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Securities and Exchange Commission
Washington, 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 June 30, 2004

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)

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 an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [__] No |X|

As of August 11, 2004 there were 845,420 outstanding shares of the registrant’s common stock, no par value.

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ITEM NO.		CROSS REFERENCE TABLE DESCRIPTION		PAGE NO.

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Independent Accountant’s Report

We have reviewed the consolidated balance sheet of Pavilion Bancorp, Inc. (the Corporation) as of June 30, 2004, and the related consolidated statements of income, and cash flows for the three and six-month period then ended, included in the Corporation’s SEC Form 10-Q. These financial statements are the responsibility of the Corporation’s management.

We conducted our review 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 generally accepted auditing standards, 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 review, we are not aware of any material modifications that should be made to the consolidated financial statements referenced above for them to be in conformity with generally accepted accounting principles.

Plante & Moran, PLLC
Auburn Hills, MI
August 11, 2004

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PART I
FINANCIAL INFORMATION

ITEM 1- FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
                              In thousands of dollars

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CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME (unaudited)
In thousands of dollars, except per share data

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      CONDENSED CONSOLIDATED STATEMENT OF
         CASH FLOWS (unaudited)
         In thousands of dollars

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 Banks”). Bank of Lenawee includes its wholly-owned subsidiaries, Pavilion Financial Services and Pavilion Mortgage Company. 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, including loans to individuals for home mortgages, automobiles and personal expenditures, and loans to business enterprises for current operations and expansion. The Banks offer traditional bank deposit products, including checking, savings, money market savings, individual retirement accounts, and certificates of deposit as well as a mobile banking courier service.

NOTE 2 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of 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, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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, 2004 and 2003 is presented below:

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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, 2004 and 2003 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.

The weighted average fair value of stock options granted during the six months ended June 30, 2004 and 2003 were $11.43 and $10.15, respectively. The fair value of options granted during the six months ended June 30, 2004 and 2003 were estimated using an option pricing model with the following weighted average information as of the grant dates:

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.

NOTE 5 – SUBSEQUENT EVENT

On July 16, 2004 Pavilion Bancorp executed a definitive agreement for the sale of the Bank of Washtenaw to Dearborn Bancorp, Inc. pending regulatory approval and certain other conditions (“Washtenaw Sale”). Subject to regulatory approval and certain other conditions, the sale is expected to be completed in the fourth quarter for the sum of $15,000,000. As of June 30, 2004 the Bank of Washtenaw has $72.6 million in total assets and $7.1 million in equity. For the six month period ended June 30, 2004 Bank of Washtenaw earned $73,700. A Form 8-K was filed with the Securities and Exchange Commission on July 19, 2004 detailing this transaction.

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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 June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003.

The Washtenaw Sale described in Note 5 to the Consolidated Financial Statements is subject to regulatory approval and other conditions. If the Washtenaw sale is completed as contemplated, it is anticipated that the transaction will have a positive impact on the Company’s financial condition and results of operations. The transaction will result in a reduction of consolidated assets (primarily loans, currently $66.5 million), and liabilities (primarily deposits, currently $72.6 million). However, the Company’s capital position is expected to be strengthened by the amount of the net after tax and transaction expense proceeds to be received in the transaction. The earnings on the additional capital are expected to more than offset the earnings contributed by Bank of Washtenaw to the Company’s consolidated results of operations. Management and the Board are developing a plan for the deployment of the additional capital in a manner which will support enhanced growth and expansion in the Lenawee County market area while maximizing the return on that investment. In the interim, the net proceeds from the transaction will be invested in short-term securities.

FINANCIAL CONDITION

Cash and cash equivalents
Cash and cash equivalents of $11.1 million increased 10.0%, or $1.01 million during the first six months of 2004 reflective of routine daily fluctuation.

Securities
Securities available for sale increased $1.6 million or 7.9% to $22.1 million during the first six months of 2004. The increase represents the investment of our customers’ increased deposit accounts funding. The mix of the securities portfolio was enhanced by additional government agency investments.

Loans
During the first six months of 2004, loans, net of allowance for loan losses, increased $5.8 million or 2.1%. The mix of the loan portfolio continues to remain relatively unchanged from prior periods. Over the long term, the trend continues toward an increased portion of small business loans in the Banks’ markets. Additionally, the increase in loans was partially due to the increase in loans held for sale at June 30, 2004. This increase of $2.2 million was due to timing of their sale to third parties including Fannie Mae, Freddie Mac and FHLB. The sale occurred subsequent to month-end.

Credit Quality
The Company continues to monitor the asset quality of the loan portfolio utilizing a loan review officer who, combined with external loan review specialists, periodically submits 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, management continues to monitor delinquencies, nonperforming assets and potential problem loans to assess the continued quality of the Company’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 (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. The Company’s classifications of nonperforming loans are generally consistent with loans identified as impaired.

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The chart below shows the makeup of the Company’s nonperforming assets by type, in thousands of dollars, as of June 30, 2004 and 2003, and December 31, 2003.