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

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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                      OF THE SECURITIES EXCHANGE ACT OF 1934
                                    For the fiscal year ended December 31, 2003
                                                        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 333-63685CLARKSTON 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. YesXNo ____

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
2003 were $7.9 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 $19.50 as
of March 15, 2004, was $14,800,968 (common stock, no par value). As of March 15, 2004,
there were outstanding 1,039,214 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 11, 2004, 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, 2003, we had total assets of $142.6 million, total deposits of $126.6
million, approximately 6,600 deposit accounts and shareholders equity of $11.2
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 2003. 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 our customers and understand and meet their
needs. 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 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, 2003, we had 23 full-time and 16 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 2003, 2002 and 2001
in Managements Discussion and Analysis of Financial Condition and Results of
Operations.

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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 is 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.

Financial
holding companies, like us, 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
of our 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.

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.

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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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|                               | TotalRisk-BasedCapital Ratio | Tier 1Risk-BasedCapital Ratio | Leverage Ratio
|------------------------------ | ---------------------------- | ----------------------------- | --------------
|Well capitalized               |                              | 10% or above                  |               
|Adequately capitalized         |                              | 8% or above                   |               
|Undercapitalized               |                              | Less than 8%                  |               
|Significantly undercapitalized |                              | Less than 6%                  |               
|Critically undercapitalized    |                              | --                            |               

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 is 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.

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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.

11

---



# 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 office in Farmer Jacks grocery store at 6555
Sashabaw Road, Clarkston, Michigan, at a rental rate of $2,750 per month under a lease
which runs until July 2005.

On
June 15, 2001, the bank opened its Waterford branch office on M-59 adjacent to the Oakland
Pontiac Airport. On July 30, 2001, we opened our fourth full service banking office
located at 7763 Ortonville Road in Independence Township. On November 19, 2001, we began
operating an office in the Farmer Jack Supermarket on the corner of Dixie Highway and
White Lake Road in Independence Township.

On
October 27, 2003, the Bank entered into a lease for vacant land to be used for a future branch.  The
lease has a 25-year term and rent of $5,250 per month for the first five years and increased each
subsequent five years based on 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 2003 to a vote of our stockholders.

12

---



# 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
|----------------- | ---- | ---
|2003First Quarter |      | $10
|Second Quarter    |      | $11
|Third Quarter     |      | $14
|Fourth Quarter    |      | $16
|                 
|2002First Quarter |      | $9 
|Second Quarter    |      | $9 
|Third Quarter     |      | $9 
|Fourth Quarter    |      | $8 

These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. On March 15, 2004, there were approximately 293
owners of record and approximately 645 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 11, 2003 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 11, 2003
Annual Shareholders Meeting, is hereby incorporated by reference and is filed as Exhibit
13 to this Form 10-KSB Annual Report.

13

---



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

14

---



# 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 11, 2004 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 11, 2004 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 11, 2003 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, 2003.

|                                                           | Equity Compensation Plan Information |       
|---------------------------------------------------------- | ------------------------------------ | ------
|
|                                                          
|Equity compensation plans approved by security holders     |                                      | 49,536
|                                                          
|Equity compensation plans not approved by security holders |                                      | 0     
|                                                          
|Total                                                      |                                      | 49,536

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

15

---



# 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 11, 2004 Annual Shareholders Meeting and the information within that
section is incorporated herein by reference.

# ITEM 13: Exhibits,
Financial Statements, Schedules, and Reports on Form 8-K.

(a)    
          Financial Statements.

| | 1. | The
following documents are filed as part of Item 7 of this report: Report of Independent
AuditorsConsolidated Balance Sheets as of December 31, 2003 and 2002Consolidated
Statements of Operations for the year ended December 31, 2003, 2002 and 2001 Consolidated
Statements of Changes in Stockholders Equity for the year ended December 31, 2003,
2002 and 2001Consolidated Statement of Cash Flows for the year ended December 31, 2003,
2002 and 2001 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)    
          Reports on Form 8-K

| | 1. | Current Report on Form 8-K dated December 12, 2003, disclosing in Item 5 the
          completion of a $4.0 million private placement of floating rate trust preferred
          securities.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Current Report on Form 8-K dated October 28, 2003, furnishing pursuant to Item
          12 a press release announcing results for the third quarter.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------

16

---



# 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 11, 2004 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 25, 2004.

| | 
| | 
| | 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below on March 25, 2004, 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 | 
|                                                    
|/s/ Louis D. Beer                                    | 
|Louis D. Beer, Director                              | 
|                                                    
|/s/ William J. Clark                                 | 
|William J. Clark, Director                           | 
|                                                    
|/s/ Charles L. Fortinberry                           | 
|Charles L. Fortinberry, Director                     | 
|                                                    
|/s/ Dawn M. Horner                                   | 
|Dawn M. Horner, Director                             | 
|                                                    
|/s/ Bruce H. McIntyre                                | 
|Bruce H. McIntyre, Secretary and a Director          | 
|                                                    
|/s/ John H. Welker                                   | 
|John H. Welker, Director                             | 

941671/5

18

---



# EXHIBIT INDEX

Sequentially Numbered Page

# Exhibit Number and
Description

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

| |  |  | 13 |  | Appendix
A of the Proxy Statement to shareholders for the May 11, 2004, 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 public accountants
| |  |  | -- |  | --------------------------------------------------------------

| |  |  | 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 10.6

# FORM OF MANAGEMENT
CONTINUITY AGREEMENT

THIS
IS AN AGREEMENT between CLARKSTON FINANCIAL CORPORATION (the
Corporation), whose principal offices are 15 South Main Street, Clarkston,
Michigan 49346, and ___________________________________________________ (the
Executive), whose address is listed on the signature page of this Agreement,
dated February 13, 2004.

RECITALS

The
Executive is a key executive officer of the Corporation or a Subsidiary of the Corporation
whose continued dedication, availability, advice and counsel to the Corporation and its
Subsidiaries is deemed important to the Board of Directors of the Corporation
(Board), the Corporation and its shareholders. The services of the Executive,
his or her experience and knowledge of the affairs of the Corporation and his or her
reputation and contacts in the industry are extremely valuable to the Corporation. The
Corporation wishes to attract and retain such well-qualified executives, and it is in the
best interests of the Corporation and of the Executive to secure the continued services of
the Executive notwithstanding any change in control of the Corporation. The Corporation
considers the establishment and maintenance of a sound and vital management to be part of
its overall corporate strategy and to be essential to protecting and enhancing the best
interests of this Corporation and its shareholders. Accordingly, the Board has approved
this Agreement with the Executive and authorized its execution and delivery on behalf of
the Corporation.

AGREEMENT

1.       
          Term of Agreement. This Agreement will begin on the date entered above
          (the Commencement Date) and will continue in effect perpetually
          unless the Corporation notifies the Executive in writing at least twelve months
          in advance that the Corporation is amending or terminating this Agreement as of
          a specified date at least twelve months after the date of the notice; provided,
          however, that such notice may not be given and will not be effective if the
          Corporation is at the time in negotiations to effect a Change of Control. If a
          Change of Control occurs during the Term of this Agreement, this Agreement will
          continue in effect for at least [thirty-six (36)] months beyond the end
          of the month in which any Change of Control occurs.

2.       
          Definitions. The following defined terms shall have the meanings set
          forth below, for purposes of this Agreement:

| | (a)       
               Change of Control. A Change of Control of the Corporation
               shall be deemed to have occurred only if:
| | ----------------------------------------------------------------------------------------------------------------------------------------------



---



| | (i)       
               Any person (as such term is used in Sections 13(d) and 14(d) of the
               Securities Exchange Act of 1934 (the Exchange Act)) is or becomes
               the beneficial owner (as defined in Rule 13d-3 under the Exchange
               Act), directly or indirectly, of securities of the Corporation representing
               fifty-one percent (51%) or more of the combined voting power of the
               Corporations then outstanding securities; or
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)       
               At any time a majority of the Board of Directors of the Corporation is comprised
               of other than Continuing Directors (for purposes of this and the following
               paragraphs, the term Continuing Director means a director who was either (A)
               first elected or appointed as a Director prior to the date of this Agreement; or
               (B) subsequently elected or appointed as a director if such director was
               nominated or appointed by at least a majority of the then Continuing Directors);
               or
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii)       
               Any of the following occur:
| | -------------------------------------------------------

| | (A)       
               Any merger or consolidation of the Corporation, other than a merger or
               consolidation in which the voting securities of the Corporation immediately
               prior to the merger or consolidation continue to represent (either by remaining
               outstanding or being converted into securities of the surviving entity)
               fifty-one percent (51%) or more of the combined voting power of the Corporation
               or surviving entity immediately after the merger or consolidation with another
               entity;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (B)       
               Any sale, exchange, lease, mortgage, pledge, transfer, or other disposition (in
               a single transaction or a series of related transactions) of all or
               substantially all of the assets of the Corporation, which shall not include any
               asset sales approved by the Continuing Directors for the specific purpose of
               downsizing of the Corporations continuing business operations;
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (C)       
               Any liquidation or dissolution of the Corporation; or
| | -------------------------------------------------------------------------------

| | (D)       
               Any transaction or series of related transactions having, directly or
               indirectly, the same effect as any of the foregoing; or any agreement, contract,
               or other arrangement providing for any of the foregoing.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
               Disability. Disability means that, as a result of
               Executives incapacity due to physical or mental illness, the Executive
               shall have been found to be eligible for the receipt of benefits under the
               Corporations long term disability plan.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2

---



| | (c)       
               Cause. Cause means (i) the willful commission by the
               Executive of a criminal or other act that causes or will probably cause
               substantial economic damage to the Corporation or a Subsidiary or substantial
               injury to the business reputation of the Corporation or a Subsidiary; (ii) the
               commission by the Executive of an act of fraud in the performance of such
               Executives duties on behalf of the Corporation or a Subsidiary; or (iii)
               the continuing willful failure of the Executive to perform the duties of such
               Executive to the Corporation or a Subsidiary (other than any such failure
               resulting from the Executives Disability or occurring after issuance by
               Executive of a Notice of Termination for Good Reason) after written notice
               thereof (specifying the particulars thereof in reasonable detail) and a
               reasonable opportunity to be heard and cure such failure are given to the
               Executive by the Executive Compensation Committee of the Board. For purposes of
               this subparagraph, no act, or failure to act, on the Executives part shall
               be deemed willful unless done, or omitted to be done, by the
               Executive not in good faith and without reasonable belief that the action or
               omission was in the best interest of the Corporation or a Subsidiary.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d)       
               Good Reason. For purposes of this Agreement, Good Reason
               means the occurrence of any one or more of the following without the
               Executives express written consent:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)       
               The assignment to Executive of duties which are materially different from or
               inconsistent with the duties, responsibilities, and status of Executives
               position at any time during the six (6) month period prior to the Change of
               Control of the Corporation, or which result in a significant reduction in
               Executives authority and responsibility as a senior executive of the
               Corporation;
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)       
               A reduction by the Corporation in Executives base salary or salary grade
               as of the day prior to the Change of Control, or the failure to grant salary
               increases and bonus payments on a basis comparable to those granted to other
               executives of the Corporation, or reduction of Executives most recent
               incentive bonus potential prior to the Change of Control under the
               Corporations executive officer bonus plan, or any successor plan;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii)       
               The Corporation requiring Executive to be based at a location in excess of
               twenty (20) miles from the location where Executive is currently based, or in
               the event of any relocation of the Executive with the Executives express
               written consent, the failure of the Corporation or a Subsidiary to pay (or
               reimburse the Executive for) all reasonable moving expenses by the Executive
               relating to a change of principal residence in connection with such relocation
               and to indemnify the Executive against any loss realized in the sale of the
               Executives principal residence in connection with any such change of
               residence, all to the effect that the Executive shall incur no loss on an after
               tax basis;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---



| | (iv)       
               The failure of the Corporation to obtain a satisfactory agreement from any
               successor to the Corporation to assume and agree to perform this Agreement, as
               contemplated in Paragraph 6 hereof;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v)       
               Any termination by the Corporation of Executives employment that is not
               effected pursuant to a Notice of Termination;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vi)       
               Any termination of Executives employment, reduction in Executives
               compensation or benefits, or adverse change in Executives location or
               duties, if such termination, reduction or adverse change (aa) occurs within six
               (6) months before a Change of Control, (bb) is in contemplation of such Change
               in Control, and (cc) is taken to avoid the effect of this Agreement should such
               action occur after such Change in Control;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vii)       
               The failure of the Corporation to provide the Executive with substantially the
               same fringe benefits (including, without limitation, retirement plan, health
               care, insurance, stock options and paid vacations) that were provided to him
               immediately prior to the Change in Control, or with a package of fringe benefits
               that, though one or more of such benefits may vary from those in effect
               immediately prior to such Change in Control, is substantially comparable in all
               material respects to such fringe benefits taken as a whole.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
existence of Good Reason shall not be affected by Executives Disability.
Executives continued employment shall not constitute a waiver of Executives
rights with respect to any circumstance constituting Good Reason under this Agreement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e)       
               Notice of Termination. Notice of Termination means a written
               notice indicating the specific termination provision in this Agreement relied
               upon and setting forth in reasonable detail the facts and circumstances claimed
               to provide a basis for termination of the employment under the provision so
               indicated. The Executive shall not be entitled to give a Notice of Termination
               that the Executive is terminating employment for Good Reason more than six (6)
               months following the occurrence of the event alleged to constitute Good Reason,
               except with respect to an event which occurred before the Change of Control, in
               which case the Notice of Termination must be given within six (6) months
               following the Change of Control.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

---



| | (f)       
               Subsidiary. Subsidiary means a corporation with at least
               eighty percent (80%) of its outstanding capital stock owned by the Corporation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3.       
          Eligibility for Severance Benefits. Subject to Paragraph 5, the Executive
          shall receive the Severance Benefits described in Paragraph 4 if the
          Executives employment is terminated during the term of this Agreement, and

| | (a)       
               The termination occurs within ___________________ months after a Change of
               Control, unless the termination is (i) because of Executives death or
               Disability, (ii) by the Corporation for Cause, or (iii) by the Executive other
               than for Good Reason; or
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
               The Corporation terminates the employment within six (6) months before a Change
               of Control, in contemplation of such Change of Control, and to avoid the effect
               of this Agreement should such action occur after such Change of Control.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4.       
          Severance Benefits. Subject to Paragraph 5, the Executive shall receive
          the following Severance Benefits (in addition to accrued compensation and vested
          benefits through the date the termination is effective) if eligible under
          Paragraph 3:

| | (a)       
               A lump sum cash amount equal to Executives annual base salary at the
               highest annual rate in effect during the twelve (12) month period immediately
               prior to the Change of Control or, if greater, at the rate in effect at the time
               Notice of Termination is given (or on the date the employment is terminated if
               no Notice of Termination is required), multiplied by
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

_________________

| | (b)       
               The average incentive bonus paid to Executive over the preceding three (3) full
               year period, multiplied by ______;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)       
               For a _________ month period after the date the employment is terminated, the
               Corporation will arrange to provide to Executive at the Corporations
               expense, with:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)       
               Health care coverage equal to that in effect for Executive prior to the
               termination (or, if more favorable to Executive, that furnished generally to
               salaried employees of the Corporation), including, but not limited to, hospital,
               surgical, medical, dental, prescription and dependent coverages. Upon the
               expiration of the health care benefits required to be provided pursuant to this
               subparagraph 4(c), the Executive shall be entitled to the continuation of such
               benefits under the provisions of the Consolidated Omnibus Budget Reconciliation
               Act;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

---



| | (ii)       
               Life and accidental death and dismemberment insurance coverage (including
               supplemental coverage purchase opportunity and double indemnity for accidental
               death) equal (including policy terms) to that in effect at the time Notice of
               Termination is given (or on the date the employment is terminated if no Notice
               of Termination is required) or, if more favorable to Executive, equal to that in
               effect at the date the Change of Control occurs; and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii)       
               Disability insurance coverage (including policy terms) equal to that in effect
               at the time Notice of Termination is given (or on the date employment is
               terminated if no Notice of Termination is required) or, if more favorable to
               Executive, equal to that in effect immediately prior to the Change of Control;
               provided, however, that no income replacement benefits will be payable under
               such disability policy with regard to the three (3) year period following a
               termination of employment provided that the payments payable under subparagraphs
               4(a) and (b) above have been made;
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Health
care benefits otherwise receivable by Executive pursuant to this subparagraph 4(c) shall
be reduced to the extent comparable benefits are actually received by Executive from a
subsequent employer during the _____ month period following the date the employment is
terminated and any such benefits actually received by Executive shall be reported to the
Corporation. All such benefits pursuant to this subparagraph 4(c) shall cease upon
Executives death or upon Executive attaining the age of 65;
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d)       
               The Corporation shall pay all fees for outplacement services for the Executive
               up to a maximum equal to fifteen percent (15%) of the Executives base
               salary used to calculate his or her benefit under subparagraph 4(a) plus provide
               a travel expense account of up to $2,500 to reimburse job search travel;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e)       
               In computing and determining Severance Benefits under subparagraphs 4(a), (b),
               (c), and (d) above, a decrease in Executives salary, incentive bonus, or
               insurance benefits shall be disregarded if such decrease occurs within six (6)
               months before a Change of Control, is in contemplation of such Change of
               Control, and is taken to avoid the effect of this Agreement should such action
               be taken after such Change of Control; in such event, the salary, incentive
               bonus, and/or insurance benefits used to determine Severance Benefits shall be
               that in effect immediately before the decrease that is disregarded pursuant to
               this subparagraph 4(c); and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f)       
               Executive shall not be required to mitigate the amount of any payment provided
               for in this Paragraph 4 by seeking other employment or otherwise, nor shall the
               amount of any payment provided for in this Paragraph 4 be reduced by any
               compensation earned by Executive as the result of employment by another employer
               after the date the employment is terminated, or otherwise, with the exception of
               a reduction in health insurance coverage as provided in subparagraph 4(c)(i).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

---



The
payments provided in subparagraphs 4(a) and (b) above shall be made not later than thirty
(30) business days following the date the employment terminates.

Any
termination by the Corporation for Cause or due to Executives Disability, or by
Executive for Good Reason shall be communicated by Notice of Termination to the other
party.

5.       
          Maximum Payments. Notwithstanding any provision in this Agreement to the
          contrary, if part or all of any amount to be paid to Executive by the
          Corporation under this Agreement or otherwise constitute a parachute
          payment (or payments) under Section 280G or any other similar provision of
          the Internal Revenue Code of 1986, as amended (the Code), the
          following limitation shall apply:

| | If
the aggregate present value of such parachute payments (the Parachute Amount)
exceeds 2.99 times Executives base amount as defined in Section 280G of
the Code, and if as a result the amounts otherwise payable to or for the benefit of the
Executive subsequent to the termination of his or her employment, and taken into account
in calculating the Parachute Amount (the termination payments), shall be
reduced and/or delayed, as further described below, to the extent necessary so that the
Parachute Amount is equal to 2.99 times the Executives base amount.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any determination or calculation
described in this Paragraph 5 shall be made by the Corporations independent
accountants. Such determination, and any proposed reduction and/or delay in termination
payments shall be furnished in writing promptly by the accountants to the Executive. The
Executive may then elect, in his or her sole discretion, which and how much of any
particular termination payment shall be reduced and/or delayed and shall advise the
Corporation in writing of his or her election, within thirty (30) days of the
accountants determination, of the reduction or delay in termination payments. If no
such election is made by the Executive within such 30-day period, the Corporation may
elect which and how much of any termination payment shall be reduced and/or delayed and
shall notify the Executive promptly of such election. As promptly as practicable following
such determination and the elections hereunder, the Corporation shall pay to or distribute
to or for the benefit of the Executive such amounts as are then due to the Executive.

Any
disagreement regarding a reduction or delay in termination payments will be subject to
arbitration under Paragraph 15 of this Agreement. Neither the Executives designation
of specific payments to be reduced or delayed, nor the Executives acceptance of
reduced or delayed payments, shall waive the Executives right to contest such
reduction or delay.

7

---



6.       
          Successors; Binding Agreements. This Agreement shall inure to the benefit
          of and be enforceable by Executives personal and legal representatives,
          executors, administrators, successors, heirs, distributees, devisees and
          legatees. Executives rights and benefits under this Agreement may not be
          assigned, except that if Executive dies while any amount would still be payable
          to Executive hereunder if Executive had continued to live, all such amounts,
          unless otherwise provided herein, shall be paid in accordance with the terms of
          this Agreement, to the beneficiaries designated by the Executive to receive
          benefits under this Agreement in a writing on file with the Corporation at the
          time of the Executives death or, if there is no such beneficiary, to
          Executives estate. The Corporation will require any successor (whether
          direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
          substantially all of the business and/or assets of the Corporation (or of any
          division or Subsidiary thereof employing Executive) to expressly assume and
          agree to perform this Agreement in the same manner and to the same extent that
          the Corporation would be required to perform it if no such succession had taken
          place. Failure of the Corporation to obtain such assumption and agreement prior
          to the effectiveness of any such succession shall be a breach of this Agreement
          and shall entitle Executive to compensation from the Corporation in the same
          amount and on the same terms to which Executive would be entitled hereunder if
          Executive terminated the employment for Good Reason following a Change of
          Control.

7.       
          Withholding of Taxes. The Corporation may withhold from any amounts
          payable under this Agreement all federal, state, city, or other taxes as
          required by law.

8.       
          Notice. For the purpose of this Agreement, notices and all other
          communications provided for in this Agreement shall be in writing and shall be
          deemed to have been duly given when delivered or mailed by United States
          registered mail, return receipt requested, postage prepaid, addressed to the
          respective addressees set forth on the first page of this Agreement, or at such
          other addresses as the parties may designate in writing.

9.       
          Miscellaneous. No provision of this Agreement may be modified, waived, or
          discharged unless such waiver, modification, or discharge is agreed to in
          writing and signed by Executive and such officer as may be specifically
          designated by the Board of Directors of the Corporation; provided, however, that
          the Corporation may unilaterally amend this Agreement with advance notice as
          provided in Paragraph 1 of this Agreement. The validity, interpretation,
          construction, and performance of this Agreement shall be governed by the laws of
          the State of Michigan.

10.       
          Employment Rights. This Agreement shall not confer upon Executive any
          right to continue in the employ of the Corporation or its subsidiaries and shall
          not in any way affect the right of the Corporation or its subsidiaries to
          dismiss or otherwise terminate Executives employment at any time with or
          without cause.

11.       
          No Vested Interest. Neither Executive nor Executives beneficiary
          shall have any right, title, or interest in any benefit under this Agreement
          prior to the occurrence of the right to the payment thereof, or in any property
          of the Corporation or its subsidiaries or affiliates.

8

---



12.       
          Prior Agreements. This Agreement contains the understanding between the
          parties hereto with respect to Severance Benefits in connection with a Change of
          Control of the Corporation and supersedes any such prior agreement between the
          Corporation (or any predecessor of the Corporation) and Executive. If there is
          any discrepancy or conflict between this Agreement and any plan, policy, or
          program of the Corporation regarding any term or condition of Severance Benefits
          in connection with a Change of Control of the Corporation, the language of this
          Agreement shall govern.

13.       
          Validity. The invalidity or unenforceability of any provision of this
          Agreement shall not affect the validity or enforceability of any other provision
          of this Agreement, which shall remain in full force and effect.

14.       
          Counterparts. This Agreement may be executed in several counterparts,
          each of which shall be deemed to be an original but all of which together shall
          constitute one and the same instrument.

15.       
          Arbitration. The sole and exclusive method for resolving any dispute
          arising out of this Agreement shall be arbitration in accordance with this
          paragraph. Except as provided otherwise in this paragraph, arbitration pursuant
          to this paragraph shall be governed by the Commercial Arbitration Rules of the
          American Arbitration Association. A party wishing to obtain arbitration of an
          issue shall deliver written notice to the other party, including a description
          of the issue to be arbitrated. Within fifteen (15) days after either party
          demands arbitration, the Corporation and the Executive shall each appoint an
          arbitrator. Within fifteen (15) additional days, these two arbitrators shall
          appoint the third arbitrator by mutual agreement; if they fail to agree within
          said fifteen (15) day period, then the third arbitrator shall be selected
          promptly pursuant to the rules of the American Arbitration Association for
          Commercial Arbitration. The arbitration panel shall hold a hearing in Oakland
          County, Michigan, within ninety (90) days after the appointment of the third
          arbitrator. The fees and expenses of the arbitrator, and any American
          Arbitration Association fees, shall be paid by the Corporation. Both the
          Corporation and the Executive may be represented by counsel and may present
          testimony and other evidence at the hearing. Within ninety (90) days after
          commencement of the hearing, the arbitration panel will issue a written
          decision; the majority vote of two of the three arbitrators shall control. The
          majority decision of the arbitrators shall be final and binding on the parties,
          and shall be enforceable in accordance with law. Judgment may be entered on the
          arbitrators award in any court having jurisdiction. The Executive shall be
          entitled to seek specific performances of his or her rights under this Agreement
          during the pendency of any dispute or controversy arising under or in connection
          with this Agreement. The Corporation will reimburse Executive for all reasonable
          attorney fees incurred by Executive as the result of any arbitration with regard
          to any issue under this Agreement (or any judicial proceeding to compel or to
          enforce such arbitration); (i) which is initiated by Executive if the
          Corporation is found in such proceeding to have violated this Agreement
          substantially as alleged by Executive; or (ii) which is initiated by the
          Corporation, unless Executive is found in such proceeding to have violated this
          Agreement substantially as alleged by the Corporation.

IN
WITNESS WHEREOF, the parties have signed this Agreement as of the day and year written
above.

9

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| |  | CORPORATION:CLARKSTON FINANCIAL CORPORATIONBy:            Its:            
| |  | -------------------------------------------------------------------------------------------------------------

| | EXECUTIVE
| | -----------------------------
| | Print Name:Address:          

10

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|Exhibit 13                                                                           
|-------------------------------------------------------------------------------------
|Management's Discussion and Analysis of Financial Condition and Results of Operations
|Independent Auditors Report                                                          
|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                                           

13-1

---



# MANAGEMENTS
DISCUSSION AND ANALYSIS OF THE COMPANY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, 2003, had total assets of $142.6 million. Further complementing this asset
growth is strong profitability. The Companys net income was $1.5 million for the
year ended December 31, 2003, an 83% increase over 2002 net income of $801,000. 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

Basis of Presentation and
Consolidation  The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, the Bank. All significant intercompany
transactions are eliminated in consolidation.

Use of Estimates  The
accounting and reporting policies of the Company 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.

13-2

---



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.

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 Company
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.

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 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.

13-3

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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.

Credit-related Financial
Instruments  In the ordinary course of business, the Company 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.

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.

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
Company relate solely to outstanding stock options and are determined using the treasury
stock method.

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.

13-4

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Recent Accounting
Pronouncements  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 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
Company formed a business trust subsidiary in December 2003 to sell trust preferred
securities. The Company has recorded the instruments in accordance with SFAS No. 150 (see
Note 14 for additional details).

Financial Accounting Standards
Board Interpretation No. 46  In January 2003, the FASB issued Interpretation No.
46 (FIN 46), Consolidation of Variable Interest Entities. The Company has followed
the provisions of FIN 46 and not consolidated Clarkston Capital Trust I, a trust sponsored
by the Company 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 Companys
financial statements.

# 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 has no borrowings and as such there are 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 became a member of the Federal
Home Loan Bank during 2003 further providing access to lower interest bearing funds if
needed.

# Financial Condition

Summary.Total assets of the Company increased to $142.6 million at December 31,
          2003, from $115.3 million at December 31, 2002. Deposits increased significantly
          as well growing from $104.9 million at December 31, 2002, to $126.6 million at
          December 31, 2003, a 21% increase. This increase in assets and deposits is
          primarily attributable to the Bank continuing to attract new customers through
          its expanding operations. 2003 was the Companys fifth full year of
          operations and the number of deposit and loan relationships increased to
          approximately 7,333 at December 31, 2003 from 6,589 accounts at December 31,
          2002. Management attributes the strong 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 2004 and beyond, perhaps at a slower rate than has been the case
          during the first five years of operation.

13-5

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Much
of the deposit growth has been used to fund growth in the loan portfolio. Outstanding
loans increased 54% to $84.1 million from $54.7 million during the period December 31,
2002 to December 31, 2003. 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 $54.7 million at
December 31, 2002 to $49.0 million at December 31, 2003. 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 2004.

Cash
and Cash Equivalents. Cash and cash equivalents, which include federal funds sold and
short term investments, increased $3.4 million, or 76%, to $7.9 million at December 31,
2003, from $4.5 million at December 31, 2002. The increase is attributable to higher
federal funds sold because of the bond market elasticity and higher uncollected deposits
associated with increased customer activity.

Securities.Securities held by the Bank at December 31, 2003, totaled $49.1 million
          compared to $54.7 million at December 31, 2002. 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.

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

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

13-6

---



The
Loan Portfolio. The growing North Oakland County market in which the Bank is located in
provides excellent opportunities for the Bank to grow its loan portfolio.Loans
outstanding grew by $29.4 million for the period from December 31, 2002 to December 31,
2003.Although the majority of loans are madeto businesses in the form of
commercial loans and real estate mortgages, the Bank did start a residential real estate
lending department in January of 2003. The majority of this loan production is held for
sale and sold to investors on a servicing released basis. However, there are, at times,
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 $13 million in mortgage loans during 2003. 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, 2003 which, based on remaining
scheduled repayments of principal, are due in the periods indicated.

|                            | Maturing
|--------------------------- | --------
|                            |         
|                            |         
|                            |         
|Commercial                  |         
|Residential Real Estate     |         
|Consumer                    |         
|                            |         
|Totals                      |         
|Allowance for Loan Losses   |         
|                            |         
|Total Loans Receivable, Net |         
|                            |         

13-7

---



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                                |                     
|Allowance for Loan Losses            |                     
|                                     |                     
|Total Loans Receivable, Net          |                     
|                                     |                     

Non-Performing
Assets.    Non-performing  assets consist of  nonperforming,  foreclosed,  restructured  and
non-accrual  loans.  As of  December  31,  2003,  there  were  no  loans  classified  as  non-performing.  However,
subsequent to the  completion of the external  audit  management  has identified one loan in the amount of $147,000
that has been  identified  as  non-performing  and has been charged off during the month of March 2004.  Management
does expect to recover a portion of the  principal  balance of this loan upon sale of the  collateral at some point
in the future.  At the present  time,  the  recovery of the  principle  balance  cannot be  determined  until legal
proceedings have been completed.

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

|                                                     |  |  |  
|---------------------------------------------------- |  |  | -
|                                                     | 
|                                                     |  |  |  
|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                                                |  |  | $
|                                                     |  |  |  

13-8

---



# 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, 2003 was $1.1 million representing
approximately 1.30% of gross loans outstanding and at December 31, 2002, was $696,000,
which represented approximately 1.27% of gross loans outstanding at that time. As noted in the table below which depicts the allocation of reserves there is a material increase in the level of
reserves allocated to real estate.  This is so as over the past year the Bank has completed numerous real estate
transactions and continues to be a focus of management.

The Bank
has not experienced any material credit losses in the five years of operations ended
December 31, 2003. 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.

13-9

---



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. Due to the lack of
seasonality within the loan portfolio less reliance is placed on prior loss experience.

Over
the past five years the allowance has increased as a result of increased loan production.
Due to the lack of seasonality within 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 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            |                       
|Real estate mortgages |                       
|Consumer              |                       
|Unallocated           |                       
|                      |                       
|Total                 |                       

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.

Deposits.The
deposit gathering activities for the Bank are accomplished through           traditional
means utilizing our four 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, 2003, deposits totaled $126.6 million. This represents a 20.7% increase from
December 31, 2002 when deposits were $104.9 million. Non-interest bearing demand deposits
increased by 23% by $3.4 million from $14.8 million at December 31, 2002 to $18.2 million
at December 31, 2003. Likewise, interest bearing deposits increased 20.3% to $108.4
million at December 31, 2003, compared to $90.1 million at December 31, 2002. The Bank is
actively pursuing new deposit relationships and expects to increase its branch network
during 2004, further enhancing the ability raise additional deposits and service
customers. In addition, new commercial loan relationships are being developed for which
the Banks lending team is also procuring new deposit relationships.

13-10

---



Average Daily Deposits
(in thousands)

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

|                           | Average for the Year | Average for the Year | Average for the Year
|-------------------------- | -------------------- | -------------------- | --------------------
|                           |                      |                      |                     
|                           |                     
|                           |                      |                      |                     
|                           |                      |                      |                     
|                           |                      |                      |                     
|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, 2003, 2002, and 2001:

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

13-11

---



Premises
and Equipment.There was no increase inpremises and equipment during 2003
which remains at $1.4 million net of depreciation at December 31, 2003. Management
expects this to increase in 2004 as a new branch is scheduled for construction and is
expected to open in the fourth quarter of 2004. In addition, enhancements are being made
to the Banks information technology infrastructure to support future growth and to
provide additional services to customers.

Retained
 Earnings.  Consists  of  retained  earnings  less  any  dividends  paid to
 shareholders.  As of December  31,  2003,  the Company had  retained  earnings of $2.4
 million as compared to $889,000 at December  31, 2002. There were no dividends paid to
shareholders in 2003.

# Results of Operations

Summary
of Results.The Company earned net income of $1.5 million for the year ended December
31, 2003, a substantial improvement from 2002 when net income was $801,000. This 83%
improvement was accompanied by a 29% increase in net interest income. Net interest income
increased from $3.2 million in 2002 to $4.2 million in 2003. The Banks continued
growth in higher interest earnings assets has contributed to this increase and was
accompanied by a significant increase in other operating income.

Other
operating income increased from $590,000 in 2002 to $1.1 million in 2003. This improvement
is the result of favorable gains realized on the sale of securities of $532,000 in 2003
compared to 2002 when gains on the sale of securities were $205,000. Securities were sold
during the year to keep pace with the Banks continued growth and to improve the
Banks net interest margin by reemploying the investment securities cash flow into
higher yielding loans. Even though significant gains on the sale of investment
securities were realized during 2003, management does not expect this to continue in 2004.

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                         |                       

13-12

---



Net
Interest Income.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):

|                                                                           | 2003 | 2002 | 2001
|-------------------------------------------------------------------------- | ---- | ---- | ----
|
|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 stock-                                              |      |     
|holders' equity                                                            |      |      |     
|Interest spread                                                            |      |      |     
|Net interest income - FTE                                                  |      |      |     
|Net  Interest Margin as a   Percentage of Average
   Earnings Assets - FTE |      |      |     

13-13

---



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.

|                                  | 2003 Compared to 2002 | 2002 Compared to 2001
|--------------------------------- | --------------------- | ---------------------
|                                  |                       |                      
|(in thousands)                   
|Federal funds sold                |                       |                      
|Investment securities--taxable    |                       |                      
|Investment securities--tax-exempt |                       |                      
|Loans, net of unearned income     |                       |                      
|                                  |                       |                      
|Total interest income             |                       |                      
|                                  |                       |                      
|Interest bearing deposits         |                       |                      
|Funds borrowed                    |                       |                      
|                                  |                       |                      
|Total interest expense            |                       |                      
|                                  |                       |                      
|Net interest income               |                       |                      
|                                  |                       |                      

|                                                     | Year Ended December 31, 2003 | Year Ended December 31, 2002 | Year Ended December 31, 2001
|---------------------------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                                                     |                              |                              |                             
|As a percentage of average earning assets            |                              |                              |                             
|Loans                                                |                              |                              |                             
|Other earning assets                                 |                              |                              |                             
|Average earning assets                               |                              |                              | $                           
|As a percent of average interest bearing liabilities |                              |                             
|Savings and DDA accounts                             |                              |                              |                             
|Time deposits                                        |                              |                              |                             
|Other borrowings                                     |                              |                              |                             
|                                                     |                              |                              |                             
|Average interest bearing liabilities                 |                              |                              | $                           
|                                                     |                              |                              |                             
|Earning asset ratio                                  |                              |                              |                             

Provision
for Loan Loss.The provision for loan losses for the year ended December 31, 2003 was
$496,000 compared to $243,000 at December 31, 2002. Management considered it prudent
during the first years of operations to provide for loan losses at a level which is
consistent with levels maintained by banks with similar loan portfolios. 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.Non-interest income for the year ended December 31, 2003 and 2002 were $1.1
million and $590,000, respectively. Non-interest income included service fees on loans
and deposit accounts of $473,000 (41.7%), gains on the sale of investment securities of
$532,000 (46.9%), and gains on the sale of mortgage loans of $128,000 (11.4%). Although
the Bank offered mortgages in the past, a more formalized department was established in
the first quarter of 2003 to offer a more comprehensive solution for our customers. Gains
realized on the sale of investment securities are not considered
core income and is subject to interest and market rate fluctuations, therefore past gains
realized on the sale of these items may not continue in the future.

13-14

---



Non-Interest
 Expense.  Non-interest  expense  consists  of monthly  operating  expenses  and for the
year ended  December 31, 2003,  was $3.0 million  compared with $2.6 million for the year
ended  December 31, 2002.  The main  component  of  non-interest  expense is salaries and
 benefits  which  totaled $1.5 million for 2003 and $1.3 million for 2002.

Other
significant components of non-interest expense consisted of occupancy and equipment
expenses, data processing fees, supplies and marketing expenses. The 15% increase is
directly attributable to adding more staff to further support growth, including additional
lending personnel. Other operating expenses such as professional fees and item processing
expenses also contributed to the increase as the level of customer transactions both from
loans and deposits has increased.

# Liquidity and Capital
Resources

The
Company obtained its initial equity capital in an initial public offering of its common
stock in November 1998. In light of this, the Corporation has successfully grown through
its first five years of operation. In the 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 $4.1 million of cumulative preferred securities
(Trust Preferred Securities) to further support the Companys 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, 2003 (in thousands)

|                                   | Tier 1 Leverage Ratio | Tier 1Capital Ratio | Total Risk-BasedCapital Ratio
|---------------------------------- | --------------------- | ------------------- | -----------------------------
|Minimum regulatory requirement for |                       |                     |                              
|Capital adequacy                   |                       | 4                   | .00%                         
|Well capitalized regulatory level  |                       | 5                   | .00%                         
|Consolidated                       |                       | 8                   | .02%                         
|Bank                               |                       | 8                   | .02%                         

13-15

---



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 1Capital | Total Risk-BasedCapital
|---------------------------------------- | --------------- | ------------- | -----------------------
|
|Capital balances at December 31, 2003    |                 |               |                        
|Required regulatory capital              |                 | $  5,478      |                        
|Capital in excess of regulatory minimums |                 | 5,499         |                        
|                                         |                 |               |                        
|Actual capital balances                  |                 | $10,977       |                        
|                                         |                 |               |                        

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.

To
further complement the growth of the Company and provide for additional liquidity
resources management has successfully become a member of the Federal Home Loan Bank of
Indianapolis during the third quarter of 2003. This membership requires the purchase of
stock in said institution and pays a quarterly dividend. The membership will allow the
Bank to provide additional funding to further support its operations.

# Asset Liability
Management and Market Risk Analysis

Asset
liability management aids the Company in maintaining liquidity and managing its net
interest margin in volatile interest rate environments. Management of interest rate
sensitivity attempts to avoid widely varying net interest margins and to achieve
consistent net interest income through periods of changing interest rates. Management
monitors the Companys exposure to interest rate changes using a re-pricing GAP
analysis as well as a cash flow simulation. The gap analysis measures the re-pricing
between interest earning assets and interest bearing liabilities. A material re-pricing
gap could result in a negative impact on the Banks net interest margin in periods
of rapid changes in interest rates.

13-16

---



Listed
in the table below is the Bank's gap position as of December 31, 2003.

Asset / Liability GAP
Position for the Year Ended December 31, 2003 (in thousands)

|                                       | 1 to 3
Months | 4 to 12
Months | 12 to 24
Months | Over 24
Months | Total
|-------------------------------------- | ------------- | -------------- | --------------- | -------------- | -----
|                                       |               |                |                 |                |      
|Interest-Earning Assets                |               |                |                 |                |      
|Federal Funds sold                     |               |                | $               | 5,744          |      
|Investment securities                  |               |                |                 | 3,178          |      
|Loans - by maturity                    |               |                |                 | 8,729          |      
|                                       |               |                |                 |                |      
|Total interest-earning assets          |               |                |                 | 17,651         |      
|                                       |               |               
|Interest Bearing Liabilities           |               |               
|DDA, Money Market and Savings Accounts |               |                |                 | 9,915          |      
|Certificates of deposit                |               |                |                 | 3,927          |      
|                                       |               |                |                 |                |      
|Total interest-bearing Liabilities     |               |                |                 | 13,842         |      
|                                       |               |               
|Rate sensitivity gap and ratios:       |               |               
|Gap for period                         |               |                |                 | 3,809          |      
|Cumulative gap                         |               |                |                 | 3,809          |      
|Percentage of cumulative gap           |               |               
|To total assets                        |               |                |                 | 2.67           | %    

The
second measurement tool used is cash flow simulation which management places more emphasis
on 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.

13-17

---



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 liability 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 liability sensitive the
depreciation of economic value of equity reflects the fact that the Banks
liabilities will re-price more quickly than its assets. Management is working toward a
more favorable asset liability position by utilizing match funding and additional deposit
products that propose less optionality risk.

|(dollars in thousands)
Changes in Interest Rates | Economic Value
Of Equity | Percent
Change | Net Interest
Income | Percent
Change
|------------------------------------------------ | ------------------------ | -------------- | ------------------- | --------------
|                                                 |                          |                |                     |               
|200 Basis Point Rise                             |                          |                | $                   | 8,392         
|100 Basis  Point Rise                            |                          |                |                     | 9,897         
|Base-Rate Scenario                               |                          |                |                     | 11,517        
|100 Basis Point Decline                          |                          |                |                     | 13,252        
|200 Basis Point Decline                          |                          |                |                     | 15,101        

# 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.

13-18

---



Independent
Auditors Report

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, 2003 and
2002 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, 2003.
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 auditing standards generally accepted in the United States of America. 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, 2003
and 2002 and the consolidated results of their operations and their cash flows for each
year in the three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.

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

Auburn Hills, Michigan

January 29, 2004

13-19

---



# 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 7)                                            |            
|Other assets                                                           |            
|                                                                       |            
|Total assets                                                           |            
|                                                                       |            
|Liabilities and Stockholders' Equity                                   |            
|Liabilities                                                            |            
|Deposits:                                                              |            
|Noninterest-bearing demand deposits                                    |            
|Interest-bearing (Note 6)                                              |            
|                                                                       |            
|Total deposits                                                         |            
|                                                                       |            
|Junior subordinated debentures held by unconsolidated subsidiary trust |            
|(Note 14)                                                              |            
|Interest payable and other liabilities                                 |            
|                                                                       |            
|Total liabilities                                                      |            
|                                                                       |            
|Stockholders' Equity                                                   |            
|Common stock - No par value:                                           |            
|Authorized - 10,000,000 shares                                         |            
|Issued and outstanding - 1,039,184 shares at December 31, 2003         |            
|And 1,027,112 shares at December 31, 2002                              |            
|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. | 13-20
|----------------------------------------------- | -----

---



# 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                                    |                       
|                                                               |                       
|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 on sale of securities                                     |                       
|Gain on sale of mortgage loans                                 |                       
|Other                                                          |                       
|                                                               |                       
|Total other operating income                                   |                       
|Other Operating Expenses                                       |                       
|Salaries and employee benefits                                 |                       
|Occupancy                                                      |                       
|Advertising                                                    |                       
|Outside processing                                             |                       
|Professional fees                                              |                       
|Supplies                                                       |                       
|State taxes                                                    |                       
|Other                                                          |                       
|                                                               |                       
|Total other operating expenses                                 |                       
|                                                               |                       
|Income - Before income taxes                                   |                       
|Income Taxes (Note 7)                                          |                       
|                                                               |                       
|Net Income                                                     |                       
|                                                               |                       
|Income per Share of Common Stock (Note 1)                      |                       
|Basic                                                          |                       
|Fully diluted                                                  |                       

|See Notes to Consolidated Financial Statements. | 13-21
|----------------------------------------------- | -----

---



# 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
Deficit) | Accumulated
Other
Comprehensive
Income (Loss) | Total
Stockholders'
Equity
|----------------------------------------------- | ------------ | --------------- | ---------------------------------------- | --------------------------------------- | --------------------------------------------- | --------------------------
|                                                |              |                 |                                          |                                         |                                               |                           
|Balance - January 1, 2001                       |              |                 | $                                        | 4,306                                   |                                               | $                         
|                                               
|Comprehensive income:                           |              |                
|Net income                                      |              |                 |                                          | -                                       |                                               |                           
|Change in unrealized gain on securities         |              |                
|available for sale - Net of tax effect of $(18) |              |                 |                                          | -                                       |                                               |                           
|                                                |              |                 |                                          |                                         |                                               |                           
|Net comprehensive income                        |              |                 |                                          |                                         | 389                                           |                           
|                                                |              |                 |                                          |                                         |                                               |                           
|Balance - December 31, 2001                     |              |                 |                                          | 4,306                                   |                                               |                           
|                                               
|Issuance of stock                               |              |                 |                                          | 5                                       |                                               |                           
|Comprehensive income:                           |              |                
|Net income                                      |              |                 |                                          | -                                       |                                               |                           
|Change in unrealized loss 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                                   |                                               | $                         
|                                                |              |                 |                                          |                                         |                                               |                           

Book value per share is $10.81, $9.50,
and $8.45 at December 31, 2003, 2002, and 2001, respectively.

|See Notes to Consolidated Financial Statements. | 13-22
|----------------------------------------------- | -----

---



# 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                     |                       
|Gain on sale of held-to-maturity 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             |                       
|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. | 13-23
|----------------------------------------------- | -----

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

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

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

13-24

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

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

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

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

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

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

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

13-25

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# 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:
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | 2003                                       | 2003 | 2003
| | ------------------------------------------ | ---- | ----
| |                                            |      |     
| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-26

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

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

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

| |                                             | 2003 | 2002      | 2001
| | ------------------------------------------- | ---- | --------- | ----
| |                                             |      |           |     
| | Net income available to common stockholders |      | $   1,468 |     
| |                                             |      |           |     
| | Average number of common shares             |     
| | Outstanding                                 |      | 1,029     |     
| | Effect of dilutive options                  |      | 12        |     
| |                                             |      |           |     
| | Average number of common shares             |     
| | outstanding used to calculate diluted       |     
| | earnings per common share                   |      | 1,041     |     
| |                                             |      |           |     
| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

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

| | The
components of other comprehensive income and related tax effects are as follows (000s
omitted):
| | ---------------------------------------------------------------------------------------------------
| |                                                                                                    
| |                                                                                                    
| | Unrealized holding gains on securities                                                             
| | available for sale                                                                                 
| | Reclassification adjustment for gains                                                              
| | realized in income                                                                                 
| |                                                                                                    
| | Net unrealized gains (losses)                                                                      
| | Tax effect                                                                                         
| |                                                                                                    
| | Net of tax amount                                                                                  
| |                                                                                                    

| | Recent
Accounting Pronouncements  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 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 14 for additional details).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-27

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

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

| | Financial
Accounting Standards Board Interpretation No. 46  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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 2  Securities

| | The
amortized cost and estimated market value of securities are as follows at December 31,
2003 and 2002 (000s omitted):
| | ------------------------------------------------------------------------------------------------------------------------

| | 2003                                           
| | -----------------------------------------------
| |                                                
| |                                                
| | 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                                          
| |                                                

| | 2002                                           
| | -----------------------------------------------
| |                                                
| |                                                
| | 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                                          
| |                                                

13-28

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 2  Securities
(Continued)

| | Securities
having a carrying value of $6,054,000 and $4,194,000 (market value of $6,053,000 and
$4,299, 000) were pledged at December 31, 2003 and 2002, 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,
2003, 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. In 2001, the Bank sold
approximately $4,257,000 of held-to-maturity securities, due to concerns about the
issuers creditworthiness. Proceeds from the sale of held-to-maturity securities were
$4,344,000 in 2001. Gross gains of $87,000 were recognized on those sales in 2001.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-29

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 3  Loans

| | Major
categories of loans included in the portfolio at December 31, 2003 and 2002 are as follows
(000s omitted):
| | ----------------------------------------------------------------------------------------------------------------

| |                      | 2003 | 2002   
| | -------------------- | ---- | -------
| | Commercial           |      | $72,534
| | Residential mortgage |      | 7,642  
| | Consumer             |      | 3,876  
| |                      |      |        
| | Total                |      | $84,052
| |                      |      |        

| | 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, 2003 and 2002 totaled $1,569,000 and $1,612,000, respectively.
Advances on related party loans totaled $617,000 and $407,000, and repayments on related
party loans totaled $660,000 and $399,000 in 2003 and 2002, respectively. The total unused
commitments for these loans totaled $435,000 and $247,000 at December 31, 2003 and 2002,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2002, a loan was made to a related party of the Corporation and the Bank for $1,940,000.
This loan is 100 percent participated out to another bank. The outstanding loan balance
was approximately $1,852,000 and $1,903,000 at December 31, 2003 and 2002, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loan
maturities and rate sensitivity of the loan portfolio at December 31, 2003 are as follows
(000s omitted):
| | --------------------------------------------------------------------------------------------------------------

| |                                  | Within One Year | One to Five Years | After Five Years | Total 
| | -------------------------------- | --------------- | ----------------- | ---------------- | ------
| |                                  |                 |                   |                  |       
| | Commercial                       |                 |                   | $                | 26,555
| | Mortgage                         |                 |                   |                  | 1,240 
| | Consumer                         |                 |                   |                  | 327   
| |                                  |                 |                   |                  |       
| | Total                            |                 |                   | $                | 28,122
| |                                  |                 |                   |                  |       
| | Loans at fixed interest rates    |                 |                   | $                | 3,734 
| | Loans at variable interest rates |                 |                   |                  | 24,388
| |                                  |                 |                   |                  |       
| | Total                            |                 |                   | $                | 28,122
| |                                  |                 |                   |                  |       

13-30

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# 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):
| | -------------------------------------------------------------------------------------------------------

| |                                 | 2003 | 2002    
| | ------------------------------- | ---- | --------
| | Balance - Beginning of year     |      | $    696
| | Provision charged to operations |      | 496     
| | Loan losses                     |      | (144    
| | Loan loss recoveries            |      | 44      
| |                                 |      |         
| | Balance - End of year           |      | $ 1,092 
| |                                 |      |         
| | As a percent of total loans     |      | 1.30    
| |                                 |      |         

| | 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, 2003 and 2002. Throughout 2003, there were no loans considered impaired.
During 2002 and 2001, there was an average investment in impaired loans of approximately
$74,000 and $73,000, respectively. There was no interest income recognized or received on
these impaired loans during the time in which they were considered impaired.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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, 2003 and 2002 (000s omitted):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | 2003 | 2002   
| | --------------------------------- | ---- | -------
| |                                   |      |        
| | Building improvements             |      | $   107
| | Building                          |      | 923    
| | Furniture and equipment           |      | 822    
| | Land                              |      | 10     
| | Land improvements                 |      | 57     
| |                                   |      |        
| | Total Bank premises and equipment |      | 1,919  
| | Less accumulated depreciation     |      | 491    
| |                                   |      |        
| | Net carrying amount               |      | $1,428 
| |                                   |      |        

| | Depreciation
expense for the years ended December 31, 2003, 2002, and 2001 amounted to $134,000,
$108,000, and $86,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------

13-31

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 6  Deposits

| | The
following is a summary of interest-bearing deposit accounts at December 31, 2003 and 2002
(000s omitted):
| | -------------------------------------------------------------------------------------------------------------

| |                                 | 2003 | 2002     
| | ------------------------------- | ---- | ---------
| |                                 |      |          
| | Interest checking               |      | $  10,949
| | Savings                         |      | 5,250    
| | Money market                    |      | 49,277   
| | Time:                           |     
| | $100,000 and over               |      | 24,712   
| | Under $100,000                  |      | 18,224   
| |                                 |      |          
| | Total interest-bearing deposits |      | $108,412 
| |                                 |      |          

| | The
remaining maturities of certificates of deposit outstanding at December 31, 2003 are as
follows (000s omitted):
| | -------------------------------------------------------------------------------------------------------------------

| |                | Under$100,000 | $100,000 andOver
| | -------------- | ------------- | ----------------
| | 2004           |               | $    8,638      
| | 2005           |               | 1,396           
| | 2006           |               | 5,962           
| | 2007           |               | 122             
| | 2008           |               | 1,871           
| | 2009 and after |               | 235             
| |                |               |                 
| | Total          |               | $18,224         
| |                |               |                 

# Note 7  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, 2003, 2002, and 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-32

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 7  Income
Taxes (Continued)

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

| |                            | 2003 | 2002  | 2001
| | -------------------------- | ---- | ----- | ----
| | Current expense            |      | $ 497 |     
| | Deferred (benefit) expense |      | (130  | )   
| |                            |      |       |     
| | Total income tax expense   |      | $ 367 |     
| |                            |      |       |     

| | 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:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | 2003 | 2002  | 2001
| | ----------------------------------- | ---- | ----- | ----
| | Amount computed at statutory rates  |      | $ 624 |     
| | Increase (decrease) resulting from: |     
| | Tax-exempt interest                 |      | (271  | )   
| | Other                               |      | 14    |     
| |                                     |      |       |     
| | Reported tax expense                |      | $ 367 |     
| |                                     |      |       |     

| | The
temporary differences that comprise deferred tax assets and liabilities at December 31,
2003 and 2002 are as follows (000s omitted):
| | ----------------------------------------------------------------------------------------------------------------------------------------

| |                                   | 2003 | 2002
| | --------------------------------- | ---- | ----
| | Deferred tax assets:              |      |     
| | Bad debts                         |      | $349
| | Accrued compensation              |      | 12  
| | Organization and preopening costs |      | 2   
| |                                   |      |     
| | Total deferred tax assets         |      | 363 

13-33

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 7  Income
Taxes (Continued)

| |                                                  | 2003 | 2002    
| | ------------------------------------------------ | ---- | --------
| | Deferred tax liabilities:                        |      |         
| | Unrealized gain on securities available for sale |      | $    (78
| | Depreciation                                     |      | (50     
| | Accretion on investment securities               |      | (11     
| |                                                  |      |         
| | Total deferred tax liabilities                   |      | (139    
| |                                                  |      |         
| | Net deferred tax asset                           |      | $ 224   
| |                                                  |      |         

# Note 8 
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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003 and 2002, 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   |                

13-34

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 8 
Off-balance-sheet Activities (Continued)

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

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

13-35

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 9  Related
Parties and Commitments

| | The
Corporation entered into a lease for the Banks loan production office under a
three-year term expiring on July 31, 2006. The facility was leased from an entity owned by
the chairman of the Board of Directors of the Corporation and the Bank. Under the terms of
the lease arrangement, the Bank is responsible for their proportionate shares of taxes,
utilities, and maintenance costs for the facility. The lease payments made from July
through December 2003 totaled $15,473.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
annual future minimum lease payments required under the related party operating lease
approximate $41,000 in 2004, $42,000 in 2005, and $25,000 in 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2002, the Corporation purchased its main operating facility from a related party for
$650,000 and all future lease obligations were terminated. The lease payments made to the
related party prior to acquisition totaled $31,500 and $63,000 in 2002 and 2001,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
Commitments  The Corporation entered into a land lease for a branch office to be
constructed in 2004 under a 25-year term. The lease payment obligation begins in January
2004 and is $5,250 per month for the first five years and increased each subsequent five
years based on the CPI. Under the terms of the agreement, the Bank is responsible for all
taxes, utilities, and maintenance costs for the facility.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
annual future minimum lease payments required under the land lease are $63,000 per year
for the years 2004 through 2008 and at least $63,000 per year for the remaining term of
the 25-year obligation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Commitments  The Corporation has entered into a service contract for the
Banks financial accounting system with a five-year term expiring in August 2008.
Expense related to this contract in 2003 approximated $31,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporations annual future minimum obligation under the terms of the service
contract is approximately $93,000 for 2004 through 2007 and $62,000 for 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

13-36

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 10 
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, 2003, the Banks retained
earnings available for the payment of dividends totaled $2,504,277. Accordingly,
$8,680,937 of the Corporations investment in the Bank was restricted at December 31,
2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2003, Bank funds
available for loans or advances to the Corporation amounted to $852,908.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 11 
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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-37

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 11 
Stock-based Compensation (Continued)

| | The
following table summarizes stock option transactions for both plans and the related
average exercise prices for the years ended December 31, 2003, 2002, and 2001:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | 2003 | 2002 | 2001
| | --------------------------------- | ---- | ---- | ----
| |                                   |      |      |     
| |                                   |      |      |     
| | Options Outstanding - Beginning   |      |      |     
| | of year                           |      |      |     
| |                                  
| | Options granted - Employee plan   |      |      |     
| | Options exercised                 |      |      |     
| | Options expired                   |      |      |     
| |                                   |      |      |     
| | Options Outstanding - End of year |      |      |     
| |                                   |      |      |     

| | The
following table shows summary information about fixed stock options outstanding at
December 31, 2003:
| | ---------------------------------------------------------------------------------------------------------

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

| | The
Corporation granted 3,805 restricted stock units to certain employees during fiscal year
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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-38

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 12  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.
| | ------------------------------------------------------------------------------------------------------------

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

| | Loans
Receivable  For variable-rate loans that reprise 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-39

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 12  Fair
Value of Financial Instruments (Continued)

| | Junior
Subordinated Debentures The fair value of the Corporations junior
subordinated debentures is estimated using discounted cash flow analyses based on the
Corporations current incremental borrowing rates for similar types of borrowing
arrangements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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):
| | --------------------------------------------------------------------------------------------------------------------------------------------

| |                              | 2003 |  | 2002
| | ---------------------------- | ---- |  | ----
| |                              |     
| | Assets                       |      |  |     
| | Cash and cash equivalents    |      |  | $   
| | Securities                   |      |  |     
| | Loans                        |      |  |     
| | Accrued interest receivable  |      |  |     
| | Liabilities                  |      | 
| | Noninterest-bearing deposits |      |  |     
| | Interest-bearing deposits    |      |  |     
| | Accrued interest payable     |      |  |     
| | Trust preferred securities   |      |  |     

# Note 13  Minimum
Regulatory Capital Requirements

| | The
Bank is subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Banks financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-40

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 13  Minimum
Regulatory Capital Requirements (Continued)

| | Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (set forth in the following table) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital
(as defined) to average asset (as defined). Management believes, as of December 31, 2003
and 2002, that the Bank met all capital adequacy requirements to which they are subject.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003, the most recent notification from the FDIC categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action. To be
categorized as well-capitalized, an institution must maintain minimum total risk-based,
Tier I risked-based, and Tier I leverage ratios as set forth in the following table. There
are no conditions or events since that notification that management believes have changed
the Banks capital category. The Banks actual capital amounts and ratios as of
December 31, 2003 and 2002 are also presented in the table.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                           | Actual | For Capital Adequacy
Purposes | To be
Well-capitalized
| | ------------------------- | ------ | ----------------------------- | ----------------------
| |                           |        |                               |                       
| | As of December 31, 2003:  |        |                               |                       
| | Total risk-based capital  |        |                              
| | (to risk-weighted assets) |        |                               | $                     
| | Tier I capital            |        |                              
| | (to risk-weighted assets) |        |                               | $                     
| | Tier I capital            |        |                              
| | (to average assets)       |        |                               | $                     
| |                           |        |                              
| | As of December 31, 2002:  |        |                              
| | Total risk-based capital  |        |                              
| | (to risk-weighted assets) |        |                               | $                     
| | Tier I capital            |        |                              
| | (to risk-weighted assets) |        |                               | $                     
| | Tier I capital            |        |                              
| | (to average assets)       |        |                               | $                     

13-41

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 14  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 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. The first distribution will occur on March 30, 2004. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 15 
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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13-42

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 15 
Parent-only Condensed Financial Information (Continued)

| | The
condensed balance sheet as of December 31, 2003 and 2002 (with 000s omitted) is as
follows:
| | -----------------------------------------------------------------------------------------------

| |                                            | 2003 | 2002
| | ------------------------------------------ | ---- | ----
| |                                            |      |     
| | Assets                                     |      |     
| | Cash on deposit with correspondent bank    |      |     
| | Securities - Available for sale            |      |     
| | Receivable from subsidiary                 |      |     
| | 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 |      |     
| |                                            |      |     

| | The
 condensed  statement of income for the years ended  December 31,  2003,  2002,  and 2001
(000s                 omitted) is as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------

| |                                                        | 2003 | 2002      | 2001
| | ------------------------------------------------------ | ---- | --------- | ----
| |                                                        |      |           |     
| | Operating Income - Dividends received from             |      |           |     
| | Bank subsidiary                                        |      | $      80 |     
| |                                                        |      |           |     
| | Operating Expenses                                     |      | 113       |     
| | Loss - Before income taxes and equity in undistributed |     
| | income of subsidiary                                   |      | (33       | )   
| |                                                        |      |           |     
| | Provision for Income Tax Benefit                       |      | 8         |     
| | Loss - Before equity in undistributed income           |     
| | of subsidiary                                          |      | (25       | )   
| | Equity in Undistributed Income of Subsidiary           |      | 1,493     |     
| |                                                        |      |           |     
| | Net Income                                             |      | $   1,468 |     
| |                                                        |      |           |     

13-43

---



# Clarkston Financial
Corporation

---

# Notes to Consolidated
Financial StatementsDecember 31, 2003, 2002, and 2001

# Note 15 
Parent-only Condensed Financial Information (Continued)

| | The
condensed statement of cash flows for the years ended December 31, 2003, 2002, and 2001
(000s omitted) is as follows:
| | -------------------------------------------------------------------------------------------------------------------------

| |                                                   | 2003 | 2002    | 2001
| | ------------------------------------------------- | ---- | ------- | ----
| | Cash Flows from Operating Activities   Net income |      | $ 1,468 |     
| | Adjustments to reconcile net income to net cash   |     
| | from operating activities:                        |     
| | Income from subsidiary                            |      | (1,573  | )   
| | Increase in interest receivable and other         |      | (111    | )   
| | Decrease (increase) in receivable from subsidiary |      | 4       |     
| | Increase in accounts payable                      |      | 1       |     
| |                                                   |      |         |     
| | Net cash used in operating activities             |      | (211    | )   
| | Cash Flows from Investing Activities              |     
| | Dividends received from subsidiary                |      | 80      |     
| | Purchase of available-for-sale securities         |      | (2,007  | )   
| | Investment in Capital Trust subsidiary            |      | (24     | )   
| |                                                   |      |         |     
| | Net cash provided by (used in)                    |     
| | investing activities                              |      | (1,951  | )   
| | Cash Flows from Financing Activities              |     
| | Issuance of stock                                 |      | 65      |     
| | Proceeds from notes payable                       |      | 4,024   |     
| |                                                   |      |         |     
| | Net cash provided by financing activities         |      | 4,089   |     
| |                                                   |      |         |     
| | Net Increase in Cash and Cash Equivalents         |      | 1,927   |     
| | Cash and Cash Equivalents - Beginning of year     |      | 11      |     
| |                                                   |      |         |     
| | Cash and Cash Equivalents - End of year           |      | $ 1,938 |     
| |                                                   |      |         |     

13-44

---



# 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

# INDEPENDENT
AUDITORS CONSENT

Board of DirectorsClarkston Financial
Corporation

We consent to the incorporation by
reference of our report dated January 29, 2004, on our audit of the consolidated financial
statements for the years ended December 31, 2003, 2002, and 2001 which report is included
in this Annual report on form 10-KSB.

| | 
| | 
| | 

March 29, 2004
Auburn 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 25, 2004

| | 
| | 
| | 

---



# 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 25, 2004

| | 
| | 
| | 

---



# EXHIBIT 32-1

# Certification Pursuant
to Section 906 of the Sarbanes-Oxley
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 2003, that:

(1)    
          the Annual Report on Form 10-KSB for the year ended December 31, 2003 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, 2003 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 25, 2004

| | 
| | 
| | 

---



# EXHIBIT 32-2

# Certification Pursuant
to Section 906 of the Sarbanes-Oxley
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 2003, that:

(1)    
          the Annual Report on Form 10-KSB for the year ended December 31, 2003 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, 2003 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 25, 2004

| | 
| | 
| |