# 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, 2002
                                                        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.

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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.    YesX  No

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

Indicate by checkmark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  NoX

The registrants revenues for
2002 were $6.5 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 $9.75 as of
March 1, 2003, was $7,087,336 (common stock, no par value). As of March 26, 2003, there
were outstanding 1,027,112 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 6, 2003 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, 2002, we had total assets of $115.3 million, total deposits of $104.9
million, approximately 7,375 deposit accounts and shareholders equity of $9.8
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 will introduce 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
its ability to communicate effectively with its 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, 2002, we had 23 full-time and 14 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 2002, 2001 and 2000
in Managements Discussion and Analysis of Financial Condition and Results of
Operations. Clarkston State Bank commenced operations on January 4, 1999, and therefore
the Guide 3 Statistical Disclosure by Bank Holding companies would not be meaningful for
1998 and is not included.

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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.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

Consumer
Protection Laws. Our banks business includes making a variety of
types of loans to individuals. In making these loans, we are 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.

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).

9

---

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.

# 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.

10

---

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.

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 2002 to a vote of our stockholders.

# PART II

# ITEM 5:     Market for
Common Equity and Related Stockholder Matters.

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                    
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -----------------------
|2002
First Quarter.........................................
Second Quarter.....................................
Third Quarter........................................
Fourth Quarter...................................... |  | $9.30
$9.40
$9.14
$8.60    | $8.50
$8.32
$8.25
$7.55
|                                                                                                                                                                                                                           |  |                            |                        
|2001
First Quarter.........................................
Second Quarter.....................................
Third Quarter........................................
Fourth Quarter...................................... |  | $8.25 
$9.97 
$10.05
$9.49 | $6.00
$7.50
$8.54
$8.54

These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. The prices have been adjusted to reflect a 10%
share dividend paid in November 2000. On March 13, 2003, there were approximately 279
owners of record and approximately 587 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.

11

---

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 6, 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 6, 2003 Annual
Shareholders Meeting, is hereby incorporated by reference and is filed as Exhibit 13 to
this Form 10-KSB Annual Report.

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

There
have been no disagreements with our independent public accountants.

12

---

# PART III

ITEM 9:     Directors, Executive Officers, Promotors and Control Persons; Compliance with Section
16(a) of the Exchange Act.

The
information set forth under the caption Information About Directors of our
definitive Proxy Statement with respect to our May 6, 2003 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.

# 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 6, 2003 Annual Shareholders Meeting
and the information within those sections is incorporated herein by reference.

13

---

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

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 6, 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, 2002.

|                                                                       | Equity Compensation Plan Information                                                           |                                                                            
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|Plan Category                                                          | Number of securities to
be issued upon exercise
of outstanding options,warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights
|                                                                       |                                                                                                |                                                                            
|Equity compensation
      plans approved by
      security holders     | 57,643                                                                                         | $9.01                                                                      
|Equity compensation
      plans not approved
      by security holders | 0                                                                                              | NA                                                                         
|Total                                                                  | 57,643                                                                                         | $9.01                                                                      

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

# 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 6, 2003 Annual Shareholders Meeting and the information within that
section is incorporated herein by reference.

14

---

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

|(a) | Financial Statements.                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                           
|    | 1.                                                                                                                        
|    |                                                                                                                           
|    | 2.                                                                                                                        
|    |                                                                                                                           
|    | 3.                                                                                                                        
|    |                                                                                                                           
|(b) | Reports on Form 8-K
During the last quarter of the period covered by this report, we filed no Current
Reports on Form 8-K.

# ITEM 14:   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-14(c) and 15d-14(c)) as of a date within 90 days
                of the filing date of this Form 10-K Annual Report (the  "Evaluation  Date"),  have  concluded that
                as of the Evaluation  Date,  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-K  Annual
                Report was being prepared.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Changes in Internal  Controls.  There were no significant  changes in the company's  internal  controls or
                in other factors that could  significantly  affect internal controls  subsequent to the date of the
                most recent evaluation,  nor any significant  deficiencies or material  weaknesses in such internal
                controls requiring corrective actions.  As a result, no corrective actions were taken.                                                                                                                                                                                                                                                                                                                                                                                                                    

15

---

# 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 27, 2003.

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

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below on March 27, 2003, 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 Edwin L. Adler and J. Grant Smith, and each of them severally, as his
attorney-in-fact, to sign in his name and on his behalf, as a director of the Registrant,
and to file with the Commission any and all Amendments to this Report on Form 10-KSB.

|Signature                                                               |  |               
|----------------------------------------------------------------------- |  | --------------
|/s/ Edwin L. Adler
Edwin L. Adler, Chairman of the Board and a Director |  | March 27, 2003
|/s/ Louis D. Beer
Louis D. Beer, Director                               |  | March 27, 2003
|/s/ Charles L. Fortinberry
Charles L. Fortinberry, Director             |  | March 27, 2003
|/s/ Dawn M. Horner
Dawn M. Horner, Director                             |  | March 27, 2003
|/s/ William J. Clark
William J. Clark, Director                         |  | March 27, 2003
|/s/ Bruce H. McIntyre
Bruce H. McIntyre, Secretary and a Director       |  | March 27, 2003
|Robert A. Olsen, Director                                               |  | March 27, 2003
|/s/ John H. Welker
John H. Welker, Director                             |  | March 27, 2003

16

---

# CERTIFICATIONS

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 officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this annual
                    report (the Evaluation Date); and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | presented in this annual report our conclusions about the effectiveness of the
                    disclosure controls and procedures based on our evaluation as of the Evaluation
                    Date;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (a) | all significant deficiencies in the design or operation of internal controls
                    which could adversely affect the registrants ability to record, process,
                    summarize and report financial data and have identified for the
                    registrants auditors any material weaknesses in internal controls; 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; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 27, 2003

| | /s/ Edwin L. Adler
Edwin L. Adler
Chief Executive Officer
| | ---------------------------------------------------------



---

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 officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this annual
                    report (the Evaluation Date); and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | presented in this annual report our conclusions about the effectiveness of the
                    disclosure controls and procedures based on our evaluation as of the Evaluation
                    Date;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (a) | all significant deficiencies in the design or operation of internal controls
                    which could adversely affect the registrants ability to record, process,
                    summarize and report financial data and have identified for the
                    registrants auditors any material weaknesses in internal controls; 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; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 27, 2003

| | /s/ J. Grant Smith
J. Grant Smith
Chief Financial Officer
| | ---------------------------------------------------------



---

# EXHIBIT INDEX

|     | Exhibit Number and Description                                                                                                                                                                                                                                                                                        | Sequentially
NumberedPage
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------
|     |                                                                                                                                                                                                                                                                                                                       |                          
|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.                                                                                                         |                          
|     |                                                                                                                                                                                                                                                                                                                       |                          
|13   | Appendix A of the Proxy Statement to shareholders for the May 9, 2003,
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, LLP, independent public accountants                                                                                                                                                                                                                                                        |                          
|     |                                                                                                                                                                                                                                                                                                                       |                          
|24   | Power of Attorney  (included on the  signature  page on page 16 of the
Annual Report on Form 10-KSB)                                                                                                                                                                                                                  |                          



---

## Exhibit 13

# APPENDIX A

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

A-1

---

# MANAGEMENTS
DISCUSSION AND ANALYSISOF 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.

# 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 is not a borrower and as such there are no loan agreement
covenants or conditions that will restrict its growth or ability to manage its affairs.
The Bank has arranged for liquidity lines of credit with two lenders, one commercial bank
and the Federal Reserve Bank of Chicago, but has never used either of these lines.

# Financial Condition

Summary.Total assets of the Company increased to $115.3 million at December 31,
          2002, from $83.9 million at December 31, 2001. This increase in assets is
          primarily attributable to the Bank continuing to attract new customers through
          its expanding operations. 2002 was the Companys fourth full year of
          operations and the number of deposit and loan relationships increased to
          approximately 8,230 at December 31, 2002 from 6,124 accounts at December 31,
          2001. Management attributes the strong growth in deposits to quality customer
          service and the desire of customers to deal with a local bank. The Company
          anticipates that the Banks assets will continue to increase during 2003
          and beyond perhaps at a slower rate than has been the case during the first four
          years of operation.

A-2

---

Cash
and Cash Equivalents. Cash and cash equivalents, which include federal funds sold and
short term investments, decreased $1.3 million, or 22% to $4.5 million at December 31,
2002, from $5.8 million at December 31, 2001. This decrease was attributable to
managements efforts to employ metrics in an effort to realize better cash
utilization and therefore minimize the level of low interest earning investments.

Securities.The Bank reclassified all municipal investments from Held to Maturity to
          Available for Sale during the year. This change was due in part to unprecedented
          volatility in interest rates during the year and the need to maintain maximum
          flexibility in this asset category in the future. This change had no effect on
          the quality of the securities held or the credit worthiness of the issuer.
          Securities held by the Bank at December 31, 2002, totaled $54.7 million dollars
          compared to $42.5 million at December 31, 2001. The increase is the result of
          continuing growth in customer deposits during the year. All securities held in
          the Available for Sale category 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 of the Bank to accept no credit risk in the
          investment portfolio in compliance with the Company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
                                                      --------------------------------------------
                                                            2002           2001           2000
                                                            ----           ----           ----

U.S. Treasury and U.S. Government Agencies..........       $34,521       $36,220          $836
Municipal bonds.....................................        20,021             0           975
Corporate...........................................           200           685         7,177
                                                           -------       -------        ------
   Total............................................      $54,742       $36,905        $8,988
                                                           =======       =======        ======`

A-3

---

The Loan Portfolio.  The majority of loans are made to businesses in the form of commercial  loans and real estate  mortgages.
The growth in the loan portfolio from year to year is consistent  with our business plan.  Depicted in the table below is a composition
of the loan portfolio:

Loan Portfolio Composition (in thousands)

`Year Ended December 31
                                 -----------------------------------------------------------------------
                                         2002                     2001                      2000
                                 --------------------    ----------------------    ---------------------
                                  Amount        %          Amount         %          Amount        %
                                -----------   -------    ------------   -------    -----------  --------
Commercial...................   $ 46,460       85%        $ 25,299        73%       $ 16,100       63%
Residential Real Estate......      4,668        8            5,441        16           3,955       15
Consumer.....................      3,594        7            3,715        11           5,707       22
                                  ------      ---           ------        --          ------      ---
   Total Loans...............     54,722      100%          34,455       100%         25,762      100%
                                  ------                    ------                    ------
Less:
Allowance for Loan Losses....       (696)                     (419)                     (379)
                                  ------                     -----                     -----
Total Loans Receivable, Net..   $ 54,026                  $ 34,036                  $ 25,383
                                ========                  ========                  ========`

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

The following table shows
the amount of total loans outstanding as of December 31, 2002 which, based on remaining
scheduled repayments of principal, are due in the periods indicated.

`Maturing
                                           ----------------------------------------------------------
                                                            After one but          After
                                         Within one Year   Within Five Years     five years     Total
Commercial ............................      $20,005           $22,553            $3,902      $46,460
Residential Real Estate................           90             3,804               774        4,668
Consumer...............................          785             2,076               733        3,594
                                             -------           -------            ------       ------
   Totals..............................       20,880            28,433             5,409       54,722
Allowance for Loan Losses..............         (696)                                            (696)
                                             -------           -------            ------      -------
Total Loans Receivable, Net............      $20,184           $28,433            $5,409      $54,026
                                             =======           =======            ======      =======`

A-4

---

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
                                          ------------------------------------------------------------
                                                             (in thousands of dollars)
                                                Fixed Rate         Variable Rate         Total
                                                ----------         -------------         -----
Due within 3 months.....................        $     187           $  4,284          $  4,471
Due after 3 months within 1 year........              536             15,873            16,409
Due after one but within five years.....           21,127              7,306            28,433
Due after five years....................            3,528              1,881             5,409
                                                ---------           --------          --------
   Total................................          $25,378            $29,344           $54,722
Allowance for Loan Losses...............                                                   696
                                                                                      --------
Total Loans Receivable, Net.............                                               $54,026`

Nonperforming Assets.There are no non-performing loans as of December 31, 2002. Management is confident
that the allowance for loan losses is adequate protection for the loan portfolio. Loan
performance is reviewed regularly by external loan review specialists, loan officers, and
senior management to assure that policies are being followed and loan quality standards of
the Bank are being maintained. Whenever reasonable doubt exists concerning the
collectibility of interest or principal on a loan, that loan will be placed in non-accrual
status. Any interest previously accrued but not collected at that time will be reversed
and charged against current earnings. As of December 31, 2002, there were no loans for
which interest was not being accrued. Management is not aware of any recommendations by
regulatory agencies, which, if implemented, would have a material impact on the
Corporations liquidity, capital or operations.

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

`2002     2001      2000
                                                                   ----     ----      ----
Nonaccrual, Past Due and Restricted Loans

Loans accounted for on a nonaccrual basis..............              0       146         0

Accruing loans that are contractually past due
90 days or more as to interest or principle payments...              0         0         0
                                                                   ---       ---       ---

Total                                                                0       146         0
                                                                   ===       ===       ===`

A-5

---

# 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,
                                                                   -------------------------
                                                              2002           2001           2000
                                                              ----           ----           ----
Total loans at year end.............................        $54,722       $34,455          $25,762
Average daily balances of loans for the year........         42,200        29,261           18,040
Allowance for credit losses at beginning of period..            419           379              140

Loan charge-offs during the period
       Commercial...................................              5            48               10
       Real Estate-Mortgages........................              0             0                0
       Consumer.....................................              8             3                0
                                                                ---           ---              ---
Total charge-offs...................................             13            51               10

Loan recoveries during the period
       Commercial...................................             47             0                6
       Real Estate-Mortgages........................              0             0                0
       Consumer.....................................              0             1                0
Total recoveries....................................             47             1                6

Net recoveries/(charge-offs)........................             34           (50)              (4)
                                                                ---           ---              ---
Provision charged to expense........................            243            90              243

Allowance for credit losses at end of period........            696           419              379
                                                                ===           ===              ===
Ratio of net recoveries/(charge-offs) during
the period to loans outstanding at year-end.........            .06%         (.15%)           (.02%)

Allowance for loan losses to loans outstanding
at year end.........................................           1.27%         1.21%            1.47%`

# Allocation of the
Allowance for Loan Losses

The
allowance for loan losses as of December 31, 2002, was $696,000 representing approximately
1.27% of gross loans outstanding and at December 31, 2001, was $419,000, which represented
approximately 1.21% of gross loans outstanding at that time. The Bank has not experienced
any material credit losses in the four years of operations ended December 31, 2002. The
allowance for loan losses is maintained at a level management feels is adequate to absorb
losses inherent in the loan portfolio. Management prepares an evaluation, which is based
on a continuous review of the Banks loan portfolio, the Banks and
industrys historic loan loss experience, known and inherent risks included in the
loan portfolio, composition of loans, growth of the portfolio and current economic
conditions. The allowance for loan losses is analyzed quarterly by management. In so
doing, management assigns a portion of the allowance to the entire portfolio by loan type
and to specific credits that have been identified as potential problem loans and reviews
past loss experience. The local economy and particular concentrations are considered, as
well as a number of other factors.

A-6

---

Allowance
for Loan Losses (in thousands)

`Year Ended December 31
                           --------------------------------------------------------------------------
                                     2002                     2001                     2000
                              -------------------       -------------------     -------------------
                                         % of each                  % of each              % of each
                                         category                   category                category
                           Allowance     to total    Allowance      to total   Allowance    to total
                            Amount         loans       Amount        loans      Amount       loans
                            ------         -----       ------        -----     -------      -------
Commercial...............      $487         .89%         $306        .88%      $ 237         .92%
Real estate mortgages....       110         .20            67        .20          58         .22
Consumer.................        99         .18            46        .13          84         .33
Unallocated..............         0           0             0          0           0           0
                              -----       -----         -----       ----       -----        -----
   Total                       $696        1.27%         $419       1.21%       $379        1.47%
                              =====       =====         =====       ====       =====        =====`

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.Deposits are gathered from the communities the Bank serves. Deposits
          increased $30.7 million or 41% to $104.9 million at December 31, 2002, compared
          to $74.2 million at December 31, 2001. This increase was primarily a result of
          deposits obtained from new customers of the Bank.

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
                              --------------------     --------------------   --------------------
                                     2002                    2001                   2000
                                     ----                    ----                   ----
                              Amount   Average Rate   Amount   Average Rate   Amount   Average Rate
                              ------   ------------   ------   ------------   ------   ------------

Noninterest bearing demand....$11,663        0%      $  9,531        0%      $  5,150          0%
MMDA/Savings.................. 30,330     2.42%        10,725     2.73%        10,371       4.04%
Time.......................... 45,347     4.12%        38,860     5.91%        19,910       6.24%
                              -------     -----       -------     -----       -------       -----
   Total Deposits.............$87,340     2.98%       $59,116     4.38%       $35,431       4.69%`

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, 2002, 2001, and 2000:

`Year Ended December 31
                                  ---------------------------------------------------
                                     2002                 2001                 2000
                                     ----                 ----                 ----
Three months or less.............  $  7,209             $  3,797              $8,617
Over 3 months through 1 year.....     8,569                8,860              19,633
Over 1 year......................     8,377                7,326               5,631
                                   --------             --------             -------
                                    $24,155              $19,983             $33,881
                                   ========             ========             =======`

A-7

---

The Bank operates in a very competitive  environment.  Management  monitors rates at other financial  institutions in the area
to ascertain that its rates are  competitive  within the market.  Management  also attempts to offer a wide variety of products to meet
the needs of its customers.  The Bank offers business and consumer checking  accounts,  regular and money market savings accounts,  and
certificates of deposit having many options in their terms.

Premises and Equipment. Bank premises and equipment was $1.4 million at December 31, 2002 and $794,000 at December 31, 2001.

Accumulated  Surplus.  As of December 31, 2002 the Company had an  accumulated  surplus of $889,000  before the mark to market

adjustment made for securities held
in the Available for Sale category. This surplus is in contrast to an accumulated surplus
of $88,000 at December 31, 2001.

# Results of Operations

Summary of  Results.  The  Company  earned a net profit of  $801,000  in 2002,  which was the  Company's  fourth  full year of
operations.

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

`Year Ended December 31
                                                            ------------------------------------------------
                                                                2002            2001              2000
                                                                ----            ----              ----
Net Profit (loss).........................................     $   801          $423          $    418
   Weighted average number of shares outstanding..........       1,027         1,026             1,026
   Basic Profit (loss) per share..........................    $    .78         $ .41         $     .41

Earning (Loss) ratios:
   Return on average assets...............................        .79%           .62%             1.01%
   Return on average equity...............................       8.88%          4.85%             5.36%
   Average equity to average assets.......................       8.87%         12.71%            18.10%
   Dividend payout ratio..................................          0               0                0`

A-8

---

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:

`2002                           2001                            2000
                                 ----------------------------    --------------------------     ---------------------------
                                 Average             Yield/      Average             Yield/     Average             Yield/
                                 Balance   Interest  Cost        Balance   Interest  Cost       Balance   Interest  Cost

Assets:
   Short term investment            4,219        69    1.64%        3,858       153  3.97%         2,017       126   6.25%
Securities:
   Taxable                         40,250     2,020    5.02%       31,747     1,975  6.22%        21,823     1,472   6.75%
   Tax-exempt                      11,645       542    4.65%        1,637        94  5.74%           290        73
                                                                                                                    25.17%
   Loans                           42,200     3,311    7.85%       29,676     2,511  8.46%        18,040     1,652   9.16%
   Total earning
     assets/total                  98,314     5,942    6.04%       66,918     4,733  7.07%        42,170     3,323   7.88%
   interest income
   Cash and due from banks          1,959                           1,342                          1,083
   Unrealized Gain (Loss)             (34)                            (49)                           (14)
   All other assets                 1,962                             950                            780
   Allowance for loan loss           (520)                           (415)                          (208)
                                 --------     -----    -----       ------     -----  -----        ------     -----   -----
      Total assets                101,681     5,942    5.84%       68,746     4,733  6.88%        43,811     3,323   7.58%
Liabilities and
Stockholders' Equity
Interest bearing deposits:
   MMDA, Savings/NOW
   accounts                        34,346       839    2.44%       12,719       343  2.70%        10,371       419   4.04%
   Time                            45,347     1,870    4.12%       38,860     2,295  5.91%        19,910     1,242   6.24%
   Fed Funds Purchased                  0
   Other borrowed Money                 0
   Total interest bearing
   liabilities/interest expense    79,693     2,709    3.40%       51,579     2,638  5.11%        30,281     1,661   5.49%
   Noninterest bearing
     deposits                      11,663                           7,536                          5,150
      All other liabilities         1,303                             894                            430
Stockholders' Equity:
   Unrealized Holding Gain
   (Loss)                             (25)                            214                              0
   Common Stock, Surplus,
   Retained Earnings                9,047                           8,523                          7,950
   Total liabilities and
    stock-holders' equity         101,681     2,709    2.66%       68,746     2,638  3.84%        43,811     1,661   3.79%
   Interest spread                            3,233                           2,095                          1,662
   Net interest income - FTE                  3,233                           2,095                          1,662
   Net Interest Margin as a
   Percentage of Average
   Earnings Assets - FTE           98,314     3,233    3.29%       66,918     2,095  3.13%        42,170     1,662   3.94%`

A-9

---

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.

`2002 Compared to 2001                  2001 Compared to 2000
                                       -----------------------------------     --------------------------------------
                                       Change    Change    Change              Change     Change     Change
                                       Due to    Due to    Due to    Total     Due to     Due to     Due to     Total
                                        Rate     Volume      Mix     Change     Rate      Volume       Mix      Change
                                        ----     ------      ---     ------     ----      ------       ---      ------
                                                                      (in thousands)
Federal funds sold                      ($90)        $14     ($8)     ($84)      ($46)       $115      ($42)       $27
Investment securities--taxable          (381)        529    (103)        45      (170)        695       (75)       450
Investment securities--tax-exempt        (18)        574    (108)       448        (4)         96       (19)        73
Loans, net of unearned income           (181)      1,060     (79)       800      (128)      1,067       (63)       876
                                        ----       -----     ---      -----     -----       -----      ----      -----
Total interest income                   (670)      2,177    (298)     1,209      (348)      1,973      (199)     1,426
                                        ----       -----     ---      -----     -----       -----      ----      -----
Interest bearing deposits               (882)      1,437    (484)        71      (115)      1,169       (77)       977
Funds borrowed                             0           0       0          0         0           0         0          0
                                        ----       -----     ---      -----     -----       -----      ----      -----
Total interest expense                  (882)      1,437    (484)        71      (115)      1,169       (77)       977
                                        ----       -----     ---      -----     -----       -----      ----      -----
Net interest income                     $212        $740    $186    $ 1,138     $(233)       $804    ($ 122)      $449
                                        ====       =====     ===      =====     =====       =====     =====      =====`

Composition of Average
Earning Assets and Interest Bearing Liabilities

`Year Ended            Year Ended            Year Ended
                                                       December 31, 2002    December 31, 2001     December 31, 2000
                                                       -----------------    -----------------     -----------------
As a percentage of average earning assets
   Loans..........................................    $42,200      42.9%    $29,676      44.3%    $18,040      42.8%
   Other earning assets...........................     56,114      57.1%     37,242      55.7%     24,130      57.2%
                                                      -------     ------    -------     ------    -------     ------
      Average earning assets......................    $98,314     100.0%    $66,918     100.0%    $42,170     100.0%

As a percent of average interest bearing liabilities
   Savings and DDA accounts.......................     34,346      43.1%     12,719      24.7%     10,371      34.2%
   Time deposits..................................     45,347      56.9%     38,860      75.3%     19,910      65.8%
   Other borrowings...............................          0         0%          0         0%          0         0%
                                                      -------     ------    -------     ------    -------     ------
      Average interest bearing liabilities........    $79,693     100.0%    $51,579     100.0%    $30,281     100.0%
                                                      =======     ======    =======     ======    =======     ======
Earning asset ratio...............................      96.7%                  97.3%                96.3%`

Provision for Loan Loss.The provision for loan losses for the year ended December 31, 2002 and 2001 was
$243,000 and $90,000, respectively. 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,  2002 and 2001  were  $590,000  and  $553,000,
respectively, consisting primarily of service fees on loan and deposit accounts.

Non-Interest Expense.Non-interest expense for the year ended December 31, 2002, was $2.6 million, which is
compared with $1.9 million for the year ended December 31, 2001. The main component of
non-interest expense is salaries and benefits, which totaled $1,294,000 and $846,000 for
2002 and 2001 respectively. Other significant components of non-interest expense consisted
of occupancy and equipment expenses, data processing fees, supplies and marketing
expenses.

A-10

---

# Liquidity and Capital
Resources

The Company obtained its
initial equity capital in an initial public offering of its common stock in November 1998.
The Companys plan of operation for the year of 2003 doesnt contemplate the
need to raise additional capital. Management believes that its current capital and
liquidity will provide the Company with adequate capital to support its expected level of
deposit and loan growth and to otherwise meet its cash and capital requirements for the
next year. One of the growth strategies your Company intends to pursue, which could have
an effect on its equity and or require additional capital, is growth through acquisition.
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.

Capital Resources at
December 31, 2002 (in thousands)

`Tier 1
                                                   Leverage         Tier 1        Total Risk-Based
                                                    Ratio        Capital Ratio      Capital Ratio
                                                    -----        -------------      -------------
Minimum regulatory requirement for
   Capital adequacy..........................       4.00%            4.00%               8.00%
Well capitalized regulatory level............       5.00%            6.00%              10.00%
Consolidated.................................       8.32%           13.75%              14.76%
Bank.........................................       8.32%           13.75%              14.76%`

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:

`Total
                                                        Tier 1            Tier 1           Risk-Based
                                                      Leverage           Capital            Capital
                                                      --------           -------            -------
                                                                  (in thousands of dollars)
Capital balances at December 31, 2002
   Required regulatory capital...................     $4,529            $2,741              $5,482
   Capital in excess of regulatory minimums......      4,891             6,679               4,634
                                                     -------           -------            --------
Actual capital balances..........................     $9,420            $9,420             $10,116
                                                     =======           =======            ========`

The Company's  sources of liquidity include loan payments by borrowers,  maturity and sales of securities  available for sale,
growth of deposits and deposit  equivalents,  federal funds sold and the issuance of common stock.  Liquidity  management  involves the
ability to meet cash flow  requirements  of the  Company's  customers.  These  customers may be either  borrowers  with credit needs or
depositors wanting to withdraw funds.

Asset Liability Management and Market Risk Analysis

Asset  liability  management  aids the Company in maintaining  liquidity  while managing a balance  between  interest  earning
assets and interest  bearing  liabilities.  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 GAP analysis.

A-11

---

Asset / Liability GAP Position for the Year Ended December 31, 2002 (in thousands)

`1 to 3       4 to 12     1 to 5      Over 5
                                               Months       Months      Years       Years      Total
                                               ------       ------      -----       -----      -----
Interest-Earning Assets
   Federal Funds sold......................     $2,979        $   0       $   0       $  0     $2,979
   Investment securities..................     10,948       24,634      19,160          0     54,742
   Loans - by maturity....................     25,154          874      23,813      4,881     54,722
                                              -------       ------      ------      -----    -------
   Total interest-earning assets...........     39,081       25,508      42,973      4,881    112,443

Interest Bearing Liabilities
   DDA and Money Market....................      7,780       17,504      13,614          0     38,898
   Savings accounts.......................      4,118        2,217           0          0      6,335
   Certificates of deposit................     14,564       18,324      11,761        244     44,893
                                              -------       ------      ------       ----     ------
   Total interest-bearing Liabilities......     26,462       38,045      25,375        244     90,126

   Rate sensitivity gap and ratios:
       Gap for period......................     12,619      (12,537)     17,597      4,637     22,316
       Cumulative gap.....................     12,619           82      17,679     22,316     22,316
   Percentage of cumulative gap
      To total assets.....................      10.94%       0.07%      15.33%     19.35%     19.35%`

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.

# 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 / regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve Board, the
quality or composition of the loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in the Companys market
area and accounting principles, policies and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and its
business, including additional factors that could materially affect the Companys
financial results, is included in the Companys filings with the Securities and
Exchange Commission.

A-12

---

Plante & Moran, PLLC
Suite 500
2601 Cambridge Court
Auburn Hills, MI 48326
Tel: 248.375.7100
Fax: 248.375.7101
plantemoran.com

Independent
Auditors Report

To the Board of Directors
and Stockholders
Clarkston Financial Corporation and Subsidiary

We have audited the accompanying
consolidated balance sheet of Clarkston Financial Corporation and subsidiary as of
December 31, 2002 and 2001 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, 2002. 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 and subsidiary as of
December 31, 2002 and 2001 and the consolidated results of their operations and their
cash flows for each year in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of America.



Auburn Hills, Michigan
January 24, 2003

---

`Clarkston Financial Corporation and Subsidiary
--------------------------------------------------------------------------------
                                                      Consolidated Balance Sheet
                                                                  (000s omitted)


                                                               December 31
                                                         -----------------------
                                                            2002          2001
                                                         ------------ ----------
                            Assets

Cash and cash equivalents:
      Cash and due from banks                               $1,508        $1,856
      Federal funds sold                                     2,979         3,975
                                                         ---------     ---------
                     Total cash and cash equivalents         4,487         5,831

Securities - Held to maturity (Note 2)                       -             5,605
Securities - Available for sale (Note 2)                    54,742        36,905

Loans (Note 3)                                              54,722        34,455
Allowance for possible loan losses (Note 4)                   (696)         (419)
                                                         ---------     ---------
                     Net loans                              54,026        34,036

Banking premises and equipment (Note 5)                      1,400           794
Interest receivable                                            555           441
Deferred tax asset (Note 7)                                     45           140
Other assets                                                    80           168
                                                         ---------     ---------
                     Total assets                      $   115,335   $    83,920
                                                        ==========    ==========

                    Liabilities and Stockholders' Equity

Liabilities
      Deposits:
           Noninterest-bearing demand deposits         $    14,797    $    9,230
           Interest-bearing (Note 6)                        90,126        64,930
                                                         ---------     ---------
                     Total deposits                        104,923        74,160

      Interest payable and other liabilities                   654         1,093
                                                         ---------     ---------
                     Total liabilities                     105,577        75,253

Stockholders' Equity
      Common stock - No par value:
           Authorized - 10,000,000 shares
           Issued and outstanding - 1,027,112
                shares at December 31, 2002 and
                1,026,012 shares at December 31, 2001        4,311         4,306
      Paid-in capital                                        4,311         4,306
      Retained earnings                                        889            88
      Accumulated other comprehensive income (loss)            247           (33)
                                                         ---------     ---------
                     Total stockholders' equity              9,758         8,667
                                                         ---------     ---------
                     Total liabilities and
                        stockholders' equity            $  115,335    $   83,920
                                                        ==========    ==========`

See Notes to Consolidated
Financial Statements.

2

---

`Clarkston Financial Corporation and Subsidiary
--------------------------------------------------------------------------------
                                                Consolidated Statement of Income
                                           (000s omitted, except per share data)


                                                                 Year Ended December 31
                                                   -----------------------------------------
                                                         2002          2001          2000
                                                   --------------  -----------  ------------
Interest Income
      Interest and fees on loans                    $     3,311   $     2,511   $     1,652
      Interest on investment securities:
           Taxable securities                             2,020         1,975         1,472
           Tax-exempt securities                            542            94            73
      Interest on federal funds sold                         69           153           126
                                                      ---------      --------      --------
                      Total interest income               5,942         4,733         3,323

Interest Expense - Deposits                               2,709         2,638         1,661
                                                      ---------      --------      --------
Net Interest Income                                       3,233         2,095         1,662

Provision for Possible Loan Losses (Note 4)                 243            90           243
                                                      ---------      --------      --------
Net Interest Income - After provision for
  possible loan losses                                    2,990         2,005         1,419

Other Operating Income (Loss)
      Service fees on loan and deposit accounts             387           300           227
      Gain (loss) on sale of securities                     205           249            (9)
      Other                                                  (2)            4             7
                                                      ---------      --------      --------
                      Total other operating income          590           553           225

Other Operating Expenses
      Salaries and employee benefits                      1,294           846           658
      Occupancy                                             452           346           271
      Advertising                                            91           125           124
      Outside processing                                    153           144           100
      Professional fees                                     142           153            99
      Supplies                                               76            76            27
      Other                                                 367           250           137
                                                      ---------      --------      --------
                      Total other operating expenses      2,575         1,940         1,416
                                                      ---------      --------      --------
Income - Before income taxes                              1,005           618           228

Income Taxes (Benefit) (Note 7)                             204           195          (190)
                                                      ---------      --------      --------
Net Income                                             $    801     $     423     $     418
                                                      =========      ========      ========
Income per Share of Common Stock (Note 16)
      Basic                                            $   0.78     $    0.41     $    0.41
                                                      =========      ========      ========
      Fully diluted                                    $   0.78     $    0.41     $    0.41
                                                      =========      ========      ========`

See Notes to Consolidated
Financial Statements.

3

---

`Clarkston Financial Corporation and Subsidiary
--------------------------------------------------------------------------------
                       Consolidated Statement of Changes in Stockholders' Equity
                                           (000s omitted, except per share data)


                                                                     Retained    Accumulated
                                                           Paid-in    Earnings       Other         Total
                                                  Common   Capital   Accumulated Comprehensive  Stockholders'
                                                   Stock             (Deficit)     Income (Loss)    Equity
                                                  -------   --------  -----------  -------------  ------------
Balance - January 1, 2000                         $  4,306    $ 4,306   $ (753)     $ (22)      $ 7,837

Comprehensive income:
     Net income                                         -          -       418          -           418
     Stock split (Note 12)                              -          -         -          -             -
     Change in unrealized gain on securities
         available for sale                             -          -         -         23            23
                                                                                                -------
                  Net comprehensive income                                                          441
                                                  -------      -----      ----       ----       -------
Balance - December 31, 2000                         4,306      4,306      (335)         1         8,278

Comprehensive income (loss):
     Net income                                         -          -       423          -           423
     Change in unrealized loss on securities
        available for sale                              -          -         -        (34)          (34)
                                                                                                -------
                  Net comprehensive income                                                          389
                                                  -------      -----      ----       ----       -------
Balance - December 31, 2001                         4,306      4,306        88        (33)        8,667

Issuance of stock                                       5          5         -          -            10
Comprehensive income:
     Net income
                                                        -          -       801          -           801
     Change in unrealized gain on securities
         available for sale                             -          -         -        280           280
                                                                                                -------
                  Net comprehensive income                                                        1,081
                                                  -------      -----      ----       ----       -------
Balance - December 31, 2002                        $4,311     $4,311      $889       $247        $9,758
                                                  =======     ======      ====       ====       =======

Book value per share is $9.50, $8.45, and $8.07 at December 31, 2002, 2001, and 2000, respectively.`

4

---

`Clarkston Financial Corporation and Subsidiary
--------------------------------------------------------------------------------
                                            Consolidated Statement of Cash Flows
                                                                  (000s omitted)

                                                                              Year Ended December 31
                                                                         ----------------------------
                                                                          2002       2001        2000
                                                                         ------     -------    ------
Cash Flows from Operating Activities
      Net income                                                         $ 801      $ 423       $ 418
      Adjustments to reconcile net income to net cash
           from operating activities:
                Depreciation and amortization                              136        141         111
                Provision for loan losses                                  243         90         243
                Amortization (accretion) of securities                     368        (29)        (29)
                Deferred taxes                                             (49)        50        (190)
                (Gain) loss on sale of available-for-sale securities      (205)      (140)          9
                Gain on sale of held-to-maturity securities                 -         (87)          -
                (Increase) decrease in interest receivable                (114)        16        (201)
                Decrease (increase) in other assets                         61        (31)          3
                (Decrease) increase in interest payable
                     and other liabilities                                (439)       559         371
                                                                        ------     ------      ------
                          Net cash provided by operating activities        802        992         735

Cash Flows from Investing Activities
      Purchase of securities available for sale                        (47,083)   (53,202)     (8,356)
      Proceeds from sale of available-for-sale securities               40,762     25,375       8,675
      Proceeds from sales and maturities of held-to-maturity
              securities                                                 5,032     19,876       2,113
      Purchase of held-to-maturity investment securities               (10,683)    (4,023)    (13,822)
      Premises and equipment expenditures                                 (714)      (608)        (39)
      Net increase in loans                                            (20,233)    (8,743)    (14,503)
                                                                        ------     ------      ------
                          Net cash used in investing activities        (32,919)   (21,325)    (25,932)

Cash Flows from Financing Activities
      Net increase in time deposits
                                                                        25,584      5,859       3,693
      Net increase in other deposits
                                                                         5,179     16,893      22,449
      Issuance of common stock                                              10          -           -
                                                                        ------     ------      ------
                          Net cash provided by financing activities     30,773     22,752      26,142
                                                                        ------     ------      ------
Net Increase (Decrease) in Cash and Cash Equivalents                    (1,344)     2,419         945

Cash and Cash Equivalents - Beginning of year                            5,831      3,412       2,467
                                                                        ------     ------      ------
Cash and Cash Equivalents - End of year                             $    4,487   $  5,831   $   3,412
                                                                    ==========   ========   =========
Supplemental Disclosure of Cash Flow Information - Cash
      paid for
           Interest                                                 $    2,698   $  2,694   $   1,471
           Taxes                                                            46        185           -`

See Notes to Consolidated Financial Statements.

5

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | 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 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.
Securities not classified as held to maturity or trading, including 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

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

7

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

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

| | Adoption
of FAS 133  On January 1, 2001, the Corporation adopted Statement of Financial
Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and
Hedging Activities. FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The accounting for derivatives had no effect on the financial
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Banking
Premises and Equipment  Land is carried at cost. Buildings and equipment are
stated at cost, less accumulated depreciation and amortization. Depreciation, computed on
the straight-line method, is charged to operations over the estimated useful lives of the
assets. Leasehold improvements are amortized over the terms of their respective leases or
the estimated useful lives of the improvements, whichever is shorter.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Intangible
Assets  Intangible assets approximating $77,000, net of accumulated amortization
of $105,000, consist entirely of deposit intangibles acquired in an acquisition of branch
assets completed during 1999. Amortization is calculated on a straight-line basis over the
estimated asset life of eight years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | 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 Corporation has chosen to measure compensation cost for
director and employee stock compensation plans using the intrinsic value-based method of
accounting, whereby compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date (or other measurement date) over the amount an option holder
must pay to acquire the stock. Stock options issued under the Corporations stock
option plan have no intrinsic value at the grant date, and no compensation cost is
recognized for them. The fair value-based method of accounting for stock compensation
plans measures compensation cost at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. The Corporation
has provided pro forma disclosures of net income and earnings per share and other
disclosures, as if the fair value-based method of accounting has been applied. The pro
forma disclosures include the effects of all awards granted since the Corporations
inception (see Note 11).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 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. At December 31, 2002 and 2001, accumulated other comprehensive income
consists solely of unrealized gains (losses) on available-for-sale securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | Recent
Accounting Pronouncements  Financial Accounting Standards Board (FASB) Statement
No. 147, Acquisitions of Certain Financial Institutions, became effective
October 1, 2002. In accordance with provisions of this Statement, the Corporation is
required to evaluate its deposit intangible asset acquired in 1999 for impairment in
accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The initial implementation of FASB Statement No. 147 had no impact
on the Corporations financial position or reported earnings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 disclosure provisions of
the Interpretation are effective for financial statements ending after December 15, 2002.
However, the provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31, 2002. The
initial adoption of this standard is not expected to have a material impact on financial
condition or results of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 2  Securities

The
amortized cost and estimated market value of securities are as follows at
December 31, 2002 and 2001 (000s omitted):

`2002
                                                      -------------------------------------------------
                                                                    Gross        Gross
                                                      Amortized   Unrealized   Unrealized   Estimated
                                                         Cost        Gains       Losses    Market Value
                                                      ----------  ----------   ----------  ------------

Available-for-sale securities:
   U.S. Treasury securities and obligations of
     U.S. government corporations and agencies        $23,152      $ 215        $   16          23,351
   Collateralized mortgage obligations                 11,358         61            49          11,370
   Obligations of state and political subdivisions     19,858        225            62          20,021
                                                     --------      -----        ------        --------
                    Total                            $ 54,368      $ 501         $ 127        $ 54,742
                                                     ========      =====        ======        ========`

10

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 2  Securities
(Continued)

`2001
                                                     --------------------------------------------------
                                                                     Gross       Gross
                                                      Amortized    Unrealized   Unrealized   Estimated
                                                         Cost        Gains       Losses    Market Value
                                                     ------------  ----------   ----------  -----------
Held-to-maturity securities - Obligations of
   state and political subdivisions                   $  5,605      $    -      $  119       $ 5,486
                                                      ========      =======     ======       =======
Available-for-sale securities:
   U.S. Treasury securities and obligations of
     U.S. government corporations and agencies        $ 22,793          104        286        22,611
   Collateralized mortgage obligations                  13,485          147         23        13,609
   Corporate securities                                    676            9          -           685
                                                      --------        -----      -----     ---------
                    Total                             $ 36,954        $ 260      $ 309     $  36,905
                                                      ========        =====      =====     =========`

| | The
amortized cost and estimated market value of available-for-sale securities at
December 31, 2002, 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
                                                                -------------------------
                                                                Amortized Cost    Estimated
                                                                                 Market Value
                                                                --------------   -----------

Due in one year or less                                         $     5,271   $     5,261
Due in one year through five years                                   25,271        25,512
Due after five years through ten years                               20,533        20,686
Due after ten years                                                   3,293         3,283
                                                                -----------    ----------
                        Total                                    $   54,368    $   54,742
                                                                ===========    ==========`

11

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 2  Securities
(Continued)

| | Securities
having a carrying value of $4,194,000 and $6,887,000 (market value of $4,299,000 and
$6,946,000) were pledged at December 31, 2002 and 2001, respectively, to secure
public deposits, repurchase agreements, and for other purposes required by law.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Proceeds
from the sale of available-for-sale securities were $40,762,000, $25,375,000, and
$8,675,000 in 2002, 2001, and 2000, respectively. Gross gains of $308,000, $140,000, and
$1,000 and gross losses of $103,000, $0, and $10,000 were recognized on those sales in
2002, 2001, and 2000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
November 2002, the Bank 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 the prior year, 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 3  Loans

Major
categories of loans included in the portfolio at December 31, 2002 and 2001 are as
follows (000s omitted):

`2002           2001
                                                                   ------------    ------------
Commercial                                                         $     46,460    $     25,299
Residential mortgage                                                      4,668           5,441
Consumer                                                                  3,594           3,715
                                                                   ------------    ------------
                        Total                                      $     54,722    $     34,455
                                                                   ============    ============`

| | 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, 2002 and 2001 totaled $1,612,000 and $1,604,000,
respectively. During 2002, $407,000 of new loans were made and repayments totaled
$399,000. The total unused commitments for these loans totaled $247,000 and $490,000 at
December 31, 2002 and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 3  Loans
(Continued)

| | 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 at
December 31, 2002 is approximately $1,903,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Loan
maturities and rate sensitivity of the loan portfolio at December 31, 2002 are as
follows (000s omitted):

`Within One     One to Five      After Five
                                               Year          Years            Years         Total
                                           -----------     -----------      ----------      -----
Commercial                                 $   20,005     $  22,553        $  3,902       $   46,460
Mortgage                                           90         3,804             774            4,668
Consumer                                          785         2,076             733            3,594
                                           ----------     ---------        --------       ----------
                      Total                $   20,880     $  28,433        $  5,409       $   54,722
                                           ==========     =========        ========       ==========
Loans at fixed interest rates              $      723     $  21,127        $  3,528       $   25,378
Loans at variable interest rates               20,157         7,306           1,881           29,344
                                           ----------     ---------        --------       ----------
                                           $   20,880     $  28,433        $  5,409       $   54,722
                                           ==========     =========        ========       ==========`

# 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):

`2002            2001
                                                                      ----------       --------
Balance - Beginning of year                                           $    419         $    379

Provision charged to operations                                            243               90
Loan losses
                                                                           (13)             (51)
Loan loss recoveries
                                                                            47                1
                                                                      --------         --------
Balance - End of year                                                  $   696          $   419
                                                                      ========         ========
As a percent of total loans                                              1.27%            1.21%
                                                                      ========         ========`

| | The
Bank considers all nonaccrual and reduced-rate loans (with the exception of residential
mortgages and consumer loans) to be impaired. There are no impaired loans outstanding as
of December 31, 2002. There was no required specific allowance for the impaired
loans.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 5  Bank
Premises and Equipment

The following
is a summary of Bank premises and equipment for the years ended December 31, 2002 and
2001 (000s omitted):

`2002          2001
                                                                                  ----          ----
Building improvements                                                             $ 107          $ 74
Building                                                                            909           257
Furniture and equipment                                                             681           652
Land                                                                                 10            10
Land improvements                                                                    63            63
                                                                                -------        ------
                        Total Bank premises and equipment                         1,770         1,056

Less accumulated depreciation                                                       370           262
                                                                                -------        ------
                        Net carrying amount                                      $1,400         $ 794
                                                                                =======        ======`

| | Depreciation
expense for the years ended December 31, 2002, 2001, and 2000 amounted to $108,000,
$86,000, and $94,000, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------

# Note 6  Deposits

The
following is a summary of interest-bearing deposit accounts at December 31, 2002 and
2001 (000s omitted):

`2002          2001
                                                                        -------       -------

Interest checking                                                       $ 6,309     $   2,233
Savings                                                                   6,335         5,692
Money market                                                             32,589        17,291
Time:
      $100,000 and over                                                  24,155        19,983
      Under $100,000                                                     20,738        19,731
                                                                     ----------     ---------
                        Total interest-bearing deposits              $   90,126     $  64,930
                                                                     ==========     =========`

14

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 6  Deposits
(Continued)

The
remaining maturities of certificates of deposit outstanding at December 31, 2002 are
as follows (000s omitted):

`Under           100,000 and
                                  $100,000             Over
                                 ----------         ----------
         2003                    $  9,482           $   15,778
         2004                       4,252                1,999
         2005                         597                  263
         2006                       5,963                3,771
         2007                           -                  200
     2008 and after                   444                2,144
                                 --------           ----------
                Total            $ 20,738           $   24,155
                                 ========           ==========`

# 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, 2002, 2001, and 2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`2002           2001          2000
                                                                 ----           ----          ----
Current expense                                               $   253        $  128        $    -
Deferred (benefit) expense                                        (49)           67           (190)
                                                              -------        ------        -------
                        Total income tax (benefit)
                              expense                         $   204        $  195        $  (190)
                                                              =======        ======        =======`

15

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 7  Income
Taxes (Continued)

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

`2002          2001        2000
                                                                       ------        ------     -------
Amount computed at statutory rates                                     $  342        $  210     $     78
Increase (decrease) resulting from:
     Tax-exempt interest                                                 (170)          (32)         (25)
     Change in valuation allowance for deferred
          tax assets                                                        -             -         (274)
     Other                                                                 32            17           31
                                                                      -------        ------      -------
                        Reported tax expense (income)                  $  204         $ 195      $  (190)
                                                                      =======        ======      =======`

| | The
temporary differences that comprise deferred tax assets and liabilities at
December 31, 2002 and 2001 are as follows (000s omitted):
| | ----------------------------------------------------------------------------------------------------------------------------------------

`2002          2001
                                                                        -------        ------
Deferred tax assets:
      Bad debts                                                         $  190         $  121
      Organization and preopening costs                                     10             19
      Unrealized loss on securities available for sale                       -             17
                                                                        ------         ------
                        Total deferred tax assets                          200            157

Deferred tax liabilities:
      Unrealized gain on securities available for sale                    (127)             -
      Depreciation                                                         (24)           (14)
      Accretion on investment securities                                    (4)            (3)
                                                                        ------         ------
                        Total deferred tax liabilities                    (155)           (17)
                                                                        ------         ------
                        Net deferred tax asset                          $   45         $  140
                                                                        ======         ======`

16

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | The
Bank had loan commitments and standby letters of credit totaling $30,162,000 and
$16,125,000 at December 31, 2002 and 2001, respectively, on which loans of
$20,641,000 and $11,467,000, respectively, were outstanding at year end and included in
the Banks consolidated balance sheet.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commitments
to extend credit are agreements to lend 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | 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 is 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 9  Related
Parties

| | The
Bank entered into a lease for its main operating facility under a noncancelable lease
expiring on October 1, 2003. The facility was leased from an entity owned by certain
members of the Board of Directors of the Corporation and the Bank. The lease payment
obligation was $5,000 per month through December 1, 2000 and $5,250 per month thereafter.
Under the terms of the lease agreement, the Bank was responsible for all taxes, utilities,
and maintenance costs for the facility.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2002, the Bank purchased its main operating facility from the related party for
$650,000 and the future lease obligations were terminated. The lease payments made from
January through June 2002 totaled $31,500.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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, 2002, the Banks retained
earnings available for the payment of dividends totaled $1,725,271. Accordingly,
$8,018,156 of the Corporations investment in the Bank was restricted at December 31,
2002.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2002, Bank funds
available for loans or advances to the Corporation amounted to $849,686.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# 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 to key
employees for up to 26,125 shares of common stock. Under the 1998 Founding Directors Stock
Option Plan (Director Plan), the Corporation may grant options for up to
78,375 shares of common stock. Under both plans, there is a minimum vesting period of
between one to three years before the options may be exercised, and all options expire 10
years after the date of their grant. Certain options (contingent options) under both plans
vest on an accelerated basis upon the achievement of various future financial and
operational goals. All such options vest 9.5 years after the date of grant regardless of
achievement of future goals. Under both plans, the exercise price of each option equals
the market price of the Corporations common stock on the date of grant.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes stock option transactions for both plans and the related
average exercise prices for the years ended December 31, 2002, 2001, and 2000:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2002                 2001                  2000
                                    -------------------  -------------------  --------------------
                                    Number of  Weighted             Weighted              Weighted
                                     Shares    Average              Average               Average
                                              Exercise   Number    Exercise   Number of  Exercise
                                               Price    of Shares   Price      Shares     Price
                                    --------  --------  ---------  --------   ---------  ---------
Options Outstanding - Beginning
     of year                         66,350   $ 8.96      66,350   $  8.96     64,150    $  9.09
Options granted - Employee plan           -        -           -        -       2,200       5.00
Options exercised                    (1,100)    5.00           -        -           -         -
Options expired                      (7,607)    9.09           -        -           -         -
                                     ------               ------               ------
Options Outstanding - End of year    57,643   $ 9.01      66,350   $  8.96     66,350    $  8.96
                                     ======   ======      ======   =======     ======    =======


          The  following  table  shows  summary  information  about  fixed stock
          options outstanding at December 31, 2002:


                                 Stock Options Outstanding                Stock Options Exercisable
                     Range of                  Weighted                   Number of
                   Exercise Prices               Average                     Shares
                                               Remaining     Weighted     Exerciseable    Weighted
                                  Number of   Contractual     Average                     Average
                                   Shares        Life     Exercise Price               Exercise Price
                 ---------------- ---------   ----------  --------------  -----------  ---------------
Contingent      $     9.09          28,070     5.9 years     $  9.09         11,228      $  9.09
Noncontingent         9.09          28,473     5.9 years        9.09         22,775         9.09
Noncontingent         5.00           1,100     2.3 years        5.00          1,100         5.00`

19

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 11 - Stock-based Compensation (Continued)

| | The Corporation has adopted the disclosure-only  provisions of SFAS No. 123,  Accounting for Stock-Based  Compensation,
                but applies the  intrinsic  value  method to account for its plan.  The  Corporation  has  estimated  fair value of the
                options  granted in 2000 at $2.34 per  share,  using a  "minimum  value"  concept.  The value was  calculated  using an
                assumed interest rate of 6.5 percent and estimated life of
                five years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If the Corporation had elected to recognize  compensation  costs for the plans based on the fair value of awards at the
                grant  date,  net income per share on a pro forma  basis  would have been as follows  (000s  omitted,  except per share
                data):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2002                 2001                 2000
                                   -------------------  -------------------  -------------------
                                      As                   As                   As
                                   Reported  Pro Forma  Reported  Pro Forma  Reported  Pro Forma
                                   --------  ---------  --------  ---------  --------  ---------
Net income                          $ 801     $ 775      $ 423     $ 401      $ 418     $ 396
Net income per common share:
     Basic
                                     0.78      0.76       0.41      0.39       0.41      0.39
     Fully diluted
                                     0.78      0.76       0.41      0.39       0.41      0.39`

# Note 12  Common
Stock

| | In
October 2000, the Corporation declared an 11-for-10 stock split. The Corporation issued
the additional shares of common stock to its stockholders for the purpose of effecting a
reduction in the unit price of the shares and obtaining a wider distribution and improved
marketability of the shares. The additional shares issued were not intended to be a
distribution of earnings. All applicable per share amounts for periods presented have been
retroactively adjusted to reflect the transaction.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 13  Financial
Instruments

| | Fair
Values 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 13  Financial
Instruments (Continued)

| | Accordingly,
the aggregate fair value amounts presented may not necessarily represent the underlying
fair value of the Corporation.
| | -----------------------------------------------------------------------------------------------------------------------------------

`2002                        2001
                                          -------------------------   ----------------------------
                                           Carrying      Estimated     Carrying    Estimated Fair
                                            Amount      Fair Value      Amount         Value
                                          -----------   -----------   ----------   ---------------
Assets
     Cash and short-term investments       $4,487        $4,487        $5,831        $5,831
     Securities                            54,742        54,742        42,510        42,391
     Loans                                 54,026        54,374        34,036        34,212
     Accrued interest receivable              555           555           441           441

Liabilities
     Noninterest-bearing deposits          14,797        14,797         9,230         9,230
     Interest-bearing deposits             90,126        90,729        64,930        65,579
     Accrued interest payable                 222           222           210           210`

| | The
terms and short-term nature of certain assets and liabilities result in their carrying
amount approximating fair value. These include cash and due from banks, interest-bearing
deposits in banks, federal funds sold, and securities purchased under resale agreements,
customers acceptance liabilities, short-term borrowings, and bank acceptance
outstanding. The following methods and assumptions were used by the Bank to estimate the
fair values of the remaining classes of financial instruments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Securities
are valued based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable instruments.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
variable rate loans that reprice frequently, fair values are based on carrying amounts, as
adjusted for estimated credit losses. The fair values for other loans are estimated using
discounted cash flow analyses and employ interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair values of demand deposits, savings accounts, and money market deposits are, by
definition, equal to the amount payable on demand. The fair values of fixed rate time
deposits are estimated by discounting cash flows using interest rates currently being
offered on certificates with similar maturities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of loan commitments and standby letters of credit, valued on the basis of fees
currently charged for commitments for similar loan terms to new borrowers with similar
credit profiles, is not considered material.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 14  Minimum
Regulatory Capital Requirements

| | The
Corporation (on a consolidated basis) and the Bank are 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
Corporations and the Banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Corporation and
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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Quantitative
measures established by regulation to ensure capital adequacy require the Corporation and
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 assets (as defined). Management
believes, as of December 31, 2002 and 2001, that the Corporation and the Bank met all
capital adequacy requirements to which they are subject.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2002, 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 Corporations and the Banks actual
capital amounts and ratios as of December 31, 2002 and 2001 are also presented in the
table.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 14  Minimum
Regulatory Capital Requirements (Continued)

`For Capital           To be
                                                 Actual        Adequacy Purposes  Well-capitalized
                                         Amount      Ratio    Amount    Ratio    Amount    Ratio
                                                   (Percent)          (Percent)          (Percent)
                                        --------    -------   -------   -------  -------   --------
As of December 31, 2002:
     Total risk-based capital
         (to risk-weighted assets)      $ 10,116     14.76    $ 5,482    8.00    $ 6,853    10.00
     Tier I capital
          (to risk-weighted assets)     $  9,420     13.75    $ 2,741    4.00    $ 4,112     6.00
     Tier I capital
          (to average assets)           $  9,420     8.32     $ 4,529    4.00    $ 5,661     5.00


As of December 31, 2001:
     Total risk-based capital
          (to risk-weighted assets)     $  9,014     19.91    $ 3,622    8.00    $ 4,528    10.00
     Tier I capital
          (to risk-weighted assets)     $  8,595     18.98    $ 1,811    4.00    $ 2,717     6.00
     Tier I capital
          (to average assets)           $  8,595     10.48    $ 3,282    4.00    $ 4,102     5.00`

# 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
subsidiary at cost plus its share of the undistributed earnings of its subsidiary since
inception. The Parent Company recognizes dividends from its subsidiary as revenue and
undistributed earnings of its subsidiary as other income. The Parent Company financial
information should be read in conjunction with the Corporations consolidated
financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

The
condensed balance sheet as of December 31, 2002 and 2001 (with 000s omitted) is as
follows:

`2002        2001
                                                                        ------       -----
Assets
      Cash on deposit with correspondent bank                           $   11       $   1
      Receivable from subsidiary                                             4           -
      Investment in the Bank                                             9,743       8,666
                                                                       -------       -----
                        Total assets                                    $9,758       8,667
                                                                       =======       =====
Liabilities                                                             $    -       $   -

Stockholders' Equity                                                     9,758       8,667
                                                                       -------      ------
                        Total liabilities and stockholders' equity     $ 9,758      $8,667
                                                                       =======      ======



          The condensed statement of operations for the years ended December 31,
          2002, 2001, and 2000 (000s omitted) is as follows:

                                                                       2002       2001        2000
                                                                       ----       ----        ----
Operating Income                                                     $    -      $   -       $   -

Operating Expenses                                                       56          -          26
                                                                     ------      -----        ----
Loss - Before income taxes and equity in undistributed
      income of subsidiary                                              (56)         -         (26)

Provision for Income Taxes                                                -          -           -
                                                                     ------      -----        ----
Loss - Before equity in undistributed income
      of subsidiary                                                     (56)         -         (26)

Equity in Undistributed Income of Subsidiary                            857        423         444
                                                                     ------     ------       -----
Net Income                                                           $  801     $  423       $ 418
                                                                     ======     ======       =====`

24

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

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

| | The
condensed statement of cash flows for the years ended December 31, 2002, 2001, and 2000
(000s omitted) is as follows:
| | -------------------------------------------------------------------------------------------------------------------------

`2002        2001        2000
                                                                       ----        ----        ----
Cash Flows from Operating Activities
      Net income                                                     $    801     $  423     $    418
      Adjustments to reconcile net income to net cash
           from operating activities:
                 Equity in undistributed income of
                      subsidiary                                         (857)      (423)        (444)
                 (Increase) decrease in receivable from
                      subsidiary                                           (4)         -           27
                                                                     --------     ------     --------
                           Net cash provided by (used in)
                                operating activities                      (60)         -            1

Cash Flows from Investing Activities - Dividends
      received from subsidiary                                             60          -            -
Cash Flows from Financing Activities - Issuance
      of stock                                                             10          -            -
                                                                     --------     ------     --------
Net Increase in Cash and Cash Equivalents                                  10          -            1
Cash and Cash Equivalents - Beginning of year                               1          1            -
                                                                     --------     ------     --------
Cash and Cash Equivalents - End of year                               $    11      $   1      $     1
                                                                     ========     ======     ========`

25

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

# Note 16  Earnings
per Share

| | Earnings
per share data is the amount of earnings for the period available to each share of common
stock outstanding during the reporting period. Potential dilutive securities that have an
antidilutive effect have been excluded from the computation. The calculation of earnings
per share for the years ended December 31, 2002, 2001, and 2000 is as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2002         2001          2000
                                                          -----------   -----------  -----------
Net income                                                $       801   $       423  $       418
                                                          ===========   ===========  ===========
Weighted average shares - Basic                                 1,026         1,026        1,026
Dilutive effect of stock options                                    1             1            -
                                                          -----------   -----------  -----------
Weighted average shares - Fully diluted                         1,027         1,027        1,026
                                                          ===========   ===========  ===========
Net income per share - Basic                              $      0.78   $      0.41  $      0.41
                                                          ===========   ===========  ===========
Net income per share - Fully diluted                      $      0.78   $      0.41  $      0.41
                                                          ===========   ===========  ===========`

26

---

# Clarkston Financial
Corporation and Subsidiary

---

# Notes to Conslidated
Financial StatementsDecember 31, 2002, 2001, and 2000

## Exhibit 21

SUBSIDIARIES OF REGISTRANT

Clarkston State Bank - 100% owned
        Incorporated as a Michigan Banking Corporation
        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 24, 2003, on our audit of the consolidated financial
statements for the years ended December 31, 2002, 2001, and 2000 which report is included
in this Annual report on form 10-KSB.

|March 26, 2003
Auburn Hills, Michigan | /s/ PLANTE & MORAN, PLLC | 
|------------------------------------- | ------------------------ | 



---

# EXHIBIT 99-1

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

(1)    
          the Annual Report on Form 10-QSB for the year ended December 31, 2002 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 Quarterly Report on Form 10-KSB for the year
          ended December 31, 2002 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 27, 2003

| | /s/ Edwin L. Adler
Edwin L. Adler
Chief Executive Officer
| | ---------------------------------------------------------



---

# EXHIBIT 99-2

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

(1)    
          the Annual Report on Form 10-KSB for the year ended December 31, 2002 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 Quarterly Report on Form 10-KSB for the year
          ended December 31, 2002 fairly presents, in all material respects, the financial
          condition and results of operations of Clarkston Financial Corporation.

Dated: March 27, 2003

| | /s/ J. Grant Smith
J. Grant Smith
Chief Financial Officer
| | ---------------------------------------------------------



---