# FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549

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|ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2003
or

|o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission File #000-30521Pavilion Bancorp, Inc.
(Exact name of registrant as specified in its charter)

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

135 East Maumee Street, Adrian, Michigan 49221
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (517) 265-5144, Fax (517) 265-3926

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

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

As of August 4, 2003, there were
810,392 outstanding shares of the registrants common stock, no par value.

Page 1

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# CROSS
REFERENCE TABLE

|ITEM NO. | DESCRIPTION | PAGE NO.
|-------- | ----------- | --------

# PART I - FINANCIAL INFORMATION

|Item 1.
Item 2.
Item 3.
Item 4. | Financial Statements (Condensed)
(a)    Report of Independent Accountants
(b)    Condensed Consolidated Balance Sheets
(c)    Condensed Consolidated Statements of Income and Comprehensive Income 
(d)    Condensed Consolidated Statements of Cash Flows 
(e)    Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of 
Financial Condition and Results of Operations 
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures | 3       
4       
5       
6       
7       
11       
15       
16
|------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------

PART II -OTHER INFORMATION

|Item 1.   
Item 2.    
Item 3.    
Item 4.    
Item 5.    
Item 6. | Legal Proceedings
Changes in Securities and Use of Proceeds
Defaults Upon Senior Securities             
Submission of Matters to a Vote of Security Holders
Other Information                                   
Exhibits and Reports on Form 8-K | 17      
17      
17      
17      
18      
18
|------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------
|Signatures
Exhibits                                                | 19      
20                                                                                                                                                                                                                                       

Page 2

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REPORT OF INDEPENDENT
ACCOUNTANTS

Shareholders and Board of
DirectorsPavilion Bancorp, Inc.Adrian, Michigan

We have reviewed the condensed
consolidated balance sheet of Pavilion Bancorp, Inc. as of June 30, 2003, the related
condensed consolidated statements of income and comprehensive income for the quarter and
year to date periods ended June 30, 2003 and 2002 and the condensed consolidated
statements of cash flows for the year to date periods ended June 30, 2003 and 2002. These
financial statements are the responsibility of the Companys management.

We conducted our reviews in
accordance with standards established by the American Institute of Certified Public
Accountants. A review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not
aware of any material modifications that should be made to the accompanying financial
statements for them to be in conformity with accounting principles generally accepted in
the United States of America.

We have previously audited, in
accordance with auditing standards generally accepted in the United States of America, the
consolidated balance sheet of Pavilion Bancorp, Inc. as of December 31, 2002, and the
related consolidated statement of income, consolidated statement of changes in
shareholders equity and consolidated statement of cash flows for the year then ended
(not presented herein); and in our report dated February 4, 2003, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of
December 31, 2002, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

| | Crowe, Chizek and Company LLP
| | -----------------------------

Grand Rapids, MichiganAugust
4, 2003

Page 3

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# PART I FINANCIAL INFORMATION

# ITEM 1- FINANCIAL
STATEMENTS

|(b) | CONDENSED CONSOLIDATED BALANCE SHEETS
|--- | -------------------------------------

`June 30,
In thousands of dollars                                                                   2003        December 31,
                                                                                       (unaudited)        2002
                                                                                       -----------        ----
ASSETS
Cash and due from banks                                                               $     11,613     $     11,223
Securities available for sale                                                               19,852           25,216
Federal Home Loan Bank stock, at cost                                                        2,504            2,504
Federal Reserve Bank stock, at cost                                                            572              493
Loans held for sale                                                                          4,633            1,473
Loans receivable, net of allowance for loan losses                                         255,072          233,049
Premises and equipment, net                                                                  5,997            6,314
Accrued interest receivable                                                                  1,732            1,868
Mortgage servicing asset                                                                     2,936            2,715
Other assets                                                                                   986            2,431
                                                                                      ------------     ------------

     Total assets                                                                     $    305,897     $    287,286
                                                                                      ============     ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
     Noninterest bearing                                                              $     58,144     $     48,827
     Interest bearing                                                                      199,572          192,893
                                                                                      ------------     ------------
         Total deposits                                                                    257,716          241,720

Borrowed funds                                                                              11,157            8,635
Accrued interest payable                                                                       436              507
Other liabilities                                                                            2,219            2,255
Trust preferred securities                                                                   5,000            5,000
Common stock subject to repurchase obligation in ESOP                                        3,799            4,100
                                                                                      ------------     ------------
     Total liabilities                                                                     280,327          262,217


Shareholders' equity
     Common stock and paid-in capital, no par value                                          8,999            9,712
     Retained earnings                                                                      16,590           15,254
     Accumulated other comprehensive income (loss),
       net of tax                                                                              (19)             103
                                                                                      ------------     ------------
         Total shareholders' equity                                                         25,570           25,069
                                                                                      ------------     ------------

              Total liabilities and shareholders' equity                              $    305,897     $    287,286
                                                                                      ============     ============`

See accompanying notes to condensed consolidated financial statements.

Page 4

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|(c) | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
|--- | --------------------------------------------------------------------------------

`Three Months Ended                Six Months Ended
In thousands of dollars, except per share data                        June 30,                         June 30,
                                                            ----------------------------     ----------------------------
                                                                2003           2002              2003            2002
                                                                ----           ----              ----            ----
Interest and dividend income
     Loans receivable, including fees                       $      4,455    $      4,327     $      8,786    $      8,699
     Securities available for sale                                   245             338              528             726
     Federal funds sold and other                                      8              21               26              42
                                                            ------------    ------------     ------------    ------------
Total interest and dividend income                                 4,708           4,686            9,340           9,467

Interest expense
     Deposits                                                      1,006           1,384            2,065           2,832
     Federal Home Loan Bank advances                                 103              77              149             155
     Other                                                            76              85              153             160
                                                            ------------    ------------     ------------    ------------
         Total interest expense                                    1,185           1,546            2,367           3,147
                                                            ------------    ------------     ------------    ------------

Net interest income                                                3,523           3,140            6,973           6,320
     Provision for loan losses                                       295             150              435             256
                                                            ------------    ------------     ------------    ------------

Net interest income after provision
  for loan losses                                                  3,228           2,990            6,538           6,064

Noninterest income
     Service charges and fees                                        470             522              941           1,141
     Gains on loan sales                                           2,210             423            3,818           1,099
     Loan servicing fees, net of amortization                       (758)             13           (1,256)              9
     Other                                                           (34)              1             (117)             57
                                                            ------------    ------------     ------------    ------------
                                                                   1,888             959            3,386           2,306

Noninterest expense
     Salaries and employee benefits                                2,374           1,860            4,489           3,845
     Occupancy and equipment                                         556             598            1,118           1,188
     Other                                                           922             666            1,808           1,412
                                                            ------------    ------------     ------------    ------------
Income before income tax                                           1,264             825            2,509           1,925
     Income tax expense                                              412             265              801             619
                                                            ------------    ------------     ------------    ------------

Net income                                                  $        852    $        560     $      1,708    $      1,306
                                                            ============    ============     ============    ============

Comprehensive income                                        $        904    $        750     $      1,586    $      1,381
                                                            ============    ============     ============    ============
Basic earnings per share                                    $       1.04    $        .66     $       2.07    $       1.54
                                                            ============    ============     ============    ============
Diluted earnings per share                                  $       1.03    $        .66     $       2.05    $       1.53
                                                            ============    ============     ============    ============
Dividends per share                                         $        .23    $        .22     $        .45    $        .42
                                                            ============    ============     ============    ============`

See accompanying notes to condensed consolidated financial statements.

Page 5

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|(d) | CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS (unaudited)
|--- | ----------------------------------------------------------

`Six Months Ended
In thousands of dollars                                                                         June 30,
                                                                                      -----------------------------
                                                                                           2003           2002
                                                                                           ----           ----
Cash flows from operating activities
     Net income                                                                       $      1,708     $      1,306
     Adjustments to reconcile net income to
       net cash from operating activities
         Depreciation                                                                          424              447
         Provision for loan losses                                                             435              256
         Net amortization and accretion on securities
           available for sale                                                                  170              154
         Amortization of mortgage servicing rights                                           1,635              282
         Loans originated for sale                                                        (174,753)         (59,280)
         Proceeds from sale of mortgage loans                                              173,555           58,976
         Net gains on sales of mortgage loans                                               (3,818)          (1,099)
         Net gains on sales of securities                                                        -               (9)
     Net change in:
         Accrued interest receivable                                                           136               43
         Other assets                                                                        1,645             (948)
         Accrued interest payable                                                              (71)            (235)
         Other liabilities                                                                      30              499
                                                                                      ------------     ------------
              Net cash from operating activities                                             1,096              392
                                                                                      ------------     ------------

Cash flows from investing activities
     Proceeds from:
         Maturities, calls and principal payments on
           securities available for sale                                                    10,546           14,139
         Sales of securities available for sale                                                  -            3,500
     Purchases of:
         Federal Reserve Bank stock                                                            (79)               -
         Securities available for sale                                                      (5,540)         (15,105)
         Premises and equipment, net                                                          (107)            (361)
     Net increase in loans                                                                 (22,658)          (9,149)
                                                                                      ------------     ------------
              Net cash from investing activities                                           (17,838)          (6,976)

Cash flows from financing activities
     Net change in deposits                                                                 15,996            1,942
     Net change in borrowed funds and capital securities                                     2,522              588
     Change in shareholders' equity                                                         (1,386)            (835)
                                                                                      ------------     ------------
              Net cash from financing activities                                            17,132            1,695
                                                                                      ------------     ------------

Net change in cash and cash equivalents                                                        390           (4,889)

Cash and cash equivalents at beginning of period                                            11,223           24,277
                                                                                      ------------     ------------

Cash and cash equivalents at end of period                                            $     11,613     $     19,388
                                                                                      ============     ============

     Cash paid for:
         Interest                                                                     $      2,438     $      3,382
         Income taxes                                                                          345              505`

See accompanying notes to condensed consolidated financial statements.

Page 6

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|(e) | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (unaudited)
|--- | ---------------------------------------------------------------

# NOTE 1  PRINCIPLES
OF CONSOLIDATION AND NATURE OF OPERATIONS

The unaudited condensed consolidated
financial statements include the accounts of Pavilion Bancorp, Inc. (the
Company) and its wholly-owned subsidiaries, Bank of Lenawee and Bank of
Washtenaw (together the Bank). The Bank of Lenawee includes its wholly-owned
subsidiaries, Pavilion Financial Services and Pavilion Mortgage Company (the
Mortgage Company). It should be noted that the name changes to Pavilion
Bancorp, Inc. and Pavilion Financial Services (previously Lenawee Bancorp, Inc. and
Lenawee Financial Services) were approved by the shareholders on April 18, 2002. All
significant intercompany balances and transactions have been eliminated in consolidation.

The Company is a two-bank holding
company which conducts limited business activities. The Banks perform the majority of the
Companys business activities.

The Banks provide a range of banking
services to individuals, commercial businesses, light industries and municipal entities
located in their service areas. Each bank maintains a diversified loan portfolio with
loans to business enterprises for current operations and expansion and loans to
individuals for home mortgages, automobiles and personal expenditures. The Banks offer
traditional bank deposit products, including checking, savings, money market savings,
individual retirement accounts, certificates of deposit as well as a mobile banking
currier service.

# NOTE 2  BASIS OF
PRESENTATION

The unaudited condensed consolidated
financial statements of Pavilion Bancorp, Inc. (the Company) have been
prepared in accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the six month
period ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Companys
Annual Report on Form 10 for the year ended December 31, 2002.

Page 7

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# NOTE 3  EARNINGS
PER SHARE

A reconciliation of the numerators
and denominators of the basic earnings and diluted earnings per share computations for the
three and six months ended June 30, 2003 and 2002 is presented below in thousands, except
for per share information:

`Three Months Ended                Six Months Ended
                                                               June 30,                         June 30,
                                                     ----------------------------    ------------------------------
                                                          2003            2002             2003            2002
                                                          ----            ----             ----            ----
Basic earnings per share
------------------------
Net income available to common shareholders          $        852     $        560    $      1,708     $      1,306
                                                     ============     ============    ============     ============
Weighted average common shares outstanding                    819              844             824              847
                                                     ============     ============    ============     ============
Basic earnings per share                             $       1.04     $        .66    $       2.07     $       1.54
                                                     ============     ============    ============     ============

Diluted earnings per share
--------------------------
Net income available to common shareholders          $        852     $        560    $      1,708     $      1,306
                                                     ============     ============    ============     ============
Weighted average common shares outstanding                    819              844             824              847
Add:  Dilutive effects of exercise of stock options             6                7              11                7
                                                     ------------     ------------    ------------     ------------
Weighted average common and dilutive
  potential shares outstanding                                825              851             835              854
                                                     ============     ============    ============     ============
Diluted earnings per share                           $       1.03     $        .66    $       2.05      $      1.53
                                                     ============     ============    ============     ============`

Page 8

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# NOTE 4  ACCOUNTING
FOR STOCK BASED COMPENSATION

Compensation expense under stock
options is reported using the intrinsic value method. The exercise price of stock options
is generally equivalent to the market price of the underlying common stock as of the date
of grant. No stock-based compensation cost is reflected in net income, for stock options
granted with an exercise price equal to or greater than the market price of the underlying
common stock at date of grant. For stock options granted below market price, compensation
expense is based upon the difference between the market price and the exercise price at
the date of grant and is recorded over the vesting period of the options. Compensation
expense actually recognized for the three and six months ended June 30, 2003 and 2002 was
not significant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation.

`Three Months Ended                   Six Months Ended
                                                           June 30,                            June 30,
                                                     2003             2002               2003            2002
                                                     ----             ----               ----            ----

Net income as reported                         $          852   $          560     $        1,708   $         1,306
(in thousands, except for per share information)
Less:  Stock-based compensation
 expense determined under fair value
 based method                                              16               15                 33                30
                                               --------------   --------------     --------------   ---------------

Pro forma net income                           $          836   $          545     $        1,675   $         1,276
                                               ==============   ==============     ==============   ===============

Basic earnings per share as reported           $         1.04   $          .66     $         2.07   $          1.54`

Page 9

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NOTE 4 - ACCOUNTING FOR STOCK BASED COMPENSATION (Continued)

`Three Months Ended                Six Months Ended
                                                                June 30,                         June 30,
                                                         2003             2002             2003            2002
                                                         ----             ----             ----            ----

Pro forma basic earnings per share                        1.02              .65             2.03            1.51

Diluted earnings per share as reported                    1.03              .66             2.05            1.53
Pro forma diluted earnings per share                      1.01              .64             2.01            1.49`

The weighted average fair value of
stock options granted during the six months ended June 30, 2003 and 2002 were $10.15 and
$16.69. The fair value of options granted during the six months ended June 30, 2003 and
2002 were estimated using an option pricing model with the following weighted average
information as of the grant dates:

`2003                2002
                                                                                    ----                ----

     Risk free rate of interest                                                    3.58%                4.78%
     Expected option life                                                          8 years              8 years
     Expected dividend yield                                                       1.96%                1.38%
     Expected volatility                                                          22.74%               22.92%`

In future years, as additional
options are granted, the proforma effect on net income and earnings per share may
increase. Stock options are used to reward directors and certain executive officers and
provide them with an additional equity interest. Options are issued for ten year periods
and have varying vesting schedules.

Page 10

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ITEM
2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS
OF OPERATIONS

This discussion provides information
about the consolidated financial condition and results of operations of the Company as of
June 30, 2003 and for the three and six month periods ended June 30, 2003 and 2002.

# FINANCIAL CONDITION

# 

SecuritiesThe principal balance of our
securities portfolio decreased by $5.4 million during the first half of 2003. Purchases of
securities totaling $5.5 million were offset by principal repayments on mortgage backed
securities and maturities within the portfolio totaling $10.5 million. There were no sales
of securities available for sale during the first six months of 2003. The securities
portfolio has decreased as a result of the additional funds being used to fund loan
growth.

LoansLoan growth continued through the
first half of 2003. During the first six months of 2003, annualized loan growth was 18.9%.
The diversification of the types of loans in the loan portfolio continues to remain
relatively unchanged from prior periods. Over the long term, the trend continues toward an
increased portion of business loans.

In addition to the increase in
portfolio loans, we continued to experience a significant increase in the volume of our
residential mortgage loans sold into the secondary market when compared to the first half
of 2002. The decrease in national market interest rates during the first half of 2003 has
also caused an ongoing decline in mortgage interest rates through the first half of the
year.

Credit QualityWe continue to monitor the asset
quality of the loan portfolio utilizing loan review officers who, combined with external
loan review specialists, periodically submit reports to the Chief Lending Officer and to
the Board of Directors regarding the credit quality of each loan portfolio. This review is
independent of the loan approval process. Also, we continue to monitor delinquencies,
nonperforming assets and potential problem loans to assess the continued quality of our
loan portfolios.

Nonperforming loans are comprised of
(1) loans accounted for on a nonaccrual basis, (2) loans contractually past due 90 days or
more as to interest or principal payments (but not included in the nonaccrual loans in (1)
above) and (3) other nonperforming loans (but not included in (1) or (2) above) which
consist of loan arrangements under the Business Manager program. The aggregate amount of
nonperforming loans, in thousands of dollars, is shown in the table below. Our
classifications of nonperforming loans are generally consistent with loans identified as
impaired.

Page 11

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The chart below shows the makeup of
our nonperforming assets by type, in thousands of dollars, as of June 30, 2003 and 2002,
and December 31, 2002.

`6/30/2003      12/31/2002       6/30/2002

     Nonaccrual loans                                                  $       541    $        648     $        261
     90 days or more past due & still accruing                               1,443             949            1,325
                                                                       -----------    ------------     ------------
         Total nonperforming loans                                           1,984           1,597            1,586
     Other real estate                                                         472           1,783            1,900
                                                                       -----------    ------------     ------------
         Total nonperforming assets                                    $     2,456    $      3,380     $      3,486
                                                                       ===========    ============     ============

     Nonperforming loans as a percent of total loans                          .77%            .68%             .71%
     Nonperforming assets as a percent of total loans                         .95%           1.43%            1.56%
     Nonperforming loans as a percent of the allowance
       for loan losses                                                      68.77%          60.05%           68.33%`

Total  nonperforming  assets decreased $924,000 or down 27% during the six months ended June 30,  2003. The decline
is primarily attributable to the sales of real estate properties acquired in foreclosure.
Due to the challenging  economic  conditions during 2002 and the first half of 2003, we  maintained  our
verification  of the overall  quality of the loan  portfolio.  We  increased  the  provision  for loan loss expense
from  $256,000 in the first six months of 2002 to $456,000 in 2003.  This  represents a 70% increase for the six
month  period  ended  June 30,  2003  when  compared  to the  same  period  of the  prior  year as a result  of the
change  in net charge-offs  and  nonperforming  loans.  The provision for loan losses provides for probable
incurred losses inherent in the loan portfolio.Deposits
Total  deposit  growth for the first  half of 2003 was  approximately  $16  million  or  approximately  13.2% on an
annualized  basis. We believe the cause of the growth to be the impact of current  Federal Reserve  Monetary Policy
creating  a  continued  effect  of the  expansion  of  liquidity  in both the local and  national  market.  We also
experienced moderate deposit growth during 2003 as a result of continued expansion into new and existing markets.Capital Resources
At June 30,  2003 and  December  31,  2002,  equity  capital  totaled  $25.6 and $25.1  million.  This  increase is
primarily  the  result of the  Company's  net income for the six months  ended June 30,  2003  partially  offset by
dividends  declared  during the six months  ended June 30,  2003.  Management  monitors  the capital  levels of the
Company and the banks to provide for current and future business  opportunities  and to meet regulatory  guidelines
for "well capitalized"  institutions.  "Well capitalized"  institutions are eligible for reduced FDIC premiums, and
also enjoy other reduced regulatory restrictions.
At June 30, 2003 and  December  31,  2002,  the Company  and the banks  exceeded  all  regulatory  minimum  capital
requirements and are considered to be "well capitalized."Liquidity
We  anticipate  that  deposit  and loan growth  will cause  continued  variation  in our short term  federal  funds
position.  We have a number of additional  liquidity  sources should the need arise,  and we are  comfortable  with
the Company's liquidity position.

Page 12

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Our federal funds sold position  remained  primarily neutral over the course of the first six months of 2003 with a
June 30, 2003 and December  31, 2002  position of zero.  The  increased  deposit  funding was used for loan growth.
The Company generally moves in and out of the federal funds market as liquidity needs vary.Results of Operations
Net Income
Net income  increased  30.8%,  diluted earnings per share  increased  from $1.53 to $2.05 and dividends per share
increased  from $.42 to $.45 when  comparing  the results of the six months  ended June 30, 2003 to the same period
in 2002. Net income  increased  52.1%,  diluted  earnings per share increased from $.66 to $1.03 and dividends per
share  increased  from $.22 to $.23 when  comparing the results of the three months ended June 30, 2003 to the same
period in 2002.
The  increase in net income for the three and six months  ended June 30, 2003 when  compared to the same periods of
2002,  is primarily the result of increased  refinancing  of consumer  mortgage  loans and the  respective  gain on
selling the loans to the secondary market.Net Interest Income
The yield on interest  earning  assets  decreased  for the six months  ended June 30, 2003 as compared to
the same  period last year  primarily  as a result of the  general  decline in industry  rates  during the
first half of 2003 and the  continued  repricing of the Company's  interest  earning  assets.  The cost of funds on
interest  bearing  liabilities  decreased  for the six months ended June 30, 2003 as compared to the same
period during the prior year primarily as a result of the declining  interest rate  environment  and the continued
repricing  of customer  deposit  accounts  and  borrowings.  Despite the economic  challenges  that were  presented
during the past eighteen  months,  our net interest margin remains quite strong,  and the we continue to take steps
to neutralize some portion of this risk.
The  following  table shows the year to date daily  average  balances  for  interest  earning  assets and  interest
bearing  liabilities,  interest  earned or paid,  and the  annualized  effective  rate or yield,  for the six month
periods ended June 30, 2003 and 2002.

Page 13

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Yield Analysis of Consolidated Average Assets and Liabilities

`Dollars in thousands                                  6/30/2003                                 6/30/2002
                                                      ---------                                 ---------
                                        Average       Interest                    Average       Interest
                                      Outstanding      Earned/     Yield/       Outstanding      Earned/     Yield/
                                        Balance         Paid        Rate          Balance         Paid        Rate
                                        -------         ----        ----          -------         ----        ----

Interest earning assets:
Loans (1)                            $   244,572     $     8,786      7.18%    $   216,196    $     8,699      8.05%
Investment securities (2) (3)             23,641             528      4.47%         30,726            726      4.64%
Federal funds sold and other               4,868              26      1.07%          5,926             42      1.42%
                                     -----------     -----------               -----------    -----------
     Total int. earning assets           273,081           9,340      6.84%        252,848          9,467      7.49%

Interest bearing liabilities:
Interest bearing demand
  deposits                           $    59,099     $       257       .87%    $    55,487    $       355      1.28%
Savings deposits                          31,463             108       .69%         26,784            129       .96%
Time deposits                            107,447           1,700      3.16%        105,500          2,348      4.45%
Other borrowings                          11,715             302      5.16%         12,613            315      4.99%
                                     -----------     -----------               -----------    -----------
     Total int. bearing liabilities      209,724           2,367      2.26%        200,384          3,147      3.14%

Net interest income (3)                              $     6,973                              $     6,320
                                                     ===========                              ===========
Net spread (3)                                                        4.58%                                    4.35%
                                                                      =====                                    =====
Net interest margin (3)                                               5.11%                                    5.00%
                                                                      =====                                    =====
Ratio of interest earning assets to
  interest bearing liabilities              1.30                                      1.26
                                     ===========                               ===========`

(1)    
          Non-accrual loans and overdrafts are included in the average balances of loans.
          (2)     Includes Federal Home Loan Bank stock. (3)     Interest income on tax-exempt
          securities has not been adjusted to a taxable equivalent basis.

Noninterest IncomeFor the three and six months  ended June 30,  2003,  total  noninterest  income  had  increased  96.9% and 46.8% as
compared to the same  periods in 2002.  For the three and six months ended June 30, 2003,  noninterest income
from gains on mortgage loan sales  increased  422.4% and 247.4% as compared to the same periods in 2002 as a result
of record low national  market  interest  rates.  The sales of other real estate owned  created the net loss in the
category of other  noninterest  income during the first two quarters of 2003.  Net losses on the disposal of other
real  estate  owned were  $109,000.  The  increased  offset to income from loan  servicing  fees during 2003 is the
result of continued low interest rates and the related impact of the  accelerated  amortization  of mortgage
servicing rights. We continue to recognize value for the servicing rights of new mortgage originations.

Noninterest ExpenseNoninterest expense increased during
the three and six months ended June 30, 2003 when compared to the same periods of 2002,
reflecting the Companys increased mortgage origination cost because of the increased
volumes as well as continued growth and expansion of the traditional banking business.

Federal Income TaxThe Companys changes in income
tax expense continue to be relatively consistent with the Companys change in income
before income tax.

Page 14

---



Critical Accounting PoliciesCertain of the Companys
accounting policies are important to the portrayal of the Companys financial
condition, since they require management to make difficult, complex or subjective
judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes
in facts and circumstances. Facts and circumstances which could effect these judgments
include, but without limitation, changes in interest rates, in the performance of the
economy or in the financial condition of borrows. Management believes that its critical
accounting policies include determining the allowance for loan losses, determining the
fair value of securities and other financial instruments and the valuation of mortgage
servicing rights.

Forward-Looking
StatementsThis report includes
forward-looking statements as that term is used in the securities laws. All
statements regarding our 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 us or
our management, are intended to identify forward-looking statements. The presentation and
discussion of the provision and allowance for loan losses 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. Our 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
our operations and our 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 our
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 us and
our business, including additional factors that could materially affect our financial
results, is included in our filings with the Securities and Exchange Commission.

# ITEM 3 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure is
interest rate risk and liquidity risk. All of our transactions are denominated in U.S.
dollars with no specific foreign exchange exposure. We have a limited exposure to
commodity prices related to agricultural loans. Any impacts that changes in foreign
exchange rates and commodity prices would have on interest rates are assumed to be
insignificant.

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

Page 15

---



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

We have not experienced a material
change in our financial instruments that are sensitive to changes in interest rates since
December 31, 2002, which information can be located in the Form 10 document.

# ITEM 4  CONTROLS
AND PROCEDURES

|(a) | Evaluation of Disclosure  Controls and Procedures.  The  Corporation's  Chief  Executive  Officer
                  and Chief Financial Officer,  after evaluating the effectiveness of the Corporation's  disclosure
                  controls and  procedures  (as defined in Exchange Act Rules  13a-15(e)  and  15d-15(e)) as of the
                  end of the  period  covered  by  this  Form  10-Q  Quarterly  Report,  have  concluded  that  the
                  Corporation's  disclosure  controls and  procedures  were  adequate and  effective to ensure that
                  material  information  relating to the  Corporation  would be made known to them by others within
                  the  Corporation,  particularly  during  the period in which  this Form  10-Quarterly  Report was
                  being prepared.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Changes  in  Internal  Controls.  During the period  covered by this  report,  there have been no
                  changes in the  Corporation's  internal  control over financial  reporting  that have  materially
                  affected or are reasonably likely to materially  affect the  Corporation's  internal control over
                  financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Page 16

---



# PART II OTHER INFORMATION

# ITEM 1  LEGAL
PROCEEDINGS

There are no material legal
proceedings pending against the Company. Our wholly-owned subsidiaries, Bank of Lenawee
and Bank of Washtenaw, are involved in ordinary routine litigation incident to their
business; however, no such proceedings are expected to result in any material adverse
effect on the operations or earnings of the Banks. Neither the Banks nor the Company are
involved in any proceedings to which any director, principal officer, affiliate thereof,
or person who owns of record or beneficially five percent (5%) or more of the outstanding
stock of the Company or the Banks, or any associate of the foregoing, is a party or has a
material interest adverse to the Company or the Banks.

# ITEM 2  CHANGES IN
SECURITIES

No changes in the securities of the
Company occurred during the quarter ended June 30, 2003.

# ITEM 3  DEFAULTS
UPON SENIOR SECURITIES

There have been no defaults upon
senior securities relevant to the requirements of this section during the three months
ended June 30, 2003.

# ITEM 4  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of our
shareholders was held on April 17, 2003. At that meeting, the following matters were
submitted to a vote of the shareholders. There were 822,800 voting shares outstanding on
April 18, 2002. 615,281 shares or 75% voted as follows:

| | Directors Nominated for 
Terms Expiring in 2006: 
Edward J. Engle, Jr.    
J. David Stutzman | For
580,162   
583,202 | Against
34,919
31,879 | Abstain
200
200
| | -------------------------------------------------------------------------------------------- | ---------------------- | --------------------- | ---------------
| | Selection of Auditors for 2003
Crowe, Chizek and Company LLC                                 | For
592,506            | Against
19,477        | Abstain
3,298  

Consideration
of shareholders proposal relating to executive compensation as described in the
proxy statement.

| | Shareholder's Proposal | For
146,223 | Against
456,832 | Abstain
12,226
| | ---------------------- | ----------- | --------------- | --------------

Page 17

---



ITEM 5  OTHER INFORMATION

| | None.
| | -----

ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

|(a) | Listing of Exhibits (numbered as in Item 601 of Regulation S-K):                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 31.1                                                                                                                                                                                                                                                                                                                                                                                        
|    | 31.2                                                                                                                                                                                                                                                                                                                                                                                        
|    | 32.1                                                                                                                                                                                                                                                                                                                                                                                        
|    | 32.2                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | Report s on Form 8-K during the quarter ended June 30, 2003:
         Report on Form 8-K dated April 17, 2003,  furnishing  information  on earnings for the quarter ended March
         31, 2003 and dividend announcement.
         Report on Form 8-K dated April 30, 2003,  furnishing  report to shareholders on the financial  results for
         the quarter ended March 31, 2003.

Page 18

---



# SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                           | Pavilion Bancorp, Inc.                                           
|-------------------------- | -----------------------------------------------------------------
|Date:      August 14, 2003 | /s/ Douglas L. Kapnick
Douglas L. Kapnick
Chief Executive Officer
|Date:      August 14, 2003 | /s/ Loren V. Happel
Loren V. Happel
Chief Financial Officer      

Page 19

---



EXHIBIT INDEX

|Exhibit | Description                                                                                                                                                                                             
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1    | Certificate  of the 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 the 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 the Chief  Executive  Officer of  Pavilion  Bancorp,  Inc.  pursuant to 18 U.S.C.
                  Section 1350 , as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2    | Certificate  of the Chief  Financial  Officer of  Pavilion  Bancorp,  Inc.  pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

Page 20

---



# Exhibit 31.1

I, Douglas L. Kapnick, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Pavilion Bancorp, Inc.;
|-- | -----------------------------------------------------------------------------

|2. | Based on my knowledge, this 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 quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this 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 we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

Dated: August 14, 2003

| | /s/ Douglas L. Kapnick

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



---



# Exhibit 31.2

I, Loren V. Happel, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Pavilion Bancorp, Inc.;
|-- | -----------------------------------------------------------------------------

|2. | Based on my knowledge, this 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 quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this 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 we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

Dated: August 14, 2003

| | /s/ Loren V. Happel

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



---



# Exhibit 32.1

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

|(1) | the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003
          which this statement accompanies fully complies with the requirements of Section
          13(a) or 15(d) of the Securities Exchange Act of 1934, and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly
          period ended June 30, 2003 fairly presents, in all material respects, the
          financial condition and results of operations of Pavilion Bancorp, Inc..
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 14, 2003

| | /s/ Douglas L. Kapnick

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



---



# Exhibit 32.2

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

|(1) | the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003
          which this statement accompanies fully complies with the requirements of Section
          13(a) or 15(d) of the Securities Exchange Act of 1934, and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly
          period ended June 30, 2003 fairly presents, in all material respects, the
          financial condition and results of operations of Pavilion Bancorp, Inc.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 14, 2003

| | /s/ Loren V. Happel

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