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

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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                                OF THE SECURITIES EXCHANGE ACT OF 1934
                                              For the fiscal year ended December 31, 2002
                                                                  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)
         135 East Maumee Street
            Adrian, Michigan
(Address of principal executive offices) | 38-3088340
                               (I.R.S. Employer Identification No.)49221
                                            (Zip Code)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------

517-265-5144; 517-265-3926 (FAX)
                                         (Registrant's telephone number, including area code)
                                   Securities registered pursuant to Section 12(b) of the Act: None
                                      Securities registered pursuant to Section 12(g) of the Act:
                                                      Common Stock, no par value

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YesX No

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. 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, 2002: $ 32,127,165.50

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 March7, 2003: 824,880  shares.

# Documents Incorporated
by Reference

Portions of the Companys Proxy
Statement for the Annual Meeting of Shareholders to be held April 17, 2003 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, which was incorporated in Michigan in
1993, has two wholly-owned bank subsidiaries, Bank of Lenawee and Bank of Washtenaw (the
Banks). On April 15, 1993, the Company acquired all of the stock of the Bank
of Lenawee, a Michigan banking corporation chartered in 1869. On January 1, 2001 the Bank
of Lenawee made the real estate origination component of its business a separate entity
named Pavilion Mortgage Company. On January 8, 2001 the Company opened a new bank, the
Bank of Washtenaw. The new bank is operating the former Saline Michigan branch of the Bank
of Lenawee and has opened a new branch and administrative offices in Ann Arbor, Michigan.
On April 22, 2002, the Company changed its name from Lenawee Bancorp, Inc. to Pavilion
Bancorp, Inc.

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 are 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 71% of total revenue in 2002 compared to 77% in
2001. Further reductions in interest rates during 2002 resulted in a significant increase
in the volume of loan sale activity and gains on sales of mortgage loans. These gains
accounted for 19% of the Companys total revenue in 2002 as compared to 11% in 2001.

The
Banks principal competitors are United Bank & Trust, Key Bank, Sky Bank,
Standard Federal Bank, and TLC Community Credit Union. With the exception of United Bank
& Trust and TLC Community Credit Union, each of these financial institutions has
headquarters in larger metropolitan areas, and has significantly greater assets and
financial resources than the Company. Based on deposit information as of June 30, 2002,
the Bank of Lenawee holds an estimated 19.2 % of the FDIC insured deposits in Lenawee
County and the Bank of Washtenaw holds an estimated 1.2 % of the FDIC insured deposits in
Washtenaw County. Information as to asset size of competitor financial institutions is
derived from publicly available reports filed by and with regulatory agencies.

# 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.



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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.

# 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                Tier 1
                                       Risk-Based           Risk-Based
                                       Capital Ratio        Capital Ratio         Leverage Ratio
                                       -------------        -------------         --------------

Well capitalized                       10% or above         6% or above           5% or above
Adequately capitalized                  8% or above         4% or above           4% or above
Undercapitalized                       Less than 8%         Less than 4%          Less than 4%
Significantly undercapitalized         Less than 6%         Less than 3%          Less than 3%
Critically undercapitalized                 --                   --               A ratio of tangible
                                                                                  equity to total assets
                                                                                       of 2% or less`

As
of December 31, 2002, 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 controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

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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 are 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
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.

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# 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 2002.

# 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 59) 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 53) 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 47) 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.

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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 43 of the
Companys 2002 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 2002 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 11 of the
Companys 2002 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 11 through 14 of the
Companys 2002 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 2002 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

# 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 8 through 10 of the
Companys definitive proxy statement, as filed with the Commission and dated March
18, 2003, relating to the April 17, 2003 Annual Meeting of Shareholders, is incorporated
herein by reference.

Item 11.   Executive
Compensation.

The
information set forth under the caption COMPENSATION OF EXECUTIVE OFFICERS on
page 11 through 12 of the Companys definitive proxy statement, as filed with the
Commission and dated March 18, 2003, relating to the April 18, 2003 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 7 through 8 of the Companys definitive proxy
statement, as filed with the Commission and dated March 18, 2003, relating to the April
17, 2003 Annual Meeting of Shareholders, is incorporated herein by reference.

-9-

---

Securities
Authorized for Issuance Under Equity Compensation Plans. The Company had the following
equity compensation plans at December 31, 2002:

# EQUITY COMPENSATION
PLAN INFORMATION

`Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                                                                                              equity compensation
                                  Number of securities to         Weighted-average             plans (excluding
                                  be issued upon exercise         exercise price of         securities reflected in
                                  of outstanding options         outstanding options              column (1))
                                  ----------------------         -------------------              -----------
        Plan Category                       (1)                          (2)                          (3)
        -------------                       ---                          ---                          ---

Equity compensation
plans approved by
security holders                          38,760                       $36.94                       37,096

Equity compensation
plans not approved by
security holders                           none                         none                         none
                                ---------------------------- ---------------------------- ----------------------------

Total                                     38,760                       $36.94                       37,096
                                ---------------------------- ---------------------------- ----------------------------`

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 14 of the Companys definitive proxy statement, as filed
with the Commission and dated March 18, 2003, relating to the April 17, 2003 Annual
Meeting of Shareholders, is incorporated herein by reference.

# Item 14.   Controls and
Procedures.

(a)     
          Evaluation of Disclosure Controls and Procedures.

The
Companys Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date
of this Form 10-K Annual Report (the Evaluation Date), have concluded that as
of the Evaluation Date, 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.

There
were no significant changes in the Companys internal controls or in other factors
that could significantly affect internal controls subsequent to the date of the most
recent evaluation, nor any significant deficiencies or material weaknesses in such
internal controls requiring corrective actions. As a result, no corrective actions were
taken.

-10-

---

# 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 LLP, 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 LLP, Independent Accountants
|--- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 2.                                                                                                               | Financial Statement Schedules
Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 3.                                                                                                               | Exhibits (Numbered in accordance with Item 601 of Regulation S-K)
The Exhibit Index is located on the final page of this report on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(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, 2002:
|    | 1.                                                                                                               | Report dated October 31, 2002, reporting the resignation of the Registrant's President and CEO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 2.                                                                                                               | Report  dated  October  15,  2002,  reporting  that  Douglas L.  Kapnick  would  serve as Interim
                  Chairman and CEO of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                       

-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 18, 2003.

| | PAVILION BANCORP, INC.
/s/ Douglas L. Kapnick
Douglas L. Kapnick
Chairman and Chief Executive officer
/s/ Loren V. Happel
Loren V. Happel
Chief 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       |  | March 18, 2003
|/s/ Fred R. Duncan

Fred R. Duncan             |  | March 18, 2003
|/s/ Edward J. Engle, Jr.

Edward J. Engle, Jr. |  | March 18, 2003
|/s/ William R. Gentner

William R. Gentner     |  | March 18, 2003
|/s/ Douglas L. Kapnick

Douglas L. Kapnick     |  | March 18, 2003
|/s/ Emory M. Schmidt

Emory M. Schmidt         |  | March 18, 2003
|/s/ J. David Stutzman

J. David Stutzman       |  | March 18, 2003

-12-

---

# 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 annual report does not contain any untrue statement
          of 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 annual 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 Annual Report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this annual
               report (the Evaluation Date); and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | presented in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation as of the Evaluation
               Date;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (a) | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:   March 18, 2003

| | /s/ Douglas L. Kapnick

Douglas L. Kapnick
Chairman and Chief Executive Officer
| | -------------------------------------------------------------------------------

-13-

---

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 annual report does not contain any untrue statement
          of 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 annual 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 Annual Report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this annual
               report (the Evaluation Date); and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | presented in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation as of the Evaluation
               Date;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (a) | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:   March 18, 2003

| | /s/ Loren V. Happel

Loren V. Happel
Chief Financial Officer
| | ------------------------------------------------------------

-14-

---

# EXHIBIT INDEX

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

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

|     |                                                                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13   | Rule 14a-3 2002 Annual Report to Security Holders (This report, except for those portions
which are expressly incorporated by reference in this filing, is furnished for the
information of the Securities and Exchange Commission and is not deemed filed
as part of this filing).
|     |                                                                                                                                                                                                                                                                                      
|21   | Subsidiaries of Registrant                                                                                                                                                                                                                                                           
|23   | Consent of Crowe, Chizek and Company, LLP. - Independent Public Accountants.                                                                                                                                                                                                         
|24   | Powers of Attorney.  Contained on the signature page of this report.                                                                                                                                                                                                                 
|99.1 | Certificate of Chief Executive  Officer of Pavilion Bancorp,  Inc. pursuant to 18 U.S.C.  Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                               
|99.2 | Certificate of Chief Financial  Officer of Pavilion Bancorp,  Inc. pursuant to 18 U.S.C.  Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                               

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.                                                                                        
|     |                                                                                                                                                                                                                                       
|10.2 | Employment Agreement dated February 22, 1999, and amended February 22, 2000,
between Bank of Lenawee and Patrick K. Gill, incorporated by reference to
Exhibit 10.2 of the Registrants Registration Statement on Form 10, as
amended.
|     |                                                                                                                                                                                                                                       
|10.3 | Supplemental Executive Retirement Agreement dated December 19, 1997, between
Bank of Lenawee and Allan W. Brittain, incorporated by reference to the
Registrants Registration Statement on Form 10, as amended.                      
|10.4 | Consulting Agreement dated January 1, 1998, between Bank of Lenawee and Allan W.
Brittain, incorporated by reference to Registrants Registration Statement
on Form 10, as amended.                                                   

-15-

---

# Exhibit 13

# Rule 14a-3 Annual
Report to Security Holders



---

# Lenawee Bancorp, Inc.

# 2002 Annual Report

This 2002 Annual Report contains
audited financial statements and a detailed financial review. This is Pavilion
Bancorps 2002 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 2002 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 2002 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, 2002 and 2001

CONTENTS

|SELECTED FINANCIAL DATA............................................................................................................................ | 2 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                                                    |   
|MANAGEMENT'S DISCUSSION AND ANALYSIS............................................................................................                    | 3 
|                                                                                                                                                    |   
|MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING.........................................................                                        | 16
|                                                                                                                                                    |   
|REPORT OF INDEPENDENT AUDITORS.........................................................................................................             | 17
|                                                                                                                                                    |   
|                                                                                                                                                    |   
|CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                   |   
|                                                                                                                                                    |   
|CONSOLIDATED BALANCE SHEETS..........................................................................................................               | 18
|                                                                                                                                                    |   
|CONSOLIDATED STATEMENTS OF INCOME..........................................................................................                         | 19
|                                                                                                                                                    |   
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY.................................                                                         | 20
|                                                                                                                                                    |   
|CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................................                              | 21
|                                                                                                                                                    |   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................                                    | 22
|                                                                                                                                                    |   
|                                                                                                                                                    |   
|COMMON STOCK INFORMATION.................................................................................................................           | 43



---

SELECTED FINANCIAL DATA(In thousands, except
per share data)

---

`2002        2001        2000        1999        1998
For the Year:
Total interest income                                     $ 19,182    $ 21,012    $ 20,851    $  17,923   $  17,517
Total interest expense                                       6,029       8,198       8,710        6,312       7,205
Net interest income                                         13,153      12,814      12,141       11,611      10,312
Provision for loan losses                                      953         388          30        2,560         239
Noninterest income                                           5,975       4,151       2,064        2,237       2,850
Noninterest expense                                         13,993      12,182       9,414        8,994       8,913
Income before income taxes                                   4,182       4,395       4,761        2,294       4,010
Net income                                                   2,855       3,043       3,205        1,563       2,660

Per Share Data:
Basic earnings per share                                  $   3.39    $   3.58    $   3.75    $    1.83   $    3.13
Diluted earnings per share                                    3.37        3.54        3.71         1.83        3.12
Cash dividends declared per share                              .86         .80         .94          .75         .67
Shareholders' equity and net ESOP obligation per share       35.09       33.01       29.91        26.72       26.26
Shareholders' equity per share                               30.16       27.77       23.90        21.64       21.92

At Year-End:
Total assets                                              $287,286    $278,277    $259,747    $ 239,904   $ 220,414
Loans receivable                                           235,770     214,749     214,512      197,308     158,487
Allowance for loan losses                                    2,660       2,200       2,287        4,646       2,182
Deposits                                                   241,720     235,407     224,143      199,206     185,891
Borrowed funds                                               8,635       7,394       7,936       16,177      10,626
Shareholders' equity and net ESOP obligations               29,170      28,007      25,467       22,775      22,345
Shareholders' equity                                        25,059      23,563      20,353       18,449      18,648

Financial:
Net interest income to average earning assets                  5.12%       5.09%       5.26%       5.66%       5.07%
Return on average shareholders' equity and
  net ESOP obligation                                         9.94       11.58       13.29         6.65       12.46
Return on average shareholders' equity                       11.66       14.14       16.59         8.02       14.76
Return on average assets                                      1.02        1.12        1.28          .70        1.21
Tier 1 leverage ratio                                        12.00       11.90        9.90         9.90        9.90
Dividend payout ratio                                        25.37       22.35       25.07        40.98       21.41
Average shareholders' equity and net ESOP
  obligation to average total assets                         10.26        9.66        9.60        10.52        9.72
Average shareholders' equity to average total assets          8.75        7.91        7.72         8.72        8.21`

All per share data has been adjusted to reflect stock splits and stock dividends.

---

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 we provide are 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 71 % of our total revenue in 2002 compared to 77% in 2001. Lower than normal interest
rates during 2002 and 2001 resulted in a significant increase in the volume of mortgage
loan sale activity and gains on sales of mortgage loans. These gains accounted for 19 % of
our total revenue in 2002 as compared to 11% in 2001.

# 2002 FINANCIAL HIGHLIGHTS

Net income for the year ended
December 31, 2002 was $2,855,342, which was a 6.17% decrease from our 2001 net income of
$3,043,072. As a result our basic earnings per share decreased to $3.39 in 2002 from $3.58
in 2001. Diluted earnings per share decreased from $3.54 in 2001 to $3.37 in 2002. Our
return on average equity including net ESOP obligation declined from 11.58% in 2001 to
9.94% in 2002.

Total assets grew to $287.3 million
in 2002 from $278.3 million in 2001. Our net loan balances increased $20.5 million or
9.62%, an amount consistent with the prior year activity.

# NET INTEREST INCOME

The largest component of our
operating income is net interest income. Net interest income is the difference between the
interest and fees the Company earns on our earning assets and the interest we pay on
deposits and other borrowings. A number of factors influence net interest income. These
factors include: changes in volume and mix of interest-earning assets and interest-bearing
liabilities, government monetary and fiscal policies, national and local market interest
rates and customer preference.

Our net interest income was $13.2
million in 2002, an increase of $339,000 over 2001. The 2002 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, 2002, 2001 and 2000.

---

3.

---

Average Balance Sheet and
Analysis of Net Interest Income

`Years ended December 31,
                                       ---------------2002------------    -------------2001--------------     -------------2000--------------
                                       Average                 Yield/     Average                 Yield/      Average                Yield/
                                       Balance    Interest      Rate      Balance    Interest      Rate       Balance    Interest     Rate
                                                                             (Dollars in thousands)
Interest-earning assets:
  Loans receivable                    $222,017     $17,786       8.01%   $217,424     $19,284       8.87%    $203,698     $19,268      9.46%
  Securities available for sale (1)     26,023       1,127       4.33      24,038       1,253       5.21       21,264       1,168      5.49
  Federal funds sold                     5,723          88       1.54       6,783         255       3.76        2,708         167      6.17
  Federal Home Loan Bank Stock           2,504         161       6.43       2,504         181       7.23        2,504         200      7.99
  Interest-bearing balances with
    other financial institutions           840          20       2.38         867          40       4.61          782          48      6.14
                                      --------     -------               --------     -------                --------      ------
      Total interest-earning assets    257,107      19,182       7.46     251,616      21,013       8.35      230,956      20,851      9.03
Noninterest-earning assets:
  Cash and due from financial
    institutions                        11,684                             10,316                               8,369
  Premises and equipment, net            6,562                              6,526                               6,333
  Other assets                           4,646                              3,424                               5,466
                                      --------                           --------                            --------
      Total assets                    $279,999                           $271,882                            $251,124
                                      ========                           ========                            ========

Interest-bearing liabilities:
  Interest-bearing demand deposits   $  55,635         647       1.16     $56,113    $  1,207       2.15    $  53,156    $  1,821      3.43%
  Savings deposits                      27,856         278       1.00      24,389         340       1.39       23,756         358      1.51
  Time deposits                        106,388       4,441       4.17     115,060       6,233       5.42       97,827       5,675      5.80
  Repurchase agreements and other
    borrowings                           7,811         351       4.49       3,083          86       2.79        3,955         191      4.83
  FHLB advances                          5,143         312       6.07       5,519         333       6.03       10,637         665      6.25
                                      --------     -------               --------     -------                --------      ------
      Total interest-bearing
         liabilities                   202,833       6,029       2.97     204,164       8,199       4.02      189,331       8,710      4.60
                                                   -------                            -------                              ------
Noninterest-bearing liabilities:
  Demand deposits                       45,681                             39,198                              35,839
  Other liabilities                      2,764                              2,251                               1,846
                                      --------                           --------                            --------
      Total liabilities                251,278                            245,613                             227,016
  Common stock subject to
      repurchase obligation in ESOP      4,225                              4,756                               4,720
  Shareholders' equity                  24,496                             21,513                              19,388
                                      --------                           --------                            --------
      Total liabilities and
         shareholders' equity         $279,999                           $271,882                            $251,124
                                      ========                           ========                            ========

Net interest income/interest rate
  spread                                           $13,153       4.49%                $12,814      4.33%                  $12,141      4.43%
                                                   =======       =====                =======      =====                  =======      =====

Net interest margin (2)                                          5.12%                             5.09%                               5.26%
                                                                 =====                             =====                               =====
Average interest-earning assets to
average interest-bearing liabilities                           126.76%                           123.24%                             121.99%
                                                               =======                           =======                             =======`

(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 increased slightly to
5.12% in 2002 from 5.09% in 2001. During 2001, the Federal Reserve decreased the discount
rate by 475 basis points from 6.0% to 1.25%. During 2002, the Federal Reserve decreased
the discount rate an additional 50 basis to .75%. As a result, our prime lending rate
decreased from 9.5% at December 31, 2000 to 4.75% at December 31, 2001 and then to 4.25%
at December 31, 2002. With such a drastic change in interest rates, we have experienced a
proportionate decline in momentum of gross revenues from this decrease in the prime
lending rate. A large portion of our variable rate business and consumer loan portfolios
are tied directly to the prime lending rate. Offsetting the impact of this reduction in
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 4.02% in 2001 to 2.97% in 2002.

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

`---------2002 Compared to 2001-------  --------2001 Compared to 2000---------
                                         Amount        Amount         Net       Amount       Amount         Net
                                         Due to        Due to      Increase     Due to       Due to      Increase
                                         Volume         Rate      (Decrease)    Volume        Rate      (Decrease)
                                         ------         ----      ----------    ------        ----      ----------
                                                                      (In thousands)
Interest income
   Loans receivable                     $     400    $  (1,898)   $  (1,498)    $  1,256     $ (1,240)    $      16
   Securities available for sale               98         (224)        (126)         147          (62)           85
   Federal funds sold                         (35)        (132)        (167)         173          (85)           88
   Federal Home Loan Bank Stock                 -          (20)         (20)           -          (19)          (19)
   Interest-bearing balances with
     financial institutions                    (1)         (19)         (20)           5          (13)           (8)
                                        ---------    ---------    ---------     --------     --------     ---------
     Total interest income                    462       (2,293)      (1,831)       1,581       (1,419)          162

Interest expense
   Interest-bearing deposits
     Demand                                   (10)        (550)        (560)          96         (712)         (616)
     Savings                                   44         (106)         (62)           9          (27)          (18)
     Time                                    (443)      (1,349)      (1,792)         952         (394)          558
   Repurchase agreements and
     other borrowings                         190           75          265          (36)         (69)         (105)
   FHLB advances                              (23)           2          (21)        (310)         (22)         (332)
                                        ---------    ---------    ---------     --------     --------     ---------
     Total interest expense                  (242)      (1,928)      (2,170)         711       (1,224)         (513)
                                        ---------    ---------    ---------     --------     --------     ---------

Net interest income                     $     704    $    (365)   $     339     $    870     $   (197)    $     673
                                        =========    =========    =========     ========     ========     =========`

---

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 historical loss experience 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
$953,000 in 2002 and $388,000 in 2001. This $565,000 increase in provision for loan losses
is representative of the inherent risk associated with additional loan volume combined
with necessary dollar coverage of outstanding nonperforming loans. Additional loan growth
of $ 21.0 million primarily occurred in commercial loans to small businesses.
Nonperforming loans, also primarily small business loans, increased from $1.3 million to
$1.6 million.

# NONINTEREST INCOME

Noninterest income was $6.0 million
in 2002 as compared to $4.2 million in 2001. This represents a 44% increase from 2001.

The largest contributing factor to
our 2002 noninterest income growth was a $2.1 million increase in net gains on mortgage
loan sales. The historically low interest rates over the course of 2002 continued to
expand our mortgage refinancing business. During 2002, we sold $231.4 million of loans in
the secondary market, resulting in net gains of $4.8 million. In 2001, we sold $158.3
million of loans in the secondary market, resulting in net gains of $2.7 million. In 2000,
we sold $45.0 million of loans resulting in net gains of $652,000. Loan sale gains were
partially offset by increased amortization of mortgage servicing rights as a significant
portion of our loan servicing portfolio refinanced during the current year.

Contributing further to noninterest
income, were increases in our service charges and fees which grew to $1.9 million in 2002
from $1.4 million in 2001. This increase is primarily attributable to the growth of
additional deposit customers.

# NONINTEREST EXPENSE

Noninterest expense of $14.0 million
in 2002 is an increase of $1.8 million or 15% compared to the noninterest expense of $12.2
million in 2001. A significant amount of the increase is continued organizational expenses
associated with opening the Bank of Washtenaw. We increased our staff from 150 full time
equivalents at December 31, 2001 to 155 full time equivalents at December 31, 2002. While
the staff member increase is 3% over the course of the year, salaries and employee
benefits increased 18%. The 18% increase reflects a full year tenure of organizational
staff at the Bank of Washtenaw for 2002. 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 (noninterest expense as a percentage of net interest income plus
noninterest income) worsened from 71.81% in 2001 to 73.15% in 2002.

---

6.

---

# INCOME TAX EXPENSE

Our income tax expense was $1.3
million in 2002 compared to $1.4 million in 2001 and $1.6 million in 2000.

The statutory federal tax rate during
2002, 2001 and 2000 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 2002, 31% in 2001, and 33% in 2000.

# SECURITIES PORTFOLIO

The following table shows securities
by classification as of December 31, 2002 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------------------------------------------------------
                                 Within             After One But          After Five But             After
                                   One               Within Five             Within Ten                Ten
                                  Year                  Years                  Years                  Years                  Total
                                                                (Dollars in thousands)
                           Amount     Yield       Amount     Yield       Amount     Yield       Amount     Yield       Amount     Yield
Available For Sale
U.S. Treasuries
and  government
  agencies                      -        -%   $   18,710     5.36%   $        -        -%   $        -        -%   $   18,710     5.36%
State and municipal (1)       961     4.36%        2,395     4.87%          576     5.89%          448     6.75%        4,380     5.08%
                       ----------             ----------             ----------             ----------             ----------
   Total               $      961             $   21,105             $      576             $      448             $   23,090
                       ==========             ==========             ==========             ==========             ==========`

(1)    
          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 held no impaired securities at December 31, 2002. As of December 31, 2002,
securities we held which were issued by the State of Michigan and its political
subdivisions carried an aggregate market value of $4.0 million.

The U.S. government agency securities
identified as available for sale are laddered to mature over five years with a three year
average life. The goal is to reduce the volatility of the securities portfolio yield and
still provide a predictable source of liquidity.

We had no held to maturity securities
as of December 31, 2002, 2001 and 2000. The fair value of securities available for sale,
as of the dates indicated, are summarized as follows:

`-----------December 31,-------------
                                                                      2002        2001         2000
                                                                             (In thousands)

   U.S. Treasuries and government  agencies                       $  18,710     $ 18,064     $  7,283
   State and municipal                                                4,380        5,133        6,911
   Other securities                                                   2,126        2,772        5,127
                                                                  ---------     --------     --------

                                                                  $  25,216     $ 25,969     $ 19,321
                                                                  =========     ========     ========`

---

7.

---

# 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 2002 was
limited as a result of the significant refinancing activity experienced during 2002. Our
total loans increased $21 million from year-end 2001 to 2002. Additionally, our loan
servicing portfolio increased by approximately $73 million during the current year.

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

`--------------------------December 31,-------------------------
                                                        2002         2001         2000         1999         1998
                                                                             (In thousands)

Commercial, financial and agricultural              $  183,433   $  155,071   $  149,058    $ 135,324    $  112,451
Real estate - construction                               9,013        7,318       13,383        9,934             -
Real estate - mortgage                                  10,081       17,409       14,225       17,203        17,010
Consumer                                                33,243       34,951       37,846       34,847        29,026
                                                    ----------   ----------   ----------    ---------    ----------

                                                    $  235,770   $  214,749   $  214,512    $ 197,308    $  158,487
                                                    ==========   ==========   ==========    =========    ==========`

The following table shows the maturity of loans outstanding (in thousands) at December 31, 2002.  Also provided
are the amounts due after one year, classified according to their sensitivity to changes in interest rates.

`Due
                                                              Due         After One          Due
                                                            Within       But Within         After
                                                           One Year      Five Years      Five Years        Total
                                                           --------      ----------      ----------        -----

Commercial, financial and agricultural                    $    67,738    $   106,116    $     9,579     $   183,433
Real estate-construction                                        9,013              -              -           9,013
Real estate-mortgage                                            4,692          3,456          1,933          10,081
Consumer                                                       15,795         12,207          5,241          33,243
                                                          -----------    -----------    -----------     -----------

                                                          $    97,238    $   121,779    $    16,753     $   235,770
                                                          ===========    ===========    ===========     ===========

Loans due after one year:
   Fixed rate                             $    54,442
   Floating or adjustable rate                 84,090
                                          -----------
                                          $   138,532
                                          ===========`

---

8.

---

# ASSET QUALITY

Management believes that a
conservative credit culture is critical to successful performance. Through Officer and
Director Loan Committees, management reviews and monitors the quality of the various loan
portfolios. Internal and external loan review personnel also review our loan performance
and underwriting regularly. The recent change in the momentum of the economy to static has
begun to show signs of impacting some of our loan customers as shown in the nonperforming
assets table below.

Loans are placed on non-accrual
status when principal or interest is past due 90 days or more, the loan is not
well-secured, is in the process of collection or when reasonable doubt exists concerning
collectibility 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, 2002, the Banks were
not aware of any loans for which payments were then current, but the borrowers were
experiencing serious financial difficulties. As of December 31, 2002, 12.7% of the Banks
loan portfolios were utilized to fund agricultural production, 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:

`--------------------------December 31,-------------------------
                                                        2002         2001         2000         1999         1998
                                                                             (In thousands)

   Non-accruing loans past due                       $     648    $     230     $    113     $  3,071     $     121
   Loans past due 90 days or more                          949        1,046          523          275           275
                                                     ---------    ---------     --------     --------     ---------
     Total nonperforming loans                           1,597        1,276          636        3,346           396
   Other real estate                                     1,783          879          294          255           341
                                                     ---------    ---------     --------     --------     ---------

     Total nonperforming assets                      $   3,380    $   2,155     $    930     $  3,601     $     737
                                                     =========    =========     ========     ========     =========

   Nonperforming loans as a percent of
     total loans                                           .68%         .59%         .30%        1.73%          .25%
   Nonperforming assets as a percent of
     total assets                                         1.18%         .77%         .36%        1.50%          .33%
   Nonperforming loans as a percent of the
     loan loss reserve                                   60.05%       58.00%       27.81%       77.50%        18.15%`

---

9.

---

# ALLOWANCE FOR LOAN LOSSES

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

`--------------------Years ended December 31,-------------------
                                                                             (in thousands)
                                                        2002         2001         2000         1999         1998
                                                        ----         ----         ----         ----         ----
Loans:
   Average daily balance of loans for the year, net  $ 222,017    $ 217,424     $203,698     $171,276     $ 163,916
   Amount of loans outstanding at end of year, net   $ 233,049    $ 212,589     $212,317     $192,721     $ 156,272

Allowance for loan losses:
   Balance at beginning of year                      $   2,200    $   2,287     $  4,646     $  2,182     $   1,964
   Loans charged off:
     Real estate - mortgage                                 23            -            -           34            13
     Real estate - construction                              -            -           18            -             -
     Commercial and agricultural                           390          314        2,339           28            14
     Consumer                                              231          265          120           96            26
                                                     ---------    ---------     --------     --------     ---------
                                                           644          579        2,477          158            53
                                                     ---------    ---------     --------     --------     ---------
   Recoveries of loans previously charged-off:
     Real estate-mortgage                                    -            -            2           15             -
     Commercial and agricultural                           101           81           36            6            10
     Consumer                                               50           23           50           41            22
                                                     ---------    ---------     --------     --------     ---------
                                                           151          104           88           62            32
                                                     ---------    ---------     --------     --------     ---------

   Net loans charged-off (recoveries)                      493          475        2,389           96            21
   Additions to allowance charged to operations            953          388           30        2,560           239
                                                     ---------    ---------     --------     --------     ---------
     Balance at end of year                          $   2,660    $   2,200     $  2,287     $  4,646     $   2,182
                                                     =========    =========     ========     ========     =========

Ratios:
   Net loans charged off to average net loans
     outstanding                                           .22%         .22%        1.17%         .06%         .01%
   Allowance for loan losses to net loans
     outstanding                                          1.14%        1.03%        1.08%        2.41%        1.40%`

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:

`------------------------------------------------December 31,----------------------------------------------
                                 2002                  2001                 2000                  1999                  1998
                                 ----                  ----                 ----                  ----                  ----
                                     Percent               Percent              Percent               Percent               Percent
                                    of Loans              of Loans             of Loans              of Loans              of Loans
                                    to Total              to Total             to Total              to Total              to Total
                         Allowance    Loans    Allowance    Loans   Allowance    Loans    Allowance    Loans    Allowance    Loans
                         ----------------------------------------------------------------------------------------------------------
                                                                       (In thousands)
Commercial, financial
  and agricultural       $   2,034    77.80%   $   1,900    72.20%  $   1,774    69.49%   $   4,010    68.59%   $   1,680    70.95%
Real estate - mortgage          18     4.28            5     8.11           1     6.63           33     8.72           18    10.73
Real estate - construction      25     3.82           23     3.41         134     6.23           99     5.03           74        -
Consumer                       207    14.10          148    16.28         119    17.65          135    17.66          130    18.32
Unallocated                    376        -          124        -         259        -          369        -          280        -
                         --------- --------    --------- --------   --------- --------    --------- --------    --------- --------
                         $   2,660   100.00%   $   2,200   100.00%  $   2,287   100.00%   $   4,646   100.00%   $   2,182   100.00%`

---

10.

---

# 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 has placed a
significant amount of unused 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, 2002, we had
$25.0 million of additional borrowing capacity at the Federal Home Loan Bank and $4.0
million of borrowing capacity with correspondent banks.

During 2002, we also generated $3.8
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, 2002, equity capital
totaled $25.1 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, 2002, 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 RiskOur 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.

---

11.

---

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
assets and owed on 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 its obligations at new, lower rates.
Prepayments of assets carrying higher rates reduces 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.

---

12.

---

The following table provides
information about our financial instruments that were sensitive to changes in interest
rates as of December 31, 2002. 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, 2002 maturing in:

`Fair
                                      2003       2004       2005       2006       2007  Thereafter    Total     Value
                                      ----       ----       ----       ----       ----  ----------    -----     -----
                                                                     (In thousands)
Rate Sensitive Assets
Fixed interest rate securities      $    -    $     -     $    -    $15,325    $ 3,590   $ 2,042    $ 20,957  $ 21,276
   Average interest rate                 -          -          -       5.47%      4.96%     5.77%       5.37%
Tax-exempt fixed rate securities       944        372        745        295        424       928       3,708
3,940
   Average interest rate              4.36%      5.85%      4.49%      4.40%      4.05%     6.24%       4.97%
FHLB stock                           2,504          -          -          -          -         -       2,504     2,504
   Average interest rate              6.25%         -          -          -          -         -        6.25%
FRB stock                              493          -          -          -          -         -         493       493
   Average interest rate              6.00%         -          -          -          -         -        6.00%
Fixed interest rate loans           59,924     10,920      5,238     28,234      7,233     2,817     114,366   114,733
   Average interest rate              7.65%      7.97%      8.66%      7.36%      7.32%     6.96%       7.62%
Variable interest rate loans        37,314     17,945      20,684    10,889     20,636    13,936     121,404   121,759
   Average interest rate              5.59%      7.85%      7.45%      7.42%      7.40%     7.11%       6.89% --------
                                 ---------    -------    -------    -------    -------   -------    --------
Total earning assets               101,179     29,237     26,667     54,743     31,883    19,723     263,432   264,766
                                 ---------    -------    -------    -------    -------   -------    --------   -------

Rate Sensitive Liabilities
Interest-bearing demand          $  59,549    $     -    $     -    $     -    $     -   $     -    $ 59,549  $ 59,549
   Average interest rate               .49%         -          -          -          -         -         .49%        -
Savings                             29,267          -          -          -          -         -      29,267    29,267
   Average interest rate               .71%         -          -          -          -         -         .71%
Time deposits                       65,349     26,592      8,923      1,827      1,385         -     104,076   108,289
   Average interest rate              3.40%      4.32%     3.98%       3.82%      5.25%        -        3.58%
Repurchase agreements and
   federal funds purchased           3,507          -          -          -          -         -       3,507     3,507
   Average interest rate%             2.00%         -          -          -          -         -        2.00%
Trust preferred securities               -          -          -          -          -     4,836       4,836     4,836
   variable rate                         -          -          -          -          -      5.17%       5.17%
Fixed interest rate FHLB advances      408        441        477      3,803          -         -       5,129     5,458
   Average interest rate              6.04%      6.04%      6.04%      6.04%         -%        -        6.04% --------
                                 ---------    -------    -------    -------    -------   -------    --------
Total interest bearing liabilities 158,080     27,033      9,400      5,630      1,385     4,836     255,192   259,734
                                 ---------    -------    -------    -------    -------   -------    --------  --------

Interest rate sensitivity gap    $ (56,901)   $ 2,204    $17,267    $49,113    $30,498   $14,887    $  8,240
                                 =========    =======    =======    =======    =======   =======    ========
Cumulative interest rate
   sensitivity gap               $ (56,901)  $(54,697)  $(37,430)   $11,683    $42,181   $ 8,240
                                 =========   ========   ========    =======    =======   =======`

---

13.

---

Principal/notional amount as of December
31, 2001 maturing in:

`Fair
                                      2002       2003       2004       2005       2006  Thereafter    Total     Value
                                      ----       ----       ----       ----       ----  ----------    -----     -----
                                                                     (In thousands)
Rate Sensitive Assets
Federal funds sold               $   8,290    $     -    $     -    $     -    $     -   $     -    $  8,290  $   8,290
   Average interest rate              1.50%         -          -          -          -         -           -
Fixed interest rate securities       5,786          -      4,143      2,128      8,142       421      20,620     20,836
   Average interest rate              5.14%         -       5.24%      5.12%      5.85%     5.52%       5.44%
Tax-exempt fixed rate securities       316      1,056        697        757        716     1,426       4,968      5,133
   Average interest rate              5.94%      4.45%      5.24%      4.43%      5.32%     6.50%       5.37%
FHLB stock                           2,504          -          -          -          -         -       2,504      2,504
   Average interest rate              6.00%         -          -          -          -         -        6.00%
FRB stock                              480          -          -          -          -         -         480        480
   Average interest rate              6.00%         -          -          -          -         -        6.00%
Fixed interest rate loans           10,049      7,152     16,476     15,321     19,348    25,715      94,061     95,792
   Average interest rate              9.99%      9.13%      8.57%      8.43%      8.01%     7.58%       8.35%
Variable interest rate loans        62,814     13,629     15,553     19,955      5,968     2,769     120,688    122,869
   Average interest rate              5.35%      9.03%      8.11%      8.23%      8.71%     9.19%       6.85% ---------
                                 ---------    -------    -------    -------    -------   -------    --------
Total earning assets                90,239     21,837     36,869     38,161     34,174    30,331     251,611    255,904
                                 ---------    -------    -------    -------    -------   -------    --------  ---------

Rate Sensitive Liabilities
Interest-bearing demand          $  57,699    $     -    $     -    $     -    $     -   $     -    $ 57,699  $  57,699
   Average interest rate              1.19%         -          -          -          -          -       1.19%
Savings                             25,192          -          -          -          -          -     25,192     25,192
   Average interest rate              1.50%         -          -          -          -          -       1.50%
Time deposits                       73,044     20,995     10,920      1,095        975          -    107,029    109,503
   Average interest rate              4.28%      5.67%      6.00%      4.64%      4.64%         -       4.69%
Securities sold under  agreements
   to repurchase                     1,889          -          -          -          -          -      1,889      1,889
   Average interest rate%             1.54%         -          -          -          -          -       1.54%
Trust preferred securities               -          -          -          -          -      4,850      4,850      4,850
   variable rate                         -          -          -          -          -       6.02%      6.02%
Fixed interest rate FHLB advances      376        407        441        477      3,804          -      5,505      5,510
   Average interest rate              6.04%      6.04%      6.04%      6.04%      6.04%         -       6.04% ---------
                                 ---------    -------    -------    -------    -------    -------   --------
Total interest bearing liabilities 158,200     21,402      1,361      1,572      4,779      4,850    202,164    204,643
                                 ---------    -------    -------    -------    -------    -------   --------  ---------

Interest rate sensitivity gap    $ (67,961)   $   435    $25,508    $36,589    $29,395   $ 25,487   $ 49,447
                                 =========    =======    =======    =======    =======   ========   ========

Cumulative interest rate
   sensitivity gap               $ (67,961)  $(67,526)  $(42,018)   $(5,429)   $23,966   $ 49,447
                                 =========   ========   ========    =======    =======   ========`

# CRITICAL ACCOUNTING
POLICIES

Certain of the Companys
accounting policies are important to the portrayal of the Companys financial
condition, since they require management to make difficult, complex or subjective
judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes
in facts and circumstances. Facts and circumstances which could effect these judgments
include, but without limitation, changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that its

---

14.

---

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. The
Companys critical accounting policies are discussed in detail in Note 1 of the Notes
to the Consolidated Financial Statements.

# 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.

---

15.

---

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.

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

---

16.

---

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, 2002 and
2001, and the related consolidated statements of income, changes in shareholders
equity and cash flows for each of the years ended December 31, 2002, 2001 and 2000. 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, 2002 and 2001, and the
results of its operations and its cash flows for each of the years ended December 31,
2002, 2001 and 2000 in conformity with accounting principles generally accepted in the
United States of America.





|Grand Rapids, MichiganFebruary 4, 2003 | Crowe,
Chizek and Company LLP
|-------------------------------------- | -----------------------------

---

17.

---

PAVILION BANCORP, INC. 
CONSOLIDATED BALANCE SHEETS 
December 31, 2002 and 2001

---

`2002                 2001
                                                                                    ----                 ----
ASSETS
Cash and due from banks                                                      $      11,222,644    $      15,986,998
Federal funds sold                                                                           -            8,290,000
                                                                             -----------------    -----------------
     Total cash and cash equivalents                                                11,222,644           24,276,998

Securities available for sale                                                       25,215,853           25,969,241
Federal Home Loan Bank stock, at cost                                                2,503,700            2,503,700
Federal Reserve Bank stock, at cost                                                    493,350              480,000

Loans held for sale                                                                  1,473,300              416,600
Loans receivable, net of allowance for loan losses:
  $2,659,935 - 2002; $2,200,157 - 2001                                             233,048,728          212,589,534
Premises and equipment, net                                                          6,314,240            6,611,126
Accrued interest receivable                                                          1,867,988            1,877,744
Mortgage servicing rights                                                            2,715,011            2,065,958
Other assets                                                                         2,431,180            1,485,761
                                                                             -----------------    -----------------

         Total assets                                                        $     287,285,994    $     278,276,662
                                                                             =================    =================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
     Noninterest bearing                                                     $      48,827,584    $      45,487,597
     Interest bearing                                                              192,892,537          189,919,417
                                                                             -----------------    -----------------
         Total deposits                                                            241,720,121          235,407,014

Borrowed funds                                                                       8,635,176            7,394,232
Accrued interest payable                                                               506,603              849,994
Other liabilities                                                                    2,254,464            1,618,466
Guaranteed preferred beneficial interests in the Corporation's
         subordinated debentures (Note 9 - Trust Preferred Securities)               5,000,000            5,000,000
Common stock subject to repurchase obligation in ESOP                                4,100,407            4,444,244
                                                                             -----------------    -----------------
         Total liabilities                                                         262,216,771          254,713,950

Shareholders' equity
     Common stock and paid-in capital, no par
       value:  3,000,000 shares authorized; shares
       issued and outstanding:  831,182 - 2002; 848,537 - 2001                       9,711,476           10,186,534
     Retained earnings                                                              15,254,440           13,124,430
     Accumulated other comprehensive income                                            103,307              251,748
                                                                             -----------------    -----------------
         Total shareholders' equity                                                 25,069,223           23,562,712
                                                                             -----------------    -----------------

              Total liabilities and shareholders' equity                     $     287,285,994    $     278,276,662
                                                                             =================    =================`

---

See accompanying notes to consolidated financial statements.

18.

---

PAVILION BANCORP, INC. 
CONSOLIDATED STATEMENTS OF INCOME 
Years ended December 31, 2002, 2001 and 2000

---

`2002                2001                2000
                                                                 ----                ----                ----
Interest and dividend income
     Loans receivable, including fees                       $    17,785,876     $    19,284,332    $     19,267,973
     Taxable securities                                             911,175             975,860             850,100
     Nontaxable securities                                          202,868             247,890             289,436
     Federal funds sold                                              88,331             255,321             166,828
     Dividend income                                                173,911             208,194             229,023
     Other                                                           19,757              40,911              47,993
                                                            ---------------     ---------------    ----------------
         Total interest and dividend income                      19,181,918          21,012,508          20,851,353

Interest expense
     Deposits                                                     5,365,835           7,779,154           7,853,587
     Trust preferred securities                                     292,697              26,345                   -
     Other borrowed funds                                           370,148             392,862             856,797
                                                            ---------------     ---------------    ----------------
         Total interest expense                                   6,028,680           8,198,361           8,710,384
                                                            ---------------     ---------------    ----------------

Net interest income                                              13,153,238          12,814,147          12,140,969
     Provision for loan losses                                      953,000             388,000              30,000
                                                            ---------------     ---------------    ----------------

Net interest income after provision for
  loan losses                                                    12,200,238          12,426,147          12,110,969

Noninterest income
     Service charges and fees                                     1,887,831           1,362,691             980,745
     Net gains on loan sales                                      4,839,085           2,715,924             651,733
     Loan servicing fees, net of amortization                    (1,159,165)           (290,590)            107,109
     Gain on sale of securities                                       8,838                   -                   -
     Other                                                          398,155             363,256             324,282
                                                            ---------------     ---------------    ----------------
                                                                  5,974,744           4,151,281           2,063,869

Noninterest expense
     Salaries and employee benefits                               8,456,260           7,188,368           5,018,659
     Occupancy and equipment                                      2,367,665           2,067,338           1,588,555
     Printing, postage  and supplies                                490,457             420,637             312,674
     Professional and outside services                              399,198             563,213             391,617
     Mobile banking costs                                           448,227             425,563             341,658
     Receivable financing services                                  201,938             249,149             296,733
     Other                                                        1,628,955           1,268,030           1,463,633
                                                            ---------------     ---------------    ----------------
                                                                 13,992,700          12,182,298           9,413,529
                                                            ---------------     ---------------    ----------------

Income before income taxes                                        4,182,282           4,395,130           4,761,309
     Income tax expense                                           1,326,940           1,352,058           1,556,376
                                                            ---------------     ---------------    ----------------

Net income                                                  $     2,855,342     $     3,043,072    $      3,204,933
                                                            ===============     ===============    ================

Basic earnings per share                                    $          3.39     $          3.58    $           3.75
                                                            ===============     ===============    ================

Diluted earnings per share                                  $          3.37     $          3.54    $           3.71
                                                            ===============     ===============    ================`

---

See accompanying notes to consolidated financial statements.

19.

---

PAVILION BANCORP, INC. 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY 
Years ended December 31, 2002, 2001 and 2000

---

`Common                               Accumulated
                                                      Stock and                                Other               Total
                                                       Paid-In           Retained          Comprehensive       Shareholders'
                                                       Capital           Earnings          Income (Loss)          Equity
                                                       -------           --------          -------------          ------

Balance January 1, 2000                            $  10,430,303       $   8,352,940      $     (334,282)     $    18,448,961

Comprehensive income:
    Net income                                                             3,204,933                                3,204,933
    Unrealized gains (losses) on securities                                                      454,418
    Tax effect                                                                                  (154,539)
                                                                                          --------------
       Total other comprehensive income                                                          299,879              299,879
                                                                                          --------------      ---------------
          Total comprehensive income                                                                                3,504,812
                                                                                                              ---------------

Change in common stock subject to repurchase            (787,470)                                                    (787,470)

Retirement of stock - 3,441 shares                      (151,405)                                                    (151,405)

Proceeds from sale of stock - 2,582 shares               117,065                                                      117,065

Stock option expense                                      23,465                                                       23,465

Cash dividends - $.94 per share                                             (802,450)                                (802,450)
                                                   -------------       -------------      --------------      ---------------

Balance December 31, 2000                              9,631,958          10,755,423             (34,403)          20,352,978

Comprehensive income:
    Net income                                                             3,043,072                                3,043,072
    Unrealized gains (losses) on securities                                                      433,327
    Tax effect                                                                                  (147,176)
                                                                                          --------------
       Total other comprehensive income                                                          286,151              286,151
                                                                                          --------------      ---------------
          Total comprehensive income                                                                                3,329,223
                                                                                                              ---------------

Change in common stock subject to repurchase             669,526                                                      669,526

Retirement of stock - 5,619 shares                      (284,286)                                                    (284,286)

Proceeds from sale of stock - 2,605 shares               132,855                                                      132,855

Stock option expense                                      36,481                                                       36,481

Cash dividends - $.80 per share                                             (674,065)                                (674,065)
                                                   -------------       -------------      --------------      ---------------

Balance December 31, 2001                             10,186,534          13,124,430             251,748           23,562,712

Comprehensive income:
    Net income                                                             2,855,342                                2,855,342
    Establish minimum pension liability                                                         (398,683)
    Unrealized gains (losses) on securities                                                      168,667
    Tax effect                                                                                    81,575
                                                                                          --------------
       Total other comprehensive income                                                         (148,441)            (148,441)
                                                                                          --------------      ---------------
          Total comprehensive income                                                                                2,706,901
                                                                                                              ---------------

Change in common stock subject to repurchase             343,837                                                      343,837

Retirement of stock - 21,423 shares                   (1,019,130)                                                  (1,019,130)

Proceeds from sale of stock - 2,044 shares               105,260                                                      105,260

Stock option expense                                      34,451                                                       34,451

Stock options exercised                                   60,524                                                       60,524

Cash dividends - $.86 per share                                             (725,332)                                (725,332)
                                                   -------------       -------------      --------------      ---------------

Balance December 31, 2002                          $   9,711,476       $  15,254,440      $      103,307      $    25,069,223
                                                   =============       =============      ==============      ===============`

---

See accompanying notes to consolidated financial statements.

20.

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PAVILION BANCORP, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
Years ended December 31, 2002, 2001 and 2000

---

`2002                2001                2000
                                                                 ----                ----                ----
Cash flows from operating activities
     Net income                                             $     2,855,342     $     3,043,072    $      3,204,933
     Adjustments to reconcile net income to
       net cash from operating activities
         Depreciation                                               902,923             804,504             690,753
         Stock option expense                                        34,451              36,481              23,465
         Provision for loan losses                                  953,000             388,000              30,000
         Net amortization and accretion on securities
           available for sale                                       291,654             102,372              69,728
         Net realized (gain) loss on sales of securities             (8,838)                  -                   -
         Amortization of mortgage servicing rights                1,782,696             790,896             314,534
         Loans originated for sale                             (230,040,837)       (156,501,748)        (37,696,914)
         Proceeds from sales of mortgage loans                  231,391,473         158,263,182          44,954,185
         Net gains on sales of mortgage loans                    (4,839,085)         (2,715,924)           (651,733)
     Net change in:
         Deferred loan origination fees                            (101,649)            (52,129)            (33,877)
         Accrued interest receivable                                  9,756              21,203            (322,668)
         Other assets                                               589,924           1,532,660            (481,094)
         Accrued interest payable                                  (343,391)            (95,797)            301,960
         Other liabilities                                          304,414             232,883             154,858
                                                            ---------------     ---------------    ----------------
              Net cash from operating activities                  3,781,833           5,849,655          10,558,130

Cash flows from investing activities
     Proceeds from:
         Maturities, calls and principal payments on
           securities available for sale                         18,135,401          10,207,721           4,087,858
         Sales of securities available for sale                   3,508,838                   -                   -
     Purchases of:
         Securities available for sale                          (21,005,000)        (16,525,000)                  -
         Federal Reserve Bank Stock                                 (13,350)           (120,000)                  -
         Premises and equipment, net                               (606,037)         (1,427,028)           (158,331)
     Net increase in loans                                      (22,982,728)         (1,552,221)        (26,951,438)
     Recoveries on loans charged-off                                151,316             103,993              87,547
                                                            ---------------     ---------------    ----------------
         Net cash from investing activities                     (22,811,560)         (9,312,535)        (22,934,364)

Cash flows from financing activities
     Net change in deposits                                       6,313,107          11,264,359          24,936,246
     Net change in short term borrowings                          1,617,356            (194,032)             80,917
     Proceeds from FHLB advances                                          -                   -          10,000,000
     Net proceeds from issuance of trust preferred securities             -           4,850,417                   -
     Repayment of FHLB advances                                    (376,412)           (347,886)        (18,321,521)
     Repurchase of common stock                                  (1,019,130)           (284,286)           (151,405)
     Issuance of common stock                                       105,260             132,855             117,065
     Stock options exercised                                         60,524                   -                   -
     Dividends paid                                                (725,332)           (674,065)           (802,450)
                                                            ---------------     ---------------    ----------------
         Net cash from financing activities                       5,975,373          14,747,362          15,858,852
                                                            ---------------     ---------------    ----------------

Net change in cash and cash equivalents                         (13,054,354)         11,284,482           3,482,618

Cash and cash equivalents at beginning of year                   24,276,998          12,992,516           9,509,898
                                                            ---------------     ---------------    ----------------

Cash and cash equivalents at end of year                    $    11,222,644     $    24,276,998    $     12,992,516
                                                            ===============     ===============    ================

Supplemental schedule of noncash activities
     Transfer from:
         Loans to foreclosed real estate                    $     1,520,867     $       839,840    $        126,318
         Portfolio loans to loans held for sale                           -                   -           9,592,343
         Loans held for sale to portfolio loans                           -                   -           2,447,377

     Cash paid for:
         Interest                                           $     6,372,071     $     8,294,158    $      8,408,424
         Income taxes                                             1,599,000             836,000           1,147,000`

---

See accompanying notes to consolidated financial statements.

21.

---

PAVILION BANCORP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2002, 2001 and 2000

---

# 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, Lenawee Capital
Trust I, 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.

Lenawee Capital Trust I
(Capital Trust) was formed in December 2001. All of the common securities of
this special purpose trust are owned by the Company. The Trust exists solely to issue
trust preferred securities. For financial reporting purposes, the Trust is reported as a
subsidiary and is consolidated into the financial statements of the Company. The Trust
Preferred Securities are presented as a separate line item on the consolidated balance
sheet.

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.

---

(Continued)

22.

---

# NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

Securities: Securities are
classified as available for sale when they might be sold before maturity. Ssuuch
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)

23.

---

# 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 $1,783,000 and $879,000 at December 31, 2002 and 2001 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. Pension expense is the net of service and
interest cost, return on plan assets, and amortization of gains and losses not immediately
recognized. The Company records a minimum pension liability when the Companys
accumulated benefit obligation exceeds the fair value of plan assets by reducing
accumulated other comprehensive income, net of tax. Profit-sharing and 401(k) plan expense
is the amount contributed as determined by Board decision.

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 and 2000, 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 2000 stock option grants. Accordingly compensation expense
for these stock options has been recorded during 2002, 2001 and 2000 based on the vesting
schedules of the related stock options. Compensation expense for stock options was
$34,000, $36,000 and $23,000 during 2002, 2001 and 2000. 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)

24.

---

NOTE 1  SUMMARY OF
ACCOUNTING POLICIES (Continued)

`2002              2001               2000
                                                                ----              ----               ----

       Net income as reported                              $    2,855,342    $     3,043,072    $    3,204,933
       Less:  Stock-based compensation expense
         determined under fair value based method                  61,002             69,534            53,808
                                                           --------------    ---------------    --------------

       Proforma net income                                 $    2,794,340    $     2,973,538    $    3,151,125
                                                           ==============    ===============    ==============

       Basic earnings per share as reported                $         3.39    $          3.58    $         3.75
       Proforma basic earnings per share                             3.32               3.50              3.69

       Diluted earnings per share as reported                        3.37               3.54              3.71
       Proforma diluted earnings per share                           3.29               3.46              3.64`

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, 2002, 2001 and 2000:

`2002              2001               2000
                                                                   ----              ----               ----

       Risk-free interest rate                                      4.78%              4.88%             6.64%
       Expected option life                                       8 years            8 years           8 years
       Expected dividend yield                                      1.38%              1.44%             1.35%
       Expected stock price volatility                             22.92%             23.16%            20.92%`

The weighted average fair value of
stock options granted was $16.69, $20.18 and $24.86 for 2002, 2001 and 2000.

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, 2002 and 2001.

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)

25.

---

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.

Newly Issued But Not Yet Effective
Accounting Standards: New accounting standards on asset retirement obligations,
restructuring activities and exit costs, operating leases, and early extinguishment of
debt were issued in 2002. Management determined that when the new accounting standards are
adopted in 2003 they will not have a material impact on the Companys financial
condition or results of operations.

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:

`Gross             Gross
                                                   Fair           Unrealized        Unrealized
                                                   Value             Gains            Losses
                                                   -----             -----            ------
2002
----
     U. S. Treasury and
        government agencies                  $    18,710,181    $     204,836     $            -
     Obligations of states and
        political subdivisions                     4,380,088          261,462                  -
     Mortgage-backed securities                    2,125,584           83,625                  -
                                             ---------------    -------------     --------------

                                             $    25,215,853    $     549,923     $            -
                                             ===============    =============     ==============


                                                                     Gross             Gross
                                                   Fair           Unrealized        Unrealized
                                                   Value             Gains            Losses
                                                   -----             -----            ------
2001
----
     U. S. Treasury and
        government agencies                  $    18,064,679    $     180,506     $       (1,490)
     Obligations of states and
        political subdivisions                     5,132,785          164,693                  -
     Mortgage-backed securities                    2,771,777           37,547                  -
                                             ---------------    -------------     --------------

                                             $    25,969,241    $     382,746     $       (1,490)
                                             ===============    =============     ==============`

---

(Continued)

26.

---

NOTE 2  SECURITIES
(Continued)

Contractual maturities of debt
securities at year-end 2002 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                                                      $      961,297
     Due from one to five years                                                       21,105,002
     Due from five to ten years                                                          576,286
     Due after ten years                                                                 447,684
                                                                                  --------------
                                                                                      23,090,269
     Mortgage-backed securities                                                        2,125,584
                                                                                  --------------

                                                                                  $   25,215,853
                                                                                  ==============`

Sales of securities available for
sale were:

`2002               2001                2000
                                                            ----               ----                ----

     Proceeds from sales                             $      3,508,838    $          -         $           -
     Gross gains from sales                                     8,838               -                     -
     Gross losses from sales                                        -               -                     -`

In addition to Federal Home Loan Bank
(FHLB) stock, securities with a fair value of approximately $4,030,000 and $5,023,000 at
year-end 2002 and 2001 were pledged to secure, public deposits, repurchase agreements and
U.S. Treasury demand notes. Except as indicated, total securities of any state (including
all its political subdivisions) were less than 10% of shareholders equity. At
year-end 2002 and 2001, fair value of securities issued by the state of Michigan and all
its political subdivisions totaled $3,953,000 and $4,714,000.

# NOTE 3  LOANS
RECEIVABLE

Year-end loans receivable are as
follows:

`2002                 2001
                                                                                ----                 ----

     Commercial                                                          $    152,854,003     $    123,306,677
     Agricultural                                                              30,578,909           31,764,155
     Real Estate Mortgage                                                      10,081,177           17,408,540
     Real Estate Construction                                                   9,013,211            7,318,226
     Consumer                                                                  33,242,400           34,951,480
                                                                         ----------------     ----------------
       Gross loans receivable                                                 235,769,700          214,749,078
     Deferred loan origination fees/costs, net                                    (61,037)              40,613
     Allowance for loan losses                                                 (2,659,935)          (2,200,157)
                                                                         ----------------     ----------------

       Net loans receivable                                              $    233,048,728     $    212,589,534
                                                                         ================     ================`

---

(Continued)

27.

---

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 2002 and 2001. A summary of aggregate related party loan activity for loans
aggregating $60,000 or more to any related party is as follows:

`2002                 2001
                                                                                ----                 ----

     Balance at January 1                                                $      3,876,891     $      2,441,625
     New loans                                                                  6,174,454            4,840,600
     Repayments                                                                (6,713,026)          (3,489,144)
     Other adjustments                                                            (78,794)              83,810
                                                                         ----------------     ----------------

     Balance at December 31                                              $      3,259,525     $      3,876,891
                                                                         ================     ================`

# NOTE 4  ALLOWANCE
FOR LOAN LOSSES

Activity in the allowance for loan
losses was as follows:

`2002                 2001                2000
                                                             ----                 ----                ----

     Beginning balance                                 $      2,200,157    $       2,287,438    $      4,646,484
     Loan charge-offs                                          (644,538)            (579,274)         (2,476,593)
     Loan recoveries                                            151,316              103,993              87,547
                                                       ----------------    -----------------    ----------------
         Net loan charge-offs                                  (493,222)            (475,281)         (2,389,046)
     Provision for loan losses                                  953,000              388,000              30,000
                                                       ----------------    -----------------    ----------------

     Ending balance                                    $      2,659,935    $       2,200,157    $      2,287,438
                                                       ================    =================    ================`

Impaired loans were as follows:

`2002                 2001                2000
                                                             ----                 ----                ----
     Year-end loans with no allowance for
       loan losses allocated                           $         54,000    $               -    $              -
     Year-end loans with allowance for loan
       losses allocated                                       1,119,000              652,000             325,000
                                                       ----------------    -----------------    ----------------

     Total impaired loans                              $      1,173,000    $         652,000    $        325,000
                                                       ================    =================    ================

     Amount of the allowance allocated                 $        153,000    $         367,000    $        106,000

     Average of impaired loans during the year                1,195,000              433,000           1,946,000

     Interest income recognized during
       impairment                                               101,000                5,000              49,000

     Cash-basis interest income recognized                       75,000                1,000              14,000`

---

(Continued)

28.

---

NOTE 4  ALLOWANCE
FOR LOAN LOSSES (Continued)

Nonperforming loans were as follows:

`2002                2001
                                                                 ----                ----

     Loans past due over 90 days still on accrual      $        949,000    $       1,046,000
     Nonaccrual loans                                           648,000              230,000`

Nonperforming loans and impaired
loans are defined differently. Some loans may be included in both categories, whereas
other loans may only be included in one category.

# NOTE 5  LOAN
SERVICING

Loans serviced for others are not
reported as assets. These loans totaled $300,255,000 and $227,205,000 at year-end 2002 and
2001. Related escrow balances were $632,000 and $459,000 at year-end 2002 and 2001.

Activity for capitalized mortgage
servicing rights was as follows:

`2002                2001               2000
                                                              ----                ----               ----
     Servicing rights:
         Beginning of year                              $      2,065,958    $      1,515,924    $    1,335,419
         Additions                                             2,431,749           1,340,930           495,039
         Amortization                                         (1,782,696)           (790,896)         (314,534)
                                                        ----------------    ----------------    --------------

         End of year                                    $      2,715,011    $      2,065,958    $    1,515,924
                                                        ================    ================    ==============`

There was no valuation allowance at
year-end 2002, 2001 or 2000 for mortgage servicing rights.

# NOTE 6  PREMISES
AND EQUIPMENT

Year-end premises and equipment
consist of:

`2002               2001
                                                                                  ----               ----

     Land                                                                  $         697,001    $      669,812
     Buildings and improvements                                                    6,950,416         6,873,193
     Furniture and equipment                                                       6,984,371         6,527,324
                                                                           -----------------    --------------
         Total cost                                                               14,631,788        14,070,329
     Accumulated depreciation                                                     (8,317,548)       (7,459,203)
                                                                           -----------------    --------------

                                                                           $       6,314,240    $    6,611,126
                                                                           =================    ==============`

---

(Continued)

29.

---

# NOTE 7  DEPOSITS

At year-end 2002, stated maturities
of time deposits were as follows, for the years ending December 31:

`2003                                                     $      65,349,430
                  2004                                                            26,592,262
                  2005                                                             8,923,313
                  2006                                                             1,826,533
                  2007                                                             1,384,450
                                                                           -----------------

                                                                           $     104,075,988
                                                                           =================`

Time deposits exceeding $100,000 were
approximately $37,137,000 and $41,964,000 at year-end 2002 and 2001.

At year-end 2002, stated maturities
of time deposits exceeding $100,000 were as follows:

`In 3 months or less                                      $      17,491,183
                  Over 3 through 6 months                                          6,917,298
                  Over 6 through 12 months                                         3,240,731
                  Over 12 months                                                   9,487,906
                                                                           -----------------

                                                                           $      37,137,118
                                                                           =================`

Related party deposits were
$1,081,000 and $756,000 at year-end 2002 and 2001.

# NOTE 8  BORROWED
FUNDS

Repurchase Agreements

Information concerning repurchase
agreements is summarized as follows:

`2002              2001
                                                                                    ----              ----

Amount outstanding at year-end                                               $     2,216,604    $    1,889,248
Weighted average interest rate at year-end                                             1.38%              1.54%
Average daily balance during the year                                        $     2,851,826    $    2,145,855
Weighted average interest rate during the year                                         1.98%              2.76%
Maximum month-end balance during the year                                    $     3,653,102    $    4,615,219`

Federal Home Loan Bank
Advances

Federal Home Loan Bank (FHLB)
advances totaled $5,128,572 and $5,504,984 at year-end 2002 and 2001. The balance at both
year-ends consisted of one fixed rate advance with an interest rate of 6.04%. The Company
has additional borrowing capacity at the FHLB as well as some borrowing capacity with
correspondent banks.

---

(Continued)

30.

---

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 $10,689,000 and $13,176,000 at year-end 2002 and 2001.

At year-end 2002, scheduled principal
reductions on the advance were as follows for the years ending December 31:

`2002
                                                                               ----

                  2003                                                   $       407,278
                  2004                                                           440,675
                  2005                                                           476,810
                  2006                                                         3,803,809
                                                                         ---------------

                      Total FHLB advances                                $     5,128,572
                                                                         ===============`

Borrowed funds include $1,290,000 of
federal funds purchased as of December 31, 2002, and these borrowings matured in January
of 2003. There were no federal funds purchased as of December 31, 2001.

# NOTE 9  TRUST
PREFERRED SECURITIES

In December 2001, Lenawee Capital
Trust I (Capital Trust), a wholly owned subsidiary of 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 5.17% as of December 31, 2002. These securities are considered Tier 1 capital
(with certain limitations applicable) under current regulatory guidelines. As of
December 31, 2002 and 2001, the outstanding principal balance of the Trust Preferred
Securities was $5,000,000. The principal balance of the Trust Preferred Securities are
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

# NOTE 10  INCOME
TAXES

Income tax expense consists of:

`2002               2001             2000
                                                            ----               ----             ----

     Current                                          $     1,255,086    $    1,189,935     $      753,556
     Deferred                                                  71,854           162,123            802,820
                                                      ---------------    --------------     --------------
         Total                                        $     1,326,940    $    1,352,058     $    1,556,376
                                                      ===============    ==============     ==============`

---

(Continued)

31.

---

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

`2002              2001               2000
                                                            ----              ----               ----

     Statutory rates                                  $     1,421,976    $    1,494,344     $    1,618,845
     Increase (decrease) from:
         Tax-exempt securities income                         (89,050)         (108,880)          (105,095)
         Non-deductible interest expense                        4,280             8,766             15,615
         Other, net                                           (10,266)          (42,172)            27,011
                                                      ---------------    --------------     --------------

                                                      $     1,326,940    $    1,352,058     $    1,556,376
                                                      ===============    ==============     ==============`

Year-end deferred tax assets and
liabilities consist of:

`2002              2001
                                                            ----              ----
     Deferred tax assets
         Allowance for loan losses                    $       654,745    $      503,356
         Net deferred loan fees                               214,356           216,207
         Pension expense                                       77,481            32,187
         Minimum pension liability                            135,552                 -
         Other                                                 75,190            74,716
                                                      ---------------    --------------
              Total deferred tax assets                     1,157,324           826,466
                                                      ---------------    --------------
     Deferred tax liabilities
         Depreciation                                        (293,568)         (305,330)
         Mortgage servicing rights                           (923,104)         (644,182)
         Net unrealized gains on securities
           available for sale                                (188,772)         (129,688)
                                                      ---------------    --------------
              Total deferred tax liabilities               (1,405,444)       (1,079,200)
                                                      ---------------    --------------
     Net deferred tax asset (liability)               $      (248,120)   $     (252,734)
                                                      ===============    ==============`

---

(Continued)

32.

---

# 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:

`2002              2001               2000
Basic earnings per share                                        ----              ----               ----
     Net income available to common
       shareholders                                        $    2,855,342    $     3,043,072    $    3,204,933
                                                           ==============    ===============    ==============

     Weighted average common shares
       outstanding                                                841,947            849,833           853,910
                                                           ==============    ===============    ==============

         Basic earnings per share                              $    3.39          $  3.58           $   3.75
                                                               =========          =======           ========

Diluted earnings per share
     Net income available to common
       shareholders                                        $    2,855,342    $     3,043,072    $    3,204,933
                                                           ==============    ===============    ==============

     Weighted average common shares
       outstanding                                                841,947            849,833           853,910
     Add:  Dilutive effects of exercise of
       stock options                                                6,174              9,554            10,881
                                                           --------------    ---------------    --------------

     Weighted average common and dilutive
       potential common shares outstanding                        848,121            859,387           864,791
                                                           ==============    ===============    ==============

     Diluted earnings per share                                $    3.37          $  3.54           $   3.71
                                                               =========          =======           ========`

Stock options for 20,120 shares of
common stock were not considered in computing diluted earnings per common share for 2002
because these options were not dilutive. All stock options outstanding were dilutive
during 2001 and 2000.

---

(Continued)

33.

---

# NOTE 12  EMPLOYEE
BENEFITS

Defined Benefit Plan

Information about the pension plan
was as follows.

`2002               2001
                                                                                   ----               ----
     Change in benefit obligation:
         Beginning benefit obligation                                        $     2,179,093    $    1,958,501
         Service cost                                                                180,930           146,675
         Interest cost                                                               157,242           138,067
         Actuarial (gain) loss                                                       239,102              (589)
         Benefits paid                                                               (62,891)          (63,561)
                                                                             ---------------    --------------

         Ending benefit obligation                                           $     2,693,476    $    2,179,093
                                                                             ===============    ==============

     Change in plan assets, at fair value:
         Beginning plan assets                                               $     1,627,333    $    1,444,811
         Actual return                                                              (149,669)          (67,809)
         Employer contribution                                                       262,384           313,892
         Benefits paid                                                               (62,891)          (63,561)
                                                                             ---------------    --------------

         Ending plan assets                                                  $     1,677,157    $    1,627,333
                                                                             ===============    ==============

     Net amount recognized:
         Funded status                                                       $    (1,016,319)   $     (551,760)
         Unrecognized net actuarial loss                                           1,044,315           585,855
         Unrecognized transition obligation                                            4,108             8,213
         Minimum pension liability                                                  (398,683)                -
         Unrecognized prior service cost                                               5,390             8,099
                                                                             ---------------    --------------

         Prepaid (accrued) benefit cost                                      $       361,189    $       50,407
                                                                             ===============    ==============`

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

`2002               2001               2000
                                                               ----               ----               ----

     Service cost                                          $      180,930    $       146,675    $      154,300
     Interest cost                                                157,242            138,067           122,931
     Expected return on plan assets                              (112,919)          (103,156)          (94,578)
     Amortization of prior service cost                             2,709              2,709             2,709
     Amortization of transition obligation                          4,105              4,105             4,105
     Recognized net actuarial loss                                 43,230             17,435            12,141
     Special termination benefit loss                                   -                  -            65,300
                                                           --------------    ---------------    --------------

         Net pension expense                               $      275,297    $       205,835    $      266,908
                                                           ==============    ===============    ==============

     Discount rate on benefit obligation                          6.75%               7.25%              7.5%
     Long-term expected rate of return on plan assets               8.0%               8.0%              8.0%
     Rate of compensation increase                                  5.0%               5.0%              5.0%`

---

(Continued)

34.

---

NOTE 12  EMPLOYEE BENEFITS(continued)

Accumulated other comprehensive
income was decreased by $263,000, net of tax effects, to recognize the Companys
minimum pension liability at December 31, 2002.

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 2002 and 2001, the ESOP
held 78,103 and 86,296 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 $4,100,000 and $4,444,000 at year-end 2002 and 2001.

The ESOP plan includes a 401(k)
provision. Employees may elect to contribute up to 15% 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 $110,000, $119,000 and $97,000 in 2002, 2001 and 2000.

---

(Continued)

35.

---

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:

`Weighted-
                                                                                                      Average
                                                          Available               Options            Exercise
                                                          For Grant             Outstanding            Price
                                                          ---------             -----------            -----

Balance at January 1, 2000                                   27,460                 22,160              25.14
     Options issued                                          (5,720)                 5,720              44.00
                                                       ------------            -----------        -----------
Balance at December 31, 2000                                 21,740                 27,880              29.01
     Expiration of non-granted options                      (21,740)                     -                  -
     Options approved                                        50,000                      -                  -
     Options issued                                          (7,200)                 7,200              51.00
                                                       ------------            -----------        -----------
Balance at December 31, 2001                                 42,800                 35,080              33.53
     Options issued                                          (7,200)                 7,200              51.50
     Options exercised                                            -                 (2,024)             22.90
     Options forfeited                                        1,496                 (1,496)             45.92
                                                       ------------            -----------        -----------
Balance at December 31, 2002                                 37,096                 38,760         $    36.94
                                                       ============            ===========        ===========`

Options exercisable at year-end are
as follows:

`Weighted-
                                                                                             Average
                                                                        Number of           Exercise
                                                                         Options              Price
                                                                         -------              -----

                         2002                                              20,052        $     27.88
                         2001                                              16,176              24.52
                         2000                                               9,964              22.25`

Options outstanding at year-end 2002
were as follows:

`---------------Outstanding----------------       -------Exerciseable-------
                                                   Weighted
                                                    Average         Weighted                         Weighted
Range of                                           Remaining         Average                          Average
Exercise                                          Contractual       Exercise                         Exercise
Prices                              Number           Life             Price          Number            Price
------                              ------           ----             -----          ------            -----

$18-$25                               14,600              4.0         $21.40            13,412           $21.08
$36-$44                               10,560              6.6         $40.00             5,280           $39.20
$51-$52                               13,600              8.8         $51.25             1,360           $51.00
                                   ---------                                         ---------

Outstanding at year end               38,760              6.4         $36.94            20,052           $27.88
                                   =========                                         =========`

---

(Continued)

36.

---

NOTE 13 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
At year-end  2002 and 2001,  reserves of  $2,699,000  and  $3,308,000  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:

`2002                2001
                                                                                 ----                ----

     Commitments to extend credit                                          $    59,819,000     $    56,017,000
     Credit card arrangements                                                    3,220,000           3,023,000
     Standby letters of credit                                                   1,870,000           2,197,000
                                                                           ---------------     ---------------

                                                                           $    64,909,000     $    61,237,000
                                                                           ===============     ===============`

Commitments outstanding as of
December 31, 2002 include fixed rate commitments totaling $22,827,000, and the majority of
these fixed rate commitments have interest rates ranging from 6% 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, 2002, approximately $11,900,000 of the
Banks retained earnings is available for transfer in the form of dividends without
prior approval from regulatory agencies.

Following are condensed parent
corporation financial statements.

---

(Continued)

37.

---

NOTE 14  PARENT
CORPORATION CONDENSED (Continued)

`CONDENSED BALANCE SHEETS
                                            December 31, 2002 and 2001

                                                                                       2002               2001
                                                                                       ----               ----
Assets
Cash and cash equivalents                                                         $    1,516,614    $     4,814,693
Securities available for sale                                                            372,961            621,133
Investment in subsidiaries                                                            32,481,854         27,764,249
Other                                                                                    173,758            158,235
                                                                                  --------------    ---------------

     Total assets                                                                 $   34,545,187    $    33,358,310
                                                                                  ==============    ===============

Liabilities and Shareholders' Equity
Trust preferred securities                                                        $    5,000,000    $     5,000,000
Other                                                                                    375,557            351,354
Common stock subject to repurchase obligation in ESOP                                  4,100,407          4,444,244
Shareholders' equity                                                                  25,069,223         23,562,712
                                                                                  --------------    ---------------

     Total liabilities and shareholders' equity                                   $   34,545,187    $    33,358,310
                                                                                  ==============    ===============`

`CONDENSED STATEMENTS OF INCOME
                                             Years ended December 31,

                                                                      2002              2001               2000
                                                                      ----              ----               ----

Dividends from subsidiaries                                    $    1,300,000     $    4,375,000    $     1,200,000
Interest on securities                                                 22,625             29,363             38,183
Interest on trust preferred securities                               (292,697)           (26,345)                 -
Other expenses                                                        (79,004)           (44,559)          (118,318)
                                                               --------------     --------------    ---------------

Income before equity in undistributed income
  of subsidiary banks                                                 950,924          4,333,459          1,119,865

Equity (excess) in undistributed net income of
  subsidiaries                                                      1,868,688         (1,290,387)         2,085,068
                                                               --------------     --------------    ---------------

Income before income taxes                                          2,819,612          3,043,072          3,204,933

Income tax expense (benefit)                                          (35,730)                 -                  -
                                                               --------------     --------------    ---------------

Net income                                                     $    2,855,342     $    3,043,072    $     3,204,933
                                                               ==============     ==============    ===============`

---

(Continued)

38.

---

NOTE 14  PARENT
CORPORATION CONDENSED (Continued)

`CONDENSED STATEMENTS OF INCOME
                                             Years ended December 31,

                                                                     2002            2001              2000
                                                                     ----            ----              ----
Operating activities
Net income                                                     $    2,855,342    $   3,043,072    $   3,204,933
Adjustments to reconcile net income to net cash
  provided by operating activities
     (Equity) excess in undistributed net income of
       subsidiaries                                                (1,868,688)       1,290,387       (2,085,068)
     Net amortization of investment securities                           (118)           1,420            4,100
     Stock option expense                                              34,451           36,481           23,465
     Other                                                              7,319          271,982           87,862
                                                               --------------    -------------    -------------
         Net cash from operating activities                         1,028,306        4,643,342        1,235,292

Investing Activities
     Investment in banking subsidiaries                            (3,000,000)      (5,000,000)               -
Activity in available for sale securities
     Maturities and calls                                             252,293          115,000          215,000
                                                               --------------    -------------    -------------
         Net cash from investing activities                        (2,747,707)      (4,885,000)         215,000

Financing Activities
Net proceeds from trust preferred securities                                -        4,850,417                -
Repurchase of common stock                                         (1,019,130)        (284,286)        (151,405)
Issuance of common stock                                              105,260          132,855          117,065
Stock options exercised                                                60,524                -                -
Dividends paid                                                       (725,332)        (674,065)        (802,450)
                                                               --------------    -------------    -------------
     Net cash from financing activities                            (1,578,678)       4,024,921         (836,790)
                                                               --------------    -------------    -------------

Net change in cash and cash equivalents                            (3,298,079)       3,783,263          613,502

Beginning cash and cash equivalents                                 4,814,693        1,031,430          417,928
                                                               --------------    -------------    -------------

Ending cash and cash equivalents                               $    1,516,614    $   4,814,693    $   1,031,430
                                                               ==============    =============    =============`

---

(Continued)

39.

---

# 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:

`2 0 0 2                              2 0 0 1
                                                          -------                              -------
                                                Carrying                            Carrying
                                                 Amount           Fair Value         Amount            Fair Value
                                                 ------           ----------         ------            ----------
Financial assets:
----------------

Cash and cash equivalents                 $     11,222,644    $    11,223,000     $   24,276,998    $    24,277,000
Securities available for sale                   25,215,853         25,216,000         25,969,241         25,969,000
Federal Home Loan Bank stock                     2,503,700          2,504,000          2,503,700          2,504,000
Federal Reserve Bank stock                         493,350            493,000            480,000            480,000
Loans held for sale                              1,473,300          1,473,000            416,600            416,000
Loans, net                                     233,048,728        233,832,000        212,589,534        216,501,000
Accrued interest receivable                      1,867,988          1,868,000          1,877,744          1,878,000
Mortgage servicing rights                        2,715,011          2,715,000          2,065,958          2,066,000

Financial liabilities:
---------------------

Demand and savings deposits               $   (137,644,133)   $  (137,644,000)    $ (128,377,476)   $  (128,377,000)
Time deposits                                 (104,075,988)      (108,289,000)      (107,029,538)      (109,503,000)
Borrowed funds                                  (8,635,176)        (8,964,000)        (7,394,232)        (7,399,000)
Trust preferred securities                      (5,000,000)        (5,000,000)        (5,000,000)        (5,000,000)`

---

(Continued)

40.

---

# 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:

`Minimum Required
                                                                                                   To Be Well
                                                                     Minimum Required              Capitalized
                                                                        For Capital          Under Prompt Corrective
                                                Actual               Adequacy Purposes         Action Regulations
                                                ------               -----------------         ------------------
                                          Amount      Ratio          Amount      Ratio         Amount     Ratio
                                          ------      -----          ------      -----         ------     -----
2002
----
Total capital (to risk weighted assets)
   Consolidated                           $  36.7    14.6%           $ 20.2      8.0%          $ 25.2     10.0%
   Bank of Lenawee                           27.8    14.0              15.9      8.0             19.9     10.0
   Bank of Washtenaw                          7.2    13.7               4.2      8.0              5.3     10.0
Tier 1 capital (to risk weighted assets)
   Consolidated                              34.1    13.5              10.1      4.0             15.1      6.0
   Bank of Lenawee                           25.7    12.9               8.0      4.0             12.0      6.0
   Bank of Washtenaw                          6.7    12.6               2.1      4.0              3.2      6.0
Tier 1 capital (to average assets)
   Consolidated                              34.1    12.0              11.3      4.0             14.2      5.0
   Bank of Lenawee                           25.7    10.6               9.7      4.0             12.2      5.0
   Bank of Washtenaw                          6.7    10.9               2.4      4.0              3.1      5.0

2001
----
Total capital (to risk weighted assets)
   Consolidated                           $  34.9    15.3%           $ 18.3      8.0%          $ 22.9     10.0%
   Bank of Lenawee                           25.2    12.8              15.8      8.0             19.8     10.0
   Bank of Washtenaw                          4.5    14.6               2.5      8.0              3.1     10.0
Tier 1 capital (to risk weighted assets)
   Consolidated                              32.6    14.3               9.1      4.0             13.7      6.0
   Bank of Lenawee                           23.3    11.8               7.9      4.0             11.9      6.0
   Bank of Washtenaw                          4.2    13.6               1.2      4.0              1.9      6.0
Tier 1 capital (to average assets)
   Consolidated                              32.6    11.9              11.0      4.0             13.7      5.0
   Bank of Lenawee                           23.3     9.2              10.1      4.0             12.6      5.0
   Bank of Washtenaw                          4.2    12.1               1.4      4.0              1.7      5.0`

---

(Continued)

41.

---

NOTE 16  REGULATORY
MATTERS (Continued)

Regulatory capital includes trust
preferred securities 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 2002 and 2001, 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
                                  Income            Income             Income          Basic             Diluted
                                  ------            ------             ------          -----             -------
2002
----
     First quarter            $    4,781,000    $     3,180,000    $      747,000    $     0.88      $     0.87
     Second quarter                4,686,000          3,140,000           560,000          0.66            0.66
     Third quarter                 4,871,000          3,376,000           668,000          0.80            0.79
     Fourth quarter                4,844,000          3,457,000           880,000          1.05            1.05

2001
----
     First quarter            $    5,409,000    $     3,135,000    $      733,000    $     0.86      $     0.85
     Second quarter                5,419,000          3,165,000           723,000          0.85            0.84
     Third quarter                 5,220,000          3,270,000           767,000          0.90            0.89
     Fourth quarter                4,964,000          3,244,000           820,000          0.97            0.96`

---

(Continued)

42.

---

# COMMON STOCK
INFORMATION

There is a limited market for the
Companys common stock, which is traded in the over-the-counter market and quoted on
the OTC Bulletin Board under the symbol PVLN. There are occasional sales through brokers
and direct sales by shareholders of which the Companys management is aware.

The following table sets forth the
range of high and low sales prices of the Companys Common Stock during 2002, 2001,
and 2000, 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:

`Cash
                                          Sales Prices (1)                  Dividends Declared (1)
                                          ----------------                  ----------------------
             2002                      High                Low
             ----                      ----                ---
First Quarter...............          $50.50             $46.00                     0.20
Second Quarter..............          $50.00             $38.00                     0.22
Third Quarter...............          $42.00             $35.00                     0.22
Fourth Quarter..............          $43.50             $40.65                     0.22

             2001                      High                Low
             ----                      ----                ---
First Quarter...............          $64.00             $50.00                     0.20
Second Quarter..............          $63.00             $53.00                     0.20
Third Quarter...............          $60.25             $56.00                     0.20
Fourth Quarter..............          $56.00             $47.75                     0.20

             2000                      High                Low
             ----                      ----                ---
First Quarter...............          $72.50             $65.00                     0.34
Second Quarter..............          $67.50             $62.50                     0.20
Third Quarter...............          $65.00             $60.00                     0.20
------------------------------        $67.50             $60.00                     0.20
Fourth Quarter..............`

(1)    
          Adjusted for all stock splits.

The prices quoted above were obtained
from the Bloomberg System. The over-the-counter market quotations reflect interdealer
prices without retail mark-up, mark-down or commission.

There are 3,000,000 shares of the
Companys common stock authorized, of which 831,182 shares were issued and
outstanding as of December 31, 2002. There were approximately 598 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.

---

43.

---

# Exhibit 21

# Subsidiaries of Registrant

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



---

# EXHIBIT 23

# CONSENT OF INDEPENDENT
ACCOUNTANTS

We
consent to the incorporation by reference in the Registration Statements of Pavilion
Bancorp, Inc. on Form S-8 (File Nos. 333-86636 of our report dated February 4, 2003 on the
2002 Consolidated Financial Statements of Pavilion Bancorp, Inc., which report is included
in the 2002 Annual Report on Form 10-K of Pavilion Bancorp, Inc.

| | CROWE, CHIZEK AND COMPANY LLP
| | -----------------------------

Grand Rapids, Michigan
March 18, 2003



---

# EXHIBIT 99-1

I, Douglas L. Kapnick, Interim Chief
Executive Officer of Pavilion Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

| | (1)       
               the Annual Report on Form 10-K for the year ended December 31, 2002 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 year ended
               December 31, 2002 fairly presents, in all material respects, the financial
               condition and results of operations of Pavilion Bancorp, Inc.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: March 18, 2003

| | /s/ Douglas L. Kapnick

Douglas L. Kapnick
Chairman and Chief Executive Officer
| | -------------------------------------------------------------------------------



---

# EXHIBIT 99-2

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

| | (1)       
               the Annual Report on Form 10-K for the year ended December 31, 2002 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 year ended
               December 31, 2002 fairly presents, in all material respects, the financial
               condition and results of operations of Pavilion Bancorp, Inc..
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: March 18, 2003

| | /s/ Loren V. Happel

Loren V. Happel
Financial Officer
| | ------------------------------------------------------