# SECURITIES AND
EXCHANGE COMMISSION Washington, 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, 2006

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. Employer
Identification 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

The number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable date:
1,245,722 shares of the Corporations Common Stock (no par value) were
outstanding as of May 15, 2006.

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

---



# INDEX

|           |  | PageNumber(s)                                         | 
|---------- |  | ----------------------------------------------------- | 
|Part I     |  | Financial Information (unaudited):                    | 
|          
|           |  | Item 1.                                               | 
|           |  | Condensed Consolidated Financial Statements           | 
|           |  | Notes to Condensed Consolidated Financial Statements  | 
|          
|           |  | Item 2.                                               | 
|           |  | Management's Discussion and Analysis of               | 
|           |  | Financial Condition and Results of Operations         | 
|          
|           |  | Item 3.                                               | 
|           |  | Controls & Procedures                                 | 
|          
|Part II.   |  | Other Information                                     | 
|          
|           |  | Item 1.                                               | 
|           |  | Legal Proceedings                                     | 
|          
|           |  | Item 2.                                               | 
|           |  | Changes in Securities and Use of Proceeds             | 
|          
|           |  | Item 3.                                               | 
|           |  | Defaults Upon Senior Securities                       | 
|          
|           |  | Item 4.                                               | 
|           |  | Submission of Matters to a Vote of Securities Holders | 
|          
|           |  | Item 5.                                               | 
|           |  | Other Information                                     | 
|          
|           |  | Item 6.                                               | 
|           |  | Exhibits and Reports on Form 8-K                      | 
|          
|Signatures |  |                                                       | 

2

---



# Part I Financial
Information (unaudited)

CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEET March 31, 2006 (unaudited) and December
31, 2005 (dollars in thousands)

|                                                          | March 31,2006 | December 31,2005
|--------------------------------------------------------- | ------------- | ----------------
|                                                          |               |                 
|
|ASSETS                                                    |               |                 
|Cash and cash equivalents                                 |              
|Total cash and due from banks                             |               | $3,848          
|Federal funds sold                                        |               | 2,815           
|                                                          |               |                 
|Total cash and cash equivalents                           |               | 6,663           
|Securities available for sale, at fair value              |               | 49,948          
|Loans held for sale                                       |               | 294             
|Loans                                                     |              
|Total loans                                               |               | 139,319         
|Less: Allowance for loan losses                           |               | (2,118          
|                                                          |               |                 
|Net loans                                                 |               | 137,201         
|Banking premises and equipment                            |               | 4,882           
|Deferred tax asset                                        |               | 865             
|Interest receivable and other assets                      |               | 2,034           
|                                                          |               |                 
|Total assets                                              |               | $201,887        
|                                                          |               |                 
|LIABILITIES AND SHAREHOLDERS' EQUITY                      |              
|Deposits                                                  |              
|Noninterest-bearing                                       |               | 22,491          
|Interest-bearing                                          |               | 141,305         
|                                                          |               |                 
|Total deposits                                            |               | 163,796         
|Advances from Federal Home Loan Bank of Indianapolis      |               | 10,200          
|Junior subordinated debentures held by                    |              
|unconsolidated subsidiary trust                           |               | 4,000           
|Interest payable and other liabilities                    |               | 5,864           
|                                                          |               |                 
|Total liabilities                                         |               | 183,860         
|Minority interest in consolidated subsidiary              |               | 3,360           
|Shareholders' equity                                      |              
|Common stock, no par value: 10,000,000 shares authorized; |              
|1,245,722 and 1,045,909 shares issued and outstanding     |              
|as of March 31, 2006 and December 31, 2005                |               | 6,163           
|Capital surplus                                           |               | 6,163           
|Restricted stock - unearned compensation                  |               | (72             
|Retained earnings                                         |               | 3,256           
|Accumulated other comprehensive loss                      |               | (843            
|                                                          |               |                 
|Total shareholders' equity                                |               | 14,667          
|                                                          |               |                 
|Total liabilities and shareholders' equity                |               | $201,887        
|                                                          |               |                 

See accompanying notes
to consolidated financial statements

3

---



CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF INCOME Three and Nine Month Periods Ended
March 31, 2006 and March 31, 2005 (dollars in thousands, except per share data)(unaudited)

|                                                                      | Three Months  
     EndedMarch 31, 2006 | Three Months
      EndedMarch 31, 2005
|--------------------------------------------------------------------- | --------------------------------------- | --------------------------------------
|Interest Income                                                       |                                         |                                       
|Loans, including fees                                                 |                                         | $2,425                                
|Securities                                                            |                                        
|Taxable                                                               |                                         | 437                                   
|Tax-exempt                                                            |                                         | 87                                    
|Federal funds sold                                                    |                                         | 67                                    
|                                                                      |                                         |                                       
|Total interest income                                                 |                                         | 3,016                                 
|Interest Expense                                                      |                                        
|Deposits                                                              |                                         | 1,250                                 
|Borrowings                                                            |                                         | 217                                   
|                                                                      |                                         |                                       
|Total interest expense                                                |                                         | 1,467                                 
|Net Interest Income                                                   |                                         | 1,549                                 
|Provision for loan losses                                             |                                         | 832                                   
|                                                                      |                                         |                                       
|Net interest income                                                   |                                        
|After provision for loan losses                                       |                                         | 717                                   
|Noninterest income                                                    |                                        
|Gain/(loss) on sale of securities                                     |                                         | 3                                     
|Gain on sale of loans                                                 |                                         | 22                                    
|Service charges and other fees                                        |                                         | 200                                   
|Other income                                                          |                                         | 2                                     
|                                                                      |                                         |                                       
|Total noninterest income                                              |                                         | 227                                   
|Noninterest expense                                                   |                                        
|Salaries and benefits                                                 |                                         | 791                                   
|Occupancy expense                                                     |                                         | 254                                   
|Computer and data processing expenses                                 |                                         | 109                                   
|Advertising and public relations                                      |                                         | 73                                    
|Professional fees                                                     |                                         | 134                                   
|Other expense                                                         |                                         | 172                                   
|                                                                      |                                         |                                       
|Total noninterest expense                                             |                                         | 1,533                                 
|                                                                      |                                         |                                       
|Income/(loss) before federal income tax expense and minority interest |                                         | (589                                  
|Federal income tax expense/(benefit)                                  |                                         | (167                                  
|                                                                      |                                         |                                       
|Income/(loss) before minority interest                                |                                         | (422                                  
|Minority interest in net loss of consolidated subsidiary              |                                         | (68                                   
|                                                                      |                                         |                                       
|Net income/(loss)                                                     |                                         | $(354                                 
|                                                                      |                                         |                                       
|Basic earnings per share                                              |                                         | $(0.28                                
|                                                                      |                                         |                                       
|Diluted earnings per share                                            |                                         | $(0.28                                
|                                                                      |                                         |                                       

See accompanying notes
to consolidated financial statements.

4

---



CLARKSTON FINANCIAL
CORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Three Month
Period ended March 31, 2006 (dollars in thousands) (unaudited)

|                                                        | CommonStock | CapitalSurplus | UnearnedComp. | RetainedEarnings | AccumulatedOtherComprehensive(loss) | TotalStockholders'
Equity
|------------------------------------------------------- | ----------- | -------------- | ------------- | ---------------- | ----------------------------------- | -------------------------
|                                                        |             |                |               |                  |                                     |                          
|Balance December 31, 2005                               |             | $6,163         |               | $6,163           |                                     | $(85                     
|Recognition of compensation for                         |            
|restricted stock award                                  |             | -              |               | -                |                                     | 13                       
|Comprehensive income:                                   |            
|Net income/(loss) for three months ended March 31, 2006 |             | -              |               | -                |                                     | -                        
|Change in unrealized loss on                            |            
|securities available for sale                           |            
|net of tax of ($63)                                     |             | -              |               | -                |                                     | -                        
|                                                        |             |                |               |                  |                                     |                          
|Net comprehensive loss                                  |             |                |               |                  |                                     |                          
|                                                        |             |                |               |                  |                                     |                          
|Balance March 31, 2006                                  |             | $6,163         |               | $6,163           |                                     | $(72                     
|                                                        |             |                |               |                  |                                     |                          

5

---



CLARKSTON FINANCIAL
CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Three Month Periods ended March
31, 2006 and March 31, 2005 (dollars in thousands)  (unaudited)

|                                                     | Three Months
Ended
March 31, 
2006 | Three
Months
Ended
 March 31,
2005
|---------------------------------------------------- | ---------------------------------- | ----------------------------------
|                                                     |                                    |                                   
|Net Cash Provided by Operating Activities:           |                                    |                                   
|Net cash provided by/(used in) operating activities  |                                    | $5,151                            
|Cash Flows from Investing Activities:                |                                   
|Net increase in loans                                |                                    | (6,733                            
|Purchase of available-for-sale securities            |                                    | (3,214                            
|Proceeds from sales of available-for-sale securities |                                    | 2,024                             
|Property and equipment expenditures                  |                                    | (1,059                            
|                                                     |                                    |                                   
|Net cash used in investing activities                |                                    | (8,982                            
|Cash Flows from Financing Activities:                |                                   
|Increase in deposits                                 |                                    | 2,464                             
|Increase in federal funds purchased                  |                                    | --                                
|Resources provided by minority interest              |                                    | (60                               
|                                                     |                                    |                                   
|Net cash provided by financing activities            |                                    | 2,404                             
|Net increase/(decrease) in cash and cash equivalents |                                    | (1,427                            
|Cash and cash equivalents at beginning of period     |                                    | 8,090                             
|                                                     |                                    |                                   
|Cash and cash equivalents at end of period           |                                    | $6,663                            
|                                                     |                                    |                                   
|Supplemental Cash Flow Information - Cash paid for:  |                                   
|Interest                                             |                                    | 1,433                             
|Taxes                                                |                                    | --                                

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, 2005.

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 and nine month periods ended March 31, 2006 are
not necessarily indicative of the results that may be expected for the year ended December
31, 2006.

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 Corporation is a Michigan
Corporation and the holding company for Clarkston State Bank (CSB) and Huron Valley State
Bank (HVSB). The consolidated financial statements include the accounts of the
Corporation, its wholly owned subsidiary Clarkston State Bank and its majority
owned subsidiary Huron Valley State Bank. 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 Company 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 15,153 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 10,580 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.

Prior to January 1, 2006, the
Company accounted for stock awards and options under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As discussed in Note 2 under New Accounting Pronouncements, the
Company 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.

7

---



# NOTE 3  STOCK
BASED COMPENSATION (CONTINUED)

The Company recognizes compensation
expense related to restricted stock awards over the period the services are performed. No
options were granted during the first quarter of 2006. The Company determined that
implementation of SFAS No. 123(R) did not have a material impact on the financial
results of the Company. The Company has provided below pro forma disclosures of net income
and earnings per share for the three months ended March 31, 2005, as if the Company
had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation (in thousands, except per share data):

|                                                                                      | Three Months
 EndedMarch
  31, 2005
|------------------------------------------------------------------------------------- | -----------------------------------
|                                                                                      |                                    
|As reported net income/(loss) available to common stockholders                        |                                    
|Less stock-based compensation expense determined under fair value method - net of tax |                                    
|                                                                                      |                                    
|Pro forma net income/(loss)                                                           |                                    
|                                                                                      |                                    
|As reported earnings/(loss) per share                                                 |                                    
|Pro forma earnings/(loss) per share                                                   |                                    
|As reported earnings/(loss) per diluted share                                         |                                    
|Pro forma earnings/(loss) per diluted share                                           |                                    

Compensation expense in the pro forma
disclosures is not indicative of future amounts, as options vest over several years and
additional grants may be made each year.

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

|                                        | 2006 | 2005  
|--------------------------------------- | ---- | ------
|                                        |      |       
|                                        |      |       
|                                        |      |       
|Options Outstanding - Beginning of Year |      | 49,536
|Options granted - Employee Plan         |      | -     
|Options exercised                       |      | -     
|Options expired                         |      | -     
|                                        |      |       
|Options Outstanding - End of Period     |      | 49,536
|                                        |      |       

8

---



# NOTE 3  STOCK
BASED COMPENSATION (CONTINUED)

The following table shows summary
information about fixed stock options outstanding at March 31, 2006:

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

# 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: (in dollars in thousands)

|                                                                                                       | 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                                                            |                            

9

---



# 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 (dollars in thousands):

# Available for Sale

|                                                | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value
|----------------------------------------------- | -------------- | ---------------------- | ----------------------- | ----------------------
|                                                |                |                        |                         |                       
|March 31, 2006 (Unaudited)                      |                |                        |                         |                       
|U.S. Treasury securities and obligations of     |                |                       
|U.S. government corporations and agencies       |                |                        | $                       | 8,331                 
|Mortgage-backed securities                      |                |                        |                         | 28,850                
|Collateralized mortgage obligations             |                |                        |                         | 3,356                 
|Obligations of state and political subdivisions |                |                        |                         | 10,654                
|                                                |                |                        |                         |                       
|                                                |                |                        | $                       | 51,191                
|                                                |                |                        |                         |                       
|December 31, 2005                               |                |                       
|U.S. Treasury securities and obligations of     |                |                       
|U.S. government corporations and agencies       |                |                        | $                       | 7,842                 
|Mortgage-backed securities                      |                |                        |                         | 28,044                
|Collateralized mortgage obligations             |                |                        |                         | 3,508                 
|Obligations of state and political subdivisions |                |                        |                         | 10,677                
|                                                |                |                        |                         |                       
|                                                |                |                        | $                       | 50,071                
|                                                |                |                        |                         |                       

# NOTE 6  LOANS

Loans are as follows (dollars in
thousands):

|                  | March 31,    
    2006      
  (unaudited) | December 31,
       2005
|----------------- | ------------------------------------------ | ------------------------
|                  |                                            |                         
|Commercial        |                                            | $23,899                 
|Real estate:      |                                           
|Commercial        |                                            | 71,813                  
|Residential       |                                            | 15,766                  
|Construction      |                                            | 25,652                  
|                  |                                            |                         
|Total real estate |                                            | 113,231                 
|Consumer          |                                            | 2,189                   
|                  |                                            |                         
|Total             |                                            | $139,319                
|                  |                                            |                         

Activity in the allowance for loan
losses is as follows (dollars in thousands):

|                                         | 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 |                             

10

---



# NOTE 7  DEPOSITS

Deposits are summarized as follows (dollars
in thousands):

|                                             | March 31,   
    2006    
 (unaudited) | December 31,
         2005
|-------------------------------------------- | -------------------------------------- | --------------------------
|                                             |                                        |                           
|Non-interest bearing demand deposit accounts |                                        | $22,491                   
|Interest-bearing demand deposit accounts     |                                        | 5,910                     
|Savings accounts                             |                                        | 5,232                     
|Money market accounts                        |                                        | 56,067                    
|Certificates of deposit                      |                                        | 74,096                    
|                                             |                                        |                           
|Total deposits                               |                                        | $163,796                  
|                                             |                                        |                           

# NOTE 8  FHLB
ADVANCES

The Company has various term advances
from the Federal Home Loan Bank of Indianapolis (FHLB) with fixed and variable
interest rates ranging from 3.75% to 4.86% at March 31, 2006 and December 31, 2005. The
weighted average interest rate at March 31, 2006 and December 31, 2005 is 4.35%. Maturity
dates range from November 2006 to October 2010. The weighted average remaining maturity at
March 31, 2006 is 873 days, or August 20, 2008. Advances from the FHLB are collateralized
by qualifying investment securities with estimated market values of $11,711,000 and
$12,210,000 at March 31, 2006 and December 31, 2005. The advances are due in full at
maturity and the fixed rate advances are subject to a prepayment penalty if repaid prior
to maturity.

# 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, 2006 and December 31,
2005.

11

---



# NOTE 9  MINIMUM
REGULATORY CAPITAL REQUIREMENTS (CONTINUED)

The Banks and
Corporations actual capital amounts and ratios as of March 31, 2006 and December 31,
2005 are presented in the following table (dollars in thousands):

|                          | Actual | For Capital   Adequacy Purposes | To beWell-Capitalized
|------------------------- | ------ | ------------------------------- | ---------------------
|
|As of March 31, 2006:     |        |                                 |                      
|Total risk-based capital  |       
|(to risk-weighted assets) |       
|CSB                       |        | $15,655                         |                      
|HVSB                      |        | 7,690                           |                      
|Consolidated              |        | 21,595                          |                      
|Tier I Capital            |       
|(to risk weighted assets) |       
|CSB                       |        | $13,598                         |                      
|HVSB                      |        | 7,629                           |                      
|Consolidated              |        | 19,477                          |                      
|Tier I Capital            |       
|(to average assets)       |       
|CSB                       |        | $13,598                         |                      
|HVSB                      |        | 7,629                           |                      
|Consolidated              |        | 19,477                          |                      
|As of December 31, 2005:  |       
|Total risk-based capital  |       
|(to risk-weighted assets) |       
|CSB                       |        | $15,516                         |                      
|HVSB                      |        | 7,803                           |                      
|Consolidated              |        | 21,780                          |                      
|Tier I Capital            |       
|(to risk weighted assets) |       
|CSB                       |        | $13,753                         |                      
|HVSB                      |        | 7,771                           |                      
|Consolidated              |        | 19,850                          |                      
|Tier I Capital            |       
|(to average assets)       |       
|CSB                       |        | $13,753                         |                      
|HVSB                      |        | 7,771                           |                      
|Consolidated              |        | 19,850                          |                      

12

---



# 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, 2006 and December 31,
2005, the following financial instruments were outstanding whose contract amounts
represent credit risk (dollars in thousands):

|                                           | March 31, 2006 
(unaudited) | December 31, 2005
|------------------------------------------ | --------------------------- | -----------------
|                                           |                             |                  
|Commitments to grant loans                 |                             | $9,331           
|Unfunded commitments under lines of credit |                             | 23,013           
|Commercial and standby letters of credit   |                             | 169              

# NOTE 11  RECENT
ACCOUNTING PRONOUNCEMENTS

Statement of Financial Standards
(SFAS) No.123(R), Share Based Payment , establishes accounting requirements for
share-based compensation to employees and carries forward prior guidance on accounting for
awards to non-employees. This Statement requires an entity to recognize the cost of
employee services received in share-based payment transactions as compensation expense and
measure the cost on the grant-date fair value of the award. The Corporation was required
to adopt SFAS 123(R) beginning January 1, 2006. Effective December 31, 2005, the
Corporations Board of Directors accelerated the vesting of all of its outstanding
stock options, in conjunction with an overall review of the compensation system. The
adoption of this Statement did not have a material impact on the results of operations of
the Company.

In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments,
which is an amendment of SFAS No: 133 and 140. SFAS No. 155 allows financial instruments
that have embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for the whole
instrument on a fair value basis. The Statement also establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation and clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal year
that begins after September 15, 2006. Management is currently evaluating the impact this
Statement may have on the Companys results of operations or financial condition.

13

---



# 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 northern Oakland County communities in which the Banks are
located and the areas immediately surrounding these communities. The Banks serve these
markets through 7 locations in or near their communities. The Banks do not have any
material foreign assets or income.

14

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Our principal source of revenue is
interest and fees on loans. On a consolidated basis, interest and fees on loans accounted
for 74.8% of total revenue in 2006 compared to 76.6% in 2005. Interest and fees on loans
increased in the current year as a result of growth in the loan portfolio. This growth in
the loan portfolio is due in part to the addition of HVSB and also to continued growth in
CSBs loan portfolio. Purchases of securities and increased Federal Funds balances at
HVSB were the primary causes of the decrease in the share of total revenue attributed to
loan interest and fees. Revenue share of interest from investments (including Federal
Funds sold), increased to 18.2%, from 14.5% year over year. Service fees on deposit
accounts declined from 7.0% to 6.2% in 2005 and 2004, respectively. This decrease in
revenue share was due to faster growth in other revenue sources, as the deposit fee income
as a % of checking accounts increased slightly from 2.6% in 2005 to 2.8% in 2006.

The formation of HVSB in 2005 was a
significant event for Clarkston Financial Corporation. We own 55% of the outstanding
shares of common stock of HVSB. The remaining 45% is owned by private investors. We expect
to recognize operating losses from HVSB in the near term as the Bank grows out of the de
novo stage.

Critical Accounting
Policies

As of March 31, 2006, there have
been no material changes in the disclosures regarding critical accounting policies as
disclosed in the Companys Form 10-K for the year ended December 31, 2005. The
Companys critical accounting policies are described in the financial section of its
2005 Annual Report. Management believes its critical accounting policies relate to the
Companys securities, allowance for loan losses.

Comparison of Financial
Condition at March 31, 2006 and December 31, 2005

Our
total assets increased by $6.3 million or 3.2% to $201.9 million at March 31, 2006, from
$195.6 million at December 31, 2005. The addition of HVSB in the 3rd quarter of
2005 has contributed significantly to our asset growth, providing approximately $16.8
million in total assets. We anticipate that our assets will continue to grow during 2006.

Cash
and cash equivalents, which include federal funds sold and short-term investments,
decreased $1.4 million or 17.3% to $6.7 million at March 31, 2006 from $8.1 million at
December 31, 2005. The decrease is due mostly to these excess funds being deployed into
higher yielding loans and investments. It is anticipated that this trend will continue
during the year.

Securities
increased $966,000 or 2.0% to $49.9 million at March 31, 2006 from $49.0 million at
December 31, 2005. This increase was caused by the purchase of securities at HVSB, These
purchases were made to achieve an increased amount of interest income on excess funds
until they can be redeployed into the loan portfolio. 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 book value of these
securities have not been written down as of March 31, 2006.

15

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Total
portfolio loans increased by $6.1 million or 4.6% to $139.3 million at March 31, 2006 from
$133.2 million at December 31, 2005. This growth rate is in line with our business plan
and a similar, or slightly slower rate is expected to continue throughout 2006. The
difficult economic climate in Michigan and competitive pressures in the banks
contiguous markets has created a challenging environment in which to make loans.
Approximately $3.0 million of the growth was from Huron Valley State Bank. Total loan
growth continues to be driven by the commercial real estate portfolio which increased $9.0
million, or 14.3% over the balance at December 31, 2005. This large increase was partially
offset by a $3.1 million decrease in the construction portfolio, caused by the payoff of a
number of larger credits. Commercial and industrial loans saw a slight decrease of
$417,000, or 1.7% from December 31, 2005. The residential real estate portfolio also
contributed positively showing a 5.3%, or $790,000 increase from December 31, 2005. There
was a slight decrease in consumer loans from December 31, 2005. We continue to focus on
commercial lending as evidenced by the fact that commercial and construction loans make up
87.1% of the loan portfolio, with residential loans making up 11.3% and consumer loans
1.6%.

The
nonperforming loan balance shown below as of March 31, 2006 is made up of 16
relationships. Subsequent to the end of the quarter, the Corporation received a favorable
ruling from the court on one such credit which makes up 6.1% of the balance of
nonperforming loans. Based on this favorable ruling, we anticipate being paid in full on
this credit (including accrued interest) during the 2nd quarter. The employee
who was hired to deal with workout credits on a contract basis in the 3rd
quarter of 2005 has been hired as a full-time employee for that purpose.

During the quarter, the Bank experienced
a 111.1% increase in loans 90 or more days past due and still
accruing. In accordance with our policy, loans that are well secured and in the process of
collection are not put on non-accrual status. Of the $2.3 million of new credits which
went 90 days past due during the quarter, $1.3 million, or 56.5% were secured by real
estate. The unsecured credit is a matured loan for which we were awaiting additional
information to make a renewal decision. Additionally, a charge-off of a $624,000 credit
which was previously 100% reserved reduced the nonaccrual balances, however $650,000 of
loans (2 credits) migrated from 90 days past due to nonaccrual and 1 additional credit
(secured by real estate) was placed on non-accrual during the quarter. All loans greater
than 90 days delinquent, regardless of accrual status, are included on managements
watch list and monitored monthly. Management is working through these credits and believes
that any losses inherent in these credits are adequately reserved for in the allowance for
loan loss.

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

|(dollars in thousands)                    | March 31,    2006      
  (unaudited) | December 31,
     2005
|----------------------------------------- | ------------------------------------- | ----------------------
|Nonaccrual loans                          |                                       |                       
|Secured by real estate                    |                                       | $757                  
|Secured by other than real estate         |                                       | 385                   
|Unsecured                                 |                                       | --                    
|Loans 90 days past due and still accruing |                                       | --                    
|Secured by real estate                    |                                       | 1,991                 
|Secured by other than real estate         |                                       | 512                   
|Unsecured                                 |                                       | 475                   
|                                          |                                       |                       
|Total nonperforming loans                 |                                       | 4,120                 
|Foreclosed and repossessed assets         |                                       | 189                   
|                                          |                                       |                       
|Total nonperforming assets                |                                       | $4,309                
|                                          |                                       |                       
|Nonperforming assets to total loans       |                                       | 3.09                  
|Nonperforming assets to total assets      |                                       | 2.13                  

16

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The
allowance for loan losses as of March 31, 2006 was $2.1 million representing approximately
1.52% of total loans outstanding, compared to $1.9 million, or 1.45% of loans outstanding
as of December 31, 2005. The charge-off of the $625,000 credit which was fully reserved in
the 3rd quarter of 2005 caused a reduction in the allowance, though this was
more than offset by the additional provision required during the 1st quarter. A
thorough internal review of the loan portfolio was commenced during the quarter and is ongoing.
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.

The
loan loss allowance represents managements assessment of both current and future
losses inherent within the loan portfolio. Consideration is also given to off-balance
sheet items that may involve credit risk, such as commitments to extend credit. This
analysis is conducted on a quarterly basis utilizing a methodology that has been employed
since our inception. The methodology employed utilizes several factors to determine the
appropriateness of the allowance. Specifically, historical loss experience, financial
condition of borrowers, collateral adequacy, credit risk rating system and current
economic conditions are incorporated in this analysis.

The
primary risk element considered by management regarding each installment and residential
real estate loan is the lack of timely payments. We have a reporting system that monitors
past due loans and have adopted policies to pursue our creditors rights in order to
preserve our position. The primary risk elements concerning commercial loans are the
financial condition of the borrower, the sufficiency of the collateral and lack of timely
payment. Management has a policy of requesting and reviewing annual financial statements
from its commercial loan customers and periodically reviews the existence and value of
collateral for selected loans.

The
adequacy of the allowance is based on the application of our credit risk rating system
which identifies problem credits and ranks loans by specific categories. Moreover, we use
peer comparisons and industry data for similar type loans to further assess the proper
level of the loan loss allowance.

Total
premises and equipment increased $1.0 million, or 25.6% to $4.9 million at March 31, 2006
from $3.9 million at December 31, 2005. This increase is due to the purchase of the
building from which the holding company operates from a company controlled by the
Chairman. This purchase was made at the fair market value of the property. CSB operates a
retail branch out of this building and it was determined to be cost efficient to purchase
the building.

Total
deposit balances increased $2.5 million or 1.5% to $163.8 million at March 31, 2006 from
$161.3 million at December 31, 2005. The largest increase in terms of percentage was seen
in time deposits which increased 10.9%, or $7.3 million since December 31, 2005. This
increase was offset by a $4.1 million, or 6.8% decrease in the money market portfolio.
Demand and other savings accounts saw a slight decrease from December 2005.
The local  market for  non-time  deposits is extremely  competitive,  and we continue to focus on  gathering  lower cost
savings and DDA  accounts to fund our future  growth and reduce our  reliance  on higher cost time  deposits.  A renewed
focus on our  Waterford  market  along with growth in the  Milford  market by HVSB will assist us in meeting our deposit
gathering goals.

17

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CSB
is a member of the Federal Home Loan Bank of Indianapolis, and utilizes advances from this
institution to bolster liquidity. At March 31, 2006, we have $10.2 million in advances
outstanding. 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, 2006, we had retained earnings of $3.3 million compared to $3.6 million at
December 31, 2005 which was a result of a net loss of $354,000. Accumulated other
comprehensive income saw a decrease of $123,000, or 17.1%. This decrease was primarily the
result of changes in interest rates causing a decrease 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, 2006 and 2005

Our
net loss was $354,000, or $0.28 per diluted share for the first quarter of 2006 compared
to net income of $179,000, or $0.17 per diluted share for the first quarter of 2005. The
net loss was caused primarily by increased loan loss provisions and operating expenses
related to HVSB being open and fully staffed, while last year it was operating with
limited staff as a loan center. While still in the start-up phase, the losses since the
opening of Huron Valley State Bank have been less than the initial projections.

Net
interest income increased 4.6% or $68,000 from $1.48 million in the first quarter of 2005
to $1.55 million for 2006. The primary contributor to the increase was elevated balances
in earning assets, which increased by 15.7% to $197.1 million at March 31, 2006 from
$170.3 million at December 31, 2005. This effectively added $219,000 to the margin. A
large quantity of loans were booked by both banks in the latter stages of the quarter,
therefore the full effect of these additional loans are not reflected within the average
balances shown in the table below. Increasing rates reduced net interest income by
$42,000, as the cost of interest bearing funds increased 80 basis points, while the yield
on earning assets only increased by 30 basis points. The increase in non-interest bearing
deposits also helped the margin in the current quarter. The net interest margin decreased
from 3.60% for the quarter ended March 31, 2005 compared to 3.27% for the same period in
2006. As mentioned above, management is devising a strategy to generate additional demand
deposit account volume to reduce our reliance on higher cost time and other savings
accounts.

18

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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 (dollars in thousands):

|                                           | 3 Months ended March 31,2006 | 3 Months ended March 31,2005
|------------------------------------------ | ---------------------------- | ----------------------------
|                                           |                              |                             
|                                           |                              |                             
|                                           |                              |                             
|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                      |                              |                             
|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 - FTE                      |                              |                             

19

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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.

|                                  | 2006 Compared to 2005
|--------------------------------- | ---------------------
|
|(Dollars in thousands)           
|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 $832,000 for the first quarter ended March 31, 2006,
compared to $95,000 for the first quarter of 2005. Of the total first quarter loan loss
provision, approximately $559,000 relates primarily to an aggregate principal balance of
approximately $1.01 million of loans to three commercial borrowers which have become
impaired. The borrowers have been unable to meet the repayment terms of the loans and one
of the borrowers has filed for Chapter 7 bankruptcy. The loans are secured by liens on
commercial real estate and certain other collateral, but in all cases the collateral is no
longer of sufficient value to cover the outstanding principal balance on the loans. As a
result of Clarkston State Banks ongoing monitoring of the loan portfolio, these
loans were determined to be impaired. In addition to specific reserves, these impairments
have adversely affected the Corporations loss history resulting in additional provision for
loan losses.

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 Clarkston State
Banks current analysis of probable incurred losses in its loan portfolio, with
respect to loans held at March 31, 2006. Bank management is continuing to evaluate the
financial condition of the borrowers and the value of the collateral. The impairment
charge is based on the information currently available and may change as new information
is received.

Non-interest
income decreased $17,000, or 7.0% for the first quarter of 2006 compared to the same
period in 2005. The largest portion of the change in non-interest income was due to
reduced gains on sale of mortgage loans. As the sales team builds up the volume in this
area, we anticipate increased fee income. Fees on deposit accounts increased $9,000, or
4.7% over the same quarter in the prior year. 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.

20

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Non-interest
expense was $1.53 million for the first quarter of 2006, a $182,000 or 13.5% increase over
the first quarter of 2005 when non-interest expense was $1.35 million. The increase is
primarily attributable to higher salary and benefit costs of $47,000, or 6.3% due
primarily to the full staffing of HVSB and normal increases in compensation. Occupancy
expense has increased $71,000, or 38.8% as a result of HVSB and additional real estate
taxes related to CSBs newest branch. Professional fees are 42.6%, or $40,000 higher
than the same period last year, mostly due to legal costs related to the collection
efforts on troubled loans. Advertising expense is elevated from the 1st quarter
of 2005 primarily due to the opening of the new Bank. As Huron Valley State Bank and the
mortgage operation gain critical mass, we anticipate our efficiency ratio to improve to
the levels more common throughout our history. The ratio for the quarter ended March 31,
2006 increased to 86.3% from 78.3% at March 31, 2005.

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.

Capital Resources at
March 31, 2006 (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                       |                       |                      |                               

21

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

|                                         | Tier 1Leverage | Tier 1Capital | Total Risk-Based Capital
|---------------------------------------- | -------------- | ------------- | ------------------------
|                                         |                |               |                         
|(in thousands of dollars)               
|Capital balances at March 31, 2006       |                |               |                         
|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, 2006, operating activities
generated $5.2 million in the current quarter. The primary cause of this increase was the
outstanding cashiers checks related to loan closings which took place at the end of
the quarter. In addition, deposit generation and security sales provided $2.5 million and
$2.0 million in cash to our operation. The primary uses of funds in the current quarter
were loan originations of $6.7 million, purchases of securities of $3.2 million and the
purchase of our corporate office location of $1.0 million.

# 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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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 2. Changes in
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.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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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, 2006, 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, 2006

24

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

25