance-sheet financial instruments does not include the value of anticipated future
business or values of assets and liabilities not considered financial instruments.

Reclassifications: Certain
amounts appearing in the prior years financial statements have been reclassified to
conform to the current years financial statements.

-15-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting
Pronouncements:

SFAS No. 123 (revised 2004):
SFAS No. 123 (revised 2004), Share-Based Payment revises SFAS No. 123,
Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This statement focuses primarily on
accounting for transactions in which an entity obtains an employee services in share-based
payment transactions. This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
Employers Accounting for Stock Ownership Plans. This Statement requires
an entity to recognize the cost of employee services received in share-based payment
transactions and measure the cost based on a grant-date fair value of the award. The
provisions of SFAS No. 123 (revised 2004) will be effective for the Companys
financial statements issued for periods beginning after June 15, 2005. The adoption of
this revised Statement is not expected to have a material impact on the Companys
consolidated financial statements.

FASB Interpretation No. 46: In
December 2003, the FASB issued Interpretation No. 46 (Revised 2003) Consolidation of
Variable Interest Entities, (FIN 46-R). FIN 46-R requires that subsidiaries defined
as variable interest entities be consolidated by the enterprise that will absorb the
majority of the entities expected losses if they occur, receive a majority of the
variable interest entities residual returns if they occur, or both. The Company, through
fully-consolidated wholly-owned subsidiaries, sponsors a trust preferred security issuing
vehicle. The Company determined that the trust preferred subsidiary meets the definition
of a variable interest entity and that the Company is not the primary beneficiary of the
subsidiarys activities. There was no material impact to the results of operations as
a result of applying the provisions of FIN 46-R.

EITF 03-1: In March, 2004, the
Financial Accounting Standards Board ratified the consensus reached by the Emerging Issues
Task Force in Issue 03-1, The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-1). EITF 03-1 provides guidance for
determining when an investment is considered impaired, whether impairment is
other-than-temporary, and measurement of an impairment loss. At December 31, 2004, gross
unrealized losses on available-for-sale securities was $192,000. The amount of
other-than-temporary impairment to be recognized, if any, will be dependent on market
conditions, managements intent and ability to hold investments until a forecasted
recovery and the finalization of the proposed guidance by the FASB. The Company had no
investment securities with impairment that was deemed to be other than temporary.

-16-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 2  SECURITIES

The amortized cost and estimated fair
market value of available-for-sale securities are as follows at December 31, 2004 and 2003
(000s omitted):

|                                               | AmortizedCost | GrossUnrealizedGains | GrossUnrealizedLosses | EstimatedMarket Value
|---------------------------------------------- | ------------- | -------------------- | --------------------- | ---------------------
|2004     U.S. Treasury & government agencies   |               | $20,161              |                       | $    -               
|Obligations of states & political subdivisions |               | 5,821                |                       | 83                   
|Mortgage-backed securities                     |               | 1,986                |                       | 27                   
|                                               |               |                      |                       |                      
|Total available for sale securities            |               | $27,968              |                       | $110                 
|                                               |               |                      |                       |                      
|2003                                           |              
|U.S. Treasury & government agencies            |               | $15,092              |                       | $  77                
|Obligations of states & political subdivisions |               | 2,944                |                       | 221                  
|Mortgage-backed securities                     |               | 2,048                |                       | 53                   
|                                               |               |                      |                       |                      
|Total available for sale securities            |               | $20,084              |                       | $    -               
|                                               |               |                      |                       |                      

Contractual maturities of securities
at December 31, 2004 are as follows. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations. Securities
not due at a single maturity date, primarily mortgage-backed securities, are shown
separately (000s omitted):

|                           | Available-for-Sale
|-------------------------- | ------------------
|
|Due in one year or less    |                   
|Due from one to five years |                   
|Due from five to ten years |                   
|Due after ten years        |                   
|                           |                   
|Total debt securities      |                   
|Mortgage-backed securities |                   
|                           |                   
|Total                      |                   
|                           |                   

The tax benefit applicable to net
realized gains and losses were minimal or none.

-17-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 2  SECURITIES(continued)

Information pertaining to securities
with gross unrealized losses at December 31, 2004 and 2003, aggregated by investment
category and length of time that individual securities have been in a continuous loss
position are as follows (000s omitted):

|At December 31, 2004                | Less Than Twelve Months | Over Twelve Months
|----------------------------------- | ----------------------- | ------------------
|
|Available-for-sale securities:      |                         |                   
|U.S. treasury & government agencies |                         | $178              
|Obligations of states & political   |                        
|subdivisions                        |                         | 10                
|Mortgage-backed securities          |                         | 4                 
|                                    |                         |                   
|Total available-for-sale securities |                         | $192              
|                                    |                         |                   

The Company had no investment
securities with an unrealized loss at December 31, 2003.

Unrealized losses on securities have
not been recognized into income because the issuers bonds are of high credit
quality, the Company has the intent and ability to hold the securities for the foreseeable
future, and the decline in fair value is primarily due to increased market interest rates.
The fair value is expected to recover as the bonds approach the maturity date.

Proceeds from sales of debt
securities for the twelve months ended 2004, 2003 and 2002 are as follows (000s
omitted):

|                        | 2004 | 2003       | 2002
|----------------------- | ---- | ---------- | ----
|Proceeds from sales     |      | $        - |     
|Gross gains from sales  |      | $        - |     
|Gross losses from sales |      | $        - |     

Securities with a fair value of
approximately $4,949,000 and $10,123,000 at December 31, 2004 and 2003 were pledged to
secure repurchase agreements and other borrowings.

# NOTE 3  LOANS
RECEIVABLE

Major categories of loans in the
portfolio are as follows at December 31, 2004 and 2003 (000s omitted):

|                         | 2004 | 2003    
|------------------------ | ---- | --------
|Commercial               |      | $108,708
|Agricultural             |      | 34,875  
|Real Estate Mortgage     |      | 21,685  
|Real Estate Construction |      | 8,768   
|Consumer                 |      | 33,123  
|                         |      |         
|Total loans receivable   |      | $207,159
|                         |      |         

-18-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 3  LOANS RECEIVABLE
(continued)

Certain directors and executive
officers of the Company, including associates of such persons, were loan customers of the
Company during 2004 and 2003. A summary of aggregate related-party loan activity for loans
aggregating $60,000 or more to any related party at December 31, 2004 and 2003 is as
follows (000s omitted):

|                       | 2004 | 2003     
|---------------------- | ---- | ---------
|Balance at January 1   |      | $   3,204
|New loans              |      | 12,208   
|Repayments             |      | (10,272  
|Other adjustments      |      | -        
|                       |      |          
|Balance at December 31 |      | $   5,140
|                       |      |          

# NOTE 4  ALLOWANCE
FOR LOAN LOSSES

Activity in the allowance for loan
losses for the twelve months ended December 31, 2004, 2003 and 2002 are as follows
(000s omitted):

|                          | 2004 | 2003    | 2002
|------------------------- | ---- | ------- | ----
|Beginning balance         |      | $ 2,302 |     
|Charge-offs               |      | (582    | )   
|Recoveries                |      | 82      |     
|Provision for loan losses |      | 693     |     
|                          |      |         |     
|Ending balance            |      | $ 2,495 |     
|                          |      |         |     

Impaired loans at December 31, 2004,
2003 and 2002 are as follows (000s omitted):

|                                                           | 2004 | 2003      | 2002
|---------------------------------------------------------- | ---- | --------- | ----
|Impaired loans with no allowance for loan losses allocated |      | $     13  |     
|Impaired loans with allowance for loan losses allocated    |      | $   900   |     
|Total impaired loans                                       |      | $   913   |     
|Amount of the allowance allocated to impaired loans        |      | $   151   |     
|Average investment in impaired loans                       |      | $1,006    |     
|Interest income recognized during impairment               |      | $     14  |     
|Cash-basis interest income recognized                      |      | $       7 |     

No additional funds are committed to be
advanced in connection with impaired loans.

|Nonperforming loans at December 31,
2004 and 2003 were as follows (000s omitted):
|----------------------------------------------------------------------------------
|
|Loans past due over 90 days still on accrual                                      
|Nonaccrual loans                                                                  

Nonperforming loans includes both
smaller balance homogeneous loans that are collectively evaluated for impairment and
individually classified impaired loans.

-19-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 5  LOAN
SERVICING

The Bank routinely sells to investors
its originated residential mortgage loans. The unpaid principal balance of loans serviced
for others was approximately $374,022,000 and $392,514,000 at December 31, 2004 and 2003
and are not included in the accompanying consolidated balance sheets. Related escrow
balances were $408,000 and $835,000 December 31, 2004 and 2003.

The key economic assumptions used in
determining the fair value of the mortgage servicing rights are as follows:

|                                  | December 31,
|--------------------------------- | ------------
|
|Annual constant prepayment speed  |             
|Weighted average life (in months) |             
|Discount rate                     |             

Activity for capitalized mortgage
servicing rights was as follows (000s omitted):

|                                      | 2004 | 2003    | 2002
|------------------------------------- | ---- | ------- | ----
|Beginning balance                     |      | $ 2,739 |     
|Mortgage servicing rights capitalized |      | 532     |     
|Mortgage servicing rights amortized   |      | (444    | )   
|                                      |      |         |     
|Ending balance                        |      | $ 2,827 |     
|                                      |      |         |     

There was no valuation allowance at
December 31, 2004, 2003 and 2002 for mortgage servicing rights.

# NOTE 6  PREMISES
AND EQUIPMENT

Major classifications of bank premises
and equipment at December 31, 2004, 2003 and 2002 are summarized as follows (000s
omitted):

|                               | 2004 | 2003      
|------------------------------ | ---- | ----------
|Land                           |      | $      561
|Buildings and improvement      |      | 6,394     
|Furniture and equipment        |      | 7,495     
|                               |      |           
|Total premises and equipment   |      | 14,450    
|Less: accumulated depreciation |      | (8,723    
|                               |      |           
|Net carrying amount            |      | $   5,727 
|                               |      |           

Depreciation expense for the years
ended December 31, 2004, 2003 and 2002 amounted to $579,000, $570,000 and $592,000,
respectively. The anticipated annual expense from an operating lease is $53,000.
Currently, the lease is in the fifth year of a ten year lease. Inflationary adjustments to
the cost of such lease, based on changes in the Consumers Price Index, will begin in 2006.

-20-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 7  DEPOSITS

The following table summarizes
interest-bearing deposits at December 31, 2004 and 2003 (000s omitted):

|                                | 2004 | 2003     
|------------------------------- | ---- | ---------
|NOW accounts                    |      | $  26,693
|Savings                         |      | 58,329   
|Certificates of deposit:        |     
|$100,000 and over               |      | 32,788   
|Under $100,000                  |      | 37,975   
|                                |      |          
|Total interest-bearing deposits |      | $155,785 
|                                |      |          

Stated maturities of time deposits at
December 31, 2004 are as follows (000s omitted):

|           | 
|---------- | 
|2005       | 
|2006       | 
|2007       | 
|2008       | 
|2009       | 
|Thereafter | 
|           | 
|           | 
|           | 

# NOTE 8  BORROWED
FUNDS

Borrowed funds at December 31, 2004
and 2003 are as follows (000s omitted):

|                                | 2004 | 2003    
|------------------------------- | ---- | --------
|Federal funds purchased         |      | $  1,450
|Repurchase agreements           |      | 2,482   
|Federal Home Loan Bank advances |      | 8,586   
|                                |      |         
|Total borrowed funds            |      | $12,518 
|                                |      |         

Federal funds purchased totaled
$1,450,000 and $2,160,000 at December 31, 2004 and 2003, respectively. Federal funds purchased
typically mature daily. The Bank utilizes a $10 million line of credit at a correspondent
bank for this purpose. Rates on this line of credit ranged from 1.1875% to 2.50% during
2004.

Repurchase Agreements

Information concerning repurchase
agreements at December 31, 2004 and 2003 are summarized as follows (000s omitted):

|                                               | 2004 | 2003    
|---------------------------------------------- | ---- | --------
|Amount outstanding at year-end                 |      | $  2,482
|Weighted average interest rate at year-end     |      | 0.53    
|Average daily balance during the year          |      | $  2,745
|Weighted average interest rate during the year |      | 0.45    
|Maximum month-end balance during the year      |      | $  4,651

Repurchase agreements are terminable
upon demand.

-21-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 8  BORROWED FUNDS
(continued)

Federal Home Loan Bank
Advances

The Company has various term advances
from the Federal Home Loan Bank of Indianapolis (FHLB) with fixed and variable
interest rates ranging from 2.50% to 6.04% at December 31, 2004 and from 2.93% to 6.04% at
December 31, 2003. The weighted average interest rate at December 31, 2004 is 4.38%.
Maturity dates range from January 2006 to May 2008. The weighted average remaining
maturity at December 31, 2004 is 486 days, or May 1, 2006. Pursuant to collateral
agreements with the FHLB, the Company pledges various qualified 1-4 family mortgage loans
as collateral for advances outstanding at the FHLB. At December 31, 2004 and 2003 such
pledged mortgage loans had outstanding balances of $29,933,000 and $18,374,000,
respectively. Certain advances are subject to prepayment penalties and the provisions and
conditions of the credit policies of the FHLB.

Scheduled principal reductions on
FHLB advances at December 31, 2004 are as follows (000s omitted):

|                    | 
|------------------- | 
|2004                | 
|2005                | 
|2006                | 
|2007                | 
|2008                | 
|                    | 
|Total FHLB advances | 

---

# NOTE 9 
SUBORDINATED DEBENTURES

In December 2001, Lenawee Capital
Trust I (Capital Trust), a trust formed by the Company, closed a pooled
private offering of 5,000 Trust Preferred Securities with a liquidation amount of $1,000
per security. The proceeds of the offering were loaned to the Company in exchange for
junior subordinated debentures with terms similar to the Trust Preferred Securities. The
sole assets of Capital Trust are the junior subordinated debentures of the Company and
payment thereunder. The junior subordinated debentures and the back-up obligations, in the
aggregate, constitute a full and unconditional guarantee by the Company of the obligations
of Capital Trust under the Trust Preferred Securities. Distributions on the Trust
Preferred Securities are payable semi-annually at a variable rate of interest and are
included in interest expense in the consolidated financial statements. The variable rate
of interest is equal to the sum of the six-month London Interbank Offered Rate and 3.75%
with a maximum rate of 11.0% during the first five years, and the rate of interest is
equal to 6.44% as of December 31, 2004. This subordinated debenture is considered Tier 1
capital (with certain limitations applicable) under current regulatory guidelines. As of
December 31, 2004 and 2003, the outstanding principal balance of the subordinated
debentures was $5 million. The principal balance of the subordinated debentures is
presented as a liability in the financial statements.

The trust preferred securities, which
mature December 8, 2031, are subject to mandatory redemption, in whole or in part, upon
repayment of the subordinated debentures at maturity or their earlier redemption at the
liquidation preference plus accrued but unpaid distributions. The subordinated debentures
are redeemable prior to the maturity date at the option of the Company on or after
December 8, 2006 at their principal amount plus accrued but unpaid interest. The
subordinated debentures are also redeemable in whole or in part from time to time, upon
the occurrence of specific events defined within the trust indenture. The Company has the
option to defer distributions on the subordinated debentures from time to time for a
period not to exceed 5 consecutive years.

-22-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 10  INCOME
TAXES

Allocation of income taxes between
current and deferred portions is as follows (000s omitted):

|                                 | 2004 | 2003      | 2002
|-------------------------------- | ---- | --------- | ----
|Continuing Operations:           |      |           |     
|Current                          |      | $       4 |     
|Deferred                         |      | 997       |     
|                                 |      |           |     
|Total from continuing operations |      | 1,001     |     
|Discontinued operations          |      | 2,735     |     
|                                 |      |           |     
|Total                            |      | $3,736    |     
|                                 |      |           |     

Income tax expense from continuing operations
calculated at the statutory federal income tax rate of 34% differs from actual income tax
expense for continuing operations as follows (000s omitted):

|                             | 2004 | 2003    | 2002
|---------------------------- | ---- | ------- | ----
|Statutory rates              |      | $ 1,072 |     
|Increase (decrease) from:    |     
|Tax-exempt securities income |      | (88     | )   
|Non-deductible expenses      |      | 13      |     
|Other, net                   |      | 4       |     
|                             |      |         |     
|                             |      | $ 1,001 |     
|                             |      |         |     

|Year-end deferred tax assets and
liabilities consist of (000s omitted):
|------------------------------------------------------------------------
|
|Deferred tax assets                                                     
|Allowance for loan losses                                               
|Net deferred loan fees                                                  
|Pension expense                                                         
|Minimum pension liability                                               
|Net unrealized losses on securities available-for-sale                  
|Other                                                                   
|                                                                        
|Total deferred tax assets                                               
|                                                                        
|Deferred tax liabilities                                                
|Depreciation                                                            
|Mortgage servicing rights                                               
|Net unrealized gains on securities available for sale                   
|Prepaid expenses                                                        
|Other                                                                   
|                                                                        
|Net deferred tax liabilities                                            
|                                                                        
|Net deferred tax liability                                              
|                                                                        

-23-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 11  EMPLOYEE
BENEFITS

Defined Benefit Pension
Plan

The Bank is a participant in the
multi-employer Financial Institutions Retirement Funds (FIRF of the
Plan), which covers substantially all of its officers and employees. The Plan,
for all employees with one year of service, provides benefits based on basic compensation
and years of service. The Banks contributions are determined by FIRF and generally
represent the normal cost of the Plan. Specific Plan assets and accumulated benefit
information for the Banks portion of the Plan are not available. Under the Employee
Retirement Income Security Act of 1974 (ERISA), a contributor to a
multiemployer pension plan may be liable in the event of complete or partial withdrawal
for the benefit payments guaranteed under ERISA. Currently, the Bank does not intend to
withdraw from the Plan, though management regularly reviews the structure of benefits
offered for appropriateness and long-term cost effectiveness. The Bank was fully funded in
the Plan as of December 31, 2004. The expense of the Plan allocated to the Bank for the
twelve months ended December 31, 2004 and 2003 was $416,109 and $432,000, respectively.
Additionally, the Bank made special underfunding payments into the Plan during 2004 and
2003 of $737,727 and $67,617, respectively.

ESOP and 401(k) Plan

The Company adopted an employee stock
ownership plan, or ESOP, originally known as the Bank of Lenawee Employee Stock Ownership
Plan (the Plan), for the purpose of acquiring outstanding shares of the
Companys predecessor, for the benefit of eligible employees. The Plan was effective
as of January 1, 1984 and has received notice of qualification by the Internal Revenue
Service.

In connection with the adoption of
the Plan, a Trust was established to hold the shares acquired. During the period 1984
through 1994, the Company (and its predecessors) made contributions to the Trust. Such
contributions consisted of both shares of employer stock or cash which was used to acquire
shares of employer stock from others. When cash contributions were used to acquire
employer stock from others, such shares were acquired at or below fair market value as
determined from time to time by reference to market transactions or by independent
appraisal. On January 1, 1995 the Company ceased making contributions to the Plan.

Effective January 1, 1996, the
Company adopted an amendment to the Plan adding a so-called cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code and providing for elective
contributions by employees (up to 20% of their eligible compensation) and matching
contributions by the Company equal to 100% of each eligible employees elective
contributions (but with the match capped at 2% of his or her eligible compensation).
Matching contributions from the Company consist of the Companys common shares. Since
January 1, 1996, the Plan has been known as the Employee Stock Ownership and 401(k)
Savings Plan. Expense relating to the 401(k) provision was $108,000, $113,000 and $110,000
in 2004, 2003 and 2002, respectively.

Accumulations of employer stock (now
Company stock) allocated under the ESOP prior to 1995 continue to be allocated to
employees and are to be held in the Trust until such employees become entitled to a
distribution in accordance with the provisions of the Plan (normally at retirement or
termination of employment for other reasons). At December 31, 2004 and 2003, the Trust
held 74,494 and 75,985 of the Companys stock, respectively. Upon distribution of
shares to a participant, the participant has the right to require the Company to purchase
shares at the most recent appraised value in accordance with the terms and conditions of
the ESOP portion of the Plan. As such, these shares are classified as a liability in the
financial statements. The appraised value of the shares of Company stock held by the Trust
was $4,544,000 and $3,799,000 at December 31, 2004 and 2003, respectively.

-24-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 11  EMPLOYEE BENEFITS(continued)

Stock Option Plan

Stock option plans are used to reward
directors and certain executive officers and provide them with an additional equity
interest. Options are issued for 10 year periods and vest over five years. Information
about options available for grant and options granted follows:

|                             | Available For Grant | Options Outstanding | Weighted Average Exercise Price
|---------------------------- | ------------------- | ------------------- | -------------------------------
|                             |                     |                     |                                
|Balance at January 1, 2002   |                     | 44,940              |                                
|Options issued               |                     | (7,560              | )                              
|Options exercised            |                     | -                   |                                
|Options forfeited            |                     | 1,571               |                                
|                             |                     |                     |                                
|Balance at December 31, 2002 |                     | 38,951              |                                
|Options issued               |                     | (7,140              | )                              
|Options exercised            |                     | -                   |                                
|Options forfeited            |                     | -                   |                                
|                             |                     |                     |                                
|Balance at December 31, 2003 |                     | 31,811              |                                
|Options issued               |                     | (9,030              | )                              
|Options exercised            |                     | -                   |                                
|Options forfeited            |                     | -                   |                                
|                             |                     |                     |                                
|Balance at December 31, 2004 |                     | 22,781              |                                
|                             |                     |                     |                                

The weighted average fair value of
stock options granted was $11.43, $9.66 and $15.90 for 2004, 2003 and 2002, respectively.

Options exercisable at December 31 of
each year were as follows:

|     | Number of  Options | Weighted Average Exercise Price
|---- | ------------------ | -------------------------------
|     |                    |                                
|2004 |                    | 28,870                         
|2003 |                    | 24,917                         
|2002 |                    | 21,054                         

Options outstanding at December 31,
2004 were as follows:

|                        | Outstanding | Exercisable
|----------------------- | ----------- | -----------
|
|                        |             |            
|$17.00 - $24.00         |             | 10,080     
|$34.00 - $42.00         |             | 8,316      
|$48.00 - $52.00         |             | 18,165     
|                        |             |            
|Outstanding at year end |             | 36,561     
|                        |             |            

-25-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 12 
COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES

Credit-Related Financial
Instruments: The Company is party to credit-related financial instruments with
off-balance sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and standby
letters of credit. Such commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the Companys consolidated
balance sheets.

The Companys exposure to credit
loss is represented by the contractual amount of these commitments. The Company follows
the same credit policies in making commitments as it does for balance sheet instruments.

At December 31, 2004 and 2003, the
following financial instruments were outstanding whose contract amounts represent
off-balance sheet credit risk (000s omitted):

|                                         | 2004 | 2003   
|---------------------------------------- | ---- | -------
|                                         |      |        
|Commitments to extend credit             |      | $68,197
|Credit card arrangements                 |      | 3,775  
|Commercial and standby letters of credit |      | 2,487  
|                                         |      |        
|                                         |      | $74,459
|                                         |      |        

At December 31, 2004 and 2003
required reserves at the Federal Reserve Bank of Chicago totaled $5,716,000 and
$3,144,000, respectively. These reserves do not earn interest.

Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The commitments for equity lines of
credit may expire without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral obtained, if it
is deemed necessary by the Company, is based upon managements credit evaluation of
the customer.

Unfunded commitments under commercial
lines of credit and revolving lines of credit are commitments for possible future
extensions of credit to existing customers. These lines of credit are typically
collateralized and usually carry a specified maturity date and may not be drawn upon to
the total extent to which the Company is committed.

Commercial and standby letters of
credit are conditional commitments issued by the Company to guarantee the performance of a
customer to a third party, and are used primarily to support public and private borrowing
arrangements. Essentially, all letters of credit issued have expiration dates within one
year. The Company generally holds collateral supporting those commitments if deemed
necessary.

Lease Commitments: Future
minimum lease payments under the Companys current non-cancelable operating leases
are immaterial.

Legal Contingencies: Various
legal claims arise from time to time in the normal course of business which, in the
opinion of management, will have no material effect on the Companys consolidated
financial statements.

-26-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 13 
PARENT-ONLY CONDENSED FINANCIAL STATEMENTS

The following represents the
condensed financial statements of Pavilion Bancorp, Inc., (Parent) only. The
Parent-only financial information should be read in conjunction with the Companys
consolidated financial statements.

The condensed balance sheet at
December 31, 2004 and 2003 is as follows (000s omitted):

|                                           | 2004 | 2003    
|------------------------------------------ | ---- | --------
|Assets                                     |      |         
|Cash and cash equivalents                  |      | $14,105 
|Securities available for sale              |      | 1,959   
|Investment in subsidiaries                 |      | 28,178  
|Other                                      |      | 175     
|                                           |      |         
|Total assets                               |      | $44,417 
|                                           |      |         
|Liabilities & Shareholders' Equity         |     
|Subordinated debentures                    |      | $  5,000
|Other                                      |      | 3,016   
|Common stock subject to repurchase in ESOP |      | 4,544   
|Shareholders' equity                       |      | 31,857  
|                                           |      |         
|Total liabilities & shareholders' equity   |      | $44,417 
|                                           |      |         

The Parent-only condensed statement
of income for the years ended December 31, 2004, 2003 and 2002 is as follows (000s
omitted):

|                                               | 2004 | 2003    | 2002
|---------------------------------------------- | ---- | ------- | ----
|Dividends from subsidiaries                    |      | $ 1,750 |     
|Interest income                                |      | 20      |     
|Interest expense                               |      | (285    | )   
|Other operating expense                        |      | (52     | )   
|                                               |      |         |     
|Income before equity in undistributed net      |     
|income of subsidiary                           |      | 1,433   |     
|Equity in undistributed net income from        |     
|subsidiaries                                   |      | 1,060   |     
|                                               |      |         |     
|Income from continuing operations before       |     
|income tax benefit                             |      | 2,493   |     
|Income tax benefit                             |      | (222    | )   
|                                               |      |         |     
|Income from continuing operations              |      | 2,715   |     
|Gain on sale of discontinued operation, net of |     
|tax                                            |      | 4,417   |     
|                                               |      |         |     
|Net income                                     |      | $ 7,132 |     
|                                               |      |         |     

-27-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 13 
PARENT-ONLY CONDENSED FINANCIAL STATEMENTS (continued)

The condensed statement of cash flows
for the years ended December 31, 2004, 2003 and 2002 is as follows (000s omitted):

|                                                          | 2004 | 2003      | 2002
|--------------------------------------------------------- | ---- | --------- | ----
|Cash Flows from Operating Activities                      |      | $   7,312 |     
|Net Income                                                |     
|Adjustments to reconcile net income to net cash           |     
|provided by operating activities:                         |     
|(Equity) excess in undistributed net income of            |     
|subsidiaries                                              |      | (1,060    | )   
|Gain on sale of discontinued operation                    |      | (6,990    | )   
|Net amortization of investment securities                 |      | (1        | )   
|Stock option expense                                      |      | 43        |     
|Other                                                     |      | 1,828     |     
|                                                          |      |           |     
|Net cash provided by operating activities                 |      | 952       |     
|Cash Flows from Investing Activities                      |     
|Investment in banking subsidiaries                        |      | -         |     
|Net proceeds from sale of discontinued operations         |      | 15,101    |     
|Purchase of securities available for sale                 |      | (1,755    | )   
|Proceeds from maturities of securities available for sale |      | 162       |     
|                                                          |      |           |     
|Net cash provided by (used in) investing activities       |      | 13,508    |     
|Cash Flows from Financing Activities                      |     
|Repurchase of common stock                                |      | (1        | )   
|Issuance of common stock                                  |      | -         |     
|Stock options exercised                                   |      | 218       |     
|Dividends paid                                            |      | (1,035    | )   
|                                                          |      |           |     
|Net cash used in financing activities                     |      | (818      | )   
|                                                          |      |           |     
|Net increase (decrease) in cash and cash equivalents      |      | 13,642    |     
|Beginning cash and cash equivalents                       |      | 463       |     
|                                                          |      |           |     
|Ending cash and cash equivalents                          |      | $ 14,105  |     
|                                                          |      |           |     

-28-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 14  FAIR
VALUES OF FINANCIAL INSTRUMENTS

The fair value of a financial
instrument is the current amount that would be exchanged between willing parties, rather
than in a forced liquidation. Fair value is best determined based upon quoted market
prices. However, in many instances, there are no quoted market prices for the
Companys various financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. The aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company. The following methods and assumptions
were used to estimate fair values for financial instruments:

Cash and Cash Equivalents: The
carrying amounts of cash and short-term instruments approximate fair values.

Securities, Federal Home Loan Bank Stock
and Federal Reserve Bank Stock: Fair values for securities, excluding Federal Home
Loan Bank of Indianapolis stock and Federal Reserve Bank of Chicago stock, are based on
quoted market prices. The carrying value of FHLB and FRB stock approximate fair value
based on their redemption provisions.

Loans Held for Sale: Fair
values of mortgage loans held for sale are based on commitments on hand from investors or
prevailing market rates.

Loans Receivable: Fair value
of loans receivable are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of similar credit
quality. Fair values for non-performing loans are estimated using discounted cash flow
analyses or underlying collateral values, where applicable. Loans held for sale have an
estimated fair value that approximates the carrying value.

Accrued Interest Receivable:
The carrying amount of accrued interest receivable approximate fair values.

Deposit Liabilities: The fair
value disclosed for the various types of deposits are estimated using a discounted cash
flow calculation that applies interest rates currently being offered.

Borrowed Funds: The fair value
of the Companys borrowed funds are estimated using discounted cash flow analyses
based on the Companys current incremental borrowing rates for similar borrowing
arrangements.

Subordinated Debentures: The
fair value of the Companys subordinated debentures approximate the carrying value.

Accrued Interest Payable: The
carrying amount of accrued interest payable approximate fair values.

-29-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 14 - FAIR VALUES OF
FINANCIAL INSTRUMENTS (continued)

The estimated fair values, and
related carrying or notional amounts, of the Companys financial instruments at
December 31, 2004 and 2003 are as follows (000s omitted):

|                              | 2004 | 2003      
|----------------------------- | ---- | ----------
|
|Financial assets:             |      |           
|Cash and cash equivalents     |      | $   11,700
|Securities available-for-sale |      | 27,886    
|Equities                      |      | 3,098     
|Loans held for sale           |      | 322       
|Loans, net                    |      | 204,664   
|Accrued interest receivable   |      | 1,429     
|Financial liabilities:        |     
|Demand and savings deposits   |      | (129,229  
|Time deposits                 |      | (70,763   
|Borrowed funds                |      | (12,518   
|Subordinated debentures       |      | (5,000    

# NOTE 15 
DISCONTINUED OPERATIONS

On July 16, 2004 Pavilion Bancorp,
Inc. announced that it had signed a definitive agreement to sell the Bank of Washtenaw for
$15,101,000. The sale was completed on October 29, 2004. In accordance with Financial
Accounting Standard 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which became effective for the company on January 1, 2002, the financial
position and results of operations of Bank of Washtenaw are removed from the detail line
items in the companys financial statements and presented separately as
discontinued operations.

The condensed balance sheet
(unaudited) as of December 31, 2004 and 2003 for Bank of Washtenaw is as follows
(000s omitted):

|                                           | 2004 | 2003             
|------------------------------------------ | ---- | -----------------
|Assets                                     |      |                  
|Cash & Cash Equivalents                    |      | $               -
|Securities Available for Sale              |      | -                
|Loans, net                                 |      | -                
|Premises and Equipment                     |      | -                
|Other                                      |      | -                
|                                           |      |                  
|Total Assets                               |      | $               -
|                                           |      |                  
|Liabilities & Shareholders' Equity         |     
|Deposits                                   |      | $               -
|Other                                      |      | -                
|Common Stock Subject to Repurchase in ESOP |      | -                
|Shareholders' Equity                       |      | -                
|                                           |      |                  
|Total Liabilities & Shareholders' Equity   |      | $               -
|                                           |      |                  

-30-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 15  DISCONTINUED
OPERATIONS (continued)

The condensed income statement (unaudited)
for the twelve months ended December 31, 2004 and 2003 for Bank of Washtenaw is as follows
(000s omitted):

|                             | 2004 | 2003    | 2002
|---------------------------- | ---- | ------- | ----
|Interest income              |      | $3,428  |     
|Interest expense             |      | 1,052   |     
|                             |      |         |     
|Net interest income          |      | 2,376   |     
|Provision for loan losses    |      | 19      |     
|Noninterest income           |      | 537     |     
|Noninterest expenses         |      | 2,170   |     
|                             |      |         |     
|Income (loss) before taxes   |      | 724     |     
|                             |      |         |     
|Income tax expense (benefit) |      | 162     |     
|                             |      |         |     
|Net income (loss)            |      | $   562 |     
|                             |      |         |     

# NOTE 16 
REGULATORY MATTERS

The Company (on a consolidated basis)
and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Companys and the Banks
financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators regarding
components, risk weightings, and other factors. Prompt corrective action provisions are
not applicable for bank holding companies. Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Bank to maintain minimum amounts,
and ratios (set forth in the following table) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined)
to average assets (as defined).

-31-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

NOTE 16  REGULATORY
MATTERS (continued)

At December 31, 2004 the Bank was
considered well-capitalized under the regulatory framework for prompt corrective action.
The Companys and the Banks actual capital amounts and ratios at December 31,
2004 and 2003 are presented in the following table (in millions):

|                                            | Actual | Minimum Required to be
Well-Capitalized Under
  Prompt Corrective   
  Action Regulations | Minimum Required to be
Well-Capitalized Under
  Prompt Corrective
  Action Regulations
|------------------------------------------- | ------ | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|
|2004                                        |        |                                                                                           |                                                                                       
|Total capital (to risk weighted assets)     |       
|Consolidated                                |        | $  43                                                                                     | .9                                                                                    
|Bank of Lenawee                             |        | $  30                                                                                     | .8                                                                                    
|Tier 1 Capital (to risk weighted assets)    |       
|Consolidated                                |        | $  41                                                                                     | .4                                                                                    
|Bank of Lenawee                             |        | $  28                                                                                     | .3                                                                                    
|Tier 1 Capital (to average assets)          |       
|Consolidated                                |        | $  41                                                                                     | .4                                                                                    
|Bank of Lenawee                             |        | $  28                                                                                     | .3                                                                                    
|2003Total Capital (to risk weighted assets) |       
|Consolidated                                |        | $  38                                                                                     | .1                                                                                    
|Bank of Lenawee                             |        | $  29                                                                                     | .8                                                                                    
|Tier 1 Capital (to risk weighted assets)    |       
|Consolidated                                |        | $  35                                                                                     | .1                                                                                    
|Bank of Lenawee                             |        | $  27                                                                                     | .5                                                                                    
|Tier 1 Capital (to average assets)          |       
|Consolidated                                |        | $  35                                                                                     | .1                                                                                    
|Bank of Lenawee                             |        | $  27                                                                                     | .5                                                                                    

The Companys regulatory capital
includes $5 million of subordinated debentures, issued by Lenawee Capital Trust I in
December 2001, and are subject to certain limitations. Federal Reserve guidelines limit
the amount of subordinated debentures which may be included in Tier 1 capital of the
Company to 25% of total Tier 1 capital. At December 31, 2004 and 2003 the entire amount of
subordinated debentures was included as Tier 1 capital of the Company. Please refer to
Note 9 to the Companys Consolidated Financial Statements for additional information.

# NOTE 17 
RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

Federal and state banking regulations
place certain restrictions on dividends paid and loans or advances made by the Bank to the
Company. The total amount of dividends which may be paid at any date is generally limited
to the retained earnings of the Bank, and loans or advances are limited to 10% of the
Banks capital stock and surplus on a secured basis. At December 31, 2004, the
Banks retained earnings available for the payment of dividends was $5,579,000.
Accordingly, $22,599,088 of the Companys equity in the net assets of the Bank was
restricted at December 31, 2004. Funds available for loans or advances by the Bank to the
Company amounted to $1,600,000.

In addition, dividends paid by the
Bank to the Company would be prohibited if the effect thereof would cause the Banks
capital to be reduced below applicable minimum capital requirements.

-32-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 18 - QUARTERLY
RESULTS OF OPERATIONS (unaudited)

The following table summarizes the
Companys quarterly results for the years ended December 31, 2004 and 2003
(000s omitted):

|                                       | For the Three-Month Period ended
|-------------------------------------- | --------------------------------
|
|2004                                   |                                 
|                                       |                                 
|Interest income                        |                                 
|Interest expense                       |                                 
|                                       |                                 
|Net interest income                    |                                 
|Provision for loan losses              |                                 
|                                       |                                 
|Net interest income after              |                                 
|provision for loan losses              |                                 
|Noninterest income                     |                                 
|Noninterest expense                    |                                 
|Federal income tax expense             |                                 
|                                       |                                 
|Net income for continuing operations   |                                 
|Discontinued operation                 |                                 
|Income from  discontinued operation    |                                 
|Gain on sale of discontinued operation |                                 
|Provision (benefit) for income tax     |                                 
|                                       |                                 
|Income from discontinued operation     |                                 
|                                       |                                 
|Net income                             |                                 
|                                       |                                 
|Earnings per share from                |                                 
|continuing operations                  |                                 
|Basic                                  |                                 
|Diluted                                |                                 
|Earnings per share from                |                                 
|discontinued operations                |                                 
|Basic                                  |                                 
|Diluted                                |                                 
|Net earnings per share                 |                                 
|Basic                                  |                                 
|Diluted                                |                                 

-33-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 18 - QUARTERLY
RESULTS OF OPERATIONS (unaudited)(continued)

|                                  | For the Three-Month Period ended
|--------------------------------- | --------------------------------
|
|2003                              |                                 
|                                  |                                 
|Interest income                   |                                 
|Interest expense                  |                                 
|                                  |                                 
|Net interest income               |                                 
|Provision for loan losses         |                                 
|                                  |                                 
|Net interest income after         |                                 
|provision for loan losses         |                                 
|Noninterest income                |                                 
|Noninterest expense               |                                 
|Federal income tax expense        |                                 
|                                  |                                 
|Net income from continuing        |                                 
|operations                        |                                 
|Discontinued operation            |                                 
|Loss from  discontinued operation |                                 
|                                  |                                 
|Income tax benefit                |                                 
|                                  |                                 
|Loss from discontinued operation  |                                 
|                                  |                                 
|Net income                        |                                 
|                                  |                                 
|Earnings per share from           |                                 
|continuing operations             |                                 
|Basic                             |                                 
|Diluted                           |                                 
|Earnings per share from           |                                 
|discontinued operations           |                                 
|Basic                             |                                 
|Diluted                           |                                 
|Net earnings per share            |                                 
|Basic                             |                                 
|Diluted                           |                                 

-34-

---



# PAVILION BANCORP, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# NOTE 19  SUBSEQUENT
EVENT

In accordance with a
Reduction-in-Force plan (RIF) that was developed with the goal of increasing
operational efficiency, the Bank plans to eliminate various staff positions in the first
quarter of 2005. Severance packages in varying amounts will be offered to employees
affected by the RIF. The Bank estimates that the aggregate amount of such severance
packages is approximately $250,000. A charge to earnings will be recognized in the first
quarter of 2005.

-35-

---



# PART III

# Item 15. Exhibits,
Financial Statement Schedules and Report on Form 8-K.

|(a) | 1. | Financial Statements 
The
following consolidated financial statements of the Company and Reports of Plante &
Moran, PLLC and Crowe Chizek and Company LLC, Independent Registered Public Accounting
Firm, included in Item 8 Financial Statements and
Supplementary Data of this document:

                           Consolidated Balance Sheets
                           Consolidated Statements of Income
                           Consolidated Statements of Changes in Shareholders' Equity
                           Consolidated Statements of Cash Flows
                           Notes to Consolidated Financial Statements
                           Reports of Plante & Moran,  PLLC and Crowe  Chizek and Company  LLC,  Independent  Registered
                           Public Accounting Firms
|--- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Financial Statement Schedules
                  Not applicable
| | -- | --------------------------------------------------------------

| | 3. | Exhibits (Numbered in accordance with Item 601 of Regulation S-K) The Exhibit
               Index is located on the final page of this report on Form 10-K.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

-36-

---



# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, dated November 16, 2005.

| | PAVILION BANCORP, INC. /s/ Richard J. DeVries
 
Richard J. DeVries
President and Chief Executive Officer /s/ Mark D. Wolfe
 

Mark D. Wolfe 
Interim Chief Financial Officer
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed on
November 16, 2005 by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.

# Signatures

|/s/ Allan F. Brittain*    

Allan F. Brittain        
/s/ Fred R. Duncan*       

Fred R. Duncan           
/s/ William R. Gentner*   

William R. Gentner       
/s/ Barbara A. Mitzel*    

Barbara A. Mitzel        
/s/ Emory M. Schmidt*     

Emory M. Schmidt         
/s/ J. David Stutzman*    

J. David Stutzman        
*By:   /s/ Richard J. DeVries   
        
        Richard J. DeVries
        Attorney in Fact | /s/ Richard J. DeVries     

  Richard J. DeVries
   /s/    Edward J. Engle, Jr.*

  Edward J. Engle, Jr.
   /s/    Douglas L. Kapnick*

  Douglas L. Kapnick
   /s/    Margaret M.S. Noe*

  Margaret M.S. Noe
   /s/    Terence R. Sheehan*

  Terence R. Sheehan
   /s/    Marinus VanOoyen*

  Marinus VanOoyen
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-37-

---



# EXHIBIT INDEX

The
following exhibits are filed herewith, indexed according to the applicable assigned
number:

|ExhibitNumber | 
|------------- | 

|10 | Executive
Bonus Plan*
|-- | ---------------------

|13 | Rule
14a-3 2004 Annual Report to Shareholders (this report, except for those portions which
are expressly incorporated by reference in this filing, is furnished for the information
of the Securities and Exchange Commission and is not deemed filedas part of
this filing).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of Registrant*
|-- | ---------------------------

|23.1 | Consent
of Plante & Moran, PLLC - Independent Registered Public Accounting Firm.
|---- | --------------------------------------------------------------------------------

|23.2 | Consent
of Crowe Chizek and Company, LLC - Independent Registered Public Accounting Firm.
|---- | -----------------------------------------------------------------------------------------

|24 | Powers
of Attorney.  Contained on the signature page of this report.
|-- | --------------------------------------------------------------------

|31.1 | Certificate
 of President and Chief  Executive  Officer of Pavilion  Bancorp,  Inc.  pursuant to 15
U.S.C.          Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Certificate
of Interim Chief Financial  Officer of Pavilion Bancorp,  Inc.  pursuant to 15 U.S.C.
 Section          7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Certificate
 of President and 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.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Certificate
of Interim 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.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*Previously filed

The
following exhibits, indexed according to the applicable assigned number, were previously
filed by the Registrant and are incorporated by reference in this Form 10-K Annual Report.

|ExhibitNumber | 
|------------- | 

|3.1 | Articles
of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 of the
Registrants Registration Statement on Form 10, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Amendment
to Articles of Incorporation of Registrant incorporated by reference to Exhibit 3 of the
Registrants Report on Form 10-Q for the quarter ended March 31, 2002.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | Bylaws
of the Registrant are incorporated by reference to Exhibit 3.2 of the Registrants
Registration Statement on Form 10, as amended.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|4 | Form
of Registrants Stock Certificate is incorporated by reference to Exhibit 4 of the
Registrants Registration Statement on Form 10, as amended.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|10 | 2001
Stock Option Plan, incorporated by reference to Appendix A to the Registrants
Definitive Proxy Statement filed with respect to its April 18, 2001 annual meeting of
shareholders.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | 1996
Stock Option Plan, incorporated by reference to Exhibit 10.1 to the Registrants
Registration Statement filed on Form 10, as amended.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------

|14. | Code
of Ethics, incorporated by reference to Exhibit 14
to the Company's report on Form 10-K for the year ended December 31, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

-38-

---