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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-Q**   þ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934****For the quarterly period ended June 30, 2006****OR**   o **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 000-22461****O.A.K. FINANCIAL CORPORATION**(Exact name of registrant as specified in its charter)   **MICHIGAN** **38-2817345**   (State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)**2445 84th Street, S.W., Byron Center, Michigan 49315**(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (616) 878-1591 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.Yes o       No þIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 ofSection 15(d) of the Exchange Act.Yes o       No þIndicate by check mark whether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yes þ       No oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act (Check one):Large accelerated filer o       Accelerated filer þ       Non-accelerated filer oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o       No þThe number of shares outstanding of each of the issuer’s classes of common stock, as of the latestpracticable date: 2,457,615 shares of the Corporation’s Common Stock ($1 par value) wereoutstanding as of August 9, 2006.  
 

 
**INDEX**           Page Number(s)Part I. Financial Information (unaudited):             Item 1.      Consolidated Financial Statements  3-6   Notes to Consolidated Financial Statements  7-9          Item 2.      Management's Discussion and Analysis of      Financial Condition and Results of Operations  10-18          Item 3.      Quantitative and Qualitative Disclosures About Market Risk  19          Item 4.      Controls and Procedures  20        Part II. Other Information             Item 1.      Legal Proceedings  20          Item 1A.      Risk Factors  20          Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds  20          Item 3.      Defaults Upon Senior Securities  20          Item 4.      Submission of Matters to a Vote of Security Holders  20          Item 5.      Other Information  20          Item 6.      Exhibits  20        Signatures  21        Exhibit Index  22  Certificate of the President and Chief Executive Officer to Section 302 Certificate of the Chief Financial Officer to Section 302 Certificate of the Chief Executive Officer to Section 906 Certificate of the Chief Financial Officer to Section 906
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   **OAK FINANCIAL CORPORATION** **CONSOLIDATED BALANCE SHEETS****AND SUBSIDIARY**     *(Dollars in thousands, except per share data)*             **June 30,**      **2006**  **December 31,**   **(Unaudited)**  **2005** **ASSETS**                 Cash and due from banks $12,548  $12,943 Federal funds sold  —   —        Total cash and cash equivalents  12,548   12,943          Available-for-sale securities  108,184   102,563          Loans held for sale  700   598          Total loans  485,294   453,879 Allowance for loan losses  (7,375)  (7,160)       Net Loans  477,919   446,719          Accrued interest receivable  3,076   3,153 Premises and equipment, net  15,044   14,717 Restricted investments  3,419   3,119 Other assets  7,707   7,273        **Total assets** **$****628,597**  **$****591,085**                 **LIABILITIES AND STOCKHOLDERS’ EQUITY**                 Deposits        Non-interest bearing $72,713  $68,445 Interest bearing  447,506   419,452        Total deposits  520,219   487,897          Securities sold under agreements to repurchase  —   796 Federal funds purchased  15,900   6,050 Federal Home Loan Bank Advances  26,237   27,800 Other borrowed funds  241   3,569 Other liabilities  3,886   4,378        Total liabilities  566,483   530,490          Stockholders’ equity        Common stock, $1 par value; 4,000,000 shares authorized;2,457,615 shares issued and outstanding  2,458   2,235 Additional paid-in capital  23,880   14,957 Retained earnings  37,084   43,926 Accumulated other comprehensive income  (1,308)  (523)       Total stockholders’ equity  62,114   60,595        **Total liabilities and stockholders’ equity** **$****628,597**  **$****591,085**             The accompanying notes are an integral part of these consolidated financial statements.
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   **OAK FINANCIAL CORPORATION**  **AND SUBSIDIARY** **CONSOLIDATED STATEMENTS OF INCOME**   *(Dollars in thousands except per share data)*                     **Three Months ended**  **Six Months ended**   **June 30,**  **June 30,**   **(Unaudited)**  **(Unaudited)**   **2006**  **2005**  **2006**  **2005** Interest Income                Interest and fees on loans $8,933  $6,740  $17,081  $12,870 Available-for-sale securities  1,135   889   2,203   1,795 Restricted investments  46   36   90   73 Federal funds sold  7   1   57   3              Total interest income  10,121   7,666   19,431   14,741                               Interest expense                Deposits  3,769   2,103   7,059   3,969 Borrowed funds  579   475   998   861 Securities sold under agreements to repurchase  1   9   2   46              Total interest expense  4,349   2,587   8,059   4,876                               Net interest income  5,772   5,079   11,372   9,865                  Provision for loan losses  180   120   300   240                               Net interest income after provision for loan losses  5,592   4,959   11,072   9,625                               Non-interest income                Service charges on deposit accounts  798   631   1,466   1,199 Mortgage banking  213   260   397   463 Net gain on sales of available for sale securities  2   (4)  16   (4)Insurance premiums and brokerage fees  247   326   591   719 Other  313   137   444   273              Total non-interest income  1,573   1,350   2,914   2,650                               Non-interest expenses                Salaries  2,420   2,037   4,691   3,923 Employee benefits  479   436   942   917 Occupancy (net)  376   353   762   708 Furniture and fixtures  257   260   482   526 Other  1,243   1,258   2,517   2,509              Total non-interest expenses  4,775   4,344   9,394   8,583                               Income before federal income taxes  2,390   1,965   4,592   3,692                  Federal income taxes  700   555   1,335   1,044                               **Net income** **$****1,690**  **$****1,410**  **$****3,257**  **$****2,648**                               **Income per common share: ***                **Basic** **$****0.69**  **$****0.57**  **$****1.33**  **$****1.07** **Diluted** **$****0.69**  **$****0.57**  **$****1.33**  **$****1.07**  * Per share data has been adjusted to reflect the 10% stock dividends on May 31, 2005 and May 31, 2006.
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   **OAK FINANCIAL CORPORATION** **CONSOLIDATED STATEMENTS OF****AND SUBSIDIARY** **CHANGES IN STOCKHOLDERS’ EQUITY**   (in thousands)             **Six months ended June 30,**   **(Unaudited)**   **2006**  **2005** Balance, beginning of year $60,595  $57,353 Net income  3,257   2,648 Net change in accumulated other comprehensive income  (785)  (180)Dividends declared  (953)  (779)       Balance, end of period $62,114  $59,042           **OAK FINANCIAL CORPORATION** **CONSOLIDATED STATEMENTS OF****AND SUBSIDIARY** **COMPREHENSIVE INCOME**   (in thousands)                     **Three Months ended**  **Six Months ended**   **June 30,**  **June 30,**   **(Unaudited)**  **(Unaudited)**   **2006**  **2005**  **2006**  **2005** Net income $1,690  $1,410  $3,257  $2,648 Change in unrealized gain/(loss) on securities,net of tax  (539)  548   (785)  (180)             Comprehensive income $1,151  $1,958  $2,472  $2,468                   The accompanying notes are an integral part of these consolidated financial statements.
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   **OAK FINANCIAL CORPORATION** **CONSOLIDATED STATEMENTS OF****AND SUBSIDIARY** **CASH FLOWS**   (in thousands)             **Six Months Ended June 30,**   **(Unaudited)**   **2006**  **2005** Cash flows from operating activities        Net income $3,257  $2,648 Adjustments to reconcile net income to net cash provided (used)by operating activities:        Depreciation and amortization  504   545 Provision for loan losses  300   240 Proceeds from sales of loans held for sale  19,255   24,651 Originations of loans held for sale  (19,025)  (24,433)Net (gain) loss on sales of available-for-sale securities  (16)  4 Net gain on sales of loans held for sale  (331)  (377)Net amortization of investment premiums  203   422 Stock dividends received from restricted investments  —   (46)Net loss on sales of property and equipment  —   46 Deferred federal income tax benefit  (75)  (189)Changes in operating assets and liabilities whichprovided (used) cash:        Accrued interest receivable  76   (318)Other assets  (357)  (442)Other liabilities  (178)  588        Net cash provided by operating activities  3,613   3,339                 Cash flows from investing activities        Available-for-sale securities        Proceeds from calls, maturities and pay-downs  4,215   14,681 Proceeds from sales  6,563   8,823 Purchases  (17,775)  (21,241)Purchases of restricted investments  (300)  — Net increase in loans held for investment  (31,501)  (25,822)Purchases of premises and equipment  (831)  (625)Proceeds from the sale of premises and equipment  —   3        Net cash used in investing activities  (39,629)  (24,181)                Cash flows from financing activities        Net increase in deposits  32,322   36,581 Net decrease in TT&L note  (3,328)  (749)Net (decrease) increase in borrowed funds  (1,563)  10,000 Dividends paid  (864)  (683)Net decrease in securities sold under agreements to repurchase  (796)  (25,098)Net increase in federal funds purchased  9,850   2,800        Net cash provided by financing activities  35,621   22,851                 Net (decrease) increase in cash and cash equivalents  (395)  2,009          Cash and cash equivalents, beginning of period  12,943   9,967        Cash and cash equivalents, end of period $12,548  $11,976        Supplementary cash flows information        Interest paid $8,213  $4,558 Income taxes paid $1,493  $1,119      The accompanying notes are an integral part of these consolidated financial statements.
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**OAK FINANCIAL CORPORATION****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)****Note 1 –*****Financial Statements***     The accompanying unaudited condensed consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interim financial information and withthe instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not includeall of the information and footnotes required by accounting principles generally accepted in theUnited States of America for complete financial statements. In the opinion of management, alladjustments considered necessary for a fair presentation have been included. Operating results forthe year-to-date and three-month periods ended June 30, 2006 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2006. For further information, referto the consolidated financial statements and footnotes thereto included in the Corporation’s annualreport on Form 10-K for the year ended December 31, 2005.     All per share amounts and average shares outstanding have been adjusted for all periodspresented to reflect the 10% stock dividends distributed on May 31, 2005 and May 31, 2006.**Note 2 –*****Calculation of Earnings per Share*****(in thousands)**     All earnings per share amounts have been presented to conform to the requirements of Statementof Financial Accounting Standard (SFAS) No. 128, *Earnings Per Share*. Basic earnings per shareexclude any dilutive effect of stock options. The basic earnings per share for the Corporation arecomputed by dividing net income by the weighted average number of common shares outstanding.Diluted earnings per share for the Corporation are computed by dividing net income by the sum ofthe weighted average number of common shares outstanding plus the dilutive effect of outstandingstock options. The following table summarizes the number of shares used in the denominator of thebasic and diluted earnings per share computations:                   Three Months ended  Six Months ended   June 30,  June 30,   2006  2005  2006  2005 Average shares outstanding for basicearnings per share  2,458   2,461   2,458   2,461 Dilutive shares from stock option plans  1   —   1   —              Shares for dilutive earnings per share  2,459   2,461   2,459   2,461              **Note 3**– ***Segment Reporting***     The Corporation provides a broad range of financial products and services through its branchnetwork in West Michigan. While the Corporation’s chief decision makers monitor the revenuestreams of various products and services, operations are managed and financial performance isevaluated on a corporate wide basis. Accordingly, all of the Corporation’s operations areaggregated in one reportable operating segment.**Note 4 –*****Special Purpose Entities***     OAK ELC is an employee leasing company that leases employees to Byron Bank, Byron InvestmentServices and Byron Insurance Agency. The purpose of OAK ELC is to reduce the administrative burdenof multiple payrolls and allocate shared employment costs between business units. The financialresults of OAK ELC and elimination of inter-company transactions are included in the consolidatedresults of the Corporation.**Note 5 –*****Allowance for Loan Losses***     The allowance for loan losses is established as losses are estimated to have occurred througha provision for loan losses charged to earnings. Loan losses are charged against the allowancewhen management believes the loan balance is uncollectible. Subsequent recoveries, if any, arecredited to the allowance.
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     The allowance for loan losses is evaluated quarterly by management and is based upon aperiodic review of the collectibility of the loans in light of historical experience, the natureand volume of the loan portfolio, adverse situations that may affect the borrower’s ability torepay, estimated value of underlying collateral and prevailing economic conditions. Thisevaluation is inherently subjective, as it requires estimates that are susceptible to significantrevision as more information becomes available.     A loan is considered impaired when, based on current information and events, it is probablethat the Corporation will be unable to collect the scheduled payments of principal or interest whendue, according to the contractual terms of the loan agreement. Factors considered by management indetermining impairment include payment status, collateral value and the probability of collectingscheduled principal and interest payments when due. Loans that experience insignificant paymentdelays and payment shortfalls generally are not classified as impaired. Management determines thesignificance of payment delays and payment shortfalls on a case-by-case basis, taking intoconsideration all of the circumstances surrounding the loan and the borrower, including the lengthof the delay, the reasons for the delay, the borrower’s prior payment record and the amount of theshortfall in relation to the principal and interest owed. Impairment is measured on an individualloan basis for commercial and construction loans by either: the present value of expected futurecash 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.**Note 6 –*****Interest Rate Risk***     The primary components of the balance sheet are interest-earning assets, which are funded byinterest-bearing liabilities. The differences in cash flows of these rate sensitive assets andliabilities, combined with shifts, or changes in the overall market yield curve result in interestrate risk. Interest rate risk is the change in net interest income due to interest rate changes.Interest rate risk is inherent to banking and cannot be eliminated.     The Asset and Liability Management Committee (ALCO) is responsible for overseeing thefinancial management of net interest income, liquidity, investment transactions, and other relatedactivities. To address interest rate risk, management utilizes simulation analysis to assess riskin dynamic interest rate environments.**Note 7 –*****Stock Compensation and Stock Option Plans*****(dollars in thousands, except per share data)**     The Corporation maintains stock option plans for non-employee directors (the Directors’ Plan)and employees and officers of the Corporation and its subsidiaries (the Employees’ Plan). Thestock compensation plans were established in 1999, and authorize the issue of up to 199,650 optionsunder the Employees’ Plan and up to 42,350 options under the Directors’ Plan.     Options under both plans become exercisable after the first anniversary of the award date,except the options awarded in 2005, which were vested at the award date. The option exercise priceis at least 100% of the market value of the common stock at the grant date. No options wereawarded during the first six months of 2006. During 2005, 1,650 options were awarded at an exerciseprice of $38.18. The following tables summarize information about stock option transactions duringsuch quarters:                   June 30, 2006  June 30, 2005       Average      Average       Option      Option   Shares  Price  Shares  Price Outstanding, beginning of period  33,414  $40.30   34,184  $40.46 Granted  —   —   1,650  $38.18 Exercised  —   —   —   — Forfeited/expired  —   —   (2,420) $41.22              Outstanding, end of period  33,414  $40.30   33,414  $40.30                               Exercisable, end of period  33,414  $40.30   33,414  $40.30              
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               Outstanding Exercisable      Wgt. Avg.  Exercise Number Remaining Number   Price June 30, 2006 Contractual Life June 30, 2006$36.78  10,880  5.6 years  10,880 $37.19  1,210  7.8 years  1,210 $38.18  1,650  8.8 years  1,650 $41.32  13,501  3.8 years  13,501 $45.45  6,172  3.5 years  6,172              Total  33,414  4.3 years  33,414                   All options expire 10 years after the date of the grant; 172,580 shares are reserved forfuture issuance under the Employees’ Plan and 35,090 shares are reserved for future issuance underthe Directors’ Plan.     SFAS No. 123(R), requires all public companies to measure the cost for stock options providedto employees in return for employee service. The cost is measured at the fair value of the optionswhen granted and recognized over the employee service period, which is usually the vesting periodof the options. As amended, this statement became effective for the Corporation’s fiscal yearbeginning January 1, 2006. The Corporation has adopted the “modified prospective method” asrequired by SFAS No. 123(R), which requires all unvested options to be expensed over the remainingvesting period. All of the Corporations outstanding options at December 31, 2005 were fullyvested, resulting in no impact to the Corporation’s net income. The effect on the Corporation’snet income in the future will depend on the level of future option grants and the calculation ofthe fair value of the options granted, as well as the vesting periods provided.     Had compensation costs for the Corporation’s stock option plans been determined based on fairvalue at the grant dates for awards under the plans consistent with the method prescribed by SFAS123(R), the Corporation’s net income and earnings per share would have been adjusted to the proforma amounts indicated below:                   Three Months Ended  Six Months Ended   June 30,  June 30,   2006  2005  2006  2005 Net Income as reported $1,690  $1,410  $3,257  $2,648 Stock based compensation expense  —   —   —   — Stock based compensation expense determinedunder fair value method, net of related taxeffect  —   (9)  —   (10)             Pro-forma net income $1,690  $1,401  $3,257  $2,638                  Basic earnings per share as reported $0.69  $0.57  $1.33  $1.07 Pro-forma basic earnings per share as reported $0.69  $0.57  $1.33  $1.07                  Diluted earnings per share as reported $0.69  $0.57  $1.33  $1.07 Pro-forma diluted earnings per share as reported $0.69  $0.57  $1.33  $1.07 
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**FORWARD LOOKING STATEMENTS**     This report includes “forward-looking statements” as that term is used in the securities laws.All statements regarding our expected financial position, business and strategies areforward-looking statements. In addition, the words “anticipates,” “believes,” “estimates,” “seeks,”“expects,” “plans,” “intends,” and similar expressions, as they relate to us or our management, areintended to identify forward-looking statements. The presentation and discussion of the provisionand allowance for loan losses, valuation of mortgage service rights and statements concerningfuture profitability or future growth or increases, are examples of inherently forward lookingstatements in that they involve judgments and statements of belief as to the outcome of futureevents. Our ability to predict results or the actual effect of future plans or strategies isinherently uncertain. Factors which could have a material adverse affect on our operations and ourfuture prospects include, but are not limited to, changes in: interest rates, general economicconditions, 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 compositionof the loan or investment portfolios, demand for loan products, deposit flows, competition, demandfor financial services in our market area and accounting principles, policies and guidelines.These risks and uncertainties should be considered in evaluating forward-looking statements andundue reliance should not be placed on such statements. Further information concerning us and ourbusiness, including additional factors that could materially affect our financial results, has beenincluded within our filings with the Securities and Exchange Commission.**ITEM 2.****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**