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

_________________

# FORM 10-K

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

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

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

For the transition
period from _______ to ________

Commission file number
000-30521

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

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

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

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

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

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

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

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

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

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

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

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

# Documents Incorporated
by Reference

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

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# Item 1. Business.

Pavilion
Bancorp, Inc. (the Company), which was incorporated in Michigan in 1993, is a
one-bank holding company that has as its wholly-owned bank subsidiary the Bank of Lenawee
(the Bank). 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 April 22, 2002, the Company changed its name
from Lenawee Bancorp, Inc. to Pavilion Bancorp, Inc. On October 29, 2004 the Company
completed the sale of its former subsidiary, the Bank of Washtenaw, to Community Bancorp,
Inc. Please refer to Note 15 to the Companys financial statements for additional
information regarding this transaction. The Companys financial statements and
accompanying notes are incorporated by reference as specified in Item 8, Financial
Statements and Supplementary Data, of the Report.

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

The
principal markets for financial services are the southern-Michigan communities in which
the Bank is located and the areas immediately surrounding these communities. The Bank
serves these markets through 8 locations in or near their communities. The Bank does 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 79% of total revenue in 2004 compared to 73% in
2003.

The
Banks 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. Generally, the Banks competitors have
significantly greater assets and financial resources than the Company. Based on deposit
information as of June 30, 2004, the Bank of Lenawee holds an estimated 20.8% of the FDIC
insured deposits in Lenawee 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
Bank. 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 Bank and
the business of the Company and the Bank.

# 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 Bank 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 Bank 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 Bank, and the public, rather than shareholders of
the Bank or the Company.

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

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# The Company

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

In
accordance with Federal Reserve Board policy, the Company is expected to act as a source
of financial strength to the Bank and to commit resources to support the Bank in
circumstances where the Company might not do so absent such policy. In addition, if the
Commissioner deems the 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 Bank 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.

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.

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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 holding 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 Bank. Most of the
          Companys revenues are received by it in the form of dividends paid by the
          Bank. Thus, the Companys ability to pay dividends to its shareholders is
          indirectly limited by statutory restrictions on the Banks 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. The Federal Reserve Board has
          similar enforcement powers over the Bank. 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.

# The Bank

General.
          The Bank is a Michigan banking corporation, a member of the Federal Reserve
          System and its deposit accounts are insured by the Bank Insurance Fund (the
          BIF) of the FDIC. As a Federal Reserve System member and Michigan
          chartered bank, the Bank is subject to the examination, supervision, reporting
          and enforcement requirements of the Federal Reserve Board as its primary federal
          regulator and the Commissioner, as the chartering authority for Michigan banks.
          These agencies and the federal and state laws applicable to the Bank and its
          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 an FDIC-insured institution, the Bank is 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 BIF 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.

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FICO
Assessments. The Bank, as a member of the BIF, is 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 Bank: 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:

|                               | TotalRisk-BasedCapital Ratio | Tier 1Risk-BasedCapital Ratio | Leverage Ratio
|------------------------------ | ---------------------------- | ----------------------------- | --------------
|                              
|Well capitalized               |                              | 10% or above                  |               
|Adequately capitalized         |                              | 8% or above                   |               
|Undercapitalized               |                              | Less than 8%                  |               
|Significantly undercapitalized |                              | Less than 6%                  |               
|Critically undercapitalized    |                              | --                            |               

As
of December 31, 2004, the Banks 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 Bank is restricted as to the maximum amount of dividends
          it may pay on its common stock. The Bank may not pay dividends except out of net
          income then on hand after deducting its 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.

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As
a member of the Federal Reserve System, the Bank 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 Bank is 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 the 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 Bank maintains 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.

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 Banks businesses include making a variety of
types of loans to individuals. In making these loans, the Bank is 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 Bank, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, the Bank is 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 Bank and its directors and officers.

Branching
Authority. The Bank has 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.

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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s offices are
located throughout Lenawee County and in the southeastern portion of Hillsdale County. The
area in which the Banks 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.
According to the 2000 U.S. Census, the populations of the cities in which the Banks
offices are located were as follows: Adrian21,574; Hudson2,499;
Morenci2,398; 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 Banks
other offices range in size from 1,200 square feet to 4,000 square feet. With the
exception of one branch, all of the offices of Bank of Lenawee are owned.

# 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 Bank, 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 2004.

# 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:

Richard
J. DeVries (age 49) was appointed to the Board of Directors of the Company and was
promoted to President and Chief Executive Officer of the Company on December 10, 2004. Mr.
DeVries joined the Company as the President and CEO of Bank of Lenawee in July 2003 and
continues to serve in that capacity. Prior to joining the Company and Bank of Lenawee, Mr.
DeVries had over 20 years of senior bank management experience including the positions of
Community President at Bank One and was asked to remain on as Community President when
Bank One was acquired by Citizens Bank in Ypsilanti, Michigan.

Douglas
L. Kapnick (age 61) 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 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 55) is the Corporate Secretary of the Company and Executive Vice President
and Chief Operating Officer 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 Executive Vice
President of Bank of Lenawee in 2004 and was elected Secretary of the Company in 1995.

William
A. Kirsten (age 39) served as the Companys Chief Financial Officer and Senior Vice
President and Chief Financial Officer of the Bank of Lenawee from September 2004 until
March 7, 2005, when he resigned from those positions.

Mark
D. Wolfe (age 48) is the Companys Controller and Vice President of the Bank of
Lenawee. He was appointed Interim Chief Financial Officer of the Corporation on March 7,
2005. Prior to commencing his employment with the Bank in 2001, he held the positions of
Chief Financial Officer and Chief Information Officer at Lenawee Health Alliance.

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# PART II

# Item 5. Market For
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.

The
information under the caption COMMON STOCK INFORMATION of the Companys
2004 Annual Report to shareholders, is incorporated herein by reference to Exhibit 13.

# Item 6. Selected
Financial Data.

The
information under the caption SELECTED FINANCIAL DATA of the Companys
2004 Annual Report to shareholders, is incorporated herein 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 of the Companys 2004 Annual
Report to shareholders, is incorporated herein 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 of the Companys 2004 Annual
Report to shareholders, is incorporated herein by reference to Exhibit 13.

# Item 8. Financial
Statements and Supplementary Data.

The
Companys consolidated financial statements, accompanying notes and report of
independent auditors included in the Companys 2004 Annual Report to shareholders, is
incorporated herein by reference to Exhibit 13.

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

On
March 23, 2004, as disclosed on Form 8-K dated March 23, 2004, the Company announced that
it had engaged Plante & Moran, PLLC as its independent accountant for the purpose of
auditing its financial statements in place of Crowe Chizek and Company LLC (Crowe
Chizek). No disagreements or reportable events have occurred with Crowe Chizek.

# Item 9A. Controls and
Procedures

(a)     Evaluation of Disclosure Controls and Procedures.

The
Companys Chief Executive Officer and Interim Chief Financial Officer, after
evaluating the effectiveness of the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period
covered by this report, have concluded that as of December 31, 2004 the Companys
disclosure controls and procedures were adequate and effective to ensure that material
information relating to the Company would be made known to them by others within the
Company, particularly during the period in which this Form 10-K Annual Report was being
prepared.

(b)     Changes in Internal Controls.

During
the quarter ended December 31, 2004, there were no significant changes in the
Companys internal controls over financial reporting that have materially affected or
are reasonably likely to materially affect the Companys internal control over
financial reporting.

# Item 9B. Other
Information

None

-8-

---



# 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 in the Companys definitive
proxy statement, as filed with the Commission and dated March 21, 2005, relating to the
April 21, 2005 Annual Meeting of Shareholders, is incorporated herein by reference.

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

The
Board of Directors of the Company has adopted a Code of Ethics which details principles
and responsibilities governing ethical conduct for all Company directors and executive
officers. The Code of Ethics was filed as an Exhibit to the Companys Report on Form
10-K for the year ended December 31, 2003.

# Item 11. Executive
Compensation.

The
information set forth under the caption COMPENSATION OF EXECUTIVE OFFICERS in
the Companys definitive proxy statement, as filed with the Commission and dated
March 21, 2005, relating to the April 21, 2005 Annual Meeting of Shareholders, is
incorporated herein by reference.

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

The
information set forth under the caption VOTING SECURITIES AND BENEFICIAL OWNERSHIP
OF MANAGEMENT AND OTHERS in the Companys definitive proxy statement, as filed
with the Commission and dated March 21, 2005, relating to the April 21, 2005 Annual
Meeting of Shareholders, is incorporated herein by reference.

Securities
Authorized for Issuance Under Equity Compensation Plans. The Company had the following
equity compensation plans at December 31, 2004:

# EQUITY COMPENSATION
PLAN INFORMATION

|Plan Category         | Number of securities to
 be issued upon exerciseof outstanding options(1) | Weighted-average 
    exercise price of outstanding options (2) | Number of securities
     remaining available for
    future issuance under
   equity compensation
        plans (excluding
     securities reflected incolumn (1))(3)
|--------------------- | ------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation   |                                                                           |                                                                 |                                                                                                                                                                       
|plans approved by     |                                                                          
|security holders      |                                                                           | 36,561                                                          |                                                                                                                                                                       
|                     
|Equity compensation   |                                                                          
|plans not approved by |                                                                          
|security holders      |                                                                           | none                                                            |                                                                                                                                                                       
|                      |                                                                           |                                                                
|Total                 |                                                                           | 36,561                                                          |                                                                                                                                                                       
|                      |                                                                           |                                                                

These equity compensation plans are
more fully described in Note 11 to the Consolidated Financial Statements.

-9-

---



# Item 13. Certain
Relationships and Related Transactions.

The
information set forth under the caption CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS in the Companys definitive proxy statement, as filed with the
Commission and dated March 21, 2005, relating to the April 21, 2005 Annual Meeting of
Shareholders, is incorporated herein by reference.

# Item 14. Principal
Accountant Fees and Services.

The
information set forth under the heading Fees of Independent Accountants in the
Companys definitive proxy statement, as filed with the Commission and dated March
21, 2005, relating to the April 21, 2005 Annual Meeting of Shareholders, is incorporated
hereby in reference.

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

|(a) | 1. | Financial Statements 
The
following consolidated financial statements of the Company and Reports of Plante &
Moran, PLLC and Crowe Chizek and Company LLC, Independent Registered Public Accounting
Firm, 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
                           Reports of Plante & Moran,  PLLC and Crowe  Chizek and Company  LLC,  Independent  Registered
                           Public Accounting Firm
|--- | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

-10-

---



# 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 21, 2005.

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

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed on
March 21, 2005 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 Richard J. DeVries and Mark D. Wolfe, 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.

# Signatures

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

-11-

---



# EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

|32.1 | Certificate
 of President and Chief  Executive  Officer of Pavilion  Bancorp,  Inc.  pursuant to 18
U.S.C.          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Certificate
of Interim Chief Financial  Officer of Pavilion Bancorp,  Inc.  pursuant to 18 U.S.C.
 Section          1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

-12-

---



# Exhibit 10

PAY FOR PERFORMANCE
PLAN (P3)

|I | Purpose:
|- | --------

| | The Plan
is designed to reward and recognize senior level managers for achieving established
goals.
| | ---------------------------------------------------------------------------------------------------

|II | Effective
Date:
|-- | ---------------

| | The Plan
will be effective January 1, 1999. It will be reviewed annually by the Board of
Directors.
| | ---------------------------------------------------------------------------------------------------

|III | Plan
Administration:
|--- | --------------------

| | The Plan
will be administered by the Executive Management under the general direction of the
Compensation Committee of the Board of Directors. The Board reserves the right to
terminate and/or revise the plan as business conditions may warrant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IV | Eligibility:
|-- | ------------

| | The general
intent is to include the President/CEO and any other senior officers as may be
recommended by the President/CEO and subsequently approved by the Board of Directors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|VI | Amount
of Awards:
|-- | -----------------

| | Targeted levels
of compensation (for fully meeting established goals) are based on officer level and are:
| | ---------------------------------------------------------------------------------------------------------

| | President/CEO: 
 EVP:           
 SVP:     1st VP      and below: | 60% of calendar year base compensation
40% of calendar year base compensation
30% of calendar year base compensation
25% of calendar year base compensation
| | ----------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|VII | Goals:
|--- | ------

| | Goals will
be established by the Board of Directors on an annual basis. The primary goal will be an
earnings and/or ROE amount. Management may recommend, subject to Board approval,
additional individual goals. The established financial goal is the point at which a full
payout would occur. The plan will also have a point below which no payouts will occur and
will likewise have a point above which it will no longer pay increased amounts. The
President, at his discretion, may also award a participant up to an additional one basis
point.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|VIII | Additional
terms of the Plan:
|---- | -----------------------------

|A. |  | No payments are guaranteed and upon the recommendation of the President and/or
               the Board payment to an individual may be withheld.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|B. |  | If a participant hired in during the year, his/her payment shall be prorated and
               paid on actual W-2 earnings for that year.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|C. |  | A participant must be employed by the Bank on December 31st of the Plan year to
               receive a payout. No prorated amount will be paid to a participant who leaves
               his/her employment prior to that date.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|D. |  | Payments under this Plan will be used in determining benefit levels under any
               Bank of Lenawee employee benefit program unless plan documents specifically
               provide otherwise.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|E. |  | No participant in this Plan may receive incentives, bonuses or omissions from
               any other Bank-sponsored program.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------

---



# Exhibit 13

# Rule 14a-3 Annual
Report to Security Holders

---





# 2004 Annual Report

This is Pavilion Bancorp,
Inc.s (the Company) 2004 Annual Report to shareholders, which contains
the Companys audited consolidated financial statements and a detailed financial
review. Although attached to the Companys proxy statement, this report is not part
of the Companys 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 2004 Summary Annual Report to
Shareholders accompanies the proxy statement and the 2004 Annual Report to Shareholders.
This report presents information concerning the business and financial results of the
Company in a format and level of detail that the Company believes shareholders will find
useful and informative.

Shareholders who would like to
receive additional information than that contained in this 2004 Annual Report are invited
to request the Companys 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. You may also access our Annual Report on Form 10-K from the Companys website:
www.pavilionbancorp.com.

---





2004 ANNUAL REPORT CONTENTS

|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|SELECTED FINANCIAL DATA                                                                       | 
|                                                                                             
|CONSOLIDATED FINANCIAL STATEMENTS                                                             | 
|As of December 31, 2004 and 2003 and for twelve months ended December 31, 2004, 2003 and 2002 | 
|                                                                                             
|-  MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING                                        | 
|                                                                                             
|-  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                    | 
|                                                                                             
|-  CONSOLIDATED BALANCE SHEETS                                                                | 
|                                                                                             
|-  CONSOLIDATED STATEMENTS OF INCOME                                                          | 
|                                                                                             
|-  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                                 | 
|                                                                                             
|-  CONSOLIDATED STATEMENTS OF CASH FLOWS                                                      | 
|                                                                                             
|-  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                 | 
|                                                                                             
|-  SELECTED QUARTERLY FINANCIAL DATA                                                          | 
|                                                                                             
|-  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS                               | 
|AND RESULTS OF OPERATION                                                                      | 
|                                                                                             
|-  DISCLOSURE CONTROLS AND PROCEDURES                                                         | 

---



SELECTED FINANCIAL DATA
(In thousands, except per share data) All data is based upon results from continuing
operations.

|                                                       | 2004 | 2003        | 2002 | 2001         | 2000
|------------------------------------------------------ | ---- | ----------- | ---- | ------------ | ----
|At Year-End:                                           |      |             |      |              |     
|Total assets                                           |      | $259,322    |      | $ 323,382    |     
|Loans receivable                                       |      | $207,159    |      | $ 209,467    |     
|Deposits                                               |      | $199,992    |      | $ 202,366    |     
|                                                       |      | $  31,857   |      | $   26,524   |     
|For the Year:                                          |     
|Total interest income                                  |      | $  14,885   |      | $   15,039   |     
|Total interest expense                                 |      | 2,795       |      | 3,252        |     
|                                                       |      |             |      |              |     
|Net interest income                                    |      | 12,090      |      | 11,787       |     
|Provision for loan losses                              |      | 693         |      | 595          |     
|Noninterest income                                     |      | 3,566       |      | 5,840        |     
|Noninterest expense                                    |      | 11,809      |      | 12,110       |     
|                                                       |      |             |      |              |     
|Income before income taxes                             |      | 3,154       |      | 4,922        |     
|Provision for income tax                               |      | 1,001       |      | 1,563        |     
|                                                       |      |             |      |              |     
|Net income from continuing operations                  |      | 2,153       |      | 3,359        |     
|                                                       |      |             |      |              |     
|Discontinued Operations                                |     
|Income (loss) from operation of discontinued component |      | 724         |      | (173         | )   
|Gain on sale of discontinued component                 |      | 6,990       |      | -            |     
|Provision (benefit) for income tax                     |      | 2,735       |      | (49          | )   
|                                                       |      |             |      |              |     
|Income (loss) from discontinued operation              |      | 4,979       |      | (124         | )   
|Net income                                             |      | $    7,132  |      | $     3,235  |     
|                                                       |      |             |      |              |     
|Financial Ratios:                                      |     
|From continuing operations                             |     
|Return on average shareholders' equity                 |      | 7.38        | %    | 13.02        | %   
|Return on average assets                               |      | 0.74        | %    | 1.10         | %   
|From combined operations                               |     
|Return on average shareholders' equity                 |      | 24.43       | %    | 12.54        | %   
|Return on average assets                               |      | 2.45        | %    | 1.06         | %   
|Per Share Data:                                        |     
|Cash dividends declared per share                      |      | $      1.22 |      | $       1.09 |     
|Shareholders' equity per share                         |      | $    37.38  |      | $     31.37  |     
|Earnings per share from continuing operations          |     
|Basic                                                  |      | $      2.54 |      | $       3.92 |     
|Diluted                                                |      | $      2.52 |      | $       3.89 |     
|Earnings per share from discontinued operations        |     
|Basic                                                  |      | $      5.88 |      | $    (0.14   | )   
|Diluted                                                |      | $      5.82 |      | $    (0.14   | )   
|Net earnings per share                                 |     
|Basic                                                  |      | $      8.42 |      | $       3.78 |     
|Diluted                                                |      | $      8.34 |      | $       3.75 |     

All per share data has been
adjusted to reflect stock splits and stock dividends, including a 5% stock dividend
declared on December 19, 2003 and issued January 30, 2004.

3

---



# MANAGEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

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

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

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

4

---



Report
of Independent Registered Public Accounting Firm

To
The Board of Directors and StockholdersPavilion Bancorp, Inc.

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

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

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

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

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

Auburn Hills, Michigan

March 9, 2005

5

---



# PAVILION BANCORP, INC.CONSOLIDATED BALANCE
SHEET

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

See
accompanying notes to the consolidated financial statements.

6

---



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

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

See
accompanying notes to the consolidated financial statements.

7

---



# PAVILION BANCORP, INC.

# CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

# Years ended December
31, 2004, 2003, and 2002

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

8

---



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

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

9

---



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

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

10

---



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

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

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

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

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

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

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

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

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

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

11

---



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

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

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

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

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

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

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

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

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

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

12

---



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

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

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

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

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

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

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

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

Advertising Expenses:
Advertising expenses are expensed as incurred.

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

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

13

---



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

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

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

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

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

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

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

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

14

---



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

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

Recent Accounting
Pronouncements:

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

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

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

15

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

# NOTE 2  SECURITIES

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

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

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

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

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

16

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

NOTE 2  SECURITIES(continued)

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

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

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

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

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

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

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

# NOTE 3  LOANS
RECEIVABLE

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

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

17

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

NOTE 3  LOANS RECEIVABLE
(continued)

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

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

# NOTE 4  ALLOWANCE
FOR LOAN LOSSES

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

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

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

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

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

Nonperforming loans at December 31,
2004 and 2003 were as follows (000s omitted):

|                                             | 2004 | 2003
|-------------------------------------------- | ---- | ----
|Loans past due over 90 days still on accrual |      | $556
|Nonaccrual loans                             |      | $671

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

18

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

# NOTE 5  LOAN
SERVICING

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

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

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

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

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

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

# NOTE 6  PREMISES
AND EQUIPMENT

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

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

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

19

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

# NOTE 7  DEPOSITS

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

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

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

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

# NOTE 8  BORROWED
FUNDS

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

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

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

Repurchase Agreements

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

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

Repurchase agreements are terminable
upon demand.

20

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

NOTE 8  BORROWED FUNDS
(continued)

Federal Home Loan Bank
Advances

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

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

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

---

# NOTE 9 
SUBORDINATED DEBENTURES

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

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

21

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

# NOTE 10  INCOME
TAXES

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

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

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

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

Year-end deferred tax assets and
liabilities consist of (000s omitted):

|                                                       | 2004 | 2003     | 2002
|------------------------------------------------------ | ---- | -------- | ----
|Deferred tax assets                                    |      |          |     
|Allowance for loan losses                              |      | $    306 |     
|Net deferred loan fees                                 |      | 26       |     
|Pension expense                                        |      | -        |     
|Minimum pension liability                              |      | -        |     
|Net unrealized losses on securities available-for-sale |      | 23       |     
|Other                                                  |      | 270      |     
|                                                       |      |          |     
|Total deferred tax assets                              |      | 625      |     
|                                                       |      |          |     
|Deferred tax liabilities                               |     
|Depreciation                                           |      | (646     | )   
|Mortgage servicing rights                              |      | (961     | )   
|Net unrealized gains on securities available for sale  |      | -        |     
|Prepaid expenses                                       |      | (138     | )   
|Other                                                  |      | (150     | )   
|                                                       |      |          |     
|Net deferred tax liabilities                           |      | (1,895   | )   
|                                                       |      |          |     
|Net deferred tax liability                             |      | $(1,270  | )   
|                                                       |      |          |     

22

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

# NOTE 11  EMPLOYEE
BENEFITS

Defined Benefit Pension
Plan

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

ESOP and 401(k) Plan

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

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

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

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

23

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

NOTE 11  EMPLOYEE BENEFITS(continued)

Stock Option Plan

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

|                             | AvailableFor Grant | OptionsOutstanding | WeightedAverageExercisePrice
|---------------------------- | ------------------ | ------------------ | ----------------------------
|Balance at January 1, 2002   |                    | 44,940             |                             
|Options issued               |                    | (7,560             | )                           
|Options exercised            |                    | -                  |                             
|Options forfeited            |                    | 1,571              |                             
|                             |                    |                    |                             
|Balance at December 31, 2002 |                    | 38,951             |                             
|Options issued               |                    | (7,140             | )                           
|Options exercised            |                    | -                  |                             
|Options forfeited            |                    | -                  |                             
|                             |                    |                    |                             
|Balance at December 31, 2003 |                    | 31,811             |                             
|Options issued               |                    | (9,030             | )                           
|Options exercised            |                    | -                  |                             
|Options forfeited            |                    | -                  |                             
|                             |                    |                    |                             
|Balance at December 31, 2004 |                    | 22,781             |                             
|                             |                    |                    |                             

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

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

|     | Number of Options | WeightedAverageExercisePrice
|---- | ----------------- | ----------------------------
|2004 |                   | 28,870                      
|2003 |                   | 24,917                      
|2002 |                   | 21,054                      

Options outstanding at December 31,
2004 were as follows:

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

24

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

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

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

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

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

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

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

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

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

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

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

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

25

---



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

# NOTE 13 
PARENT-ONLY CONDENSED FINANCIAL STATEMENTS

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

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

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

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

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

26

---



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

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

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

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

27

---



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

# NOTE 14  FAIR
VALUES OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

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

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

28

---



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

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

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

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

# NOTE 15 
DISCONTINUED OPERATIONS

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

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

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

29

---



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

NOTE 15  DISCONTINUED
OPERATIONS (continued)

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

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

# NOTE 16 
REGULATORY MATTERS

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

30

---



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

NOTE 16  REGULATORY
MATTERS (continued)

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

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

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

# NOTE 17 
RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

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

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

31

---



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

# NOTE 18 - QUARTERLY
RESULTS OF OPERATIONS (unaudited)

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

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

32

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

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

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

33

---



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

# [THIS PAGE
INTENTIONALLY LEFT BLANK]

34

---



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

# NOTE 19  SUBSEQUENT
EVENT

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

35

---



# PAVILION BANCORP, INC. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# Forward-Looking
Statements

This report includes
forward-looking statements as that term is used in the securities laws. All
statements regarding the Companys expected financial position, business and
strategies are forward-looking statements. In addition, the words anticipates,
believes, estimates, seeks, expects,
plans, intends, and similar expressions, as they relate to the
Company and its management, are intended to identify forward-looking statements. The
presentation and discussion of the provision and allowance for loan losses, determining
the fair value of securities and other financial instruments, the valuation of mortgage
servicing rights and statements concerning future profitability or future growth or
increases, are examples of inherently forward looking statements in that they involve
judgments and statements of belief as to the outcome of future events. The Companys
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
Companys operations and future prospects include, but are not limited to, changes
in: interest rates, general economic conditions, legislative/regulatory changes, monetary
and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for financial
services in the Companys market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such statements.
Further information concerning the Company and its business, including additional factors
that could materially affect the Companys financial results, is included in its
filings with the Securities and Exchange Commission.

INTRODUCTION

The following Managements
Discussion and Analysis of Financial Condition and Results of Operations (the
MD&A) provides information about the consolidated financial condition and
results of operations of Pavilion Bancorp, Inc. (the Company) as of December 31,
2004 and for the three year period ended December 31, 2004 and is intended to assist in
understanding the results of operations of the Company. Information contained in this
section should be read in conjunction with the consolidated financial statements and
accompanying notes contained in this 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 Bank of Lenawee (the Bank), a Michigan banking
corporation chartered in 1869, is a wholly-owned subsidiary of the Company. Pavilion
Mortgage Company, a wholly-owned subsidiary of the Bank, engages in the residential
mortgage origination business. Pavilion Financial Services, Inc., a wholly-owned
subsidiary of the Bank, owns an interest in a title insurance agency.

The Companys primary business
is concentrated in a single industry segment  commercial banking. The Bank provides
a full range of banking services to individuals, commercial businesses and industries
located in its service area. The 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. The Bank offers a variety of
deposit products, including checking accounts, savings accounts, money market accounts,
individual retirement accounts and certificates of deposit.

The principal markets for financial
services provided are in the southern-Michigan communities in which the Bank is located
and the areas immediately surrounding these communities. The bank serves these markets
through 8 locations in or near its communities. The Bank does 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 75.4% of total revenue in 2004 compared to 67.2% in 2003. Though interest rates
remained at low levels in 2004, mortgage loan sale activity and gains on sales of mortgage
loans was lower than 2003 as mortgage refinance activity declined significantly. This
activity accounted for 8.2% of total revenue in 2004 compared to 27.1% in 2003.

36

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# 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 affect these judgments
include, but are not limited to, changes in interest rates, the performance of the economy
or the financial condition of borrowers. Management believes that its critical accounting
policies include determining the allowance for loan losses, determining the fair value of
securities and other financial instruments, the valuation of mortgage servicing rights and
deferred tax and tax provision estimates. Additional information regarding the
Companys critical accounting policies are discussed in detail in Note 1 to the
consolidated financial statements.

# Discontinued Operations

As previously disclosed in earlier
regulatory filings, in accordance with Statement of Financial Accounting Standards No.
144, on July 16, 2004 Pavilion Bancorp, Inc. announced that it had signed a definitive
agreement to sell the Bank of Washtenaw for $15,100,000. Sale of the Bank of Washtenaw was
initiated to concentrate the Companys resources in the Lenawee County market and
other potential markets that are more homogenous to the Banks traditional market
area.. In accordance with Statement of Financial Accounting Standards 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which became
effective for the Company on January 1, 2002, the financial position and results of
operations of the Bank of Washtenaw are removed from the detail line items in the
Companys consolidated financial statements and presented separately as
discontinued operations. Accordingly, the various supporting schedules
contained in the MD&A are also presented with Bank of Washtenaw-related information
removed. The sale was completed on October 29, 2004. Please refer to Note 15 to the
Companys Consolidated Financial Statements for additional information.

# Allowance for Loan Losses

The allowance for loan losses is
managements estimate of losses inherent in the Banks loan portfolio.
Management relies on a number of factors and sources of information in preparing this
estimate. These include, but are not limited to, internal credit analyses and loan risk
ratings, local economic conditions and trends, regulatory requirements, collateral values,
loan types and loan documentation. Accordingly, the allowance for loan losses includes a
reserve calculation based on an evaluation of loans determined to be impaired, risk
ratings, historical losses, loan types and other subjective factors management may believe
to be relevant and/or material. Please refer to the section entitled Loans, Credit
Quality and Allowance for Loan Losses located elsewhere in this report for
additional information.

# Loan Classifications

The Company has established a risk
rating system for loans that evaluates a variety of credit quality-related characteristics
of each loan being rated. Initial risk ratings for loans are established by the
originating (or assigned) lending official. The lending official is responsible for the
continuing accuracy of the risk rating and is authorized to downgrade a loan to a lower
risk rating if warranted by any information received. Loan risk ratings are also evaluated
for accuracy through several processes that are independent of the loan origination
process. The Bank retains independent consultants to review the accuracy of loan risk
ratings on an annual basis. These results are reported to senior management of the Bank,
as well as the Audit Committee and the Board of Directors. Additionally, the Banks
Chief Credit Officer monitors individual loan risk ratings and overall credit quality
through several monitoring systems and reports. The Chief Credit Officer reports directly
to the CEO of the Bank and is independent of the loan origination process. Criticized
loans have been risk-rated 5 and are individually included on a monthly Loan Watch Report
submitted to senior management and the Board of Directors of the Bank. Classified loans
have been risk-rated 6, 7 or 8 and are individually included on a monthly Problem Loan
Report submitted to senior management and the Board of Directors of the Bank. The
Banks Loan Policy specifically defines the characteristics of each risk rating as
follows:

1 Rating: Essentially risk free
credit. Credit to premier customers having the banks highest credit rating based on
an extremely strong financial condition, which compares favorably with industry standards
(upper quartile of RMA ratios). Secured by readily marketable liquid collateral (traded
stocks, bonds, certificates of deposit, savings account, etc.) with comfortable margins.
Highly profitable firms that have a track record of always servicing their debts. Possible
characteristic of such accounts:

37

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

|- | Substantial
net worth
|- | ---------------------

|- | Low
debt to worth ratio
|- | -----------------------

|- | Significantly
above average working capital
|- | -------------------------------------------

|- | Current
accounts payable
|- | ------------------------

|- | Deposits
are 15% of outstanding loans
|- | -------------------------------------

|- | 25%
of assets are liquid"
|- | -------------------------

2 Rating: Low risk. Multiple
strong sources of repayment. Debt of borrower is modest relative to the
borrowers financial strength and ability to pay. Borrower must be profitable, have a
demonstrated track record, very strong cash flow and margins above projected needs. Loan
supported by unaudited financial statements containing strong balance sheets and five
consecutive years of profits combined with a satisfactory relationship with the Bank.
Customer demonstrates the ability to manage the working capital position and term
financing requirements. Possessing a sound repayment source (and a secondary source) which
definitely will allow repayment in a reasonable period of time. Individual loans backed by
liquid personal assets, established history and unquestionable character. Other
characteristics:

|- | Significant
net worth
|- | ---------------------

|- | Better
than average debt to worth ratio (e.g. 2.0 to 1 or less)
|- | ---------------------------------------------------------------

|- | Above
average working capital ratio
|- | -----------------------------------

|- | Current
accounts payable
|- | ------------------------

|- | Secured
loans must have collateral Loan/value ratio of 70% or lower
|- | -------------------------------------------------------------------

|- | 10%
of assets are liquid"
|- | -------------------------

3 Rating: Moderate risk.
Good primary and secondary sources of repayment. Debt of the borrower is
reasonable relative to borrowers financial strength and ability to pay. Borrower
must be profitable, have a demonstrated track record, exhibits sufficient cash flow and
margins above projected needs. Borrowers have satisfactory asset quality and liquidity,
adequate debt capacity and coverage, and good management in critical positions. Earning
statements may reflect a one year loss, but borrowers have sufficient strength and
financial flexibility to offset this event. Occasionally has a need for working capital
and or term financing. Other characteristics:

|- | Acceptable
net worth
|- | --------------------

|- | Acceptable
industry average for debt to worth ratio
|- | ---------------------------------------------------

|- | Adequate
working capital
|- | ------------------------

|- | Not
significantly slow in paying accounts payable
|- | -------------------------------------------------

|- | Cash
flow ratio = 1.3 or above"
|- | -------------------------------

4 Rating:  "Acceptable
risk.  Sufficient primary source of repayment and acceptable secondary source of
repayment has either:

|- | Minimum
net worth
|- | -----------------

|- | Fairly
high debt to worth ratio
|- | -------------------------------

|- | Adequate
cash flow ratio (1.2 or above) with higher than desired leverage; or marginal cash flow
(1.2 or below) with strong capitalization and liquidity.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|- | Declining
earnings, limited additional debt capacity, or market fundamentals that indicate above
average risks.
|- | ---------------------------------------------------------------------------------------------------------------

5 Rating: Borderline risk,
potential weaknesses. Borrowers who exhibit potential credit weaknesses or downward trends
deserving bank managements attention. If not checked or corrected, these trends will
weaken the banks asset position. Acceptable primary source of repayment, but less
than preferable secondary source of repayment. Credit will have minimal excess cash flow,
and financially will be moderately or highly leveraged. A satisfactory credit
exhibits manageable credit risk with two measurable sources of repayment. Loans may
lack technical or legal support, including deficiencies in loan documentation.

|- | Little
or no net worth
|- | ----------------------

|- | High
debt to worth ratio
|- | ------------------------

|- | Cash
Flow ratio = 1.1 or above
|- | ------------------------------

|- | Start
up or deteriorating industries or with a poor and declining market share in an average
industry
|- | -----------------------------------------------------------------------------------------------------

|- | An
element of asset quality, financial flexibility, or management is below average"
|- | -----------------------------------------------------------------------------------

38

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

6 Rating: Substandard. A loan
with well-defined credit weakness or weaknesses that jeopardize liquidation of the debt. A
substandard loan is inadequately protected by the current sound worth and paying capacity
of the obligor or of the collateral pledged, if any. These may be loans that have been
restructured so that payment terms and collateral represent major concessions to the
borrower when compared to normal loan terms. Also, this category should include those
loans with contemplated or pending foreclosure or legal action due to the apparent
deterioration in the credit. Loans are characterized by the distinct possibility that a
bank will sustain loss if the deficiencies are not corrected. Loss potential, while
existing in aggregate amount of substandard assets, does not have to exist in individual
assets classified substandard.

7 Rating: Doubtful. A loan with
weaknesses inherent to a substandard loan. The loan also has the added provision that the
weaknesses make collection of debt in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. The possibility of loss is
extremely high, but because of certain known factors which may work to the advantage and
strengthening of the asset, (i.e., capital injection, perfecting liens on additional
collateral, refinancing plans, etc.) its classification as an estimated loss is deferred
until its more exact status may be determined.

8 Rating: Loss. Loans
classified as Loss are considered uncollectible and of such nominal value that their
continuance as bankable assets is not warranted. This classification does not mean that
the loan has absolutely no recovery or salvage value, but rather it is unpractical or
desirable to defer writing-off this basically worthless asset, even though partial
recovery may be affected in the future. Losses should be taken in the period in which they
surface as uncollectible. Known losses should be in process of charge off.

# Mortgage Servicing
Rights (MSRs)

The Bank records the original MSRs
based on market data. A periodic independent third party valuation is completed to
determine potential impairment of MSRs as a result of changes in interest rates and
expected future loan repayment speeds. Significant changes in interest rates or repayment
speeds could have a significant impact on the carrying value of the MSRs asset. Quarterly
third party independent valuations were initiated in the third quarter of 2004.
Previously, independent third party valuations were completed twice per year. For
additional information, please refer to Note 5 to the Companys Consolidated
Financial Statements located elsewhere in this report.

# Income Taxes

Deferred income tax assets and
liabilities are determined using the liability (or balance sheet) method. Under this
method, the net deferred tax asset or liability is determined based upon the tax effects
of the various temporary differences between book and tax bases of the various balance
sheet asset and liabilities and gives current recognition to changes in tax rates and
laws. Valuation allowances are established, when necessary, to reduce deferred tax assets
to the amounts expected to be realized. For additional information, please refer to Note
10 to the Companys Consolidated Financial Statements and the section entitled
Federal Income Tax Expense, both located elsewhere in this report.

39

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# FINANCIAL CONDITION

Total assets decreased by 19.8%, or
$64.1 million, to $259.3 million at December 31, 2004 from $323.4 million at December 31,
2003. The decrease in total assets is attributable to the sale of the Companys
former subsidiary, the Bank of Washtenaw. Assets attributable to Bank of Washtenaw, which
are noted on the Companys Consolidated Balance Sheet as Assets of Discontinued
Operations, totaled $72.9 million at December 31, 2003. Increases in Cash and due
from banks and securities available-for-sale offset a portion of the overall decline in
total assets.

Total liabilities decreased by $69.4
million, or 23.4%, to $227.5 million at December 31, 2004 from $296.9 million at December
31, 2003. Liabilities attributable to Bank of Washtenaw, which are noted on the
Companys Consolidated Balance Sheet as Liabilities of Discontinued
Operations totaled $65.8 million at December 31, 2003. The elimination of such
liabilities was the primary cause of the overall decline in liabilities.

Total shareholders equity
increased $5.4 million, or 20.0%, to $31.9 million at December 31, 2004 compared to $26.5
million at December 31, 2003. Income from continuing operations, combined with the gain on
sale from the divestiture of Bank of Washtenaw accounted for the increase in total
shareholders equity. Cash dividends issued to shareholders in 2004 partially offset
the increase in shareholders equity.

# Investments and Fed
Funds Sold

Total investments securities
available-for-sale increased 36.8%, or $7.5 million, to $27.9 million at December 31,
2004, compared to $20.4 million at December 31, 2003. The increase is attributable to
growth in deposits beyond funds required to meet existing loan demand and additional funds
available to invest as a result of the sale of Bank of Washtenaw. Equity investments in
the Federal Home Loan Bank of Indianapolis (FHLB), Fannie Mae and Freddie Mac
registered minor changes, increasing, $137,000, or 3.8% to $2.7 million at December 31,
2004 from $2.6 million at December 31, 2003. Investment in FRB stock declined slightly, to
$360,000 at December 31, 2004 from $381,000 at December 31, 2003. The Bank did not have
any Fed Funds Sold at December 31, 2004 and 2003. The Company had no held-to-maturity
securities as of December 31, 2004 and 2003.

The following table presents the
maturity schedule of securities (based on estimated fair value) held and weighted average
yield of those securities, as of December 31, 2004 (000s omitted):

|                                              | Within One Year | After One but Within Five Years | After Five but within Ten | After Ten Years | Mortgage-Backed Securities | Total
|--------------------------------------------- | --------------- | ------------------------------- | ------------------------- | --------------- | -------------------------- | -----
|                                              |                 |                                 |                           |                 |                            |      
|U.S. Treasury &                               |                 |                                 |                           |                 |                            |      
|Government agencies                           |                 |                                 |                           | -               |                            |      
|                                              |                 |                                
|Obligations of state & political subdivisions |                 |                                 |                           | 1,495           |                            |      
|                                              |                 |                                
|Mortgage-backed securities                    |                 |                                 |                           | -               |                            |      
|                                              |                 |                                 |                           |                 |                            |      
|Total                                         |                 |                                 | $                         | 1,495           |                            |      
|                                              |                 |                                 |                           |                 |                            |      

Maturity information does not
incorporate any call provisions that the various securities may contain. Mortgage-backed
securities do not have specific maturity dates, and thus have been incorporated into the
above table as a separate maturity column. An analysis of the amortized cost and estimated
fair market value of the investment portfolio is contained in Note 2 to the Companys
Consolidated Financial Statements.

40

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Loans, Credit Quality
and Allowance for Loan Losses

The following table summarizes the
Companys loan mix at December 31, 2004, 2003, 2002, 2001 and 2000 (000s
omitted):

|                                       | 2004 | 2003 | 2002 | 2001    | 2000
|-------------------------------------- | ---- | ---- | ---- | ------- | ----
|Commercial, financial and agricultural |      |      | $    | 143,583 |     
|Real estate-construction               |      |      |      | 8,768   |     
|Real estate-mortgage                   |      |      |      | 21,685  |     
|Consumer                               |      |      |      | 33,123  |     
|                                       |      |      |      |         |     
|Total                                  |      |      | $    | 207,159 |     
|                                       |      |      |      |         |     

The Companys loan portfolio
decreased $2.3 million, or 1.1%, to $207.2 million at December 31, 2004 from $209.5
million at December 31, 2003. A decrease in commercial loans was the primary cause for the
decline. Commercial, financial and agricultural loans decreased by $10.7 million, or 6.9%,
to $143.6 million at December 31, 2004 from $154.3 million at December 31, 2003. Upon
completion of the sale of the Bank of Washtenaw, approximately $10 million of commercial
loan participations purchased from the Bank of Washtenaw by the Bank of Lenawee were
reacquired by the bank that purchased the Bank of Washtenaw. The decrease in commercial
loans attributable to the sale of Bank of Washtenaw was partially offset by subsequent
commercial loan originations and increases in other loan categories. Specifically, real
estate mortgages increased by $5.1 million, or 30.7%, to $21.7 million at December 31,
2004 from $16.6 million at December 31, 2003. The increase is attributable to a
reclassification of approximately $3.0 million of loans secured by 1-4 family residential
real estate from the commercial loan portfolio to the residential loan portfolio. The
remaining portion of the increase is attributable to normal activity. Consumer loans
registered a $3.4 million, or 11.4%, increase to $33.1 million at December 31, 2004 from
$29.7 million at December 31, 2003. The moderately higher interest rate level in 2004
caused a shift in demand from residential mortgage refinancing to home equity loans, as
customers found it more desirable to access equity in their residences through home equity
loans rather than mortgage refinancing. Real estate construction loans declined slightly,
falling to $8.8 million at December 31, 2004 from $8.9 million at December 31, 2003.

The following table presents the
remaining maturity of total loans outstanding for the categories shown at December 31,
2004, based on scheduled principal repayments (000s omitted). The columns labeled
More Than 1 Year represent loans with maturities greater than one year,
further categorized as fixed or variable rate loans (000s omitted):

|                                       | Due Within 1 | Due After 1 but Within 5 | Due After 5 |        | More Than 1 Year
|-------------------------------------- | ------------ | ------------------------ | ----------- | ------ | ----------------
|                                       |              |                          |             |       
|Commercial, financial and agricultural |              |                          | $           | 37,196 |                 
|Real estate-construction               |              |                          |             | 8,768  |                 
|Real estate-mortgage                   |              |                          |             | 576    |                 
|Consumer                               |              |                          |             | 3,571  |                 
|                                       |              |                          |             |        |                 
|Total                                  |              |                          | $           | 50,111 |                 
|                                       |              |                          |             |        |                 

The majority of loans originated by
the Bank are fixed rate loans that mature within five years. Closed-end commercial and
agricultural loans, though they may mature within five years, typically have principal
amortization periods that exceed five years. Principal balances on commercial and
agricultural lines of credit are typically due in full at maturity (usually one year).

41

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Off-Balance Sheet Items

The following is a summary of
outstanding commitments by the Company to grant loans, unfunded commitments under lines of
credit and letters of credit at December 31, 2004 and 2003 (000s omitted):

|                                         | 2004 | 2003
|---------------------------------------- | ---- | ----
|Commitments to extend credit             |      |     
|Credit card program                      |      |     
|Commercial and standby letters of credit |      |     
|                                         |      |     
|Total                                    |      |     
|                                         |      |     

Outstanding commitments to grant
loans, lines of credit and letters of credit increased $18.0 million, or 31.9%, to $74.5
million at December 31, 2004 from $56.5 million at December 31, 2003. The increase in such
off-balance sheet items is due primarily to increased loan demand coupled with continued
business development activities. Included in these totals are commitments to lend on 1-4
family residences. Such loans are generally sold to the secondary market. Management does
not expect that all commitments will result in funded loans.

# Criticized and
Classified Loans

The following tables present
criticized and classified loans of the Bank at December 31, 2004 and 2003 (000s
omitted):

|                                 | Loan Risk Ratings
|-------------------------------- | -----------------
|
|December 31, 2004                |                  
|Commercial                       |                  
|Agricultural                     |                  
|Residential real estate mortgage |                  
|Consumer                         |                  
|                                 |                  
|Total                            |                  
|                                 |                  
|                                 |                  
|                                 |                  
|December 31, 2003                |                  
|Commercial                       |                  
|Agricultural                     |                  
|Residential real estate mortgage |                  
|Consumer                         |                  
|                                 |                  
|Total                            |                  
|                                 |                  

Loans risk-rated as 5 are considered
criticized loans, while loans risk-rated as 6 or higher are considered classified loans.
Please refer to the section entitled Critical Accounting policies located
within Managements Discussion and Analysis of Financial Condition and Results
of Operations for the definition of each loan risk rating. The Banks credit
administration function is designed to provide increased information on all types of loans
to identify adverse credit risk characteristics in as timely a manner as possible. Total
criticized and classified loans decreased $4.3 million, or 15.0% to $24.4 million at
December 31, 2004 from $28.7 million at December 31, 2003. The largest decrease was noted
in loans risk-rated 5, which decreased $10.5 million, or 46.8%, to $11.9 million at
December 31, 2004 from $22.4 million at December 31, 2003. Other categories of risk
ratings, however, registered increases. Specifically, loans risk-rated 6 increased $6.2
million, or 98.3%, to $12.5 million at December 31, 2004 from $6.3 million at December 31,
2003. Changes in loans risk-rated 7 and 8 were minimal. The decrease in loans risk-rated 5
was due to pay-off of several such loans, continued efforts of management to closely
monitor such loans and work with the respective borrowers to affect corrective action, and
migration of various loans to a risk rating of 6. The increase in loans risk-rated 6 are
due to several factors including local economic conditions, continued analysis and review
of the loan portfolio, and migration of loans previously risk-rated as 5 to a risk-rating
of 6. Management continues to closely monitor each loan adversely criticized or classified
and institute appropriate measures to eliminate the basis of criticism.

42

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

A continual process of monitoring,
review and analysis is maintained to identify credit-related weaknesses of loans within
the loan portfolio and assure that loans are risk-rated in an accurate and timely manner.
Several levels of management oversight and Board of Directors oversight have been
established as part of this process. Both internal and external resources are utilized in
this process. Internally, the credit administration function reports directly to the CEO
of the Bank and is not subordinate to the loan origination function. Management maintains
a Loan Watch List Committee for the purpose of providing continuing oversight
of each criticized or classified loans financial condition and performance, payment
performance, collateral analysis, trend analysis and other relevant information. Loan
workout plans are developed and reviewed in detail. Staff resources have been allocated to
conduct internal review of loan customers financial information. Oversight from the
Board of Directors is provided through the Directors Loan Committee, which meets on a
monthly basis. Additionally, the full Board of Directors is provided detailed information
on criticized and classified loans.

# Nonperforming Assets

Nonperforming assets are comprised of
other real estate owned (OREO), loans accounted for on a nonaccrual basis, and
loans contractually past due 90 days or more as to interest or principal payments but
still accruing interest.

The following table sets forth
information with respect to the Companys non-performing assets at December 31, 2004,
2003, 2002, 2001 and 2000 (000s omitted):

|                                  | 2004 | 2003 | 2002 | 2001  | 2000
|--------------------------------- | ---- | ---- | ---- | ----- | ----
|Non-accruing loans past due       |      |      | $    | 671   |     
|Loans past due 90 days or more    |      |      |      | 556   |     
|                                  |      |      |      |       |     
|Total nonperforming loans         |      |      |      | 1,227 |     
|Other real estate                 |      |      |      | 715   |     
|                                  |      |      |      |       |     
|                                  |      |     
|Total nonperforming assets        |      |      | $    | 1,942 |     
|                                  |      |      |      |       |     
|                                  |      |     
|Nonperforming loans as a percent  |      |     
|of total loans                    |      |      |      | 0.59  | %   
|Nonperforming assets as a percent |      |     
|of total assets                   |      |      |      | 0.94  | %   
|Nonperforming loans as a percent  |      |     
|of the loan loss reserve          |      |      |      | 49.18 | %   

Total nonperforming assets decreased
$391,000, or 16.8%, to $1.9 million at December 31, 2004 from $2.3 million at December 31,
2003. The decline is primarily attributable to the Banks continuing effort to
improve overall loan quality through its credit administration process, as discussed
above, and charge-off of such loans. Other Real Estate Owned comprises typical foreclosure
proceedings. Though a moderate decline in nonperforming assets was noted in 2004, there is
no guarantee that this trend will continue in 2005. As noted above, loans risk-rated as 6
increased $6.2 million, or 98.3%, during 2004. The risk that such loans will become
nonperforming loans is higher than non-classified loans, despite efforts to eliminate the
basis of criticism through the credit administration process.

43

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The following tables detail the
allocation among individual loan portfolios within the allowance for loan losses at
December 31, 2004, 2003, 2002, 2001 and 2000 (000s omitted):

|                                       | 2004 | 2003
|-------------------------------------- | ---- | ----
|                                       |      |     
|Commercial, financial and agricultural |      |     
|Residential-mortgage                   |      |     
|Real estate-construction               |      |     
|Consumer                               |      |     
|Other qualitative factors & trends     |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     
|                                      
|                                       |      |     
|Commercial, financial and agricultural |      |     
|Residential-mortgage                   |      |     
|Real estate-construction               |      |     
|Consumer                               |      |     
|Other qualitative factors & trends     |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     

|                                       | 2000
|-------------------------------------- | ----
|                                       |     
|Commercial, financial and agricultural |     
|Residential-mortgage                   |     
|Real estate-construction               |     
|Consumer                               |     
|Other qualitative factors & trends     |     
|                                       |     
|                                       |     
|                                       |     

The allowance for loan losses (the
allowance) as a percentage of total loans was 1.20% at December 31, 2004,
compared to 1.10% at December 31, 2003. For the twelve months ended December 31, 2004
provision for loan losses increased $98,000, or 16.5%, to $693,000 from $595,000 for the
same period in 2003. Several factors affected the decision to increase the loan loss
provision including a continued elevated amount of criticized and classified loans,
significant migration of loans from a 5 risk-rating to a 6 risk-rating, local economic
conditions and the overall mix of the loan portfolio. Please refer to the subsection
entitled Criticized and Classified Loans within the section entitled
Loans, Credit Quality and Allowance for Loan Losses located elsewhere in this
discussion.Commercial and agricultural loans represent the largest segment of the
Companys loan portfolio. The portion of the allowance attributable to commercial and
agricultural loans declined, as a percentage of the entire allowance, to 78.8% (or $1.97
million) at December 31, 2004 from 86.5% (or $1.99 million) at December 31, 2003. The
decrease is attributable to the lower level of commercial and agricultural loans, as noted
earlier in this discussion. While other loan categories registered increases as a
percentage of the allowance, the impact on the overall allowance analysis is minimal
because of the substantially smaller dollar amounts involved.

The Company maintains an allowance
for loan losses believed to be sufficient to absorb estimated probable credit losses
inherent in the loan portfolio, recognizing the imprecision inherent in the process of
estimating credit losses.

44

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The allowance represents
managements estimate of probable net loan charge-offs in the portfolio at each
balance sheet date. The allowance contains provisions for probable losses that have been
identified relating to specific borrowing relationships as well as probable losses
believed to be inherent in the loan portfolio without specific identification of loan
relationships.

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

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

# Deposits

Total deposits decreased $2.4
million, or 1.2%, to $200.0 million at December 31, 2004 from $202.4 million at December
31, 2003. Specifically, noninterest-bearing deposits increased $1.5 million, or 3.5%, to
$44.2 million at December 31, 2004 from $42.7 million at December 31, 2003. The increase
in noninterest bearing deposits is attributable to continuing business development
efforts. Interest-bearing deposits decreased $3.9 million, or 2.4%, to $155.8 million at
December 31, 2004 from $159.7 million at December 31, 2003. Specifically, certificates of
deposit (CDs) with balances of $100,000 and greater increased $5.9
million, or 22.0%, to $32.8 million at December 31, 2004 from $26.9 million at December
31, 2003. The increase is attributable to a greater amount of local municipal CDs
obtained through a competitive bidding process. Generally, municipal CDs have
shorter maturity lengths and thus can reprice more often than longer term CDs.
Certificates of deposit with balances under $100,000 decreased $8.2 million, or 17.8%, to
$38.0 million at December 31, 2004 from $46.2 million December 31, 2003. The decrease is
attributable to more competitive pricing in the Banks local market areas.

# Borrowed Funds

Borrowed funds consist of advances
from the Federal Home Loan Bank of Indianapolis (FHLB), agreements to
repurchase securities sold under Repurchase Agreements (repos) with specific
customers and draws on a fed funds purchased line of credit at a correspondent bank. FHLB
advances increased by $1.4 million, or 18.9%, to $8.6 million at December 31, 2004 from
$7.2 million at December 31, 2003. The increase is due to normal liquidity management
activities. Repos increased $1.4 million, or 127.7%, to $2.5 million at December 31, 2004
from $1.1 million at December 31, 2003. The increase is attributable to the addition of
one customer to this activity and normal daily activity. Borrowings under the Banks
Fed Funds purchased line of credit decreased $710,000, or 32.9%, to $1.5 million at
December 31, 2004 from $2.2 million at December 31, 2003. The decrease is attributable to
normal daily fluctuation in the liquidity needs of the Company.

Amounts borrowed from the FHLB may be
collateralized with either investment securities or certain types of loans. At December
31, 2004 no investment securities were pledged as collateral against FHLB borrowings. As
disclosed in Note 8 to the Companys Consolidated Financial Statements, $29.9 million
and $18.4 million of 1-4 family residential mortgage loans were pledged as collateral at
December 31, 2004 and 2003, respectively. For additional information regarding borrowed
funds please refer to Note 8 to the Consolidated Financial Statements included elsewhere
in this report.

# Capital

The Company continues to maintain
sufficient risk-based capital levels to remain as adequately-capitalized under
federal regulatory requirements. For bank holding companies there is no
well-capitalized designation. The Bank continues to maintain sufficient
risk-based capital levels to remain categorized as well-capitalized under
federal regulatory requirements. On a consolidated basis the Company improved its overall
risk-based ratios in each measurement. Total risk-based capital (RBC) to risk-weighted
assets (RWA) increased from 13.0% at December 31, 2003 to 20.4% at December 31, 2004.
Similarly, the ratio of Tier 1 RBC to RWA increased to 19.2% at December 31, 2004 from
12.0% at December 31, 2003. The ratio of Tier 1 RBC to average assets increased to 13.4%
at December 31, 2004 from 11.2% at December 31, 2003. Risk-based capital levels increased
as a result of the sale of Bank of Washtenaw in the fourth quarter of 2004. Tier 1 RBC
increased by $6.3 million, or 18.0%, to $41.4 million at December 31, 2004 from $35.1
million at December 31, 2003. The increase is attributable to profit from continuing
operations, net of cash dividends issued to shareholders and the gain on sale of the Bank
of Washtenaw.

45

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# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The Companys Board of Directors
is currently reviewing various alternatives to effectively employ the Companys
capital and to ensure capitalization levels remain appropriate based on the needs of the
Company. Various factors to determine the appropriate capitalization level of the Company
include, but are not limited to, strategic initiatives, profitability, changes in the mix
and/or size of the balance sheet, credit risk, liquidity risk and interest rate risk.
Based upon these factors the Board of Directors will determine the most appropriate and
efficient form of permanent deployment of the Companys capital.

# RESULTS OF OPERATIONS

# Net Income

Continuing Operations  Income
from continuing operations for the twelve months ended December 31, 2004 declined $1.2
million, or 35.9%, to $2.15 million compared to $3.36 million for the same period in 2003.
Basic earnings per share (EPS) attributable to continuing operations for the
twelve months ended December 31, 2004 were $2.54 compared to $3.92 for the same period in
2003. Diluted EPS for the twelve months ended December 31, 2004 was $2.52 compared to
$3.89 for the same period in 2003.

The decline in income from continuing
operations results primarily from lower levels of mortgage origination-related income in
2004. Though interest rates remained low compared to historical levels, residential
mortgage refinance activity declined as most homeowners had previously refinanced their
residential mortgages and wouldnt have benefited from additional refinance activity.

Discontinued Operations  On
October 29, 2004 the Company completed the sale of its former subsidiary, the Bank of
Washtenaw (discontinued operation or discontinued component). All
activity attributable to Bank of Washtenaw is presented as a separate item within the
Companys financial statements. Income attributable to discontinued operations for
the twelve months ended December 31, 2004 was $4.98 million compared to a loss of
($124,000) for the same period in 2003. Income from discontinued operations in 2004
consists of income (loss) from operation of the discontinued component and gain on sale of
the discontinued component. In 2004 the Company recognized a net gain of $4.4 million on
the sale of Bank of Washtenaw. Income attributable to the operation of the discontinued
component in 2004 totaled $562,000 compared to a loss of $(124,000) for the twelve months
ended December 31, 2003. Basic EPS attributable to discontinued operations for the twelve
months ended December 31, 2004 were $5.88 compared to $(.14) for the same period in 2003.
Diluted EPS for the twelve months ended December 31, 2004 were $5.82 compared to $(.14)
for the same period in 2003.

Combined  On a combined basis
net income for the twelve months ended December 31, 2004 increased $3.9 million, or
120.5%, to $7.13 million compared to $3.24 million for the same period in 2003. Basic EPS
for the twelve months ended December 31, 2004 were $8.42 compared to $3.78 for the same
period in 2003. Diluted EPS for the twelve months ended December 31, 2004 were $8.34
compared to $3.75 for the same period in 2003.

The significant increase in overall
net income is due to the net gain-on-sale of Bank of Washtenaw that was recognized during
the fourth quarter of 2004.

# Net Interest Income

Net interest income for the twelve
months ended December 31, 2004 increased $303,000, or 2.6%, to $12.1 million compared to
$11.8 million for the same period in 2003. The increase in net interest income was
primarily attributable to decreasing interest expense during 2004. Total interest income
declined by $154,000, or 1.02%, to $14.9 million for the twelve months ended December 31,
2004 compared to $15.0 million during the same period in 2003. A lower amount of loans
outstanding, coupled with a continued low rate environment and a decrease in residential
mortgage loan activity were the primary causes of the decline. Interest expense decreased
by $457,000, or 14.1%, to $2.8 million for the twelve months ended December 31, 2004
compared to $3.3 million during the same period in 2003. Reductions in rates paid on
interest-bearing accounts accounted for most of the decline. Please refer to the
discussion of the Rate/Volume Table for additional information.

46

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The following table presents the
Companys consolidated average balances of interest-earning assets, interest-bearing
liabilities, and the amount of interest income or interest expense attributable to each
category, the average yield or rate for each category, and the net interest margin for the
years ended December 31, 2004, 2003 and 2002 (000s omitted). Average loans are
presented net of unearned income and gross of the allowance for loan losses. Interest on
loans includes loan fees. Nonaccrual loans are included in the average balance of loans.

|                                           | ---------2004--------- | ---------2003--------- | ---------2002---------
|------------------------------------------ | ---------------------- | ---------------------- | ----------------------
|                                           |                        |                        |                       
|Interest-earning assets:                   |                        |                        |                       
|Loans receivable                           |                        |                        | $                     
|Securities available for sale(1)           |                        |                        |                       
|Federal funds sold                         |                        |                        |                       
|Equity securities                          |                        |                        |                       
|Interest-bearing balances with             |                        |                       
|other financial institutions               |                        |                        |                       
|                                           |                        |                        |                       
|Total interest-earning assets              |                        |                        | $                     
|Noninterest-earning assets:                |                        |                       
|Cash and due from financial                |                        |                       
|institutions                               |                        |                        |                       
|Premises and equipment, net                |                        |                        |                       
|Other assets                               |                        |                        |                       
|                                           |                        |                        |                       
|Total assets                               |                        |                        | $                     
|                                           |                        |                        |                       
|Interest-bearing liabilities:              |                        |                       
|Interest-bearing demand                    |                        |                       
|deposits                                   |                        |                        | $                     
|Savings deposits                           |                        |                        |                       
|Time deposits                              |                        |                        |                       
|Repurchase agreements and other borrowings |                        |                        |                       
|                                           |                        |                        |                       
|Total interest-bearing liabilities         |                        |                        | $                     
|Demand deposits                            |                        |                        |                       
|Other liabilities                          |                        |                        |                       
|Total liabilities                          |                        |                        |                       
|Shareholders' equity                       |                        |                        |                       
|                                           |                        |                        |                       
|Total liabilities and                      |                        |                       
|shareholders' equity                       |                        |                        | $                     
|                                           |                        |                        |                       
|Net interest income                        |                        |                        |                       
|                                           |                        |                        |                       
|Net spread                                 |                        |                        |                       
|Net interest margin (2)                    |                        |                        |                       
|Ratio of interest-earning                  |                        |                       
|assets to                                  |                        |                       
|interest-bearing liabilities               |                        |                        |                       

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

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

The Banks net interest margin
increased 14 basis points, to 5.52% for the twelve months ended December 31, 2004 compared
to 5.38% for the same period in 2003. The increase in net interest margin is primarily
attributable to an historically low rate environment in which management was able to
produce a smaller decline in the average rate earned on interest-earning assets compared
to the decline of the average rate paid on interest-bearing liabilities. The average rate
earned on interest-earning assets declined 7 basis points to 6.79% for the twelve months
ended December 31, 2004 from 6.86% during the same period in 2003. The average rate paid
on interest-bearing liabilities declined 24 basis points to 1.67% for the twelve months
ended December 31, 2004 from 1.91% during the same period in 2003. Please refer to the
Rate-Volume Table presented below for additional information.

47

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The following table presents the
extent to which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Companys interest income
and interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume); and (iii) the net change (the sum of the prior columns). The
changes attributable to the combined impact of volume and rate have been allocated on a
proportional basis between changes in rate and volume (000s omitted):

|                                   | 2004-2003 | 2003-2002
|---------------------------------- | --------- | ---------
|                                   |           |          
|                                   |           |          
|Interest-earning assets:           |           |          
|Loans receivable                   |           |          
|Securities available-for-sale      |           |          
|Federal funds sold                 |           |          
|Equity securities                  |           |          
|Interest-bearing balances with     |           |          
|other financial institutions       |           |          
|                                   |           |          
|Total interest-earning assets      |           |          
|                                   |           |          
|Interest-bearing liabilities:      |           |          
|Interest-bearing demand            |           |          
|deposits                           |           |          
|Savings deposits                   |           |          
|Time deposits                      |           |          
|Repurchase agreements and          |           |          
|other borrowings                   |           |          
|Total interest-bearing liabilities |           |          
|                                   |           |          
|Net change in net interest         |           |          
|income                             |           |          
|                                   |           |          

As the above table indicates, in 2004
net interest income increased $303,000 primarily due to reduced rates paid on
interest-bearing liabilities. For the twelve months ended December 31, 2004 total interest
expense declined $457,000 compared to the same period in 2003. The portion of the decrease
due to changes in rate comprised $326,000, or 71.3%, of the total reduction in interest
expense. Management does not expect this trend to continue in 2005.

48

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Provision for Loan Losses

The activity in the allowance for
loan losses for the twelve months ended December 31, 2004, 2003, 2002, 2001 and 2000 is
presented in the following table (000s omitted):

|                                             | Years ended December 31,(in thousands)
|-------------------------------------------- | --------------------------------------
|                                             |                                       
|Balance at beginning of year                 |                                       
|Loans charged off:                           |                                       
|Real estate - mortgage                       |                                       
|Real estate - construction                   |                                       
|Commercial and agricultural                  |                                       
|Consumer                                     |                                       
|                                             |                                       
|                                             |                                       
|                                             |                                       
|Recoveries of loans previously charged-off:  |                                       
|Real estate mortgage                         |                                       
|Commercial and agricultural                  |                                       
|Consumer                                     |                                       
|                                             |                                       
|                                             |                                       
|                                             |                                       
|Net loans charged-off (recoveries)           |                                       
|                                             |                                       
|Additions to allowance charged to operations |                                       
|                                             |                                       
|Balance at end of year                       |                                       
|                                             |                                       

For the twelve months ended December
31, 2004, gross loan charge-offs increased $76,000, or 15.0%, to $582,000 compared to
$506,000 during the same period in 2003. During the fourth quarter of 2004 the Company
recognized $165,000 in loan charge-offs related to accrued interest receivable associated
with loans previously charge-off or placed on nonaccrual status. Any uncollected accrued
interest receivable must be written off against the allowance (for uncollected accrued
interest attributable to previous calendar years) or income (for uncollected accrued
interest attributable to the current calendar year). During the fourth quarter management
discovered numerous loans that had been previously charged-off or placed on nonaccrual
where uncollected accrued interest had not been written off, as described above. After
detailed analysis it was determined that the uncollected accrued interest associated with
these loans was attributable to previous calendar years. Accordingly, the aggregate amount
was charged against the allowance for loan losses. Written procedures were developed and
implemented during the fourth quarter to avoid recurrence. Of the $165,000 in uncollected
accrued interest that was charged against the allowance, approximately $134,000 was
associated with commercial/agricultural loans.

In the aggregate, commercial loan
charge-offs increased $98,000, or 29.8% for the twelve months ended December 31, 2004
compared with the same period in 2003. Discounting the amounts associated with the accrued
interest receivable accounting issue, commercial loan charge-offs would have been
approximately $293,000, representing a $36,000 decline, or 10.9%. Consumer loan
charge-offs decreased by $40,000, or 22.6%, for the twelve months ended December 31, 2004
compared with the same period in 2003. For the year ended 2004 residential mortgage loan
charge-offs totaled $18,000, while none were noted in 2003. Recoveries of loans previously
charge-off fell $31,000, or 27.4%, for the twelve months ended December 31, 2004 to
$82,000 compared to $113,000 for the same period in 2003. The decline in recoveries from
previously charged-off loans resulted from typical fluctuation noted with this activity.

For the twelve months
ended December 31, 2004 provision for loan losses increased $98,000, or 16.5%, to
$693,000 from $595,000 for the same period in 2003. Several factors affected the decision
to increase the loan loss provision including a continued elevated amount of criticized
and classified loans, significant migration of loans from a 5 risk-rating to a 6
risk-rating, local economic conditions and the overall mix of the loan portfolio. Please
refer to the subsection entitled Criticized and Classified Loans within the
section entitled Loans, Credit Quality and Allowance for Loan Losses located
elsewhere in this discussion.

49

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The amount of provision
for loan losses recognized by the Company is based on managements evaluation as to
the amounts required to maintain an allowance adequate to provide for potential losses
inherent in the loan portfolio. The level of the allowance is dependent upon the total
amount of classified loans, past due and non-performing loans, historical charge-off
experience, general economic conditions and managements assessment of potential
losses based upon internal credit evaluation of the loan portfolio and particular loans.
In determining the provision for loan losses, management first determines the estimated
allowance required for any specifically identified classified loans. Management then
estimates potential charge-offs based on historical experience. Management also evaluates
the general loan portfolio for credit risk based upon, but not limited to, the criteria
noted above, and allocates an amount believed to be sufficient to cover estimated loan
charge-offs inherent in the general loan portfolio. Management may then add, at its
discretion, an allocation amount to adjust for current economic conditions, any
additional perceived credit risk in the portfolio and any other information that
management considers relevant.

# Noninterest Income

Total non-interest income decreased
$2.3 million, or 38.9%, to $3.6 million for the twelve months ended December 31, 2004
compared to $5.8 million for the same period in 2003. A substantial decline in gains on
residential mortgage loan sales accounted for the reduction. For the twelve months ended
December 31, 2004 gains on loan sales declined $4.1 million, or 73.2%, to $1.5 million
compared to $5.7 million for the same period in 2003. Demand for secondary market
residential mortgage loans decreased as significantly fewer homeowners refinanced existing
residential mortgages. With rates remaining low compared to historical data, management
expects revenue from this line of business to remain at the levels achieved in 2004. Loan
servicing fees, net of amortization (loan servicing fees) registered a
substantial increase in 2004. For the twelve months ended December 31, 2004, loan
servicing fees increased $2.1 million, or 131.9%, to $500,000 from $(1.6 million) during
the same period in 2003. . Amortization expense of mortgage servicing rights on secondary
market residential mortgage loans declined significantly as residential mortgage
refinancing activity decreased.

# Noninterest Expenses

For the twelve months ended December
31, 2004, total noninterest expenses declined $301,000, or 2.5%, to $11.8 million from
$12.1 million during the same period in 2003. Various noninterest expenses increased
during 2004, while other categories of noninterest expenses decreased. For the twelve
months ended December 31, 2004, compensation and employee benefit expenses declined
$380,000, or 5.0%, to $7.2 million from $7.6 million during the same period in 2003. A
decline on residential mortgage loan-related incentive compensation accounted for the
decrease. Occupancy and equipment expense increased $107,000, or 6.9%, to $1.7 million for
the twelve months ended December 31, 2004 compared to $1.6 million for the same period in
2003. Various technology expenditures to upgrade operational capabilities were incurred
during 2004, including digital check imaging. Printing, postage and supplies expense
increased $54,000, or 12.1%, to $500,000 for the twelve months ended December 31, 2004
compared to $446,000 during the same period in 2003. The increase is considered typical in
the normal course of business. Professional services increased by $94,000, or 26.7%, to
$446,000 for the twelve months ended December 31, 2004 from $352,000 for the same period
in 2003. The increase is attributable to increased various services obtained in the normal
course of business. Outside services decreased $176,000 or 24.3% to $547,000 for the
twelve months ended December 31, 2004 from $723,000 during the same period in 2003. The
decrease in 2004 is due to reduced employee recruitment costs and to the reduction in
reliance on temporary mortgage processing help provided by outside agencies. Marketing and
advertising expense increased $184,000, or 107.0%, to $356,000 for the twelve months ended
December 31, 2004 compared to $172,000 for the same period in 2003. The increase in 2004
is due primarily to the Company initiating a campaign to develop a new brand identity
throughout its market area. Loan receivable financing services decreased by $243,000 or
53.2% to $214,000 for the twelve months ended December 31, 2004 compared to $457,000 for
the same period in 2003. The decrease in 2004 was due to the curtailment of an accounts
receivable financing program during the fourth quarter of 2004.. Other noninterest
expenses decreased $60,000, or 7.4%, to $873,000 for the twelve months ended December 31,
2004 compared to $813,000 during the same period in 2003. Such change in other noninterest
expenses is considered typical in the normal course of business.

# Federal Income Tax
Expense

The provision for federal income tax
associated with continuing operations declined $562,000, or 36.0%, to $1.0 million (31.7%
of pretax income from continuing operations) for the twelve months ended December 31, 2004
compared to $1.6 million (31.8% of pretax income from continuing operations) for the same
period in 2003. The reduction in federal income tax provision, as well as the lower
percentage of tax provision to pretax income, is partially attributable to lower pretax
income from continuing operations.

50

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The Company also recognized a $2.6
million provision for federal income tax associated with the sale of its former
subsidiary, the Bank of Washtenaw.

# Liquidity

The Company must maintain an adequate
liquidity position in order to respond to extensions of credit, the short-term demand for
funds caused by withdrawals from deposit accounts, and for payment of operating expenses.
Maintaining adequate liquidity is accomplished through management of a combination of
liquid assets  those which can be converted into cash  and access to
additional sources of funds. Primary liquid assets of the Company are cash and amounts due
from banks, federal funds sold, investments held as available-for-sale, and
maturing loans. The Company views Federal funds purchased and advances from the Federal
Home Loan Bank system as a primary source of immediate liquidity, should the need arise.
The Company anticipates renewing selected advances to fund liquidity requirements, as
necessary. Maturities in the Companys loan and investment portfolios are monitored
regularly to avoid matching short-term deposits with long-term investments and loans.
Other assets and liabilities are also monitored to provide the proper balance between
liquidity, safety, and profitability. This monitoring process must be continuous due to
the constant flow of cash that is inherent in a financial institution.

At December 31, 2004, the Company
held cash and cash equivalents of $11.7 million, while $27.9 million of the Companys
investment securities were classified as available-for-sale. However, available-for-sale
securities with a market value of $4.9 million were pledged as collateral for Treasury Tax
& Loan accounts and repurchase agreements and therefore were not available for
liquidity needs. The amortized cost of the available-for-sale securities was more than the
fair value at year-end, primarily as the result of increasing interest rates, which
resulted in an unrealized loss of $82,000 within the investment portfolio. This unrealized
loss, however, is normal given interest rate changes and does not represent a permanent
impairment of value to the investment portfolio. Management does not consider such an
unrealized loss a material risk to the Companys capital. Management does not believe
the sale of any of the Companys securities would materially affect the overall
financial condition of the Company. Management believes it has sufficient liquidity and
sources of liquidity to meet its obligations.

The Company had net increase in cash
and cash equivalents of $2.6 million for the year ended December 31, 2004, an increase of
$898,000 from the year ended December 31, 2003. After adjustments for noncash items, which
consist primarily of the provision for loan losses, deferred federal income taxes,
depreciation and amortization and changes in other assets and other liabilities, the net
cash (used in) provided by operating activities totaled ($4.1) million and $9.4 million
for years ended December 31, 2004 and 2003, respectively. Changes in various assets and
liabilities between December 31, 2003 and December 31, 2004 accounted for the increase in
net cash provided by operating activities, most notably $7.0 million associated with the
gain on sale of discontinued operations.

The Companys investing
activities relate to changes in available-for-sale investment securities, loans and
premises and equipment. Net cash provided by/(used in) investing activities totaled $7.8
million and ($33.7 million) for the years ended December 31, 2004 and 2003, respectively.

Net cash provided by/(used in)
financing activities totaled ($1.1 million) and $26.0 million for the twelve months ended
December 31, 2004 and 2003, respectively. Financing sources for the Company include
deposits, borrowings, subordinated debentures and common stock. Financing activities and
investing activities are closely related. As such, the change in cash provided by or used
in financing activities decreased a similar amount as the increase in cash from investing
activities from 2003 to 2004. Total deposits decreased $2.4 million in 2004. An increase
in advances from the FHLB in 2004 offset the decrease in deposits.

51

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Contractual Obligations

The following table presents
contractual obligations as of December 31, 2004 (000s omitted):

|                                           | Payments due by period
|------------------------------------------ | ----------------------
|                                           |                       
|Time deposits                              |                       
|Long-term debt obligations (FHLB advances) |                       
|Capital lease obligations                  |                       
|Operating lease obligations*               |                       
|Junior subordinated debenture              |                       
|Purchase agreements                        |                       
|                                           |                       
|Total                                      |                       
|                                           |                       

* Annual inflation adjustments to the
operating lease obligation, based on changes in the Consumers Price Index, will take
effect in 2006 (sixth year of ten year lease). Inflation adjustments are not estimated in
this presentation.

Long-term obligations consist of time
deposits (certificates of deposit), advances from the FHLB and junior subordinated
debentures. The above schedule represents principal payments only and does not include
interest (where applicable).

The Company has contractual payments
due on time deposits and FHLB advances totaling $44.4 million and $42.7 million,
respectively, in 2005. The Company anticipates that a significant portion of maturing time
deposits will be renewed and retained. Depending on the economic and competitive
conditions at the time of maturity, the rates paid on renewed time deposits may differ
from rates currently paid. FHLB advances may be renewed, and additional advances obtained,
at prevailing market rates. At December 31, 2004 the Company had the ability to borrow an
additional $11.6 million from the FHLB based on the amount of collateral pledged. The
availability to borrow from the FHLB varies depending on the amount of collateral
available for pledging.

The following table presents loan
commitments by time period as of December 31, 2004 (000s omitted):

|                                           | Amount of commitment expiration per period
|------------------------------------------ | ------------------------------------------
|
|Commitments to grant loans                 |                                           
|Unfunded commitments under lines of credit |                                           
|Commercial and standby letters of credit   |                                           
|                                           |                                           
|Total                                      |                                           
|                                           |                                           

Commitments to grant loans are
governed by the Companys credit underwriting standards, as established in the
Companys Loan Policy. As the above schedule illustrates, in general it is the
companys practice to grant loan commitments for a finite period of time, usually
lasting one year or less. The most significant departure from this practice involves home
equity lines of credit (HELOCs). The Companys HELOCs have a
contractual draw period of 120 months. The Company has the ability to suspend the draw
privileges on a HELOC where a default situation or other impairment issue is identified.

52

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Quantitative and
Qualitative Disclosures about Market Risk

The Companys primary market
risk exposure is interest rate risk (IRR) and, to a lesser extent, liquidity
risk. The Companys transactions are denominated in U.S. dollars with no specific
foreign exchange exposure. Also, the Bank has a limited exposure to commodity prices
related to agricultural loans. Any impact that changes in foreign exchange rate and
commodity prices would have on interest rates are assumed to be insignificant.

Interest rate risk is the exposure of
the Companys financial condition to adverse movements in interest rates. IRR is
generated from differences in the maturities or timing of interest rate adjustments of the
Companys assets, liabilities and off-balance-sheet instruments; from changes in the
slope of the yield curve; from imperfect correlations in the adjustment of interest rates
earned and paid on different financial instruments with otherwise similar repricing
characteristics; and from interest rate related options embedded in the Companys
products such as prepayment and early withdrawal options.

The Company employs several measures
to monitor and manage interest rate risk, including interest sensitivity and income
simulation analyses. An interest income simulation model is the primary tool used to
assess IRR. The simulation model is used to estimate the effect that certain changes in
interest rate changes would have on twelve months of pretax net interest income assuming
an immediate and sustained up or down proportional change in interest rates of 200 basis
points. Key assumptions in the model include prepayment speeds of various types of loans,
loan volumes and pricing; and managements determination of core deposit sensitivity.
These assumptions are inherently uncertain and, as a result, the model cannot precisely
estimate net interest income or precisely predict the impact of higher or lower interest
rates on net interest income. Actual results will differ from simulated results due to
timing, magnitude, and frequency of interest rate changes and changes in market
conditions.

The following table provides
information about the Companys financial instruments that are sensitive to changes
in interest rates as of December 31, 2004. The Company 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 non-maturity 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.

The following table presents
principal/notional contractual maturities at December 31, 2004 (000s omitted):

# Principal Amount
Maturing In:

|                              | 2005 | 2006 | 2007 | 2008   | 2009 | Thereafter | Total  | Fair Value
|----------------------------- | ---- | ---- | ---- | ------ | ---- | ---------- | ------ | ----------
|RATE-SENSITIVE ASSETS         |      |      |      |        |      |            |        |           
|Gross loans                   |      |      | $    | 43,959 |      | $          | 17,065 |           
|Average interest rate         |      |      |      | 6.3    | %    |            | 6.7    | %         
|Debt & equity securities      |      |      | $    | 10,988 |      | $          | 7,926  |           
|Average interest rate         |      |      |      | 3.3    | %    |            | 3.0    | %         
|Other interest-earning assets |      |      | $    | -      |      | $          | -      |           
|Average interest rate         |      |      |      | 0.0    | %    |            | 0.0    | %         
|                              |      |     
|RATE-SENSITIVE LIABILITIES    |      |     
|Savings & interest bearing    |      |     
|demand deposits               |      |      | $    | 85,021 |      | $          | -      |           
|Average interest rate         |      |      |      | 0.7    | %    |            | 0.0    | %         
|Time deposits                 |      |      | $    | 44,343 |      | $          | 15,781 |           
|Average interest rate         |      |      |      | 2.2    | %    |            | 2.8    | %         
|Other borrowings              |      |      | $    | 6,614  |      | $          | 4,020  |           
|Average interest rate         |      |      |      | 3.0    | %    |            | 5.9    | %         

53

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

The following table presents
principal/notional contractual maturities at December 31, 2003 (000s omitted):

|                              | 2005 | 2006 | 2007 | 2008   | 2009 | Thereafter | Total  | Fair Value
|----------------------------- | ---- | ---- | ---- | ------ | ---- | ---------- | ------ | ----------
|RATE-SENSITIVE ASSETS         |      |      |      |        |      |            |        |           
|Gross loans                   |      |      | $    | 90,143 |      | $          | 23,473 |           
|Average interest rate         |      |      |      | 5.2    | %    |            | 7.2    | %         
|Debt & equity securities      |      |      | $    | 3,359  |      | $          | 745    |           
|Average interest rate         |      |      |      | 4.2    | %    |            | 4.5    | %         
|Other interest-earning assets |      |      | $    | -      |      | $          | -      |           
|Average interest rate         |      |      |      | 0.0    | %    |            | 0.0    | %         
|                              |      |     
|RATE-SENSITIVE LIABILITIES    |      |     
|Savings & interest bearing    |      |     
|demand deposits               |      |      | $    | 86,694 |      | $          | -      |           
|Average interest rate         |      |      |      | 0.6    | %    |            | 0.0    | %         
|Time deposits                 |      |      | $    | 42,287 |      | $          | 13,611 |           
|Average interest rate         |      |      |      | 2.4    | %    |            | 0.8    | %         
|Other borrowings              |      |      | $    | 3,885  |      | $          | 681    |           
|Average interest rate         |      |      |      | 1.0    | %    |            | 5.1    | %         

# Disclosure Controls and
Procedures

The Companys management is
responsible for establishing and maintaining adequate internal controls over the financial
reporting process to ensure that it is able to collect the information it is required to
disclose in the reports it files with the SEC, and to process, summarize and disclose this
information within the time periods specified in the rules of the SEC. Additionally, the
Companys principal executive officer (the Companys chief executive officer)
and principal financial officer (the Companys chief financial officer) are required
to evaluate internal controls of the financial reporting process. The framework for
evaluating the internal controls of the financial reporting process consists of, but is
not limited to, the following criteria:

| | o | Evaluation
of financial reporting internal controls is an on-going process that incorporates the
evaluation and review for accuracy and completeness of the various internal and external
reporting activities conducted throughout each fiscal year. Such reviews are completed in
the normal course of business on a periodic basis consistent with the frequency of the
reporting activity and include:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Review
and discussion of various internal reporting activities designed to identify and disclose
items of a material nature to management and the Board of Directors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Periodic
retention of external specialists to review and analyze various activities.
| | - | ------------------------------------------------------------------------------------

| |  | Preparation
and review of monthly financial information that is provided to the Board of Directors
and management.
| | - | ------------------------------------------------------------------------------------------------------------------

| |  | Review
and maintenance of supporting documentation utilized to prepare interim financial
information, regulatory reports and quarterly and annual financial statements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Review
of interim financial reports and supporting documentation in connection with preparation
of financial reports and financial statements to evaluate accuracy and consistency.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Evaluation
of various estimates and related methodologies, including those typical for banks and
bank holding companies. Primarily, these consist of the allowance for loan losses,
mortgage servicing rights and tax provisions. Other estimates, including supporting
documentation and methodologies, are reviewed, such as accrual of various operating
expenses where there is a timing difference between the incurrence of and payment of such
expenses.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys Chief Executive
Officer and the Interim Chief Financial Officer, based on such evaluations noted above, of
the Companys financial reporting controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Form 10-K
Annual Report, have concluded that the Companys financial reporting controls and
procedures were adequate and effective. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparations and presentation.

54

---



# Pavilion Bancorp, Inc. Managements
Discussion and Analysis of Financial Condition and Results of Operations

---

# Common Stock Data

The Companys common stock is
traded on the over-the-counter market under the stock symbol PVLN. There is limited
trading volume of the Companys common shares of stock.

The following table sets forth the
range of high and low sales prices of the Companys common stock during 2004, 2003,
and 2002, based on information made available to the Company, as well as per share cash
dividends declared during those periods. The Company is not necessarily aware of all
trades of its common stock, therefore other transactions at prices outside the ranges
listed below may have occurred:

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

All per share data has been
adjusted to reflect stock splits and stock dividends including a stock dividend of 5%
declared on December 19, 2003 and issued on January 30, 2004 to shareholders as of January
16, 2004.

Total authorized shares of the
Companys common stock are 3,000,000, of which 852,142 shares were issued and
outstanding as of December 31, 2004. There were approximately 600 shareholders of record,
including trusts and shares jointly owned, as of that date.

The holders of the Companys
common stock are entitled to dividends when, as and if declared by the Board of Directors
of the Company out of funds legally available for that purpose. Dividends have typically
been declared on a quarterly basis. In determining dividends, the Board of Directors
considers the earnings, capital requirements and financial condition of the Company and
the Bank, along with other relevant factors. The Companys principal source of funds
for cash dividends is the dividends paid to the Company by the Bank. Dividends are
declared at the sole discretion of the Board of Directors. Historical practice for
dividends is not a guarantee of future dividends. Additionally, the ability of the Company
and the Bank to pay dividends is subject to regulatory restrictions and requirements.

55

---



Exhibit 21

# Subsidiaries of
Registrant

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

---



EXHIBIT 23.1

# CONSENT OF INDEPENDENT
ACCOUNTANTS

We hereby consent to the
incorporation by reference in the Registration Statements of Pavilion Bancorp, Inc. on
Form S-8 (File No. 333-86636) and Form S-3D (File No. 333-112651) of our report dated
March 9, 2005 on the 2004 Consolidated Financial Statements of Pavilion Bancorp, Inc.,
which report is included in the 2004 Annual Report on Form 10-K of Pavilion Bancorp, Inc.

/s/ PLANTE & MORAN PLLC
PLANTE & MORAN PLLCAuburn Hills, Michigan
March 17, 2005

---



EXHIBIT 23.2

# CONSENT OF REGISTERED
INDEPENDENT PUBLIC ACCOUNTING FIRM

We hereby consent to the
incorporation by reference in the Registration Statements of Pavilion Bancorp, Inc. on
Form S-8 (File Nos. 333-86636) and Form S-3D (File No. 333-112651) of our report dated
January 13, 2004 on the 2003 and 2002 Consolidated Financial Statements of Pavilion
Bancorp, Inc., which report is included in the 2004 Annual Report on Form 10-K of
Pavilion Bancorp, Inc.

| | /s/ CROWE CHIZEK AND COMPANY
 LLCCROWE CHIZEK AND COMPANY LLC
| | -------------------------------------------------------------

Grand Rapids, Michigan
         March 17, 2005

---



Exhibit 31.1

# CERTIFICATIONS

I, Richard J. DeVries, certify that:

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

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

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

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

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

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

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

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

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

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

Date: March 21, 2005

| |  | /s/ Richard J. DeVries
Richard J. DeVriesPresident and Chief Executive Officer
| |  | --------------------------------------------------------------------------------------------

---



Exhibit 31.2

# CERTIFICATIONS

I, Mark D. Wolfe, certify that:

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

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

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

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

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

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

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

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

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

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

Date: March 21, 2005

| |  | /s/ Mark D. Wolfe
Mark D. WolfeInterim Chief Financial Officer
| |  | ----------------------------------------------------------------------------

---



Exhibit 32.1

I, Richard J. DeVries, President and
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, 2004 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, 2004 fairly presents, in all material respects, the financial
          condition and results of operations of Pavilion Bancorp, Inc.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: March 21, 2005

| |  | /s/ Richard J. DeVries
Richard J. DeVriesPresident and Chief Executive Officer
| |  | --------------------------------------------------------------------------------------------

---



Exhibit 32.2

I, Mark D. Wolfe, Interim 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, 2004 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, 2004 fairly presents, in all material respects, the financial
          condition and results of operations of Pavilion Bancorp, Inc.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: March 21, 2005

| |  | /s/ Mark D. Wolfe
Mark D. WolfeInterim Chief Financial Officer
| |  | ----------------------------------------------------------------------------