# FORM 10-K SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549



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

For the fiscal year
ended December 31, 2003

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
000-22461

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

|Michigan           
(State or other jurisdiction of
 Incorporation or organization) | 38-3088340
(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------------- | -----------------------------------------------

|135 East Maumee Street         
            Adrian, Michigan           
(Address of principal executive offices) | 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. Yes [X] 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. [X]

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

State the aggregate market value of
the voting and nonvoting common equity held by nonaffiliates of the registrant 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 quarter.

Aggregate Market Value
as of June 30, 2003: $ 38,937,120

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 22, 2004: 846,412  shares.

# Documents Incorporated
by Reference

Portions of the Companys Rule
14a-3 Annual Report and Proxy Statement for the Annual Meeting of Shareholders to be held
April 22, 2004 are incorporated by reference into Parts II and III of this report.

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# Item 1. Business.

Pavilion Bancorp, Inc. (the Company),
a bank holding company, was incorporated in Michigan in 1993. The shareholders elected to
change its name to Pavilion Bancorp, Inc. from Lenawee Bancorp, Inc. on April 18, 2002.
The Company holds all of the stock of the Bank of Lenawee, a Michigan banking corporation
chartered in 1869, and the Bank of Washtenaw founded by the Company on January 8, 2001.

The business is concentrated
primarily in a single industry segment  commercial banking. Each bank provides a
full range of banking services to individuals, commercial businesses and industries
located in its service area. Each bank maintains diversified loan portfolios, including
loans to individuals for home mortgages, automobiles and personal expenditures, and loans
to business enterprises for current operations and expansion. Each bank offers a variety
of deposit products, including checking, savings, money market, individual retirement
accounts and certificates of deposit.

The principal markets for financial
services provided are in the mid-Michigan communities in which the banks are located and
the areas immediately surrounding these communities. The banks serve these markets through
11 locations in or near their communities. The banks do not have any material foreign
assets or income.

The principal source of revenue is
interest and fees on loans. On a consolidated basis, interest and fees on loans accounted
for 72% of the Companies total revenue in 2003 compared to 71% in 2002. Lower than normal
interest rates during 2003 and 2002 resulted in a significant increase in the volume of
mortgage loan sale activity and gains on sales of mortgage loans. These gains accounted
for 23% of the Companies total revenue in 2003 as compared to 19% in 2002.

# SUPERVISION AND
REGULATION

The
following is a summary of certain statutes and regulations affecting the Company and the
Banks. This summary is qualified in its entirety by such statutes and regulations. A
change in applicable laws or regulations may have a material effect on the Company, the
Banks and the business of the Company and the Banks.

# General

Financial
institutions and their holding companies are extensively regulated under federal and state
law. Consequently, the growth and earnings performance of the Company and the Banks can be
affected not only by management decisions and general economic conditions, but also by the
statutes administered by, and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not limited to, the Board of
Governors of the Federal Reserve System (the Federal Reserve Board), the FDIC,
the Commissioner of the Michigan Office of Financial and Insurance Services
(Commissioner), the Internal Revenue Service, and state taxing authorities.
The effect of such statutes, regulations and policies can be significant, and cannot be
predicted with a high degree of certainty.

Federal
and state laws and regulations generally applicable to financial institutions and their
holding companies regulate, among other things, the scope of business, investments,
reserves against deposits, capital levels relative to operations, lending activities and
practices, the nature and amount of collateral for loans, the establishment of branches,
mergers, consolidations and dividends. The system of supervision and regulation applicable
to the Company and the Banks establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDICs deposit
insurance funds, the depositors of the Banks, and the public, rather than shareholders of
the Banks or the Company.

Federal
law and regulations establish supervisory standards applicable to the lending activities
of the Banks, including internal controls, credit underwriting, loan documentation and
loan-to-value ratios for loans secured by real property.

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# The Company

General.       
          The Company is a bank holding company and, as such, is registered with, and
          subject to regulation by, the Federal Reserve Board under the Bank Holding
          Company Act, as amended (the BHCA). Under the BHCA, the Company is
          subject to periodic examination by the Federal Reserve Board, and is required to
          file with the Federal Reserve Board periodic reports of its operations and such
          additional information as the Federal Reserve Board may require.

In
accordance with Federal Reserve Board policy, the Company is expected to act as a source
of financial strength to the Banks and to commit resources to support the Banks in
circumstances where the Company might not do so absent such policy. In addition, if the
Commissioner deems a Banks capital to be impaired, the Commissioner may require the
Bank to restore its capital by a special assessment upon the Company as the Banks
sole shareholder. If the Company were to fail to pay any such assessment, the directors of
the Banks would be required, under Michigan law, to sell the shares of the Banks
stock owned by the Company to the highest bidder at either a public or private auction and
use the proceeds of the sale to restore the Banks capital.

Investments
and Activities. In general, any direct or indirect acquisition by the
Company of any voting shares of any bank which would result in the Companys direct
or indirect ownership or control of more than 5% of any class of voting shares of such
bank, and any merger or consolidation of the Company with another bank company, will
require the prior written approval of the Federal Reserve Board under the BHCA. In acting
on such applications, the Federal Reserve Board must consider various statutory factors,
including among others, the effect of the proposed transaction on competition in relevant
geographic and product markets, and each partys financial condition, managerial
resources, and record of performance under the Community Reinvestment Act.

The
merger or consolidation of an existing bank subsidiary of the Company with another bank,
or the acquisition by such a subsidiary of assets of another bank, or the assumption of
liability by such a subsidiary to pay any deposits in another bank, will require the prior
written approval of the responsible Federal depository institution regulatory agency under
the Bank Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an application
to, and the prior approval of, the Federal Reserve Board under the BHCA and/or the
Commissioner under the Michigan Banking Code, may be required.

With
certain limited exceptions, the BHCA prohibits any bank company from engaging, either
directly or indirectly through a subsidiary, in any activity other than managing or
controlling banks unless the proposed non-banking activity is one that the Federal Reserve
Board has determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under current Federal Reserve Board regulations, such
permissible non-banking activities include such things as mortgage banking, equipment
leasing, securities brokerage, and consumer and commercial finance company operations.
Well-capitalized and well-managed bank holding companies may engage de novo in
certain types of non-banking activities without prior notice to, or approval of, the
Federal Reserve Board, provided that written notice of the new activity is given to the
Federal Reserve Board within 10 business days after the activity is commenced. If a bank
holding company wishes to engage in a non-banking activity by acquiring a going concern,
prior notice and/or prior approval will be required, depending upon the activities in
which the company to be acquired is engaged, the size of the company to be acquired and
the financial and managerial condition of the acquiring bank holding company.

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Eligible
bank holding companies that elect to operate as financial holding companies may engage in,
or own shares in companies engaged in, a wider range of nonbanking activities, including
securities and insurance activities and any other activity that the Federal Reserve Board,
in consultation with the Secretary of the Treasury, determines by regulation or order is
financial in nature, incidental to any such financial activity or complementary to any
such financial activity and does not pose a substantial risk to the safety or soundness of
depository institutions or the financial system generally. The Bank Holding Company Act
generally does not place territorial restrictions on the domestic activities of non-bank
subsidiaries of bank or financial holding companies. While the Company believes it is
eligible to elect to operate as a financial holding company, as of the date of this
filing, it has not applied for approval to operate as a financial holding company.

The
Companys common stock is registered under the Securities Exchange Act of 1934, as
amended (the Exchange Act). It is therefore subject to the information, proxy
solicitation, insider trading and other restrictions and requirements of the SEC under the
Exchange Act. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act provides for numerous changes to the reporting, accounting,
corporate governance and business practices of companies as well as financial and other
professionals who have involvement with the U.S. public markets. The SEC continues to
issue new and proposed rules implementing various provisions of the Sarbanes-Oxley Act.

Capital
Requirements. The Federal Reserve Board uses capital adequacy guidelines in
its examination and regulation of bank holding companies. If capital falls below minimum
guidelines, a bank company may, among other things, be denied approval to acquire or
establish additional banks or non-bank businesses.

The
Federal Reserve Boards capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: (i) a leverage capital requirement
expressed as a percentage of total average assets, and (ii) a risk-based requirement
expressed as a percentage of total risk-weighted assets. The leverage capital requirement
consists of a minimum ratio of Tier 1 capital (which consists principally of
shareholders equity) to total average assets of 3% for the most highly rated
companies, with minimum requirements of 4% to 5% for all others. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital.

The
risk-based and leverage standards presently used by the Federal Reserve Board are minimum
requirements, and higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. The Federal Reserve
Board has not advised the Company of any specific minimum Tier 1 Capital leverage ratio
applicable to it.

Dividends.       
          The Company is a corporation separate and distinct from the Banks. Most of the
          Companys revenues are received by it in the form of dividends paid by the
          Banks. Thus, the Companys ability to pay dividends to its shareholders is
          indirectly limited by statutory restrictions on the Banks ability to pay
          dividends described below. Further, the Federal Reserve Board has issued a
          policy statement on the payment of cash dividends by bank holding companies. In
          the policy statement, the Federal Reserve Board expressed its view that a bank
          holding company experiencing earnings weaknesses should not pay cash dividends
          exceeding its net income or which can only be funded in ways that weaken the
          bank holding companys financial health, such as by borrowing.
          Additionally, the Federal Reserve Board possesses enforcement powers over bank
          holding companies and their non-bank subsidiaries to prevent or remedy actions
          that represent unsafe or unsound practices or violations of applicable statutes
          and regulations. Among these powers is the ability to proscribe the payment of
          dividends by banks and bank holding companies. Similar enforcement powers over
          the Banks are possessed by the FDIC. The prompt corrective action
          provisions of federal law and regulation authorizes the Federal Reserve Board to
          restrict the payment of dividends by the Company for an insured bank which fails
          to meet specified capital levels.

In
addition to the restrictions on dividends imposed by the Federal Reserve Board, the
Michigan Business Corporation Act provides that dividends may be legally declared or paid
only if after the distribution a corporation, such as the Company, can pay its debts as
they come due in the usual course of business and its total assets equal or exceed the sum
of its liabilities plus the amount that would be needed to satisfy the preferential rights
upon dissolution of any holders of preferred stock whose preferential rights are superior
to those receiving the distribution. The Companys Articles of Incorporation do not
authorize the issuance of preferred stock and there are no current plans to seek such
authorization.

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# The Banks

General.       
          The Banks are Michigan banking corporations, are members of the Federal Reserve
          System and their deposit accounts are insured by the Bank Insurance Fund (the
          BIF) of the FDIC. As Federal Reserve System members and Michigan
          chartered banks, the Banks are subject to the examination, supervision,
          reporting and enforcement requirements of the Federal Reserve Board as their
          primary federal regulator and the Commissioner, as the chartering authority for
          Michigan banks. These agencies and the federal and state laws applicable to the
          Banks and their operations, extensively regulate various aspects of the banking
          business including, among other things, permissible types and amounts of loans,
          investments and other activities, capital adequacy, branching, interest rates on
          loans and on deposits, the maintenance of non-interest bearing reserves on
          deposit accounts, and the safety and soundness of banking practices.

Deposit
Insurance. As FDIC-insured institutions, the Banks are required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based
assessment system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their respective levels of
capital and results of supervisory evaluation. Institutions classified as well-capitalized
(as defined by the FDIC) and considered healthy pay the lowest premium while institutions
that are less than adequately capitalized (as defined by the FDIC) and considered of
substantial supervisory concern pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment period.

The
Federal Deposit Insurance Act (FDIA) requires the FDIC to establish assessment
rates at levels which will maintain the Deposit Insurance Fund at a mandated reserve ratio
of not less than 1.25% of estimated insured deposits. For several years, the BIF reserve
ratio has been at or above the mandated ratio and assessments have ranged from 0% of
deposits for institutions in the lowest risk category to .27% of deposits in the highest
risk category.

FICO
Assessments. The Banks, as members of the BIF, are subject to assessments
to cover the payments on outstanding obligations of the Financing Corporation
(FICO). FICO was created to finance the recapitalization of the Federal
Savings and Loan Insurance Corporation, the predecessor to the FDICs Savings
Association Insurance Fund (the SAIF) which insures the deposits of thrift
institutions. From now until the maturity of the outstanding FICO obligations in 2019, BIF
members and SAIF members will share the cost of the interest on the FICO bonds on a pro
rata basis. It is estimated that FICO assessments during this period will be less than
0.025% of deposits.

Commissioner
Assessments. Michigan banks are required to pay supervisory fees to the
Commissioner to fund the operations of the Commissioner. The amount of supervisory fees
paid by a bank is based upon the banks total assets, as reported to the
Commissioner.

Capital
Requirements. The Federal Reserve has established the following minimum
capital standards for state-chartered, member banks, such as the Banks: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total average assets of 3%
for the most highly-rated banks with minimum requirements of 4% to 5% for all others, and
a risk-based capital requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. Tier 1
capital consists principally of shareholders equity. These capital requirements are
minimum requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. For example, Federal
Reserve regulations provide that higher capital may be required to take adequate account
of, among other things, interest rate risk and the risks posed by concentrations of
credit, nontraditional activities or securities trading activities.

Federal
law provides the federal banking regulators with broad power to take prompt corrective
action to resolve the problems of undercapitalized institutions. The extent of the
regulators powers depends on whether the institution in question is well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.
Federal regulations define these capital categories as follows:

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|                                                                                                                                                        | Total
Risk-Based
Capital Ratio                             | Tier 1
Risk-Based
Capital Ratio                            | Leverage Ratio                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------
|Well capitalized              
Adequately capitalized        
Undercapitalized              
Significantly undercapitalized
Critically undercapitalized | 10% or above
 8% or above
Less than 8%
Less than 6%
    -- | 6% or above 
4% or above 
Less than 4%
Less than 3%
    -- | 5% or above
4% or above
Less than 4%
Less than 3%
A ratio of tangible
equity to total assets
of 2% or less

As
of December 31, 2003, each of the Banks ratios exceeded minimum requirements for the
well capitalized category.

Depending
upon the capital category to which an institution is assigned, the regulators
corrective powers include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the institution to issue
additional capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.

In
general, a depository institution may be reclassified to a lower category than is
indicated by its capital levels if the appropriate federal depository institution
regulatory agency determines the institution to be otherwise in an unsafe or unsound
condition or to be engaged in an unsafe or unsound practice. This could include a failure
by the institution, following receipt of a less-than-satisfactory rating on its most
recent examination report, to correct the deficiency.

Dividends.       
          Under Michigan law, the Banks are restricted as to the maximum amount of
          dividends they may pay on their common stock. The Banks may not pay dividends
          except out of net income after deducting their losses and bad debts. A Michigan
          state bank may not declare or pay a dividend unless the bank will have surplus
          amounting to at least 20% of its capital after the payment of the dividend.

As
a member of the Federal Reserve System, each of the Banks is required by federal law to
obtain the prior approval of the Federal Reserve Board for the declaration or payment of a
dividend, if the total of all dividends declared by the Banks Board of Directors in
any year will exceed the total of (i) the Banks retained net income (as defined and
interpreted by regulation) for that year plus (ii) the retained net income for the
preceding two years, less any required transfers to surplus. Federal law generally
prohibits a depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. Further, federal regulatory agencies can
prohibit a banking institution or bank holding company from engaging in unsafe and unsound
business practices and could prohibit payment of dividends if such payment could be deemed
an unsafe and unsound business practice.

Insider
Transactions. The Banks are subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the Company or its subsidiaries, on
investments in the stock or other securities of the Company or its subsidiaries and the
acceptance of the stock or other securities of the Company or its subsidiaries as
collateral for loans. Certain limitations and reporting requirements are also placed on
extensions of credit by each Bank to its directors and officers, to directors and officers
of the Company and its subsidiaries, to principal shareholders of the Company, and to
related interests of such directors, officers and principal shareholders. In
addition, federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal shareholder
of the Company may obtain credit from banks with which the Banks maintain a correspondent
relationship.

Safety
and Soundness Standards. The federal banking agencies have adopted
guidelines to promote the safety and soundness of federally insured depository
institutions. These guidelines establish standards for internal

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controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

Investments
and Other Activities. Under federal law and regulations, Federal Reserve
System member banks and FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an amount, that
are not permissible for a national bank. Federal law, as implemented by regulations, also
prohibits state banks and their subsidiaries, subject to certain exceptions, from engaging
as principal in any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum regulatory capital
requirements and the banks primary federal regulator determines the activity would
not pose a significant risk to the deposit insurance fund of which the bank is a member.
Impermissible investments and activities must be divested or discontinued within certain
time frames set by the banks primary federal regulator in accordance with federal
law. These restrictions are not currently expected to have a material impact on the
operations of the Bank.

Consumer
Protection Laws. The Banks businesses include making a variety of
types of loans to individuals. In making these loans, the Banks are subject to State usury
and regulatory laws and to various federal statutes, including the privacy of consumer
financial information provisions of the Gramm-Leach-Bliley Act and regulations promulgated
thereunder, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage Disclosure
Act, and the regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and regulate
the mortgage loan servicing activities of the Banks, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, the Banks are subject to extensive regulation under State and federal law and
regulations, including the Truth in Savings Act, the Expedited Funds Availability Act, the
Bank Secrecy Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance
Act. Violation of these laws could result in the imposition of significant damages and
fines upon the Banks and their directors and officers.

Branching
Authority. Michigan banks, such as the Banks, have the authority under
Michigan law to establish branches anywhere in the State of Michigan, subject to receipt
of all required regulatory approvals.

Banks
may establish interstate branch networks through acquisitions of other banks. The
establishment of de novo interstate branches or the acquisition of individual branches of
a bank in another state (rather than the acquisition of an out-of-state bank in its
entirety) is allowed only if specifically authorized by state law.

Michigan
permits both U.S. and non-U.S. banks to establish branch offices in Michigan. The Michigan
Banking Code permits, in appropriate circumstances and with the approval of the Michigan
Office of Financial and Insurance Services, Division of Financial Institutions, (1)
acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan
associations located in other states, (2) sale by a Michigan bank of branches to an
FDIC-insured bank, savings bank or savings and loan association located in a state in
which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation
of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states having laws permitting such consolidation, (4) establishment of
branches in Michigan by FDIC-insured banks located in other states, the District of
Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to
establish a branch in such jurisdiction, and (5) establishment by foreign banks of
branches located in Michigan.

Item 2. Properties.

The
Bank of Lenawees main office is located in Adrian and it serves other communities
with branch offices in Hudson, Morenci, Tecumseh and Waldron. The Bank of Washtenaws
main office is located in Saline and it has a branch office and an administrative office
in Ann Arbor. The Banks offices are located throughout Lenawee County, in the
southeastern portion of Hillsdale County, and the southern portion of Washtenaw County.
The area in which the Banks offices are located, which is basically southeastern
Michigan, has historically been rural in character but now has a growing urban population
as residents choose the area to live in while commuting to Ann Arbor, Detroit, and Toledo.
The populations of the cities in which the Banks offices are located per the 2000
U.S. Census were as follows: Adrian21,574; Ann Arbor114,024;
Hudson2,499; Morenci2,398; Saline8,034; Tecumseh8,574; and
Waldron590; The main office of Bank of Lenawee is a three story 40,768 square foot

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building constructed in 1906. The other offices of the Banks range in size from 1,200
square feet to 4,000 square feet. The majority of the offices of Bank of Lenawee are owned
and those of Bank of Washtenaw are leased.

# Item 3. Legal
Proceedings.

There
are no legal proceedings except routine litigation incidental to the ordinary course of
business. Although litigation is subject to many uncertainties and the ultimate exposure
with respect to many of these matters cannot be ascertained, management does not believe
the ultimate outcome of these matters will have a material effect on the financial
condition of the Company or the Banks, individually or in the aggregate.

# Item 4.  Submission of
Matters to Vote of Security Holders.

No
matters were submitted to a vote of the Companys security holders during the fourth
quarter of 2003.

# Additional Item:
Executive Officers of Registrant

The
following information concerning executive officers of the Company has been omitted from
the Registrants proxy statement pursuant to Instruction 3 to Regulation SK, Item
401(b).

Officers
of the Company are appointed annually by the Board of Directors of the Company and serve
at the pleasure of the Board of Directors. Information concerning these executive officers
is given below:

Douglas
L. Kapnick (age 60) was elected Chairman of the Board of the Company in September of 2000
and has been a director of Bank of Lenawee since 1982 and has been a director of the
holding company since it was formed in 1993. Mr. Kapnick was elected interim President and
Chief Executive Office of the Company and the Bank of Lenawee effective October 31, 2002,
when Patrick K. Gill resigned those positions. Mr. Kapnick is President of Kapnick &
Company a full service insurance broker with offices in Adrian and Southfield employing a
total of approximately 85 persons.

Pamela
S. Fisher (age 54) is the Corporate Secretary of the Company and Senior Vice President of
Administrative Services of the Bank of Lenawee. Ms. Fisher joined the Bank of Lenawee in
1979 and has served the bank in various capacities. She was elected as Senior Vice
President of Bank of Lenawee in 2000 and was elected Secretary of the Company in 1995.

Loren
V. Happel (age 48) is the Companys Chief Financial Officer and Senior Vice President
and Chief Financial Officer of the Bank of Lenawee. Mr. Happel joined the Company and Bank
of Lenawee in December of 1994. At that time he was appointed Treasurer of the Company and
First Vice President and Chief Financial Officer of Bank of Lenawee.

Richard
J. DeVries (age 49) is a Vice President of the Company and the President and Chief
Executive Officer of Bank of Lenawee. Mr. DeVries joined the Bank of Lenawee on July 1,
2003 after having completed a 3-year mission in Oakland, California, for his church. Prior
to that he was Community President of Citizens Bank in Ypsilanti, Michigan. His other
banking experience includes working both as President and as Senior Vice President of
Commercial and Retail Banking at Bank One in Ypsilanti; Vice President of Commercial
Banking at Norwest Bank in Minneapolis, Minnesota, and New York, New York; and Assistant
Vice President of Commercial Banking at Interfirst Bank in Dallas, Texas, and New York,
New York.

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# PART II

# Item 5. Market For
Registrants Common Equity and Related Stockholder Matters.

The
information under the caption COMMON STOCK INFORMATION at page 45 of the
Companys 2003 Rule 14a-3 Annual Report to Shareholders, is here incorporated by
reference to Exhibit 13.

Item 6. Selected Financial
Data.

The
information under the caption SELECTED FINANCIAL DATA at page 2 of the
Companys 2003 Rule 14a-3 Annual Report to Shareholders, is here incorporated by
reference to Exhibit 13.

Item 7.  Management's Discussion and
Analysis of Financial Condition and Results of Operations

The
information under the captions MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS at pages 3 through 16 of the
Companys 2003 Rule 14a-3 Annual Report to Shareholders, is here incorporated by
reference to Exhibit 13.

# Item 7A. Quantitative
and Qualitative Disclosures About Market Risk

The
information under the captions MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS at pages 3 through 16 of the
Companys 2003 Rule 14a-3 Annual Report to Shareholders, is here incorporated by
reference to Exhibit 13.

# Item 8. Financial
Statements and Supplementary Data.

The
financial statements, notes and report of independent auditors included in the
Companys 2003 Rule 14a-3 Annual Report to Shareholders, is here incorporated by
reference to Exhibit 13.

# Item 9.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

None

# Item 9A. Controls and
Procedures

(a)      
Evaluation of Disclosure Controls and Procedures.

The
Companys Chief Executive Officer and the Chief Financial Officer, after evaluating
the effectiveness of the Companys disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this
Form 10-K Annual Report have concluded that the Companys disclosure controls and
procedures were adequate and effective to ensure that material information relating to the
Company would be made known to them by others within the Company, particularly during the
period in which this Form 10-K Annual Report was being prepared.

(b)      
Changes in Internal Controls.

During
the period covered by this report, there have been no changes in the Companys
internal control over financial reporting that have materially affected or are reasonably
likely to materially affect the Companys internal control over financial reporting.

-9-

---



# PART III

# Item 10.  Directors and
Executive Officers of the Registrant.

Information
with respect to the Companys Executive Officers is included in this report in Part
I. The information with respect to Directors of the Company, set forth under the caption
Information About Directors and Nominees on pages 6 through 9 of the
Companys definitive proxy statement, as filed with the Commission and dated March
22, 2004, relating to the April 22, 2004 Annual Meeting of Shareholders, is incorporated
herein by reference.

The
Board of Directors of the Company has determined that Terrence R. Sheehan, a director and
member of the Audit Committee, qualifies as an Audit Committee Financial
Expert as defined in rules adopted by the Securities and Exchange Committee pursuant
to the Sarbanes-Oxley Act of 2002.

The
Board of Directors of the Company has adopted a Code of Ethics which details principles
and responsibilities governing ethical conduct for all Company directors and executive
officers. The Code of Ethics is filed as an Exhibit to this Report on Form 10-K.

Item 11. Executive
Compensation.

The
information set forth under the caption COMPENSATION OF EXECUTIVE OFFICERS on
page 10 through 12 of the Companys definitive proxy statement, as filed with the
Commission and dated March 22, 2004, relating to the April 22, 2004 Annual Meeting of
Shareholders, is incorporated herein by reference.

# Item 12. Security
Ownership of Certain Beneficial Owners and Management.

The
information set forth under the caption VOTING SECURITIES AND BENEFICIAL OWNERSHIP
OF MANAGEMENT AND OTHERS on page 5 through 6 of the Companys definitive proxy
statement, as filed with the Commission and dated March 22, 2004, relating to the April
22, 2004 Annual Meeting of Shareholders, is incorporated herein by reference.

Securities
Authorized for Issuance Under Equity Compensation Plans. The Company had the following
equity compensation plans at December 31, 2003:

# EQUITY COMPENSATION
PLAN INFORMATION

|                                                           | Number of securities to
be issued upon exercise
of outstanding options | Weighted-average
exercise price of
outstanding options | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (1))
|---------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |                                                                        |                                                        |                                                                                                                                            
|                                                          
|Equity compensation plans not approved by security holders |                                                                        |                                                        |                                                                                                                                            
|                                                           |                                                                        |                                                        |                                                                                                                                            
|Total                                                      |                                                                        |                                                        |                                                                                                                                            
|                                                           |                                                                        |                                                        |                                                                                                                                            

-10-

---



These
equity compensation plans are more fully described in Note 12 to the Consolidated
Financial Statements.

# Item 13. Certain
Relationships and Related Transactions.

The
information set forth under the caption CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS on page 13 of the Companys definitive proxy statement, as filed
with the Commission and dated March 22, 2004, relating to the April 22, 2004 Annual
Meeting of Shareholders, is incorporated herein by reference.

Item 14. Principal
Accountant Fees and Services.

The
information set forth under the heading Fees of Independent Accountants on
page 3 of the Companys definitive proxy statement, as filed with the Commission and
dated March 22, 2004, relating to the April 22, 2004 Annual Meeting of Shareholders,
is incorporated herein by reference.

# 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 Report of Crowe Chizek and
Company LLC, Independent Auditors, are incorporated by reference under 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 Report of Crowe Chizek and Company LLC, Independent Auditors
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Financial
Statement SchedulesNot 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reports
on Form 8-K
|--- | -------------------

The
following reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 2003:

Report
on Form 8-K filed October 31, 2003, submitting a copy of a press release and shareholder
letter announcing earnings information for the quarter ended September 30, 2003.

-11-

---



# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, dated March 22, 2004.

| |  | PAVILION BANCORP, INC./s/ Douglas L. Kapnick
Douglas L. KapnickChairman and Chief Executive Officer/s/ Loren V. Happel
Loren V. HappelChief Financial Officer
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed by
the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Each director of the Registrant, whose signature appears below, hereby appoints
Douglas L. Kapnick and Loren V. Happel, and each of them severally, as his or her
attorney-in-fact, to sign in his or her name and on his or her behalf, as a director of
the Registrant, and to file with the Commission any and all Amendments to this Report on
Form 10-K.

|Signature | Date                                               
|--------- | ---------------------------------------------------
|/s/       | Allan F. Brittain
Allan F. Brittain      
|          | Fred R. Duncan                           
|/s/       | Edward J. Engle, Jr.
Edward J. Engle, Jr.
|/s/       | William R. Gentner
William R. Gentner    
|/s/       | Douglas L. Kapnick
Douglas L. Kapnick    
|/s/       | Emory M. Schmidt
Emory M. Schmidt        
|/s/       | Terence R. Sheehan
Terence R. Sheehan    
|/s/       | J. David Stutzman
J. David Stutzman      
|/s/       | Dennis E. Pearsall
Dennis E. Pearsall    

-12-

---



# EXHIBIT INDEX

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

ExhibitNumber

|13 | Rule
14a-3 2003 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).
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14 | Code
of Ethics
|-- | --------------

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

|23 | Consent
of Crowe Chizek and Company, LLC. - Independent Auditors
|-- | ----------------------------------------------------------------

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

|31.1 | Certificate
 of Chairman 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 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 Chairman and Chief Executive Officer and 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.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

-13-

---



# Exhibit 13

# Rule 14a-3 Annual
Report to Shareholders

---



# Pavilion Bancorp, Inc.

# 2003

# Annual Report

This 2003 Annual Report contains
audited financial statements and a detailed financial review. This is Pavilion
Bancorps 2003 annual report to shareholders. Although attached to our proxy
statement, this report is not part of our proxy statement, is not deemed to be soliciting
material, and is not deemed to be filed with the Securities and Exchange Commission (the
SEC) except to the extent that it is expressly incorporated by reference in a
document filed with the SEC.

The 2003 Summary Annual Report to
Shareholders accompanies this proxy statement. This report presents information concerning
the business and financial results of Pavilion Bancorp in a format and level of detail
that we believe shareholders will find useful and informative. Shareholder who would like
to receive even more detailed information than that contained in this 2003 Annual Report
are invited to request our Annual Report on Form 10-K.

Pavilion Bancorp, Inc.s Form
10-K Annual Report to the Securities and Exchange Commission will be provided to any
shareholder without charge upon written request. Requests should be addressed to
Pavilion Bancorp, Inc., Attention: Pamela S. Fisher, 135 East Maumee Street, Adrian,
Michigan 49221.

---



PAVILION BANCORP, INC.

CONSOLIDATED FINANCIAL
STATEMENTS December 31, 2003 and
2002

CONTENTS

|SELECTED FINANCIAL DATA                                    | 2 
|---------------------------------------------------------- | --
|                                                          
|MANAGEMENT'S DISCUSSION AND ANALYSIS                       | 3 
|                                                          
|MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING        | 17
|                                                          
|REPORT OF INDEPENDENT AUDITORS                             | 18
|                                                          
|CONSOLIDATED FINANCIAL STATEMENTS                         
|                                                          
|CONSOLIDATED BALANCE SHEETS                                | 19
|                                                          
|CONSOLIDATED STATEMENTS OF INCOME                          | 20
|                                                          
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | 21
|                                                          
|CONSOLIDATED STATEMENTS OF CASH FLOWS                      | 22
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 | 22
|                                                          
|COMMON STOCK INFORMATION                                   | 45

---





# SELECTED FINANCIAL
DATA

(In thousands, except per share data)

---

|                                                            | 2003 | 2002 | 2001 | 2000    | 1999
|----------------------------------------------------------- | ---- | ---- | ---- | ------- | ----
|For the Year:                                               |      |      |      |         |     
|Total interest income                                       |      |      | $    | 18,939  |     
|Total interest expense                                      |      |      |      | 4,596   |     
|Net interest income                                         |      |      |      | 14,342  |     
|Provision for loan losses                                   |      |      |      | 808     |     
|Noninterest income                                          |      |      |      | 6,008   |     
|Noninterest expense                                         |      |      |      | 14,794  |     
|Income before income taxes                                  |      |      |      | 4,749   |     
|Net income                                                  |      |      |      | 3,235   |     
|Per Share Data:                                             |      |     
|Basic earnings per share                                    |      |      | $    | 3.78    |     
|Diluted earnings per share                                  |      |      |      | 3.75    |     
|Cash dividends declared per share                           |      |      |      | 1.09    |     
|Shareholders'  equity  and net  ESOP  obligation  per share |      |      |      | 35.83   |     
|Shareholders' equity per share                              |      |      |      | 31.34   |     
|At Year-End:                                                |      |     
|Total assets                                                |      |      | $    | 317,243 |     
|Loans receivable                                            |      |      |      | 274,850 |     
|Allowance for loan losses                                   |      |      |      | 3,042   |     
|Deposits                                                    |      |      |      | 263,952 |     
|Borrowed funds                                              |      |      |      | 14,637  |     
|Shareholders' equity and net ESOP obligations               |      |      |      | 30,323  |     
|Shareholders' equity                                        |      |      |      | 26,523  |     
|Financial:                                                  |      |     
|Net interest income to average earning assets               |      |      |      | 5.06    | %   
|Return on average shareholders' equity and                  |      |     
|net ESOP obligation                                         |      |      |      | 10.92   |     
|Return on average shareholders' equity                      |      |      |      | 12.58   |     
|Return on average assets                                    |      |      |      | 1.08    |     
|Tier 1 leverage ratio                                       |      |      |      | 11.60   |     
|Dividend payout ratio                                       |      |      |      | 28.72   |     
|Average shareholders' equity and net ESOP                   |      |     
|obligation to average total assets                          |      |      |      | 9.86    |     
|Average shareholders' equity to average total assets        |      |      |      | 8.56    |     

# All per share data has
been adjusted to reflect stock splits and stock dividends including a January 5, 2004
declaration of stock dividend of 5% issued on January 30, 2004 to shareholders as of
January 16, 2004.

---

2.

---





# MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion provides
information about the financial condition and results of operations of Pavilion Bancorp,
Inc. It should be read in conjunction with the consolidated financial statements included
elsewhere in this Annual Report.

BUSINESS OF PAVILION
BANCORP, INC.

Pavilion Bancorp, Inc. (the Company),
a bank holding Company, was incorporated in Michigan in 1993. The shareholders elected to
change its name to Pavilion Bancorp Inc. from Lenawee Bancorp Inc. on April 18, 2002. The
Company holds all of the stock of the Bank of Lenawee, a Michigan banking corporation
chartered in 1869, and the Bank of Washtenaw founded by the Company on January 8, 2001.

The business is concentrated
primarily in a single industry segment  commercial banking. Each bank provides a
full range of banking services to individuals, commercial businesses and industries
located in its service area. Each bank maintains diversified loan portfolios, including
loans to individuals for home mortgages, automobiles and personal expenditures, and loans
to business enterprises for current operations and expansion. Each bank offers a variety
of deposit products, including checking, savings, money market, individual retirement
accounts and certificates of deposit.

The principal markets for financial
services provided are in the mid-Michigan communities in which the banks are located and
the areas immediately surrounding these communities. The banks serve these markets through
11 locations in or near their communities. The banks do not have any material foreign
assets or income.

The principal source of revenue is
interest and fees on loans. On a consolidated basis, interest and fees on loans accounted
for 72% of our total revenue in 2003 compared to 71% in 2002. Lower than normal interest
rates during 2003 and 2002 resulted in a significant increase in the volume of mortgage
loan sale activity and gains on sales of mortgage loans. These gains accounted for 23% of
our total revenue in 2003 as compared to 19% in 2002.

# 2003 FINANCIAL
HIGHLIGHTS

Net income for the year ended
December 31, 2003 was $3,235,233 which was a 13.30% increase from our 2002 net income of
$2,855,342. As a result, our basic earnings per share increased to $3.78 in 2003 from
$3.23 in 2002. Diluted earnings per share increased to $3.75 in 2003 from $3.21 in 2002.
Our return on average increased to 12.58% in 2003 from 11.66% in 2002.

Total assets grew to $317.2 million
in 2003 from $287.3 million in 2002. Our net loan balances increased $39 million or 17% an
amount slightly stronger than the prior years activity.

NET INTEREST INCOME

Our primary operating income is net
interest income. Net interest income is the difference between the interest and fees the
Company earns on earning assets and the interest paid on deposits and borrowings. A number
of economic factors influence net interest income, primarily changes in volume and mix of
interest-earning assets and interest-bearing liabilities, government monetary and fiscal
policies, and market interest rates.

Our net interest income was $14.3
million in 2003, an increase of $1.2 million over 2002. The 2003 increase in net interest
income was primarily the result of decreased funding costs and growth in interest-earning
assets. The table below shows the yields earned on our interest-earning assets and our
costs of interest-bearing liabilities. The table also reflects our net interest margin for
the years ended December 31, 2003, 2002 and 2001.

---

3.

---





Average Balance Sheet and
Analysis of Net Interest Income

|                                 | Years ended December 31,
|-------------------------------- | ------------------------
|
|
|
|Interest-earning assets:         |                         
|Loans receivable                 |                         
|Securities available for sale(1) |                         
|Federal funds sold               |                         
|Federal Home Loan Bank Stock     |                         
|Interest-bearing balances with   |                         
|other financial institutions     |                         
|                                 |                         
|Total interest-earning assets    |                         
|Noninterest-earning assets:      |                         
|Cash and due from financial      |                         
|institutions                     |                         
|Premises and equipment, net      |                         
|Other assets                     |                         
|Total assets                     |                         
|                                 |                         
|Interest-bearing liabilities:    |                         
|Interest-bearing demand          |                         
|deposits                         |                         
|Savings deposits                 |                         
|Time deposits                    |                         
|Repurchase agreements and other  |                         
|borrowings                       |                         
|FHLB advances                    |                         
|                                 |                         
|                                 |                         
|Total interest-bearing           |                         
|liabilities                      |                         
|                                 |                         
|Noninterest-bearing liabilities: |                         
|Demand deposits                  |                         
|Other liabilities                |                         
|                                 |                         
|Total liabilities                |                         
|Common stock subject to          |                         
|repurchase obligation in         |                         
|ESOP                             |                         
|Shareholders' equity             |                         
|Total liabilities and            |                         
|shareholders' equity             |                         
|                                 |                         
|                                
|Net interest income/interest     |                         
|rate spread                      |                         
|                                 |                         
|                                
|Net interest margin (2)          |                         
|                                 |                         
|                                
|Average interest-earning assets  |                         
|to average interest-bearing      |                         
|liabilities                      |                         
|                                 |                         

|(1) | Interest
income on tax-exempt securities has not been adjusted to a taxable
                    equivalent basis.
|--- | -----------------------------------------------------------------------------------------------------------------

|(2) | Net
interest earnings divided by average interest-earning                     assets.
|--- | -------------------------------------------------------------------------------------

---

4.

---





Net interest margin is net interest
income divided by average earning assets. Our net interest margin decreased slightly to
5.06% in 2003 from 5.12% in 2002. The Federal Reserve reduced the discount rate one time
..25% to 2.00% during June of 2003 creating a federal funds target rate of 1%. Our prime
lending rate also adjusted downward .25% in June and was 4% at the end of the year. A
large portion of our variable rate business and consumer loan portfolios are tied directly
to the prime lending rate. Offsetting the impact of unusually low interest income on our
loan products is the decrease in our costs of local deposit funding. Nearly all funding is
from the local markets we serve and our costs of funds decreased from 2.97% in 2002 to
2.12% in 2003.

The following table analyzes the
effect of volume and rate changes on interest income and expense for the periods indicated

|                                            | 2003 Compared to 2002 |  | 2002 Compared to 2001
|------------------------------------------- | --------------------- |  | ---------------------
|                                           
|
|Interest income                             |                       |  |                      
|Loans receivable                            |                       |  | $                    
|Securities available for sale               |                       |  |                      
|Federal funds sold                          |                       |  |                      
|Federal Home Loan Bank Stock                |                       |  |                      
|Interest-bearing balances with              |                       | 
|financial institutions                      |                       |  |                      
|                                            |                       |  |                      
|Total interest income                       |                       |  |                      
|                                           
|Interest Expense  Interest-bearing deposits |                       | 
|Demand                                      |                       |  |                      
|Savings                                     |                       |  |                      
|Time                                        |                       |  |                      
|Repurchase agreements and                   |                       | 
|other borrowings                            |                       |  |                      
|FHLB advances                               |                       |  |                      
|                                            |                       |  |                      
|Total Interest Expense                      |                       |  |                      
|                                            |                       |  |                      
|Net interest income                         |                       |  | $                    
|                                            |                       |  |                      

---

5.

---





PROVISION FOR LOAN LOSSES

The provision for loan losses is the
amount added to the allowance for loan losses to absorb losses that have been incurred.
The loan loss provision is based on an analytical evaluation of historical loss
experience, our understanding of the risk associated with our current troubled loans and
individual economic factors, which, in our judgment, deserve current recognition in
maintaining an adequate allowance for loan losses balance.

The provision for loan losses was
$808,000 in 2003 and $953,000 in 2002. The $145,000 decrease in provision for loan losses
reflects our assessment of improvement in the inherent risk associated with the economic
vitality underlying loan portfolios, combined with necessary dollar coverage of
outstanding nonperforming loans. Additional loan growth of $39 million primarily occurred
in commercial loans to small businesses. Nonperforming loans, also primarily small
business loans, increased from $1.6 million to $2.2 million. Although the amount of
outstanding classified loan dollars increased, the financial position of our borrowers has
generally improved by enhancing our loan collateral position. It is notable that our
unallocated allowance declined $289,000 over the course of the year as specific risk were
more apparent to management and funds were specifically assigned.

The allowance for loan losses
represents our estimate of probable credit losses related to specifically identified loans
as well as probable credit losses inherent in the remainder of the loan portfolio that
have been incurred as of the balance sheet date. The allowance for loan losses is
maintained at an adequate level through additions to the provision for loan losses. An
appropriate level of the risk allocated allowance is determined based on the application
of risk percentages to graded loans by categories. Specific reserves are established for
individual loans when deemed necessary by management. In addition, we consider other
factors when determining the unallocated allowance, including loan quality, changes in the
size and character of the loan portfolio, consultation with regulatory authorities, amount
of non-performing loans, delinquency trends and economic conditions and industry trends.

Inherent risks and uncertainties
related to the operation of a financial institution require us to rely on estimates,
appraisals and evaluations of loans to prepare our financial statements. Changes in
economic conditions and the financial prospects of borrowers may result in abrupt changes
to the estimates, appraisals or evaluations used. In addition, if actual circumstances and
losses differ substantially from managements assumptions and estimates, the
allowance for loan losses may not be sufficient to absorb all future losses, and net
income could be significantly impacted.

# NONINTEREST INCOME

Noninterest income of $6 million in
2003 approximated the noninterest income earned in 2002.

The largest contributing factor to
our 2003 noninterest income was net gains on mortgage loan sales. The historically low
interest rates over the course of 2003 continued to expand our mortgage refinancing
business. During 2003, we sold $281 million of loans in the secondary market, resulting in
net gains of $5.8 million. In 2002, we sold $231.4 million of loans in the secondary
market, resulting in net gains of $4.8 million. Loan sale gains were partially offset by
increased amortization of mortgage servicing rights as a significant portion of our loan
servicing portfolio refinanced during 2003. The refinance mortgage loan customer activity
subsided substantially after November 2003 and remains at about a third of the ongoing
activity prior to that time.

Our other noninterest income,
primarily made up of service charges and fees related to our deposit customers, was $1.8
million in 2003 down slightly from the $2.3 million we earned in 2002. The service charges
during the first quarter of 2002 included a one-time beneficial increase of $283,000
resulting from processing errors that occurred over a period of time related to the
recognition of fee income on foreign ATM transactions. The lack of this one time benefit
accounted for the majority of the decrease in 2003.

---

6.

---





# NONINTEREST EXPENSE

Noninterest expense of $14.8 million
in 2003 represents an increase of $.8 million or 5.7% compared to the noninterest expense
of $14.0 million in 2002. A portion of the increase was ongoing organizational expenses
associated with of the denovo opening the Bank of Washtenaw. Our staffing levels decreased
slightly from 155 full time equivalents at December 31, 2002 to 152 full time equivalents
at December 31, 2003. While the staff member decrease was 2% year over year, salaries and
employee benefits increased 4.8%. The 4.8% increase reflects a full year tenure of
organizational staff at the Bank of Washtenaw for 2003. Salary expenses also grew as a
result of the increased levels of mortgage loan originations and sales. Mortgage
originators earned additional amounts of commission payments for higher levels of
mortgages sold. Our efficiency ratio worsened from 73.15% in 2002 to 75.8% in 2003.

INCOME TAX EXPENSE

Our income tax expense was $1.5
million in 2003 compared to $1.3 million in 2002 and $1.4 million in 2001.

The statutory federal tax rate during
2003, 2002 and 2001 was 34%. Our effective tax rate was lower than the statutory rate in
all three years, primarily due to our tax-exempt interest income. Our effective tax rate
was 32% in 2003, 32% in 2002, and 31% in 2001.

# SECURITIES PORTFOLIO

The following table shows securities
by classification as of December 31, 2003 and the amounts and weighted-average yields by
maturity period. Securities that are not due at a single maturity date, primarily
mortgage-backed securities, are not shown.

|                    | MATURING
|------------------- | --------
|
|
|Available For Sale  |         
|U.S. Government     |         
|securities          |         
|                   
|State and municipal |         
|                    |         
|                   
|Total               |         
|                    |         

All government agency securities are
callable in the 2004 calendar year. Yields on tax-exempt securities are computed on a
fully taxable-equivalent basis.

Our Asset/Liability Management
Committee (Committee) is responsible for developing investment guidelines and strategies.
The Committee relies on the expertise of an investment advisor to select appropriate
investments for the portfolio. Decisions to purchase securities and the maturity date
selected are coordinated with an overall plan to manage liquidity and interest rate
exposure.

We do not invest in derivative
securities. We hold no impaired securities at December 31, 2003. As of December 31,
2003, securities we hold which are issued by the State of Michigan and its political
subdivisions had an aggregate market value of $2.9 million.

---

7.

---





We had no held to maturity securities
as of December 31, 2003, 2002 or 2001. The fair value of securities available for sale, as
of the dates indicated, are summarized as follows:

|                         | December 31,
|------------------------ | ------------
|                         |             
|                         |             
|(In thousands)          
|                        
|U.S. government agencies |             
|State and municipal      |             
|Other securities         |             
|                         |             
|                         |             
|                         |             

# LOAN PORTFOLIO

Our lending efforts are concentrated
primarily in the Michigan communities in which our banks branches are located. The
banks have no foreign loans.

Our loan growth during 2003 was
stronger than historic levels. We are very focused on quality loan asset generation in our
markets. Our total loans increased $39.5 million or nearly 17% from year-end 2002 to 2003.

The following table presents the
gross amount of loans outstanding by loan type:

|                                      
|--------------------------------------
|                                      
|                                      
|(In thousands)                        
|                                      
|Commercial, financial and agricultural
|Real estate-construction              
|Residential-mortgage                  
|Consumer                              
|                                      
|                                      
|                                      

The following table shows the
maturity of loans outstanding (in thousands) at December 31, 2003. Also provided are the
amounts due after one year, classified according to their sensitivity to changes in
interest rates

|                                       | Due
Within
One Year | Due
After One
But Within
Five Years | Due
After
Five Years | Total  
|-------------------------------------- | ------------------- | ----------------------------------- | -------------------- | -------
|                                       |                     |                                    
|Commercial, financial and agricultural |                     |                                     | $                    | 81,156 
|Real estate-construction               |                     |                                     |                      | 9,795  
|Residential-mortgage                   |                     |                                     |                      | 4,887  
|Consumer                               |                     |                                     |                      | 24,269 
|                                       |                     |                                     |                      |        
|                                       |                     |                                     | $                    | 120,107
|                                       |                     |                                     |                      |        

|                            | 
|--------------------------- | 
|
|Loans due after one year:   | 
|Fixed rate                  | 
|Floating or adjustable rate | 
|                            | 
|                            | 
|                            | 

---

8.

---





# ASSET QUALITY

The banks maintain a conservative
credit culture. Through Officer and Director Loan Committees and management reviews, the
quality of the various loan portfolios is continuously monitored. Internal and external
loan review personnel also scrutinize our loan portfolios performance and underwriting
standards regularly.

The momentum of the local and
national economy was uneventful during 2003. The relatively static environment has
negatively impacted a portion of our loan customers as reflected in the nonperforming
assets table below. The majority of nonperforming loans are adequately secured small
business loans in our local market area. Assets classified as other real estate in the
table below dropped $1,783,000 to $181,000 as repossessed loan collateral was sold.

Loans are placed on non-accrual
status when principal or interest is past due 90 days or more, the loan is not
well-secured, and is in the process of collection or when reasonable doubt exists
concerning collectability of interest or principal. Any interest previously accrued in the
current period but not collected is reversed and charged against current earnings.

At December 31, 2003, the Banks were
not aware of any borrowers that were experiencing serious financial difficulties but whose
loan payments were then current. As of December 31, 2003, 12.4 % of total loans were
directly associated with agriculture in our market area, there were no other
concentrations of loans exceeding 10% of total loans.

The following table summarizes
non-accrual and past due loans and other real estate owned:

|                                       
|---------------------------------------
|                                       
|                                       
|(In thousands)                         
|                                       
|Non-accruing loans past due            
|Loans past due 90 days or more         
|                                       
|Total nonperforming loans              
|Other real estate                      
|                                       
|Total nonperforming assets             
|                                       
|Nonperforming loans as a percent of    
|total loans                            
|Nonperforming assets as a percent of   
|total assets                           
|Nonperforming loans as a percent of the
|loan loss reserve                      

---

9.

---





ALLOWANCE FOR LOAN LOSSES

The following table summarizes changes
in the allowance for loan losses.

|                                                
|------------------------------------------------
|                                                
|                                                
|                                                
|Loans:                                          
|Average daily balance of loans for the year, net
|Amount of loans outstanding at end of year, net 
|                                                
|Allowance for loan losses:                      
|Balance at beginning of year                    
|Loans charged off:                              
|Residential - mortgage                          
|Real estate - construction                      
|Commercial and agricultural                     
|Consumer                                        
|                                                
|                                                
|                                                
|Recoveries of loans previously charged-off:     
|Residential-mortgage                            
|Commercial and agricultural                     
|Consumer                                        
|                                                
|                                                
|                                                
|Net loans charged-off (recoveries)              
|Additions to allowance charged to operations    
|                                                
|Balance at end of year                          
|                                                
|                                                
|Ratios:                                         
|Net loans charged off to average net loans      
|outstanding                                     
|Allowance for loan losses to net loans          
|outstanding                                     

The allowance for loan losses is
allocated to the loan portfolios in the amount deemed necessary to provide for probable
incurred losses. The year-end allocations were as follows:

|(in thousands) December 31,
|---------------------------
|
|
|                           
|Commercial, financial      
|and agricultural           
|Residential-mortgage       
|Real                       
|estate-construction        
|Consumer                   
|Unallocated                
|                           
|                           
|                           

---

10.

---





# CONTRACTUAL
OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND OFF-BALANCE SHEET ARRANGEMENTS

The Corporation has various financial
obligations, including contractual obligations and commitments, which may require future
cash payments.

Contractual Obligations: The
following table presents, as of December 31, 2003, significant fixed and determinable
contractual obligations to third parties by payment date. Further discussion of the nature
of each obligation is included in the referenced note to the consolidated financial
statements.

|                    | Note
Reference | One Year
or Less | One to
three years | Three to
five years | Over five
years | Total
|------------------- | -------------- | ---------------- | ------------------ | ------------------- | --------------- | -----
|                   
|Deposits without a  |                |                  |                    |                     |                 |      
|stated maturity (a) |                |                  |                    | $                   | 152,508         |      
|                   
|Security repurchase |                |                 
|agreements (b)      |                |                  |                    | 8                   |                 | $    
|                   
|Borrowed funds      |                |                  |                    | 8                   |                 | $    
|                   
|Subordinated        |                |                 
|Debentures          |                |                  |                    | 9                   |                 |      
|                   
|Operating leases    |                |                  |                    | $                   | 271             |      

(a) Excludes interest

(b)
          Variable rate obligations that are affected by changes in market interest rates.

The Corporations operating
lease obligations represent primarily consist of lease payments for facilities.

Commitments: The following table details
the amounts and expected maturities of significant commitments as of December 31, 2003.

|Commitments to extend Credit: | One Year
or Less | One to three
years | Three to
five years | Over five
years | Total
|----------------------------- | ---------------- | ------------------ | ------------------- | --------------- | -----
|
|Commercial and Consumer Loans |                  |                    | $                   | 71,147          |      
|Revolving consumer lines      |                  |                    | $                   | 3,401           |      
|Standby letters of credit     |                  |                    | $                   | 2,577           |      

Commitments to extend credit,
including loan commitments and standby letters of do not necessarily represent future cash
requirements. Standby letters normally expire without being drawn upon.

---

11.

---





# LIQUIDITY

Liquidity is generally defined as the
ability to meet cash flow needs of customers for loans and deposit withdrawals. To meet
cash flow requirements, sufficient sources of liquid funds must be available. These
sources include short-term investments, repayments of loans, maturing and called
securities, sales of assets, growth in deposits and other liabilities and profits.

At present, Federal Reserve monetary
policy combined with historically frail investment market conditions resulted in a
significant amount of unemployed cash in the markets we serve. These funds have been
readily available in the form of bank deposits to cover our liquidity needs.

At December 31, 2003, the
Company had $22.8 million of additional borrowing capacity at the Federal Home Loan Bank
and $6 million of borrowing capacity with correspondent banks.

During 2003, we also generated $9.4
million in cash from operating activities. All of these sources are available to meet cash
flow needs of loan and deposit customers.

We also need cash to pay dividends to
our shareholders. Our primary source of cash is the dividends paid to the parent by our
banks. We believe that cash from operations is sufficient to supply the cash needed to
continue paying a reasonable dividend.

# CAPITAL RESOURCES

At December 31, 2003, equity capital
totaled $26 million. Management monitors the capital levels of the Company and the banks
to provide for current and future business opportunities and to meet regulatory guidelines
for well capitalized institutions. Well capitalized institutions
are eligible for reduced FDIC premiums, and also enjoy other reduced regulatory
restrictions.

At December 31, 2003, the Company and
the banks exceeded all regulatory minimum capital requirements and are considered to be
well capitalized.

# ASSET LIABILITY
MANAGEMENT

Asset liability management involves
developing, implementing and monitoring strategies to maintain sufficient liquidity,
maximize net interest income and minimize the impact that significant fluctuations in
market interest rates would have on earnings. Our banks Asset/Liability Committees
are responsible for managing this process.

# Quantitative and
Qualitative Disclosures about Market Risk

Our primary market risk exposure is
interest rate risk and, to a lesser extent, liquidity risk. Our banks transactions
are denominated in U.S. dollars with no specific foreign exchange exposure. Also, the
banks have a limited exposure to commodity prices related to agricultural loans. Any
impacts that changes in foreign exchange rate and commodity prices would have on interest
rates are assumed to be insignificant.

Interest rate risk (IRR) is the
exposure of a banking organizations financial condition to adverse movements in
interest rates. Accepting this risk can be an important source of profitability and
shareholder value; however, excessive levels of IRR could pose a significant threat to
earnings and capital. Accordingly, effective risk management that maintains IRR at prudent
levels is essential to our safety and soundness.

---

12.

---





Evaluating exposure to changes in
interest rates includes assessing both the adequacy of managements process used to
control IRR and the organizations quantitative level of exposure. When assessing the
IRR management process, we seek to ensure that appropriate policies, procedures,
management information systems and internal controls are in place to maintain IRR at
prudent levels with consistency and continuity. Evaluating the quantitative level of IRR
exposure requires the assessment of existing and potential future effects of changes in
interest rates on its consolidated financial condition, including capital adequacy,
earnings, liquidity, and, where appropriate, asset quality.

We derive the majority of income from
the excess of interest collected over interest paid. The rates of interest earned on our
assets and owed on our liabilities generally are established contractually for a period of
time. Since market interest rates change over time, we are exposed to lower profit margins
(or losses) if we cannot adapt to interest rate changes. For example, assume that an
institutions assets carry intermediate or long-term fixed rates and that those
assets are funded with short-term liabilities. If market interest rates rise by the time
the short-term liabilities must be refinanced, the increase in the institutions
interest expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institutions profits could
decrease because the institution will either have lower net interest income or possibly,
net interest expense. Similar risks exist when assets are subject to contractual interest
rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities
in a decreasing rate environment.

Various techniques might be used by
an institution to minimize IRR. We periodically analyze assets and liabilities and make
future financing and investment decisions based on payment streams, interest rates,
contractual maturities, and estimated sensitivity to actual or potential changes in market
interest rates. Such activities fall under the broad definition of asset/liability
management.

Several ways an institution can
manage IRR include: selling existing assets or repaying certain liabilities; matching
repricing periods for new assets and liabilities, for example, by shortening terms of new
loans or investments and hedging existing assets, liabilities, or anticipated
transactions. An institution might also invest in more complex financial instruments
intended to hedge or otherwise change IRR. Interest rate swaps, futures contracts, options
on futures, and other such derivative financial instruments are often used for this
purpose. Because these instruments are sensitive to interest rate changes, they require
managements expertise to be effective. We have not purchased derivative financial
instruments in the past and do not presently intend to purchase such instruments.

We are also subject to repayment risk
when interest rates fall. For example, mortgage loans and other financial assets may be
prepaid by a debtor so that the debtor may refinance their obligations at new, lower
rates. Prepayments of assets carrying higher rates reduce interest income and overall
asset yields.

Certain portions of an
institutions liabilities may be short-term or due on demand, while most of its
assets may be invested in long-term loans or investments. Accordingly, we seek to have in
place sources of cash to meet short-term demands. These funds can be obtained by
increasing deposits or selling assets. Also, Federal Home Loan Bank advances and
short-term borrowings provide additional sources of liquidity.

---

13.

---





The following table provides
information about our financial instruments that are sensitive to changes in interest
rates as of December 31, 2003. We had no derivative financial instruments, or trading
portfolio, as of that date. The expected maturity date values for loans receivable,
mortgage-backed securities and investment securities were calculated without adjusting the
instruments contractual maturity date for expectations of prepayments. Expected
maturity date values for interest-bearing core deposits were not based upon estimates of
the period over which the deposits would be outstanding, but rather the opportunity for
repricing.

Principal/notional amount as of
December 31, 2003 maturing in:

|                                   | 2004 | 2005 | 2006 | 2007    | 2008 | Thereafter | Total   | FairValue
|---------------------------------- | ---- | ---- | ---- | ------- | ---- | ---------- | ------- | ---------
|
|Rate Sensitive Assets              |      |      |      |         |      |            |         |          
|Fixed interest rate securities     |      |      | $    | -       |      |            |         |          
|Average interest rate              |      |      |      |         |      |            |         |          
|Tax-exempt fixed rate securities   |      |      |      | 377     |      |            | 745     |          
|Average interest rate              |      |      |      | 5.38    |      |            | 4.47    |          
|FHLB stock                         |      |      |      | 2,601   |      |            |         |          
|Average interest rate              |      |      |      | 3.76    | %    |            |         |          
|FRB stock                          |      |      |      | 522     |      |            |         |          
|Average interest rate              |      |      |      | 6.00    | %    |            |         |          
|Fixed interest rate loans          |      |      |      | 27,360  |      |            | 6,977   |          
|Average interest rate              |      |      |      | 7.39    | %    |            | 7.87    | %        
|Variable interest rate loans       |      |      |      | 95,046  |      |            | 18,203  |          
|Average interest rate              |      |      |      | 5.09    | %    |            | 7.14    | %        
|                                   |     
|Total earning assets               |      |      |      | 125,906 |      |            | 25,925  |          
|                                   |     
|                                   |      |     
|Rate Sensitive Liabilities        
|Interest-bearing demand            |      |      |      | 66,205  |      |            |         |          
|Average interest rate              |      |      |      | .48     | %    |            |         |          
|Savings                            |      |      |      | 34,390  |      |            |         |          
|Average interest rate              |      |      |      | .57     | %    |            |         |          
|Time deposits                      |      |      |      | 57,965  |      |            | 22,801  |          
|Average interest rate              |      |      |      | 2.54    | %    |            | 1.76    | %        
|Repurchase agreements and         
|federal funds purchased            |      |      |      | 7,415   |      |            |         |          
|Average interest rate %            |      |      |      | .79     | %    |            |         |          
|Subordinated debentures            |      |      |      |         |      |            |         |          
|Variable rate                      |      |      |      |         |      |            |         |          
|Fixed interest rate FHLB advances  |      |      |      | 635     |      |            | 681     |          
|Average interest rate              |      |      |      | 5.09    | %    |            | 5.11    | %        
|                                   |     
|Total interest bearing liabilities |      |      |      | 166,610 |      |            | 23,482  |          
|                                   |     
|                                   |      |     
|Interest rate sensitivity gap      |      |      | $    | (40,704 | )    | $          | 2,443   |          
|                                   |      |      |      |         |      |            |         |          
|Cumulative interest rate           |      |     
|Sensitivity gap                    |      |      | $    | (40,704 | )    | $          | (38,261 | )        
|                                   |      |      |      |         |      |            |         |          

---

14.

---





Principal/notional amount as of December
31, 2002 maturing in:

|                                   | 2004 | 2005 | 2006 | 2007    | 2008 | Thereafter | Total   | FairValue
|---------------------------------- | ---- | ---- | ---- | ------- | ---- | ---------- | ------- | ---------
|
|Rate Sensitive Assets              |      |      |      |         |      |            |         |          
|fixed interest rate securities     |      |      |      | -       |      |            | -       |          
|Average interest rate              |      |      |      | -       |      |            | -       |          
|Tax-exempt fixed rate securities   |      |      |      | 944     |      |            | 372     |          
|Average interest rate              |      |      |      | 4.36    | %    |            | 5.85    | %        
|FHLB stock                         |      |      |      | 2,504   |      |            | -       |          
|Average interest rate              |      |      |      | 6.25    | %    |            | -       |          
|FRB stock                          |      |      |      | 493     |      |            | -       |          
|Average interest rate              |      |      |      | 6.00    | %    |            | -       |          
|fixed interest rate loans          |      |      |      | 59,924  |      |            | 10,920  |          
|Average interest rate              |      |      |      | 7.65    | %    |            | 7.97    | %        
|Variable interest rate loans       |      |      |      | 37,314  |      |            | 17,945  |          
|Average interest rate              |      |      |      | 5.59    | %    |            | 7.85    | %        
|                                   |      |      |      |         |      |            |         |          
|Total earning assets               |      |      |      | 101,179 |      |            | 29,237  |          
|                                   |      |      |      |         |      |            |         |          
|                                   |      |     
|Rate Sensitive Liabilities         |      |     
|Interest-bearing demand            |      |      | $    | 59,549  |      | $          | -       |          
|Average interest rate              |      |      |      | .49     | %    |            | -       |          
|Savings                            |      |      |      | 29,267  |      |            | -       |          
|Average interest rate              |      |      |      | .71     | %    |            | -       |          
|Time deposits                      |      |      |      | 65,349  |      |            | 26,592  |          
|Average interest rate              |      |      |      | 3.40    | %    |            | 4.32    | %        
|Repurchase agreements and          |      |     
|federal funds purchased            |      |      |      | 3,507   |      |            | -       |          
|Average interest rate %            |      |      |      | 2.00    | %    |            | -       |          
|Subordinated debentures            |      |      |      | -       |      |            | -       |          
|Variable rate                      |      |      |      | -       |      |            | -       |          
|Fixed interest rate FHLB advances  |      |      |      | 408     |      |            | 441     |          
|Average interest rate              |      |      |      | 6.04    | %    |            | 6.04    | %        
|                                   |      |      |      |         |      |            |         |          
|Total interest bearing liabilities |      |      |      | 158,080 |      |            | 27,033  |          
|                                   |      |      |      |         |      |            |         |          
|Interest rate sensitivity gap      |      |      | $    | (56,901 | )    | $          | 2,204   |          
|                                   |      |      |      |         |      |            |         |          
|Cumulative interest rate           |      |     
|Sensitivity gap                    |      |      | $    | (56,901 | )    | $          | (54,697 | )        
|                                   |      |      |      |         |      |            |         |          

# CRITICAL ACCOUNTING
POLICIES

Certain of our accounting policies
are important to the portrayal of our financial condition, since they require management
to make difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are susceptible to
material changes as a result of changes in facts and circumstances. Facts and
circumstances which could effect these judgments include, but without limitation, changes
in interest rates, in the performance of the economy or in the financial condition of
borrowers. Management believes that its critical accounting policies include determining
the allowance for loan losses, determining the fair value of securities and other
financial instruments and the valuation of mortgage servicing rights. Our critical
accounting policies are discussed in detail in Note 1 of the Notes to the Consolidated
Financial Statements.

---

15.

---





# FORWARD-LOOKING
STATEMENTS

This discussion and analysis of
financial condition and results of operations and other sections of this Annual Report
contain forward looking statements that are based on managements beliefs,
assumptions, current expectations, estimates and projections about the financial services
industry, the economy and about the Company itself. Words such as anticipates,
believes, estimates, expects, forecasts,
foresee, intends, is likely, plans,
product, projects, variations of such words and similar
expressions are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties and
assumptions (Future Factors) that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results and
outcomes may materially differ from what may be expressed or forecasted in such
forward-looking statements.

Furthermore, the Company undertakes
no obligation to update, amend or clarify forward-looking statements, whether as a result
of new information, future events or otherwise. Future Factors include:

| |  | changes
in interest rates and interest rate relationships; demand for products and services;
| | - | --------------------------------------------------------------------------------------------

| |  | the
degree of competition by traditional and non-traditional competitors;
| | - | -------------------------------------------------------------------------

| |  | changes
in banking regulations; 
| | - | ---------------------------------

| |  | changes
in tax laws;
| | - | --------------------

| |  | changes
in prices, levies and assessments;
| | - | ------------------------------------------

| |  | the
impact of technology, governmental and regulatory policy changes;
| | - | ---------------------------------------------------------------------

| |  | the
outcome of pending and future litigation and contingencies;
| | - | ---------------------------------------------------------------

| |  | trends
in customer behavior as well as their ability to repay loans; and
| | - | ------------------------------------------------------------------------

| |  | changes
in the national and local economies.
| | - | --------------------------------------------

These are representative of the
Future Factors that could cause a difference between an actual outcome and a
forward-looking statement.

---

16.

---





# MANAGEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the
preparation of the Pavilion Bancorp, Inc.s 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.

Pavilion Bancorp, Inc. 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 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 Pavilion
Bancorp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 Board
of Directors of Pavilion Bancorp has an Audit Committee composed of four non-management
Directors. The Committee meets periodically with the internal auditors and the independent
auditors.

|/s/ Douglas L. Kapnick
Douglas L. Kapnick               
Chairman and Chief Executive Officer | /s/ Loren V. HappelLoren V. Happel
Chief Financial Officer
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------

---

17.

---





REPORT OF INDEPENDENT
AUDITORS

Board of Directors and
ShareholdersPavilion Bancorp, Inc.Adrian, Michigan

We have audited the accompanying consolidated
balance sheets of Pavilion Bancorp, Inc. as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in shareholders equity and cash
flows for each of the years ended December 31, 2003, 2002 and 2001. 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 auditing standards generally accepted in the United States of America. 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 2002, and the
results of its operations and its cash flows for each of the years ended December 31,
2003, 2002 and 2001 in conformity with accounting principles generally accepted in the
United States of America.

| | Crowe Chizek and Company LLC
| | ----------------------------

Grand Rapids,
MichiganJanuary 13, 2004

---

18.

---





PAVILION BANCORP, INC. 
CONSOLIDATED BALANCE SHEETSDecember 31, 2003 and
2002

---

|                                                      | 2003 | 2002
|----------------------------------------------------- | ---- | ----
|                                                      |      |     
|ASSETS                                                |      |     
|Cash and due from banks                               |      |     
|                                                      |      |     
|Total cash and cash equivalents                       |      |     
|                                                      |      |     
|Securities available for sale                         |      |     
|Federal Home Loan Bank stock, at cost                 |      |     
|Federal Reserve Bank stock, at cost                   |      |     
|                                                      |      |     
|Loans held for sale                                   |      |     
|Loans receivable, net of allowance for loan losses:   |      |     
|$3,041,546 - 2003; $2,659,935 - 2002                  |      |     
|Premises and equipment, net                           |      |     
|Accrued interest receivable                           |      |     
|Mortgage servicing rights                             |      |     
|Other assets                                          |      |     
|                                                      |      |     
|Total assets                                          |      |     
|                                                      |      |     
|                                                      |      |     
|LIABILITIES AND SHAREHOLDERS' EQUITY                  |      |     
|Deposits                                              |      |     
|Noninterest bearing                                   |      |     
|Interest bearing                                      |      |     
|                                                      |      |     
|Total deposits                                        |      |     
|                                                      |      |     
|Borrowed funds                                        |      |     
|Accrued interest payable                              |      |     
|Other liabilities                                     |      |     
|Subordinated debentures                               |      |     
|Common stock subject to repurchase obligation in ESOP |      |     
|                                                      |      |     
|Total liabilities                                     |      |     
|                                                      |      |     
|Shareholders' equity                                  |      |     
|Common stock and paid-in capital, no par              |      |     
|Value: 3,000,000 shares authorized; shares            |      |     
|Issued and outstanding:805,892-2003; 831,182-2002     |      |     
|Retained earnings                                     |      |     
|Accumulated other comprehensive income                |      |     
|                                                      |      |     
|Total shareholders' equity                            |      |     
|                                                      |      |     
|Total liabilities and shareholders' equity            |      |     
|                                                      |      |     

---

See accompanying notes
to consolidated financial statements.

19.

---





PAVILION BANCORP, INC. CONSOLIDATED STATEMENTS
OF INCOME Years ended December
31, 2003, 2002 and 2001

---

|                                         | 2003 | 2002 | 2001
|---------------------------------------- | ---- | ---- | ----
|                                         |      |      |     
|Interest and dividend income             |      |      |     
|Loans receivable, including fees         |      |      | $   
|Taxable securities                       |      |      |     
|Nontaxable securities                    |      |      |     
|Federal funds sold                       |      |      |     
|Dividend income                          |      |      |     
|Other                                    |      |      |     
|                                         |      |      |     
|Total interest and dividend income       |      |      |     
|                                         |      |     
|Interest expense                         |      |     
|Deposits                                 |      |      |     
|Subordinated debentures                  |      |      |     
|Other borrowed funds                     |      |      |     
|                                         |      |      |     
|Total interest expense                   |      |      |     
|                                         |      |      |     
|Net interest income                      |      |      |     
|Provision for loan losses                |      |      |     
|                                         |      |      |     
|Net interest income after provision for  |      |     
|loan losses                              |      |      |     
|                                         |      |     
|Noninterest income                       |      |     
|Service charges and fees                 |      |      |     
|Net gains on loan sales                  |      |      |     
|Loan servicing fees, net of amortization |      |      |     
|Gain on sale of securities               |      |      |     
|Other                                    |      |      |     
|                                         |      |      |     
|                                         |      |      |     
|                                         |      |     
|Noninterest expense                      |      |     
|Salaries and employee benefits           |      |      |     
|Occupancy and equipment                  |      |      |     
|Printing, postage and supplies           |      |      |     
|Professional and outside services        |      |      |     
|Mobile banking costs                     |      |      |     
|Receivable financing services            |      |      |     
|Other                                    |      |      |     
|                                         |      |      |     
|                                         |      |      |     
|                                         |      |      |     
|                                         |      |     
|Income before income taxes               |      |      |     
|Income tax expense                       |      |      |     
|                                         |      |      |     
|Net Income                               |      |      | $   
|                                         |      |      |     
|Basic earnings per share                 |      |      | $   
|                                         |      |     
|Diluted earnings per share               |      |      | $   

---

See accompanying notes
to consolidated financial statements.

20.

---





PAVILION BANCORP, INC.CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Years ended December
31, 2003, 2002 and 2001

---

|                                             | Common
Stock
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Income (Loss) | Total
Shareholders'
Equity
|-------------------------------------------- | ---------------------------- | ----------------- | --------------------------------------------- | --------------------------
|                                             |                              |                   |                                               |                           
|Balance January 1, 2001                      |                              |                   | $                                             | 9,631,958                 
|Comprehensive income:                        |                              |                  
|Net income                                   |                              |                   |                                               |                           
|Unrealized gains (losses) on securities      |                              |                   |                                               |                           
|Tax effect                                   |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|Total other comprehensive income             |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|Total comprehensive income                   |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|Change in common stock subject to repurchase |                              |                   |                                               | 669,526                   
|                                             |                              |                  
|Retirement of stock-5,619 shares             |                              |                   |                                               | (284,286                  
|                                             |                              |                  
|Proceeds from sale of stock-2,605 shares     |                              |                   |                                               | 132,855                   
|                                             |                              |                  
|Stock option expense                         |                              |                   |                                               | 36,481                    
|                                             |                              |                  
|Cash dividends-$.76 per share                |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|Balance December 31, 2001                    |                              |                   |                                               | 10,186,534                
|Comprehensive income:                        |                              |                  
|Net income                                   |                              |                   |                                               |                           
|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 |                              |                   |                                               | 343,837                   
|                                             |                              |                  
|Retirement of stock-21,423 shares            |                              |                   |                                               | (1,019,130                
|                                             |                              |                  
|Proceeds from sale of stock-2,044 shares     |                              |                   |                                               | 105,260                   
|                                             |                              |                  
|Stock option expense                         |                              |                   |                                               | 34,451                    
|                                             |                              |                  
|Stock options exercised                      |                              |                   |                                               | 60,524                    
|                                             |                              |                  
|Cash dividends-$.82 per share                |                              |                   |                                               |                           
|                                             |                              |                   |                                               |                           
|Balance December 31, 2002                    |                              |                   | $                                             | 9,711,476                 
|Comprehensive income:                        |                              |                  
|Net income                                   |                              |                   |                                               |                           
|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 |                              |                   |                                               | 301,139                   
|                                             |                              |                  
|Retirement of stock-28,238 shares            |                              |                   |                                               | (1,384,060                
|                                             |                              |                  
|Stock option expense                         |                              |                   |                                               | 42,724                    
|                                             |                              |                  
|Stock options exercised                      |                              |                   |                                               | 60,152                    
|                                             |                              |                  
|Cash dividends-$1.09 per share               |                              |                   |                                               |                           
|                                             |                              |                  
|                                             |                              |                   |                                               |                           
|Payment of 5% stock dividend                 |                              |                   |                                               | 1,944,234                 
|                                             |                              |                   |                                               |                           
|Balance December 31, 2003                    |                              |                   | $                                             | 10,675,665                
|                                             |                              |                   |                                               |                           

---

See accompanying notes
to consolidated financial statements.

21.

---





PAVILION BANCORP, INC.CONSOLIDATED STATEMENTS
OF CASH FLOWS Years ended December
31, 2003, 2002 and 2001

---

|                                                | 2003 | 2002 | 2001
|----------------------------------------------- | ---- | ---- | ----
|                                                |      |      |     
|Cash flows from operating activities            |      |      |     
|Net income                                      |      |      | $   
|Adjustments to reconcile net income to          |      |     
|net cash from operating activities              |      |     
|Depreciation                                    |      |      |     
|Stock option expense                            |      |      |     
|Provision for loan losses                       |      |      |     
|Net amortization on securities                  |      |     
|available for sale                              |      |      |     
|Net realized (gain) loss on sales of securities |      |      |     
|Amortization of mortgage servicing rights       |      |      |     
|Loans originated for sale                       |      |      |     
|Proceeds from sales of mortgage loans           |      |      |     
|Net gains on sales of mortgage loans            |      |      |     
|Net change in:                                  |      |     
|Deferred loan origination fees                  |      |      |     
|Accrued interest receivable                     |      |      |     
|Other assets                                    |      |      |     
|Accrued interest payable                        |      |      |     
|Other liabilities                               |      |      |     
|                                                |      |      |     
|Net cash from operating activities              |      |      |     
|Cash flows from investing activities            |      |     
|Proceeds from:                                  |      |     
|Maturities, calls and principal payments on     |      |     
|securities available for sale                   |      |      |     
|Sales of securities available for sale          |      |      |     
|Purchases of:                                   |      |     
|Securities available for sale                   |      |      |     
|Federal Home Loan Bank Stock                    |      |      |     
|Federal Reserve Bank Stock                      |      |      |     
|Premises and equipment, net                     |      |      |     
|Net increase in loans                           |      |      |     
|Recoveries on loans charged-off                 |      |      |     
|                                                |      |      |     
|Net cash from investing activities              |      |      |     
|Cash flows from financing activities            |      |     
|Net change in deposits                          |      |      |     
|Net change in short term borrowings             |      |      |     
|Proceeds from FHLB advances                     |      |      |     
|Net proceeds from subordinated debentures       |      |      |     
|Repayment of FHLB advances                      |      |      |     
|Repurchase of common stock                      |      |      |     
|Issuance of common stock                        |      |      |     
|Stock options exercised                         |      |      |     
|Dividends paid                                  |      |      |     
|                                                |      |      |     
|Net cash from financing activities              |      |      |     
|                                                |      |      |     
|Net change in cash and cash equivalents         |      |      |     
|                                                |      |     
|Cash and cash equivalents at beginning of year  |      |      |     
|                                                |      |      |     
|Cash and cash equivalents at  end of year       |      |      |     
|                                                |      |      |     
|Supplemental schedule of noncash activities     |      |     
|Transfer from:                                  |      |     
|Loans to foreclosed real estate                 |      |      |     
|Cash paid for:                                  |      |     
|Interest                                        |      |      |     
|Income taxes                                    |      |      |     

---

(Continued)

22.

---





PAVILION BANCORP, INC. >NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 1  SUMMARY OF
ACCOUNTING POLICIES

The accounting and reporting policies
of Pavilion Bancorp, Inc. (the Company) and its wholly owned subsidiaries, Bank of Lenawee
and Bank of Washtenaw (the Banks), 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 Banks and Bank
of Lenawee s wholly owned subsidiaries, Pavilion Mortgage Company and Pavilion
Financial Services. All significant interCompany balances and transactions have been
eliminated in consolidation. As further discussed in Note 9, a trust that had previously
been consolidated with the Company is no longer consolidated.

Nature of Operations, Industry
Segments and Concentrations of Credit Risk: The Company is a two-bank holding Company
which conducts limited business activities. The Banks perform the majority of the business
activities.

The Banks provide a full range of
banking services to individuals, agricultural businesses, commercial businesses and light
industries located in their service area. They maintain a diversified loan portfolio,
including loans to individuals for home mortgages, automobiles and personal expenditures,
and loans to business enterprises for current operations and expansion. The Banks offer a
variety of deposit products, including checking, savings, money market, 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. While the Companys chief decision maker 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 market for the
Banks financial services are the Michigan communities in which the Banks are located
and the areas immediately surrounding these communities. The Banks serve these markets
through their offices located in Lenawee, Hillsdale and Washtenaw Counties in Michigan.

Use of Estimates: To prepare
financial statements in conformity with accounting principles generally accepted in the
United States of America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The allowance
for loan losses, mortgage servicing rights and fair values of securities and other
financial instruments are particularly subject to change.

Cash Flow Reporting: Cash and cash
equivalents include cash on hand, demand deposits with other financial institutions,
federal funds sold and commercial paper with original maturities of 90 days or less. Cash
flows are reported, net, for customer loan and deposit transactions, and borrowed funds
with original maturities of 90 days or less.

Stock Dividend On January 5, 2004,
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.

---

(Continued)

23.

---





PAVILION BANCORP, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSDecember 31, 2003, 2002
and 2001

---

NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

Securities: Securities are classified
as available for sale when they might be sold before maturity. Such securities are carried
at fair value, with unrealized holding gains and losses reported in other comprehensive
income. Other securities such as Federal Home Loan Bank and Federal Reserve Bank stock are
carried at cost.

Gains and losses on sales are
determined using the amortized cost of the specific security sold. Interest and dividend
income, adjusted by amortization of purchase premiums and discounts, is included in
earnings. Securities are written down to fair value when a decline in fair value is not
temporary.

Loans Held for Sale: Loans held for
sale are reported at the lower of cost or market value in aggregate. Net unrealized losses
are recorded in a valuation allowance by charges to income.

Loans Receivable: Loans that
management has the intent and the ability to hold for the foreseeable future or until
maturity or payoff are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses. Interest income
is reported on the interest method and includes amortization of net deferred loan fees and
costs over the loan term.

Interest income is not reported when
full loan repayment is in doubt, typically when payments are past due over 90 days, unless
the loan is both well secured and in the process of collection. Payments received on such
loans are reported as principal reductions. All interest accrued but not received for
loans placed on nonaccrual is reversed against interest income. Interest received on such
loans is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. 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 is a valuation allowance for probable incurred credit losses,
increased by the provision for loan losses and decreased by charge-offs less recoveries.
Management estimates the allowance balance using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the allowance
may be made for specific loans, but the entire allowance is available for any loan that,
in managements judgment, should be charged-off. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed.

A loan is impaired when full payment
under the loan terms is not expected. Impairment is evaluated in total for smaller-balance
loans of similar nature such as residential mortgage and consumer loans and on an
individual loan basis for other loans. If a loan is impaired, a portion of the allowance
is allocated so that the loan is reported, net, at the present value of estimated future
cash flows using the loans existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.

---

(Continued)

24.

---





PAVILION BANCORP, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

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 with
useful lives ranging from 10 to 40 years for buildings and improvements, and 3 to 10 years
for furniture and equipment. These assets are reviewed for impairment when events indicate
their carrying amount may not be recoverable from future undiscounted cash flows.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur. Major improvements are capitalized.

Servicing Rights: Servicing rights
represent the allocated value of servicing rights retained on loans sold. Servicing rights
are expensed in proportion to, and over the period of, estimated net servicing revenues.

Impairment is evaluated based on the
fair value of the rights, using groupings of the underlying loans as to interest rates and
then, secondarily, as to geographic and prepayment characteristics. Any impairment of a
grouping is reported as a valuation allowance.

Other Real Estate Owned: Real estate
properties acquired through or instead of foreclosure are initially recorded at fair value
at acquisition. After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell. Other real estate owned
amounts to $181,000 and $1,783,000 at December 31, 2003 and 2002 and are included in other
assets.

Repurchase Agreements: Substantially
all repurchase agreement liabilities represent amounts advanced by various customers.
Securities are pledged to cover these liabilities, which are not covered by federal
deposit insurance.

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 and is
determined by the Board of Directors. Employee benefits are discussed further in Note 12.

Stock Compensation: Employee
compensation expense under stock options is reported using the intrinsic value method. 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 2003, 2002 and 2001 based on the vesting schedules of the
related stock options. Compensation expense for stock options was $43,000, $34,000 and
$36,000 during 2003, 2002 and 2001. 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.

---

(Continued)

25.

---





PAVILION BANCORP, INC.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

December 31, 2003, 2002
and 2001

---

NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

|                                         | 2003 | 2002 | 2001
|---------------------------------------- | ---- | ---- | ----
|                                         |      |      |     
|Net income as reported                   |      |      | $   
|Less:  Stock-based compensation expense  |      |     
|Determined under fair value based method |      |      |     
|                                         |      |      |     
|Proforma net income                      |      |      | $   
|                                         |      |      |     
|Basic earnings per share as reported     |      |      | $   
|Proforma basic earnings per share        |      |      |     
|                                        
|Diluted earnings per share as reported   |      |      |     
|Proforma diluted earnings per share      |      |      |     

The pro forma effects are computed using
option pricing models, using the following weighted average assumptions as of grant date
for the years ended December 31, 2003, 2002 and 2001:

|                                | 2003 | 2002 | 2001
|------------------------------- | ---- | ---- | ----
|Risk-free interest rate         |      |      |     
|Expected option life            |      |      |     
|Expected dividend yield         |      |      |     
|Expected stock price volatility |      |      |     

The weighted average fair value of
stock options granted was $9.66, $15.90 and $19.22 for 2003, 2002 and 2001.

Income Taxes: Income tax expense is
the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax
consequences of temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized. No valuation allowance was
needed as of December 31, 2003 and 2002.

Earnings and Dividends Per Share:
Basic earnings per common share is based on net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share
shows the dilutive effect of any additional potential common shares issuable under stock
options.

Comprehensive Income: Comprehensive
income consists of net income and other comprehensive income. Other comprehensive income
includes the net change in unrealized appreciation (depreciation) on securities available
for sale, net of tax, and the change in the Companys minimum pension liability, net
of tax, which are also recognized as a separate component of shareholders equity.

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 customers 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.

---

(Continued)

26.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

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.

Adoption of New Accounting Standards:
During 2003, the Company adopted FASB Statement 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, FASB Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities, FASB
Statement 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits, FASB Interpretation 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, and FASB Interpretation 46, Consolidation of
Variable Interest Entities. Adoption of the new standards did not materially affect the
Companys operating results or financial condition.

Reclassifications: Some items in the
prior year financial statements have been reclassified to conform with the current year
presentation.

# NOTE 2  SECURITIES

Year-end securities available for
sale were as follows:

|                           | Fair
Value | Gross
Unrealized
Gains | Gross
Unrealized
Losses
|-------------------------- | ---------- | ---------------------- | -----------------------
|                           |            |                        |                        
|2003                       |            |                        |                        
|U.S. Treasury and          |            |                       
|government agencies        |            |                        | $                      
|Obligations of states and  |            |                       
|political subdivisions     |            |                        |                        
|Mortgage-backed securities |            |                        |                        
|                           |            |                        |                        
|                           |            |                        | $                      
|                           |            |                        |                        
|                           |            |                       
|                           |           
|                           |            |                        |                        
|2002                       |            |                       
|U.S. Treasury and          |            |                       
|government agencies        |            |                        | $                      
|Obligations of states and  |            |                       
|political subdivisions     |            |                        |                        
|Mortgage-backed securities |            |                        |                        
|                           |            |                        |                        
|                           |            |                        | $                      
|                           |            |                        |                        

---

(Continued)

27.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 2  SECURITIES
(Continued)

Contractual maturities of debt
securities at year-end 2003 were as follows. Securities not due at a single maturity date,
primarily mortgage-backed securities, are shown separately.

|                           | Fair Value
|-------------------------- | ----------
|                           |           
|Due in one year or less    |           
|Due from one to five years |           
|Due from five to ten years |           
|Due after ten years        |           
|                           |           
|                           |           
|Mortgage-backed securities |           
|                           |           
|                           |           
|                           |           

Sales of securities available for
sale were:

|                        | 2003 | 2002 | 2001
|----------------------- | ---- | ---- | ----
|                        |      |      |     
|Proceeds from sales     |      |      | $   
|Gross gains from sales  |      |      |     
|Gross losses from sales |      |      |     

In addition to Federal Home Loan Bank
(FHLB) stock, securities with a fair value of approximately $10,123,000 and $4,030,000 at
year-end 2003 and 2002 were pledged to secure repurchase agreements and other borrowings.
Except as indicated, total securities of any state (including all its political
subdivisions) were less than 10% of shareholders equity. At year-end 2003 and 2002,
fair value of securities issued by the state of Michigan and all its political
subdivisions totaled $2,910,000 and $3,953,000.

# NOTE 3  LOANS
RECEIVABLE

Year-end loans receivable are as
follows:

|                                          | 2003 | 2002
|----------------------------------------- | ---- | ----
|                                          |      |     
|Commercial                                |      |     
|Agricultural                              |      |     
|Residential Mortgage                      |      |     
|Real Estate Construction                  |      |     
|Consumer                                  |      |     
|                                          |      |     
|Gross loans receivable                    |      |     
|Deferred loan origination fees/costs, net |      |     
|Allowance for loan losses                 |      |     
|                                          |      |     
|Net loans receivable                      |      |     

---

(Continued)

28.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

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 2003 and 2002. A summary of aggregate related party loan activity for loans
aggregating $60,000 or more to any related party is as follows:

|                       | 2003 | 2002
|---------------------- | ---- | ----
|                       |      |     
|Balance at January 1   |      |     
|New loans and renewals |      |     
|Repayments             |      |     
|Other adjustments      |      |     
|                       |      |     
|Balance at December 31 |      |     

# NOTE 4  ALLOWANCE
FOR LOAN LOSSES

Activity in the allowance for loan
losses was as follows:

|                                          | 2003 | 2002 | 2001
|----------------------------------------- | ---- | ---- | ----
|                                          |      |      |     
|Beginning balance                         |      |      | $   
|Loan charge-offs                          |      |      |     
|Loan recoveries                           |      |      |     
|                                          |      |      |     
|Net loan charge-offs                      |      |      |     
|Provision for loan losses                 |      |      |     
|                                          |      |      |     
|Ending balance                            |      |      | $   
|                                          |      |      |     
|Impaired loans were as follows:           |      |     
|                                          |     
|                                          |      |      |     
|Year-end loans with no allowance for      |      |     
|loan losses allocated                     |      |      | $   
|Year-end loans with allowance for loan    |      |     
|losses allocated                          |      |      |     
|                                          |      |     
|Total impaired loans                      |      |      | $   
|                                          |      |     
|Amount of the allowance allocated         |      |      | $   
|                                          |      |     
|Average of impaired loans during the year |      |      |     
|                                          |      |     
|Interest income recognized during         |      |     
|impairment                                |      |      |     
|                                          |      |     
|Cash-basis interest income recognized     |      |      |     

---

(Continued)

29.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 4  ALLOWANCE
FOR LOAN LOSSES (Continued)

Nonperforming loans were as follows:

|                                             | 2003 | 2002
|-------------------------------------------- | ---- | ----
|                                             |      |     
|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.

# NOTE 5  LOAN
SERVICING

Loans serviced for others are not
reported as assets. These loans totaled $392,514,000 and $300,255,000 at year-end 2003 and
2002. Related escrow balances were $835,000 and $632,000 at year-end 2003 and 2002.

Activity for capitalized mortgage
servicing rights was as follows:

|                  | 2003 | 2002 | 2001
|----------------- | ---- | ---- | ----
|Servicing rights: |      |      |     
|Beginning of year |      |      | $   
|Additions         |      |      |     
|Amortization      |      |      |     
|                  |      |      |     
|End of year       |      |      | $   

There was no valuation allowance at
year-end 2003, 2002 or 2001 for mortgage servicing rights.

# NOTE 6  PREMISES
AND EQUIPMENT

Year-end premises and equipment
consist of:

|                          | 2003 | 2002
|------------------------- | ---- | ----
|                          |      |     
|Land                      |      |     
|Buildings and improvement |      |     
|Furniture and equipment   |      |     
|                          |      |     
|Total cost                |      |     
|Accumulated depreciation  |      |     
|                          |      |     
|                          |      |     

---

(Continued)

30.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 7  DEPOSITS

At year-end 2003, stated maturities
of time deposits were as follows, for the years ending December 31:

|     | 
|---- | 
|2004 | 
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|     | 
|     | 
|     | 

Time deposits exceeding $100,000 were
approximately $43,092,000 and $37,137,000 at year-end 2003 and 2002.

At year-end 2003, stated maturities
of time deposits exceeding $100,000 were as follows:

|                         | 
|------------------------ | 
|In 3 months or less      | 
|Over 3 through 6 months  | 
|Over 6 through 12 months | 
|Over 12 months           | 
|                         | 
|                         | 
|                         | 

Related party deposits were
$1,280,000 and $1,081,000 at year-end 2002 and 2002.

# NOTE 8  BORROWED
FUNDS

Repurchase Agreements

Information concerning repurchase
agreements is summarized as follows:

|                                               | 2003 | 2002
|---------------------------------------------- | ---- | ----
|                                               |      |     
|Amount outstanding at year-end                 |      |     
|Weighted average interest rate at year-end     |      |     
|Average daily balance during the year          |      |     
|Weighted average interest rate during the year |      |     
|Maximum month-end balance during the year      |      |     

Federal Home
Loan Bank Advances

Federal Home Loan Bank (FHLB)
advances totaled $7,221,294 and $5,128,572 at year-end 2003 and 2002. The balance at
year-end 2002 was one fixed rate advance with an interest rate of 6.04%. The balance at
year-end 2003 included a second fixed rate advance with an interest rate of 2.93%. The
Company has additional borrowing capacity at the FHLB as well as some borrowing capacity
with correspondent banks.

---

(Continued)

31.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 8  BORROWED
FUNDS (Continued)

Pursuant to collateral agreements
with the Federal Home Loan Bank, in addition to Federal Home Loan stock, advances are
secured under a blanket lien arrangement by qualified 1-to-4 family mortgage loans with a
carrying value of approximately $18,374,000 and $10,689,000 at year-end 2003 and 2002.

At year-end 2003, scheduled principal
reductions on the advances were as follows for the years ending December 31:

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

Borrowed funds include $2,160,000 and $1,290,000
of federal funds purchased as of December 31, 2003, these borrowings matured in January of
2004 and 2003.

# NOTE 9 SUBORDINATED
DEBENTURES AND TRUST PREFERRED SECURITIES

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 4.81% as of December 31, 2003. This subordinated debenture is considered Tier 1
capital (with certain limitations applicable) under current regulatory guidelines. As of
December 31, 2003 and 2002, 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.

---

(Continued)

32.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

Prior to 2003, the trust was
consolidated in the Companys financial statements, with the trust preferred
securities issued by the trust reported in liabilities as trust preferred
securities and the subordinated debentures eliminated in consolidation. Under new
accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trust is
no longer consolidated with the Company, accordingly, the Company does not report the
securities issued by the trust as liabilities, and instead reports as liabilities the
subordinated debentures issued by the Company and held by the trust, as these are no
longer eliminated in consolidation. Amounts previously reported as trust preferred
securities in liabilities have been recaptioned subordinated debentures
and continue to be presented in liabilities on the balance sheet. The effect of no longer
consolidating the trust does not significantly change the amounts reported as the
Companys assets, liabilities, equity, or interest expense.

# NOTE 10  INCOME
TAXES

Income tax expense consists of:

|         | 2003 | 2002 | 2001
|-------- | ---- | ---- | ----
|         |      |      |     
|Current  |      |      | $   
|Deferred |      |      |     
|         |      |      |     
|Total    |      |      | $   

Income tax expense calculated at the
statutory federal income tax rate of 34% differs from actual income tax expense as
follows:

|                                | 2003 | 2002 | 2001
|------------------------------- | ---- | ---- | ----
|                                |      |      |     
|Statutory rates                 |      |      | $   
|Increase (decrease) from:       |      |     
|Tax-exempt securities income    |      |      |     
|Non-deductible interest expense |      |      |     
|Other, net                      |      |      |     
|                                |      |      |     
|                                |      |      | $   
|                                |      |      |     

Year-end deferred tax assets and
liabilities consist of:

|                                   | 2003 | 2002
|---------------------------------- | ---- | ----
|                                   |      |     
|Deferred tax assets                |      |     
|Allowance for loan losses          |      |     
|Net deferred loan fees             |      |     
|Pension expense                    |      |     
|Minimum pension liability          |      |     
|Other                              |      |     
|                                   |      |     
|Total deferred tax assets          |      |     
|                                   |      |     
|Deferred tax liabilities           |      |     
|Depreciation                       |      |     
|Mortgage servicing rights          |      |     
|Net unrealized gains on securities |      |     
|available for sale                 |      |     
|Other                              |      |     
|                                   |      |     
|Net deferred tax liabilities       |      |     
|                                   |      |     
|Net deferred tax asset (liability) |      |     
|                                   |      |     

---

(Continued)

33.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 11  EARNINGS
PER SHARE

A reconciliation of the numerators
and denominators of the basic earnings per share and diluted earnings per share
computations for the years ended is presented below:

|                                      | 2003 | 2002 | 2001
|------------------------------------- | ---- | ---- | ----
|                                      |      |      |     
|Basic earnings per share              |      |      |     
|Net income available to common        |      |     
|shareholders                          |      |      | $   
|                                      |      |      |     
|Weighted average common shares        |      |     
|outstanding                           |      |      |     
|                                      |      |      |     
|Basic earnings per share              |      |      | $   
|                                      |      |      |     
|Diluted earnings per share            |      |     
|Net income available to common        |      |     
|shareholders                          |      |      | $   
|                                      |      |      |     
|Weighted average common shares        |      |     
|outstanding                           |      |      |     
|Add:  Dilutive effects of exercise of |      |     
|stock options                         |      |      |     
|                                      |      |      |     
|Weighted average common and dilutive  |      |     
|potential common shares outstanding   |      |      |     
|                                      |      |      |     
|Diluted earnings per share            |      |      | $   

Stock  options for 20,400  shares of
common  stock were not  considered  in computing  diluted  earnings per common share for
2003 because these options were not dilutive.  All stock options  outstanding  were
dilutive  during 2002 and 2001.

---

(Continued)

34.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 12 - EMPLOYEE
BENEFITS

Employee Pension
Benefit

Effective  January 1, 2003,  the
 Company  terminated  and settled its defined  benefit  pension  plan.  All of the assets
in the defined benefit plan were  transferred  into a  noncontributory  multi-employer
 defined pension plan administered  by the  trustees  of the  Financial  Institutions
 Retirement  Fund  (FIRF).  In addition to the plan assets at  settlement,  an
 additional  contribution  of $393,000 is  anticipated  to be made into the new plan. As
allowed by the FIRF,  this  obligation will be paid over the next three years.
 Accordingly,  the Company  recorded pension  expense  totaling  $427,000  which
 includes  approximately  $90,000 of  contributions  required under the Company's new
multi-employer plan during 2003.

There  is no  separate  actuarial
 valuation  of  multi-employer  plan  benefits  nor  segregation  of plan  assets
specifically  for the Company  because the plan is a  multi-employer  plan.  Benefits are
based on years of service and  compensation  prior to retirement.  Annually,  the FIRF
 determines the  contributions  required to be made by each participating Company, and
these contributions are expensed during the year they relate to.

---

(Continued)

35.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

Last years information about the
pension plan was as follows.

|                                      | 2002 | 2001
|------------------------------------- | ---- | ----
|                                      |      |     
|Change in benefit obligation:         |      |     
|Beginning benefit obligation          |      |     
|Service cost                          |      |     
|Interest cost                         |      |     
|Actuarial (gain) loss                 |      |     
|Benefits paid                         |      |     
|                                      |      |     
|Ending benefit obligation             |      |     
|                                      |      |     
|Change in plan assets, at fair value: |      |     
|Beginning plan assets                 |      |     
|Actual return                         |      |     
|Employer contribution                 |      |     
|Benefits paid                         |      |     
|                                      |      |     
|Ending plan assets                    |      |     
|                                      |      |     
|Net amount recognized:                |      |     
|Funded status                         |      |     
|Unrecognized net actuarial loss       |      |     
|Unrecognized transition obligation    |      |     
|Minimum pension liability             |      |     
|Unrecognized prior service cost       |      |     
|                                      |      |     
|Prepaid (accrued) benefit cost        |      |     
|                                      |      |     

The components of pension expense
and related actuarial assumptions were as follows.

|                                                 | 2002 | 2001
|------------------------------------------------ | ---- | ----
|                                                 |      |     
|Service cost                                     |      |     
|Interest cost                                    |      |     
|Expected return on plan assets                   |      |     
|Amortization of prior service cost               |      |     
|Amortization of transition obligation            |      |     
|Recognized net actuarial loss                    |      |     
|Special termination benefit loss                 |      |     
|                                                 |      |     
|Net pension expense                              |      |     
|                                                 |      |     
|Discount rate on benefit obligation              |      |     
|Long-term expected rate of return on plan assets |      |     
|Rate of compensation increase                    |      |     

---

(Continued)

36.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

ESOP and 401(k) Plan

The Company maintains an employee
stock ownership plan (ESOP) covering employees hired before January 1, 1995. On January 1,
1995, the Company ceased making contributions to the ESOP.

At year-end 2003 and 2002, the ESOP
held 75,985 and 82,008 shares of the Companys stock, all of which is allocated to
employees. 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 plan. As such, these shares are classified as a
liability in the financial statements. The appraisal value of the shares held by the ESOP
was $3,799,000 and $4,100,000 at year-end 2003 and 2002.

The ESOP plan includes a 401(k)
provision. Employees may elect to contribute up to 20% of their salaries, and the Company
will match 100% of the contribution up to 2% of the eligible salaries. Expense relating to
the 401(k) provision was $113,000, $110,000 and $119,000 in 2003, 2002 and 2001.

---

(Continued)

37.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 12  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, 2001        |                     |                     |                                
|Expiration of non-granted options |                     |                     |                                
|Options approved                  |                     |                     |                                
|Options issued                    |                     |                     |                                
|                                  |                     |                     |                                
|Balance at December 31, 2001      |                     |                     |                                
|Options issued                    |                     |                     |                                
|Options exercised                 |                     |                     |                                
|Options forfeited                 |                     |                     |                                
|                                  |                     |                     |                                
|Balance at December 31, 2002      |                     |                     |                                
|Options issued                    |                     |                     |                                
|Options exercised                 |                     |                     |                                
|                                  |                     |                     |                                
|Options forfeited                 |                     |                     |                                
|                                  |                     |                     |                                

Options exercisable at year-end are
as follows:

|     | Number of
Options | Weighted
Average
Exercise
Price
|---- | ----------------- | -------------------------------
|     |                   |                                
|2003 |                   |                                
|2002 |                   |                                
|2001 |                   |                                

Options outstanding at year-end 2003
were as follows:

|                        | Outstanding | Exercisable
|----------------------- | ----------- | -----------
|                        |             |            
|                        |             |            
|                        |             |            
|$17-$24                 |             |            
|$34-$42                 |             |            
|$48-$50                 |             |            
|                        |             |            
|Outstanding at year end |             |            
|                        |             |            
|                       

---

(Continued)

38.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 13 COMMITMENTS,
OFF-BALANCE-SHEET RISK AND CONTINGENCIES

At year-end 2003 and 2002, reserves
of $3,144,000 and $2,699,000 were required as deposits with the Federal Reserve or as cash
on hand. These reserves do not earn interest.

Some financial instruments are used
in the normal course of business to meet the financing needs of customers. These financial
instruments include commitments to extend credit, standby letters of credit and financial
guarantees. These involve, to varying degrees, credit and interest-rate risk in excess of
the amount reported in the financial statements.

The Company has the following
commitments outstanding at year-end:

|                             | 2003 | 2002
|---------------------------- | ---- | ----
|                             |      |     
|Commitments to extend credit |      |     
|Credit card arrangements     |      |     
|Standby letters of credit    |      |     
|                             |      |     
|                             |      |     
|                             |      |     

Commitments outstanding as of December
31, 2003 include fixed rate commitments totaling $13,920,000, and the majority of these
fixed rate commitments have interest rates ranging from 5.5% to 9%.

Exposure to credit loss if the other
party does not perform is represented by the contractual amount for commitments to extend
credit, standby letters of credit, and financial guarantees written. The same credit
policies are used for commitments and conditional obligations as are used for loans.

Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any condition
established in the commitment. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees written are
conditional commitments to guarantee a customers performance to a third party.

# NOTE 14  PARENT
CORPORATION CONDENSED

The Companys primary source of
funds to pay dividends to shareholders is the dividends it receives from the Banks. The
Banks are subject to certain restrictions on the amount of dividends they may declare
without prior regulatory approval. At December 31, 2003, approximately $12 million of the
Banks retained earnings were available for transfer in the form of dividends without
prior approval from regulatory agencies.

Following are condensed parent
corporation financial statements.

---

(Continued)

39.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

NOTE 14  PARENT
CORPORATION CONDENSED (Continued)

CONDENSED BALANCE SHEETSDecember 31, 2003 and
2002

|                                                      | 2003 | 2002
|----------------------------------------------------- | ---- | ----
|                                                      |      |     
|Assets                                                |      |     
|Cash and cash equivalents                             |      |     
|Securities available for sale                         |      |     
|Investment in subsidiaries                            |      |     
|Other                                                 |      |     
|                                                      |      |     
|Total assets                                          |      |     
|                                                      |      |     
|Liabilities and Shareholders' Equity                  |      |     
|Subordinated debentures                               |      |     
|Other                                                 |      |     
|Common stock subject to repurchase obligation in ESOP |      |     
|Shareholders' equity                                  |      |     
|                                                      |      |     
|Total liabilities and shareholders' equity            |      |     
|                                                      |      |     

CONDENSED STATEMENTS OF
INCOMEYears ended December 31,

|                                               | 2003 | 2002 | 2001
|---------------------------------------------- | ---- | ---- | ----
|                                               |      |      |     
|Dividends from subsidiaries                    |      |      | $   
|Interest on securities                         |      |      |     
|Interest on subordinated debentures            |      |      |     
|Other expenses                                 |      |      |     
|                                               |      |      |     
|Income before equity in undistributed income   |      |     
|of subsidiary banks                            |      |      |     
|                                               |      |     
|Equity (excess) in undistributed net income of |      |     
|subsidiaries                                   |      |      |     
|                                               |      |      |     
|Income before income taxes                     |      |      |     
|                                               |      |     
|Income tax expense (benefit)                   |      |      |     
|                                               |      |      |     
|Net income                                     |      |      | $   
|                                               |      |      |     

---

(Continued)

40.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 14  PARENT
CORPORATION CONDENSED (Continued)

CONDENSED STATEMENTS OF
CASH FLOWS Years ended December 31,

|                                                | 2003 | 2002 | 2001
|----------------------------------------------- | ---- | ---- | ----
|                                                |      |      |     
|Operating activities                            |      |      |     
|Net income                                      |      |      | $   
|Adjustments to reconcile net income to net cash |      |     
|provided by operating activities                |      |     
|(Equity) excess in undistributed net income of  |      |     
|subsidiaries                                    |      |      |     
|Net amortization of investment securities       |      |      |     
|Stock option expense                            |      |      |     
|Other                                           |      |      |     
|                                                |      |      |     
|Net cash from operating activities              |      |      |     
|                                                |      |     
|Investing Activities                            |      |     
|Investment in banking subsidiaries              |      |      |     
|Activity in available for sale securities       |      |     
|Maturities and calls                            |      |      |     
|                                                |      |      |     
|Net cash from investing activities              |      |      |     
|                                                |      |     
|Financing Activities                            |      |     
|Net proceeds from subordinated debentures       |      |      |     
|Repurchase of common stock                      |      |      |     
|Issuance of common stock                        |      |      |     
|Stock options exercised                         |      |      |     
|Dividends paid                                  |      |      |     
|                                                |      |      |     
|Net cash from financing activities              |      |      |     
|                                                |      |      |     
|Net change in cash and cash equivalents         |      |      |     
|                                                |      |     
|Beginning cash and cash equivalents             |      |      |     
|                                                |      |      |     
|Ending cash and cash equivalents                |      |      | $   
|                                                |      |      |     

---

(Continued)

41.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 15  FAIR
VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions
were used to estimate fair values for financial instruments. The carrying amount is
considered to approximate fair value for cash and cash equivalents, demand and savings
deposits, short-term borrowings, accrued interest, and variable rate loans or deposits
that reprice frequently and fully. Securities fair values are based on quoted market
prices or, if no quotes are available, on the rate and term of the security and on
information about the issuer. For fixed rate loans or deposits and for variable rate loans
or deposits with infrequent repricing or repricing limits, the fair value is estimated by
discounted cash flow analysis using current market rates for the estimated life and credit
risk. Fair values for impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable. Fair value of loans held for sale is based
on market estimates. Fair value of mortgage servicing rights is estimated using discounted
cash flows based on current market interest rates. The fair value of long-term borrowings
is based on currently available rates for similar financing. The fair value of other
financial instruments and off-balance-sheet items approximate cost and are not considered
significant to this presentation.

The estimated year-end fair values of
financial instruments were:

|                              | 2003 | 2002
|----------------------------- | ---- | ----
|
|Financial assets:             |      |     
|Cash and cash equivalents     |      |     
|Securities available for sale |      |     
|Federal Home Loan Bank stock  |      |     
|Federal Reserve Bank stock    |      |     
|Loans held for sale           |      |     
|Loans, net                    |      |     
|Accrued interest receivable   |      |     
|Mortgage servicing rights     |      |     
|Financial liabilities:        |      |     
|Demand and savings deposits   |      |     
|Time deposits                 |      |     
|Borrowed funds                |      |     
|Accrued interest payable      |      |     
|Subordinated debentures       |      |     

---

(Continued)

42.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 16  REGULATORY
MATTERS

Banks and bank holding companies are
subject to regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators. Failure to
meet capital requirements can initiate regulatory action.

Prompt corrective action regulations
provide five classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately capitalized, regulatory
approval is required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and plans for capital
restoration are required.

The Company and both banks were
categorized as well capitalized at year-end. Actual and required capital levels (in
millions) and ratios were:

|                                         | Actual | Minimum Required
For Capital
Adequacy Purposes | Minimum Required
To Be Well
Capitalized
Under Prompt Corrective
Action Regulations
|---------------------------------------- | ------ | ---------------------------------------------- | ----------------------------------------------------------------------------------
|
|2003                                     |        |                                                |                                                                                   
|Total capital (to risk weighted assets)  |        |                                               
|Consolidated                             |        |                                                | $                                                                                 
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   
|Tier 1 capital (to risk weighted assets) |        |                                               
|Consolidated                             |        |                                                |                                                                                   
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   
|Tier 1 capital (to average assets)       |        |                                               
|Consolidated                             |        |                                                |                                                                                   
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   
|                                         |        |                                               
|2002                                     |        |                                               
|Total capital (to risk weighted assets)  |        |                                               
|Consolidated                             |        |                                                | $                                                                                 
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   
|Tier 1 capital (to risk weighted assets) |        |                                               
|Consolidated                             |        |                                                |                                                                                   
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   
|Tier 1 capital (to average assets)       |        |                                               
|Consolidated                             |        |                                                |                                                                                   
|Bank of Lenawee                          |        |                                                |                                                                                   
|Bank of Washtenaw                        |        |                                                |                                                                                   

---

(Continued)

43.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

---

# NOTE 16  REGULATORY
MATTERS (Continued)

Regulatory capital includes
subordinated debentures issued by Lenawee Capital Trust I in December 2001 subject to
certain limitations. Federal Reserve guidelines limit the amount of trust preferred
securities which can be included in Tier 1 capital of the Company to 25% of total Tier 1
capital. At year-end 2003 and 2002, all of the trust preferred securities were included as
Tier 1 capital of the Company.

# NOTE 17  QUARTERLY
FINANCIAL DATA (UNAUDITED)

|               | Interest | Net Interest | Net | Earnings per Share
|-------------- | -------- | ------------ | --- | ------------------
|
|2003           |          |              |     |                   
|First quarter  |          |              | $   | 4,632,000         
|Second quarter |          |              |     | 4,708,000         
|Third quarter  |          |              |     | 4,834,000         
|Fourth quarter |          |              |     | 4,764,000         
|               |          |             
|2002           |          |             
|First quarter  |          |              | $   | 4,781,000         
|Second quarter |          |              |     | 4,686,000         
|Third quarter  |          |              |     | 4,871,000         
|Fourth quarter |          |              |     | 4,844,000         

---

44.

---





PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002
and 2001

# COMMON STOCK
INFORMATION

There is no active market for
Companys common stock, and there is no published information with respect to its
market price. There are occasional sales through brokers and direct sales by shareholders
of which the Companys management is aware. It is the understanding of the management
of the Company that over the last three years, the Companys common stock has sold at
prices in excess of book value.

The following table sets forth the
range of high and low sales prices of the Companys Common Stock during 2003, 2002,
and 2001, based on information made available to the Company, as well as per share cash
dividends declared during those periods. Although management is not aware of any
transactions at higher or lower prices, there may have been transactions at prices outside
the ranges listed below:

|               | Sales Prices (1) | Cash
Dividends Declared (1)
|-------------- | ---------------- | ---------------------------
|
|First Quarter  |                  |                            
|Second Quarter |                  |                            
|Third Quarter  |                  |                            
|Fourth Quarter |                  |                            
|               |                  |                            
|
|First Quarter  |                  |                            
|Second Quarter |                  |                            
|Third Quarter  |                  |                            
|Fourth Quarter |                  |                            
|               |                  |                            
|
|First Quarter  |                  |                            
|Second Quarter |                  |                            
|Third Quarter  |                  |                            
|Fourth Quarter |                  |                            

|(1) | All per share data has been adjusted to reflect stock splits and stock dividends
          including a January 5, 2004 stock dividend of 5% issued on January 30, 2004 to
          shareholders as of January 16, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are 3,000,000 shares of the
Companys common stock authorized, of which 846,186 shares were issued and
outstanding as of December 31, 2003. There were approximately 600 shareholders of record,
including trusts and shares jointly owned, as of that date.

The holders of the Companys
common stock are entitled to dividends when, as and if declared by the Board of Directors
of the Company out of funds legally available for that purpose. Dividends have been paid
four times annually. In determining dividends, the Board of Directors considers the
earnings, capital requirements and financial condition of the Company and the Banks, along
with other relevant factors. The Companys principal source of funds for cash
dividends is the dividends paid by the Banks. The ability of the Company and the Banks to
pay dividends is subject to regulatory restrictions and requirements.

---

45.

---



# Exhibit 14

# PAVILION BANCORP, INC. CODE OF ETHICS FOR
DIRECTORS AND EXECUTIVE OFFICERS

In my role as a Director and/or
Executive Officer of Pavilion Bancorp, Inc. (the Company), I certify to the
Company and the Audit Committee of the Board of Directors of the Company, that I will
adhere to and advocate the following principles and responsibilities governing my
professional and ethical conduct to the best of my knowledge and ability:

|1. | I will act with honesty and integrity, avoiding actual or apparent conflicts of
          interest in all personal and professional relationships.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------

|2. | I will provide information that is accurate, complete, objective, relevant,
          timely and understandable.
|-- | ----------------------------------------------------------------------------------------------------------------

|3. | I will comply with the rules and regulations of federal, state, and local
          governments, and other appropriate private and public regulatory agencies.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | I will act in good faith, responsibly, and with due care. I will not
          misrepresent material facts or allow my independent judgment to be subordinated
          or otherwise compromised.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | I will respect and maintain the confidentiality of information reviewed or
          acquired in carrying out my duties except when authorized or otherwise legally
          obligated to disclose.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | I will share knowledge and maintain skills important and relevant to the needs
          of the Company.
|-- | --------------------------------------------------------------------------------------------------------

|7. | I will proactively practice and promote ethical behavior as a professional in my
          role with the Company.
|-- | -----------------------------------------------------------------------------------------------------------------

|8. | I will comply with and adhere to all of the Companys policies and
          practices, including those policies governing accounting and financial reporting
          practices and corporate governance.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | I will promptly disclose to an appropriate person or persons any material
          transaction or relationship that reasonably could be expected to give rise to a
          conflict of interest, and/or violations of this Code.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(Signature) | (Date)
|----------- | ------

---



# Exhibit 21

# Subsidiaries of
Registrant

|Name                                                                                                                            | Ownership                                                                                       | Incorporation                      
|------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -----------------------------------
|                                                                                                                               
|Bank of Lenawee                  
Bank of Washtenaw                
Pavilion Financial Services, Inc.
Pavilion Mortgage Company | 100%      
      100%      
     100% by    
 Bank of Lenawee
     100% by    
 Bank of Lenawee | Michigan
Michigan
Michigan
Michigan

---



# EXHIBIT 23

# CONSENT OF INDEPENDENT
AUDITORS

| | We
hereby consent to the incorporation by reference in the Registration Statement of
Pavilion Bancorp, Inc. on Form S-8 (File No. 333-86636) and Form S-3D (File No.
333-112651) of our report dated January 13, 2004 on the 2003 Consolidated Financial
Statements of Pavilion Bancorp, Inc., which report is included in the 2003 Annual Report
on Form 10-K of Pavilion Bancorp, Inc.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | CROWE CHIZEK
AND COMPANY LLC
| | ----------------------------

Grand Rapids,
MichiganMarch 19, 2004

---



# Exhibit 31.1

# CERTIFICATIONS

I, Douglas L. Kapnick, certify that:

|1. | I have reviewed this Annual Report on Form 10-K of Pavilion Bancorp, Inc.;
|-- | --------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the registrant, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this report is being prepared;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures and presented in this report our conclusions about the effectiveness
               of the disclosure controls and procedures, as of the end of the period covered
               by this report based on such evaluation; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed in this report any change in the registrants internal control
               over financial reporting that occurred during the registrants most recent
               fiscal quarter (the registrants fourth fiscal quarter in the case of an
               annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial
               reporting; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          registrants auditors and the audit committee of the registrants
          board of directors (or persons performing the equivalent functions):
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely to
               adversely affect the registrants ability to record, process, summarize and
               report financial information; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal control over
               financial reporting.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 22, 2004 |  | /s/ Douglas L. Kapnick
Douglas L. KapnickChairman and Chief Executive Officer
|--------------------- |  | -------------------------------------------------------------------------------------------

---



# Exhibit 31.2

# CERTIFICATIONS

I, Loren V. Happel, certify that:

|1. | I have reviewed this Annual Report on Form 10-K of Pavilion Bancorp, Inc.;
|-- | --------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the registrant, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this report is being prepared;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures and presented in this report our conclusions about the effectiveness
               of the disclosure controls and procedures, as of the end of the period covered
               by this report based on such evaluation; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed in this report any change in the registrants internal control
               over financial reporting that occurred during the registrants most recent
               fiscal quarter (the registrants fourth fiscal quarter in the case of an
               annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial
               reporting; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          registrants auditors and the audit committee of the registrants
          board of directors (or persons performing the equivalent functions):
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely to
               adversely affect the registrants ability to record, process, summarize and
               report financial information; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal control over
               financial reporting.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 22, 2004 |  | /s/ Loren V. Happel
Loren V. HappelChief Financial Officer
|--------------------- |  | ------------------------------------------------------------------------

---



# Exhibit 32.1

Each
of Douglas L. Kapnick, Chairman and Chief Executive Officer, and Loren V. Happel, Chief
Financial Officer, of Pavilion Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

|(1) | the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 which
          this statement accompanies fully complies with the requirements of Section 13(a)
          or 15(d) of the Securities Exchange Act of 1934, and
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | the information contained in the Annual Report on Form 10-K for the fiscal year
          ended December 31, 2003 fairly presents, in all material respects, the
          financial condition and results of operations of Pavilion Bancorp, Inc.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 22, 2004 |  | /s/ Douglas L. Kapnick
Douglas L. KapnickChairman and Chief Executive Officer/s/ Loren V. Happel
Loren V. HappelChief Financial Officer
|--------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

A signed original of this
certification has been provided to Pavilion Bancorp, Inc. and will be retained by Pavilion
Bancorp, Inc. and furnished to the Securities and Exchange Commission upon request.