# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

_________________

# FORM 10-QSB

[X] QUARTERLY REPORT UNDER
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period
ended March 31, 2007

OR[_] TRANSITION REPORT
UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition
period from _______ to ________

Commission file number:333-63685

CLARKSTON FINANCIAL CORPORATION(Exact name of small business issuer as specified in its charter)

|MICHIGAN(State of other jurisdiction of
incorporation or organization) | 38-3412321(I.R.S. EmployerIdentification No.)
|---------------------------------------------------------------------- | ---------------------------------------------

6600 Highland Road,
Waterford, MI 48327(Address of principal
executive offices) (Zip Code)

Registrants telephone number, including area code: (248) 922-6940

_________________

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

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange
Act).      Yes    No  X

The number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable date:
1,262,279 shares of the Corporations Common Stock (no par value) were
outstanding as of May 15, 2007.

Transitional Small
Business Disclosure Format (check one):    Yes    No  X

---



# INDEX

|Part I
Part IISignatures | Financial Information (unaudited):Item 1.
Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial StatementsItem 2.Management's Discussion and Analysis of
Financial Condition and Results of OperationsItem 3.
Controls & Procedures
Other InformationItem 1.
Legal ProceedingsItem 2.
Changes in Securities and Use of ProceedsItem 3.
Defaults Upon Senior SecuritiesItem 4.
Submission of Matters to a Vote of Securities HoldersItem 5.
Other InformationItem 6.
Exhibits and Reports on Form 8-K | PageNumbers
37162526262626262627
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------

2

---



# Part I    Financial Information (unaudited)

CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2007 (unaudited) and December 31, 2006(000s omitted)

|                                                                | March 31, 2007 | December 31,
2006
|--------------------------------------------------------------- | -------------- | -----------------
|                                                                |                |                  
|                                                                |                |                  
|ASSETS                                                          |                |                  
|                                                                |                |                  
|Cash and cash equivalents                                       |                |                  
|Total cash and due from banks                                   |                |                  
|Federal funds sold                                              |                |                  
|                                                                |                |                  
|Total cash and cash equivalents                                 |                |                  
|                                                                |                |                  
|Securities available for sale, at fair value                    |                |                  
|                                                                |                |                  
|Loans held for sale                                             |                |                  
|                                                                |                |                  
|Loans                                                           |                |                  
|Allowance for loan losses                                       |                |                  
|                                                                |                |                  
|Net loans                                                       |                |                  
|                                                                |                |                  
|Banking premises and equipment                                  |                |                  
|Interest receivable and other assets                            |                |                  
|                                                                |                |                  
|Total assets                                                    |                |                  
|                                                                |                |                  
|                                                                |                |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                            |                |                  
|                                                                |                |                  
|Deposits                                                        |                |                  
|Noninterest-bearing                                             |                |                  
|Interest-bearing                                                |                |                  
|                                                                |                |                  
|Total deposits                                                  |                |                  
|                                                                |                |                  
|Federal Home Loan Bank advances                                 |                |                  
|Junior subordinated debentures                                  |                |                  
|Interest payable and other liabilities                          |                |                  
|                                                                |                |                  
|Total liabilities                                               |                |                  
|                                                                |                |                  
|Minority interest in consolidated subsidiary                    |                |                  
|                                                                |                |                  
|Shareholders' equity                                            |                |                  
|Common stock, no par value:                                     |                |                  
|Authorized - 10,000,000 shares                                  |                |                  
|Issued and outstanding - 1,262,279 shares at March 31, 2007 and |                |                  
|December 31, 2006, respectively                                 |                |                  
|Paid-in capital                                                 |                |                  
|Restricted stock - unearned compensation                        |                |                  
|Retained earnings                                               |                |                  
|Accumulated other comprehensive loss                            |                |                  
|                                                                |                |                  
|Total shareholders' equity                                      |                |                  
|                                                                |                |                  
|Total liabilities and shareholders' equity                      |                |                  
|                                                                |                |                  

See
accompanying notes to consolidated financial statements

3

---



CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Month Periods Ended March 31, 2007 and March 31, 2006(000s
omitted, except per share data)(unaudited)

|                                                         | Three Months
Ended
March 31,
2007 | Three Months
Ended
March 31,
2006
|-------------------------------------------------------- | --------------------------------- | ---------------------------------
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Interest Income                                          |                                   |                                  
|Interest and fees on loans                               |                                   |                                  
|Interest on investment securities:                       |                                   |                                  
|Taxable securities                                       |                                   |                                  
|Tax-exempt securities                                    |                                   |                                  
|Interest on federal funds sold                           |                                   |                                  
|                                                         |                                   |                                  
|Total interest income                                    |                                   |                                  
|                                                         |                                   |                                  
|Interest Expense                                         |                                   |                                  
|Deposits                                                 |                                   |                                  
|Borrowings                                               |                                   |                                  
|                                                         |                                   |                                  
|Total interest expense                                   |                                   |                                  
|                                                         |                                   |                                  
|Net Interest Income                                      |                                   |                                  
|                                                         |                                   |                                  
|Provision for loan losses                                |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Net interest income- After provision for loan losses     |                                   |                                  
|                                                         |                                   |                                  
|Other Operating Income (Loss)                            |                                   |                                  
|Service fees on loan and deposit accounts                |                                   |                                  
|Gain/(loss) on sale of securities                        |                                   |                                  
|Gain on sale of loans                                    |                                   |                                  
|Other income                                             |                                   |                                  
|                                                         |                                   |                                  
|Total other operating income                             |                                   |                                  
|                                                         |                                   |                                  
|Other Operating Expenses                                 |                                   |                                  
|Salaries and employee benefits                           |                                   |                                  
|Occupancy                                                |                                   |                                  
|Advertising                                              |                                   |                                  
|Outside processing                                       |                                   |                                  
|Professional fees                                        |                                   |                                  
|Supplies                                                 |                                   |                                  
|Other                                                    |                                   |                                  
|                                                         |                                   |                                  
|Total other operating expenses                           |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Income/(loss)- before income taxes and minority interest |                                   |                                  
|                                                         |                                   |                                  
|Income Tax Expense/(Benefit)                             |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Income/(loss) - Before minority interest                 |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Minority interest                                        |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Net income/(loss)                                        |                                   |                                  
|                                                         |                                   |                                  
|                                                         |                                   |                                  
|Income (Loss) per Share of Common Stock                  |                                   |                                  
|                                                         |                                   |                                  
|Basic                                                    |                                   |                                  
|                                                         |                                   |                                  
|Fully diluted                                            |                                   |                                  
|                                                         |                                   |                                  

See
accompanying notes to consolidated financial statements.

4

---



CLARKSTON FINANCIAL
CORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITYThree Month Period
ended March 31, 2007(000s omitted)(unaudited)

|                                | CommonStock | CapitalSurplus | UnearnedComp. | RetainedEarnings | AccumulatedOtherComprehensiveLoss | TotalStockholders'Equity
|------------------------------- | ----------- | -------------- | ------------- | ---------------- | --------------------------------- | ------------------------
|                                |             |                |               |                  |                                   |                         
|                                |             |                |               |                  |                                   |                         
|Balance, December 31, 2006      |             |                | $             | 6,245            |                                   | $                       
|                                |             |               
|Recognition of compensation for |             |               
|restricted stock award          |             |                |               |                  |                                   |                         
|                                |             |               
|Comprehensive income:           |             |                |               |                  |                                   |                         
|                                |             |               
|Net income                      |             |                |               |                  |                                   |                         
|                                |             |               
|Change in unrealized loss on    |             |               
|securities available for sale   |             |               
|net of tax of $48               |             |                |               |                  |                                   |                         
|                                |             |                |               |                  |                                   |                         
|                                |             |               
|Net comprehensive loss          |             |                |               |                  |                                   |                         
|                                |             |                |               |                  |                                   |                         
|                                |             |               
|Balance, March 31, 2007         |             |                | $             | 6,245            |                                   | $                       
|                                |             |                |               |                  |                                   |                         

5

---



CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSThree Month Periods ended March 31, 2007 and March
31, 2006(000s omitted)(unaudited)

|                                                        | Three Months
Ended
March 31, 2007 | Three Months
Ended
March 31, 2006
|------------------------------------------------------- | --------------------------------- | ---------------------------------
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Net Cash Provided by Operating Activities:              |                                   |                                  
|                                                        |                                   |                                  
|Net cash provided by/(used in) operating activities     |                                   |                                  
|                                                        |                                   |                                  
|Cash Flows from Investing Activities:                   |                                   |                                  
|Net (increase)/decrease in loans                        |                                   |                                  
|Purchase of securities available-for-sale               |                                   |                                  
|Proceeds from sale of securities available-for-sale     |                                   |                                  
|Proceeds from maturity of securities available-for-sale |                                   |                                  
|Premises and equipment expenditures                     |                                   |                                  
|Resources provided by minority interest                 |                                   |                                  
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Net cash provided by/(used in) investing activities     |                                   |                                  
|                                                        |                                   |                                  
|Cash Flows from Financing Activities:                   |                                   |                                  
|Net increase/(decrease) in deposits                     |                                   |                                  
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Net cash provided by/(used in) financing activities     |                                   |                                  
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Net decrease in cash and cash equivalents               |                                   |                                  
|                                                        |                                   |                                  
|Cash and cash equivalents- beginning of period          |                                   |                                  
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Cash and cash equivalents- end of period                |                                   |                                  
|                                                        |                                   |                                  
|                                                        |                                   |                                  
|Supplemental Cash Flow Information - Cash paid for:     |                                   |                                  
|Interest                                                |                                   |                                  
|Taxes                                                   |                                   |                                  
|                                                        |                                   |                                  
|Significant Noncash Activities:                         |                                   |                                  
|Transfers from loans to repossessed assets              |                                   |                                  

See
accompanying notes to consolidated financial statements.

6

---



# NOTE 1  BASIS OF
FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited
consolidated interim financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America with the instructions to
Form 10-QSB. Accordingly, certain information and disclosures required by 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 Clarkston Financial Corporation (the
Corporation) and the notes thereto included in the Corporations annual
report on Form 10-KSB 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 financial position, results of operations, and cash flows, have been made.
The results of operations for the three month period ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the year ended December 31,
2007.

Certain amounts in prior
periods financial statements have been reclassified to conform to the current
periods presentation.

# NOTE 2  PRINCIPLES
OF CONSOLIDATION

The consolidated financial statements
include the accounts of Clarkston Financial Corporation (the Corporation), its
wholly owned subsidiary, Clarkston State Bank (CSB) and its majority owned
subsidiary, Huron Valley State Bank (HVSB). The subsidiaries are collectively
referred to as the Banks. All significant intercompany transactions are
eliminated in consolidation.

The Corporation also owns all of the
common stock of Clarkston Capital Trust I. This is a grantor trust that issued trust
preferred securities and is not consolidated with the Corporation per FASB Interpretation
No. 46.

# NOTE 3  STOCK
BASED COMPENSATION

The Corporation has two stock-based
compensation plans. Under the employees Stock Compensation Plan (Employee
Plan), the Corporation may grant options or issue restricted stock to key employees
for up to 27,500 shares of common stock, of which 15,403 shares of common stock are
available for grant. Under the 1998 Founding Directors Stock Option Plan (Director
Plan), the Corporation may grant options for up to 82,500 shares of common stock, of
which 7,920 shares of common stock are available for grant. Under both plans, there is a
minimum vesting period of between one to three years before the options may be exercised,
and all options expire 10 years after the date of their grant. Certain options (contingent
options) under both plans vest on an accelerated basis upon the achievement of various
future financial and operational goals. All such options vest 9.5 years after the date of
grant regardless of achievement of future goals. Under both plans, the exercise price of
each option equals the market price of the Corporations common stock on the date of
grant.

7

---



# NOTE 3  STOCK
BASED COMPENSATION (CONTINUED)

The Corporation adopted the fair
value recognition provisions of Statement of Financial Standards (SFAS) No. 123
(R), Share Based Payment effective January 1, 2006 using the modified-prospective
transition method. SFAS No. 123(R), Share Based Payment, established a fair value
method of accounting for stock options whereby compensation expense would be recognized
based on the computed fair value of the options on the grant date. The Corporation
recognizes compensation expense related to restricted stock awards over the period the
services are performed. No options were granted during 2006. The Corporation determined
that implementation of SFAS No. 123(R) did not have a material impact on the
financial results of the Corporation.

The following table summarizes stock
option transactions for both plans and the related average exercise prices for the three
month periods ended March 31:

|                                         | 2007 | 2006
|---------------------------------------- | ---- | ----
|                                         |      |     
|                                         |      |     
|                                         |      |     
|                                         |      |     
|Options Outstanding- Beginning of period |      |     
|Options granted - Employee plan          |      |     
|Options exercised                        |      |     
|Options expired                          |      |     
|                                         |      |     
|                                         |      |     
|Options Outstanding- End of period       |      |     
|                                         |      |     

The following table shows summary
information about fixed stock options outstanding at March 31, 2007:

|               | Stock Options Outstanding and Exercisable
|-------------- | -----------------------------------------
|               |                                          
|               |                                          
|               |                                          
|               |                                          
|Contingent     |                                          
|Non-contingent |                                          

The aggregate intrinsic value of
outstanding options shown in the table above represents the total pretax intrinsic value
(i.e., the difference between the Corporations closing stock prices of $12.80 and
$13.75 on March 31, 2007 and 2006, respectively and the exercise price on, times the
number of shares) that would have been received by the option holders had all option
holders exercised their options on March 31, 2007 and 2006. This amount changes based on
the fair market value of the Corporations stock.

No options were exercised
during the first quarter of 2007 or 2006.

8

---



# NOTE 3  STOCK
BASED COMPENSATION (CONTINUED)

The following table summarizes the
activity of restricted stock awards for the years ended March 31,:

|                                          | 2007 | 2006
|----------------------------------------- | ---- | ----
|                                          |      |     
|                                          |      |     
|Available for Grant - Beginning of period |      |     
|Granted                                   |      |     
|Forfeited                                 |      |     
|                                          |      |     
|                                          |      |     
|Available for Grant - End of period       |      |     
|                                          |      |     

The total compensation cost charged
to income under these plans was $8,000 and $13,100 for 2007 and 2006, respectively. The
total income tax benefit recognized in the income statement related to stock-based
compensation was $2,700 and $4,500 for 2007 and 2006, respectively.

Restricted stock awarded is subject
to restrictions on sale, transfer, or assignment for the duration of the employees
life. Holders of restricted stock generally may forfeit ownership of all or a portion of
their award if employment is terminated before the end of the vesting period. The units
are not performance related and generally vest 33 percent annually on each anniversary
date of the respective grant dates. Units are forfeited if the grantee terminates
employment prior to vesting.

9

---



# NOTE 4  EARNINGS
PER SHARE

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

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

|                                                  | Three MonthsEnded March 31,
|------------------------------------------------- | ---------------------------
|                                                  |                            
|                                                  |                            
|                                                  |                            
|                                                  |                            
|Net income/(loss) available to common             |                            
|stockholders                                      |                            
|                                                  |                            
|                                                  |                            
|Average number of common shares                   |                            
|outstanding                                       |                            
|Effect of dilutive options                        |                            
|                                                  |                            
|                                                  |                            
|Average number of common shares                   |                            
|outstanding used to calculate diluted             |                            
|earnings/(loss) per common share                  |                            
|                                                  |                            
|                                                  |                            
|Number of  antidilutive  stock  options  excluded |                            
|from diluted earnings per share computation       |                            
|                                                  |                            

10

---



# NOTE 5  SECURITIES

The Bank does not have any securities in
its portfolio that are classified as held to maturity. All securities are classified as
available for sale and the amortized cost and fair values of those securities are as
follows (000s omitted):

# Available for Sale

|                                                | Amortized
Cost | Gross
Unrealized
Gains | Gross
Unrealized
Losses | Estimated
Market
Value
|----------------------------------------------- | -------------- | ---------------------- | ----------------------- | ----------------------
|                                                |                |                        |                         |                       
|                                                |                |                        |                         |                       
|March 31, 2007 (unaudited)                      |                |                       
|U.S. Treasury securities and obligations of     |                |                       
|U.S. government corporations and agencies       |                |                        | $                       | 5,893                 
|Mortgage-backed securities                      |                |                        |                         | 24,524                
|Collateralized mortgage obligations             |                |                        |                         | 2,874                 
|Obligations of state and political subdivisions |                |                        |                         | 8,879                 
|                                                |                |                        |                         |                       
|                                                |                |                        | $                       | 42,170                
|                                                |                |                        |                         |                       
|                                                |                |                       
|December 31, 2006                               |                |                       
|U.S. Treasury securities and obligations of     |                |                       
|U.S. government corporations and agencies       |                |                        | $                       | 7,353                 
|Mortgage-backed securities                      |                |                        |                         | 25,496                
|Collateralized mortgage obligations             |                |                        |                         | 2,977                 
|Obligations of state and political subdivisions |                |                        |                         | 8,899                 
|                                                |                |                        |                         |                       
|                                                |                |                        | $                       | 44,725                
|                                                |                |                        |                         |                       

# NOTE 6  LOANS

Loans are as follows (000s
omitted):

|                 | March 31,
2007
(unaudited) | December 31,
2006
|---------------- | -------------------------- | -----------------
|                 |                            |                  
|                 |                            |                  
|Commercial loans |                            |                  
|                 |                            |                  
|Mortgage loans   |                            |                  
|Commercial       |                            |                  
|Residential      |                            |                  
|Construction     |                            |                  
|                 |                            |                  
|Consumer         |                            |                  
|                 |                            |                  
|                 |                            |                  
|Total            |                            |                  
|                 |                            |                  

11

---



# NOTE 6  LOANS
(CONTINUED)

Activity in the allowance for loan
losses is as follows (000s omitted):

|                                   | Three Months
Ended March 31,
|---------------------------------- | ----------------------------
|                                   |                             
|                                   |                             
|                                   |                             
|                                   |                             
|Balance - Beginning of period      |                             
|Provision charged to operations    |                             
|Charge-offs                        |                             
|Recoveries                         |                             
|                                   |                             
|Balance - End of period            |                             
|                                   |                             
|                                   |                             
|Allowance for loan losses to total |                             
|loans                              |                             

# NOTE 7  DEPOSITS

Deposits are summarized as follows (000s
omitted):

|                        | March 31, 2007
(Unaudited) | December 31,
2006
|----------------------- | -------------------------- | -----------------
|                        |                            |                  
|                        |                            |                  
|Interest checking       |                            |                  
|Savings                 |                            |                  
|Money market            |                            |                  
|Certificates of deposit |                            |                  
|                        |                            |                  
|                        |                            |                  
|Total deposits          |                            |                  
|                        |                            |                  

# NOTE 8  FHLB
ADVANCES

The Corporation has various term
advances from the Federal Home Loan Bank of Indianapolis (FHLB) with fixed and
variable interest rates ranging from 3.75% to 5.58% at March 31, 2007 and December 31,
2006. The weighted average interest rate at March 31, 2007 was 4.83% and at December 31,
2006 was 4.92%. Maturity dates range from April 2007 to October 2010. The weighted average
remaining maturity at March 31, 2007 is 393 days, or April 27, 2008. Advances from the
FHLB are collateralized by qualifying investment securities with estimated market values
of $15,062,000 and $16,300,000 at March 31, 2007 and December 31, 2006. The advances are
due in full at maturity and the fixed rate advances are subject to a prepayment penalty if
repaid prior to maturity.

12

---



# NOTE 9  MINIMUM
REGULATORY CAPITAL REQUIREMENTS

Banks and bank holding companies are
subject to regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for Banks, prompt corrective action
regulations, involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators. Failure to
meet capital requirements can initiate regulatory action. The prompt corrective action
regulations provide five classifications, well capitalized, adequately capitalized,
undercapitalized and critical undercapitalized, although these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital distributions are
limited, as is asset growth and expansion, and plans for capital restoration are required.
The Banks and the Corporation were well-capitalized as of March 31, 2007 and December 31,
2006.

The Banks and
Corporations actual capital amounts and ratios as of March 31, 2007 and December 31,
2006 are presented in the following table (000s omitted):

|                          | Actual | For Capital
Adequacy Purposes | To be
Well-Capitalized
|------------------------- | ------ | ----------------------------- | ----------------------
|                          |        |                               |                       
|                          |        |                               |                       
|                          |        |                               |                       
|                          |        |                               |                       
|As of March 31, 2007:     |        |                              
|Total risk-based capital  |        |                              
|(to risk weighted assets) |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       
|Tier I Capital            |        |                              
|(to risk weighted assets) |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       
|Tier I Capital            |        |                              
|(to average assets)       |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       
|As of December 31, 2006:  |        |                              
|Total risk-based capital  |        |                              
|(to risk-weighted assets) |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       
|Tier I Capital            |        |                              
|(to risk weighted assets) |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       
|Tier I Capital            |        |                              
|(to average assets)       |        |                              
|CSB                       |        |                               | $                     
|HVSB                      |        |                               |                       
|Consolidated              |        |                               |                       

13

---



# NOTE 10  STANDBY
AND COMMERCIAL LETTERS OF CREDIT AND FINANCIAL GUARANTEES

The Corporation 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, commercial and standby letters of credit, and unfunded
commitments under lines 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 Corporations exposure to credit loss is represented by the
contractual amount of these commitments. The Corporation follows the same credit policies
in making commitments as it does for on-balance-sheet instruments.

At March 31, 2007 and December 31,
2006, the following financial instruments were outstanding whose contract amounts
represent credit risk (000s omitted):

|                                           | March 31, 2007
(Unaudited) | December 31, 2006
|------------------------------------------ | -------------------------- | -----------------
|                                           |                            |                  
|                                           |                            |                  
|Commitments to grant loans                 |                            |                  
|Unfunded commitments under lines of credit |                            |                  
|Commercial and standby letters of credit   |                            |                  

# NOTE 11  RECENT
ACCOUNTING PRONOUNCEMENTS

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
enhances existing guidance for measuring assets and liabilities using fair value. Prior to
the issuance of SFAS No. 157, guidance for applying fair value was incorporated in several
accounting pronouncements. SFAS No. 157 provides a single definition of fair value,
together with a framework for measuring it, and requires additional disclosure about the
use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that
fair value is a market-based measurement, not an entity-specific measurement, and sets out
a fair value hierarchy with the highest priority being quoted prices in active markets.
Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy.
While SFAS No. 157 does not add any new fair value measurements, it does change current
practice. Changes to practice include: (1) a requirement for an entity to include its own
credit standing in the measurement of its liabilities; (2) a modification of the
transaction price presumption; (3) a prohibition on the use of block discounts when
valuing large blocks of securities for broker-dealers and investment companies; and
(4) a requirement to adjust the value of restricted stock for the effect of the
restriction even if the restriction lapses within one year. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Corporation has not determined the impact
of adopting SFAS No. 157 on its financial statements.

14

---



# NOTE 11  RECENT
ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). SFAS No. 159 provides companies with an option
to report selected financial assets and liabilities at fair value. SFAS
No. 159s objective is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS No. 159
requires companies to provide additional information that will help investors and other
users of financial statements to more easily understand the effect of the companys
choice to use fair value on its earnings. It also requires entities to display the fair
value of those assets and liabilities for which the company has chosen to use fair value
on the face of the balance sheet. SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after November 15, 2007. Early adoption is
permitted as of the beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to apply the
provisions of Statement No. 157. The Company did not early adopt SFAS No. 159.
The Company has not determined the impact of adopting SFAS No. 159 will have on its
financial statements.

15

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# Item 2

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

The following analysis discusses
changes in the financial condition and results of operations of the Corporation for the
periods presented and should be read in conjunction with the Corporations
Consolidated Financial Statements and notes thereto, appearing in Part I, Item 1 of this
document.

Forward Looking Statements

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

General

Clarkston Financial Corporation (the
Corporation, us or we) is a Michigan corporation
incorporated on May 18, 1998. The Corporation is the bank holding company for
Clarkston State Bank (CSB) and Huron Valley State Bank (HVSB)
(collectively the Banks). CSB commenced operations on January 4, 1999, and
HVSB commenced operations on August 15, 2005. The Banks are chartered by the State of
Michigan with depository accounts insured by the Federal Deposit Insurance Corporation. As
such, our primary business is concentrated in a single industry segment  commercial
banking. The Banks provide a full range of banking services to individuals, commercial
businesses and industries located in their service areas. The Banks maintain diversified
loan portfolios, including loans to individuals for home mortgages, automobiles and
personal expenditures, and loans to business enterprises for current operations and
expansion. The Banks also offer a variety of deposit products, including checking
accounts, savings accounts, money market accounts, individual retirement accounts and
certificates of deposit.

The principal markets for financial
services provided are in the northern Oakland County communities in which the Banks are
located and the areas immediately surrounding these communities. The Banks serve these
markets through 5 locations in or near their communities. The Banks do not have any
material foreign assets or income.

16

---



Our principal source of revenue is
interest and fees on loans. On a consolidated basis, interest and fees on loans accounted
for 78.7% of total revenue year to date in 2007 compared to 74.3% year to date in 2006.
The share of total revenue from interest and fees on loans increased in the current period
as a result of a conscious effort to invest a larger portion of our funding in the loan
portfolio and reduce the investment portfolio as a percent of earning assets. Therefore, revenue
share of interest from investments (including Federal Funds sold), decreased to 14.7%,
from 18.2% year over year. Noninterest income in total declined from 7.5% to 6.5% in 2007
and 2006, respectively. The decrease in noninterest incomes share of revenue is due
primarily to decreased deposit service charges and fees, partially offset by increased
mortgage loan sales volume.

Critical Accounting
Policies

As of March 31, 2007, there have been
no material changes in the disclosures regarding critical accounting policies as disclosed
in the Corporations Form 10-K for the year ended December 31, 2006. The
Corporations critical accounting policies are described in the financial section of
its 2006 Annual Report. Management believes its critical accounting policies relate to the
valuation of the allowance for loan losses, income taxes and stock-based compensation.

Comparison of Financial
Condition at March 31, 2007 and December 31, 2006

Our total assets decreased by $6.6
million or 3.0% to $213.8 million at March 31, 2007, from $220.4 million at December 31,
2006. Significant decreases in cash and equivalents, investment securities and to a lesser
extent net loans caused the decrease in total assets, offset partially by increases in
premises and equipment and loans held for sale.

Cash and cash equivalents, which
include federal funds sold and short-term investments, decreased $4.3 million or 32.3% to
$9.0 million at March 31, 2007 from $13.3 million at December 31, 2006. The primary cause
of the decrease was, as mentioned above, a conscious effort to invest more of our funding
in higher yielding assets in order to increase the net interest margin.

Securities decreased $2.4 million or
5.5% to $41.5 million at March 31, 2007 from $43.9 million at December 31, 2006. The
decrease in securities was split between paydowns on mortgage backed securities and the
sale and maturity of securities. The runoff of some high cost deposits was funded in part
by the sale of investments and lack of reinvestment of matured dollars in the portfolio,
in accordance with our net interest margin strategy discussed briefly above. The
Corporation continues to have excellent liquidity and will monitor its level of securities
to ensure proper liquidity is maintained. While there are a number of securities that have
market values less than 95% of the book value, and could be construed as impaired relative
to market value, management has the intent and ability to hold these specific securities
until maturity and no loss is expected to be realized on these securities. As a result,
the Corporation has not recognized any permanent impairment as of March 31, 2007.

17

---



Total portfolio loans decreased by
$2.8 million or 1.8% to $154.9 million at March 31, 2007 from $157.7 million at December
31, 2006. HVSBs portfolio grew $1.6 million during the 1st quarter of
2007, and CSB's portfolio declined $4.4 million. The difficult economic climate in Michigan,
and competitive pressures in the banks contiguous markets has created a challenging
environment in which to make loans.

The commercial real estate portfolio
was the only portfolio showing an increase at March 31, 2007, rising $3.6 million, or 4.0%
over the balance at December 31, 2006. This increase was offset by a $2.7 million, or
12.7% decrease in the construction portfolio and a $3.0 million, or 12.6% decrease in the
commercial and industrial portfolio. The majority of the reduction in outstanding balances
resulted from the payoff of credits which management deemed to carry elevated risk. The
residential real estate and consumer loan portfolios declined slightly to $18.8 million
and $2.2 million at March 31, 2007, respectively. Approximately 70% of the residential
real estate portfolio is in home equity loans, as the majority of the 1st
mortgages written by the Banks are sold in the secondary market. The Banks loan
policies are conservative in relation to home equity loans, generally not permitting
combined loan to values of greater than 90%. The banks continue to focus on real estate
lending, evidenced by the fact that 85.2% of the loan portfolio is secured by some type of
real estate. Management views that this is prudent at the current time given the
uncertainty of the local economy, especially as it relates to small businesses.

The nonperforming loan balance shown
below as of March 31, 2007 is made up of nine relationships, a decrease from twelve
relationships in the prior quarter. As can be seen in the table in note six, gross charge-offs
for the quarter were $526,000, an
increase from the $107,000 taken in the prior quarter. The gross recoveries of $352,000
resulted primarily from the resolution of two problem credits and continued payments on
another impaired relationship which was satisfactorily resolved subsequent to the end of
the quarter. In addition, the credit policy has been completely rewritten to address
shortfalls that may have contributed to previous credit problems. Additionally, a reorganization of the
lending area has been completed, with the credit function now centrally managed at the
Holding Company level for both subsidiary institutions. Management believes the new structure will allow
us to better manage our credit risk ongoing and in the future.

18

---



The table below shows the composition
and amount of our nonperforming assets.

|                                          | March 31,
2007 | December 31,
2006
|----------------------------------------- | -------------- | -----------------
|                                          |                |                  
|                                          | (unaudited)    |                  
|                                          |                |                  
|(000's omitted)                           |                |                  
|                                          |                |                  
|Nonaccrual loans                          |                |                  
|Secured by real estate                    |                |                  
|Secured by other than real estate         |                |                  
|Loans 90 days past due and still accruing |                |                  
|Secured by real estate                    |                |                  
|Secured by other than real estate         |                |                  
|                                          |                |                  
|Total nonperforming loans                 |                |                  
|Foreclosed and repossessed assets         |                |                  
|                                          |                |                  
|Total nonperforming assets                |                |                  
|                                          |                |                  
|Nonperforming loans to total loans        |                |                  
|Nonperforming assets to total assets      |                |                  

The allowance for loan losses as of
March 31, 2007 was $2.6 million representing approximately 1.68% of total portfolio loans
outstanding, compared to $2.8 million, or 1.78% of loans outstanding as of December 31,
2006. Management believes that the high risk credits are appropriately reserved for and
are all being monitored appropriately. At the same time, the economic climate in the
Banks home state is not favorable and the possibility for additional losses caused
by this economic weakness still exists. We believe that the allowance for loan losses is
sufficient to cover losses inherent in the portfolio.

Total premises and equipment
increased $1.6 million, or 34.0% to $6.3 million at March 31, 2007 from $4.7 million at
December 31, 2006. This increase is due to the purchase of land on which HVSBs new
main office will be constructed during 2007 from a company in which two of HVSBs
directors have an equity interest. The transaction was consummated at fair market value.

19

---



Total deposit balances decreased $6.9
million or 3.8% to $175.1 million at March 31, 2007 from $182.0 million at December 31,
2006. The largest decreases were seen in time and money market deposits which decreased
$2.1 million and $1.9 million, respectively since December 31, 2006. The savings and
interest bearing checking portfolios both showed small variances which offset each other.
The local market for deposits is extremely competitive, and we continue to focus on
gathering savings and DDA accounts to fund our future growth and reduce our reliance on
higher cost time deposits. While higher cost time deposits continue to make up a larger
portion of the overall funding mix, the cost of funds is rising at a slower rate than the
yield on earning assets, therefore not materially harming the net interest margin.
Reevaluation of pricing structures of certain deposit accounts is the primary cause of
this. Additionally, the runoff of some of the accounts acquired during HVSBs
aggressive time deposit promotions has decreased the cost of funds and is the primary
contributor to the decreased time deposit balances.

As noted briefly above, management is
stressing a philosophy of not growing unprofitably by funding investment securities or
federal funds with high cost time deposits. Our goal is to fund our loan growth with
demand or money market accounts with time deposits utilized only when larger pieces of
funding are needed. The wholesale market may be used for this purpose when cost effective.
The addition of a new President at HVSB and bringing the marketing function in house at
the holding company level should assist us greatly in our deposit gathering efforts.

The Banks are members of the Federal Home
Loan Bank of Indianapolis, and utilize advances from this institution to bolster
liquidity. At March 31, 2007, we have $15.2 million in advances outstanding, all at CSB. No repayments
or additional advances occurred during the quarter. The Corporation continues to view the
FHLB as a source of liquidity and may borrow additional funds as market conditions
dictate.

We have no other off-balance sheet
liabilities other than commitments to extend credit in the form of letters and lines of
credit.

As of March 31, 2007, we had retained
earnings of $3.0 million compared to $2.9 million at December 31, 2006 which was the
result of net income of $130,000. Accumulated other comprehensive income saw an increase
of $99,000, or 17.0%. This increase was primarily the result of changes in interest rates
causing an increase in the market value of the Corporations security portfolio. We
do not believe that the value of any of the securities in the portfolio are permanently
impaired.

Comparison of Operating Results
for the Three Months Ended March 31, 2007 and 2006

Our net income was $130,000, or $0.10
per diluted share for the first quarter of 2007 compared to a net loss of $354,000, or
$0.28 per diluted share for the first quarter of 2006. The increased profitability was
primarily due to reduced provision for loan loss and increased net interest income.

Net interest income increased 7.3% or
$112,000 from $1.53 million in the first quarter of 2006 to $1.65 million for 2007. Both
elevated balances in average earning assets and favorable interest rates contributed to
the increased net interest income. Balances in average earning assets increased 9.9% to
$208.9 million at March 31, 2007 from $190.2 million at March 31, 2006. This growth in
earning assets was funded primarily with time deposits where the average balance increased
38.4% to $95.8 million, with advances from FHLB also showing an increase of $5.0 million
or 49.0%. The net impact of these variances effectively added $51,000 to the margin. The
loan portfolio increased $23.5 million, or 17.6% on an average basis, but this increase
was offset by a decrease in investments and federal funds sold of $4.7 million. The decrease
in other earning assets was intentional, as part of our strategy to improve the net
interest margin is growing the loan portfolio as a percent of earning assets. The
cost of interest bearing funds increased 57 basis points, while the yield on earning
assets increased by 49 basis points. Given the relatively large size of the earning asset
portfolio, these changes caused a $60,000 increase in the net interest margin. The net
interest margin decreased from 3.27% for the quarter ended March 31, 2006 to 3.19% for the
same period in 2007. This was caused by several loans being placed on non-accrual during the quarter and
the reversal of interest on these loans negatively impacted our net interest margin.
Absent these items the net interest margin would be more in line with the prior year. In
addition, during the first quarter of 2006 HVSB was still investing their initial capital,
which inflated their net interest margin (and as a result the consolidated margin) for the
1st quarter of 2006.

20

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The following schedule presents the
average daily balances, interest income, interest expense and average rates earned and
paid for the Corporations major categories of assets, liabilities, and
shareholders equity for the periods indicated (000s omitted):

|                                           | 3 Months ended March. 31,
2007 | 3 Months ended March 31,
2006
|------------------------------------------ | ------------------------------ | -----------------------------
|                                           |                                |                              
|                                           |                                |                              
|                                           |                                |                              
|                                           |                                |                              
|Assets:                                    |                                |                              
|Short term investment                      |                                |                              
|Securities:                                |                                |                              
|Taxable                                    |                                |                              
|Tax-exempt                                 |                                |                              
|Loans                                      |                                |                              
|                                           |                                |                              
|Total earning assets/total                 |                                |                              
|interest income                            |                                |                              
|Cash and due from banks                    |                                |                              
|Unrealized (loss) on AFS securities        |                                |                              
|Allowance for loan loss                    |                                |                              
|All other assets                           |                                |                              
|                                           |                                |                              
|Total assets                               |                                |                              
|Liabilities and Stockholders' Equity       |                                |                              
|Interest bearing deposits:                 |                                |                              
|MMDA, Savings/NOW accounts                 |                                |                              
|Time                                       |                                |                              
|Fed Funds Purchased                        |                                |                              
|FHLB Advances                              |                                |                              
|Trust Preferred Securities                 |                                |                              
|Other borrowings                           |                                |                              
|                                           |                                |                              
|Total interest bearing                     |                                |                              
|liabilities/interest expense               |                                |                              
|Noninterest bearing deposits               |                                |                              
|All other liabilities                      |                                |                              
|Minority Interest                          |                                |                              
|Stockholders' Equity:                      |                                |                              
|Unrealized holding (loss)                  |                                |                              
|Common Stock, Surplus, Retained Earnings   |                                |                              
|                                           |                                |                              
|Total liabilities and stockholders' equity |                                |                              
|Interest spread                            |                                |                              
|Net Interest Margin as a                   |                                |                              
|Percentage of Average                      |                                |                              
|Earnings Assets                            |                                |                              

21

---



Rate / Volume Analysis of Net
Interest Income.The following schedule presents the dollar amount of changes in
interest income and expense for major components of earning assets and interest-bearing
liabilities, distinguishing between changes related to outstanding balances and changes
due to interest rates. (000s omitted)

|                                   | For the 3 months ended March 31,
2007 Compared to 2006
|---------------------------------- | ------------------------------------------------------
|                                   |                                                       
|                                   |                                                       
|                                   |                                                       
|                                   |                                                       
|Short term investment              |                                                       
|Investment securities - taxable    |                                                       
|Investment securities - tax exempt |                                                       
|Loans, net of unearned income      |                                                       
|                                   |                                                       
|Total interest income              |                                                       
|                                   |                                                       
|                                   |                                                       
|Interest bearing deposits          |                                                       
|Federal funds borrowed             |                                                       
|FHLB advances                      |                                                       
|Trust preferred securities         |                                                       
|Other borrowings                   |                                                       
|                                   |                                                       
|Total interest expense             |                                                       
|                                   |                                                       
|Net interest income                |                                                       
|                                   |                                                       

Total provision for loan losses was
$17,000 for the quarter ended March 31, 2007, compared to $832,000 for the first quarter
of 2006. The reduction in the size of the loan portfolio and the decrease in
non-performing loans caused the reduction in the required provision. Additionally, the
provision for the quarter ended March 31, 2006 was elevated due to large charge-offs and
specific reserves. Management believes that the provision for the current quarter is more
indicative of the amounts which will be required in the foreseeable future.

The level of the provision made in
connection with the loans reflects the amount necessary to maintain the allowance for loan
losses at an adequate level, based upon the Banks current analysis of probable
incurred losses in its loan portfolio, with respect to loans held at March 31, 2007.
Management is continuing to evaluate the financial condition of the borrowers and the
value of the collateral.

Non-interest income increased $5,000,
or 2.0% for the first quarter of 2007 compared to the same period in 2006. This increase
is caused by increased gains/losses on sales of mortgage loans and offset by decreased
service fees on loan and deposit accounts. Increased volume of mortgage loan sales
contributed positively, showing an increase of 63.2%, or $24,000. Management is encouraged
by this development, especially given the difficult residential lending environment faced
locally in the first quarter. The reduction in service charges is primarily due to
reduction in the amount of NSF income. The decrease in NSF income is due primarily to the
prior period being higher than normal. Management at the Bank subsidiaries has actively
worked with the customers who were habitually overdrawing their accounts to either help
them better manage their funds or help them to find another bank because management feels
that the reduction in credit risk is worth the reduction in deposit (primarily NSF) fees.
The Corporations large checking account portfolio continues to generate fees, though
a review of these fees relative to our local market peers may result in the modification
of our fee structure. It is, however, anticipated that any modification of the fee
structure will result in increased fee income.

22

---



Non-interest expense was $1.8 million
for the first quarter of 2007, up from $1.5 million for the first quarter of 2006. The
fact that HVSB is now operating as a fully staffed bank is the primary cause of the
increase in operating expenses. Salary and benefit costs increased $176,000, or 22.3%.
Occupancy expense has decreased $42,000, or 16.5% mostly as a result of CSB closing 2
facilities, a loan center during the 3rd quarter of 2006 and a retail branch
location during the current quarter. The increase in outside processing expense resulted
from increased activity at HVSB as well as the fact that the deferral period of their
contract with our primary data processor expired at the end of the 1st quarter
of 2006. Professional fees are elevated relative to the prior year due to continuing
collection efforts at CSB and legal costs related to the aforementioned purchase of land
at HVSB. The 63.5% or $92,000 increase in other expenses is due primarily to increased
accruals for FDIC assessment at both banks and some fraudulent debit card transactions
resulting from malfeasance at a large national retailer. As Huron Valley State Bank and
the mortgage operation gain critical mass and we work our way out of the credit quality
issue we are currently in the midst of, we anticipate our efficiency ratio to improve to
the levels more common throughout our history. The ratio for the quarter ended March 31,
2007 was 94.1% compared to 86.3% at March 31, 2006.

Liquidity and Capital
Resources

The Corporation obtained its initial
equity capital in an initial public offering of its common stock in November 1998. We have
successfully grown through our first five years of operation. In December 2003, we
completed an offering of $4.0 million of cumulative preferred securities (Trust
Preferred Securities) to further support the Corporations growth.

In July 2005, the Corporation
completed a rights offering which allowed each holder of the Corporations common
stock as of the June 6, 2005 record date to purchase 1 additional share of common stock
for every 4 shares held, while also offering an opportunity to purchase a limited number
of shares above their basic subscription right (the over-subscription privilege). A total
of 165,776 shares were purchased in the rights offering (63.2% of the 262,192 shares
offered). Of the 165,776 shares purchased, 127,183 shares were basic subscriptions and
38,593 shares were over-subscriptions. The Corporation received approximately $2,856,000
in net proceeds in connection with the rights offering, which was used to purchase a
majority interest in Huron Valley State Bank.

Also in July 2005, 28,000 shares were
sold to one investor through the community offering provisions of the rights offering.
These shares were sold at $18.00, netting the Corporation $504,000.

Management believes that its current
capital will provide us with adequate capital to support our expected level of deposit and
loan growth and to otherwise meet our capital requirements for the next year.

23

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Capital Resources at
March 31, 2007 (in thousands)

|                                   | Tier 1
Leverage
Ratio | Tier 1
Capital Ratio | Total Risk-Based
Capital Ratio
|---------------------------------- | --------------------- | -------------------- | ------------------------------
|                                   |                       |                      |                               
|                                   |                       |                      |                               
|Minimum regulatory requirement for |                       |                     
|Capital adequacy                   |                       |                      |                               
|Well capitalized regulatory level  |                       |                      |                               
|CSB                                |                       |                      |                               
|HVSB                               |                       |                      |                               
|Consolidated                       |                       |                      |                               

The following table shows the dollar
amounts by which our capital (on a consolidated basis) exceeds current regulatory
requirements on a dollar-enumerated basis:

Total

|                                         | Tier 1
Leverage | Tier 1
Capital | Risk-Based
Capital
|---------------------------------------- | --------------- | -------------- | ------------------
|                                         |                 |                |                   
|(in thousands of dollars)                |                
|                                         |                 |                |                   
|Capital balances at March 31, 2007       |                 |               
|Required regulatory capital              |                 |                | $                 
|Capital in excess of regulatory minimums |                 |                |                   
|                                         |                 |                |                   
|Actual capital balances                  |                 |                | $                 
|                                         |                 |                |                   

The liquidity of a financial
institution reflects its ability to provide funds to meet loan requests, to accommodate
possible outflows of deposits and to take advantage of interest rate market opportunities.
Our sources of liquidity include our borrowing capacity with the Federal Home Loan Bank,
loan payments by our borrowers, maturity and sales of our securities available for sale,
growth of our deposits and deposit equivalents and various capital resources. Liquidity
management involves the ability to meet the cash flow requirements of our customers. Our
customers may be either borrowers with credit needs or depositors wanting to withdraw
funds. We believe our liquidity position is sufficient to meet these needs.

As indicated by the consolidated
statement of cash flows for the three months ended March 31, 2007, operating activities
used $401,000. Mortgage banking operations were the primary user of cash in the current
year, which should give rise to continued positive contributions from that area. In
addition, decreased portfolio loans and security sales and maturities provided $2.7
million, and $2.5 million in cash to our operation, respectively. The primary uses of
funds in the current quarter were deposit outflows of $6.9 million, and premise and
equipment expenditures (primarily the purchase of land at HVSB) of $1.7 million.

24

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# Item 3    CONTROLS AND
PROCEDURES

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

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

25

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# PART II  OTHER
INFORMATION

# Item 1.      Legal
Proceedings.

From
time to time, we may be involved in various legal proceedings that are incidental to our
business. In our opinion, we are not a party to any current legal proceedings that are
material to our financial condition, either individually or in the aggregate.

# Item 1A.    Risk Factors

As
of March 31, 2007, there have been no material changes in the discussion pertaining to
risk factors as disclosed in the Corporations 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 Securities Holders

None.

# Item 5.      Other
Information.

None.

# Item 6.      Exhibits.

| | Exhibits | 
| | -------- | 

| | 31.1 | Certificate
of the Chief Executive Officer of Clarkston Financial Corporation pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certificate
of the Chief Financial Officer of Clarkston Financial Corporation pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certificate
of the Chief Executive Officer and Chief Financial Officer of Clarkston Financial
Corporation 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

In
accordance with the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2007, to be signed on its behalf by the undersigned, thereunto duly authorized.

| |  | CLARKSTON FINANCIAL CORPORATION/s/ Edwin L. Adler
Edwin L. AdlerChairman of the Board and Chief Executive Officer
| |  | -------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ James W. Distelrath
James W. DistelrathChief Financial Officer
| |  | --------------------------------------------------------------------------------

DATE:     May 15, 2007

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EXHIBIT LIST

| | 31.1 | Certificate
of the Chief Executive Officer of Clarkston Financial Corporation pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certificate
of the Chief Financial Officer of Clarkston Financial Corporation pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certificate
of the Chief Executive Officer and Chief Financial Officer of Clarkston Financial
Corporation 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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