# UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549 _________________

# FORM 10-Q

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

# For the quarterly
period ended March 31, 2007

or

[__]     TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 _________________

# Commission File
#000-30521

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

|Michigan
(State or Other Jurisdiction of
Incorporation or Organization) | 38-3088340
(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------- | -----------------------------------------------

135 East Maumee Street,
Adrian, Michigan 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 [X]          
          No [__]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer (in Rule 12b-2
of the Exchange Act). (Check one:)

Large Accelerated Filer
[__]                 Accelerated Filer [__]                 Non-Accelerated Filer [X]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 126-2 of the Exchange Act)

Yes [__]          
          No [X]

As of May 15, 2007 there were 728,545
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.
|------------- | ---------------------------------------------------------------------------- | --------
|             
|
|              |                                                                              |         
|              |                                                                              |         
|Item 1.       |                                                                              |         
|              | (a)     Report of Independent Registered Public Accounting Firm              |         
|              | (b)     Condensed Consolidated Balance Sheets                                |         
|              | (c)     Condensed Consolidated Statements of Income                          |         
|              | (d)     Condensed Consolidated Statements of Changes in Shareholders' Equity |         
|              | (e)     Condensed Consolidated Statements of Cash Flows                      |         
|              | (f)      Notes to Condensed Consolidated Financial Statements                |         
|              |                                                                              |         
|Item 2.       |                                                                              |         
|              |                                                                              |         
|Item 3.       |                                                                              |         
|              |                                                                              |         
|Item 4.       |                                                                              |         
|              |                                                                              |         
|              |                                                                              |         
|
|              |                                                                              |         
|Item 1.       |                                                                              |         
|Item 1.A.     |                                                                              |         
|Item 2.       |                                                                              |         
|Item 3.       |                                                                              |         
|Item 4.       |                                                                              |         
|Item 5.       |                                                                              |         
|Item 6.       |                                                                              |         
|              |                                                                              |         
|Signatures    |                                                                              |         
|              |                                                                              |         
|Exhibit Index |                                                                              |         

Page 2

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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the condensed
consolidated balance sheet of Pavilion Bancorp, Inc. (the Corporation) as of
March 31, 2007, and the related condensed consolidated statements of income,
shareholders equity, and cash flows for the three month periods ended March 31, 2007
and 2006, included in the Corporations SEC Form 10-Q. These interim financial
statements are the responsibility of the Corporations management.

We conducted our reviews in
accordance with the standards established by the Public Company Accounting Oversight Board
(United States). 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 of the Public Company Accounting
Oversight Board, 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 condensed consolidated
interim financial statements for them to be in conformity with generally accepted
accounting principles in the United States of America.

/s/ Plante & Moran,
PLLC

Auburn Hills, Michigan

May 15, 2007

Page 3

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# PART I FINANCIAL INFORMATION

ITEM 1- FINANCIAL
STATEMENTS

CONDENSED CONSOLIDATED
BALANCE SHEETS(000s omitted)

|                                                                  | March 31,
2007
(unaudited) | December 31,
2006
|----------------------------------------------------------------- | -------------------------- | -----------------
|ASSETS                                                            |                            |                  
|                                                                  |                            |                  
|Cash and due from banks                                           |                            |                  
|Federal funds sold                                                |                            |                  
|                                                                  |                            |                  
|Total cash and cash equivalents                                   |                            |                  
|                                                                  |                            |                  
|Securities available for sale                                     |                            |                  
|Federal Home Loan Bank, Freddie Mac, FNMA stock                   |                            |                  
|Federal Reserve Bank stock                                        |                            |                  
|Loans held for sale                                               |                            |                  
|Loans receivable, net of allowance for loan and lease losses      |                            |                  
|Premises and equipment, net                                       |                            |                  
|Accrued interest receivable                                       |                            |                  
|Mortgage servicing rights                                         |                            |                  
|Other assets                                                      |                            |                  
|                                                                  |                            |                  
|Total assets                                                      |                            |                  
|                                                                  |                            |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                              |                            |                  
|Deposits                                                          |                            |                  
|Noninterest bearing                                               |                            |                  
|Interest bearing                                                  |                            |                  
|                                                                  |                            |                  
|Total deposits                                                    |                            |                  
|                                                                  |                            |                  
|Federal funds purchased                                           |                            |                  
|Repurchase agreements                                             |                            |                  
|Federal Home Loan Bank advances                                   |                            |                  
|Accrued interest payable                                          |                            |                  
|Other liabilities                                                 |                            |                  
|Common stock in ESOP subject to repurchase obligation             |                            |                  
|                                                                  |                            |                  
|Total liabilities                                                 |                            |                  
|                                                                  |                            |                  
|Shareholders' equity                                              |                            |                  
|Common stock and paid-in capital, no par value: shares issued and |                            |                  
|and outstanding:  727,852 at March 31, 2007; 725,206 at           |                            |                  
|December 31, 2006                                                 |                            |                  
|Retained earnings                                                 |                            |                  
|Accumulated other comprehensive loss                              |                            |                  
|                                                                  |                            |                  
|Total shareholders' equity                                        |                            |                  
|                                                                  |                            |                  
|Total liabilities and shareholders' equity                        |                            |                  
|                                                                  |                            |                  

---

See accompanying notes
to the condensed consolidated financial statements

Page 4

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CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (unaudited)(000s
omitted, except per share data)

|                                                    | Three
Months EndedMarch 31,
|--------------------------------------------------- | ---------------------------
|                                                    |                            
|                                                   
|                                                    |                            
|Interest and dividend income                        |                            
|Loans receivable, including fees                    |                            
|Debt securities:                                    |                            
|Taxable                                             |                            
|Tax-exempt                                          |                            
|Dividend income                                     |                            
|Federal funds sold and other                        |                            
|                                                    |                            
|Total interest and dividend income                  |                            
|                                                    |                            
|Interest expense                                    |                            
|Deposits                                            |                            
|Subordinated debentures                             |                            
|Other borrowed funds                                |                            
|                                                    |                            
|Total interest expense                              |                            
|                                                    |                            
|                                                    |                            
|Net interest income                                 |                            
|                                                    |                            
|Provision for loan losses                           |                            
|                                                    |                            
|Net interest income after provision for loan losses |                            
|                                                    |                            
|Noninterest income                                  |                            
|Service charges and fees                            |                            
|Net gains on sale of loans                          |                            
|Loan servicing fees, net of amortization            |                            
|Other                                               |                            
|                                                    |                            
|                                                    |                            
|Noninterest expense                                 |                            
|Compensation and employee benefits                  |                            
|Occupancy and equipment                             |                            
|Professional services                               |                            
|Marketing                                           |                            
|Outside service fees                                |                            
|Postage and delivery services                       |                            
|Director and shareholders                           |                            
|Loan and collection                                 |                            
|Other                                               |                            
|                                                    |                            
|                                                    |                            
|                                                    |                            
|                                                    |                            
|Income before income taxes                          |                            
|Income taxes                                        |                            
|                                                    |                            
|                                                    |                            
|Net income                                          |                            
|                                                    |                            
|                                                    |                            
|Net earnings per share                              |                            
|Basic                                               |                            
|                                                    |                            
|Diluted                                             |                            
|                                                    |                            
|Dividends per share                                 |                            
|                                                    |                            

---

See
accompanying notes to condensed consolidated financial statements

Page 5

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CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (unaudited)For
the periods ended March 31, 2006 and 2007

|Common
Stock
Paid-In
Capital     | Retained
Earnings | Accumulated
Other
Comprehensive
Income/(Loss) | Total
Shareholders'
Equity
|-------------------------------- | ----------------- | --------------------------------------------- | --------------------------
|                                 |                   |                                               |                           
|Balance January 1, 2006          |                   |                                               | $                         
|Comprehensive income:            |                   |                                              
|Net income                       |                   |                                               |                           
|Unrealized gains on securities   |                   |                                              
|available for sale               |                   |                                               |                           
|Tax effect                       |                   |                                               |                           
|                                 |                   |                                               |                           
|Total other comprehensive income |                   |                                               |                           
|                                 |                   |                                               |                           
|Total comprehensive income       |                   |                                               |                           
|                                 |                   |                                              
|                                 |                   |                                              
|Stock option expense             |                   |                                               |                           
|Stock options exercised          |                   |                                               |                           
|Cash dividends - $.24 per share  |                   |                                               |                           
|                                 |                   |                                               |                           
|Balance March 31, 2006           |                   |                                               | $                         
|                                 |                   |                                               |                           
|                                 |                   |                                              
|Balance January 1, 2007          |                   |                                               | $                         
|Comprehensive income:            |                   |                                              
|Net income                       |                   |                                               |                           
|Unrealized gains on securities   |                   |                                              
|available for sale               |                   |                                               |                           
|Tax effect                       |                   |                                               |                           
|                                 |                   |                                               |                           
|Total other comprehensive income |                   |                                               |                           
|                                 |                   |                                               |                           
|Total comprehensive income       |                   |                                               |                           
|                                 |                   |                                              
|Stock option expense             |                   |                                               |                           
|Stock options exercised          |                   |                                               |                           
|Cash dividends - $.25 per share  |                   |                                               |                           
|                                 |                   |                                               |                           
|Balance March 31, 2007           |                   |                                               | $                         
|                                 |                   |                                               |                           

---

See accompanying notes
to the condensed consolidated financial statements

Page 6

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CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)

(000s omitted)

|                                                    | Three Months EndedMarch 31,
|--------------------------------------------------- | ---------------------------
|                                                    |                            
|                                                   
|                                                    |                            
|Cash flows from operating activities                |                            
|Net income                                          |                            
|Adjustments to reconcile net income to              |                            
|net cash from operating activities                  |                            
|Depreciation                                        |                            
|Stock option expense                                |                            
|Provision for loan losses                           |                            
|Amortization on securities available for sale       |                            
|Net gain on disposal of asset                       |                            
|Amortization of mortgage servicing rights           |                            
|Origination of mortgage loans held for sale         |                            
|Proceeds from sales of mortgage loans held for sale |                            
|Net gain on sale of mortgage loans                  |                            
|Net change in:                                      |                            
|Deferred loan origination fees                      |                            
|Accrued interest receivable                         |                            
|Other assets                                        |                            
|Accrued interest payable                            |                            
|Other liabilities                                   |                            
|                                                    |                            
|Net cash provided by operating activities           |                            
|                                                    |                            
|                                                    |                            
|Cash flows from investing activities                |                            
|Securities available for sale:                      |                            
|Maturities, calls and principal payments            |                            
|Proceeds from disposition of premises and equipment |                            
|Purchase of securities available for sale           |                            
|Net premises and equipment expenditures             |                            
|Net decrease in loans                               |                            
|Recoveries on loans charged-off                     |                            
|                                                    |                            
|Net cash provided by investing activities           |                            
|                                                    |                            
|                                                    |                            
|Cash flows from financing activities                |                            
|Net change in deposits                              |                            
|Net change in short term borrowings                 |                            
|Proceeds from FHLBI advances                        |                            
|Repayments of FHLBI advances                        |                            
|Stock options exercised                             |                            
|Dividends paid                                      |                            
|                                                    |                            
|Net cash used in financing activities               |                            
|                                                    |                            
|Net increase in cash and cash equivalents           |                            
|Cash and cash equivalents at beginning of period    |                            
|                                                    |                            
|                                                    |                            
|Cash and cash equivalents at end of period          |                            
|                                                    |                            
|                                                    |                            
|Transfer from:                                      |                            
|Loans to foreclosed real estate                     |                            
|Cash paid for:                                      |                            
|Interest                                            |                            
|Income taxes                                        |                            

---

See accompanying notes to condensed
consolidated financial statements

Page 7

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NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

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.

Basis of Financial
Statement PresentationThe accompanying unaudited
consolidated interim financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and with the instructions to
Form 10-Q. Accordingly, certain information and disclosures required by the accounting
principles generally accepted in the United States of America for complete financial
statements are not included herein. The interim financial statements should be read in
conjunction with the financial statements of Pavilion Bancorp, Inc. and the notes thereto
included in the Companys annual report on Form 10-K for the year ended December 31,
2006.

All adjustments, consisting of normal
recurring adjustments, which in the opinion of management are necessary for a fair
presentation of the results of operations and cash flows, have been made. The results of
operations for the three months ended March 31, 2007 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2007.

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.

Nature of Operations and Industry
Segments: The Company is a one-bank holding company that  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, health savings 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 and mortgage reinsurance 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 its
offices located in Lenawee and Hillsdale counties in Michigan.

Page 8

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Recent Accounting
Pronouncements:

Servicing of Financial
AssetsIn March 2006, the Financial
Accounting Standards Board issued SFAS No. 156, Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140. SFAS No. 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract. It requires
all separately recognized servicing assets and servicing liabilities to be initially
measured at fair value. SFAS No. 156 permits an entity to choose either an amortization or
fair value measurement method for each class of separately recognized servicing assets and
servicing liabilities. It also permits a one-time reclassification of available-for-sale
securities to trading securities with recognized servicing rights. Lastly, it requires
separate presentation of servicing assets and servicing liabilities. Adoption of the
initial measurement provision of this statement is permitted as of the beginning of an
entitys fiscal year, provided the entity has not yet issued financial statements,
including interim financial statements, for any period of that fiscal year. Management has
elected to continue to value its mortgage servicing rights portfolio using the
amortization method.

Accounting for
Uncertainty in Income TaxesIn July 2006, the Financial
Accounting Standards Board issued FIN 48, Accounting for Uncertainty in Income
Taxes.This interpretation clarifies the accounting for uncertainty in income
taxes recognized in a companys financial statements in accordance with Statement of
Financial Accounting Standards (SFAS) 109, Accounting for Income Taxes. This
interpretation requires that the Company recognize in the financial statements, the impact
of a tax position, if that position is more likely than not of being sustained on audit,
based on the technical merits of the position. This interpretation is effective for fiscal
years beginning after December 15, 2006 and would be recognized with the cumulative effect
of the change in accounting principle recorded as an adjustment to beginning retained
earnings. Adoption of this interpretation did not have a material effect on the results of
operations or financial condition of the Company.

Establishing Standards
on Measuring Fair ValueIn September 2006, the FASB issued
SFAS 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with accounting principals
generally accepted within the United States of America, and expands
disclosures about fair value measurements. The Statement clarifies that the exchange price
is the price in an orderly transaction between market participants to sell an asset or
transfer a liability at the measurement date. The statement emphasizes that fair value is
a market-based measurement and not an entity-specific measurement. The statement
establishes a fair value hierarchy used in fair value measurements and expands the
required disclosures of assets and liabilities measured at fair value. Management will be
required to adopt this statement beginning in 2008. The adoption of this standard is not
expected to have a material impact on the Companys financial condition, results of
operations or liquidity.

Fair Value OptionIn February 2007, the FASB issued
SFAS 159 The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS 159 permits entities to choose to measure financial
instruments and certain other items at fair value that are not currently required to be
measured at fair value. The decision to elect the fair value option may be applied
instrument by instrument, is irrevocable and is applied to the entire instrument and not
to only specified risks, specific cash flows or portions of that instrument. An entity is
restricted to choosing the dates to elect the fair value option for an eligible item.
Adoption of SFAS 159 is effective for the Company on January 1, 2008. Early adoption is
permitted, provided the entity also elects to apply the provisions of SFAS 157
Fair Value Measurements. Management of the Company is currently
evaluating the potential impact of SFAS 159 on the Companys financial condition,
results of operations and liquidity.

Page 9

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NOTE 2  EARNINGS
PER SHARE

Earnings per common share have been
computed based on the following for the three months ended March 31, 2007 and 2006
(000s omitted, except anti-dilutive stock options):

|                                                                                                    | 2007 | 2006
|--------------------------------------------------------------------------------------------------- | ---- | ----
|                                                                                                    |      |     
|                                                                                                    |      |     
|Net income                                                                                          |      |     
|                                                                                                    |      |     
|                                                                                                    |      |     
|Average number of common shares  outstanding used to calculate basic earnings per
share             |      |     
|                                                                                                    |      |     
|Effect of dilutive options                                                                          |      |     
|                                                                                                    |      |     
|                                                                                                    |      |     
|Average number of common shares  outstanding  used to calculate  diluted earnings per common share  |      |     
|                                                                                                    |      |     
|                                                                                                    |      |     
|Number of  anti-dilutive  stock options  excluded  from the diluted  earnings per share computation |      |     
|                                                                                                    |      |     

NOTE 3  LOANS
RECEIVABLE

Loans receivable consist of the
following (000s omitted):

|                                           | March 31,
2007 | December 31,
2006
|------------------------------------------ | -------------- | -----------------
|                                           |                |                  
|Commercial                                 |                |                  
|Agricultural                               |                |                  
|Residential mortgage                       |                |                  
|Residential construction                   |                |                  
|Home equity lines of credit                |                |                  
|Consumer                                   |                |                  
|                                           |                |                  
|                                           |                |                  
|Less:  allowance for loan and lease losses |                |                  
|                                           |                |                  
|Loans receivable, net                      |                |                  
|                                           |                |                  

Activity in the allowance for loan
losses for the quarters ended March 31, are as follows (000s omitted):

|                               | 2007 | 2006
|------------------------------ | ---- | ----
|                               |      |     
|Balance at beginning of period |      |     
|Charge-offs                    |      |     
|Recoveries                     |      |     
|Provision for loan losses      |      |     
|                               |      |     
|Balance at end of period       |      |     
|                               |      |     

Page 10

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NOTE 4  STANDBY
AND COMMERCIAL LETTERS OF CREDIT AND FINANCIAL GUARANTEES

The Bank is a 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, standby letters of credit, and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheet.

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

The total contractual amounts of
commercial and standby letters of credit and financial guarantees were $2.5 million
and $2.4 million at March 31, 2007 and December 31, 2006, respectively.

Page 11

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

This discussion provides information
about the consolidated financial condition and results of operations of the Company as of
March 31, 2007 and for the three month period ended March 31, 2007 and 2006 and
should be read in conjunction with the Companys Condensed Consolidated Financial
Statements and the notes thereto, appearing in Part 1, Item 1 of this document.

Forward-Looking
StatementsThis discussion and analysis of
financial condition and results of operations and other sections of this Form 10-Q contain
forward looking statements that are based on managements beliefs, assumptions,
current expectations, estimates and projections about the financial services industry, the
economy and about the Company itself. Words such as anticipates,
believes, estimates, expects, forecasts,
foresee, intends, is likely, plans,
projects, variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions (Future
Factors) that are difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. Therefore, actual results and outcomes may materially differ from
what may be expressed or forecast in such forward-lookingstatements. Furthermore,
the Company undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events or otherwise. Future
Factors include:

| |  | changes
in interest rates and interest rate relationships;
| | - | ----------------------------------------------------------

| |  | demand
for products and services;
| | - | ---------------------------------

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

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

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

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

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

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

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

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

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

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 affect these judgments
include, but without limitation, changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that its critical
accounting policies include determining the allowance for loan losses, determining the
fair value of securities and other financial instruments, the valuation of mortgage
servicing rights and deferred tax and tax provision estimates. The Companys critical
accounting policies are described in the financial section of its 2006 Annual Report.

Page 12

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Financial OverviewTotal assets decreased by $2.0
million or 0.7% from December 31, 2006 to March 31, 2007. Cash and cash equivalents
increased $4.7 million or 27.2% from December 31, 2006 to March 31, 2007. Loans
receivable, net of the allowance for loan and lease losses, decreased by $6.9 million or
2.8% from December 31, 2006 to March 31, 2007. Investment securities available for sale
decreased $1.0 million or 5.6% from December 31, 2006 to March 31, 2007. Total deposits
increased $11.8 million or 5.0% from December 31, 2006 to March 31, 2007. Borrowed funds
decreased $14.7 million or 58.4% from December 31, 2006 to March 31, 2007. Consolidated
net income for the three months ended March 31, 2007 was $479,000 compared to $400,000 for
the same period in 2006. Basic earnings per share (EPS) and fully diluted EPS
for the three months ended March 31, 2007 were $0.66 per share and $0.66 per share,
respectively. For the same period in 2006 basic and fully diluted EPS were $0.54 and
$0.54, respectively.

FINANCIAL CONDITION

InvestmentsTotal investments securities
available-for-sale decreased $1.0 million or 5.6%, to $16.8 million at March 31, 2007,
compared to $17.8 million at December 31, 2006. The decrease in investment securities is
attributable to maturities and repayment of the investment principal. Equity investment in
the Federal Home Loan Bank of Indianapolis (FHLBI) remains unchanged at $2.1
million at March 31, 2007 and December 31, 2006. Investment in Federal Reserve Bank
(FRB) stock also remains unchanged at $630,000 as of March 31, 2007 and
December 31, 2006. The Company had no held-to-maturity securities as of March 31, 2007 and
December 31, 2006.

LoansThe following table summarizes the
Banks loan portfolio and loan mix at March 31, 2007 and December 31, 2006:

# Consolidated Loans
Outstanding

|March 31, 2007                             | December 31, 2006
|------------------------------------------ | -----------------
|                                           |                  
|                                           |                  
|                                           |                  
|Commercial                                 |                  
|Agricultural                               |                  
|Residential mortgage                       |                  
|Residential construction                   |                  
|Home equity lines of credit                |                  
|Consumer                                   |                  
|                                           |                  
|Total loans receivable                     |                  
|Less:  allowance for loan and lease losses |                  
|                                           |                  
|Loans receivable, net                      |                  
|                                           |                  

During the first three months of
2007, loans, net of allowance for loan losses, decreased $6.9 million, or 2.8%. The mix of
the loan portfolio continues to remain relatively unchanged from prior periods. The
commercial and agricultural loan portfolios decreased by $2.2 million or 1.65% and $1.6
million or 3.9%, respectively. The decrease in these portfolios is due primarily to the
seasonal pay downs of lines of credit. Management expects these portfolios to increase in
the second quarter of 2007. The residential mortgage loan portfolio decreased by $1.2
million or 3.9% due to increased mortgage rates and the slowing of the real estate market.
Residential construction loan portfolio decreased approximately $452,000 or 4.1%, as
construction activity reduced during the winter months. Home equity lines of credit
decreased approximately $1.3 million, or 6.7%, and consumer loans decreased by $242,000 or
1.9% during the current first quarter of 2007 as repayments outpaced demand for new loans.
Management expects increases to these loan portfolios in the second quarter as demand for
loans has increased.

Page 13

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Off-Balance Sheet Items
The
following is a summary of outstanding commitments by the Bank to grant loans, unfunded
commitments under lines of credit and letters of credit at March 31, 2007 and December 31,
2006:

|March 31, 2007                              | December 31, 2006
|------------------------------------------- | -----------------
|                                            |                  
|Commitments to originate or refinance loans |                  
|Unfunded commitments under lines of credit  |                  
|Commercial and standby letters of credit    |                  
|                                            |                  
|Total                                       |                  
|                                            |                  

Outstanding commitments to originate
or refinance loans decreased $3.7 million, or 44.5%, to $4.7 million at March 31, 2007
from $8.4 million at December 31, 2006. This decrease in commitments to originate or
refinance loans is due primarily to the decreased demand for new loans experienced during the
first three months of 2007 as the result of the reduced economic conditions found within the
State of Michigan and our market area. Unfunded commitments under lines of credit increased by $4.5
million or 7.8% to $62.5 million from $58.0 million on December 31, 2006. The increase is
due to reduced demand for new loans, resulting in fewer draws against outstanding lines of
credit during the first three months of 2007. Standby letters of credit have remained
relatively stable in the first quarter of 2007. Management does not expect that all
commitments will result in funded loans.

Credit QualityThe Bank continues to monitor the
asset quality of the loan portfolio utilizing a senior loan review officer who, combined
with external loan review specialists, periodically submits reports to the Chief Executive
Officer, 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,
management continues to monitor delinquencies, nonperforming assets and potential problem
loans to assess the continued quality of the Banks 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 including real estate held for redemption, which
is classified within (1) or (2) above dependent upon their respective collateralized
position. The aggregate amount of nonperforming loans, in thousands of dollars, is shown
in the table below. The Banks classifications of nonperforming loans are generally
consistent with loans identified as impaired.

The chart below shows the composition
of the Banks nonperforming assets by type as of March 31, 2007 and 2006, and
December 31, 2006.

|March 31,
2007                                                                   | December 31,
2006 | March 31,
2006
|-------------------------------------------------------------------------------- | ----------------- | --------------
|                                                                                 |                   |               
|Non-accruing loans past due                                                      |                   |               
|Loans past due 90 days or more still accruing                                    |                   |               
|                                                                                 |                   |               
|Total nonperforming loans                                                        |                   |               
|Other real estate                                                                |                   |               
|                                                                                 |                   |               
|Total nonperforming assets                                                       |                   |               
|                                                                                 |                   |               
|                                                                                 |                   |               
|Nonperforming loans as a percent of total loans                                  |                   |               
|Nonperforming assets as a percent of total assets                                |                   |               
|Nonperforming loans as a percent of the allowance      for loan and lease losses |                   |               

Page 14

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At March 31, 2007, total
nonperforming assets increased by $191,000 or 5.4% from December 31, 2006 and by $1.6
million or 71.6% from March 31, 2006. The Bank is closely monitoring and managing
nonperforming loans to determine and implement corrective action to improve the quality of
nonperforming assets. Management has taken several steps to ensure that credit risk is
monitored and properly reflected in the Banks allowance for loan loss. The
Banks Chief Credit Officer has reviewed each market segment of the loan portfolio
separately to insure that no particular segment is experiencing an extra level of risk.
Additionally, management engages a third-party loan  review consultant to perform an
additional review of the portfolio to identify potential credit risk.  Loans past due 90 days and still
accruing are loans that management considers to be adequately collateralized to support
continued accrual of interest. Nonperforming assets as a percentage of total assets have
increased to 1.28% at March 31, 2007 from 1.21% and 0.77% at December 31, 2006 and March
31, 2006 respectively. Nonperforming loans as a percentage of the allowance for loan and
lease losses increased to 123.04% as of March 31, 2007 compared to 120.55% as of December
31, 2006, and 70.69% on March 31, 2006. As of March 31, 2007 non-performing loans totaling
$577,719 and $453,900 are fully guaranteed by the Farm Service Agency and partially
guaranteed by the Small Business Association respectively. Management believes that the
loans have been adequately reserved for in the allowance for loan and lease losses. When
the  guaranteed loans are subtracted from the non-performing loan to allowance from
loan and lease loss calculation, the percentage declines to 99.70% from 123.04%.

Activity in the allowance for loan
and lease losses for the three months ended March 31, 2007 and 2006 follows:

|                               | Three Months EndedMarch 31,
|------------------------------ | ---------------------------
|(000s omitted)                |                            
|                               |                            
|Balance at beginning of period |                            
|Charge-offs                    |                            
|Recoveries                     |                            
|Provision for loan losses      |                            
|                               |                            
|Balance at end of period       |                            
|                               |                            

The Bank increased its funding of
provision for loan losses as of March 31, 2007 by $150,000 over the same period in 2006
based on managements assessment of current economic conditions and the composition
of the loan portfolio. The loan portfolio before the allowance for loan and lease losses
has increased by $4.7 million or 2.0% to $239.2 million as of March 31, 2007 compared to
$234.5 million outstanding as of March 31, 2006. The level of classified loans has
increased by $6.6 million or 46.2% to $20.9 million as of March 31, 2007 up from $14.3
million as of March 31, 2006. The level of overall delinquency within the loan portfolio
has increased to 1.7% of outstanding loans as of March 31, 2007 compared to 1.2% of
outstanding loans as of March 31, 2006. Management believes that the level of allowance is
appropriate given the current composition of the loan portfolio and the economic factors
inherent in the local economy.

The Bank maintains an allowance for
loan and lease 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. 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 amount of provision for loan
losses recognized by the Bank 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.

Page 15

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Deposits and Borrowed
FundsTotal deposits increased $11.8
million or 5.0% during the quarter to $247.8 million at March 31, 2007 from $235.9 million
at December 31, 2006. Noninterest-bearing deposits decreased $2.3 million, or 5.1% to
$43.9 million atMarch 31, 2007 from $46.3 million at
December 31, 2006. Interest-bearing deposits increased $14.1 million, or 7.5% to $203.8
million at March 31, 2007 from $189.6 million at December 31, 2006. This increase is primarily
the result of an increase in certificates of
deposit (CDs) with balances of $100,000 and greater, which increased $13.1
million, or 17.9% to $86.3 million at March 31, 2007 from $73.2 million at December 31,
2006. The increase in CDs is attributable to a greater amount of local municipal
deposits obtained through a competitive bidding process. Certificates of deposit with
balances under $100,000 increased $3.2 million, or 7.4%, to $46.4 million at March 31,
2007 from $43.2 million at December 31, 2006. Other interest-bearing deposits, including
savings and NOW accounts, decreased $2.1 million, or 2.9% to $71.1 million at March 31,
2007 from $73.2 million at December 31, 2006.

Borrowed funds decreased by $14.7
million, or 58.3%, to $10.5 million at March 31, 2007 from $25.2 million at December 31,
2006. The decrease in borrowed funds is due to the repayment of an FHLBI advance of $9.0
million and $6.6 million in Federal funds purchased at December 31, 2006. The repayments
were made from the Banks general cash reserves with no additional borrowings
required. These reductions were offset by an increase of $897,000 to daily repurchase
agreements with customers from the December 31, 2006 balance of $2.7 million to $3.6
million on March 31, 2007.

CapitalDuring
the first quarter of 2007, equity capital increased by $404,000, reflecting current quarter
earnings and the exercise of stock options, reduced by a first quarter dividend of $.25 per
share. The number of outstanding shares at March 31, 2007 of 727,852 represents an
increase of 2,646 shares from the shares outstanding at December 31, 2006 due to the exercise of
stock options. The Bank continues to maintain sufficient risk-based capital levels to
remain categorized as well-capitalized under federal regulatory requirements.
Well capitalized institutions are eligible for reduced FDIC premiums, and also
enjoy other reduced regulatory restrictions. Management monitors the capital levels of the
Company and the Bank to provide for current and future business opportunities.

Results of Operations

Net IncomeNet income for the three months ended
March 31, 2007 increased $79,000, or 19.8% to $479,000 compared to $400,000 for the same
period in 2006. Basic earnings per share (EPS) for the three months ended
March 31, 2007 were $0.66 compared to $0.54 for the same period in 2006. Diluted EPS for
the three months ended March 31, 2007 were $0.66 compared to $0.54 for the same period in
2006. The increase in earnings per share is due to the increase in net income combined
with a decrease in the average number of shares outstanding. The average number of
outstanding shares decreased as a result of share repurchases that occurred during the
fourth quarter of 2006.

The increase in income is primarily
the result of a decrease in noninterest expense for the three month period ended March 31,
2007 from the three month period ended March 31, 2006.

Page 16

---



Net Interest MarginThe 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 three month
periods ended March 31, 2007 and 2006.

|                                                 | 2007 | 2006
|------------------------------------------------ | ---- | ----
|(000s omitted)                                  |      |     
|                                                 |      |     
|Interest-earning assets:                         |      |     
|Loans receivable (1)                             |      |     
|Securities available for sale (3)                |      |     
|Federal funds sold                               |      |     
|Equity securities (2)                            |      |     
|Interest-earning  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                                    |      |     
|Subordinated debentures                          |      |     
|Other borrowings                                 |      |     
|                                                 |      |     
|Total interest-bearing liabilities               |      |     
|Demand deposits                                  |      |     
|Other liabilities                                |      |     
|                                                 |      |     
|Total liabilities                                |      |     
|Shareholders' equity                             |      |     
|                                                 |      |     
|Total liabilities and shareholders' equity       |      |     
|                                                 |      |     
|                                                 |      |     
|Net interest income                              |      |     
|                                                 |      |     
|Interest rate spread (4)                         |      |     
|                                                 |      |     
|Net interest margin (5)                          |      |     
|                                                 |      |     
|Ratio of interest-earning assets                 |      |     
|to interest-bearing liabilities                  |      |     
|                                                 |      |     

|(1) | Non-accrual
loans and overdrafts are included in the average balances of loans.
|--- | -------------------------------------------------------------------------------

|(2) | Includes
FHLBI stock.
|--- | ---------------------

|(3) | Interest
income on tax-exempt securities has not           been adjusted to a taxable equivalent
basis.
|--- | -------------------------------------------------------------------------------------------------------

|(4) | Interest rate spread is the difference between rates of interest-earning assets
          and rates of interest paid on interest-bearing liabilities
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Net interest margin is the net interest income divided by average
          interest-earning assets.
|--- | ----------------------------------------------------------------------------------------------------

Page 17

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The yield on interest-earning assets
increased for the quarter ended March 31, 2007  to 7.32% from 6.76% as compared
to the same period in the prior year. This increase is due to increases in the prime
lending rate over the last 12 months and the replacement of lower yield securities with
higher yielding loans. The yield earned on loans receivable increased to 7.73% for the
first quarter of 2007 compared to 7.23% for the same period in 2006. The cost of funds on
interest-bearing liabilities increased to 3.60% from 2.97% for the quarter ended March 31,
2007 as compared to the same period during the prior year due to the increasing deposits
in higher yielding time deposit products, especially the greater than $100,000 CD category, which
has increased by $13.1 million since December 31, 2006. Management will continue its
efforts towards attracting lower cost core deposits.

Noninterest IncomeTotal noninterest income decreased
$21,000, or 3.0%, to $686,000 for the quarter ended March 31, 2007 compared to $707,000
for the same period in 2006. Service charges and fees on deposit accounts increased
$76,000 or 17.6%, to $507,000 for the three months ended March 31, 2007 compared to
$431,000 for the same period in 2006. The increase in service fee income can be partially
attributed to increased merchant credit card activity and a fee increase for bank services
that became effective as of February 1, 2007. Net gains on sale of loans decreased 36.1%
or $87,000 to $154,000 in the first quarter of 2007 compared to $241,000 for the same
period in 2006. Mortgage loan sales decreased approximately 34.3% in 2007 to $6.9 million
for the first quarter compared to $10.5 million for the same period in 2006. The decrease
in mortgage loan activity can be attributed to increased interest rates and a slowing real
estate market. Loan servicing fees, net of amortization, decreased $14,000, or 41.2%, to
$20,000 for the three months ended March 31, 2007 compared to $34,000 for the same period
in 2006. This decrease is due to increased levels of amortization of the Companys
mortgage servicing rights due to loan repayments and loan payoffs without the offsetting
sale of new mortgage notes on the secondary market.

Noninterest ExpenseNoninterest expense decreased by
approximately $272,000 or 8.9% to $2.8 million for the three months ended March 31, 2007,
compared to $3.1 million for the same period in 2006. Compensation and employee benefits
expense decreased $282,000, or 15.0%, to $1.6 million for the three months ended March 31,
2007 compared to $1.9 million for the same period in 2006. The decrease reflects the
savings realized from a reduction-in-force that occurred at the end of first quarter 2006.
Occupancy and equipment costs increased by $77,000 or 21.3% to 438,000 as compared with
$361,000 for the same period in 2006. The increase is primarily associated with the
opening of the Hillsdale branch in January 2007. Fees for professional services decreased
approximately $48,000 or 36.1% to $85,000 in the first quarter of 2007 compared to
$133,000 for the same period in 2006. The decrease is partly due to managements
reduced use of third-party consultants. Marketing expense decreased by $13,000, or 24.1%,
for the three months ended March 31, 2007 to $41,000 compared to $54,000 for the same
period in 2006. Other operating expenses increased approximately $62,000, or 50.8%, for the
three months ended March 31, 2007 to $184,000 compared to $122,000 for the same period in
2006. The increase in other operating expense resulted from an increase in the accrual
for Michigan single business tax, ATM and DDA account expenses, donations, and insurance
deductible.  Additionally, the Bank invested approximately $7,000 more
in employee education and travel expenses during the first quarter of 2007 over the first
quarter of 2006.

Federal Income Tax
ExpenseThe provision for federal income tax
increased $78,000 or 46.2%, to $247,000 for the three months ended March 31, 2007 compared
to $169,000 for the same period in 2006. The increase in the federal income tax provision is
attributed to the increased level of earnings and a reduced investment in tax-exempt
securities, loans and leases.

Liquidity and Capital
ResourcesLiquidity is the ability to meet
current and future financial obligations, including the ability to have funds available to
respond to the needs of depositors and borrowers as well as maintaining the flexibility to
take advantage of investment opportunities. The Companys primary sources of funds
consist of deposit inflows, loan repayments, maturities and sales of investment securities
and borrowings from the FHLBI. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and competition.

Liquidity management is both a daily
and long-term responsibility of management. The Company adjusts its investments in liquid
assets based upon managements assessment of (1) expected loan demand, (2) expected
deposit flows, (3) yields available on interest-earning deposits and securities, and (4)
the objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and immediate-term
U.S. Government and agency obligations.

Page 18

---



The Companys most liquid assets
are cash and short-term investments. The levels of these assets are dependent on the
Companys operating, financing, lending and investing activities during any given
period. At March 31, 2007, cash and short-term investments totaled $21.9 million and
securities classified as available for sale totaled $16.8 million. However,
available-for-sale securities with a market value of $10.0 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 quarter end, primarily as the result of
increasing interest rates, which resulted in an unrealized loss of approximately $91,000
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 to meet its obligations
without the sale of securities.

Financing activities consist
primarily of activity in deposit accounts, overnight borrowings from our correspondent
banks and FHLBI advances. The Bank experienced a net increase in total deposits of $11.8
million for the three months ended March 31, 2007. Deposit flows are affected by the
overall level of interest rates, products offered by the Bank and its local competitors as
well as other factors.

The Banks borrowed funds
position decreased during the first quarter of 2007 from $25.2 million at December 31,
2006 to $10.5 million as of March 31, 2007. As of March 31, 2007, the Bank had the ability
to borrow a total of $15.0 million from the FHLBI based upon the amount of collateral
pledged, of which $1.9 million was outstanding at that date. In addition to the FHLBI, the
Bank had available borrowings on a line-of-credit of $12.5 million from a correspondent
bank, which was not drawn against as of March 31, 2007. The Bank also had outstanding
advances on repurchase agreements totaling $8.6 million at March 31, 2007, based on the
collateral pledged. Additional advances could be obtained through repurchase agreements
provided additional collateral is pledged. Repurchase agreements are terminable upon
demand.

At March 31, 2007, the Bank had
outstanding commitments to fund loans of $4.7 million, of which $3.4 million had fixed
interest rates. The Bank believes that it will have sufficient funds available to meet its
current loan commitments. Loan commitments, in prior reporting periods, have been funded
through liquidity and through FHLBI borrowings. Based on the foregoing, the Company
considers its liquidity and capital resources sufficient to meets its outstanding
short-term and long-term needs.

The Company is subject to various
regulatory capital requirements administered by the Federal Deposit Insurance Corporation
including a risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk categories.

Page 19

---



At March 31, 2007 and December 31,
2006, the Bank exceeded all regulatory minimum capital requirements. The Bank continues to
maintain sufficient risk-based capital levels to remain categorized as
well-capitalized under federal regulatory requirements.

|                                         | Actual | Minimum Required
For
Capital Adequacy
Purposes | Minimum Required to be
Well-Capitalized Under
Prompt Corrective
Action Regulations
|---------------------------------------- | ------ | ---------------------------------------------- | ----------------------------------------------------------------------------------
|                                         |        |                                                |                                                                                   
|                                         |        |                                                |                                                                                   
|March 31, 2007                           |        |                                                |                                                                                   
|Total Capital (to risk weighted assets)  |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 
|Tier 1 Capital (to risk weighted assets) |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 
|Tier 1 Capital (to average assets)       |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 
|                                         |        |                                               
|December 31, 2006                        |        |                                               
|Total Capital (to risk weighted assets)  |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 
|Tier 1 Capital (to risk weighted assets) |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 
|Tier 1 Capital (to average assets)       |        |                                               
|Bank of Lenawee                          |        |                                                | $                                                                                 

ITEM 3 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market
risk exposure is interest rate risk and liquidity risk. All of the Companys
transactions are denominated in U.S. dollars with no specific foreign exchange exposure.
The Company has 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
shareholder 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 the Companys safety and soundness. The Board of
Directors has instituted a policy setting limits on the amount of interest rate risk that
may be assumed. Management provides information to the Board of Directors on a monthly
basis detailing interest rate risk estimates and activities to control such risk.

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, the Company
seeks to ensure that appropriate policies, procedures, management information systems and
internal controls are in place to maintain IRR at prudent levels with consistency and
continuity. Evaluating the quantitative level of IRR exposure requires the Company 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.

Page 20

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The Company has not experienced a
material change in its financial instruments that are sensitive to changes in interest
rates since December 31, 2006, which information can be located in the Companys
annual report on Form 10-K.

ITEM 4  CONTROLS
AND PROCEDURES

| | (a) | Evaluation of Disclosure Controls and Procedures. The Companys
               Chief Executive Officer and Chief Financial Officer, after evaluating the
               effectiveness of the companys disclosure controls and procedures (as
               defined in Exchange Act Rules 13a-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
               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-Q Quarterly Report was being prepared.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# PART II OTHER INFORMATION

ITEM 1  LEGAL
PROCEEDINGSThe Company is not involved in any
material legal proceedings. The Companys wholly-owned subsidiary, Bank of Lenawee,
is involved in ordinary routine litigation incident to its business; however, no such
proceedings are expected to result in any material adverse effect on the operations or
earnings of the Bank. Neither the Bank 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
Bank, or any associate of the foregoing, is a party or has a material interest adverse to
the Company or the Bank.

ITEM 1A  RISK
FACTORSThere have been no material changes
in the risk factors applicable to the Company from those disclosed in its annual report on
Form 10-K for the year ended December 31, 2006.

ITEM 2 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None

ITEM 3  DEFAULTS
UPON SENIOR SECURITIES  None

ITEM 4 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None

ITEM 5  OTHER
INFORMATION  None

Page 21

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ITEM 6  EXHIBITS

| | Listing
of Exhibits (numbered as in Item 601 of Regulation S-K):
| | ----------------------------------------------------------------

| | 31.1 | Certificate
 of the Chief  Executive  Officer of Pavilion  Bancorp,  Inc.  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 Section 302 of
the  Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certificate
of the Chief Executive  Officer and 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.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 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.

|Date:        May  15, 2007
         
Date:        May  15, 2007
          |  | Pavilion Bancorp, Inc.
/s/ Richard J. DeVries

Richard J. DeVriesPresident and Chief Executive Officer/s/ Mark D. Wolfe

Mark D. WolfeSenior Vice President of Finance and Chief Financial Officer
|----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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EXHIBIT INDEX

|Exhibit | Description
|------- | -----------

|31.1 | Certificate
 of  the  Chief  Executive  Officer  of  Pavilion  Bancorp,  Inc.  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  Section
 302  of  the  Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Certificate
of the Chief Executive Officer and 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.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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