SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 10-QSB

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

For the quarterly period ended June 30, 2004

OR

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

For the transition period from _______ to ________

Commission file number:    333-63685   

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

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

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

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

_________________

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,043,459 shares of the Company’s Common Stock (no par value) were outstanding as of August 6, 2004.

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

1

INDEX

Part I	Financial Information (unaudited):	Page Number(s)
	Item 1.
	Consolidated Financial Statements	3-7
	Notes to Consolidated Financial Statements	8-17
	Item 2.
	Management's Discussion and Analysis of
	Financial Condition and Results of Operations	18-21
	Item 3.
	Controls & Procedures	22
Part II	Other Information
	Item 1.
	Legal Proceedings	23
	Item 2.
	Changes in Securities and Use of Proceeds	23
	Item 3.
	Defaults Upon Senior Securities	23
	Item 4.
	Submission of Matters to a Vote of Securities Holders	23
	Item 5.
	Other Information	23
	Item 6.
	Exhibits and Reports on Form 8-K	23-24
Signatures		25

2

Part I Financial Information (unaudited)

CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, 2004 (unaudited) and December 31, 2003
(dollars in thousands)

	June 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
Cash and Cash Equivalents
Total cash and due from banks	$	4,382		$	2,188
Federal funds sold		5,365			5,744
Total Cash and Cash Equivalents		9,747			7,932
Securities Available for Sale, at fair value		41,713			49,064
Loans, less Loan Loss Reserve
Total loans		94,407			84,052
Allowance for loan losses		(1,152	)		(1,092	)
Net Loans		93,255			82,960
Banking premises and equipment		1,506			1,428
Interest receivable		562			637
Deferred tax asset		730			224
Other assets		618			372
Total Assets	$	148,131		$	142,617
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing		21,070			18,231
Interest-bearing		102,862			108,412
Total deposits		123,932			126,643
Junior Subordinated Debentures held by Unconsolidated
Subsidiary Trust (Note 14)		4,000			4,000
Federal Home Loan Bank Advances		9,027			--
Other Liabilities		342			742
Total Liabilities		137,301			131,385
Shareholders' Equity
Common stock, no par value: 10,000,000
shares authorized; 1,043,459 shares
issued and outstanding as of June 30, 2004
and 1,039,184 December 31, 2003		4,377			4,376
Capital Surplus		4,377			4,376
Restricted Stock - Unearned Compensation		(26	)		(29	)
Retained Earnings		2,991			2,357
Accumulated other comprehensive income (loss)		(889	)		152
Total Shareholders' Equity		10,830			11,232
Total Liabilities and Shareholders' Equity	$	148,131		$	142,617

See accompanying notes to consolidated financial statements

3

CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three and Six Month Periods Ended June 30, 2004 and June 30, 2003
(dollars in thousands, except per share data)
(unaudited)

	Three Months Ended June 30, 2004			Three Months Ended June 30, 2003		Six Months Ended June 30, 2004			Six Months Ended June 30, 2003
Interest Income
Loans, including fees	$	1,487		$	1,265	$	2,851		$	2,395
Securities		442			354		939			766
Federal funds sold		9			25		20			39
Total interest income		1,938			1,644		3,810			3,200
Interest Expense
Deposits		679			633		1,352			1,306
Net Interest Income		1,259			1,011		2,458			1,894
Provision for loan losses		105			183		185			426
Net interest income
After provision for loan losses		1,154			828		2,273			1,468
Noninterest income
Gain (losses) on sale of securities		(20	)		219		(14	)		429
Gain on sale of loans		26			61		35			68
Other income		144			124		262			224
Total noninterest income		150			404		283			721
Noninterest expense
Salaries and benefits		469			401		893			754
Occupancy expense		64			44		130			97
Office expense		58			43		112			91
Computer and data processing expenses		110			77		202			145
Advertising and public relations		56			52		102			82
Professional fees		63			49		123			91
Amortization of deposit premium
and conversion cost		6			5		11			10
Other expense		90			108		193			183
Total noninterest expense		916			779		1,766			1,453
Profit before federal income tax		388			453		790			736
Federal income tax		56			130		156			199
Net profit	$	332		$	323	$	634		$	537
Basic earnings per share	$	.32		$	.31	$	.61		$	.52
Diluted earnings per share	$	.31		$	.31	$	.59		$	.52

See accompanying notes to consolidated financial statements.

4

CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Six Month Periods Ended June 30, 2004 and June 30, 2003
(dollars in thousands)
(unaudited)

	Three Months Ended June 30, 2004			Three Months Ended June 30, 2003		Six Months Ended June 30, 2004			Six Months Ended June 30, 2003
Net profit as Reported	$	332		$	323	$	634		$	537
Other Comprehensive Income (loss), Net of Tax:
Change in unrealized gain / (loss) on securities
available for sale		(1,499	)		242		(1,041	)		226
Comprehensive Profit/(Loss)	$	(1,167	)	$	565	$	(407	)	$	763

See accompanying notes to consolidated financial statements.

5

CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Six Month Period ended June 30, 2004
(dollars in thousands)
(Unaudited)

	Common Stock		Capital Surplus		Unearned Comp.			Retained Earnings		Accumulated Other Comprehensive Income			Total Share- holders' Equity
Balance December 31, 2003	$	4,376	$	4,376	$	(29	)	$	2,357	$	152		$	11,232
Issuance of restricted stock		1		1		(2	)
Recognition of compensation for
restricted stock award						5								5
Net income for six months    ended June 30, 2004    (unaudited)									634					634
Decrease in fair market value of
securities available for sale											(1,041	)		(1,041	)
Balance June 30, 2004	$	4,377	$	4,377		($ 26	)	$	2,991		($ 889	)	$	10,830

See accompanying notes to consolidated financial statements.

6

CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Month Periods ended June 30, 2004 and June 30, 2003
(dollars in thousands)
(unaudited)

	Six Months Ended June 30, 2004			Six Months Ended June 30, 2003
Net Cash Provided by Operating Activities:
Net cash provided by operating activities	$	10,120		$	682
Cash Flows from Investing Activities:
Net increase in loans		(10,355	)		(21,613	)
Purchase of available-for-sale securities		(14,955	)		(27,337	)
Proceeds from sales of available-for-sale securities		21,279			39,498
Property and equipment expenditures		(152	)		(60	)
Net cash used in investing activities		(4,183	)		(9,512	)
Cash Flows from Financing Activities:
(Decrease) increase in deposits		(4,122	)		14,485
Net cash used in financing activities		(4,122	)		14,485
Net increase in cash and cash equivalents		1,815			5,655
Cash and cash equivalents at beginning of year		7,932			4,487
Cash and cash equivalents at June 30, 2004 and 2003	$	9,747		$	10,142

See accompanying notes to consolidated financial statements.

7

NOTE 1 – SUMMARY OF CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

8

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

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

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

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

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

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

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

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

Stock Compensation Plans — The Company accounts for stock options under the recognition and measurement principals of APB Opinion No. 25 and related interpretations. No stock based employee compensation cost related to stock options is reflected in net income as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

9

The Corporation has two stock-based compensation plans. Under the employees’ Stock Compensation Plan (“Employee Plan”), the Corporation may grant options or issue restricted stock to key employees for up to 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 three month periods ended June 30, 2004 and 2003:

	2004				2003
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Options Outstanding - beginning of period		49,536	$	9.09		57,643	$	9.01
Options granted		--		--		--		--
Options exercised		--		--		--		--
Options expired		--		--		--		--
Options Outstanding - End of period		49,536	$	9.09		57,643	$	9.01

10

The following table shows summary information about fixed stock options outstanding at June 30, 2004:

	Stock Options Outstanding								Stock Options Exercisable
	Range of Exercise Prices		Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number of Shares Exercisable		Weighted Average Exercise Price
Contingent	$	9.09		24,060		4.3 years	$	9.09		14,436	$	9.09
Noncontingent		9.09		25,476		4.3 years		9.09		25,476		9.09

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 market 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 for three and six month periods ended June 30, 2004 and 2003 would have been as follows (000s omitted, except per share data):

	Six Month Period Ended June 30,
	2004				2003
	As Reported		Pro Forma		As Reported		Pro Forma
Net income	$	634	$	620	$	537	$	529
Net income per
common share:
Basic		0.61		0.60		0.52		0.51
Fully diluted		0.61		0.58		0.52		0.51

Shares of restricted stock issued to employees in 2003 were valued at the market price of the stock at the award date. Compensation expense is being recognized over the three year vesting period for the restricted stock.

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

Book Value per Share — Book value per share represents total stockholders’ equity divided by the total number of shares outstanding at the end of each period.

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

11

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

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify a financial instrument that is within its scope as a liability. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company formed a business trust subsidiary in December 2003 to sell trust preferred securities. The Company has recorded the instruments in accordance with SFAS No. 150 (see Note 14 for additional details).

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

NOTE 2 – COMPUTATION OF EARNINGS PER SHARE

Basic earnings (loss) per share is based on net income (loss) divided by the weighted average number of shares outstanding during the period.

NOTE 3 — SECURITIES

At June 30, 2004, investment securities having a carrying value of $3.1 million were pledged to local municipalities and county governments. Securities are pledged as required by law to be used as collateral for public liabilities.

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

12

Available for Sale

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
June 30, 2004 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies	$	43,059	$	18	$	1,364	$	41,713

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Listed below are the contractual maturities of debt securities at June 30, 2004:

	Available-for-Sale Securities
	Amortized Cost		Estimated Market Value
Due from 2004 to 2005	$	0	$	0
Due from 2005 to 2007		2,006		1,977
Due from 2007 to 2009		2,590		2,544
Due from 2010 to 2041		38,463		37,192
	$	43,059	$	41,713

NOTE 4 — LOANS

Loans are as follows (dollars in thousands):

	June 30, 2004			December 31, 2003
Commercial	$	78,813		$	72,534
Mortgage		11,781			7,642
Consumer		3,813			3,876
Gross Loans	$	94,407		$	84,052
Allowance for loan losses		(1,152	)		(1,092	)
Net Loans	$	93,255		$	82,960

13

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

	Six months Ended June 30, 2004 (unaudited)			For the Year Ended December 31, 2003
Balance at beginning of period	$	1,092		$	696
Provision charged to operating expense		185			496
Loan losses		(174	)		(144	)
Loan recoveries		49			44
Balance at end of period	$	1,152		$	1,092
Allowance for loan losses as a percentage of
loans at end of period		1.22	%		1.30	%

The table below outlines the allowance for loan loss allocations (dollars in thousands):

	June 30, 2004					December 31, 2003
	Allowance Amount		% of each category to total loans			Allowance Amount		% of each category to total loans
Commercial	$	453		.48	%	$	366		.44	%
Real estate mortgages		681		.72			710		.84
Consumer		18		.02			16		.02
Unallocated		0		0			0		.0
Total	$	1,152		1.22	%	$	1,092		1.30	%

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 regards to loan type.

NOTE 5 — PREMISES AND EQUIPMENT

Premises and equipment are as follows (dollars in thousands):

	(unaudited) June 30, 2004		December 31, 2003
Building and improvements	$	1,114	$	1,030
Furniture and equipment		890		822
Land and improvements		67		67
Total premises and equipment		2,071		1,919
Less accumulated depreciation		565		491
Net carrying amount	$	1,506	$	1,428

14

NOTE 6 — DEPOSITS

Deposits are summarized as follows (dollars in thousands):

	June 30, 2004		December 31, 2003
Non-Interest Bearing Demand Deposit Accounts	$	21,070	$	18,231
Interest-Bearing Demand deposit accounts		9,910		10,949
Savings accounts		5,666		5,250
Money market accounts		42,885		49,277
Certificates of Deposit		44,401		42,936
	$	123,932	$	126,643

15

NOTE 7 – 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 the 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 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 June 30, 2004 and December 31, 2003, that the Corporation and the Bank met all capital adequacy requirements to which they are subject.

As of June 30, 2004, 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 risk-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 June 30, 2004 and December 31, 2003 are also presented in the table below.

	Actual				For Capital Adequacy Purposes				To be Well-Capitalized
	Amount		Ratio (Percent)		Amount		Ratio (Percent)		Amount		Ratio (Percent)
As of June 30, 2004:
Total risk-based capital
(to risk-weighted assets)	$	13,676		12.92	$	8,469		8.00	$	10,586		10.00
Tier 1 capital
(to risk-weighted assets)		12,524		11.83		4,235		4.00		6,352		6.00
Tier 1 capital
(to average assets)		12,524		8.69		5,762		4.00		7,202		5.00
As of December 31, 2003:
Total risk-based capital	$	12,069		12.59	$	7,670		8.00	$	9,588		10.00
(to risk-weighted assets)
Tier 1 capital		10,977		11.45		3,835		4.00		5,753		6.00
(to risk-weighted assets)
Tier 1 capital		10,977		8.02		5,478		4.00		6,847		5.00
(to average assets)

16

NOTE 8 – STANDBY AND COMMERCIAL LETTERS OF CREDIT AND FINANCIAL GUARANTEES

The Company is 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 and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount of recognized in the consolidated balance sheet.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on balance sheet instruments.

The total contractual amount of standby letters of credit and financial guarantees which represents the Company’s credit risk associated with these instruments were $11.3 million and $13.3 million as of June 30, 2004 and December 31, 2003, respectively.

The total contractual amount of commercial letters of credit, which represents credit associated with these instruments were $9.4 million and $5.3 million at June 30, 2004 and December 31, 2003, respectively

17

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

General

        Clarkston Financial Corporation (the “Company”) is a Michigan corporation incorporated on May 18, 1998. The Company is the bank holding company for 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. We provide a full range of commercial and consumer banking services, primarily in Clarkston, Michigan and the surrounding market area primarily located in north Oakland County, Michigan. We operate five customer service locations including two full service branches.

Financial Condition

        Our total assets increased by $5.5 million or 3.7% to $148.1 million at June 30, 2004, from $142.6 million at December 31, 2003. The continued growth is attributable to ongoing marketing efforts for deposits with a strong emphasis on procuring additional lending relationships. Although the market area continues to be more competitive it is anticipated that our assets will continue to grow.

        Cash and cash equivalents, which includes federal funds sold and short-term investments, increased $1.8 million or 22.9% to $9.7 million at June 30, 2004, from $7.9 million at December 31, 2003. Management has gradually increased the cash on hand over the past thirty days to meet rising loan demand and fulfill current pipeline commitments. In addition, we have seen an increase in account activity for both retail and consumer accounts.

        Securities decreased by $7.4 million or 15.1% to $41.7 million at June 30, 2004 from $49.1 million at December 31, 2003. The decrease is directly attributable to selling securities in an effort to keep pace with the Bank’s loan demand and to have proper investment portfolio metrics given the current interest rate environment . This is consistent with management’s intent to reduce the level of lower interest bearing securities and replace them with higher interest bearing loans. The bank continues to have excellent liquidity and will monitor its level of securities to ensure proper liquidity is maintained.

        Total loans increased by $10.3 million or 12.2% to $94.4 million at June 30, 2004 from $84.1 million at December 31, 2003. This pattern of growth is consistent with our business plan and is expected to continue throughout 2004. Most notably were significant increases in commercial and commercial real estate loans which increased $6.3 million or 8.7% from $72.5 million at December 31, 2003 to $78.8 million at June 30, 2004. Moreover, residential real estate loans increased $4.2 million or 55.3% from $7.6 million to $11.8 million for the same period. We have emphasized enhancing our mortgage loan production through increased originations and additional residential construction lending in an effort to increase non-interest income as well as additional portfolio business. meet demand for loans in our market area.

        The allowance for loan losses as of June 30, 2004 was $1.2 million, representing approximately 1.22% of total loans outstanding, compared to $1.1 million as of December 31, 2003. The increase in the allowance is directly attributable to the growth in the loan portfolio.

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

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

        Although the loan portfolio is unseasoned and actual loss experience is not readily determinable management believes the allowance for loan losses is adequate as of June 30, 2004. We consider it adequate based on the use of its credit risk rating system which identifies problem credits and ranks loans by specific categories. Moreover, we use peer comparisons and industry data for similar type loans to further assess the proper level of the loan loss allowance. Going forward, we will closely monitor the performance of the loan portfolio as it becomes more seasoned.

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

        As of June 30, 2004, we had retained earnings of $3.0 million compared to $2.4 million at December 31, 2003. Retained earnings continues to improve as we have increased net interest income by adding additional higher interest bearing loans from lower interest bearing securities. In addition, we have continued to focus on strong expense discipline which continues to enhance our profitability.

Results of Operations

        Our net profit was $332,000 for the second quarter of 2004 compared to net profit of $323,000 for the second quarter of 2003. Net profit for the three month period ended June 30, 2004 included losses on the sale of securities of $20,000 and a federal income tax provision of $56,000. We continue to follow our business plan for 2004 by selling lower interest bearing securities and re-investing in higher interest bearing loans translating into higher returns than the liquidated securities.

        Interest income for the second quarter of 2004 was $1.9 million, an increase of 17.9% from interest income of $1.6 million for the second quarter of 2003. This increase resulted primarily from continued loan growth throughout the quarter. Interest expense was $679,000 for the second quarter of 2004, a 7.3% increase from interest expense of $633,000 for the second quarter of 2003.

        We had an allowance for loan losses of approximately 1.22% of total loans at June 30, 2004. The provision expense for loan loss for the second quarter of 2004, was $105,000. Management believes the current rate of providing for the loan loss reserve is adequate.

        Non-interest income was $150,000 for the second quarter of 2004, a $254,000 (or 62.9%) decrease over the second quarter of 2003 when non-interest income was $404,000. The variance is the result of lower sales of investment securities during the second quarter of 2004 versus 2003. As previously stated management embarked on a strategy of reducing the investment portfolio and re-employing the principal into higher interest bearing loans. We have successfully completed this transformation over the past year and we do not expect to realize significant gains on sales of securities in the future. The noted improvement in our net interest margin is a direct result of this endeavor.

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        Non-interest expense was $916,000 for the second quarter of 2004, a $137,000 (or 17.6%) increase over the second quarter of 2003 when non-interest expense was $779,000. The increase is primarily attributable to higher salary and benefit costs due to the increase in full time equivalents and normal raises given to employees. In addition, management has increased its marketing budget to further enhance efforts to market the Bank’s products and services as well as rolled out internet banking to our customers. We continue to reinvest in our core business and provide additional banking delivery systems to further enhance our customer relationships and to help procure future customers.

Liquidity and Capital Resources

        We obtained our initial equity capital in an initial public offering of our common stock in November 1998. We have successfully grown through our first five years of operation. In the 2003, we evaluated the need to raise additional capital in order to keep pace with the current growth strategy. In December 2003, we completed an offering of $4.1 million of cumulative preferred securities (“Trust Preferred Securities”) to further support our growth into the immediate future.

        Management believes that its current capital will provide us with adequate capital to support its expected level of deposit and loan growth and to otherwise meet its capital requirements for the next year. One of the growth strategies we intends to pursue, which could have an effect on our equity and/or require additional capital, is growth through acquisition or the start up of additional DeNovo banks. If we were to pursue such opportunities, we might need additional equity capital.

Capital Resources at June 30, 2004 (in thousands)

	Tier 1 Leverage Ratio		Tier 1 Capital Ratio		Total Risk-Based 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	8.69	%	11.83	%	12.92	%
Bank	8.69	%	11.83	%	12.92	%

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

	Tier 1 Leverage		Tier 1 Capital		Total Risk-Based Capital
	(in thousands of dollars)
Capital balances at June 30, 2004
Required regulatory capital	$	5,762	$	4,235	$	8,469
Capital in excess of regulatory minimums		6,762		8,289		5,207
Actual capital balances	$	12,524	$	12,524	$	13,676

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

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

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. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our 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 about us and our business, including additional factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission.

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Item 3 CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-QSB Quarterly Report, have concluded that 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-QSB Quarterly Report was being prepared.

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

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Securities Holders

(a) The annual meeting of the shareholders of the Corporation was held on May 11, 2004.

(b) The following directors were elected at the annual meeting for a term expiring in 2007: Edwin L. Adler, Dawn M. Horner and John H. Welker. Other directors whose terms continued after the meeting are as follows: Louis D. Beer, William J. Clark, Charles L. Fortinberry and Bruce H. McIntyre.

(c) At the annual meeting directors were elected for terms expiring in 2007:

Director Nominee	For	Against	Abstain
Edwin L. Adler Dawn M. Horner John H. Welker	917,510 920,260 920,260	---------- - ---------- - ----------	12,570 9,820 9,820

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

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

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

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32.1 Certificate of the Chief Executive Officer and Chief Financial Officer of Clarkston Financial Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K – On April 28, 2004, the Company filed a Current Report on Form 8-K disclosing in “Item 12 – Results of Operations and Financial Condition” the financial results for the first quarter of 2004.

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SIGNATURES

        In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004, to be signed on its behalf by the undersigned, thereunto duly authorized.

CLARKSTON FINANCIAL CORPORATION


/s/ Edwin L. Adler
——————————————
Edwin L. Adler
Chairman of the Board


/s/ J. Grant Smith
——————————————
J. Grant Smith
Chief Financial Officer

DATE: August 13, 2004

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EXHIBIT LIST

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

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

32.1 Certificate of the Chief Executive Officer and Chief Financial Officer of Clarkston Financial Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Exhibit 31.1

CERTIFICATIONS

I, Edwin L. Adler, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Clarkston Financial Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

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

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

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and ;

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

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

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

Date: August 13, 2004

/s/ Edwin L. Adler
——————————————
Edwin L. Adler
Chief Executive Officer

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Exhibit 31.2

CERTIFICATIONS

I, J. Grant Smith, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Clarkston Financial Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

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

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

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and ;

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

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

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

Date: August 13, 2004

/s/ J. Grant Smith
——————————————
J. Grant Smith
Chief Financial Officer

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EXHIBIT 32.1

Each of, Edwin L. Adler, Chief Executive Officer, and 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 Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2004 which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)     the information contained in the Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of Clarkston Financial Corporation.

Date: August 13, 2004

/s/ Edwin L. Adler
——————————————
Edwin L. Adler
Chief Executive Officer


/s/ J. Grant Smith
——————————————
J. Grant Smith
Chief Financial Officer

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