# FORM 10-KSB SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549

_________________

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

For the fiscal year
ended December 31, 2004

OR [ ] TRANSITION REPORT
PURSUANT TO 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
registrant as specified in its charter)

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

15 South Main Street,
Clarkston, Michigan 48346 (Address of principal
executive offices) (Zip Code)

Registrants
telephone number, including area code: (248) 625-8585

Securities registered
pursuant to Section 12(b) of the Exchange Act: None

Securities registered
pursuant to Section 12(g) of the Exchange Act: None.

_________________

Check whether the issuer: (1) 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 [__]

Check here if there is no disclosure
by delinquent filers in response to Item 405 of Regulation S-B is not contained in this
form and no disclosure will be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendments to this Form Form 10-KSB.
[X]

Indicate by  checkmark
 whether the  registrant  is an  accelerated  filer (as defined in Exchange Act Rule
12b-2). Yes [__] No [X]

The registrants revenues for
2004 were $9.0 million. The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant, based on a per share price of $20.65
as of March 15, 2005, was $16,853,208 (common stock, no par value). As of March 15, 2005,
there were outstanding 1,045,909 shares of the Companys common stock (no par value).

Portions of the Companys Proxy
Statement for the Annual Meeting of Shareholders to be held May 10, 2005, are incorporated
by reference into Part II and Part III of this Report.

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# PART I

# ITEM 1: Business

# The Company

Clarkston
Financial Corporation was incorporated on May 18, 1998 under Michigan law and is a bank
holding company owning all of the outstanding common stock of Clarkston State Bank.
Clarkston State Bank is organized as a Michigan chartered bank with depository accounts
insured by the Federal Deposit Insurance Corporation (the FDIC). Clarkston
State Banks initial primary service area is Independence Township, which includes
the City of Clarkston, and the adjacent township of Waterford, both of which are located
in North Oakland County, Michigan. Clarkston State Bank provides a full range of
commercial and consumer banking services for small to medium size businesses as well as
individuals. Clarkston State Banks lending strategy is to focus on commercial,
consumer and residential real estate lending. Clarkston State Bank offers a broad array of
deposit products and may also provide customers with trust services through third-party
service providers.

As
of December 31, 2004, we had total assets of $163.4 million, total deposits of $133.3
million, approximately 7,139 deposit accounts and shareholders equity of $12.2
million.

Our
main office is located at 15 South Main Street, Clarkston, Michigan 48346, and its
telephone number is (248) 625-8585. Unless the context clearly indicates otherwise,
financial information and other references to us include Clarkston State Bank.

# Products and Services

Commercial
Loans.Commercial loans are made primarily to small and
mid-sized businesses. These loans are and will be both secured and unsecured and are made
available for general operating purposes, acquisition of fixed assets including real
estate, purchases of equipment and machinery, financing of inventory and accounts
receivable, as well as any other purposes considered appropriate. We generally look to a
borrowers business operations as the principal source of repayment, but will also
receive, when appropriate, mortgages on real estate, security interests in inventory,
accounts receivable and other personal property and/or personal guarantees.

Although
we take a progressive and competitive approach to lending, it stresses high quality in its
loans. Because of our local nature, management believes that quality control should be
achievable while still providing prompt and personal service. In addition, a loan
committee of the Board of Directors of Clarkston State Bank also reviews larger loans for
prior approval when the loan request exceeds the established limits for the senior
officers.

Commercial
real estate lending involves more risk than residential lending, because loan balances are
greater and repayment is dependent upon the borrowers operation. We attempt to
minimize risk associated with these transactions by generally limiting its exposure to
owner operated properties of well-known customers or new customers with an established
profitable history. In many cases, risk is further reduced by (i) limiting the amount of
credit to any one borrower to an amount less than our legal lending limit; and (ii)
avoiding certain types of commercial real estate financings.

Residential
Real Estate Mortgage Loans. We originate residential mortgage loans which
are generally underwritten to secondary market standards and sold to investors. These
loans are sold on a servicing released basis. Moreover, from time to time management may
hold mortgage loans in its portfolio based on changing market and economic conditions.
This policy is subject to review by management based on the aforementioned conditions. In
addition to mortgage loans we also offer equity loans.

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Personal
Loans and Credit. We make personal loans and lines of credit available to
consumers for various purposes, such as the purchase of automobiles, boats and other
recreational vehicles, home improvements and personal investments. We expect to retain
substantially all of such loans.

Consumer
loans generally have shorter terms and higher interest rates than residential mortgage
loans and usually involve more credit risk than mortgage loans because of the type and
nature of the collateral. While we do not use a formal credit scoring system, we
underwrite our loans carefully, with a strong emphasis on the amount of the down payment,
credit quality, employment stability and monthly income. These loans are expected
generally to be repaid on a monthly repayment schedule with the source of repayment tied
to the borrowers periodic income. In addition, consumer lending collections are
dependent on the borrowers continuing financial stability, and are thus likely to be
adversely affected by job loss, illness and personal bankruptcy. In many cases,
repossessed collateral for a defaulted consumer loan will not provide an adequate source
of repayment of the outstanding loan balance because of depreciation of the underlying
collateral. We believe that the generally higher yields earned on consumer loans help
compensate for the increased credit risk associated with such loans and that consumer
loans are important to its efforts to serve the credit needs of the communities and
customers that it serves.

Loan
Policy. As a routine part of our business, we make loans to individuals and
businesses located within our market area. We have adopted a Loan Policy that contains
general lending guidelines and is subject to review and revision by the Board of Directors
from time to time. We seek to make sound loans, while recognizing that lending money
involves a degree of business risk.

Regulatory
and supervisory loan-to-value limits are established by Section 304 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA). Our internal
limitations follow those limits and in certain cases are more restrictive than those
required by the regulators.

Deposit
Services. We offer a broad range of deposit services, including interest
bearing and non-interest bearing checking accounts, savings accounts and time deposits of
various types. Transaction accounts and time certificates are tailored to the principal
market area at rates competitive with those offered in the area. All deposit accounts are
insured by the FDIC up to the maximum amount permitted by law. We solicit these accounts
from individuals, businesses, associations, financial institutions and government
authorities.

Other
Services. We may establish relationships with correspondent banks and other
independent financial institutions to provide other services requested by its customers,
including loan participations where the requested loan amounts exceed our policies or
legal lending limits. While management believes that our personalized service approach
benefits from customer visits we have also recognized through customer surveys that
personal computer banking is a service for which more customers would prefer. As a result,
management introduced personal computer banking in 2004. This will extend our product
offerings and further complement our telephone banking service which began in April 2000.

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# Competition

There
are many thrift institution, credit union and bank offices located within our primary
market area of North Oakland County, Michigan. We face competition from these institutions
as well as finance companies, insurance companies, mortgage companies, securities
brokerage firms, money market funds and other providers of financial services. Most of our
competitors have been in business a number of years, have established customer bases, are
larger and have higher lending limits than we do. We compete for loans principally through
our ability to communicate effectively with, and understand and meet the needs of, our
customers. Management believes that its personal service philosophy enhances its ability
to compete favorably in attracting individuals and small businesses. We actively solicit
retail customers and will compete for deposits by offering customers personal attention,
professional service, ATM and online banking capability, and competitive interest rates.

# Environmental Matters

We
do not believe that existing environmental regulations will have any material effect upon
our capital expenditures, earnings, and competitive position.

# Employees

As
of December 31, 2004, we had 34 full-time and 17 part-time employees. We have assembled a
staff of experienced, dedicated professionals whose goal is to provide outstanding
service. None of our employees are represented by collective bargaining agents.

# Selected Statistical Data

Selected
Statistical Data for Clarkston Financial Corporation is presented for 2004, 2003 and 2002
in Managements Discussion and Analysis of Financial Condition and Results of
Operations.

# Recent Development
 Application to Form New Bank

Clarkston
Financial Corporation has applied for regulatory approval to form a new bank to be named
Huron Valley State Bank (a Michigan banking corporation to be formed). The new bank (if
approved) will replace a loan production office that Clarkston State Bank opened in
February, 2005 at 525 North Main Street, Suite 260, Milford, Michigan 48381.

Huron
Valley State Bank is expected to have approximately eight employees, plans to serve the
Village of Milford, Milford Township, Commerce Township, White Lake Township, Highland
Township and Hartland Township.

David
H. Blossey, 50, will serve as a director, President, and CEO. Mr. Blossey has more than 20
years of banking experience in Michigan, including senior-management positions with
Chemical Bank & Trust, Republic Bancorp, and First of America.

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The
Banks board will include the following local business leaders: Thomas E. Callan, a
real-estate broker and investor who owns the Milford Coldwell Banker real-estate
franchise, and is a member of the Milford Downtown Development Authority Board; Christina
Hamill, a local CPA practitioner and former director of Tax for the Detroit office of
accounting and consulting firm Ernst and Young; Jeffrey Heyn, a real-estate investor who
serves on the Milford Downtown Development Authority Board and Village of Milford Parking
Commission; Christopher Smith, a Milford attorney and past president of the City Council
of the Village of Milford; Lyle Tyler, a real-estate investor who is active in the Milford
community and past president of the Milford Chamber of Commerce; Bruce H. McIntyre, a
local businessman; Marc Weinbaum, an attorney and executive vice president of a commercial
real-estate-development firm, and a member of the Milford Downtown Development Authority
Board; and John H. Welker, CEO of Milford-based Numatics Corp, and a director of Clarkston
State Bank.

The
new bank is expected to be capitalized with $8 million.

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# SUPERVISION AND
REGULATION

The
following is a summary of certain statutes and regulations affecting Clarkston Financial
Corporation and Clarkston State Bank. This summary is qualified in its entirety by such
statutes and regulations. A change in applicable laws or regulations may have a material
effect on Clarkston Financial Corporation, Clarkston State Bank, and the business of
Clarkston Financial Corporation and Clarkston State Bank.

# General

Financial
institutions and their holding companies are extensively regulated under federal and state
law. Consequently, our growth and earnings performance can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Board of Governors of
the Federal Reserve System (the Federal Reserve Board), the FDIC, the
Commissioner of the Michigan Office of Financial and Insurance Services, Department of
Financial Institutions (Commissioner), the Internal Revenue Service, and state
taxing authorities. The effect of such statutes, regulations and policies can be
significant, and cannot be predicted with a high degree of certainty.

Federal
and state laws and regulations generally applicable to financial institutions and their
holding companies regulate, among other things, the scope of business, investments,
reserves against deposits, capital levels relative to operations, lending activities and
practices, the nature and amount of collateral for loans, the establishment of branches,
mergers, consolidations and dividends. The system of supervision and regulation applicable
to us and our bank establishes a comprehensive framework for their respective operations
and is intended primarily for the protection of the FDICs deposit insurance funds,
the depositors of the Bank, and the public, rather than our shareholders.

Federal
law and regulations establish supervisory standards applicable to the lending activities
of our bank, including internal controls, credit underwriting, loan documentation and
loan-to-value ratios for loans secured by real property.

# Clarkston Financial
Corporation

General.       
          Clarkston Financial Corporation has not elected to be a financial holding company within the
          meaning of the Gramm-Leach-Bliley Act. Clarkston Financial Corporation is a bank
          holding company and, as such, is registered with, and subject to regulation by,
          the Federal Reserve Board under the Bank Holding Company Act, as amended (the
          BHCA). Under the BHCA, the Company is subject to periodic
          examination by the Federal Reserve Board, and is required to file with the
          Federal Reserve Board periodic reports of its operations and such additional
          information as the Federal Reserve Board may require.

In
accordance with Federal Reserve Board policy, Clarkston Financial Corporation is expected
to act as a source of financial strength to Clarkston State Bank and to commit resources
to support Clarkston State Bank in circumstances where Clarkston Financial Corporation
might not do so absent such policy. In addition, if the Commissioner deems our capital to
be impaired, the Commissioner may require us to restore our capital by a special
assessment upon us as Clarkston State Banks sole shareholder. If we were to fail to
pay any such assessment, the directors of the Clarkston State Bank would be required,
under Michigan law, to sell our shares of Clarkston State Banks stock owned by us to
the highest bidder at either a public or private auction and use the proceeds of the sale
to restore the Clarkston State Banks capital.

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Investments
and Activities. In general, any direct or indirect acquisition by us of any
voting shares of any bank which would result in our direct or indirect ownership or
control of more than 5% of any class of voting shares of such bank, and any merger or
consolidation between us and another bank company, will require the prior written approval
of the Federal Reserve Board under the BHCA. In acting on such applications, the Federal
Reserve Board must consider various statutory factors, including among others, the effect
of the proposed transaction on competition in relevant geographic and product markets, and
each partys financial condition, managerial resources, and record of performance
under the Community Reinvestment Act. Effective September 29, 1995, bank holding companies
may acquire banks located in any state in the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may be held by
the acquiring company and all of its insured depository institution affiliates.

The
merger or consolidation of an existing bank subsidiary of ours with another bank, or the
acquisition by such a subsidiary of assets of another bank, or the assumption of liability
by such a subsidiary to pay any deposits in another bank, will require the prior written
approval of the responsible Federal depository institution regulatory agency under the
Bank Merger Act, based upon a consideration of statutory factors similar to those outlined
above with respect to the BHCA. In addition, in certain such cases an application to, and
the prior approval of, the Federal Reserve Board under the BHCA and/or the Commissioner
under the Michigan Banking Code, may be required.

At
some point in the future we may elect to become a financial holding company.  Financial
holding companies may engage in various lending, advisory, insurance and
insurance underwriting, securities underwriting, dealing and market making, and merchant
banking activities (as well as those activities previously approved for bank holding
companies by the Federal Reserve Board) together with such other activities as may be
determined by the Federal Reserve Board (in coordination with other regulatory
authorities) to be financial in nature, incidental to any such financial activity, or
complimentary to any such financial activity, and which do not pose a substantial risk to
the safety or soundness of depository institutions or the financial system generally. In
order to maintain the benefits and flexibility of being a financial holding company, each
subsidiary depository institutions must continue to be well-capitalized
and well-managed under applicable regulatory standards and each subsidiary
depository institution must maintain at least a satisfactory or above Community
Reinvestment Act rating.

Capital
Requirements. The Federal Reserve Board uses capital adequacy guidelines in
its examination and regulation of bank holding companies. If capital falls below minimum
guidelines, a bank company may, among other things, be denied approval to acquire or
establish additional banks or non-bank businesses.

The
Federal Reserve Boards capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: (i) a leverage capital requirement
expressed as a percentage of total assets, and (ii) a risk-based requirement expressed as
a percentage of total risk-weighted assets. The leverage capital requirement consists of a
minimum ratio of Tier 1 capital (which consists principally of shareholders equity)
to total assets of 3% for the most highly rated companies, with minimum requirements of 4%
to 5% for all others. The risk-based requirement consists of a minimum ratio of total
capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital.

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The
risk-based and leverage standards presently used by the Federal Reserve Board are minimum
requirements, and higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. For example, Federal
Reserve Board regulations provide that additional capital may be required to take adequate
account of, among other things, interest rate risk and the risks posed by concentrations
of credit, nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be expected to
maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital
less all intangible assets), well above the minimum levels. The Federal Reserve Board has
not advised us of any specific minimum Tier 1 Capital leverage ratio applicable to
us.

Dividends.       
          Clarkston Financial Corporation is a corporation separate and distinct from
          Clarkston State Bank. Most of our revenues will be received by it in the form of
          dividends, if any, paid by Clarkston State Bank. Thus, our ability to pay
          dividends to our shareholders will indirectly be limited by statutory
          restrictions on the Banks ability to pay dividends, see Supervision
          and Regulation  the Bank  Dividends. Further, the Federal
          Reserve Board has issued a policy statement on the payment of cash dividends by
          bank holding companies. In the policy statement, the Federal Reserve Board
          expressed its view that a bank company experiencing earnings weaknesses should
          not pay cash dividends exceeding its net income or which can only be funded in
          ways that weakened the bank companys financial health, such as by
          borrowing. Additionally, the Federal Reserve Board possesses enforcement powers
          over bank holding companies and their non-bank subsidiaries to prevent or remedy
          actions that represent unsafe or unsound practices or violations of applicable
          statutes and regulations. Among these powers is the ability to proscribe the
          payment of dividends by banks and bank holding companies. Similar enforcement
          powers over Clarkston State Bank are possessed by the FDIC. The prompt
          corrective action provisions of federal law and regulation authorizes the
          Federal Reserve Board to restrict the payment of dividends by us for an insured
          bank which fails to meet specified capital levels.

In
addition to the restrictions on dividends imposed by the Federal Reserve Board, the
Michigan Business Corporation Act provides that dividends may be legally declared or paid
only if after the distribution a corporation, such as us, can pay its debts as they come
due in the usual course of business and its total assets equal or exceed the sum of its
liabilities plus the amount that would be needed to satisfy the preferential rights upon
dissolution of any holders of preferred stock whose preferential rights are superior to
those receiving the distribution. We are not authorized to issue preferred stock and have
no current plans to seek to authorize any preferred stock.

# Clarkston State Bank

General.       
          Clarkston State Bank is a Michigan banking corporation and its deposit accounts
          are insured by the Bank Insurance Fund (the BIF) of the FDIC. As a
          BIF-insured Michigan chartered bank, Clarkston State Bank is subject to the
          examination, supervision, reporting and enforcement requirements of the
          Commissioner, as the chartering authority for Michigan banks, and the FDIC, as
          administrator of the BIF. These agencies and the federal and state laws
          applicable to Clarkston State Bank and its operations, extensively regulate
          various aspects of the banking business including, among other things,
          permissible types and amounts of loans, investments and other activities,
          capital adequacy, branching, interest rates on loans and on deposits, the
          maintenance of non-interest bearing reserves on deposit accounts, and the safety
          and soundness of banking practices.

Deposit
Insurance. As an FDIC-insured institution, Clarkston State Bank is required
to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums, based upon their respective
levels of capital and results of supervisory evaluation. Institutions classified as
well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium
while institutions that are less than adequately capitalized (as defined by the FDIC) and
considered of substantial supervisory concern pay the highest premium. Risk classification
of all insured institutions is made by the FDIC for each semi-annual assessment period.

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The
Federal Deposit Insurance Act (FDIA) requires the FDIC to establish assessment
rates at levels which will maintain the Deposit Insurance Fund at a mandated reserve ratio
of not less than 1.25% of estimated insured deposits. Accordingly, the FDIC established
the schedule of BIF insurance assessments for the first semi-annual assessment period of
1998, ranging from 0% of deposits for institutions in the lowest risk category to .27% of
deposits for institutions in the highest risk category.

The
FDIC may terminate the deposit insurance of any insured depository institution if the FDIC
determines, after a hearing, that the institution or its directors have engaged or are
engaging in unsafe or unsound practices, or have violated any applicable law, regulation,
order, or any condition imposed in writing by, or written agreement with, the FDIC, or if
the institution is in an unsafe or unsound condition to continue operations. The FDIC may
also suspend deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.

Commissioner
Assessments. Michigan banks are required to pay supervisory fees to the
Commissioner to fund the operations of the Commissioner. The amount of supervisory fees
paid by a bank is based upon the banks total assets, as reported to the
Commissioner.

FICO
Assessments. Pursuant to federal legislation enacted September 30, 1996,
Clarkston State Bank, as a member of the BIF, is subject to assessments to cover the
payments on outstanding obligations of the Financing Corporation (FICO). FICO
was created in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the predecessor to the FDICs Savings Association Insurance
Fund (the SAIF) which insures the deposits of thrift institutions. Until
January 1, 2000, the FICO assessments made against BIF members may not exceed 20% of the
amount of FICO assessments made against SAIF members. Currently, SAIF members pay FICO
assessments at a rate equal to approximately 0.063% of deposits while BIF members pay FICO
assessments at a rate equal to approximately 0.013% of deposits. Between January 1, 2000
and the maturity of the outstanding FICO obligations in 2019, BIF members and SAIF members
will share the cost of the interest on the FICO bonds on a pro rata basis. It is
estimated that FICO assessments during this period will be less than 0.025% of deposits

Capital
Requirements. The FDIC has established the following minimum capital
standards for state-chartered, FDIC-insured non-member banks, such as the Bank: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly-rated banks with minimum requirements of 4% to 5% for all others, and a
risk-based capital requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. Tier 1
capital consists principally of shareholders equity. These capital requirements are
minimum requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. For example, FDIC
regulations provide that higher capital may be required to take adequate account of, among
other things, interest rate risk and the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. As a condition to regulatory
approval of the Banks formation, the Bank was required to have an initial
capitalization sufficient to provide a ratio of Tier 1 capital to total estimated assets
of at least 8% at the end of the third year of operation.

Federal
law provides the federal banking regulators with broad power to take prompt corrective
action to resolve the problems of undercapitalized institutions. The extent of the
regulators powers depends on whether the institution in question is well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.
Federal regulations define these capital categories as follows:

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|                                                                                                                                                        | Total Risk-Based Capital Ratio                                | Tier 1 Risk-Based Capital Ratio                               | Leverage Ratio                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------
|                                                                                                                                                        |                                                               |                                                               |                                                                                                           
|Well capitalized              
Adequately capitalized        
Undercapitalized              
Significantly undercapitalized
Critically undercapitalized | 10% or above
 8% or above
Less than 8%
Less than 6%
       -- | 6% or above 
4% or above 
Less than 4%
Less than 3%
       -- | 5% or above
4% or above
Less than 4%
Less than 3%
A ratio of tangible
equity to total assets
of 2% or less

Depending
upon the capital category to which an institution is assigned, the regulators
corrective powers include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the institution to issue
additional capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.

In
general, a depository institution may be reclassified to a lower category than is
indicated by its capital levels if the appropriate federal depository institution
regulatory agency determines the institution to be otherwise in an unsafe or unsound
condition or to be engaged in an unsafe or unsound practice. This could include a failure
by the institution, following receipt of a less-than-satisfactory rating on its most
recent examination report, to correct the deficiency.

Dividends.       
          Under Michigan law, our bank is restricted as to the maximum amount of dividends
          it may pay on its common stock. Our bank may not pay dividends except out of net
          profits after deducting its losses and bad debts. A Michigan state bank may not
          declare or pay a dividend unless the bank will have a surplus amounting to at
          least 20% of its capital after the payment of the dividend. If our bank has a
          surplus less than the amount of its capital, it may not declare or pay any
          dividend until an amount equal to at least 10% of net profits for the preceding
          one-half year (in the case of quarterly or semi-annual dividends) or full-year
          (in the case of annual dividends) has been transferred to surplus. A Michigan
          state bank may, with the approval of the Commissioner, by vote of shareholders
          owning 2/3 of the stock eligible to vote increase its capital stock by a
          declaration of a stock dividend, provided that after the increase the
          banks surplus equals at least 20% of its capital stock, as increased. Our
          bank may not declare or pay any dividend until the cumulative dividends on
          preferred stock (should any such stock be issued and outstanding) have been paid
          in full. Our banks Articles of Incorporation do not authorize the issuance
          of preferred stock and there are no current plans to seek such authorization.

Federal
law generally prohibits a depository institution from making any capital distribution
(including payment of a dividend) or paying any management fee to its company if the
depository institution would thereafter be undercapitalized. The FDIC may prevent an
insured bank from paying dividends if the bank is in default of payment of any assessment
due to the FDIC. In addition, the FDIC may prohibit the payment of dividends by the bank,
if such payment is determined, by reason of the financial condition of the bank, to be an
unsafe and unsound banking practice.

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Insider
Transactions. Our bank is subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to us or our subsidiaries, on investments
in our stock or securities of our subsidiaries and the acceptance of our stock or
securities of our subsidiaries as collateral for loans. Certain limitations and reporting
requirements are also placed on extensions of credit by our bank to its directors and
officers, to our directors and officers and our subsidiaries, to our principal
shareholders, and to related interests of such directors, officers and
principal shareholders. In addition, federal law and regulations may affect the terms upon
which any person becoming a director or officer of our company or one of our subsidiaries
or a principal shareholder of the Company may obtain credit from banks with which our bank
maintains a correspondent relationship.

Safety
and Soundness Standards. The federal banking agencies have adopted
guidelines to promote the safety and soundness of federally insured depository
institutions. These guidelines establish standards for internal controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In
general, the guidelines prescribe the goals to be achieved in each area, and each
institution will be responsible for establishing its own procedures to achieve those
goals. If an institution fails to comply with any of the standards set forth in the
guidelines, the institutions primary federal regulator may require the institution
to submit a plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution whose
failure to meet one or more of the standards is of such severity that it could threaten
the safe and sound operation of the institution. Failure to submit an acceptable
compliance plan , or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.

State
Bank Activities. Under federal law and FDIC regulations, FDIC-insured state
banks are prohibited, subject to certain exceptions, from making or retaining equity
investments of a type, or in an amount, that are not permissible for a national bank.
Federal law, as implemented by FDIC regulations, also prohibits FDIC-insured state banks
and their subsidiaries, subject to certain exceptions, from engaging as principal in any
activity that is not permitted for a national bank or its subsidiary, respectively, unless
the bank meets, and continues to meet, its minimum regulatory capital requirements and the
FDIC determines the activity would not pose a significant risk to the deposit insurance
fund of which the bank is a member. Impermissible investments and activities must be
divested or discontinued within certain time frames set by the FDIC in accordance with
federal law. These restrictions are not currently expected to have a material impact on
the operations of our bank.

Consumer
Protection Laws. Our banks business includes making a variety of
types of loans to individuals. In making these loans, we are subject to State usury and
regulatory laws and to various federal statutes, including the privacy of consumer
financial information provisions of the Gramm-Leach-Bliley Act and regulations promulgated
thereunder, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage Disclosure
Act, and the regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and regulate
the mortgage loan servicing activities of our bank, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, our bank is subject to extensive regulation under State and federal law and
regulations, including the Truth in Savings Act, the Expedited Funds Availability Act, the
Bank Secrecy Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance
Act. Violation of these laws could result in the imposition of significant damages and
fines upon our bank and its directors and officers.

11

---



Branching
Authority. Michigan banks, such as our bank, have the authority under
Michigan law to establish branches anywhere in the State of Michigan, subject to receipt
of all required regulatory approvals (including the approval of the Commissioner and the
FDIC).

Effective
June 1, 1997 (or earlier if expressly authorized by applicable state law), the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the IBBEA) allows
banks to establish interstate branch networks through acquisitions of other banks, subject
to certain conditions, including certain limitations on the aggregate amount of deposits
that may be held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the acquisition of
individual branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by IBBEA only if specifically authorized by
state law. The legislation allowed individual states to opt-out of interstate
branching authority by enacting appropriate legislation prior to June 1, 1997.

Michigan
did not opt out of IBBEA, and now permits both U.S. and non-U.S. banks to establish branch
offices in Michigan. The Michigan Banking Code permits, in appropriate circumstances and
with the approval of the Commissioner, (i) the acquisition of all or substantially all of
the assets of a Michigan-chartered bank by an FDIC-insured bank, savings bank, or savings
and loan association located in another state, (ii) the acquisition by a
Michigan-chartered bank of all or substantially all of the assets of an FDIC-insured bank,
savings bank or savings and loan association located in another state, (iii) the
consolidation of one or more Michigan-chartered banks and FDIC-insured banks, savings
banks or savings and loan associations located in other states having laws permitting such
consolidation, with the resulting organization chartered by Michigan, (iv) the
establishment by a foreign bank, which has not previously designated any other state as
its home state under the International Banking Act of 1978, of branches located in
Michigan, and (v) the establishment or acquisition of branches in Michigan by FDIC-insured
banks located in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting Michigan-chartered banks to establish branches in
such jurisdiction. Further, the Michigan Banking Code permits, upon written notice to the
Commissioner, (i) the acquisition by a Michigan-chartered bank of one or more branches
(not comprising all or substantially all of the assets) of an FDIC-insured bank, savings
bank or savings and loan association located in another state, the District of Columbia,
or a U.S. territory or protectorate, (ii) the establishment by Michigan-chartered banks of
branches located in other states, the District of Columbia, or U.S. territories or
protectorates, and (iii) the consolidation of one or more Michigan-chartered banks and
FDIC-insured banks, savings banks or savings and loan associations located in other
states, with the resulting organization chartered by one of such other states.

12

---



# ITEM 2: Description of
Property.

In
June 2002, the bank purchased its building located at 15 South Main Street in downtown
Clarkston, Michigan from an entity owned by the directors at a price representative of
fair value of $650,000 for use as the banks main office and headquarters. This
building consists of approximately 3,890 square feet. The building was formerly a branch
of a large regional bank and has been a bank branch since 1911. The building has a night
deposit box, safe deposit boxes and a complete security system, and has an ATM machine. We
believe that this space will be adequate for our present needs.

Prior
to its acquisition by the Bank, the building was leased at a price and terms consistent
with those available from unrelated parties from the entity owned by eight of the
Banks directors. See Item 12 Certain Relationships and Related
Transactions. The lease for the Banks office had an initial term of five years
with three renewal options of five years each. The monthly lease payments were $5,000 per
month for the first two years and thereafter $5,250 per month. Pursuant to the lease
agreement, the Bank was also required to make payments for taxes, insurance and other
operating expenses.

Our
bank leases space for our branch offices in Farmer Jacks grocery stores at 6555
Sashabaw Road and 7121 Dixie Highway, both in Clarkston, Michigan, at a rental rate of
$2,750 per month under leases which run until July 2005 and October 2006, respectively.

On
June 15, 2001, the bank opened its Waterford branch office on M-59 adjacent to the Oakland
Pontiac Airport. On December 13, 2004 the bank opened its fifth full service branch office
at 5800 S. Main Street in Clarkston, Michigan. The bank leases the land on which the
branch is located under a lease agreement with a 25 year term requiring monthly payments
of $5,250 through October of 2008, with the monthly payment amount adjusting every 5 years
thereafter according to changes in the Consumer Price Index.

We
believe our facilities are well-maintained and adequately insured.

# ITEM 3: Legal
Proceedings.

As
the date hereof, there were no pending material legal proceedings.

# ITEM 4: Submission of
Matters to a Vote of Security Holders.

No
matters were submitted during the fourth quarter of 2004 to a vote of our stockholders.

13

---



# PART II

# ITEM 5: Market for
Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity
Securities.

Our
common stock has traded in the over-the-counter market since the completion of our initial
public offering in November 1998. High and low bid prices, as reported on the OTC Bulletin
Board are as follows for the periods indicated:

|                                         | High | Low
|---------------------------------------- | ---- | ---
|                                         |      |    
|2004                                     |      |    
|First Quarter . . . . . . . . . . .      |      |    
|Second Quarter . . . . . . . . . . . . . |      |    
|Third Quarter . . . . . . . . . . . . .  |      |    
|Fourth Quarter . . . . . . . . . . . . . |      |    
|                                         |      |    
|2003                                     |      |    
|First Quarter . . . . . . . . . . .      |      |    
|Second Quarter . . . . . . . . . . . .   |      |    
|Third Quarter . . . . . . . . . . . . .  |      |    
|Fourth Quarter . . . . . . . . . . . . . |      |    

These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. On March 15, 2005, there were approximately
314 owners of record and approximately 620 additional beneficial owners of our common stock.

No
cash dividends have been declared to date on our common stock. We expect that all
earnings, if any, will be retained to finance our growth and that no cash dividends will
be paid for the foreseeable future. If and when dividends are declared, we will be
dependent upon dividends paid to us by the bank for funds to pay dividends on the common
stock.

# ITEM 6:
          Management's Discussion and Analysis of Financial Condition and Results of
Operations.

The
information set forth in Appendix A, under the caption Managements Discussion
and Analysis of Financial Condition and Results of Operations of our definitive
Proxy Statement with respect to our May 10, 2005 Annual Shareholders Meeting is hereby
incorporated by reference and is filed as Exhibit 13 to this Form 10-KSB Annual Report.

# ITEM 7: Financial
Statements.

The
information set forth in Appendix A, under the caption Consolidated Financial
Statements, of our definitive Proxy Statement with respect to our May 10, 2005
Annual Shareholders Meeting, is hereby incorporated by reference and is filed as Exhibit
13 to this Form 10-KSB Annual Report.

14

---



# ITEM 8:  Changes in and
Disagreements With Accountants on Accounting and Financial Disclosure.

There
have been no disagreements with our independent public accountants.

# ITEM 8A: Controls and
Procedures.

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

| | (b) | Changes in Internal Controls. There were no significant changes in the
               companys internal controls over financial reporting during the fiscal
               quarter ended December 31, 2004, that have materially affected, or are
               reasonably likely to materially affect, the companys internal control over
               financial reporting.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 8B: Other Information.

| | None.
| | -----

15

---



# PART III

# ITEM 9: Directors and
Executive Officers of the Registrant.

The
information set forth under the caption Information About Directors of our
definitive Proxy Statement with respect to our May 10, 2005 Annual Shareholders Meeting
and the information within that section is hereby incorporated by reference. There are no
family relationships between or among the directors and executive officers. There are no
arrangements or understandings between or among the executive officers pursuant to which
any of them was named an officer.

Our
common stock is not registered under the Securities Exchange Act of 1934, and therefore
our officers and directors are not required to and do not file beneficial ownership
reports pursuant to Section 16(a) of the Securities Exchange Act of 1934.

We
have adopted a Senior Officer Code of Ethics. A copy of our Senior Officer Code of Ethics
is available upon request.

# ITEM 10: Executive
Compensation.

Information
relating to compensation of our executive officers and directors is contained under the
captions Compensation of Directors and Executive Compensation, in
our definitive Proxy Statement with respect to our May 10, 2005 Annual Shareholders
Meeting and the information within those sections is incorporated herein by reference.

# ITEM 11:
         Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

Information
relating to security ownership of certain beneficial owners and management is contained
under the captions Security Ownership of Management, Voting Securities
and Principal Holders Thereof and Information About Directors in our
definitive Proxy Statement with respect to our May 10, 2005 Annual Shareholders Meeting
and the information within those sections is incorporated herein by reference.

The following table sets forth
certain information regarding the Companys equity compensation plans as of
December 31, 2004.

|                    | Equity Compensation Plan Information
|------------------- | ------------------------------------
|                    |                                     
|                    |                                     
|                    |                                     
|Equity compensation |                                     
|plans approved by   |                                     
|security holders    |                                     
|Equity compensation |                                     
|plans not approved  |                                     
|by security holders |                                     
|Total               |                                     

(1) We had not granted
warrants or rights applicable to this chart.

16

---



# ITEM 12: Certain
Relationships and Related Transactions.

Information
relating to certain relationships and related transactions is contained under the caption
Transactions Involving Management in our definitive Proxy Statement with
respect to our May 10, 2005 Annual Shareholders Meeting and the information within that
section is incorporated herein by reference.

# ITEM 13: Exhibits and
Financial Statements.

| | Financial
Statements.
| | ---------------------

| | 1. | The
following documents are filed as part of Item 7 of this report:
| | -- | -------------------------------------------------------------------

| | Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the year ended December 31, 2004, 2003 and 2002
Consolidated Statements of Changes in Stockholders' Equity for the year ended
         December 31, 2004, 2003 and 2002
Consolidated Statement of Cash Flows for the year ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Schedules
to the consolidated  financial  statements  required by Article 9 of Regulation S-X are
                  not  required  under the  related  instructions  or are  inapplicable,
 and  therefore  have been                   omitted.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The
 following  exhibits  are  filed as part of this  report:  Reference  is made to the
 exhibit                   index which follows the signature page of this report.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
 Registrant  will  furnish  a copy  of  any  exhibits  listed  on the  Exhibit  Index  to
any                   shareholder of the Registrant  without charge upon written  request
of J. Grant Smith,  Clarkston                   Financial Corporation, 15 South Main
Street, Clarkston, Michigan 48346.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 14: Principal
Accountant Fees and Services.

Information
relating to principal accountant fees and services is contained under the caption
Principal Accounting Fees and Services in our definitive Proxy Statement with
respect to our May 10, 2005 Annual Shareholders Meeting and the information within
that section is incorporated herein by reference.

17

---



# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, dated March 18, 2005.

| |  | CLARKSTON FINANCIAL CORPORATION/s/ Edwin L. Adler
Edwin L. AdlerChief Executive Officer (PrincipalExecutive Officer)/s/ J. Grant Smith
J. Grant SmithChief Financial  Officer  (Principal  Financial and Accounting Officer)
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below on March 18, 2005, by the following persons on behalf of the Registrant and in the
capacities indicated. Each director of the Registrant, whose signature appears below,
hereby appoints Dawn M. Horner and J. Grant Smith, and each of them severally, as his
attorney-in-fact, to sign in his or her name and on his or her behalf, as a director of
the Registrant, and to file with the Commission any and all Amendments to this Report on
Form 10-KSB.

|Signature | 
|--------- | 

|/s/ Edwin L. Adler
Edwin L. Adler, Chairman of the Board and a Director | March 18, 2005
|------------------------------------------------------------------------------------ | --------------

|/s/ Louis D. Beer
Louis D. Beer, Director | March 18, 2005
|------------------------------------------------------ | --------------

|/s/ William J. Clark
William J. Clark, Director | March 18, 2005
|------------------------------------------------------------ | --------------

|/s/ Charles L. Fortinberry
Charles L. Fortinberry, Director | March 18, 2005
|------------------------------------------------------------------------ | --------------

|/s/ Thomas E. Kimble
Thomas E. Kimble, Director | March 18, 2005
|------------------------------------------------------------ | --------------

|/s/ Bruce H. McIntyre
Bruce H. McIntyre, Secretary and a Director | March 18, 2005
|------------------------------------------------------------------------------ | --------------

|/s/ John H. Welker
John H. Welker, Director | March 18, 2005
|-------------------------------------------------------- | --------------

18

---



# EXHIBIT INDEX

| | Exhibit Number and Description | SequentiallyNumberedPage
| | ------------------------------ | ------------------------

|3.1 | Articles
of Incorporation of Clarkston Financial  Corporation,  incorporated by
                  reference to Exhibit 3.1 to the Clarkston  Financial  Corporation
 Registration                   Statement on Form SB-2 (Registration No. 333-63685).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Bylaws
 of  Clarkston  Financial  Corporation,  incorporated  by  reference  to
                  Exhibit 3.2 to the Clarkston Financial  Corporation  Registration
 Statement on                   Form SB-2 (Registration No. 333-63685).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Specimen
stock certificate of Clarkston Financial Corporation,  incorporated by
                  reference  to Exhibit 4 to the  Clarkston  Financial  Corporation
 Registration                   Statement on Form SB-2 (Registration No. 333-63685).
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Clarkston
 Financial  Corporation  Stock  Compensation  Plan,  incorporated  by
                  reference to Exhibit 10.1 to the Clarkston Financial  Corporation
 Registration                   Statement on Form SB-2 (Registration No. 333-63685).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Clarkston
 Financial  Corporation  1998 Founding  Directors  Stock Option Plan,
                  incorporated   by  reference  to  Exhibit  10.2  to  the  Clarkston
  Financial                   Corporation Registration Statement on Form SB-2
(Registration No. 333-63685).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Lease
Agreement dated September 10, 1998, for the facility located at 15 South Main Street,
Clarkston, Michigan, 48346, incorporated by reference to Exhibit 10.3 to the Clarkston
Financial Corporation Registration Statement on Form SB-2 (Registration No. 333-63685).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Data
 Processing  Agreement  between  Jack  Henry and  Associates,  Inc.  And  Clarkston
 State Bank dated October, 1998, incorporated by reference to Exhibit 10.4 to the
Clarkston Financial Corporation Registration Statement on form SB-2 (Registration No.
333-63685).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Lease
 between  Clarkston  State  Bank  and  Foodtown,  Inc.,  incorporated  by
                  reference  to  Exhibit  10 to the  Clarkston  Financial  Corporation
 Quarterly                   Report on Form 10-QSB for the quarter ended June 30, 1999.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---



|10.6 | Form
of  Management  Continuity  Agreement  is  incorporated  by  reference  to
                  Exhibit 10.6 to the Annual Report on Form 10-K for the year ended
 December 31,                   2003.  Clarkston Financial  Corporation has entered into
Management  Continuity                   Agreements with Ms. Dawn Horner,  Mr. James
Jeszke and Mr. J. Grant Smith.  The                   Agreements  provide  for a
 severance  benefit  equal to one year's  salary and                   bonus in the case
of Mr.  Jeszke and Mr. Smith and two year's  salary and bonus                   in the
case of Ms. Horner.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Form
of Restricted Stock Agreement under the Clarkston Financial Corporation Stock
Compensation Plan.
|---- | -----------------------------------------------------------------------------------------------------

|10.8 | Clarkston
Financial Corporation Employee Stock Purchase Plan.
|---- | -------------------------------------------------------------

|13 | Appendix
A of the Proxy Statement to shareholders for the May 10, 2005, shareholders meeting. This
exhibit, except for those portions expressly incorporated by reference in this filing, is
furnished for the information of the Securities and Exchange Commission and is not deemed
filed as part of this filing.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of the Registrant
|-- | ------------------------------

|23 | Consent
of Plante & Moran PLLC, independent registered public accountanting firm
|-- | --------------------------------------------------------------------------------

|24 | Power
of  Attorney  (included  on the  signature  page on page 18 of the Annual
                  Report on Form 10-KSB)
|-- | ------------------------------------------------------------------------------------------------------------------------

|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 of Clarkston Financial Corporation pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Certificate
of the Chief Financial Officer of Clarkston Financial Corporation pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------

20

---



# Exhibit 10.7

| | Employee: ____________________________________________         
Number of Shares: ______________________________________         
Date of Award: ________________________________________         
Per share fair market value on grant date: ____________________         
Restrictions lapse on the Dates and as to the number of shares 
set forth below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Date
________, 200__  
________, 200__  
________, 200__ |  | Number of Shares____________________
____________________
____________________
| | -------------------------------------------------------- |  | ------------------------------------------------------------------------------

---

# RESTRICTED STOCK
AGREEMENT

This
Restricted Stock Agreement (Agreement) is made as of the award date set forth
above, between CLARKSTON FINANCIAL CORPORATION, a Michigan corporation
(Clarkston or the Company), and the employee named above
(Employee). The Employee is employed by Clarkston State Bank, a wholly-owned
subsidiary of the Company.

The
Clarkston Financial Corporation Stock Compensation Plan (the Plan) is
administered by the Compensation Committee of Clarkston Financial Corporations Board
of Directors (the Committee). The Committee has determined that Employee is
eligible to participate in the Plan. The Committee has awarded restricted stock to
Employee, subject to the terms and conditions contained in this Agreement and in the Plan.

Employee
acknowledges receipt of a copy of the Plan and accepts this restricted stock award subject
to all of the terms, conditions, and provisions of this Agreement and the Plan.

1.       
          Award. Clarkston Financial Corporation hereby awards to Employee shares
          of Clarkston Financial Corporations common stock, no par value, as set
          forth above, and subject to restrictions imposed under this Agreement and the
          Plan (Restricted Stock).

---



2.       
          Transferability. Until the restrictions lapse as to shares of Restricted
          Stocks at the dates set forth above, the Restricted Stock granted under this
          Agreement is not transferable by Employee except (a) to the Company in the event
          of Employees death or disability, or (b) by will or according to the laws
          of descent and distribution. If during the Restricted Period Employee assigns,
          pledges, transfers, or otherwise disposes of the Restricted Stock, voluntarily
          or involuntarily, except as permitted by this Agreement or the Plan, Employee
          shall lose all rights to the Restricted Stock, and all Restricted Stock shall
          promptly be surrendered to the Company. Clarkston Financial Corporation shall
          place an appropriate legend upon any certificate representing shares of
          Restricted Stock awarded under this Agreement.

3.       
          Lapsing of Restrictions. Except as otherwise provided in this Agreement,
          the restrictions imposed on the shares of Restricted Stock awarded pursuant to
          this Agreement shall lapse on the dates set forth above. The period during which
          the Restricted Stock is subject to restrictions imposed by the Plan and under
          this Agreement shall be known as the Restricted Period.

4.       
          Securities Laws. Employee hereby represents and warrants that Employee is
          acquiring the Restricted Stock award under this Agreement for Employees
          own account and investment and without any intent to resell or distribute the
          Restricted Stock. Employee shall not resell or distribute the Restricted Stock
          after the Restricted Period except in compliance with such conditions as
          Clarkston Financial Corporation may reasonably specify to ensure compliance with
          federal and state securities laws.

5.       
          Termination of Employment.

| | (a)       
               General. Employees right to the shares of Restricted Stock awarded
               under this Agreement as to which the restrictions have not lapsed shall cease
               and terminate immediately upon Employees termination of employment with
               Clarkston Financial Corporation or any of its subsidiaries during the Restricted
               Period for any reason other than Employees death or disability.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
               Death or Disability. In the event Employee terminates employment during
               the Restricted Period because of death or disability, Employees right to
               the Restricted Stock shall vest as of the termination date, and Employee may
               then transfer the shares free of restrictions under the Plan or this Agreement,
               except for restrictions specified by the Company to ensure compliance with
               federal and state securities laws.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.       
          Corporate Changes. In the event of any stock dividend, stock split,
          recapitalization, merger, consolidation, combination, or exchange of shares, the
          aggregate number and class of shares awarded under this Agreement are subject to
          adjustment as provided in the Plan. No fractional shares shall be issued, and
          any fractional shares resulting from adjustments shall be eliminated, with an
          appropriate cash adjustment. The Restricted Stock shall vest upon the occurrence
          of a Change in Control, and the shares may be transferred free of the
          restrictions under the Plan and this Agreement, except for restrictions that the
          Company may reasonably specify to ensure compliance with federal and state
          securities laws; provided, however, that if the vesting, when considered
          with all payments and benefits from the Company to Employee, constitutes a
          parachute payment under Section 280G(b)(2) of the Code, then
          Employees rights to the Restricted Stock shall vest only to the extent
          that the aggregate present value of all payments and benefits in the nature of
          compensation to which Section 280G(b)(2) applies does not exceed two hundred
          ninety-nine percent of Employees Average Annual Compensation.



---



7.       
          Employment by Clarkston Financial Corporation. The award of Restricted
          Stock under this Agreement shall not interfere with or limit in any way the
          right of the Company or any of its subsidiaries to terminate Employee at any
          time or confer upon Employee any right to continue in the employ of the Company
          or any of its subsidiaries.

8.       
          Shareholder Rights. During the Restricted Period, Employee shall have all
          rights of a shareholder with respect to the Restricted Stock, including (a) the
          right to vote any shares at shareholders meetings, (b) the right to
          receive, without restriction, all cash dividends paid with respect to the
          Restricted Stock, and (c) the right to participate with respect to the
          Restricted Stock in any stock dividend, stock split, recapitalization, or other
          adjustment in the common stock of the Company or any merger, consolidation, or
          other reorganization involving an increase or decrease or adjustment in the
          Companys common stock. Any new, additional, or different shares or other
          security received by Employee pursuant to any stock dividend, stock split,
          recapitalization, or reorganization shall be subject to the same terms,
          conditions, and restrictions as those relating to the Restricted Stock for which
          such shares were received. After the Restricted Stock vests, Employee shall have
          all shareholder rights, including the right to transfer the shares, subject to
          such conditions as the Company may reasonably specify to ensure compliance with
          federal and state securities laws.

9.       
          Withholding. The Company or a subsidiary shall make such provisions as it
          deems appropriate for the withholding of any taxes determined to be required to
          be withheld in connection with the award of Restricted Stock to Employee or the
          lapse of restrictions. Withholding may be satisfied by delivery to the Company
          of previously owned common stock.

10.       
          Effective Date. This award of Restricted Stock shall be effective as of
          the date first set forth above.

11.       
          Amendment. This Agreement shall not be modified except in a writing
          executed by the parties hereto.

12.       
          Plan Controls. The Plan is incorporated in this Agreement by reference.
          Capitalized terms not defined in this Agreement shall have those meanings
          provided in the Plan. In the event of any conflict between the terms of this
          Agreement and the terms of the Plan, the provisions of the Plan shall control.



---



This
Restricted Stock has been awarded by Clarkston Financial Corporation by authority of its
Compensation Committee.

| |  | CLARKSTON FINANCIAL CORPORATIONBy      EMPLOYEE

Signature
Print Name
| |  | -------------------------------------------------------------------------------------------------------------------

Note to
Employees: Important tax consequences are determined by whether the
Employee receiving a Restricted Stock award files an election with the Internal Revenue
Service pursuant to Section 83 of the Internal Revenue Code of 1986, as amended. By
signing this Restricted Stock Agreement Employee agrees that he or she is not relying on
the Company for any tax advice.



---



# Exhibit 10.8

# CLARKSTON FINANCIAL
CORPORATION

# EMPLOYEE STOCK
PURCHASE PLAN

1.       
          Purpose. The purpose of the Clarkston Financial Corporation
          Employee Stock Purchase Plan (the Plan) is to provide employees of
          Clarkston Financial Corporation (the Company) and the Companys
          subsidiaries with a further inducement to continue their employment with the
          Company and to encourage such employees to increase their efforts to promote the
          best interests of the Company by permitting them to purchase shares of common
          stock, no par value per share (the Shares) of the Company, at a
          price less than the market price, under such circumstances that the purchase
          qualifies as the exercise of an option granted under an employee stock purchase
          plan, as defined by Section 423 of the Internal Revenue Code of 1986, as amended
          (the Code).

2.       
          Administration. The Plan shall be administered by a
          committee appointed by the Board of Directors of the Company (the
          Committee). The Committee shall consist of not less than three (3)
          members who are not eligible to participate in the Plan. The Board of Directors
          may from time to time remove members from, or add members to, the Committee.
          Vacancies on the Committee shall be filled by the Board of Directors. The
          Committee may establish from time to time such regulations, provisions and
          procedures, within the terms of the Plan, as in the opinion of its members may
          be advisable in the administration of the Plan. The Committee shall keep minutes
          of its meetings. A majority of the Committee shall constitute a quorum, and the
          acts of a majority of the members present at any meeting at which a quorum is
          present, or acts reduced to or approved in writing by a majority of the members
          of the Committee, shall be the valid acts of the Committee. The interpretation
          and construction by the Committee of any provisions of the Plan shall be final
          and conclusive. Each person who is or shall have been a member of the Committee
          shall be indemnified and held harmless by the Company from and against any cost,
          liability, or expense imposed or incurred in connection with such persons
          or the Committees taking or failing to take any action under the Plan.
          Each such person may rely on information furnished in connection with the
          Plans administration by any appropriate person or persons.

3.       
          Eligibility. Participation under the Plan shall be open to
          all active employees (the Eligible Employees) of the Company or a
          subsidiary of the Company except: (a) employees who have not been continuously
          employed by the Company or a subsidiary of the Company on a full-time basis for
          at least 12 months at the beginning of an Option Period (as hereinafter
          defined); (b) employees whose customary employment by the Company or a
          subsidiary of the Company is for less than 20 hours per week; and (c) employees
          whose customary employment is less than five months in a calendar year. The
          exceptions providing that certain active employees are not Eligible Employees
          shall be interpreted in the Companys discretion and the Company may
          provide that once an active employee is an Eligible Employee that such person
          will remain an Eligible Employee as long as he or she remains an employee. No
          option rights shall be granted under the Plan to any person who is not an
          Eligible Employee, and no Eligible Employee shall be granted option rights under
          the Plan: (a) if such employee, immediately after receiving the grant of such
          option rights under the Plan, owns (under the rules of Section 423(b)(3) and
          424(d) of the Code) stock possessing five percent (5%) or more of the total
          combined voting power or value of all classes of stock of the Company; or (b)
          which permit such employee to purchase Shares under this Plan and any other
          employee stock purchase plan of the Company (but not an incentive stock option
          plan) at option prices aggregating more than Twenty Thousand Dollars ($20,000)
          of the purchase price of the shares (determined at the time the respective
          options are granted) in any one calendar year and, notwithstanding anything to
          the contrary, in no event may such option rights accrue at a rate which exceeds
          that permitted by Section 423(b) (8) of the Code.

---



4.       
          Shares Available for Plan. Purchases of Shares pursuant to
          this Plan may be made out of the Companys presently or hereafter
          authorized but unissued Shares, or from outstanding Shares, or partly out of
          each, as determined by the Board of Directors. The maximum number of Shares
          which may be purchased under the Plan is fifty thousand (50,000) Shares,
          subject, however, to adjustment as hereinafter set forth. In the event the
          Company shall, at any time after the effective date of the Plan, change its
          issued Shares into an increased number of Shares, with or without par value,
          through a stock dividend or stock split, or into a decreased number of Shares,
          with or without par value, through a combination of Shares, then effective with
          the record date for such change, the maximum number of Shares which thereafter
          may be purchased under the Plan shall be the maximum number of Shares which,
          immediately prior to such record date, remained available for purchase under the
          Plan, proportionately increased, in the case of such stock dividend or split, or
          proportionately decreased, in the case of such combination of Shares. In the
          event of any other change affecting Shares, such adjustment shall be made as may
          be deemed equitable by the Board of Directors to give proper effect to such
          event.

5.       
          Effective Dates. This Plan shall become effective on
          February 18, 2005, provided that the Plan is subsequently approved, at a
          duly called meeting (or any adjournment thereof) of the shareholders of the
          Company not later than the first anniversary of adoption of the Plan by the
          Board of Directors. The first Option Period under the Plan shall
          commence on July 1, 2005, and end on September 30, 2005.
          Thereafter, as long as the Plan remains in effect, a new Option
          Period shall commence on the first day of each calendar quarter year and
          end on the last day of each such calendar quarter year.

6.       
          Participation. An employee of the Company or a subsidiary
          of the Company who is an Eligible Employee at or prior to the first day of any
          Option Period may become a Participant as of such date by at least seven (7)
          days prior to such date, completing and delivering a payroll deduction
          Authorization Form (the Authorization) to the Companys payroll
          department. The Authorization will direct a regular payroll deduction from the
          Participants compensation to be made on each of the Participants pay
          dates occurring during each Option Period in which he or she is a Participant.

7.       
          Payroll Deductions. The Company or the appropriate
          subsidiary of the Company will maintain payroll deduction accounts for all
          employees who are Participants and who have filed Authorizations for Payroll
          Deduction. Payments made by Participants shall be credited to the
          Participants Stock Purchase Account (the Purchase Account). No
          amounts other than payroll deductions authorized under this Plan may be credited
          to a Participants Purchase Account. Subject to Section 3 above, a
          Participant may authorize a payroll deduction in any amount not less than Ten
          Dollars ($10) for each pay period, but not more than a maximum of fifteen
          percent (15%) of the Participants regular wages (not including any
          bonuses), before withholding or other deduction, with respect to which payments
          are to be made to him or her by the Company on such pay date. In no event shall
          payments of any kind for credit to a Purchase Account by or on behalf of any
          Participant aggregate more than Ten Thousand Dollars ($10,000) by payroll
          deduction in any calendar year.

---



8.       
          Changes in Payroll Deduction. Payroll deductions shall be
          made for each Participant in accordance with the Participants
          Authorization and shall continue until the Participants participation
          terminates, the Authorization is revised or revoked, or the Plan terminates. A
          Participant may, as of the beginning of any Option Period, increase or decrease
          the Participants payroll deduction within the limits specified in Section
          7 by filing a new Authorization at least seven (7) days prior to the beginning
          of such Option period.

9.       
          Termination of Participation-Withdrawal of Funds. A
          Participant may for any reason and at any time, on written notice given to the
          Company prior to the Participants last pay date in any Option Period,
          elect to terminate his or her participation in the Plan and permanently draw out
          the balance accumulated in his or her Purchase Account. Upon any such
          termination by a Participant, he or she shall cease to be a Participant, his or
          her Authorization shall be revoked effective upon receipt, and the amount to his
          or her credit in his or her Purchase Account (exclusive of accounts payable in
          respect of the exercise of any option to purchase Shares theretofore granted
          under the Plan), as well as any unauthorized payroll deductions made after such
          revocation, shall be promptly refunded in cash to the former Participant. An
          Eligible Employee who has thus terminated participation in the Plan may
          thereafter begin participation in the Plan again only after the expiration of
          three of the Companys full fiscal quarters after such termination and
          withdrawal of funds occurred. Partial withdrawals of funds shall not be
          permitted.

10.       
          Purchase of Shares. During each Option Period while this
          Plan remains in effect, each Participant shall be granted an option as of the
          last business day of such Option Period for the purchase of as many full Shares,
          but not less than one (1) full share, as may be purchased with the funds in his
          or her Purchase Account. This election shall be automatically made as provided
          in this Section unless the Participant terminates participation as provided in
          Section 9. The purchase price for each Share purchased shall be ninety-five
          percent (95%) of the fair market value of a Share on the last day of the Option
          Period (the Purchase Date), where fair market value means the
          closing sale price reported on the OTC Bulletin Board on the Purchase Date or on
          such other stock exchange or quotation system on which the Shares are then
          listed or quoted. If such percentage results in a fraction of a cent, the
          purchase price shall be increased to the next higher full cent. If, as of each
          Purchase Date, the Participants Purchase Account contains sufficient funds
          to purchase at least one (1) or more full Share(s), the Participant shall be
          deemed to have exercised an option to purchase any such Share(s) at the purchase
          price; the Participants Purchase Account shall be charged for the amount
          of the purchase; and an entry shall be made to the Participants account.
          As of each subsequent Purchase Date when sufficient funds have again accrued in
          the Participants Purchase Account to purchase one (1) or more Share(s),
          Share(s) will be purchased in the same manner. Any balance remaining in a
          Participants Purchase Account after a Purchase Date will be carried
          forward into the following Option Period. Notwithstanding the foregoing, any
          balance remaining in a Purchase Account at the termination of the Plan will be
          automatically refunded to the Participant in accordance with Section 17.

---



11.       
          Registration of Certificates. Upon the request of a
          Participant during participation in the Plan, and upon a Participants
          termination of participation, a stock certificate representing the full number
          of shares of Stock owned by such Participant under the Plan shall be issued and
          delivered to the Participant. Fractional share interests shall be paid in cash
          to the Participant. Certificates may be registered only in the name of the
          Participant or the names of the Participant and his or her spouse.

12.       
          Rights as a Shareholder. None of the rights or privileges
          of a shareholder of the Company shall exist with respect to Shares purchased
          under this Plan unless and until certificates representing such Shares shall
          have been issued.

13.       
          Rights on Retirement, Death or Termination of Employment.
          In the event of a Participants retirement, death or termination of
          employment, no payroll deduction shall be taken from any pay due and owing to a
          Participant at such time, and the balance in the Participants Purchase
          Account shall be paid to the Participant or, in the event of the
          Participants death, to the Participants estate.

14.       
          Rights Not Transferable. Rights under this Plan are not
          transferable by a Participant and are exercisable only by the Participant during
          his or her lifetime.

15.       
          Application of Funds. All funds received or held by the
          Company under this Plan may be commingled with other funds and may be used by
          the Company for any corporate purpose.

16.       
          Amendment of the Plan. The Board of Directors of the
          Company may at any time, or from time to time, amend this Plan in any respect,
          except that, without the approval of the Companys shareholders, no
          amendment shall be made: (a) increasing the number of Shares approved for this
          Plan (other than as provided in Section 4); (b) decreasing the Purchase Price
          per Share; (c) changing the eligibility requirements for participation in this
          Plan; or (d) which would render options granted under the Plan unqualified for
          special tax treatment under the Code.

17.       
          Termination of the Plan.Unless sooner terminated as hereinafter
          provided, this Plan shall terminate on February 18, 2015. The Company may, by
          action of its Board of Directors, terminate the Plan at any time. Notice of
          termination shall be given to all then Participants, but any failure to give
          such notice shall not impair the termination. Upon termination of the Plan, all
          amounts in Purchase Accounts of Participants shall be promptly refunded.

---



18.       
          Governmental Regulations. The Companys obligation to
          sell and deliver Shares under this Plan is subject to the approval of any
          governmental authority required in connection with the authorization, issuance,
          or sale of such Shares. If, at any time, Shares deliverable hereunder are
          required to be registered or qualified under any applicable law, or delivery of
          such Shares is required to be accompanied or preceded by a prospectus or similar
          circular, delivery of certificates for such Shares may be deferred for a
          reasonable time until such registrations or qualifications are effected or such
          prospectus or similar circular is available.

# CERTIFICATION

The
foregoing Plan was duly adopted by the Board of Directors on the 18th day of February,
2005, subject to approval by the Companys shareholders.

| |  | /s/ Bruce McIntyre
Bruce McIntyreSecretaryClarkston Financial Corporation
| |  | ---------------------------------------------------------------------------------------

---



# Exhibit 13

APPENDIX A

|                                                                                      | 
|------------------------------------------------------------------------------------- | 
|Management's Discussion and Analysis of Financial Condition and Results of Operations | 
|                                                                                      | 
|Report of Independent Registered Public Accounting Firm                               | 
|                                                                                      | 
|Consolidated Financial Statements                                                     | 
|                                                                                      | 
|Consolidated Balance Sheet                                                            | 
|                                                                                      | 
|Consolidated Statement of Income                                                      | 
|                                                                                      | 
|Consolidated Statement of Changes in Stockholders' Equity                             | 
|                                                                                      | 
|Consolidated Statement of Cash Flows                                                  | 
|                                                                                      | 
|Notes to Consolidated Financial Statements                                            | 
|                                                                                      | 

A-1

---



# MANAGEMENTS
DISCUSSION AND ANALYSIS OF THECOMPANYS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements
discussion and analysis of the financial condition and results of operations contains
forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Actual results could differ materially from those projected in such
forward-looking statements.

The
following section presents additional information to assess the financial condition and
results of operations of the Corporation and Bank. This section should be read in
conjunction with the consolidated financial statements and the supplemental financial data
contained elsewhere in this Appendix.

# Overview

Clarkston
Financial Corporation (the Company) is a Michigan corporation, which was
incorporated on May 18, 1998. The Company is the bank holding company for the Clarkston
State Bank (the Bank). The Bank commenced operations on January 4, 1999. The
Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit
Insurance Corporation. The Bank provides a full range of commercial and consumer banking
services, primarily to consumers and businesses in North Oakland County, Michigan.

The
Companys plan of operation has been to establish a traditional community bank and a
management team that understands and is devoted to serving this market. This plan further
focused on managing the assets of the Bank in a prudent and responsible manner providing
prompt customer attention and quality customer service. Management believes it has been
successful in establishing such a culture and will continue to emphasize this growth plan
in the future.

The
Company has grown significantly during its first five years of operations and as of
December 31, 2004, had total assets of $163.4 million, a 14.6% increase over December 31,
2003. In December of 2003, the Company raised $4.0 million in trust preferred securities
to provide additional capital for future growth. We believe that our community bank model
coupled with a culture that fosters excellent customer service and tight expense controls
will provide future opportunities to grow the Company into the future.

# Critical Accounting
Policies

Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is
evaluated on a regular basis by management and is based on managements periodic
review of the collectibility of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay, estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

A-2

---



The allowance consists of specific,
general, and unallocated components. The specific components relate to loans that are
classified as either doubtful, substandard, or special mention. For such loans that are
also classified as impaired, an allowance is established when the discounted cash flows
(or collateral value or observable market price) of the impaired loan is lower than the
carrying value of that loan. The general component covers non-classified loans and is
based on historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect managements
estimate of probable losses.

The unallocated component of the
allowance reflects the margin of imprecision inherent in the underlying assumptions used
in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when,
based on current information and events, it is probable that the Corporation will be
unable to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the profitability of
collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances surrounding
the loan and the borrower, including length of the delay, the reasons of the delay, the
borrowers prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial
and construction loans by either the present value of expected future cash flows
discounted at the loans effective interest rate, the loans obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of homogeneous loans are
collectively evaluated for impairment. Accordingly, the Corporation does not separately
identify individual consumer and residential loans for impairment disclosures.

Income Taxes Deferred
income tax assets and liabilities are determined using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is determined based on
the tax effects of the various temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current recognition to changes in
tax rates and laws.

Stock Compensation Plans
 The Company applies the provisions of APB Opinion No. 25, Accounting for
Stock-based Compensation, accounting for all employee stock option grants using the
intrinsic value method. 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.

Recent Accounting
Pronouncements:

In January 2003, the FASB issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.The
Corporation has followed the provisions of FIN 46 and not consolidated Clarkston Capital
Trust I, a trust sponsored by the Corporation for the sole purpose of issuing trust
preferred securities to third-party investors. Adoption of this standard did not have a
material effect on the Corporations financial statements.

SFAS No. 123 (revised 2004),
Share-Based Payment which revises SFAS No. 123, Accounting for
Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. This statement focuses primarily on accounting for
transactions in which an entity obtains an employee services in share-based payment
transactions. This Statement does not address the accounting for employee share ownership
plans, which are subject to AICPA Statement of Position 93-6, Employers
Accounting for Stock Ownership Plans. This Statement requires an entity to recognize
the cost of employee services received in share-based payment transactions and measure the
cost on a grant-date fair value of the award. The provisions of SFAS No. 123 (revised
2004) will be effective for the Companys financial statements issued for periods
beginning after June 15, 2005. The adoption of this revised Statement is not expected to
have a material impact on the Companys consolidated financial statements.

A-3

---



# Off Balance Sheet
Transactions

Other
than unfunded loan commitments and standby letters of credit there are no off balance
sheet commitments. The Bank does not syndicate loans, has sold no loan participations
under an agreement to repurchase and is not obligated to assume any liability not noted in
its balance sheet. The Companys borrowings contain no loan agreement covenants or
conditions that will restrict its growth or ability to manage its assets. The Bank has
arranged for liquidity lines of credit with two lenders, one commercial bank and the
Federal Reserve Bank of Chicago. Moreover, the Bank is a member of the Federal Home Loan
Bank of Indianapolis, further providing access to lower interest bearing funds as needed.

# Financial Condition

Summary.Total assets of the Company increased to $163.4 million at December 31,
          2004, from $142.6 million at December 31, 2003, an increase of 14.6%. This asset
          growth was funded with growth in total deposits of $6.7 million, or 5.3% to
          $133.3 million at December 31, 2004 from $126.6 million at December 31, 2003 and
          growth in other borrowings of $12.2 million, to $16.2 million at December 31,
          2004 from $4.0 million at December 31, 2003. The increase in assets and deposits
          is primarily attributable to the Bank continuing to attract new customers
          through its expanding operations. Management attributes the growth in deposits
          to quality customer service and the desire of customers to deal with a
          convenient, local community bank. The Company anticipates that the Banks
          assets will continue to increase during 2005 and beyond, though at a slower rate
          than has been the case during the first six years of operation. The Bank joined
          the Federal Home Loan Bank during 2003 and took advantage of low cost borrowings
          in 2004 to help fund the loan growth.

Virtually
all of the deposit growth has been used to fund growth in the loan portfolio. Outstanding
loans increased 33.4% to $112.2 million from $84.1 million during the period December 31,
2003 to December 31, 2004. Management has increased the size of its lending staff
throughout the year to complement this growth. This is consistent with the Banks
strategy of changing its balance sheet mix during the year to focus on higher interest
yielding loans. As a result, the investment portfolio decreased from $49.1 million at
December 31, 2003 to $44.4 million at December 31, 2004. Management seeks to increase the
Banks net interest margin through reemploying principal cash flow on lower interest
bearing securities into higher interest bearing loans. Management expects this trend to
continue during 2005.

Cash
and Cash Equivalents. Cash and cash equivalents, which include federal funds sold and
short term investments, decreased $4.0 million, or 50.6%, to $3.9 million at December 31,
2004, from $7.9 million at December 31, 2003. The decrease is primarily in federal funds
sold due to excess monies being deployed into higher yielding loans.

Securities.Securities held by the Bank at December 31, 2004, totaled $44.4 million
          compared to $49.1 million at December 31, 2003. All securities are classified as
          Available for Sale and may be sold to meet the Banks liquidity
          needs. The primary objective of the Companys investment activity is to
          provide for the safety of the principal invested. Secondary considerations
          include earnings, liquidity and overall exposure to changes in interest rates.
          It has been the policy and practice to accept no credit risk in the investment
          portfolio in compliance with the Banks primary investment objective.
          Excluding investments in U.S. Treasury and U.S. Government Agency Securities,
          there were no investments in securities of any one issuer, which exceeded 10% of
          shareholders equity.

A-4

---



Securities
Available for Sale Portfolio at Carrying Value (in thousands)

|                                           | Year Ended December 31
|------------------------------------------ | ----------------------
|                                           |                       
|                                           |                       
|                                           |                       
|U.S. Treasury and U.S. Government Agencies |                       
|Municipal bonds                            |                       
|Collateralized Mortgage Obligations        |                       
|                                           |                       
|Total                                      |                       
|                                           |                       

The
Loan Portfolio. The growing North Oakland County market in which the Bank is located
provides excellent opportunities for the Bank to grow its loan portfolio.Loans
outstanding grew by $28.1 million for the period from December 31, 2003 to December 31,
2004.Although the majority of loans are madeto businesses in the form of
commercial loans and real estate mortgages, the residential lending portfolio grew more,
on a percentage basis, growing 106.6%, from $7.6 million to $15.7 million at December 31,
2003 and 2004 respectively. The commercial loan portfolio grew $20.6 million, or 28.4%, to
$93.1 million at December 31, 2004 from $72.5 million at December 31, 2003. A portion of
the residential loan production is held for sale and sold to investors on a servicing
released basis. However, there are, at times, 1st and 2nd mortgage
loans originated which are placed in the Banks portfolio that do not meet secondary
market standards but do represent good credit quality loans. The Bank originated over
$18.5 million in mortgage loans during 2004. The growth in the loan portfolio from year to
year is consistent with our business plan. The table below discloses the composition of
the loan portfolio:

Loan
Portfolio Composition (in thousands of dollars)

|                            | Year Ended December 31
|--------------------------- | ----------------------
|                            |                       
|                            |                       
|                            |                       
|                            |                       
|                            |                       
|Commercial                  |                       
|Residential Real Estate     |                       
|Consumer                    |                       
|                            |                       
|Total Loans                 |                       
|                            |                       
|Less:                       |                       
|Allowance for Loan Losses   |                       
|                            |                       
|Total Loans Receivable, Net |                       
|                            |                       

Maturities
and Sensitivities of Loans to Changes in Interest Rates (in thousands of dollars)

The
following table shows the amount of total loans out standing as of December 31, 2004
which, based on remaining scheduled repayments of principal, are due in the periods
indicated.

|                        | Maturing
|----------------------- | --------
|                        |         
|                        |         
|                        |         
|Commercial              |         
|Residential Real Estate |         
|Consumer                |         
|                        |         
|Totals                  |         
|                        |         

A-5

---



Below
is a schedule of the loan amounts maturing or repricing and are classified according to
their sensitivity to changes in interest rates.

|                                     | Interest Sensitivity
|------------------------------------ | --------------------
|                                     |                     
|
|                                     |                     
|                                     |                     
|Due within three months              |                     
|Due after three months within 1 year |                     
|Due after one but within five years  |                     
|Due after five years                 |                     
|                                     |                     
|Total                                |                     
|                                     |                     

Non-Performing Assets.Non-performing assets consist of nonperforming, foreclosed,
restructured and non-accrual loans. As of December 31, 2004, there were no loans
classified as non-performing.

Loan
performance is reviewed regularly by external loan review specialists, loan officers, and
senior management to assure that policies are being followed and loan quality standards
are being maintained. Whenever reasonable doubt exists concerning the collectibility of
interest or principal as well as collateral position on a loan, that loan will be placed
in non-accrual status. Any interest previously accrued but not collected at that time will
be reversed and charged against current earnings. Management is not aware of any
recommendations by regulatory agencies, which, if implemented, would have a material
impact on the Corporations liquidity, capital or operations.

The
following table summarizes the Banks non-performing loans for the respective years
ending December 31:

|                                                                     | 2004 | 2004 | 2004
|-------------------------------------------------------------------- | ---- | ---- | ----
|                                                                     |      |      |     
|Non-accrual, Past Due and Restricted Loans (in thousands of dollars) |      |      |     
|                                                                     |      |     
|Loans accounted for on a non-accrual basis                           |      |      | $   
|                                                                     |      |     
|Accruing loans that are contractually past due                       |      |     
|90 days or more as to interest or principal payments                 |      |      |     
|                                                                     |      |      |     
|Total                                                                |      |      | $   
|                                                                     |      |      |     

A-6

---



# Loan Loss Experience (in
thousands)

The
following table summarizes changes in the allowance for credit losses arising from
additions to the allowance which have been charged to expense, selected ratios, and the
allocation of the allowance for credit losses.

|                                                           | Amount as of December 31,
|---------------------------------------------------------- | -------------------------
|                                                           |                          
|                                                           |                          
|                                                           |                          
|Total loans at year end                                    |                          
|Average daily balances of loans for the year               |                          
|Allowance for credit losses at beginning of period         |                          
|                                                           |                          
|Loan charge-offs during the period                         |                          
|Commercial                                                 |                          
|Real Estate-Mortgages                                      |                          
|Consumer                                                   |                          
|                                                           |                          
|Total charge-offs                                          |                          
|                                                           |                          
|Loan recoveries during the period                          |                          
|Commercial                                                 |                          
|Real Estate-Mortgages                                      |                          
|Consumer                                                   |                          
|                                                           |                          
|Total recoveries                                           |                          
|                                                           |                          
|Net recoveries/(charge-offs)                               |                          
|                                                           |                          
|Provision charged to expense                               |                          
|                                                           |                          
|Allowance for credit losses at end of period               |                          
|                                                           |                          
|Ratio of net recoveries/(charge-offs) during the           |                          
|period to loans outstanding at year-end                    |                          
|                                                           |                          
|Allowance for loan losses to loans outstanding at year-end |                          

# Allocation of the
Allowance for Loan Losses

The
allowance for loan losses as of December 31, 2004 was $1.3 million representing
approximately 1.14% of gross loans outstanding and at December 31, 2003, was $1.1 million,
which represented approximately 1.30% of gross loans outstanding at that time. As noted in
the table below which depicts the allocation of reserves, and consistent with 2003, there
was a material increase in the level of reserves allocated to real estate. The residential
mortgage loan portfolio more than doubled on a percentage basis over December 2003, and
grew from 9% of the total loan portfolio to 14% at December 31, 2004. Management does not
believe that the credit quality of this portfolio as a whole has declined materially from
prior periods, the growth in the allowance allocated to this portfolio is due solely to
the growth in the portfolio.

The
Bank has not experienced any material credit losses in the five years of operations ended
December 31, 2004. The allowance for loan losses is maintained at a level management feels
is adequate based on internal quarterly assessments, external loan review and other
industry standards.

A-7

---



Management
prepares an evaluation comprised of a risk rating system to segregate the loan portfolio
by classification and rating. These portfolio metrics are then applied against industry
standards, peer data, economic conditions, portfolio composition, historical loss
experience as well as collateral position to determine an appropriate allowance for loan
losses. This analysis is performed every quarter and is scrutinized by both internal and
external auditors as well as senior management for reasonableness.

Over
the past five years the allowance has increased as a result of increased loan production.
Due to the lack of seasoning of our portfolio as well as continued soft economic
conditions we feel it is prudent to continue to contribute to our loan loss allowance. We
expect to continue to grow our loan portfolio and likewise will likely continue to
contribute to the allowance. Moreover, it is also expected that the level of loan losses
may increase in the future as our portfolio continues to grow and becomes more seasoned.
However, we currently feel we have an adequate allowance for loan loss to mitigate any
potential losses inherent within the loan portfolio.

Allowance
for Loan Losses (in thousands)

|            | Year Ended December 31
|----------- | ----------------------
|            |                       
|            |                       
|            |                       
|            |                       
|            |                       
|Commercial  |                       
|Residential |                       
|Consumer    |                       
|Unallocated |                       
|            |                       
|            |                       
|            |                       

The
above allocations are not intended to imply limitations on the usage of the allowance. The
entire allowance is available for any future loans without regard to loan type.

Premises
and Equipment.Premises and equipment increased $1.0 million or 71.4% from $1.4
million at December 31, 2003 to $2.4 million at December 31, 2004. The increase is due
primarily to the opening of our fifth branch. Also contributing to the increase was the
continued investment in technology.

Deposits.
          The deposit gathering activities for the Bank are accomplished through
          traditional means utilizing our five branch network as well as competitive
          pricing and excellent customer service. We offer both business and personal
          accounts including but not limited to checking, savings, money market and
          certificates of deposit with an array of different terms. These deposits are
          gathered from local consumers and businesses within the markets served by the
          Bank. Our competitive pricing and strong customer service has contributed to our
          strong deposit growth and continues to provide a stable core funding base for
          the Bank. Moreover, we use no brokered deposits outside of our designated market
          area to assist in funding the Banks operations.

As
of December 31, 2004, deposits totaled $133.3 million. This represents a 5.3% increase
from December 31, 2003 when deposits were $126.6 million. Non-interest bearing demand
deposits increased by 8.8% or $1.6 million from $18.2 million at December 31, 2003 to
$19.8 million at December 31, 2004. Likewise, interest bearing deposits increased 4.7% to
$113.5 million at December 31, 2004, compared to $108.4 million at December 31, 2003.
During 2004 we introduced an internet banking product to provide another channel from
which to service our customers. In addition, new deposit relationships continue to be a
residual benefit of the growth in the commercial loan portfolio.

A-8

---



Average Daily Deposits
(in thousands)

The
following table sets forth the average deposit balances and the weighted average rates
paid thereon.

|                           | Average for the Year2004 | Average for the Year2003 | Average for the Year2002
|-------------------------- | ------------------------ | ------------------------ | ------------------------
|                           |                          |                          |                         
|                           |                          |                          |                         
|                           |                          |                          |                         
|Noninterest bearing demand |                          |                          | $                       
|MMDA/Savings               |                          |                          |                         
|Time                       |                          |                          |                         
|                           |                          |                          |                         
|Total Deposits             |                          |                          | $                       
|                           |                          |                          |                         

Maturity Distribution of
Time Deposits of $100,000 or More (in thousands)

The
following table summarizes time deposits in amounts greater than $100,000 by time
remaining until maturity as of December 31, 2004, 2003, and 2002:

|                                   | Year Ended December 31
|---------------------------------- | ----------------------
|                                   |                       
|                                   |                       
|                                   |                       
|Three months or less               |                       
|Over three months through one year |                       
|Over one year                      |                       
|                                   |                       
|                                   |                       
|                                   |                       

Retained
Earnings. Consists of retained earnings less any dividends paid to shareholders. As of
December 31, 2004, the Company had retained earnings of $3.6 million as compared to $2.4
million at December 31, 2003. There were no dividends paid to shareholders in 2004 or 2003.

A-9

---



# Results of Operations

Summary
of Results. The Company earned net income of $1.3 million for the year ended December 31,
2004, compared with net income of $1.5 million in 2003, a 13.3% decrease.
Significant fluctuations from 2003 to 2004 included a $1.0 million, or 23.8%, increase in
net interest income before provision for loan loss, a $200,000, or 40.0%, decrease in
provision for loan loss, a $400,000, or 36.4%, decrease in other operating
income and a $1.0 million, or 33.3% increase in other operating expenses.

Performance Ratios (in
thousands, except per share data).

|                                              | Year Ended December 31
|--------------------------------------------- | ----------------------
|                                              |                       
|                                              |                       
|                                              |                       
|Net Income                                    |                       
|Weighted average number of shares outstanding |                       
|Basic Profit  per share                       |                       
|Fully Diluted Profit per Share                |                       
|                                              |                       
|Earnings ratios:                              |                       
|Return on average assets                      |                       
|Return on average equity                      |                       
|Average equity to average assets              |                       
|Dividend payout ratio                         |                       

A-10

---



Net Interest Income.Net interest income increased $1.0 million, or 23.8% from $4.2
million at December 31, 2003 to $5.2 million at December 31, 2004. The increase in net
interest income was caused in large part by the continued growth in the loan portfolio,
and the new securities purchased in the prior year being higher yielding than those which
were sold. In addition, deposit rates were held fairly stable over the course of the year.
These positive items were offset partially by a slightly falling yield on the loan
portfolio. This was caused by a highly competitive lending market and the mix of loans
continuing to show a higher ratio of relatively lower yielding real estate loans. These
changes in the loan mix are in accordance with the Companys business plan.

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):

|                                     | 2004 | 2004 | 2002
|------------------------------------ | ---- | ---- | ----
|                                     |      |      |     
|                                     |      |      |     
|                                     |      |      |     
|Assets:                              |      |      |     
|Short term investment                |      |      | $   
|Securities:                          |      |     
|Taxable                              |      |      |     
|Tax-exempt                           |      |      |     
|Loans                                |      |      |     
|                                     |      |      |     
|Total earning assets/total           |      |      |     
|interest income                      |      |     
|Cash and due from banks              |      |      |     
|Unrealized Gain (Loss)               |      |      |     
|All other assets                     |      |      |     
|Allowance for loan loss              |      |      |     
|                                     |      |      |     
|Total assets                         |      |      |     
|Liabilities and Stockholders' Equity |      |     
|Interest bearing deposits:           |      |     
|MMDA, Savings/NOW                    |      |     
|accounts                             |      |      |     
|Time                                 |      |      |     
|Fed Funds Purchased                  |      |      |     
|Other borrowed Money                 |      |      |     
|                                     |      |      |     
|Total  interest bearing              |      |      |     
|liabilities/interest expense         |      |     
|Noninterest bearing deposits         |      |      |     
|All other liabilities                |      |      |     
|Stockholders' Equity:                |      |     
|Unrealized Holding Gain (Loss)       |      |      |     
|Common Stock, Surplus,               |      |     
|Retained Earnings                    |      |      |     
|                                     |      |      |     
|Total  liabilities and               |      |     
|stockholders' equity                 |      |      |     
|Interest spread                      |      |      |     
|Net interest  income - FTE           |      |      |     
|Net  Interest Margin as a            |      |     
|Percentage of Average                |      |     
|Earnings Assets - FTE                |      |      |     

A-11

---



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.

|                                  | 2004 Compared to 2003 | 2003 Compared to 2002
|--------------------------------- | --------------------- | ---------------------
|                                  |                       |                      
|                                  |                       |                      
|                                  |                       |                      
|(in thousands)                    |                      
|Federal funds sold                |                       |                      
|Investment securities--taxable    |                       |                      
|Investment securities--tax-exempt |                       |                      
|Loans, net of unearned income     |                       |                      
|                                  |                       |                      
|Total interest income             |                       |                      
|                                  |                       |                      
|Interest bearing deposits         |                       |                      
|Federal funds borrowed            |                       |                      
|                                  |                       |                      
|Other borrowed funds              |                       |                      
|                                  |                       |                      
|Total interest expense            |                       |                      
|                                  |                       |                      
|Net interest income               |                       |                      
|                                  |                       |                      

Composition of Average
Earning Assets and Interest Bearing Liabilities (dollars in thousands):

|                                                     | Year EndedDecember 31, 2004 |  | Year EndedDecember 31, 2003 |         | Year EndedDecember 31, 2002 | 
|---------------------------------------------------- | --------------------------- |  | --------------------------- | ------- | --------------------------- | 
|                                                     |                             |  |                             |         |                             | 
|As a percentage of average earning assets            |                             |  |                             |         |                             | 
|Loans                                                |                             |  | $                           | 96,045  |                             | 
|Other earning assets                                 |                             |  |                             | 52,085  |                             | 
|                                                     |                             |  |                             |         |                             | 
|Average earning assets                               |                             |  | $                           | 148,130 |                             | 
|                                                     |                             |  |                             |         |                             | 
|                                                     |                             | 
|As a percent of average interest bearing liabilities |                             | 
|Savings and DDA accounts                             |                             |  |                             | 62,827  |                             | 
|Time deposits                                        |                             |  |                             | 46,341  |                             | 
|Other borrowings                                     |                             |  |                             | 11,250  |                             | 
|                                                     |                             |  |                             |         |                             | 
|Average interest bearing liabilities                 |                             |  | $                           | 120,418 |                             | 
|                                                     |                             |  |                             |         |                             | 
|                                                     |                             | 
|Earning asset ratio                                  |                             |  |                             | 97.3    | %                           | 

Provision
for Loan Loss. The provision for loan losses for the year ended December 31, 2004 was
$330,000 compared to $496,000 at December 31, 2003. The reduction of the provision is due
to the continued adjustment from a peer-based level of reserves to one that is based more
upon the historical losses experienced by the Company. In addition the continued shift in
loan mix to more real estate secured loans also reduces the required amount of reserves.
Management will continue to monitor its loan loss performance and adjust its loan loss
reserve to more closely align itself to its own history of loss experience.

Non-Interest Income.Other operating income decreased from $1.1 million in 2003 to
$700,000 in 2004, a 36.4% decrease. This decrease is the primarily the result of a lower
volume of securites sales causing a realized loss during 2004 of $26,000 compared to a
realized gain of $532,000 during 2003, offset by an increase in fee income of $164,000, or
34.7%. The Bank continues to sell securites to meet growth needs and increase net interest
margin through redeployment of cash received into higher yielding loans. Though this
practice will continue for the foreseeable future, gains realized on the sale of
investment securities are not considered core income and are subject to interest and
market rate fluctuations, therefore, past gains realized on the sale of these items are
not expected to continue in the future.

A-12

---



Non-Interest
Expense.Non-interest expense consists of monthly operating expenses and for the year
ended December 31, 2004, was $4.0 million compared with $3.0 million for the year ended
December 31, 2003, an increase of $1.0 million, or 33.3%. The main component of
non-interest expense is salaries and benefits which totaled $1.9 million for 2004 and $1.5
million for 2003, an increase of $400,000, or 26.7%. This increase is directly
attributable to adding more staff to further support growth, including additional lending
personnel and personnel related to the Banks new loan production office in Milford,
Michigan. Another significant component of operating expense is occupancy expense which
increased $128,000, or 33.6%, to $509,000 in 2004 from $381,000 in 2003. This increase is
primarily due to increased rents at various locations, a full year of rent at our loan
center and for the land on which our newest branch sits and rent on our Milford loan
center. Outside processing costs increased from $195,000 at December 31, 2003 to $368,000
at December 31, 2004, a $173,000 or 88.7% increase. This increase was due to in large part
to a network maintenance contract and a contract to outsource proof operations. The costs
of the maintenance contract increased from $22,000 in 2003 to $82,000 in 2004. As a result
of this increase the contract was discontinued in the 4th quarter upon bringing
this function in-house. Also contributing to this increase was increased transaction and
account volumes. Finally, professional fees saw a $114,000, or 63.7% increase, from
$179,000 at December 31, 2003 to $293,000 at December 31, 2004. The increase in this
expense was due mostly to an increase in legal and other fees, primarily associated with
compliance with the Sarbanes-Oxley act and the exploration of new growth opportunities,
including DeNovo banks.

# Liquidity and Capital
Resources

The
Company obtained its initial equity capital in an initial public offering of its common
stock in November 1998. The Company had successfully grown through its first four years of
operation and during 2003, the Company evaluated the need to raise additional capital in
order to keep pace with the current growth strategy. In December 2003, the Company
completed an offering of $4.0 million of cumulative preferred securities (Trust
Preferred Securities) to further support growth into the immediate future.

Management believes that its current
capital will provide the Company with adequate capital to support its expected level of
deposit and loan growth and to otherwise meet its capital requirements for the next year.
One of the growth strategies our Company intends to pursue, which could have an effect on
its equity and or require additional capital, is growth through acquisition or the start
up of additional DeNovo banks. Such opportunities are difficult to plan and as such we
arent able to state with absolute assurance that additional equity wont be
needed in the future.

Capital Resources at
December 31, 2004 (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  |                       |                      |                               
|Consolidated                       |                       |                      |                               
|Bank                               |                       |                      |                               

A-13

---



Capital Resources at December
31, 2003 (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  |                       |                      |                               
|Consolidated                       |                       |                      |                               
|Bank                               |                       |                      |                               

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

|                                         | Tier 1 Leverage           | Tier 1 Capital | Total Risk-Based Capital
|---------------------------------------- | ------------------------- | -------------- | ------------------------
|                                         |                           |                |                         
|Consolidated                             | (in thousands of dollars)
|Capital balances at December 31, 2004    |                           |                |                         
|Required regulatory capital              |                           |                | $                       
|Capital in excess of regulatory minimums |                           |                |                         
|                                         |                           |                |                         
|Actual capital balances                  |                           |                | $                       
|                                         |                           |                |                         
|                                         |                           |               
|Bank                                     | (in thousands of dollars)
|Capital balances at December 31, 2004    |                           |               
|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.

# Market Risk Analysis

Our
primary market risk exposure is interest rate risk and, to a lesser extent, liquidity
risk. All of our transactions are denominated in U.S. dollars with no specific foreign
exchange exposure. Clarkston Financial Corporation has no agricultural-related loan
assets, and therefore has no significant exposure to changes in commodity prices. As a
result, our market risk exposure is mainly comprised of our sensitivity to interest rate
risk. Our balance sheet has sensitivity, in various categories of assets and liabilities,
to changes in prevailing rates in the U.S. for prime rate, mortgage rates, U.S. Treasury
rates and various money market indicies. Our asset/liability management process aids us in
providing liquidity while maintaining a balance between interest earning assets and
interest bearing liabilities.

We
use two interest rate risk measurement techniques in our interest rate risk management.
The first is static gap analysis. This measures the difference between the dollar amounts
of interest sensitive assets and liabilities that will be refinanced or repriced during a
given time period. A significant repricing gap could result in a negative impact to our
net interest margin during periods of changing market interest rates.

A-14

---



Listed
in the table below is the Banks gap position as of December 31, 2004.

Asset / Liability GAP
Position for the Year Ended December 31, 2004 (in thousands)

|                                       | 1 to 3Months | 4 to 12Months | 12 to 60Months | Over 60Months | Total
|-------------------------------------- | ------------ | ------------- | -------------- | ------------- | -----
|                                       |              |               |                |               |      
|Interest-Earning Assets                |              |               |                |               |      
|Federal Funds sold                     |              |               | $              | 1,916         |      
|Investment securities                  |              |               |                | 527           |      
|Loans                                  |              |               |                | 45,621        |      
|                                       |              |               |                |               |      
|Total interest-earning assets          |              |               |                | 48,064        |      
|                                       |              |              
|Interest Bearing Liabilities           |              |              
|DDA, Money Market and Savings Accounts |              |               |                | 1,004         |      
|Certificates of deposit                |              |               |                | 5,011         |      
|Borrowed funds                         |              |               |                | 9,000         |      
|                                       |              |               |                |               |      
|Total interest-bearing Liabilities     |              |               |                | 15,015        |      
|                                       |              |              
|Rate sensitivity gap and ratios:       |              |              
|Gap for period                         |              |               |                | 33,049        |      
|Cumulative gap                         |              |               |                | 33,049        |      
|Percentage of cumulative gap           |              |              
|To total assets                        |              |               |                | 20.23         | %    
|Cumulative earning assets              |              |              
|To cumulative bearing liabilities      |              |               |                | 3.20          |      

The
second measurement tool used, which management places more emphasis on, is cash flow
simulation. This tool measures the impact to net interest income given shifts in the
Treasury yield curve over a twenty four month time horizon. Many factors are used in this
simulation including duration cash flow, maturities, prepayment speeds associated with
loans and deposits as well as current economic and market data. Management utilizes this
data and shocks the balance sheet under a 100 and 200 basis point rising and falling
interest rate scenario in order to help predict the financial impact on the Banks
net interest margin given these changes and or estimates of future market conditions.

The
first step in preparing the simulation is to populate the model with all of the cash flow
and current data from the Banks investment, loan and deposit portfolios. This
information along with other balance sheet data are loaded and balanced to create an
opening balance sheet or constant rate scenario from which to forecast. Current prepayment
and market assumptions are then entered into the model. The model is then shocked under a
100 and 200 basis point rise and fall in interest rates. All of the instruments loaded in
the model have different behavior characteristics based on the prospective interest rate
shocks. As the behavior of these instruments changes under these scenarios management
attempts to predict through this simulation what the positive or negative impact is to the
Banks net interest income. In addition, other variables besides interest rate
changes may have an impact on the financial condition of the Bank including, but not
limited to, growth of the Company, structure of the balance sheet, and economic and
competitive factors.

A-15

---



Listed
in the table below are the results of the cash flow simulation under both a rising and
falling rate scenario. At the present time, the Bank is asset sensitive. The positive
shift in net interest income reflects the shift in income over a twelve-month time
horizon. This means that as the interest rate environment changes over this period of
time the re-pricing of assets and liabilities is taking place and reflects a positive
increase in net interest income.

The
economic value of equity reflects an immediate interest rate shift without any re-pricing
activity over a twelve month time horizon. Thus, being asset sensitive the changes in
economic value of equity reflect the fact that the Banks assets will re-price more
quickly than its liabilities, which in a rising rate environment will cause the value of
the Banks assets to decrease more rapidly than the slower repricing liabilities,
therefore reducing the residual, which represents the economic value of the equity

|(dollars in thousands)  
Changes in Interest Rates | Economic ValueOf Equity | Percent
 Change | Net Interest
   Income | Percent
Change
|-------------------------------------------------- | ----------------------- | --------------- | ---------------------- | --------------
|                                                   |                         |                 |                        |               
|200 Basis Point Rise                               |                         |                 | $                      | 11,765        
|100 Basis Point Rise                               |                         |                 |                        | 13,675        
|Base-Rate Scenario                                 |                         |                 |                        | 15,586        
|100 Basis Point Decline                            |                         |                 |                        | 17,499        
|200 Basis Point Decline                            |                         |                 |                        | 19,413        

# Forward Looking
Statements

This
report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. The Company intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private Securities
Reform Act of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are generally
identifiable by use of the words believe, expect,
intend, anticipate, estimate, project or
similar expressions. The Companys ability to predict results or the actual effect of
future plans or strategies is inherently limited and uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company and the
subsidiaries include, but arent limited to, changes in: interest rates, general
economic conditions, legislative and 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 Company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
Company and its business, including additional factors that could materially affect the
Companys financial results, is included in the Companys filings with the
Securities and Exchange Commission.

A-16

---



# Report of Independent
Registered Public Accounting Firm

To the Board of Directors
and StockholdersClarkston Financial Corporation

We have audited the accompanying
consolidated balance sheet of Clarkston Financial Corporation as of December 31, 2004
and 2003 and the related consolidated statements of income, changes in stockholders
equity, and cash flows for each year in the three-year period ended December 31, 2004.
These consolidated financial statements are the responsibility of the Corporations
management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Clarkston Financial Corporation as of December 31,
2004 and 2003 and the consolidated results of their operations and their cash flows for
each year in the three-year period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.

| | /s/ Plante &
Moran PLLC
| | -----------------------

Auburn Hills, MichiganMarch
14, 2005

A-17

---



# Clarkston Financial
Corporation

---

Consolidated Balance
Sheet(000s omitted)

|                                                              | December 31
|------------------------------------------------------------- | -----------
|                                                              |            
|                                                             
|                                                              |            
|Assets                                                        |            
|Cash and cash equivalents:                                    |            
|Cash and due from banks                                       |            
|Federal funds sold                                            |            
|                                                              |            
|Total cash and cash equivalents                               |            
|                                                              |            
|Securities - Available for sale (Note 2)                      |            
|                                                              |            
|Loans (Note 3)                                                |            
|Allowance for possible loan losses (Note 4)                   |            
|                                                              |            
|Net loans                                                     |            
|                                                              |            
|Banking premises and equipment (Note 5)                       |            
|Interest receivable                                           |            
|Deferred tax asset (Note 8)                                   |            
|Other assets                                                  |            
|                                                              |            
|Total assets                                                  |            
|                                                              |            
|Liabilities and Stockholders' Equity                          |            
|Liabilities                                                   |            
|Deposits:                                                     |            
|Noninterest-bearing demand deposits                           |            
|Interest-bearing (Note 6)                                     |            
|                                                              |            
|Total deposits                                                |            
|                                                              |            
|Advances from Federal Home Loan Bank of Indianapolis (Note 7) |            
|Junior subordinated debentures held by                        |            
|unconsolidated subsidiary trust (Note 15)                     |            
|Interest payable and other liabilities                        |            
|                                                              |            
|Total liabilities                                             |            
|                                                              |            
|Stockholders' Equity                                          |            
|Common stock - No par value:                                  |            
|Authorized - 10,000,000 shares                                |            
|Issued and outstanding - 1,045,909 and 1,039,184 shares       |            
|at December 31, 2004 and 2003, respectively                   |            
|Paid-in capital                                               |            
|Restricted stock - Unearned compensation                      |            
|Retained earnings                                             |            
|Accumulated other comprehensive income                        |            
|                                                              |            
|Total stockholders' equity                                    |            
|                                                              |            
|Total liabilities and stockholders' equity                    |            
|                                                              |            

See Notes to Consolidated Financial
Statements.

A-18

---



# Clarkston Financial
Corporation

---

Consolidated
Statement of Income(000s omitted, except
per share data)

|                                            | Year Ended December 31
|------------------------------------------- | ----------------------
|                                            |                       
|                                            |                       
|                                            |                       
|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 Possible Loan Losses (Note 4) |                       
|                                            |                       
|Net Interest Income - After provision       |                       
|for possible loan losses                    |                       
|                                            |                       
|Other Operating Income (Loss)               |                       
|Service fees on loan and deposit accounts   |                       
|Gain/(loss) on sale of securities (Note 2)  |                       
|Gain on sale of mortgage loans              |                       
|Other                                       |                       
|                                            |                       
|Total other operating income                |                       
|                                            |                       
|Other Operating Expenses                    |                       
|Salaries and employee benefits              |                       
|Occupancy (Note 10)                         |                       
|Advertising                                 |                       
|Outside processing                          |                       
|Professional fees                           |                       
|Supplies                                    |                       
|State taxes                                 |                       
|Other                                       |                       
|                                            |                       
|Total other operating expenses              |                       
|                                            |                       
|                                            |                       
|Income - Before income taxes                |                       
|                                            |                       
|Income Taxes (Note 8)                       |                       
|                                            |                       
|                                            |                       
|Net Income                                  |                       
|                                            |                       
|                                            |                       
|Income per Share of Common Stock(Note 1)    |                       
|Basic                                       |                       
|Fully diluted                               |                       

See Notes to Consolidated Financial
Statements.

A-19

---



# Clarkston Financial
Corporation

---

Consolidated
Statement of Changes in Stockholders Equity(000s omitted, except
per share data)

|                              | Common Stock | Paid-in Capital | Restricted Stock - Unearned Compensation | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity
|----------------------------- | ------------ | --------------- | ---------------------------------------- | ----------------- | --------------------------------------------- | --------------------------
|                              |              |                 |                                          |                   |                                               |                           
|Balance - January 1, 2002     |              |                 | $                                        | 4,306             |                                               | $                         
|                              |              |                
|Issuance of stock             |              |                 |                                          | 5                 |                                               |                           
|Comprehensive income:         |              |                
|Net income                    |              |                 |                                          | -                 |                                               |                           
|Change in unrealized gain on  |              |                
|securities available for sale |              |                
|- Net of tax effect of $144   |              |                 |                                          | -                 |                                               |                           
|                              |              |                 |                                          |                   |                                               |                           
|Net comprehensive income      |              |                 |                                          |                   | 1,081                                         |                           
|                              |              |                 |                                          |                   |                                               |                           
|Balance - December 31, 2002   |              |                 |                                          | 4,311             |                                               |                           
|                              |              |                
|Issuance of stock             |              |                 |                                          | 46                |                                               |                           
|Issuance of restricted stock  |              |                 |                                          | 19                |                                               |                           
|Recognition of compensation   |              |                
|for restricted stock award    |              |                 |                                          | -                 |                                               |                           
|Comprehensive income:         |              |                
|Net income                    |              |                 |                                          | -                 |                                               |                           
|Change in unrealized gain on  |              |                
|securities available for sale |              |                
|- Net of tax effect of $(49)  |              |                 |                                          | -                 |                                               |                           
|                              |              |                 |                                          |                   |                                               |                           
|Net comprehensive income      |              |                 |                                          |                   | 1,373                                         |                           
|                              |              |                 |                                          |                   |                                               |                           
|Balance - December 31, 2003   |              |                 |                                          | 4,376             |                                               |                           
|                              |              |                
|Issuance of stock             |              |                 |                                          | 25                |                                               |                           
|Issuance of restricted stock  |              |                 |                                          | 43                |                                               |                           
|Recognition of compensation   |              |                
|for restricted stock award    |              |                 |                                          | -                 |                                               |                           
|Comprehensive income:         |              |                
|Net income                    |              |                 |                                          | -                 |                                               |                           
|Change in unrealized gain on  |              |                
|securities available for sale |              |                
|- Net of tax effect of $(202) |              |                 |                                          | -                 |                                               |                           
|                              |              |                 |                                          |                   |                                               |                           
|Net comprehensive income      |              |                 |                                          |                   | 884                                           |                           
|                              |              |                 |                                          |                   |                                               |                           
|Balance - December 31, 2004   |              |                 | $                                        | 4,444             |                                               | $                         
|                              |              |                 |                                          |                   |                                               |                           

Book value per share is $11.67,
$10.81, and $9.50 at December 31, 2004, 2003, and 2002, respectively.

See Notes to Consolidated Financial
Statements.

A-20

---



# Clarkston Financial
Corporation

---

Consolidated
Statement of Cash Flows(000s omitted)

|                                                                  | Year Ended December 31
|----------------------------------------------------------------- | ----------------------
|                                                                  |                       
|                                                                  |                       
|                                                                  |                       
|Cash Flows from Operating Activities                              |                       
|Net income                                                        |                       
|Adjustments to reconcile net income to net cash                   |                       
|from operating activities:                                        |                       
|Depreciation and amortization                                     |                       
|Provision for loan losses                                         |                       
|Amortization (accretion) of securities                            |                       
|Recognition of compensation for restricted stock award            |                       
|Deferred taxes                                                    |                       
|Loss on sale of fixed assets                                      |                       
|Gain on sale of available-for-sale securities                     |                       
|Loss on sale of available-for-sale securities                     |                       
|(Increase) decrease in interest receivable                        |                       
|(Increase) decrease in other assets                               |                       
|Increase (decrease) in interest payable and other                 |                       
|liabilities                                                       |                       
|                                                                  |                       
|Net cash provided by operating activities                         |                       
|                                                                  |                       
|Cash Flows from Investing Activities                              |                       
|Purchase of securities available for sale                         |                       
|Proceeds from sale of available-for-sale securities               |                       
|Proceeds from sales and maturities of held-to-maturity securities |                       
|Purchase of held-to-maturity investment securities                |                       
|Premises and equipment expenditures                               |                       
|Net increase in loans                                             |                       
|                                                                  |                       
|Net cash used in investing activities                             |                       
|                                                                  |                       
|Cash Flows from Financing Activities                              |                       
|Net (decrease) increase in time deposits                          |                       
|Net increase in other deposits                                    |                       
|Proceeds from the issuance of subordinated debentures             |                       
|Advances from Federal Home Loan Bank                              |                       
|Issuance of common stock                                          |                       
|                                                                  |                       
|Net cash provided by financing activities                         |                       
|                                                                  |                       
|Net Increase (Decrease) in Cash and Cash Equivalents              |                       
|                                                                  |                       
|Cash and Cash Equivalents - Beginning of year                     |                       
|                                                                  |                       
|Cash and Cash Equivalents - End of year                           |                       
|                                                                  |                       
|Supplemental Cash Flow Information - Cash paid for                |                       
|Interest                                                          |                       
|Taxes                                                             |                       

See Notes to Consolidated Financial
Statements.

A-21

---



Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies

| | Basis
of Presentation and Consolidation  The consolidated financial statements include
the accounts of Clarkston Financial Corporation (the Corporation) and its
wholly owned subsidiary, Clarkston State Bank (the Bank). All significant
intercompany transactions are eliminated in consolidation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of Estimates  The accounting and reporting policies of the Corporation and its
subsidiary conform to accounting principles generally accepted in the United States of
America. Management is required to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ
from these estimates and assumptions. Material estimates that are particularly susceptible
to significant change in the near term relate to the determination of the allowance for
loan losses and deferred tax assets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nature
of Operations  Clarkston State Bank provides full-service commercial banking and
consumer banking and provides other financial products and services through five branch
offices to Michigan communities in Oakland County.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Significant
Group Concentrations of Credit Risk  Most of the Corporations activities
are with customers located within southeastern Michigan. Note 2 discusses the types of
securities in which the Corporation invests. Note 3 discusses the types of lending in
which the Corporation engages. The Corporation does not have any significant
concentrations to any one industry or customer.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents  For the purpose of the consolidated statement of cash
flows, cash and cash equivalents include cash and balances due from banks and federal
funds sold, all of which mature within 90 days.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Securities
 Debt securities that management has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost. Debt
securities not classified as held to maturity and equity securities with readily
determinable fair values are classified as available for sale and recorded at
fair value, with unrealized gains and losses excluded from earnings and reported in other
comprehensive income.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-22

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (continued)

| | Purchase
premiums and discounts are recognized in interest income using the interest method over
the terms of the securities. Declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than temporary
are reflected in earnings as realized losses. Gains and losses on the sale of securities
are recorded on the trade date and are determined using the specific identification
method.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
 The Corporation grants mortgage, commercial, and consumer loans to customers. Loans
are reported at their outstanding unpaid principal balances adjusted for charge offs, the
allowance for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the related loan
yield using the interest method.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
accrual of interest on loans is discontinued at the time the loan is 90 days delinquent
unless the credit is well-secured and in process of collection. In all cases, loans are
placed on nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
interest accrued but not collected for loans that are placed on nonaccrual or charged off
is reversed against interest income. The interest on these loans is accounted for on the
cash basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Allowance
for Loan Losses  The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the uncollectibility of
a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-23

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | The
allowance for loan losses is evaluated on a regular basis by management and is based on
managements periodic review of the collectibility of the loans in light of
historical experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. This evaluation is inherently subjective
as it requires estimates that are susceptible to significant revision as more information
becomes available.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
allowance consists of specific, general, and unallocated components. The specific
components relate to loans that are classified as doubtful, substandard, or special
mention. For such loans that are also classified as impaired, an allowance is established
when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general component covers
non-classified loans and is based on historical loss experience adjusted for qualitative
factors.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An
unallocated component is maintained to cover uncertainties that could affect
managements estimate of probable losses.
| | -------------------------------------------------------------------------------------------------------------------------

| | The
unallocated component of the allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and general
losses in the portfolio.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-24

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | A
loan is considered impaired when, based on current information and events, it is probable
that the Corporation will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including length of the delay, the
reasons of the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a
loan-by-loan basis for commercial and construction loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the
loans obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Large
groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the
Corporation does not separately identify individual consumer and residential loans for
impairment disclosures.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Credit-related
Financial Instruments  In the ordinary course of business, the Corporation has
entered into commitments to extend credit, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded when they are funded.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Banking
Premises and Equipment  Land is carried at cost. Buildings and equipment are
stated at cost, less accumulated depreciation computed on the straight-line method over
the estimated useful lives of the assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
Taxes  Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the various temporary differences
between the book and tax bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-25

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | Stock
Compensation Plans  The Corporation applies the provisions of APB Opinion No.
25, Accounting for Stock-based Compensation, accounting for all employee stock
option grants using the intrinsic value method. Disclosure of pro forma net income and
earnings per share amounts as if the fair value-based method has been applied in measuring
compensation costs is provided below.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporations as reported and pro forma information for the years ended December 31
(000s omitted, except per share data) is as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2004 | 2003                                                    | 2002
| |  | ---- | ------------------------------------------------------- | ----
| |  |      |                                                         |     
| |  |      | As reported net income available to common stockholders |     
| |  |      | Less stock-based compensation expense                   |     
| |  |      | determined under fair value method -                    |     
| |  |      | Net of tax                                              |     
| |  |      |                                                         |     
| |  |      | Pro forma net income                                    |     
| |  |      |                                                         |     
| |  |      | As reported earnings per share                          |     
| |  |      | Pro forma earnings per share                            |     
| |  |      | As reported earnings per diluted share                  |     
| |  |      | Pro forma earnings 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

A-26

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

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

| |                                             | 2004 | 2003 | 2002
| | ------------------------------------------- | ---- | ---- | ----
| |                                             |      |      |     
| |                                             |      |      |     
| | Net income 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 per common share                   |      |      |     
| |                                             |      |      |     
| | Stock options not used in computing         |      |     
| | diluted earnings per share because          |      |     
| | they were antidilutive                      |      |      |     
| |                                             |      |      |     

| | Book
Value per Share  Book value per share represents total stockholders equity
divided by the total number of shares outstanding at the end of each period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Comprehensive Income  Accounting principles generally require that recognized
revenue, expenses, gains, and losses be included in net income. Certain changes in assets
and liabilities, however, such as unrealized gains and losses on available-for-sale
securities, are reported as a direct adjustment to the equity section of the balance
sheet. Such items, along with net income, are considered components of comprehensive
income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-27

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | The
components of other comprehensive income and related tax effects are as follows (000s
omitted):
| | ---------------------------------------------------------------------------------------------------

| |                                                 | 2004 | 2003 | 2002
| | ----------------------------------------------- | ---- | ---- | ----
| |                                                 |      |      |     
| |                                                 |      |      |     
| | Unrealized holding gains/(losses) on securities |      |     
| | available for sale                              |      |      | $   
| | Reclassification adjustment for gains/ (losses) |      |     
| | realized in income                              |      |      |     
| |                                                 |      |      |     
| | Net unrealized gains (losses)                   |      |      |     
| |                                                 |      |     
| | Tax effect                                      |      |      |     
| |                                                 |      |      |     
| | Net of tax amount                               |      |      | $   
| |                                                 |      |      |     

| | Recent
Accounting Pronouncements 
| | ----------------------------------

| | In
January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. The Corporation has followed the provisions of FIN 46
and not consolidated Clarkston Capital Trust I, a trust sponsored by the Corporation for
the sole purpose of issuing trust preferred securities to third-party investors. Adoption
of this standard did not have a material effect on the Corporations financial
statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 123 (revised 2004), Share-Based Payment which revises SFAS No. 123,
Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This statement focuses primarily on
accounting for transactions in which an entity obtains an employee services in share-based
payment transactions. This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
Employers Accounting for Stock Ownership Plans. This Statement requires
an entity to recognize the cost of employee services received in share-based payment
transactions and measure the cost on a grant-date fair value of the award. The provisions
of SFAS No. 123 (revised 2004) will be effective for the Companys financial
statements issued for periods beginning after June 15, 2005. The adoption of this revised
Statement is not expected to have a material impact on the Companys consolidated
financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-28

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | In
March, 2004, the Financial Accounting Standards Board (FASB) ratified the census reached
by the Emerging Issues Task Force in Issue 03-1, The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments (EITF 03-1). EITF 03-1
provides guidance for determining when an investment is considered impaired, whether
impairment is other-than-temporary, and measurement of an impairment loss. At December 31,
2004, gross unrealized losses on available-for-sale securities was $388,000. Clarkston
Financial Corporation is continuing to evaluate the impact of EITF 03-1. The amount of
other-than-temporary impairment to be recognized, if any, will be dependent on market
conditions, managements intent and ability to hold investments until a forecasted
recovery and the finalization of the proposed guidance by the FASB.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2004, the SEC issued Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments (SAB 105). The bulletin was issued to
inform registrants of the SECs view that the fair value of the recorded loan
commitments, which are required to follow derivative accounting under FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, should not
consider the expected future cash flows related to the associated servicing of the future
loan. The provisions of SAB 105 must be applied to loan commitments accounted for as
derivatives that are entered into after March 31, 2004. The adoption of this Staff
Accounting Bulletin in the second quarter of 2004 did not have a material impact on
Clarkston Financial Corporation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
Accounting Standards Board Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, clarifies the requirements of Statement of Accounting Standards No. 5, Accounting
for Contingencies, relating to the guarantors accounting for and disclosure of
certain types of guarantees. The provisions for initial recognition and measurement became
effective on a prospective basis for guarantees that are issued or modified after December
31, 2002. Adoption of this standard did not have a material effect on the
Corporations financial condition or results of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. This statement establishes standards for
how an entity classifies and measures certain financial instruments with characteristics
of both liabilities and equity. This statement requires that an issuer classify a
financial instrument that
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-29

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 1  Summary of
Significant Accounting Policies (Continued)

| | is
within its scope as a liability. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The Corporation formed a
business trust subsidiary in December 2003 to sell trust preferred securities. The
Corporation has recorded the instruments in accordance with SFAS No. 150 (see Note 15 for
additional details).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 2  Securities

| | The
amortized cost and estimated market value of securities are as follows at
December 31, 2004 and 2003 (000s omitted):
| | ------------------------------------------------------------------------------------------------------------------------

| |                                                 | 2004
| | ----------------------------------------------- | ----
| |                                                 |     
| |                                                 |     
| |                                                 |     
| | Available-for-sale securities:                  |     
| | U.S. Treasury securities and obligations of     |     
| | U.S. government corporations and agencies       |     
| | Collateralized mortgage obligations             |     
| | Obligations of state and political subdivisions |     
| |                                                 |     
| | Total                                           |     
| |                                                 |     
| |                                                 |     
|
| |                                                 |     
| |                                                 |     
| |                                                 |     
| | Available-for-sale securities:                  |     
| | U.S. Treasury securities and obligations of     |     
| | U.S. government corporations and agencies       |     
| | Collateralized mortgage obligations             |     
| | Obligations of state and political subdivisions |     
| |                                                 |     
| | Total                                           |     
| |                                                 |     

A-30

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 2  Securities
(Continued)

| | Securities
having a carrying value of $16,583,000 and $6,054,000 (market value of $16,904,000 and
$6,053,000) were pledged at December 31, 2004 and 2003, respectively, to secure
public deposits, repurchase agreements, and for other purposes required by law.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amortized cost and estimated market value of available-for-sale securities at December 31,
2004 by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties (000s omitted):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | Available for Sale
| | -------------------------------------- | ------------------
| |                                        |                   
|
| |                                        |                   
| | Due in one year or less                |                   
| | Due in one year through five years     |                   
| | Due after five years through ten years |                   
| | Due after ten years                    |                   
| |                                        |                   
| | Total                                  |                   
| |                                        |                   

| | In
2002, the Corporation reclassified all held-to-maturity securities at an amortized cost of
$16,257,000 to available-for-sale securities at a fair market value of $16,393,000. Other
comprehensive income was adjusted to reflect the resulting net unrealized gain of
$136,000. These securities were subsequently sold and the resulting proceeds and gross
gains/losses are included in the available-for-sale figures above.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-31

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 2  Securities
(Continued)

| | Information
pertaining to securities with gross unrealized losses at December 31, 2004 and 2003,
aggregated by investment category and length of time that individual securities have been
in a continuous loss position, follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                 | 2004
| | ----------------------------------------------- | ----
| |                                                 |     
| |                                                
| |                                                 |     
| |                                                 |     
| |                                                 |     
| | Available-for-sale securities:                  |     
| | U.S. Treasury securities and obligations of     |     
| | U.S. government corporations and agencies       |     
| | Collateralized mortgage obligations             |     
| | Obligations of state and political subdivisions |     
| |                                                 |     
| | Total                                           |     
| |                                                 |     
| |                                                 |     
|
| |                                                 |     
| |                                                
| |                                                 |     
| |                                                 |     
| |                                                 |     
| | Available-for-sale securities:                  |     
| | U.S. Treasury securities and obligations of     |     
| | U.S. government corporations and agencies       |     
| | Collateralized mortgage obligations             |     
| | Obligations of state and political subdivisions |     
| |                                                 |     
| | Total                                           |     
| |                                                 |     

| | For
the years ended December 31, 2004, 2003 and 2002 gross realized gains on sales of
securities were $157,000, $755,000 and $308,000, respectively. Gross realized losses
amounted to $182,000, $223,000 and $103,000, respectively. The tax benefit (provision)
related to these gains/losses was $9,000, $(180,000) and $(70,000), respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-32

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 3  Loans

| | Major
categories of loans included in the portfolio at December 31, 2004 and 2003 are as
follows (000s omitted):
| | ----------------------------------------------------------------------------------------------------------------

| |                      | 2004 | 2003
| | -------------------- | ---- | ----
| |                      |      |     
| | Commercial mortgage  |      |     
| | Residential mortgage |      |     
| | Consumer             |      |     
| |                      |      |     
| | Total                |      |     
| |                      |      |     

| | Certain
directors of the Corporation and the Bank, including their associates, were loan customers
of the subsidiary bank. Such loans were made in the ordinary course of business and do not
involve more than a normal risk of collectibility. The outstanding loan balance for these
persons at December 31, 2004 and 2003 totaled $3,601,000 and $1,569,000,
respectively. Advances on related party loans totaled $2,542,000 and $617,000, and
repayments on related party loans totaled $510,000 and $660,000 in 2004 and 2003,
respectively. The total unused commitments for these loans totaled $162,000 and $435,000
at December 31, 2004 and 2003, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loan
maturities and rate sensitivity of the loan portfolio at December 31, 2004 are as follows
(000s omitted):
| | --------------------------------------------------------------------------------------------------------------

| |                                  | Within One Year | One to Five Years | After Five Years | Total 
| | -------------------------------- | --------------- | ----------------- | ---------------- | ------
| |                                  |                 |                   |                  |       
| | Commercial                       |                 |                   | $                | 40,345
| | Mortgage                         |                 |                   |                  | 11,599
| | Consumer                         |                 |                   |                  | 451   
| |                                  |                 |                   |                  |       
| | Total                            |                 |                   | $                | 52,395
| |                                  |                 |                   |                  |       
| | Loans at fixed interest rates    |                 |                   | $                | 7,630 
| | Loans at variable interest rates |                 |                   |                  | 44,765
| |                                  |                 |                   |                  |       
| | Total                            |                 |                   | $                | 52,395
| |                                  |                 |                   |                  |       

A-33

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 4  Allowance
for Possible Loan Losses

| | A
summary of the activity in the allowance for possible loan losses (ALL) is as follows
(000s omitted):
| | -------------------------------------------------------------------------------------------------------

| |                                 | 2004 | 2003 | 2002
| | ------------------------------- | ---- | ---- | ----
| |                                 |      |      |     
| | Balance - Beginning of year     |      |      | $   
| |                                 |      |     
| | Provision charged to operations |      |      | $   
| | Loan losses                     |      |      | $   
| | Loan loss recoveries            |      |      | $   
| |                                 |      |      |     
| | Balance - End of year           |      |      | $   
| |                                 |      |      |     
| |                                 |      |     
| | As a percent of total loans     |      |      |     
| |                                 |      |      |     

| | The
Bank considers all nonaccrual and reduced-rate loans (with the exception of residential
mortgages and consumer loans) to be impaired. There were no impaired loans outstanding as
of December 31, 2004 and 2003. Throughout 2004 and 2003, there were no loans
considered impaired. During 2002, there was an average investment in impaired loans of
approximately $74,000. There was no interest income recognized or received on these
impaired loans during the time in which they were considered impaired.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-34

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 5  Bank
Premises and Equipment

| | The
following is a summary of the cost and accumulated depreciation of premises and equipment
for the years ended December 31, 2004 and 2003 (000s omitted):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | 2004 | 2003
| | --------------------------------- | ---- | ----
| |                                   |      |     
| |                                   |      |     
| | Building                          |      |     
| | Building improvements             |      |     
| | Land                              |      |     
| | Land improvements                 |      |     
| | Furniture and equipment           |      |     
| |                                   |      |     
| | Total Bank premises and equipment |      |     
| |                                   |      |     
| | Less accumulated depreciation     |      |     
| |                                   |      |     
| | Net carrying amount               |      |     
| |                                   |      |     

| | Depreciation
expense for the years ended December 31, 2004, 2003, and 2002 amounted to $159,000,
$134,000, and $108,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------

# Note 6  Deposits

| | The
following is a summary of interest-bearing deposit accounts at December 31, 2004 and
2003 (000s omitted):
| | -------------------------------------------------------------------------------------------------------------

| |                                 | 2004 | 2003
| | ------------------------------- | ---- | ----
| |                                 |      |     
| |                                 |      |     
| | Interest checking               |      |     
| | Savings                         |      |     
| | Money Market                    |      |     
| | Time:                           |      |     
| | $100,000 and over               |      |     
| | Under $100,000                  |      |     
| |                                 |      |     
| | Total interest-bearing deposits |      |     
| |                                 |      |     

A-35

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 6  Deposits
(continued)

| | The
remaining maturities of certificates of deposit outstanding at December 31, 2004 are as
follows (000s omitted):
| | -------------------------------------------------------------------------------------------------------------------

| |       | Under $100,000 | $100,000 and Over
| | ----- | -------------- | -----------------
| |       |                |                  
| | 2005  |                |                  
| | 2006  |                |                  
| | 2007  |                |                  
| | 2008  |                |                  
| | 2009  |                |                  
| |       |                |                  
| | Total |                |                  
| |       |                |                  

# Note 7  Federal
Home Loan Bank Advances

| | At
December 31, 2004 and 2003, advances from the Federal Home Loan Bank (FHLB) were as
follows (000s omitted):
| | ---------------------------------------------------------------------------------------------------------------

| |                                                                                                                     | 2004 | 2003
| | ------------------------------------------------------------------------------------------------------------------- | ---- | ----
| |                                                                                                                     |      |     
| | Maturity in April 2005, variable rate at 1.95%                                                                      |      |     
| | Maturities from April 2005 through October 2009, fixed rates ranging from 1.83% to 3.75%, weighted average of 2.76% |      |     
| |                                                                                                                     |      |     
| | Total Federal Home Loan Bank Advances                                                                               |      |     
| |                                                                                                                     |      |     

| | Advances
from the FHLB are collateralized by qualifying investment securities with estimated market
values of $14,127,000 and $0 at December 31, 2004 and 2003. The advances are due in
full at maturity and the fixed rate advances are subject to a prepayment penalty if repaid
prior to maturity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-36

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 7  Federal
Home Loan Bank Advances (continued)

| | Maturities
over the next five years are as follows (000s omitted):
| | -------------------------------------------------------------------

| | 2005  |  |  | $ | 9,000  |  |  |  | 
| | ----- |  |  | - | ------ |  |  |  | 
| | 2006  |  |  |   | -      |  |  |  | 
| | 2007  |  |  |   | -      |  |  |  | 
| | 2008  |  |  |   | -      |  |  |  | 
| | 2009  |  |  |   | 3,200  |  |  |  | 
| |       |  |  |  
| | Total |  |  | $ | 12,200 |  |  |  | 
| |       |  | 

# Note 8  Income
Taxes

| | The
Corporation and the Bank file a consolidated income tax return. The following is a summary
of the provision for income taxes for the years ended December 31, 2004, 2003, and 2002.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Allocation
of income taxes between current and deferred portions is as follows (000s omitted):
| | ----------------------------------------------------------------------------------------------

| |                            | 2004 | 2003 | 2002
| | -------------------------- | ---- | ---- | ----
| |                            |      |      |     
| | Current expense            |      |      | $   
| | Deferred (benefit) expense |      |      |     
| |                            |      |      |     
| | Total income tax expense   |      |      | $   
| |                            |      |      |     

| | The
difference between reported federal income tax expense and the amount computed by applying
statutory tax rates to income before income taxes is as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | 2004 | 2003 | 2002
| | ----------------------------------- | ---- | ---- | ----
| |                                     |      |      |     
| |                                     |      |      |     
| | Amount computed at statutory rates  |      |      | $   
| | Increase (decrease) resulting from: |      |     
| | Tax-exempt interest                 |      |      |     
| | Other                               |      |      |     
| |                                     |      |      |     
| | Reported tax expense                |      |      | $   
| |                                     |      |      |     

A-37

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 8  Income
Taxes (continued)

| | The
temporary differences that comprise deferred tax assets and liabilities at
December 31, 2004 and 2003 are as follows (000s omitted):
| | ----------------------------------------------------------------------------------------------------------------------------------------

| |                                                  | 2004 | 2003
| | ------------------------------------------------ | ---- | ----
| |                                                  |      |     
| | Deferred tax assets:                             |      |     
| | Bad debts                                        |      |     
| | Accrued compensation                             |      |     
| | Unrealized loss on securities available for sale |      |     
| | Organization and preopening costs                |      |     
| |                                                  |      |     
| | Total deferred tax assets                        |      |     
| |                                                  |      |     
| | Deferred tax liabilities:                        |      |     
| | Unrealized gain on securities available for sale |      |     
| | Depreciation                                     |      |     
| | FHLB stock dividend                              |      |     
| | Accretion on investment securities               |      |     
| |                                                  |      |     
| | Total deferred tax liabilities                   |      |     
| |                                                  |      |     
| | Net deferred tax asset                           |      |     
| |                                                  |      |     

# Note 9 
Off-balance-sheet Activities

| | Credit-related
Financial Instruments  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, standby letters of credit, and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheet.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-38

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 9 
Off-balance-sheet Activities (continued)

| | At
December 31, 2004 and 2003, the following financial instruments were outstanding
whose contract amounts represent credit risk (000s omitted):
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| |                                            | Contract Amount
| | ------------------------------------------ | ---------------
| |                                            |                
|
| |                                            |                
| | Commitments to grant loans                 |                
| | Unfunded commitments under lines of credit |                
| | Commercial and standby letters of credit   |                

| | Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The commitments for
equity lines of credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements. The amount of
collateral obtained, if it is deemed necessary by the Corporation, is based on
managements credit evaluation of the customer.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Unfunded
commitments under commercial lines of credit, revolving credit lines, and overdraft
protection agreements are commitments for possible future extensions of credit to existing
customers. These lines of credit are collateralized and usually do not contain a specified
maturity date and may not be drawn upon to the total extent to which the Corporation is
committed.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commercial
and standby letters of credit are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. Those letters of credit are
primarily used to support public and private borrowing arrangements. Essentially all
letters of credit issued have expiration dates within one year. The Corporation generally
holds collateral supporting those commitments if deemed necessary.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Collateral
Requirements  To reduce credit risk related to the use of credit-related
financial instruments, the Corporation generally obtains collateral. The amount and nature
of the collateral obtained are based on the Corporations credit evaluation of the
customer. Collateral held varies but may include cash, securities, accounts receivable,
inventory, property, plant, and equipment, and real estate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-39

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 9 
Off-balance-sheet Activities (Continued)

| | If
the counterparty does not have the right and ability to redeem the collateral or the
Corporation is permitted to sell or repledge the collateral on short notice, the
Corporation records the collateral in its balance sheet at fair value with a corresponding
obligation to return it.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Legal
Contingencies  Various legal claims also arise from time to time in the normal
course of business which, in the opinion of management, will have no material effect on
the Corporations consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 10  Related
Parties and Commitments

| | The
Corporation and the Bank lease certain office and branch premises under operating lease
agreements. Various facilities are leased from an entity owned by the chairman of the
Board of Directors of the Corporation and the Bank. In addition, the Corporation is party
to service contracts for computer processing. Total expense for operating leases and
service contracts was as follows for the preceding 3 years ending (000s omitted):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   |  | Rent Expense
| | ----------------- |  | ------------
| |                   | 
| |                  
| |                   |  |             
| | December 31, 2002 |  |             
| | December 31, 2003 |  |             
| | December 31, 2004 |  |             

A-40

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 10  Related
Parties and Commitments (continued)

| | Rent
commitments under non-cancelable operating leases and service contracts are as follows,
before considering renewal options that generally are present (000s omitted):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      |  | Lease Commitments
| | ---- |  | -----------------
| |      | 
| |     
| |      |  |                  
| | 2005 |  |                  
| | 2006 |  |                  
| | 2007 |  |                  
| | 2008 |  |                  
| | 2009 |  |                  
| |      |  |                  
| |      |  |                  
| |      |  |                  

# Note 11 
Restriction on Dividends, Loans, and Advances

| | Banking
regulations place certain restrictions on dividends paid and loans or advances made by
the Bank to the Corporation. The total amount of dividends that may be paid at any date
is generally limited to the retained earnings of the Bank. However, dividends paid by the
Bank would be prohibited if the effect thereof would cause the Banks capital to be
reduced below applicable minimum standards. At December 31, 2004, the Banks
retained earnings available for the payment of dividends totaled $4,042,000. Accordingly,
$9,179,000 of the Corporations investment in the Bank was restricted at December
31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
or advances made by the Bank to the Corporation are generally limited to 10 percent of
the Banks capital stock and surplus. Accordingly, at December 31, 2004, Bank funds
available for loans or advances to the Corporation amounted to $941,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-41

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 12 
Stock-based Compensation

| | The
Corporation has two stock-based compensation plans. Under the employees stock
compensation plan (Employee Plan), the Corporation may grant options and other
awards to key employees for up to 21,495 shares of common stock. Under the 1998 Founding
Directors Stock Option Plan (Director Plan), the Corporation may grant options
and other awards for up to 72,693 shares of common stock. 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes stock option transactions for both plans and the related
average exercise prices for the years ended December 31, 2004, 2003, and 2002:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                         | 2004 | 2003 | 2002
| | --------------------------------------- | ---- | ---- | ----
| |                                         |      |      |     
| |                                         |      |      |     
| |                                         |      |      |     
| |                                         |      |      |     
| | Options Outstanding - Beginning of year |      |      |     
| |                                         |      |     
| | Options granted - Employee plan         |      |      |     
| | Options exercised                       |      |      |     
| | Options expired                         |      |      |     
| |                                         |      |      |     
| | Options Outstanding - End of year       |      |      |     
| |                                         |      |      |     

A-42

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 12 
Stock-based Compensation (Continued)

| | The
following table shows summary information about fixed stock options outstanding at
December 31, 2004:
| | ---------------------------------------------------------------------------------------------------------

| |               | Stock Options Outstanding | Stock Options Exercisable
| | ------------- | ------------------------- | -------------------------
| |               |                           |                          
| |               |                           |                          
| |               |                           |                          
| | Contingent    |                           |                          
| | Noncontingent |                           |                          

| | The
Corporation granted 4,280 and 3,805 restricted stock units to certain employees during
2004 and 2003. 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 13  Fair
Value of Financial Instruments

| | The
fair value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best
determined based on quoted market prices. However, in many instances, there are no quoted
market prices for the Corporations various financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate settlement of
the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair value of the
Corporation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following methods and assumptions were used by the Corporation in estimating fair value
disclosures for financial instruments:
| | ----------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents  The carrying amounts of cash and short-term investments
approximate fair values.
| | ------------------------------------------------------------------------------------------------------------

A-43

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 13  Fair
Value of Financial Instruments (Continued)

| | Securities Fair
values for securities are based on quoted market prices.
| | -------------------------------------------------------------------------

| | Loans
Receivable  For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. Fair values
for certain mortgage loans (e.g., one- to four-family residential), credit card loans,
and other consumer loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. Fair values for other loans (e.g., commercial real estate and commercial
loans) are estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality. Fair
values for non-performing loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deposit
Liabilities  The fair values disclosed for demand deposits (e.g., interest and
non-interest checking, passbook savings, and certain types of money market accounts) are,
by definition, equal to the amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts of variable-rate, fixed-term money market
accounts and certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Federal
Home Loan Bank Advances The fair value of the Corporations Federal Home
Loan Bank (FHLB) advances is estimated using discounted cash flow analyses based on the
Corporations current incremental borrowing rates for similar types of borrowing
arrangements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Junior
Subordinated Debentures The carrying amounts of variable-rate, fixed-term
debentures approximate their fair values at the reporting date.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

A-44

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 13  Fair
Value of Financial Instruments (Continued)

| | Accrued
Interest  The carrying amounts of accrued interest approximate fair value.
| | -----------------------------------------------------------------------------------

| | Other
Instruments  The fair value of other financial instruments, including loan
commitments and unfunded letters of credit, based on a discounted cash flow analyses, is
not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
estimated fair values and related carrying or notional amounts of the Corporations
financial instruments are as follows (000s omitted):
| | --------------------------------------------------------------------------------------------------------------------------------------------

| |                                | 2004 | 2003
| | ------------------------------ | ---- | ----
| |                                |      |     
| |                                |     
| |                                |      |     
| | Assets                         |      |     
| | Cash and cash equivalents      |      |     
| | Securities                     |      |     
| | Loans                          |      |     
| | Accrued interest receivable    |      |     
| |                                |      |     
| | Liabilities                    |      |     
| | Noninterest-bearing deposits   |      |     
| | Interest-bearing deposits      |      |     
| | Accrued interest payable       |      |     
| | FHLB advances                  |      |     
| | Junior subordinated debentures |      |     

# Note 14  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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-45

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 14  Minimum
Regulatory Capital Requirements (Continued)

| | The
prompt corrective action regulations provide five classifications, well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically
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 Bank and the Corporation
were well-capitalized as of December 31, 2004 and 2003
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Banks actual capital amounts and ratios as of December 31, 2004 and 2003 are
also presented in the table.
| | --------------------------------------------------------------------------------------------------------------

| |                           | Actual | For Capital Adequacy Purposes | To be Well-capitalized
| | ------------------------- | ------ | ----------------------------- | ----------------------
| |                           |        |                               |                       
| |                           |        |                               |                       
| |                           |        |                               |                       
| | As of December 31, 2004:  |        |                               |                       
| | Total risk-based capital  |        |                              
| | (to risk-weighted assets) |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| | Tier I capital            |        |                              
| | (to risk-weighted assets) |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| | Tier I capital            |        |                              
| | (to average assets)       |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| |                           |        |                              
| | As of December 31, 2003:  |        |                              
| | Total risk-based capital  |        |                              
| | (to risk-weighted assets) |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| | Tier I capital            |        |                              
| | (to risk-weighted assets) |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| | Tier I capital            |        |                              
| | (to average assets)       |        |                              
| | Bank                      |        |                               | $                     
| | Consolidated              |        |                               |                       
| |                           |        |                               |                       

A-46

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 15  Junior
Subordinated Debentures

| | The
Corporation has sponsored a trust, Clarkston Capital Trust I of which 100 percent of the
common equity is owned by the Corporation. The trust was formed for the sole purpose of
issuing corporation-obligated, mandatorily redeemable capital securities (trust
preferred securities) to third-party investors and investing the proceeds from the
sale of the trust preferred securities in an equivalent amount of junior subordinated
debentures of the Corporation. The debentures held by the trust are the sole assets of
the trust. Distributions on the trust preferred securities issued by the trust are
payable at the same rate and time as the interest being earned by the trust on the
debentures. The debentures carry a variable rate of interest at the three-month LIBOR
plus 2.8 percent, and have a stated maturity of 30 years. The securities are redeemable
at par after five years and, in effect, are guaranteed by the Corporation. Distributions
on the trust preferred securities are payable quarterly on March 30, June 30, September
30, and December 30. Under certain circumstances, distributions may be deferred for up to
20 calendar quarters. However, during any such deferrals, interest accrues on any unpaid
distributions at the rate of the three-month LIBOR plus 2.8 percent.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
trust preferred securities qualify for up to 25 percent of Tier 1 capital under
regulatory guidelines. Any amounts in excess of this limit may be included in Tier 2
capital.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A-47

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 16 
Parent-only Condensed Financial Information

| | The
condensed financial information that follows presents the financial condition of
Clarkston Financial Corporation (the Parent Company), along with the results
of its operations and its cash flows. The Parent Company has recorded its investments in
its subsidiaries at cost plus its share of the undistributed earnings of its subsidiaries
since inception. The Parent Company recognizes dividends from its subsidiaries as revenue
and undistributed earnings of its subsidiaries as other income. The Parent Company
financial information should be read in conjunction with the Corporations
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
condensed balance sheet as of December 31, 2004 and 2003 (with 000s omitted) is as
follows:
| | -----------------------------------------------------------------------------------------------

| |                                            | 2004 | 2003
| | ------------------------------------------ | ---- | ----
| |                                            |      |     
| | Assets                                     |      |     
| | Cash on deposit with correspondent bank    |      |     
| | Securities - Available for sale            |      |     
| | Investment in the Bank                     |      |     
| | Investment in Capital Trust I              |      |     
| | Accrued interest receivable and other      |      |     
| |                                            |      |     
| | Total assets                               |      |     
| |                                            |      |     
| |                                            |      |     
| | Liabilities                                |      |     
| | Accounts payable                           |      |     
| | Notes payable                              |      |     
| |                                            |      |     
| | Total liabilities                          |      |     
| |                                            |      |     
| | Stockholders' Equity                       |      |     
| |                                            |      |     
| | Total liabilities and stockholders' equity |      |     
| |                                            |      |     

A-48

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 16 
Parent-only Condensed Financial Information (Continued)

| | The
condensed statement of income for the years ended December 31, 2004 and 2003, and
2002 (000s omitted) is as follows:
| | ------------------------------------------------------------------------------------------------------------------------

| |                                                        | 2004 | 2003 | 2002
| | ------------------------------------------------------ | ---- | ---- | ----
| |                                                        |      |      |     
| | Operating Income - Dividends received from             |      |      |     
| | Bank subsidiary                                        |      |      | $   
| | Interest Income                                        |      |      |     
| | Other Income                                           |      |      |     
| |                                                        |      |      |     
| | Total Operating Income                                 |      |      |     
| | Operating Expenses                                     |      |      |     
| |                                                        |      |      |     
| | Loss - Before income taxes and equity in undistributed |      |     
| | income of subsidiary                                   |      |      |     
| |                                                        |      |     
| | Provision for Income Tax Benefit                       |      |      |     
| |                                                        |      |      |     
| | Loss - Before equity in undistributed income           |      |     
| | of subsidiary                                          |      |      |     
| |                                                        |      |     
| | Equity in Undistributed Income of Subsidiary           |      |      |     
| |                                                        |      |      |     
| | Net Income                                             |      |      | $   
| |                                                        |      |      |     

A-49

---



# Clarkston Financial
Corporation

---

Notes to Consolidated
Financial Statements December 31, 2004, 2003, and 2002

# Note 16 
Parent-only Condensed Financial Information (Continued)

| | The
condensed statement of cash flows for the years ended December 31, 2004, 2003, and 2002
(000s omitted) is as follows:
| | -------------------------------------------------------------------------------------------------------------------------

| |                                                                    | 2004 | 2003 | 2002
| | ------------------------------------------------------------------ | ---- | ---- | ----
| |                                                                    |      |      |     
| | Cash Flows from Operating Activities                               |      |      |     
| | Net income                                                         |      |      | $   
| | Adjustments to reconcile net income to net cash                    |      |     
| | from operating activities:                                         |      |     
| | Income from subsidiary                                             |      |      |     
| | Amortization/(Accretion) on securities                             |      |      |     
| | Loss on sale of available-for-sale securities                      |      |      |     
| | Increase in interest receivable and other                          |      |      |     
| | Decrease (Increase) in receivable from subsidiary                  |      |      |     
| | Increase in accounts payable and other                             |      |      |     
| |                                                                    |      |      |     
| | Net cash used in operating activities                              |      |      |     
| |                                                                    |      |     
| | Cash Flows from Investing Activities                               |      |     
| | Investment in subsidiary                                           |      |      |     
| | Proceeds from sale/paydown of available-for-sale        securities |      |      |     
| | Purchase of available-for-sale securities                          |      |      |     
| | Investment in Capital Trust subsidiary                             |      |      |     
| |                                                                    |      |      |     
| | Net cash used in investing activities                              |      |      |     
| |                                                                    |      |     
| | Cash Flows from Financing Activities                               |      |     
| | Issuance of stock                                                  |      |      |     
| | Proceeds from notes payable                                        |      |      |     
| |                                                                    |      |      |     
| | Net cash provided by financing activities                          |      |      |     
| |                                                                    |      |      |     
| | Net Increase (Decrease) in Cash and Cash Equivalents               |      |      |     
| |                                                                    |      |     
| | Cash and Cash Equivalents - Beginning of year                      |      |      |     
| |                                                                    |      |      |     
| | Cash and Cash Equivalents - End of year                            |      |      | $   
| |                                                                    |      |      |     

A-50

---



# Exhibit 21

# SUBSIDIARIES OF
REGISTRANT

| | Clarkston State Bank - 100% owned
Incorporated as a Michigan Banking Corporation
15 South Main Street
Clarkston, Michigan 48346
Clarkston Capital Trust I
Incorporated as a Delaware Statutory Trust
15 South Main Street
Clarkston, Michigan  48346
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---



# Exhibit 23

# CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of DirectorsClarkston Financial
Corporation

We consent to the incorporation by
reference of our report dated March 14, 2005, on our audit of the consolidated
financial statements for the years ended December 31, 2004, 2003, and 2002 which report is
included in this Annual report on form 10-KSB.

/s/ Plante & Moran
PLLC

March 24, 2005Auburn
Hills, Michigan

---



# Exhibit 31.1

# Certification Pursuant
to Section 302 of the Sarbanes-Oxley
Act of 2002

I, Edwin L. Adler, certify that:

|1. | I have reviewed this annual report on Form 10-KSB of Clarkston Financial
          Corporation;
|-- | -----------------------------------------------------------------------------------------------

|2. | Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

Date: March 18, 2005

| |  | /s/ Edwin L. Adler
Edwin L. AdlerChief Executive Officer
| |  | ----------------------------------------------------------------------

---



# Exhibit 31.2

# Certification Pursuant
to Section 302of the Sarbanes-Oxley
Act of 2002

I, J. Grant Smith, certify that:

|1. | I have reviewed this annual report on Form 10-KSB of Clarkston Financial
          Corporation;
|-- | -----------------------------------------------------------------------------------------------

|2. | Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

Date: March 18, 2005

| |  | /s/ J. Grant Smith
J. Grant SmithChief Financial Officer
| |  | ----------------------------------------------------------------------

---



# EXHIBIT 32-1

# Certification Pursuant
to Section 906of the Sarbanes-Oxly
Act of 2002

I, Edwin L. Adler, Chief Executive
Officer of Clarkston Financial Corporation, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    
          the Annual Report on Form 10-KSB for the year ended December 31, 2004 which this
          statement accompanies fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934, and

(2)    
          the information contained in the Annual Report on Form 10-KSB for the year ended
          December 31, 2004 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 18, 2005

| |  | /s/ Edwin L. Adler
Edwin L. AdlerChief Executive Officer
| |  | ----------------------------------------------------------------------

---



# EXHIBIT 32-2

# Certification Pursuant
to Section 906 of the Sarbanes-Oxly
Act of 2002

I, J. Grant Smith, Chief Financial
Officer of Clarkston Financial Corporation, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    
          the Annual Report on Form 10-KSB for the year ended December 31, 2004 which this
          statement accompanies fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934, and

(2)    
          the information contained in the Annual Report on Form 10-KSB for the year ended
          December 31, 2004 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 18, 2005

| |  | /s/ J. Grant Smith
J. Grant SmithChief Financial Officer
| |  | ----------------------------------------------------------------------