# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-K

[X]
                    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF           1934  For the fiscal year
ended December 31, 2005 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
000-22461

O.A.K.
                    FINANCIAL CORPORATION (Exact name of registrant as specified in
its           charter)

|MICHIGAN
(State of other jurisdiction of incorporation or organization) | 38-2817345
(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

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

Securities registered
pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value  (Title of Class)_________________

Indicate  by  check  mark
if the  registrant  is a  well-known  seasoned  issuer,  as  defined  in Rule  405 of the
Securities Act. Yes  [__]       No [X].

Indicate by check mark if
the  registrant  is not required to file reports  pursuant to Section 13 of Section 15(d)
of the Exchange Act.  Yes  [__]       No [X].

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 [__]

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not 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-K or any
amendments to this Form 10-K. [X]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definitions of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large Accelerated Filer [__]   
Accelerated Filer  [X]    Non-Accelerated Filer [__].

Indicate by check mark
whether the  registrant is a shell  company (as defined in Rule 12b-2 of the Exchange
 Act). Yes [__]       No [X].

State the aggregate market value of
the voting and nonvoting common equity held by non-affiliates of the registrant computed
by reference to the price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of the last business day of the registrants
most recently completed second quarter.

Aggregate Market Value
as of June 30, 2005: $82,667,027 As of February 24,
2006, there were outstanding 2,234,536 shares of the Companys Common Stock ($1.00
par value).

Documents Incorporated by Reference:
Portions of the Companys Proxy Statement for the Annual Meeting of Shareholders to
be held April 20, 2006 are incorporated by reference into Part III of this report.

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# PART I

# Item 1. Business.

# The Company

OAK
Financial Corporation (the Company) was incorporated under the laws of the
State of Michigan on October 13, 1988, for the purpose of becoming a bank holding company.
The Company is registered under the Bank Holding Company Act of 1956, as amended, and owns
the outstanding stock of Byron Bank (the Bank), which is organized under the
laws of the State of Michigan. Aside from the Bank, the Company has no other substantial
assets. The Company conducts no business except for the provision of certain management
and operational services to the Bank, the collection of dividends from the Bank and the
payment of dividends to the Companys stockholders. The executive office of the
Company is located at 2445 84th Street, S.W., Byron Center, Michigan 49315. While the
Companys chief decision makers monitor the revenue streams of various products and
services, operations are managed and financial performance is evaluated on a company wide
basis. Accordingly, all of the Companys operations are considered by Management to
be aggregated in one reportable operating segment.

The
Company and all its subsidiaries are provided staff resources through OAK ELC, an employee
leasing company. OAK ELC provides staffing solely to the Company and its subsidiaries.

# The Bank

The
Bank was organized in 1921 as a Michigan banking corporation. The executive office of the
Bank is located at 2445 84th Street, S.W., Byron Center, Michigan 49315. The Banks
main office is located in Byron Center and it serves other communities with a total of 13
offices. The Banks offices are located in Kent County, Ottawa County and the
northern portion of Allegan County. The area in which the Banks offices are located,
which is basically south and west of the city of Grand Rapids, has historically been rural
in character but now has a growing suburban population as the Grand Rapids Metropolitan
Area expands.

On
February 17, 2005 the Bank changed its name from Byron Center State Bank to Byron Bank.
Along with the new name, a new logo and new colors were introduced. The name change
reflects the Banks heritage of over 80 years in the banking business and offers a
dynamic new look for the future. The name of the Banks subsidiaries, OAK Financial
Services and Dornbush Insurance Agency were also changed to Byron Investment Services and
Byron Insurance, respectively.

On
November 7, 2005 the Bank opened a new branch location in Wayland, Michigan. The branch is
located in a great location with a fast growing population as the greater Grand Rapids
area continues to expand to the south of the city.

The
Bank provides a broad range of financial products and services through its branch network
in West Michigan. A typical branch includes a full service lobby, most with drive-thru
service and automatic teller machines. The Bank provides a wide range of commercial and
personal banking services, including but not limited to: real estate, consumer and
commercial loans, checking accounts, savings accounts, certificates of deposit, safe
deposit boxes, internet banking, electronic ATM banking, telephone banking and other
electronic banking services. Currently, the Bank does not offer trust services.

The
Bank owns a subsidiary, Byron Investment Services, Inc., which offers mutual fund
products, securities brokerage services, retirement planning services, investment
management and advisory services. During 2004, Byron Investment Services, Inc. added tax
preparation to its list of available services. This service allows Byron Investment
Services to prepare customers tax returns and advise them on investment strategies.
Byron Investment Services owns Byron Insurance Agency, Inc., which offers property and
casualty, life, disability and long-term care insurance. OAK Title Insurance Agency, Inc.,
a wholly owned subsidiary of Byron Investments Services, Inc., offers title insurance,
through a joint venture with a regional title agency.

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# Effect of Government
Monetary Policies

Earnings
are affected by domestic economic conditions and the monetary and fiscal policies of the
United States Government, its agencies, and the Federal Reserve Board. The Federal Reserve
Boards monetary policies have had, and will likely continue to have, an important
impact on the operating results of commercial banks through its power to implement
national monetary policy in order to, among other things, curb inflation or avoid a
recession. The policies of the Federal Reserve Board have a major effect upon the levels
of bank loans, investments and deposits through its open market operations in United
States government securities, and through its regulation of, among other things, the
discount rate on borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature and impact of future changes in
monetary and fiscal policies.

# Bank Competition

The
Bank has thirteen offices, one within each of the communities it serves. Within these
communities, its principal competitors are Comerica Bank, JP Morgan Chase, Fifth-Third
Bank, Flagstar Bank, National City Bank, Huntington National Bank, Macatawa Bank,
Mercantile Bank of Michigan, United Bank of Michigan, and various credit unions. The
banks products, services, and pricing are competitive within the markets served.

The
financial services industry is very competitive. Principal methods of competition include
loan and deposit pricing and the quality of services provided. The deregulation of the
financial service industry has led to increased competition among banks and other
financial institutions for funds, which traditionally have been deposited with commercial
banks. The enactment of the Gramm-Leach-Bliley Act of 1999, which permits the combination
of banks, insurance companies, and securities firms, has also increased competition in the
financial services industry. Management continues to evaluate the opportunities for the
expansion of products and services and additional branching opportunities. Management also
believes the Bank is well positioned to compete effectively with other providers of
financial services in West Michigan.

# Source of Revenue

The
Banks principal sources of revenue include net interest income and non-interest
income. The net interest revenue is the difference between the interest the Bank earns on
loans and investments and the interest the Bank pays on deposits and other interest
bearing borrowed funds. Non-interest revenue includes fees from the sale of loans, deposit
service charges, insurance premium income, brokerage fees, mortgage banking revenue, and
other fees collected for services provided. Mortgage banking revenue includes the gains
resulting from the origination and sale of mortgage loans and fees received for servicing
mortgage loans for others. The sources of income for the three most recent years are as
follows:

|% of total revenue:      | 2005 | 2004 | 2003
|------------------------ | ---- | ---- | ----
|
|Net interest revenue     |      | 79   | .5% 
|Non-interest revenue     |      | 16   | .6% 
|Mortgage banking revenue |      | 3    | .9% 

# Employees

As
of December 31, 2005, the Registrant and subsidiaries employed 164 full-time and 73
part-time persons. Management believes that relations with employees are good.

# SUPERVISION AND
REGULATION

The
following is a summary of certain statutes and regulations affecting the Company and the
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 the Company, the Bank and
the business of the Company and the Bank.

# General

Financial
institutions and their holding companies are extensively regulated under federal and state
law. Consequently, the growth and earnings performance of the Company and the Bank 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 Michigan Office of Financial and Insurance Services (OFIS), 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.

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

# The Company

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

Investments
and Activities. In general, any direct or indirect acquisition by the
Company of any voting shares of any bank which would result in the Companys direct
or indirect ownership or control of more than 5 percent of any class of voting shares of
such bank, and any merger or consolidation of the Company with another bank company, will
require the prior written approval of the Federal Reserve Board under the BHCA.

The
merger or consolidation of an existing bank subsidiary of the Company 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. In addition, in certain such cases an application to, and the prior
approval of, the Federal Reserve Board under the BHCA and/or the OFIS under the Michigan
Banking Code, may be required.

With
certain limited exceptions, the BHCA prohibits any bank holding company from engaging,
either directly or indirectly through a subsidiary, in any activity other than managing or
controlling banks unless the proposed non-banking activity is one that the Federal Reserve
Board has determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under current Federal Reserve Board regulations, such
permissible non-banking activities include such things as mortgage banking, equipment
leasing, securities brokerage, and consumer and commercial finance company operations.
Well-capitalized and well-managed bank holding companies may engage de novo in
certain types of non-banking activities without prior notice to, or approval of, the
Federal Reserve Board, provided that written notice of the new activity is given to the
Federal Reserve Board within 10 business days after the activity is commenced. If a bank
holding company wishes to engage in a non-banking activity by acquiring a going concern,
prior notice and/or prior approval will be required, depending upon the activities in
which the company to be acquired is engaged, the size of the company to be acquired and
the financial and managerial condition of the acquiring bank holding company.

Eligible
bank holding companies that elect to operate as financial holding companies may engage in,
or own shares in companies engaged in, a wider range of non-banking activities, including
securities and insurance activities and any other activity that the Federal Reserve Board,
in consultation with the Secretary of the Treasury, determines by regulation or order is
financial in nature, incidental to any such financial activity or complementary to any
such financial activity and does not pose a substantial risk to the safety or soundness of
depository institutions or the financial system generally. The Bank Holding Company Act
generally does not place territorial restrictions on the domestic activities of non-bank
subsidiaries of bank or financial holding companies.

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The
Companys common stock is registered under the Securities Exchange Act of 1934, as
amended (the Exchange Act). It is therefore subject to the information, proxy
solicitation, insider trading and other restrictions and requirements of the SEC under the
Exchange Act. On July 30, 2002, the Sarbanes-Oxley Act of 2002 was signed into law. The
Sarbanes-Oxley Act provides for numerous changes to the reporting, accounting, corporate
governance and business practices of companies as well as financial and other
professionals who have involvement with the U.S. public markets. The SEC continues to
issue new and proposed rules implementing various provisions of the Sarbanes-Oxley Act.
During 2004, the Company became an accelerated filer based on its aggregate market value
as of June 30, 2004. As such, the Company is required to file regulatory reports on an
accelerated basis and is also required to issue a report regarding the companys
system of internal controls.

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 holding 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 for bank holding companies are essentially the same as those described
below for the Bank.

Dividends.
          The Company is a corporation separate and distinct from the Bank. Most of the
          Companys revenues are received by it in the form of dividends paid by the
          Bank. Thus, the Companys ability to pay dividends to its stockholders is
          indirectly limited by statutory restrictions on the Banks ability to pay
          dividends described below. Further, in a policy statement, the Federal Reserve
          Board expressed its view that a bank holding company experiencing earnings
          weaknesses should not pay cash dividends exceeding its net income or which can
          only be funded in ways that weaken the bank holding 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. The prompt corrective action provisions of federal law
          and regulation authorizes the Federal Reserve Board to restrict the payment of
          dividends by the Company 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 the Company, 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. The Companys Articles of Incorporation do not
authorize the issuance of preferred stock and there are no current plans to seek such
authorization.

# The Bank

General.
          The Bank is a Michigan banking corporation, is a member of the Federal Reserve
          System and its deposit accounts are insured by the Bank Insurance Fund (the
          BIF) of the FDIC. As a Federal Reserve System member and a Michigan
          chartered bank, the Bank is subject to the examination, supervision, reporting
          and enforcement requirements of the Federal Reserve Board as its primary federal
          regulator and OFIS, as the chartering authority for Michigan banks. These
          agencies and the federal and state laws applicable to the 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 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, the 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.

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In
early 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005, which made
certain changes to the Federal deposit insurance program. These changes included merging
the BIF and the Savings Association Insurance Fund (the SAIF), increasing
retirement account coverage to $250,000 and providing for inflationary adjustments to
general coverage beginning in 2010, providing the FDIC with authority to set the
funds reserve ratio within a specified range, and requiring dividends to banks if
the reserve ratio exceeds certain levels. The new statute grants banks an assessment
credit based on their share of the assessment base on December 31, 1996, and the
amount of the credit can be used to reduce assessments in any year subject to certain
limitations. The FDIC is required to issue regulations implementing the new Act.

FICO
Assessments. The 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 to finance the recapitalization of the Federal
Savings and Loan Insurance Corporation, the predecessor to the SAIF, which insures the
deposits of thrift institutions. From now until 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 percent of deposits.

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

Capital
Requirements. The Federal Reserve has established the following minimum
capital standards for state-chartered, member banks, such as the Bank: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total average assets of 3
percent for the most highly-rated banks with minimum requirements of 4 percent to 5
percent for all others, and a risk-based capital requirement consisting of a minimum ratio
of total capital to total risk-weighted assets of 8 percent, at least one-half of which
must be Tier 1 capital. Tier 1 capital consists principally of stockholders 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.

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:

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

As
of December 31, 2005, the Banks ratios exceeded minimum requirements for the well
capitalized category. (See Liquidity and Capital Resources.)

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.

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Dividends.
          Under Michigan law, the Bank is restricted as to the maximum amount of dividends
          it may pay on its common stock. The Bank may not pay dividends except out of net
          income after deducting its losses and bad debts. A Michigan state bank may not
          declare or pay a dividend unless the bank will have surplus amounting to at
          least 20 percent of its capital after the payment of the dividend.

As
a member of the Federal Reserve System, the Bank is required by federal law to obtain the
prior approval of the Federal Reserve Board for the declaration or payment of a dividend,
if the total of all dividends declared by the Banks Board of Directors in any year
will exceed the total of (i) the Banks retained net income (as defined and
interpreted by regulation) for that year plus (ii) the retained net income for the
preceding two years, less any required transfers to surplus. Federal law generally
prohibits a depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. Further, federal regulatory agencies can
prohibit a banking institution or bank holding company from engaging in unsafe and unsound
business practices and could prohibit payment of dividends if such payment could be deemed
an unsafe and unsound business practice.

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

Safety
and Soundness Standards. Pursuant to FDICIA, the FDIC adopted guidelines to
establish operational and managerial standards to promote the safety and soundness of
federally insured depository institutions. The 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.

Investments
and Other Activities. Under federal law and regulations, Federal Reserve
System member banks and 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 regulations, also
prohibits 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 banks primary federal regulator 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 banks primary federal regulator in accordance with federal
law. These restrictions are not currently expected to have a material impact on the
operations of the Bank.

Consumer
Protection Laws. The Banks business includes making a variety of
types of loans to individuals. In making these loans, the Bank 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 under the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit
Transactions Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, and
the Home Mortgage Disclosure Act, and regulations which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and regulate
the mortgage loan servicing activities of the Bank, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, the 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 the Bank and its directors and officers.

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The
USA Patriot Act.The Patriot Act contains sweeping anti-money laundering
and financial transparency laws. Under the Act and implementing regulations, among other
requirements financial institutions must establish anti-money laundering programs that
include (i) internal policies, procedures, and controls, (ii) specific designation of an
anti-money laundering compliance officer, (iii) ongoing employee training programs, and
(iv) an independent audit function to test the anti-money laundering program. Financial
institutions must also implement a risk-based customer identification program in
connection with opening new accounts. The program must contain requirements for identity
verification, record-keeping, comparison of information to government-maintained lists,
and notice to customers. Bank regulators are directed to consider a holding companys
effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank
Merger Act applications.

Branching
Authority. Michigan banks, such as the Bank, have the authority under
Michigan law to establish branches anywhere in the State of Michigan, subject to receipt
of all required regulatory approvals.

Banks
may establish interstate branch networks through acquisitions of other banks. 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 only if specifically authorized by state law.

Michigan
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 Michigan
Office of Financial and Insurance Services, Division of Financial Institutions, (1)
acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan
associations located in other states, (2) sale by a Michigan bank of branches to an
FDIC-insured bank, savings bank or savings and loan association located in a state in
which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation
of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states having laws permitting such consolidation, (4) establishment 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 a Michigan bank to
establish a branch in such jurisdiction, and (5) establishment by foreign banks of
branches located in Michigan.

Our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and all amendments to those reports are available free of charge through a link on our
website at www.BankAtByron.com to the SEC website. The reports are also available through
the SEC website.

# Item 1A. Risk Factors.

You
should carefully consider the following risk factors, together with the other information
provided in this Annual Report on Form 10-K.

The
Company has credit risk inherent in its asset portfolio, and its allowance for loan
losses may not be sufficient to cover actual loan losses.

The
Banks loan customers may not repay their loans according to their respective terms,
and any collateral securing the payment of these loans may be insufficient to assure
repayment. As a result, the Bank may experience significant credit losses, which could
have a material adverse effect on the Company.

To
offset this risk, the Company makes various assumptions and judgments about the
collectibility of the Banks loan portfolio, including the creditworthiness of
borrowers and the value of the real estate and other assets that may serve as collateral
for the repayment of loans. In determining the size of the allowance for loan losses, the
Company relies on its experience and its evaluation of current economic conditions.
However, if its assumptions prove to be incorrect, the allowance for loan losses may not
be sufficient to cover actual loan losses inherent in the Banks loan portfolio, and
adjustments may be necessary to account for changing economic conditions or adverse
developments in the loan portfolio. Material additions to the allowance would materially
decrease net income.

The
allowance for loan losses is based upon ranges of estimates and is not intended to imply
either limitations on the usage of the allowance or precision of the specific amounts. The
Company does not view the allowance for loan losses as being divisible among the various
categories of loans. The entire allowance is available to absorb any future losses without
regard to the category or categories in which the charged-off loans are classified. In
addition, federal and state regulators periodically review the Companys allowance
for loan losses and may require the Company to increase the provision for loan losses or
recognize additional loan charge-offs. Any increase in the allowance for loan losses or
loan charge-offs required by these regulatory agencies could have a material adverse
effect on the results of operations and financial condition of the Company.

-7-

---



Fluctuations
in interest rates and economic conditions could reduce the Companys profitability
and negatively affect its capital and liquidity.

The
Company realizes income primarily from the difference between interest earned on loans and
investments and the interest paid on deposits and borrowings. The Companys interest
income and interest expense are affected by general economic conditions and by the
policies of regulatory authorities. While the Company has taken measures intended to
manage the risks of operating in a changing interest rate environment, there can be no
assurance that these measures will be effective in avoiding undue interest rate risk. The
Company expects that it will periodically experience gaps in the interest rate
sensitivities of its assets and liabilities, meaning that either its interest-bearing
liabilities will be more sensitive to changes in market interest rates than its
interest-earning assets, or vice versa. In either event, if market interest rates should
move contrary to its position, this gap will work against it, and its earnings
may be negatively affected.

The
Company is unable to predict fluctuations of market interest rates, which are affected by,
among other factors, changes in the following:

| |  | inflation
or deflation rates;
| | - | -----------------------------

| |  | levels
of business activity;
| | - | ----------------------------

| |  | recession;
| | - | ----------

| |  | unemployment
levels;
| | - | --------------------

| |  | money
supply;
| | - | -------------

| |  | domestic
or foreign events; and
| | - | -------------------------------

| |  | instability
in domestic and foreign financial markets.
| | - | ------------------------------------------------------

In
addition, substantially all of the Banks loans are to businesses and individuals in
West Michigan, and any decline in the economy of West Michigan could adversely affect the
Bank.

The
Company  relies  heavily on its  management  team.  The loss of key managers may
adversely  affect its operations.

The
success of the Company depends in large part on its ability to attract and to retain
senior management experienced in banking and financial services. The unexpected loss of
services of any key management personnel, or the inability to recruit and retain qualified
personnel in the future, could have an adverse effect on the Companys business and
financial results.

Competition
with other financial institutions could adversely affect the Company's profitability.

The
Company faces vigorous competition from banks and other financial institutions, including
savings and loan associations, savings banks, finance companies, mortgage banking
companies, credit unions, and other financial organizations. A number of these banks and
other financial institutions have substantially greater resources and lending limits,
larger branch systems, and a wider array of banking services. To a limited extent, the
Company also competes with other providers of financial services, such as money market
mutual funds, brokerage firms, consumer finance companies, and insurance companies, which
are not subject to the same degree of regulation as that imposed on the Bank. As a result,
these non-bank competitors may have an advantage over the Company in providing certain
services, and this competition may reduce or limit the Companys margins on banking
services, reduce its market share, and adversely affect its results of operations and
financial condition.

The
Company's  operations may be affected by its ability to adapt to and take  advantage of
 technological changes.

The
banking industry continues to experience rapid technological changes with frequent
introductions of new technology-driven products and services. The success of the Company
will depend in part on its ability to invest in technology resources and/or negotiate
favorable contracts with third-party service providers to provide certain back office
functions that benefit from technologically advanced resources. Many of the Companys
competitors have substantially greater resources to invest in technological improvements
or to do so at a lower cost than is available to the Company. In addition, improvements in
the ability to deliver financial products and services over the internet may continue to
expand the Banks field of competition to institutions located outside of the
Banks geographic market. There can be no assurance that the Company will be able to
effectively implement new technology-driven products and services or be successful in
marketing such products and services to its customers.

-8-

---



Changes
in economic conditions could adversely affect the Company's loan portfolio.

The
Companys success depends to a great extent upon general economic conditions. The
economy in the State of Michigan has generally been slow within the past five years.
Unlike larger banks that are more geographically diversified, the Company provides banking
services to customers primarily in West Michigan. The Companys loan portfolio, the
ability of the borrowers to repay these loans, and the value of the collateral securing
these loans is therefore impacted by local economic conditions.

An
economic slowdown could have many adverse consequences, including the following:

| |  | Loan
delinquencies may increase;
| | - | --------------------------------

| |  | Problem
assets and foreclosures may increase;
| | - | ---------------------------------------------

| |  | Demand
for the Company' products and services may decline; and
| | - | --------------------------------------------------------------

| |  | Collateral
for the Companys loans may decline in value, in turn reducing customers borrowing
power and reducing the value of assets and collateral associated with existing loans.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company operates in a highly regulated environment and may be adversely affected by
changes in federal and local laws and regulations.

The
Company is subject to extensive regulation, supervision, and examination by federal and
state banking authorities. Any change in applicable regulations or federal or state
legislation could have a substantial impact on it and the Bank and its operations.
Additional legislation and regulations may be enacted or adopted in the future that could
significantly affect its powers, authority, and operations, which could increase its costs
of doing business and, as a result, give an advantage to its competitors who may not be
subject to similar legislative and regulatory requirements. Further, regulators have
significant discretion and power to prevent or remedy unsafe or unsound practices or
violations of laws by banks and bank holding companies in the performance of their
supervisory and enforcement duties. The exercise of regulatory power may have a negative
impact on the Companys results of operations and financial condition. The effect of
this regulation can be significant and cannot be predicted with a high degree of
certainty.

The
Companys ability to pay dividends on its common stock is limited not only by its
profitability, but also by bank regulation.

Most
of the Companys revenues are received in the form of dividends paid to it by its
subsidiary Bank. Thus, its ability to pay dividends to the holders of its common stock is
indirectly limited by statutory restrictions on the ability of its subsidiary Bank to pay
dividends to it. Further, in a policy statement, the Federal Reserve Board has expressed
its view that a bank holding company experiencing earnings weaknesses should not pay cash
dividends exceeding its net income or that can only be funded in ways that weaken the bank
holding companys financial health, such as by borrowing. In addition, 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. The FDIC has
similar enforcement powers over the Bank. Federal law has prompt corrective
action provisions that authorize the Federal Reserve Board to restrict its payment
of dividends for an insured bank that fails to meet specified capital levels.

In
addition to the restrictions on dividends imposed by federal banking regulation, the
Michigan Business Corporation Act provides that dividends may be legally declared or paid
only if, after the distribution, the Company is able to pay its debts as they become due
in the usual course of business and its total assets equal or exceed the sum of its total
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 dividend.

In
addition, under Michigan banking laws, the Bank may not pay dividends except out of net
income after deducting its losses and bad debts. The Bank may not declare or pay a
dividend unless it will have surplus amounting to at least 20% of its capital after the
payment of the dividend.

-9-

---



There
is a limited trading market for the Company's common stock.

The
Companys common stock is reported on the OTC Bulletin Board under the symbol
OKFC. The development and maintenance of an active trading market depends,
however, upon the existence of willing buyers and sellers, the presence of which is beyond
the Companys control or the control of any market maker. Although the Company is
publicly traded and file reports with the SEC, the volume of trading activity in its stock
is relatively limited. Even if a more active market develops, there can be no assurance
that such a market will continue.

# Item 1B. Unresolved
Staff Comments.

There
are no unresolved SEC comments with respect to reports filed by the Company under the
Securities Exchange Act of 1934.

Item 2. Properties.

The
Company and the Bank own and operate a total of 13 facilities in Michigan. The facilities
are located in Kent, Ottawa, and Allegan Counties. The individual properties are not
material to the Companys or the Banks business or to the consolidated
financials.

With
the exception of the potential remodeling of certain facilities to provide for the
efficient use of work space or to maintain an appropriate appearance, each property is
considered adequate for current and anticipated needs.

In
addition to the facilities described above, the Bank owns another facility, which was
previously occupied by the Banks mortgage lending operations. During 2005 the
mortgage operations of the Bank were consolidated into the main office in Byron Center.
The Company does not anticipate a continuing need for this facility and currently has it
listed for sale.

# Item 3. Legal
Proceedings.

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

# Item 4.  Submission of
Matters to Vote of Security Holders.

None.

---



# Executive Officers of
the Company

The
Board of Directors appoints the executive officers of the Bank. There are no family
relationships among the officers and/or the directors of the Company, or any arrangement
or understanding between any officer and any other person pursuant to which the officer
was elected. The following table sets forth certain information with respect to the
Companys executive officers (included for information purposes only) as of
December 31, 2005:

|Name                 | Age | Position with Company | Year Becamean Executive Officer
|-------------------- | --- | --------------------- | -------------------------------
|                     |     |                       |                                
|Patrick K. Gill      |     | 54                    |                                
|                     |    
|James A. Luyk        |     | 43                    |                                
|                     |    
|Thomas L. Fitzgerald |     | 60                    |                                

Prior
to being named  President  and Chief  Executive  Officer in 2002,  Mr. Gill served as
President  and Chief Executive Officer of Pavilion Bancorp, Inc. for more than five (5)
years.

Prior
to being named Executive Vice President and Chief Financial Officer in 2000, Mr. Luyk
served as regional controller for Huntington National Bank.

Prior
to being named Executive Vice President and Chief Lending Officer in 2002, Mr. Fitzgerald
served as Vice President, in charge of business development, at National City Bank for
more than five (5) years.

# PART II

# Item 5.  Market Price
and Dividends for Registrant's Common Equity and Related Stockholder Matters.

The
following table sets forth the range of high and low sales prices of the Companys
common stock during 2005 and 2004, based on information available to the Company, as well
as per share cash dividends declared during those periods.

|               | Sales Prices | CashDividends Declared
|-------------- | ------------ | ----------------------
|2005           |              | High                  
|First Quarter  |              | $    41.82            
|Second Quarter |              | $    44.00            
|Third Quarter  |              | $    44.00            
|Fourth Quarter |              | $    45.00            
|2004           |              | High                  
|First Quarter  |              | $    40.23            
|Second Quarter |              | $    41.41            
|Third Quarter  |              | $    42.90            
|Fourth Quarter |              | $    41.59            

At
February 20, 2006, the Company has 849 record holders of our common stock. In addition, we
estimate that there were approximately 439 beneficial owners of our common stock who own
their shares through brokers or banks. The common stock is traded and quoted on the
Over-the-Counter Bulletin Board under the symbol OKFC.

We
are a holding company and substantially all of our assets are held by our subsidiaries.
Our ability to pay dividends to our shareholders depends primarily on our Banks
ability to pay dividends to us. Dividend payments and extensions of credit to us from our
Bank are subject to legal and regulatory limitations, generally based on capital levels
and current and retained earnings imposed by law and regulatory agencies with authority
over our Bank. The ability of our Bank to pay dividends is also subject to its
profitability, financial condition, capital expenditures and other cash flow requirements.

-11-

---



Item 6. Selected Financial
Data(dollars in thousands, except per share data).

# SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA Year Ended December 31,

|                                                 | 2005 | 2004         | 2003 | 2002          | 2001
|------------------------------------------------ | ---- | ------------ | ---- | ------------- | ----
|Consolidated Results of Operations:              |      |              |      |               |     
|Interest income                                  |      | $  32,052    |      | $   24,734    |     
|Interest expense                                 |      | 10,884       |      | 8,498         |     
|                                                 |      |              |      |               |     
|Net interest income                              |      | 21,168       |      | 16,236        |     
|Provision for loan losses                        |      | 480          |      | (1,100        | )   
|Non-interest income                              |      | 5,479        |      | 5,867         |     
|Non-interest expenses                            |      | 17,631       |      | 16,946        |     
|                                                 |      |              |      |               |     
|Income before federal  income taxes              |      | 8,536        |      | 6,257         |     
|Federal income taxes                             |      | 2,478        |      | 1,753         |     
|                                                 |      |              |      |               |     
|Net income                                       |      | $    6,058   |      | $     4,504   |     
|                                                 |      |              |      |               |     
|Per Share Data:                                  |     
|Net income                                       |      | $      2.71  |      | $       2.01  |     
|Cash dividends declared                          |      | $        .66 |      | $         .55 |     
|Book Value                                       |      | $    27.12   |      | $     25.63   |     
|Weighted average shares  outstanding             |      | 2,237        |      | 2,238         |     
|Consolidated Balance Sheet Data:                 |     
|Total assets                                     |      | $591,085     |      | $ 540,338     |     
|Loans, net of unearned income                    |      | 453,879      |      | 408,867       |     
|Allowance for loan losses                        |      | 7,160        |      | 6,846         |     
|Deposits                                         |      | 487,797      |      | 416,137       |     
|Stockholders' equity                             |      | 60,595       |      | 57,353        |     
|Consolidated Financial Ratios:                   |     
|Tax equivalent net    interest income to average |     
|earning assets                                   |      | 4.04         | %    | 3.42          | %   
|Return on average equity                         |      | 10.28        |      | 8.05          |     
|Return on average assets                         |      | 1.07         |      | .87           |     
|Non-performing loans to  total loans             |      | .40          |      | .37           |     
|Efficiency ratio                                 |      | 64.80        |      | 75.80         |     
|Dividend payout ratio                            |      | 25.98        |      | 33.89         |     
|Equity to asset ratio                            |      | 10.25        |      | 10.61         |     
|Tier 1 leverage ratio                            |      | 10.40        |      | 10.71         |     

# 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 are forward-looking statements. In addition, the words anticipates,
believes, estimates, seeks, expects,
plans, intends, and similar expressions, as they relate to us or
our management, are intended to identify forward-looking statements. The presentation and
discussion of the provision and allowance for loan losses and statements concerning future
profitability or future growth or increases, are examples of inherently forward looking
statements in that they involve judgments and statements of belief as to the outcome of
future events. The Companys 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 its operations and its 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
concerning the Company, including additional factors that could materially affect
financial results, is included in the Companys otherfilings with the
Securities and Exchange Commission.

-12-

---



# ITEM 7.

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003

The
following financial review presents managements discussion and analysis of
consolidated financial condition and results of operations during the period of 2003
through 2005. The discussion should be read in conjunction with the Companys
consolidated financial statements and accompanying notes.

# Critical Accounting
Policies

As
described under Supervision and Regulation, the financial services industry is
highly regulated. Furthermore, the nature of the financial services industry is such that,
other than described below, the use of estimates and management judgment are not likely to
present a material risk to the financial statements. In cases where estimates or
management judgment are required, internal controls and processes are established to
provide assurance that such estimates and management judgments are materially correct to
the best of managements knowledge.

Allowance
for loan losses  Accounting for loan classifications, accrual status, and
determination of the allowance for loan losses is based on regulatory guidance. This
guidance includes, but is not limited to, generally accepted accounting principles, the
uniform retail credit classification and account management policy issued by the Federal
Financial Institutions Examination Council and the joint policy statement on the allowance
for loan losses methodologies issued by the Federal Financial Institutions Examination
Council, Federal Deposit Insurance Corporation, and various other regulatory agencies.
Accordingly, the allowance for loan losses includes a reserve calculation based on an
evaluation of loans determined to be impaired, risk ratings, historical losses, loans past
due, general and local economic conditions, trends, portfolio concentrations, collateral
values and other subjective factors.

Commercial
loan rating system and identification of impaired loans  The Company has a
defined risk rating system that is designed to assess the risk of individual loans and
overall risk of the commercial loan portfolio. The system assigns a risk weighting to
factors such as cash flow, collateral, financial condition, operating performance,
repayment history, management, and strength of the industry. An assessment of risk is
performed as a part of the loan approval process as well as periodic updates based on the
circumstances of the individual loan. Also, in addition to routine examinations by bank
regulators, the Company employs external loan review services to assess the accuracy of
risk ratings.

Originated
mortgage-servicing rights (OMSR)  The Company records the original
OMSR based on market data. The OMSR is amortized into non-interest
income, in proportion to the period of the estimated future net servicing income of the
underlying financial asset. Additionally, an independent third party valuation is
performed to determine potential impairment of the OMSR as a result of changes
in interest rates and expected future loan repayment speeds. Changes in interest rates or
repayment speeds could have an impact on the carrying value of the mortgage servicing
assets.

-13-

---



# FINANCIAL CONDITION

# Summary

Total
assets increased $51 million, or 9 percent during 2005 to a record $591 million. For the
year, total loans outstanding increased $45 million, or 11 percent and total deposits
increased $72 million, or 17 percent. The increase in total loans was primarily due to a
$53 million, or 18 percent increase in commercial and commercial real estate loans, which
was somewhat offset by a $6 million, or 23 percent decline in consumer loans and a $2
million, or 2 percent decline in mortgage loans. The increase in total deposits included
the transfer of approximately $30 million of funds from the Banks repurchase product
and a $24 million, or 47 percent increase in brokered deposits. A discussion of changes in
balance sheet amounts by major categories follows:

# Securities (in thousands)

The
Bank maintains a diversified securities portfolio, which includes obligations of
government sponsored agencies, securities issued by states and political subdivisions,
corporate securities, and mortgage-backed securities. The primary objective of the
Companys investing activities is to provide a source of liquidity, provide for
safety of the principal invested and manage the Banks exposure to changes in
interest rates.

The
Bank pledges some of its securities to secure Federal Home Loan Bank borrowings and
securities sold under agreements to repurchase or for other purposes as required or
permitted by law. For administrative purposes, the Bank generally pledges more securities
than required. The Bank was required to have approximately $4 million pledged at December
31, 2005, compared to $33 million at December 31, 2004. The decline in the number of
securities required to be pledged was due to the decline in the number of securities sold
under agreements to repurchase that occurred during 2005.

All
of the Companys securities are classified as available-for-sale. As a result,
changes in market value are recognized as adjustments to the carrying amount on the
balance sheet and gains or losses are reported, net of tax, as an adjustment to the
Banks stockholders equity. The Companys total holdings increased
approximately $3 million from December 31, 2004 to December 31, 2005. The slight increase
is the result of the asset liability management of the Bank in relation to the loan and
deposit growth the Bank experienced in 2005.

|Securities available-for-sale: | Amortized Cost | Fair Value | AmountPledged
|------------------------------ | -------------- | ---------- | -------------
|December 31, 2005              |                | $103,356   |              
|December 31, 2004              |                | $  98,914  |              

# Schedule of Maturities
of Investment Securities and Weighted Average Yields

The
following is a schedule of contractual maturities and their weighted average yield of each
category of investment securities as of December 31, 2005. The weighted average interest
rates have been computed on a fully taxable equivalent basis, using a 34 percent tax rate,
based on amortized cost.

|                           | Maturing_________________________________________________________(dollars in thousands)
|-------------------------- | ---------------------------------------------------------------------------------------
|
|
|Available for Sale:        |                                                                                        
|US government securities   |                                                                                        
|Mortgage-backed securities |                                                                                        
|States and Political       |                                                                                        
|Subdivisions               |                                                                                        
|Other Securities           |                                                                                        
|                           |                                                                                        
|                           |                                                                                        
|                           |                                                                                        

-14-

---



# The Loan Portfolio

The
Banks lending policy is intended to reduce credit risk, enhance earnings and guide
the lending officers in making credit decisions. The Board of Directors of the Bank
approves the loan authority for each lender and has appointed a Chief Lending Officer who
is responsible for the supervision of the lending activities of the Bank. In previous
years the Bank appointed an internal loan review officer to monitor the credit quality of
the loan portfolio. During 2005, the Bank began using the services of an independent third
party, to periodically review the credit quality of the loan portfolio. These reviews are
submitted to the Risk Management Officer and to the Audit Committee.

Requests
to the Bank for credit are considered on the basis of the creditworthiness of each
applicant, without consideration of race, color, religion, national origin, sex, marital
status, physical handicap, age, or the receipt of income from public assistance programs.
Consideration is given to the applicants capacity for repayment based on cash flow,
collateral, capital and alternative sources of repayment. Loan applications are accepted
at all the Banks offices and are approved within the limits of each lending
officers authority. Secured loan requests in excess of $1,250,000 or unsecured loan
requests in excess of $400,000, are required to be presented to the Board of Directors or
the Directors Loan Committee for review and approval.

The
Bank does not have any foreign loans and there were no concentrations greater than 10
percent of total loans that are not disclosed as a separate category. The Banks
largest concentration of loans is to businesses in the form of commercial loans and real
estate mortgages. Management reviews the concentration, and changes in concentrations of
loans, using the method of coding the commercial loan portfolio by Standard Industrial
Classification (S.I.C.) code.

The
Bank experienced excellent growth during 2005 in the commercial real estate and commercial
loan portfolios. Commercial real estate loans increased $41 million, or 19 percent and
commercial loans increased $11 million, or 15 percent. The commercial and commercial
real-estate loan portfolios are the primary source of growth for the Banks total
loan portfolios and are expected to continue to be in the future. Consumer loans declined
$6 million, or 23 percent from December 31, 2004 to December 31, 2005. Total consumer
loans continue to decline as a result of the Banks substantial exit from the
consumer indirect lending business. As of December 31, 2005, the Bank had indirect loans
totaling approximately $7 million, down 34 percent from $10 million at December 31, 2004.
Management expects the indirect consumer loan portfolio to continue to decline during
2006. During 2005, total loans secured by residential real estate declined $2 million, or
2 percent from $89 million at December 31, 2004 to $87 million at December 31, 2005.

It
is the Banks general practice to sell residential real estate loans with maturities
over 15 years. During 2005, the Bank sold loans totaling approximately $2 million with the
servicing rights retained and $57 million with the servicing rights released. At December
31, 2005 and 2004, the Bank was servicing loans totaling approximately $205 million and
$240 million, respectively.

In
addition to the communities served by the Banks branches, principal lending markets
include nearby communities and metropolitan areas. Subject to established underwriting
criteria, the Bank will occasionally participate with other financial institutions to
reduce the Banks exposure to risk on certain large commercial loans or to fund
loans, which would otherwise exceed the Banks legal lending limit if made solely by
the Bank.

# Loan Portfolio
Composition (in thousands)

|                        | Year ended December 31,
|----------------------- | -----------------------
|
|
|Commercial Real Estate  |                        
|Residential Real Estate |                        
|Commercial              |                        
|Consumer                |                        
|                        |                        
|Total loans             |                        
|                        |                        

-15-

---



Commercial
and Commercial Real-Estate Loans: Business loans are originated for a
variety of purposes, including working capital financing, machinery and equipment
acquisition and the financing of commercial real-estate. The loans are generally secured
by all assets of the borrower and are underwritten based on an assessment of the industry
in which the borrower operates, management, economic conditions, cash flow, owners equity
and collateral. Commercial real-estate loans are secured by properties located in the
Banks primary market area.

Residential
Real-Estate Loans: Residential real-estate loans are originated in the
Banks primary market area. Generally, the Bank sells all salable loans in the
secondary market. Loans are underwritten to the Secondary Market Investors Guidelines
using the automated underwriting system designed by the investor that will be purchasing a
particular loan. On occasion, residential real-estate loans will be retained in the
Banks portfolio. Personal loans secured by the equity in the borrowers
residence are also granted for a variety of needs.

Consumer
Loans: Consumer loans are originated for a variety of purposes including
the acquisition of new and used automobiles, boats and recreational vehicles. Consumer
loans are underwritten based on the borrowers credit history, monthly income,
stability of employment, the amount of the down payment and the type of collateral.

Management
takes steps in the loan administration area to ensure that the Banks underwriting
standards are adequate. Management believes that the asset quality of the Bank continues
to be in excellent shape. However, asset quality is also dependent upon general and local
economic conditions and other factors outside of the Banks control.

# Non-performing Assets
(in thousands)

Non-performing
assets are comprised of loans for which the accrual of interest has been discontinued,
accruing loans 90 days or more past due in payments and collateral for loans and other
real estate, which has been acquired primarily through foreclosure and is awaiting
disposition. Loans, including loans considered impaired under SFAS No. 118 and SFAS No.
114, are generally placed on a non-accrual basis when principal or interest is past due 90
days or more and when, in the opinion of management, full collection of principal and
interest is unlikely.

|                                                                    | December 31,
|------------------------------------------------------------------- | ------------
|
|Non-accrual loans                                                   |             
|90 days or more past due & still accruing                           |             
|                                                                    |             
|Total non-performing loans                                          |             
|Other real estate                                                   |             
|                                                                    |             
|Total non-performing assets                                         |             
|                                                                    |             
|As a percentage of portfolio loans                                  |             
|Non-performing loans                                                |             
|Non-performing assets                                               |             
|Allowance for loan losses                                           |             
|Allowance for loan losses as a percentage   of non-performing loans |             

The
Banks total non-performing assets as of December 31, 2005 increased 20 percent,
compared to December 31, 2004. This increase primarily reflects two small commercial
properties that were held as other real estate at the end of 2005. The allowance for loan
losses as a percentage of portfolio loans declined from 1.67 percent at December 31, 2004
to 1.58 percent at December 31, 2005. As of December 31, 2005 there were no other interest
bearing assets, which required classification.

-16-

---



# Foregone Interest on
Non-Performing Loans (in thousands)

The
table below presents the interest income that would have been earned on non-performing
loans outstanding at December 31, 2005, 2004 and 2003 had those loans been accruing
interest in accordance with the original terms of the loan agreements (pro forma interest)
and the amount of interest income actually included in net interest income for those
years.

|                         | For the Year Ended December 31,
|------------------------ | -------------------------------
|                         |                                
|                         |                                
|                         |                                
|Pro forma interest       |                                
|Interest earned          |                                
|                         |                                
|Foregone interest income |                                
|                         |                                

# Allowance for Loan
Losses (dollars in thousands)

|                                              | Year Ended December 31,
|--------------------------------------------- | -----------------------
|                                              |                        
|
|Balance at beginning of year                  |                        
|Charge-offs:                                  |                        
|Commercial real estate                        |                        
|Residential real estate                       |                        
|Commercial                                    |                        
|Consumer                                      |                        
|                                              |                        
|                                              |                        
|Recoveries:                                   |                        
|Commercial real estate                        |                        
|Residential real estate                       |                        
|Commercial                                    |                        
|Consumer                                      |                        
|                                              |                        
|                                              |                        
|Net charge-offs                               |                        
|Additions (Reductions) to allowance           |                        
|charged (credited) to operations              |                        
|                                              |                        
|Balance at end of year                        |                        
|                                              |                        
|Net charge-offs as a percent of average loans |                        

As
discussed under Critical Accounting Policies the Bank establishes an allowance
for loan losses including a reserve calculation based on an evaluation of loans determined
to be impaired, risk ratings, historical losses, loans past due, general and local
economic conditions, trends, portfolio concentrations, collateral value and other
subjective factors. Due to the growth of the Banks loan portfolio and continued
improvements in the Banks asset quality, the allowance for loan losses as a percent
of total loans decreased from 1.67 percent at December 31, 2004 to 1.58 percent at
December 31, 2005.

Net
loans charged off for the year, as a percentage of average loans outstanding, decreased
from .12 percent in 2004 to .04 percent in 2005. This is primarily the result of the
reduction in the amount of consumer loans charged off during the year, which was partially
offset by a reduction in the amount of funds recovered on loans.

-17-

---



# Allocation of the
Allowance for Loan Losses (dollars in thousands)

The
allowance for loan losses is analyzed quarterly by management. In so doing, management
assigns a portion of the allowance to specific credits that have been identified as
problem loans, reviews past loss experience, the local economy and a number of other
factors. Management believes that the allowance for loan losses is adequate.

|                       | Year ended December 31,
|---------------------- | -----------------------
|
|
|Commercial and         |                        
|commercial real estate |                        
|Real estate mortgages  |                        
|Consumer               |                        
|Unallocated            |                        
|                       |                        
|Total                  |                        
|                       |                        

In
determining the adequacy of the allowance for loan losses, management determines (i) a
specific allocation for loans when a loss is probable, (ii) an allocation based on credit
risk rating for other adversely rated loans, (iii) an allocation based on historical
losses for various categories of loans, and (iv) subjective factors including local and
general economic factors and trends. The allowance for loan losses as a percent of total
loans reflects managements assessment of the improved quality of the Banks
assets, the decline in non-performing assets and the improving general economic conditions
and labor market.

The
first element reflects our estimate of probable losses based upon our systematic review of
specific loans. These estimates are based upon a number of objective factors, such as
payment history, financial condition of the borrower, and discounted collateral exposure.

The
second element reflects the application of our loan rating system. This rating system is
similar to those employed by state and federal banking regulators. Loans that are rated
below a certain predetermined classification are assigned a loss allocation factor.

The
third element is determined by assigning allocations based principally upon the three-year
average of loss experience for each type of loan. Additionally, an allocation is provided
based on the current delinquency rate for some loan categories. Loss analyses are
conducted at least annually.

The
fourth element is based on factors that cannot be associated with a specific credit or
loan category and reflects our attempt to ensure that the overall allowance for loan
losses appropriately reflects a margin for the imprecision necessarily inherent in the
estimates of expected credit losses. We consider a number of subjective factors when
determining the unallocated portion, including local and general economic business factors
and trends, portfolio concentrations and changes in the size, mix and general terms of the
loan portfolios.

Actual
losses experienced in the future could vary from the estimated allocation of the loan loss
reserve. Changes in local and national economic factors could affect the adequacy of the
allowance for loan losses. While amounts are allocated to various portfolios as directed
by Statement of Financial Accounting Standards No. 114, the entire allowance for loan
losses is available to absorb losses from any portfolio segment.

# Sources of Funds

The
primary sources of funding for the Bank are deposits, which includes brokered deposits,
securities sold under agreements to repurchase, Federal Home Loan Bank advances, federal
funds purchased and other borrowed funds. Total deposits increased $72 million, or 17
percent, from December 31, 2004 to December 31, 2005. Non-interest bearing demand accounts
increased $12 million, or 20 percent from 2004 to 2005. Money market and savings accounts
increased $5 million, or 7 percent from December 31, 2004 to December 31, 2005. The
increase in money market and savings accounts includes the transfer of approximately $30
million in funds from the Banks repurchase product. Certificates of deposit
increased $58 million, or 8 percent, during 2005. This includes an increase in brokered
deposits of $24 million, or 47 percent. The increase in brokered deposits is primarily the
result of loan growth exceeding the Banks growth of local deposits. The Bank plans
to continue to use brokered deposits as part of its asset & liability management plan.

-18-

---



Non-deposit
sources of funding decreased $25 million, or 40 percent from December 31, 2004 to December
31, 2005. The decline is primarily due to a reduction of $30 million in securities sold
under agreements to repurchase, which were transferred into NOW, money market and savings
accounts.

Deposits
are gathered from the communities the Bank serves. Increasing core deposits is a key
element of the Banks strategic plan. The checking and savings product mix is also
aligned to reward customers with special values if they maintain at least two accounts
with the Bank. This is designed to improve the level of core deposits. In addition to the
traditional bank offices, the Company provides a wide array of alternative electronic
methods to serve customers. Use of the Banks cash management products as well as
business sweep products has increased during the past year. The Bank expects these
products to continue to be excellent tools in marketing to potential business customers.
Mobile Banking, a business banking courier service in West Michigan that provides
convenient, safe, and reliable pick-up and delivery for a variety of items including cash,
checks and important Bank documents, has also been beneficial in increasing the
Banks customer base. Management expects this service to continue to be a key factor
in attracting new business customers to the Bank.

# Average Deposit Balances
(dollars in thousands)

The
following table lists the total average deposit balances during 2005 and 2004 and the
weighted average rates paid on the funds provided:

|                            | Average for the Year
|--------------------------- | --------------------
|
|
|Non-interest bearing demand |                     
|NOW Accounts                |                     
|MMDA/Savings                |                     
|Time - negotiable brokered  |                     
|Time                        |                     
|                            |                     
|Total Deposits              |                     
|                            |                     

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 with 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 with many term options.

# Repurchase Agreements,
Federal Funds Purchased and Borrowed Funds (dollars in thousands)

|                        | December 31, 2005 | December 31, 2004
|----------------------- | ----------------- | -----------------
|
|Repurchase agreements   |                   | $  7,490         
|FHLB Borrowings         |                   | 24,121           
|Federal funds purchased |                   | 9,752            
|Other borrowings        |                   | 1,199            
|                        |                   |                  
|                        |                   | $42,562          
|                        |                   |                  

Repurchase
agreements are a variable interest rate borrowing with a 1-day maturity. These borrowings
are from local customers of the Bank. The FHLB borrowings have a fixed term and fixed
interest rate.

-19-

---



# RESULTS OF OPERATIONS

# Summary

The
Company achieved net income of $6.1 million in 2005, up 35 percent from the $4.5 million
reported for 2004. Basic and diluted earnings per share for the full year amounted to
$2.71, an increase of 35 percent over the $2.01 reported in 2004. The rise in net income
was the result of the increase in net interest income and tight control over operating
expenses.

Net
interest income increased $4.9 million, or 30 percent to $21.2 million in 2005 compared to
$16.3 million in 2004. The increase was a result of the improvement in the net interest
margin, due to short-term interest rates increasing from their historically low levels of
eighteen months ago. The net interest margin was 4.04 percent in 2005 compared to 3.42
percent in 2004.

During
2005, the Bank charged a provision for loan losses to income of $480,000, compared to a
credit of $1.1 million in 2004. The significant change was the result of improvements in
the Banks asset quality that occurred in 2004, allowing the Bank to reverse $1.1
million from the allowance for loan losses in the fourth quarter of 2004. The provision
that was charged to income in 2005 was the result of the increases in the Banks loan
portfolio.

Non-interest
income declined 7 percent in 2005, which is the result of a 14 percent decline in mortgage
banking revenue and a 100 percent decline in the net gain on sales of available for sale
securities resulting from a loss on the sale of securities that was realized in 2005. The
decline in mortgage banking revenue is due to a reduction in mortgage activity.

Total
non-interest expenses increased only 4 percent from 2004 to 2005. Salaries and benefits
expenses remained flat in 2005, compared to 2004. This was mainly the result of increases
in salaries being offset by a reduction in the cost of providing employee health care.
Non-employment related expenses increased 10 percent in 2005. This was the result of
increases in marketing, printing and supplies and professional fees related to the name
change of the Bank that occurred in 2005 as well as increases in data processing and
software expenses.

# Earnings Performance (in
thousands, except per share data)

|                          | Year Ended December 31,
|------------------------- | -----------------------
|
|Net income                |                        
|Per share of common stock |                        
|Earnings ratios:          |                        
|Return on average assets  |                        
|Return on average equity  |                        

Net
income increased 35 percent from 2004 to 2005. This was primarily the result of the
improvement in the Banks net interest margin that occurred in 2005, which was
partially offset by a decline in non-interest income of 7 percent, due to a decline in net
gains on the sale of securities and a decline in mortgage banking revenues. This resulted
in an increase in earnings per share from $2.01 in 2004 to $2.71 in 2005.

Net
income increased approximately 8 percent from 2003 to 2004. The asset quality improvements
that the Bank made over 2003 and 2004 resulted in the reversal of $1.1 million of the
allowance for loan losses during 2004. This reversal offset a decline in net interest
income due to the low interest rate environment and the compression of the net interest
margin. It also compensated for an 8 percent decline in non-interest income that was
mainly the result of a decline in mortgage related fees.

-20-

---



# Net Interest Income

The
following schedule presents the average daily balances, interest income (on a fully
taxable-equivalent basis) and interest expense and average rates earned and paid for the
Companys major categories of assets, liabilities, and stockholders equity for
the periods indicated:

# Interest Yields and
Costs (in thousands)

|                                                                    | Year ended December 31,
|------------------------------------------------------------------- | -----------------------
|                                                                    |                        
|                                                                    |                        
|                                                                    |                        
|                                                                    |                        
|                                                                    |                        
|Assets                                                              |                        
|Federal funds sold                                                  |                        
|Securities:                                                         |                        
|Taxable                                                             |                        
|Tax-exempt(1)                                                       |                        
|Loans and leases(2)(3)                                              |                        
|                                                                    |                        
|Total earning assets/total                                          |                        
|interest income                                                     |                        
|                                                                    |                        
|Cash and due from banks                                             |                        
|Unrealized gain                                                     |                        
|All other assets                                                    |                        
|Allowance for loan loss                                             |                        
|                                                                    |                        
|Total assets                                                        |                        
|                                                                    |                        
|Liabilities and                                                     |                        
|Stockholders'  Equity                                               |                        
|Interest bearing deposits:                                          |                        
|MMDA, Savings/  NOW accounts                                        |                        
|Time                                                                |                        
|Securities sold                                                     |                        
|under      agreements to                                            |                        
|repurchase and      federal funds     purchased                     |                        
|Other borrowed   money                                              |                        
|                                                                    |                        
|Total interest                                                      |                        
|bearing      liabilities/ total                                     |                        
|interest expense                                                    |                        
|                                                                    |                        
|Non-interest bearing deposits                                       |                        
|All other liabilities                                               |                        
|                                                                    |                        
|Total liabilities                                                   |                        
|Stockholders' Equity:                                               |                        
|Total equity                                                        |                        
|                                                                    |                        
|Total liabilities and equity                                        |                        
|                                                                    |                        
|Net interest income-FTE                                             |                        
|                                                                    |                        
|Net interest margin as a percentage of average earning assets - FTE |                        
|                                                                    |                        

| | (1) | Interest income on tax-exempt securities and loans is presented on a fully tax
          equivalent basis assuming a marginal tax rate of 34 percent.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Non-accrual loans and leases and loans held for sale have been included in the
          average loans and lease balances. Average non-accrual loans were approximately
          $1,678,000, $1,450,000 and $3,605,000 in 2005, 2004 and 2003 respectively.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Interest on loans includes net origination fees totaling $245,000 in 2005,
          $258,000 in 2004 and $226,000 in 2003.
| | --- | ---------------------------------------------------------------------------------------------------------------------------

Net
interest income is the principal source of income for the Company. In the current year,
tax equivalent net interest income increased $5.0 million to $21.7 million in 2005, a 30
percent increase from 2004. This resulted in a net interest margin, as a percentage of
average earning assets, on a fully taxable equivalent basis, of 4.04 percent.

In
2005, the yield on total earning assets increased 91 basis points, compared to a 37 basis
point increase in the total interest-bearing liabilities cost of funds. The increase in
both the interest yield and the cost of funds was a direct result of the short-term rates
rising during 2005. As a result, the Companys net interest margin showed continued
improvement, rising steadily from 3.84 percent in the first quarter of 2005 to 4.26
percent in the fourth quarter of 2005.

-21-

---



In
2004, the yield on total earning assets declined 42 basis points, compared to a 28 basis
point decline in the total interest-bearing liabilities cost of funds, when compared to
2003. These declines were the direct result of the low interest rate environment that
occurred over the past few years. During 2004, the interest rate environment stabilized
and during the second half of the year short-term rates began to rise. As a result, the
Companys net interest margin improved from 3.27 percent in the first quarter of 2004
to 3.62 percent in the fourth quarter of 2004.

Management
expects the net interest margin to compress during 2006, due to increases in the cost of
funds, related to rising interest rates and increased competition for both loans and
deposits. The net interest margin is also considerably affected by the monetary policies
of the U.S. government, local competition and level of economic activity. There is no
assurance regarding rates and the Banks net interest margin.

# Change in Tax Equivalent
Net Interest Income (in thousands)

|                            | 2005 Compared to 2004 | 2004 Compared to 2003
|--------------------------- | --------------------- | ---------------------
|                            |                       |                      
|                            |                       |                      
|                            |                       |                      
|Increase (decrease) in      |                       |                      
|interest income (1)         |                       |                      
|Federal funds sold          |                       |                      
|Securities:                 |                       |                      
|Taxable                     |                       |                      
|Tax Exempt (2)              |                       |                      
|Loans (2)                   |                       |                      
|                            |                       |                      
|Total interest income       |                       |                      
|                            |                       |                      
|                            |                       |                      
|Increase (decrease) in      |                       |                      
|interest expense            |                       |                      
|Interest bearing deposits:  |                       |                      
|Savings/NOW Accounts        |                       |                      
|Time                        |                       |                      
|Securities sold under       |                       |                      
|agreements to repurchase    |                       |                      
|and federal funds purchased |                       |                      
|Other Borrowed Money        |                       |                      
|                            |                       |                      
|Total Interest Expense      |                       |                      
|                            |                       |                      
|Net interest income (FTE)   |                       |                      
|                            |                       |                      

| | (1) | The
change in interest due to changes in both balance and rate has been           allocated
between the factors in proportion to the relationship of the absolute           dollar
amounts of change in each.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Interest
income on tax-exempt securities and loans is presented on a fully tax
          equivalent basis assuming a marginal tax rate of 34 percent.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Interest
from loans is the primary source of interest income for the Bank. Net interest income is
significantly influenced by results of the Banks lending activities. During 2005,
interest income increased $7.4 million, while interest expense increased only $2.4 million
over the same period, resulting in a $5.0 million increase in net interest income, when
compared to 2004. The primary reason interest income increased faster than interest
expense was the increase in short term interest rates raising the interest rates on
variable rate loans faster than the increase in rates of variable rate deposits.

During
2004, interest income declined $1.8 million, while interest expense decline only $1.2
million, resulting in a decrease in net interest income of $0.6 million, when compared to
2003. A large reason for this decrease was due to the number of long-term fixed rate
commercial loans that were shifted to floating rate commercial loans during 2003.

-22-

---



The
Banks asset/liability committee seeks to manage sources and uses of funds and to
monitor the gap in maturities of these funds to maintain a steady net interest margin in
varying market conditions.

# Composition of Average
Earning Assets and Interest Paying Liabilities

|                                       | Year ended December 31,
|-------------------------------------- | -----------------------
|                                       |                        
|                                       |                        
|                                       |                        
|As a percent of average earning assets |                        
|Loans                                  |                        
|Other earning assets                   |                        
|                                       |                        
|Average earning assets                 |                        
|                                       |                        
|Savings and NOW accounts               |                        
|Time deposits                          |                        
|Securities sold under agreements to    |                        
|repurchase, fed funds purchased        |                        
|and other borrowings                   |                        
|                                       |                        
|Average interest bearing liabilities   |                        
|                                       |                        
|Average earning asset ratio            |                        
|Free funds ratio                       |                        

The
Banks earning asset ratio increased to 95 percent in 2005, compared to 94 percent in
2004, due mainly to the increase in the Banks loan portfolios. The Banks
earning asset ratio also increased to 94 percent in 2004 from 93 percent in 2003, due to
the increases in the Banks loan portfolios.

The
free funds ratio, funds on which the Bank does not pay interest, remained at 18 percent in
2004 and 2005. The free funds ratio increased from 16 percent in 2003 to 18 percent in
2004. The increase is mainly the result of the increase in the loan portfolios combined
with an increase in non-interest bearing deposits.

# Provision and Allowance
for Loan Loss

The
provision for loan losses charged to earnings was $480,000 in 2005. This compares to a
credit to income of $1,100,000 in 2004 and an expense of $625,000 in 2003. The provision
that was charged to earning in 2005 was due to the increases in the Banks loan
portfolios. The credit to income in 2004 was the result of the improvement in the asset
quality of the Bank. Although asset quality is substantially improved, loans originated
prior to managements adoption of new underwriting standards still present a higher
level of risk than loans made after adoption of these standards. Management is projecting
that the provision for loan losses charged to income in 2006 will increase, compared to
2005, to support the Banks anticipated loan growth, net charge-offs and changes in
credit quality. The actual provision charged to income may vary from the projected amount
based on changes in these factors.

As
previously reported, management works to ensure that the underwriting standards and loan
administration of the Bank are appropriate. Future changes in asset quality will be
subject to continued adherence to established policies and the general economic conditions
of the markets in which the Bank operates.

-23-

---



# Non-interest Income (in
thousands)

|                                          | Year ended December 31,
|----------------------------------------- | -----------------------
|                                          |                        
|                                          |                        
|                                          |                        
|                                          |                        
|Service charges on deposit accounts       |                        
|Net gains on asset sales:                 |                        
|Loans                                     |                        
|Securities                                |                        
|Amortization of mortgage servicing rights |                        
|Recovery of impairment on (impairment of) |                        
|mortgage servicing rights                 |                        
|Loan servicing fees                       |                        
|Insurance premium revenue                 |                        
|Brokerage revenue                         |                        
|Other                                     |                        
|                                          |                        
|Total non-interest income                 |                        
|                                          |                        

Non-interest
income declined $388,000, or 7 percent in 2005, compared to 2004. This decline was mainly
the result of a decline in mortgage-related fees and change in the net gains or losses on
the sale of securities. Mortgage related fees declined $176,000, or 14 percent from 2004
to 2005. This was mainly the result of a slow down in mortgage activity, due primarily to
increases in mortgage interest rates. The decline in the net gains on the sale of
securities is due to a $4,000 loss that was recognized in 2005 compared to a $282,000 gain
in 2004. Service charges on deposit accounts increased $108,000, or 4 percent, in 2005,
compared to 2004. This increase reflects the increases in income from NSF fees and ATM
fees due to higher volume.

Non-interest
income declined $500,000, or 8 percent in 2004, compared to 2003. This decline was mainly
the result of a decline in mortgage-related fees. The gain on the sale of loans declined
$1,690,000, or 61 percent, from 2003 to 2004. This was mainly due to a slow down in
mortgage refinancing activity. This was partially offset by a $1,133,000, or a 65 percent,
decline in the amortization of mortgage servicing rights. This decline was also directly
related to the slowdown in mortgage refinancing activity. Service charges on deposit
accounts increased $269,000, or 12 percent, in 2004, compared to 2003. This increase
reflects the increases in the Banks deposit accounts as well as an increase in ATM
fees.

# Net Gains on the Sale of
Real Estate Mortgage Loans (in thousands)

|                                                          | Year ended December 31,
|--------------------------------------------------------- | -----------------------
|                                                          |                        
|                                                          |                        
|                                                          |                        
|                                                          |                        
|Total real estate mortgage loan originations              |                        
|                                                          |                        
|Real estate mortgage loan sales, servicing retained       |                        
|                                                          |                        
|Real estate mortgage loan sales, servicing released       |                        
|                                                          |                        
|Net gains on the sale of real estate mortgage loans       |                        
|                                                          |                        
|Net gains as a percent of real estate mortgage loan sales |                        

The
gain on the sale of real estate loans declined 17 percent from 2004 to 2005 as mortgage
activity slowed during the year. This slow down was mainly the result of increases in
mortgage rates. Total real estate mortgages originated declined to $75 million in 2005,
compared to $86 million in 2004 and $205 million in 2003. During 2005, the Bank sold a
majority of loans with servicing rights released. Interest rates on loans with servicing
rights released were favorable for customers, when compared to the interest rates of loans
with servicing rights retained. Selling loans with servicing rights released also reduces
the Banks exposure to changes in interest rates. Net gains as a percentage of real
estate mortgage loan sales for 2005 declined to 1.54 percent, compared to 1.62 percent in
2004 and 1.63 percent in 2003. The decline in 2005 was mainly the result of more
aggressive pricing due to increased competition resulting from the reduction of mortgage
refinancing activity.

-24-

---



Net
gains on the sale of loans are generally a function of the volume of loans sold. The
volume of loans sold is dependent upon the Banks ability to originate loans, which
is particularly sensitive to the absolute level of interest rates. Net gains on the sale
of real estate mortgage loans are also dependent upon economic and competitive factors as
well as managements ability to effectively manage the Banks exposure to
changes in interest rates. The Bank aggressively markets its services in the real estate
area.

# Realized Gains and
Losses on the Sale of Securities (in thousands)

|     | Year ended December 31,
|---- | -----------------------
|     |                        
|     |                        
|     |                        
|2005 |                        
|2004 |                        
|2003 |                        

The
Company recognized a net loss of $4,000 on the sale of securities in 2005, compared to a
net gain of $282,000 in 2004 and a net gain of $236,000 in 2003. Approximately $200,000 of
the gain in 2004 and $138,000 of the gain in 2003 was due to the sale of equity
securities, predominately other bank stocks, held at the parent company. In addition to
providing interest income and secondary liquidity, our securities portfolio is an
important part of our asset and liquidity management plan. Generally, the majority of the
securities in the investment portfolio are classified as available for sale to provide
flexibility in managing the Banks liquidity and interest rate risk.

# Non-interest Expense (in
thousands)

|                             | Year ended December 31,
|---------------------------- | -----------------------
|                             |                        
|                             |                        
|                             |                        
|                             |                        
|Salaries                     |                        
|Employee benefits            |                        
|Occupancy                    |                        
|Equipment                    |                        
|Data processing and software |                        
|Professional and legal fees  |                        
|Printing and supplies        |                        
|Marketing                    |                        
|Other                        |                        
|                             |                        
|Total non-interest expense   |                        
|                             |                        

Non-interest
expense increased $685,000, or 4 percent in 2005, when compared to 2004. Total salaries
and employee benefits expenses increased only $12,000 or less than 1 percent from 2004 to
2005. This was due to increases in salaries being offset by a reduction in the cost of
providing health care to employees. The Companys medical plan is self-insured and
medical claims and participation fluctuate from year to year. Management has implemented
strategies to contain health benefit costs. Occupancy and equipment costs declined $73,000
in 2005, compared to 2004. This was due to a decline in depreciation expense on equipment
that had become fully depreciated in 2005. Data processing and software expenses increased
$93,000 or 7 percent in 2005. This was the result of continued investment in technology
upgrades to remain competitive and to maintain existing systems. The Bank anticipates a
continued investment in technology in the future, which could affect equipment, data
processing or software expenses. Total professional and legal fees, printing and supplies,
marketing and other expenses increased $563,000 or 18 percent in 2005, compared to 2004.
This was largely due to additional expenses related to the name change of the Bank.

Non-interest
expense remained relatively flat in 2004, increasing only $48,000, or less than 1 percent,
compared to 2003. Total salaries and employee benefits expenses increased $391,000 or 4
percent from 2003 to 2004. The increase was mainly the result of increases in the cost of
providing employee health care. Employee health care expenses increased 42 percent from
2003 to 2004. Occupancy and equipment costs rose modestly in 2004, compared to 2003. Data
processing and software expenses increased $64,000 or 6 percent in 2004. This was the
result of technology upgrades to maintain existing systems. Total professional and legal
fees, printing and supplies, marketing and other expenses declined $538,000 or 15 percent
in 2004, compared to 2003. This was mainly due to the benefits of cost reduction efforts
as well as lower FDIC premiums. These benefits were partially offset by increased
professional and legal expenses associated with compliance with Sarbanes-Oxley Act of
2002. During 2004 the Company had expenses related to the compliance with the
Sarbanes-Oxley Act of 2002 totaling approximately $100,000.

-25-

---



# Provision for Income
Taxes

The
provision for income taxes was $2,478,000 in 2005, compared with $1,753,000 in 2004 and
$1,564,000 in 2003. The Companys effective tax rate approximated 29 percent in 2005,
28 percent in 2004 and 27 percent in 2003.

# LIQUIDITY AND CAPITAL
RESOURCES

# Capital

Capital
provides the foundation for future growth and expansion. The major component of capital is
stockholders equity. Stockholders equity was $60.6 million as of December 31,
2005, an increase of $3.2 million, or 6 percent from a year ago. The increase resulted
primarily from the retention of earnings. The Company expects to fund future growth from
current capital and retention of future earnings.

In
2005, the Company declared cash dividends totaling $1.6 million, approximately 26 percent
of earnings. In 2004, the Company declared cash dividends totaling $1.5 million, or
approximately 34 percent of earnings.

# Capital Resources (in
thousands)

Under
the regulatory risk-based capital guidelines in effect for both banks and bank
holding companies, minimum capital levels are based upon perceived risk in the
Companys various asset categories. These guidelines assign risk weights to
on-balance sheet and off-balance sheet categories in arriving at total risk-adjusted
assets. Regulatory capital is divided by the computed total of risk adjusted assets to
arrive at the minimum levels prescribed by the Federal Reserve Board as of December 31,
2005, as shown in the table below:

|                          | Regulatory Requirements | December 31,
|------------------------- | ----------------------- | ------------
|                          |                         |             
|                          |                         |             
|                          |                         |             
|Tier 1 capital            |                         |             
|Tier 2 capital            |                         |             
|                          |                         |             
|Total qualifying capital  |                         |             
|                          |                         |             
|                          |                         |             
|Tier 1 leverage ratio     |                         |             
|Tier 1 risk-based capital |                         |             
|Total risk-based capital  |                         |             

# Interest Rate Risk

The
primary components of the balance sheet are interest-earning assets, which are funded by
interest-bearing liabilities. The differences in cash flows of these rate sensitive assets
and liabilities, combined with shifts, or changes in the overall market yield curve result
in interest rate 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 the
financial management of net interest income, liquidity, investment activities, and other
related activities. In regard to interest rate risk, management has relied on re-pricing
GAP analysis, which is a traditional method of assessing interest rate risk. Recognizing
that there is no single measure that absolutely measures current or future risk,
management also relies on a simulation analysis to assess risk in dynamic interest rate
environments.

-26-

---



# Maturities and
Sensitivities of Loans to Changes in Interest Rates

The
following table shows the amount of total loans outstanding as of December 31, 2005, which
based on scheduled maturity dates, are due in the periods indicated:

|                            | Maturing(in thousands)
|--------------------------- | ----------------------
|                            |                       
|                            |                       
|                            |                       
|Residential Real Estate     |                       
|Installment                 |                       
|Commercial Real Estate      |                       
|Other Commercial            |                       
|                            |                       
|Totals                      |                       
|                            |                       
|Allowance for Loan Losses   |                       
|                            |                       
|Total Loans Receivable, Net |                       
|                            |                       

Below
is a schedule of the amounts maturing or re-pricing as of December 31, 2005, which are
classified according to their sensitivity to changes in interest rates:

|                                    | Interest Sensitivity(in thousands)
|----------------------------------- | ----------------------------------
|                                    |                                   
|                                    |                                   
|                                    |                                   
|Due within 3 months                 |                                   
|Due after 3 months within 1 year    |                                   
|Due after one but within five years |                                   
|Due after five years                |                                   
|                                    |                                   
|Total                               |                                   
|                                    |                                   
|Allowance for loan losses           |                                   
|                                    |                                   
|Total loans receivable, net         |                                   
|                                    |                                   

-27-

---



# Asset/Liability Gap
Position (in thousands)

|                                           | December 31, 2005
|------------------------------------------ | -----------------
|                                           |                  
|                                           |                  
|                                           |                  
|Interest earning assets:                   |                  
|Fed Funds Sold                             |                  
|Loans                                      |                  
|Securities (including restricted           |                  
|investments)                               |                  
|Loans held for sale                        |                  
|                                           |                  
|Total interest earning assets              |                  
|                                           |                  
|Non-interest earning assets:               |                  
|Cash and due from banks                    |                  
|Allowance for loan losses                  |                  
|Accrued interest receivable                |                  
|Premises and equipment (net)               |                  
|Other assets                               |                  
|                                           |                  
|Total non-interest earning assets          |                  
|                                           |                  
|Total Assets                               |                  
|                                           |                  
|Interest bearing liabilities:              |                  
|Savings & NOW                              |                  
|Time                                       |                  
|                                           |                  
|Total deposits                             |                  
|Other borrowings                           |                  
|                                           |                  
|Total interest bearing liabilities         |                  
|                                           |                  
|                                           |                  
|Non-interest bearing liabilities           |                  
|and equity:                                |                  
|Non-interest bearing deposits              |                  
|Other liabilities                          |                  
|Stockholders' equity                       |                  
|                                           |                  
|Total non-interest bearing liabilities     |                  
|and equity:                                |                  
|                                           |                  
|Total liabilities and stockholders' equity |                  
|                                           |                  
|                                           |                  
|Rate sensitivity gap and ratios:           |                  
|Gap for period                             |                  
|Cumulative gap                             |                  
|Period gap ratio                           |                  
|Cumulative gap ratio                       |                  
|Gap /Total Earning assets                  |                  
|Period                                     |                  
|Cumulative                                 |                  

The
asset/liability gap reflects the projected repayment and maturities of the Banks
loans, investments, deposits and borrowings. Management has made a number of assumptions
to improve the usefulness of the gap analysis and to manage interest rate risk. The
assumptions include, but are not limited to, prepayments on loans, repayment speeds on
certain investment securities, and the likelihood of certain call and put features on
financial instruments being exercised. Management attempts to reflect the sensitivity of
assets and liabilities; however, customer behavior in different rate and economic
environments is not entirely predictable. As such, interest rate risk cannot be
eliminated.

-28-

---



As
of December 31, 2005 the cumulative one-year liability gap position was approximately 17
percent of earning assets. The previous table reflects that the Bank has a
liability-repricing gap of approximately $9 million at 3 months and a liability-repricing
gap of $53 million at one year. Management recognizes that GAP analysis alone is not a
reliable measure of interest rate risk. Management is comfortable with the Banks
current GAP position and interest rate exposure and will continue to invest in assets and
fund liabilities with the intent of maintaining a neutral GAP position. Management
regularly reviews the asset liability gap position and other available information to
manage the overall interest rate risk of the Bank.

# Market Risk

The
Bank complements its stable core deposit base with alternate sources of funds, which
include advances from the Federal Home Loan Bank, brokered certificates of deposit from
outside its market area and federal funds purchased. Management evaluates the funding
needs and makes a decision, whether to fund internally or from alternate sources, based on
current interest rates and terms. To date, the Bank has not employed the use of derivative
financial instruments in managing the risk of changes in interest rates.

# Changes in Market Value
of Portfolio Equity and Net Interest Income (dollars in thousands)

|Change in Interest Rates | Market Value of
   Portfolio   Equity(1) | Percent Change | Net InterestIncome(2) | PercentChange
|------------------------ | ---------------------------------------- | -------------- | --------------------- | -------------
|300 basis point rise     |                                          | $44,022        |                       | (24          
|200 basis point rise     |                                          | 48,804         |                       | (16          
|100 basis point rise     |                                          | 53,653         |                       | (8           
|Base rate                |                                          | 58,523         |                       | -            
|100 basis point decline  |                                          | 63,625         |                       | 8            
|200 basis point decline  |                                          | 68,684         |                       | 17           
|300 basis point decline  |                                          | 73,813         |                       | 26           

| | (1) | Simulation
analyses calculates the change in the net present value of the           Companys
assets and liabilities, under parallel shifts in interest rates,           by discounting
the estimated future cash flows.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Simulation
analyses calculates the change in net interest income, under parallel           shifts in
interest rates over the next 12 months based on a static balance           sheet.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Simulation
models are useful tools, but require numerous assumptions that have a significant impact
on the measured interest rate risk. The use of simulation models requires numerous
assumptions, which could impact the results. Simulation models require the ability to
accurately predict customer behavior to interest rate changes, changes in the competitive
environment and other economic factors.

# Liquidity

Liquidity
is measured by our ability to raise funds through deposits, borrowed funds, capital or
cash flow from the repayment of loans and investment securities. These funds are used to
meet deposit withdrawals, maintain reserve requirements, fund loans and operate our
Company. Liquidity is primarily achieved through the growth of deposits and liquid assets
such as securities available for sale, matured securities, and federal funds sold. Asset
and liability management is the process of managing the balance sheet to achieve a mix of
earning assets and liabilities that maximizes profitability, while providing adequate
liquidity.

The
Companys liquidity strategy is to fund loan growth with deposits, and other borrowed
funds and to maintain an adequate level of short-term and medium-term investments to meet
typical daily loan and deposit activity. The growth of the Banks loan portfolio
during 2005 was funded through deposit growth, including brokered deposits, federal funds
purchased, and other borrowed funds. Advances from the Federal Home Loan Bank increased by
$5 million, federal funds purchased declined by $2 million, the use of brokered
certificates of deposit increased by $24 million and certificates of deposit over $100,000
(excluding brokered deposits) increased by $26 million as of December 31, 2005 compared to
December 31, 2004.

-29-

---



The
Bank has the ability to borrow money on a daily basis through correspondent banks using
established federal funds purchased lines. The Bank has established unsecured federal
funds purchased borrowing limits totaling $50 million. As of December 31, 2005, the Bank
had $6 million in federal funds purchased. During 2005, the Banks federal funds
purchased position averaged $9.8 million and its federal funds sold position averaged
$589,000. In addition, as a member of the Federal Home Loan Bank of Indianapolis
(FHLBI), the Bank has access to FHLBIs borrowing programs. As of
December 31, 2005, FHLB advances totaled $27.8 million and, based on available collateral,
the Bank could borrow up to an additional $15.6 million.

Net
cash flows from operating activities fluctuate sharply from year to year due to the dollar
amount of mortgage loans originated and the amount of mortgage loans sold. The changes
from 2004 to 2005 and from 2003 to 2004 are largely due to mortgage loan-related activity.

Cash
flows from investment activities reflect cash used to fund the increase in total loans,
cash received from the maturity and sale of available for sale securities and the
reinvestment of that cash through the purchase of new securities. The changes in cash
flows from investment activities are mainly the result of the growth of the Banks
loan portfolio. Net loans increased by $45 million from 2004 to 2005 compared to an
increase of $46 million from 2003 to 2004.

Net
cash flows from financing activities reflect the increases or decreases in the products
used to fund the loan growth of the Bank. The change in cash flows from financing
activities reflects an increase in the Banks total deposits of $72 million, an
increase in FHLB borrowings of $5 million, a decrease in federal funds purchased of $2
million and a decline in securities sold under agreements to repurchase of $30 million.

The
Companys cash and cash equivalents increased approximately $3 million during 2005 to
$13 million at December 31, 2005. Overall liquidity is primarily determined by deposit and
loan growth in addition to borrowing and security investment activity.

# Contractual Obligations
(dollars in thousands)

|                                   | Payments Due by Period
|---------------------------------- | ----------------------
|
|Time deposits                      |                       
|Federal funds purchased            |                       
|FHLB advances                      |                       
|Other borrowed funds               |                       
|                                   |                       
|Total contractual cash obligations |                       

# Other Commercial
Commitments

|                                         | Amount of Commitment Expiration Per Period
|---------------------------------------- | ------------------------------------------
|
|Commitments to grant loans               |                                           
|Unfunded commitment under commercial and |                                           
|other lines of credit                    |                                           
|Unfunded commitments under home equity   |                                           
|lines of credit                          |                                           
|Commercial and standby letters of credit |                                           
|                                         |                                           
|Total commitments                        |                                           

All
of the commercial commitments are underwritten using the commercial loan underwriting
guidelines.

-30-

---



# Impact of Inflation

The
majority of assets and liabilities of financial institutions are monetary in nature.
Generally, changes in interest rates have a more significant impact than inflation on the
earnings of the Bank. Although influenced by inflation, changes in rates do not
necessarily move in either the same magnitude or direction as changes in the price of
goods and services. Inflation does impact the growth of total assets, creating a need to
increase equity capital at a higher rate to maintain an adequate equity-to-assets ratio,
which in turn reduces the amount of earnings available for cash dividends.

# Selected Quarterly
Financial Data (Unaudited):     (in thousands, except
per share data)

|                               | Three Months Ended
|------------------------------ | ------------------
|
|Periods Ended, 2005            |                   
|Total Assets                   |                   
|Net Interest Income            |                   
|Provision for Loan Losses      |                   
|Net Income                     |                   
|                              
|Earnings per Share             |                   
|Book Value per Share           |                   
|Return on Average Assets       |                   
|Return on Stockholders' Equity |                   
|Efficiency Ratio               |                   
|                              
|Periods Ended, 2004            |                   
|Total Assets                   |                   
|Net Interest Income            |                   
|Provision for Loan Losses      |                   
|Net Income                     |                   
|                              
|Earnings per Share             |                   
|Book Value per Share           |                   
|Return on Average Assets       |                   
|Return on Stockholders' Equity |                   
|Efficiency Ratio               |                   

-31-

---



# ITEM 7A: Quantitative
and Qualitative Disclosures About Market Risk

A
derivative financial instrument includes futures, forwards, interest rate swaps, option
contracts, and other financial instruments with similar characteristics. The Company
currently does not enter into futures, forwards, swaps, or options. However, the Company
is party to 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 standby letters of credit. These instruments involve to
varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates and may require collateral
from the borrower if deemed necessary by the Company. Standby letters of credit are
conditional commitments issued by the Company to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and conditions.

Commitments
to extend credit and standby letters of credit are not recorded as an asset or liability
by the Company until the instrument is exercised.

The
Companys exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee (See Market Risk from Item 7). Interest rate risk is
the potential of economic losses due to future interest rate changes. These economic
losses can be reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest income and to
adjust the balance sheet to manage the inherent risk while at the same time maximizing
income. Management realizes certain risks are inherent and that the goal is to identify
and minimize these risks. Tools used by management include the standard GAP report and a
simulation model. The Company has no market risk sensitive instruments held for trading
purposes.

# ITEM 8. Financial
Statements and Supplementary Data

The
Consolidated Financial Statements, Notes to Consolidated Financial Statements and the
Report of the Independent Public Accountants are included in the following pages.

-32-

---



# OAK Financial
CorporationManagements Report on Internal Control Over Financial Reporting

The
management of OAK Financial Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting. OAK Financial Corporations
internal control system was designed to provide reasonable assurance to the Companys
management and board of directors regarding the preparation and fair presentation of its
financial statements.

All
internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective, provide only reasonable
assurance with respect to financial statement preparation and presentation.

Management
of OAK Financial Corporation assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2005. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal ControlIntegrated Framework. Based on our
assessment we believe that, as of December 31, 2005, the Companys internal control
over financial reporting is effective based on those criteria.

Plante
& Moran, PLLC, an independent registered public accounting firm, has issued an
attestation report on managements assessment of the Companys internal control
over financial reporting.

Dated: March 10, 2006

| |  | /s/ Patrick K. Gill
Patrick K. GillPresident and Chief Executive Officer
/s/ James A. Luyk
James A. LuykExecutive Vice President,Chief Financial Officer and Chief Operating Officer
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-33-

---



# Report of Independent
Registered Public Accounting Firm

To the Board of Directors
and StockholdersO.A.K. Financial Corporation and Subsidiaries

We have audited managements
assessment included in the accompanying Report of Management on O.A.K. Financial
Corporation and Subsidiaries Internal Control over Financial Reporting that the Company
maintained effective internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control-Integrated Framework issued by the
committee of Sponsoring Organizations of the Treadway Commission (COSO). Management is
responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on
the effectiveness of the companys internal control over financial reporting based on
our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements
assessment that O.A.K. Financial Corporation and Subsidiaries maintained effective
internal control over financial reporting as of December 31, 2005, is fairly stated,
in all material respects, based on COSO criteria. Also in our opinion, O.A.K. Financial
Corporation and Subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005 based on the COSO criteria.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of O.A.K. Financial Corporation and Subsidiaries as of
December 31, 2005 and 2004 and the related consolidated statements of income,
shareholders equity and cash flows for each of the three years in the period ended
December 31, 2005 and our report dated February 17, 2006, expressed an unqualified opinion
thereon.

/s/ Plante & Moran, PLLC

February 17, 2006Grand
Rapids, Michigan

-34-

---



# Report of Independent
Registered Public Accounting Firm

To the Board of Directors
and StockholdersO.A.K. Financial Corporation and Subsidiaries

We have audited the accompanying
consolidated balance sheet of O.A.K. Financial Corporation and Subsidiaries as of December
31, 2005 and 2004 and the related consolidated statements of income, comprehensive income,
changes in stockholders equity and cash flows for each of the three years in the
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Corporations management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit 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 O.A.K. Financial Corporation and Subsidiary as of
December 31, 2005 and 2004, and the consolidated results of their operations, and their
cash flows for each of the three years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of O.A.K. Financial Corporation and Subsidiaries internal control over
financial reporting as of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 17, 2006, expressed an unqualified
opinion thereon.

/s/ Plante & Moran, PLLC

Grand Rapids, MichiganFebruary
17, 2006

-35-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS
|------------------------------------------ | ---------------------------
|                                          

|(dollars in thousands, except per share data)            | December 31,
|-------------------------------------------------------- | ------------
|
|Cash and due from banks                                  |             
|Available-for-sale securities                            |             
|Loans held for sale                                      |             
|Total loans                                              |             
|Allowance for loan losses                                |             
|                                                         |             
|Net loans                                                |             
|Accrued interest receivable                              |             
|Premises and equipment, net                              |             
|Restricted investments                                   |             
|Other assets                                             |             
|                                                         |             
|Total assets                                             |             
|                                                         |             
|LIABILITIES AND STOCKHOLDERS' EQUITY                     |             
|Deposits                                                 |             
|Non-interest bearing                                     |             
|Interest bearing                                         |             
|                                                         |             
|Total deposits                                           |             
|Securities sold under agreements to repurchase           |             
|Federal funds purchased                                  |             
|FHLB advances                                            |             
|Other borrowed funds                                     |             
|Other liabilities                                        |             
|                                                         |             
|Total liabilities                                        |             
|Stockholders' equity                                     |             
|Common stock, $1 par value; 4,000,000 shares authorized, |             
|shares issued and outstanding: 2,234,536 at December 31, |             
|2005 and 2,034,691 at December 31, 2004                  |             
|Additional paid-in capital                               |             
|Retained earnings                                        |             
|Accumulated other comprehensive income                   |             
|                                                         |             
|Total stockholders' equity                               |             
|                                                         |             
|Total liabilities and stockholders' equity               |             
|                                                         |             

The accompanying notes are an
integral part of these consolidated financial statements.

-36-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATEMENTS  OF INCOME
|------------------------------------------ | ----------------------------------
|                                          

|(dollars in thousands, except earnings per share)  | Year Ended December 31,
|-------------------------------------------------- | -----------------------
|
|Interest income                                    |                        
|Interest and fees on loans                         |                        
|Available-for-sale securities                      |                        
|Restricted investments                             |                        
|Other                                              |                        
|                                                   |                        
|Total interest income                              |                        
|                                                   |                        
|Interest expense                                   |                        
|Deposits                                           |                        
|Borrowed funds                                     |                        
|Securities sold under agreements to repurchase     |                        
|                                                   |                        
|Total interest expense                             |                        
|                                                   |                        
|Net interest income                                |                        
|                                                   |                        
|Provision for loan losses                          |                        
|                                                   |                        
|Net interest income after provision for            |                        
|loan losses                                        |                        
|                                                   |                        
|Non-interest income                                |                        
|Service charges on deposit accounts                |                        
|Mortgage banking                                   |                        
|Net gain on sales of available for sale securities |                        
|Insurance premiums & brokerage fees                |                        
|Other                                              |                        
|                                                   |                        
|Total non-interest income                          |                        
|                                                   |                        
|Non-interest expenses                              |                        
|Salaries                                           |                        
|Employee benefits                                  |                        
|Occupancy (net)                                    |                        
|Furniture and fixtures                             |                        
|Other                                              |                        
|                                                   |                        
|Total non-interest expenses                        |                        
|                                                   |                        
|Income before federal income taxes                 |                        
|                                                   |                        
|Federal income taxes                               |                        
|                                                   |                        
|Net income                                         |                        
|                                                   |                        
|Income per common share: *                         |                        
|Basic                                              |                        
|Diluted                                            |                        

* Per share data has been adjusted to
reflect a 10% stock dividend on May 31, 2005.

The accompanying notes are an
integral part of these consolidated financial statements.

-37-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS EQUITY
|------------------------------------------ | ----------------------------------------------------------
|                                          

|(in thousands)                                | Year Ended December 31,
|--------------------------------------------- | -----------------------
|
|Shares of common stock issued and outstanding |                        
|Balance, beginning of year                    |                        
|Stock dividend                                |                        
|Redemption of unallocated ESOP shares         |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Common stock                                  |                        
|Balance, beginning of year                    |                        
|Stock dividend                                |                        
|Redemption of unallocated ESOP shares         |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Additional paid-in-capital                    |                        
|Balance, beginning of year                    |                        
|Stock dividend                                |                        
|Redemption of ESOP shares                     |                        
|Allocation of ESOP shares                     |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Retained earnings                             |                        
|Balance, beginning of year                    |                        
|Net income                                    |                        
|Stock dividend                                |                        
|Cash dividends declared                       |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Accumulated other comprehensive income        |                        
|Balance, beginning of year                    |                        
|Other comprehensive (loss) income             |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Unallocated common stock held by ESOP         |                        
|Balance, beginning of year                    |                        
|Redemption of unallocated ESOP shares         |                        
|Allocation of ESOP shares                     |                        
|                                              |                        
|Balance, end of year                          |                        
|                                              |                        
|Total stockholders' equity                    |                        
|                                              |                        

The accompanying notes are an
integral part of these consolidated financial statements.

-38-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF
CASH FLOWS
|------------------------------------------ | -------------------------------------
|                                          

|(dollars in thousands)                                      | Year Ended December 31,
|----------------------------------------------------------- | -----------------------
|
|Cash flows from operating activities                        |                        
|Net income                                                  |                        
|Adjustments to reconcile net income to net                  |                        
|cash provided by operating activities                       |                        
|Depreciation and amortization                               |                        
|Provision for loan losses                                   |                        
|Proceeds from sales of loans held for sale                  |                        
|Originations of loans held for sale                         |                        
|Net loss (gain) on sales of available-for-sale securities   |                        
|Net gain on sales of loans held for sale                    |                        
|Net amortization of investment premiums                     |                        
|Net loss (gain) on sales of property and equipment          |                        
|Deferred federal income taxes                               |                        
|Changes in operating assets and liabilities,                |                        
|which (used) provided cash                                  |                        
|Accrued interest receivable                                 |                        
|Stock dividends received from
       restricted investments |                        
|Other assets                                                |                        
|Other liabilities                                           |                        
|                                                            |                        
|Net cash provided by operating activities                   |                        
|                                                            |                        
|Cash flows from investing activities                        |                        
|Available-for-sale securities                               |                        
|Proceeds from maturities                                    |                        
|Proceeds from sales                                         |                        
|Purchases                                                   |                        
|Net (increase) decrease in loans held for investment        |                        
|Purchases of premises and equipment                         |                        
|Proceeds from the sale of premises and equipment            |                        
|                                                            |                        
|Net cash used in investing activities                       |                        
|                                                            |                        
|Cash flows from financing activities                        |                        
|Net increase (decrease) in deposits                         |                        
|Net increase in TT&L note                                   |                        
|Proceeds from FHLB borrowings                               |                        
|Repayments of FHLB borrowings                               |                        
|Net increase (decrease) in fed funds purchased              |                        
|Net decrease in securities sold under agreements            |                        
|to repurchase                                               |                        
|Dividends paid                                              |                        
|Redemption of ESOP shares                                   |                        
|                                                            |                        
|Net cash (used in) provided by financing activities         |                        
|                                                            |                        
|Net increase (decrease) in cash and cash equivalents        |                        
|Cash and cash equivalents, beginning of year                |                        
|                                                            |                        
|Cash and cash equivalents, end of year                      |                        
|                                                            |                        
|Supplementary cash flows information                        |                        
|Interest paid                                               |                        
|Income taxes paid                                           |                        
|Non-cash activities                                         |                        
|Loans transferred to other real estate                      |                        

The accompanying notes are an
integral part of these consolidated financial statements.

-39-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

OAK
Financial Corporation (the Corporation) and its subsidiaries provide a variety
of financial services typically provided in the commercial banking industry. The
Corporation is a Bank Holding Company and owns the stock of Byron Bank (the
Bank). The Banks activities cover traditional phases of commercial
banking, including checking and savings accounts, commercial lending, direct consumer
financing, and mortgage lending. The Bank also provides mutual fund products, securities
brokerage services, retirement planning services, investment management and advisory
services, as well as property and casualty, life, disability and long-term care insurance
products through two subsidiary companies, Byron Investment Services and Byron Insurance
Agency. The principal markets are suburban communities south and west of Grand Rapids in
Kent, Ottawa and Allegan counties. The economies of these communities are relatively
stable and reasonably diversified. The banks primary competitors include both large
and local financial institutions. The Bank is chartered by State and is a member of the
Federal Reserve Bank (FRB). The Bank is subject to the regulations and
supervision of the FDIC, the FRB and the Michigan Office of Financial and Insurance
Services (OFIS) and undergoes periodic examinations by these regulatory
authorities.

The
accounting and reporting policies and practices of the Corporation conform with accounting
principles generally accepted in the United States of America and prevailing practices
within the banking industry. We have certain critical accounting policies, including
accounting for the allowance for loan losses, the valuation of originated mortgage
servicing rights, and the valuation of deferred tax assets, that require us to make
material estimates and assumptions that are particularly susceptible to changes in the
near term as we prepare the consolidated financial statements and report amounts for each
of these items. The fair value of financial instruments is also particularly sensitive to
estimates and assumption. Actual results may vary from these estimates.

Principles
of Consolidation:The consolidated financial statements
include the accounts of the Corporation, and its subsidiaries. The income, expense, assets
and liabilities of the subsidiaries are included in the respective accounts of the
consolidated financial statements, after elimination of all material intercompany
transactions and accounts.

Statement
of Cash Flows:For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, demand deposits with other financial institutions, and federal funds
sold. We report net cash flows for customer loan and deposit transactions.

Securities:Securities can be classified as trading, held to maturity, or available for sale. The
bank does not have any securities that have been classified as trading or held to
maturity. Securities available-for-sale consists of those securities, which might be sold
prior to maturity due to changes in interest rates, prepayment risks, yield and
availability of alternative investments, liquidity needs or other factors. Securities
classified as available for sale are reported at fair value with unrealized gains or
losses reported in other comprehensive income, net of tax. Declines in the fair value of
securities below cost that are determined to be other than temporary are reflected in
earnings as realized losses. In estimating other-than-temporary impairment losses,
management considers the length of time and the extent to which the fair value has been
less than cost, the financial condition and near-term prospects of the issuer and the
intent and ability of the Corporation to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair value. Gains or losses on
the sale of available-for-sale securities are determined using the specific identification
method. Premiums and discounts are recognized in interest income using the level yield
method over the period to maturity.

-40-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 1.  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans:Loans are reported at their outstanding unpaid principal balances adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or costs on originated
loans. Interest on loans is accrued over the term of the loan based on the principal
amount outstanding. The accrual of interest income is discontinued when a loan becomes 90
days past due and the borrowers capacity to repay the loan and collateral values
appear insufficient. When the accrual of interest is discontinued, all uncollected accrued
interest is reversed. A non-accrual loan may be restored to accrual status when interest
and principal payments are current and the loan appears otherwise collectible. For
impaired loans not classified as non-accrual, interest income continues to be accrued over
the term of the loan based on the principal amount outstanding. Loan origination fees, net
of certain direct loan origination costs, are deferred and recognized as an adjustment of
the related loan yield using the interest method.

The
Corporation grants commercial real estate, residential real estate, commercial, and
consumer loans to customers. A substantial portion of the loan portfolio is represented by
commercial real estate loans throughout West Michigan. The ability of the
Corporations debtors to honor their contracts is dependant upon the real estate and
general economic conditions in this area.

Allowance
for Loan Losses:Some loans will not be repaid in full. Therefore, an allowance
for loan losses is maintained at a level, which represents our best estimate of losses
incurred. In determining the allowance and the related provision for loan losses, we
consider four principal elements: (i) specific allocations based upon probable losses
identified during the review of the loan portfolio, (ii) allocations established for other
adversely rated loans, (iii) allocations based on historical loan loss experience, and
(iv) additional allowances based on subjective factors, including local and general
economic business factors and trends, portfolio concentrations and changes in the size
and/or the general terms of the loan portfolios. Increases in the allowance are recorded
by a provision for loan losses charged to expense. Although we periodically allocate
portions of the allowance to specific loans and loan portfolios, the entire allowance is
available for any losses, which occur. Collection efforts continue and recoveries may
occur after a loan is charged against the allowance.

This
evaluation is inherently subjective, and as such, requires estimates that are susceptible
to significant revision as additional information becomes available. 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 full payment under the loan or lease terms is not
expected. Impairment is evaluated by assessing payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans are
evaluated for impairment when payments are delayed, typically 90 days or more, or when the
internal grading system indicates a doubtful classification. Impairment of commercial and
construction loans is measured on a loan by loan basis using 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 smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Bank does not separately identify individual consumer and
residential loans for impairment disclosures.

Loans
Held for Sale:Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized in a valuation allowance by charges to income.

Premises
and Equipment: Land is carried at cost. Premises and equipment are stated
at cost less accumulated depreciation. Depreciation is computed using both the
straight-line and accelerated methods over the useful lives of the respective assets.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized. These assets are reviewed for
impairment.

-41-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 1.  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

Servicing:Mortgage servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing rights are
reported in other assets and are amortized into non-interest income in proportion to, and
over the period of, the estimated future net servicing income of the underlying financial
assets. Servicing assets are evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Impairment is determined by stratifying rights by
predominant characteristics, such as interest rates and terms. Fair value is determined
using prices of similar assets with similar characteristics, when available, or based upon
discounted cash flows using market-based assumptions. Impairment is recognized through a
valuation allowance.

Income
Taxes:Income tax expense is the sum of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequence of temporary differences between the
carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized. The Corporation and its subsidiary file a consolidated federal
income tax return on a calendar year basis.

Off
Balance Sheet Instruments: In the ordinary course of business, the Bank has
entered into commitments to extend credit, including commitments under credit card
arrangements, commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded when they are funded.

Repurchase
Agreements: Repurchase agreement liabilities represent amounts advanced by
customers. Securities are pledged to cover these liabilities, which are not covered by
federal deposit insurance.

Fair
Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully disclosed
separately. Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates. The fair value estimates of existing
on  and off-balance sheet financial instruments do not include the value of
anticipated future business or the values of assets and liabilities not considered
financial instruments.

Earnings
Per Share: Basic earnings per share is net income divided by the weighted
average number of common shares outstanding during the period. Diluted earnings per common
share includes the dilutive effect of additional potential common shares that could be
issued under the stock option plan.

Comprehensive
Income:Comprehensive income consists of net income and other
comprehensive income, which includes the unrealized gains and losses on available-for-sale
securities. The unrealized gains and losses on available-for-sale securities are reported
as a separate component of the equity section of the balance sheet, net of tax.

Contingencies:
Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an
amount or range of loss can be reasonably estimated. Management does not believe there are
any such matters that will have a material effect on the financial statements.

Stock
Compensation Plans:The Corporation accounts for stock option plans using the
intrinsic value based method. No compensation cost related to stock options was recognized
during 2005, 2004 or 2003, as all options granted had an exercise price equal to or
greater than the market price of the underlying common stock at the date of the grant. Had
compensation cost for stock options been measured using the fair value method, net income
and basic and diluted earnings per share would have been the pro forma amounts indicated
below (dollars in thousands except per share data).

-42-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

|(dollars in thousands)                                           | 2005 | 2004          | 2003
|---------------------------------------------------------------- | ---- | ------------- | ----
|Net Income as reported                                           |      | $      6,058  |     
|Stock based compensation credit (expense)                        |     
|determined under fair value method, net of    related tax effect |      | (10           | )   
|Pro-forma net income                                             |      | $      6,048  |     
|Basic earnings per share as reported                             |      | $        2.71 |     
|Pro-forma basic earnings per share                               |      | $        2.71 |     
|Diluted earnings per share as reported                           |      | $        2.71 |     
|Pro-forma diluted earnings per share                             |      | $        2.71 |     

The
fair value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average assumptions:

|                                                 | 2005 | 2004    | 2003
|------------------------------------------------ | ---- | ------- | ----
|Dividend yield                                   |      | 1.57    | %   
|Expected life                                    |      | 9 year  | s   
|Expected volatility                              |      | 10.88   | %   
|Risk-free interest rate                          |      | 4.00    | %   
|Weighted-average fair value per share of options |     
|granted during the year                          |      | $  8.93 |     

Segment
Reporting: While management monitors the revenue streams of various
products and services offered, operations are managed and financial performance is
evaluated on a company wide basis. Accordingly, all of the Corporations operations
are considered by management to be aggregated in one reportable operating segment.

Restricted
Investments:The Bank is a member of the Federal Home Loan Bank System and is
required to invest in capital stock of the Federal Home Loan Bank of Indianapolis
(FHLB). The amount of the required investment is determined and adjusted
annually by the FHLB. The investment is carried at cost plus the value assigned to stock
dividends.

The
Bank is also a member of the Federal Reserve Bank System. The amount of the required
investment is determined by the FRB at the time the Bank becomes a member. The amount of
the investment may be adjusted thereafter and is carried at cost.

Recent
Pronouncements:In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123(R), Accounting for Stock-Based Compensation
(SFAS 123R). SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized as expense in the income
statement based on their fair values. Prior to SFAS 123R, only certain pro forma
disclosures of fair value were required. The amount of compensation is measured at the
fair value of the options when granted, and this cost is expensed over the required
service period, which is normally the vesting period of the options. SFAS 123R will apply
to awards granted or modified after January 1, 2006. Compensation cost will also be
recorded for prior option grants that vest after the date of adoption. The future effect
of the adoption of the new accounting principle on results of operations will depend on
the level of future option grants, the vesting period for those grants, and the fair value
of the options granted at such future date. As of December 31, 2005, there are no existing
options that are scheduled to vest after the adoption date, which would be expected to
result in additional compensation expense.

Reclassifications:Certain amounts in the 2004 and 2003 consolidated financial statements have been
reclassified to conform with the 2005 presentation.

-43-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 2. COMPREHENSIVE
INCOME (in thousands)

The
components of comprehensive income and related tax effects for the year ended December
31, are as follows:

|                                         | 2005 | 2004    | 2003
|---------------------------------------- | ---- | ------- | ----
|Unrealized losses on available-for-sale  |      |         |     
|securities arising during the year       |      | ($1,656 | )   
|Reclassification adjustment for realized |     
|(losses) gains included in net income    |      | (4      | )   
|                                         |      |         |     
|Other comprehensive loss                 |     
|before income taxes                      |      | (1,652  | )   
|Income taxes related to                  |     
|other comprehensive income               |      | (562    | )   
|                                         |      |         |     
|Other comprehensive loss                 |      | (1,090  | )   
|Net income                               |      | 6,058   |     
|                                         |      |         |     
|Comprehensive income                     |      | $ 4,968 |     
|                                         |      |         |     

# NOTE 3. RESTRICTIONS ON
CASH AND AMOUNTS DUE FROM BANKS

The
Bank is required to deposit certain amounts with the Federal Reserve Bank. These
reserve balances vary depending upon the level of certain customer deposits in the
Bank. At December 31, 2005 and 2004, those required reserve balances were $940,000
and $717,000, respectively.

# NOTE 4.
 AVAILABLE-FOR-SALE SECURITIES (in thousands)

The
amortized cost, gross unrealized gains, gross unrealized losses and fair value of
investment securities, all of which are classified as available-for-sale as of
December 31, are as follows:

|                                  | Amortized  Cost | Gross   
Unrealized Gains | Gross
Unrealized Losses | FairValue
|--------------------------------- | --------------- | ------------------------- | ----------------------- | ---------
|2005                              |                 |                           |                         |          
|U S government securities         |                 | $  22,096                 |                         | $       1
|Mortgage-backed securities        |                 | 26,390                    |                         | 118      
|States and political subdivisions |                 | 51,332                    |                         | 469      
|Other                             |                 | 3,538                     |                         | -        
|                                  |                 |                           |                         |          
|Total                             |                 | $103,356                  |                         | $   588  
|                                  |                 |                           |                         |          
|2004                              |                
|U S government securities         |                 | $  18,782                 |                         | $     25 
|Mortgage-backed securities        |                 | 32,629                    |                         | 255      
|States and political subdivisions |                 | 42,870                    |                         | 972      
|Other                             |                 | 4,633                     |                         | 9        
|                                  |                 |                           |                         |          
|Total                             |                 | $  98,914                 |                         | $1,261   
|                                  |                 |                           |                         |          

-44-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

Investment
securities with carrying values of approximately $32.3 million and $79.1 million at
December 31, 2005 and 2004, respectively, were pledged to secure borrowing arrangements
disclosed in notes 9 and 10 or for other purposes as required or permitted by law.

The
amortized cost and fair value of available-for-sale securities by contractual maturity at
December 31, 2005 is 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.

|                                       | Amortized Cost | FairValue
|-------------------------------------- | -------------- | ---------
|Due in one year or less                |                | $  10,153
|Due after one year through five years  |                | 55,140   
|Due after five years through ten years |                | 11,673   
|Due after ten years                    |                | -        
|                                       |                |          
|Subtotal                               |                | 76,966   
|Mortgage-backed securities             |                | 26,390   
|                                       |                |          
|Total                                  |                | $103,356 
|                                       |                |          

The
gross gains and gross losses realized on sales for the years ended December 31 are as
follows:

|                              | 2005 | 2004 | 2003
|----------------------------- | ---- | ---- | ----
|Gross realized gains          |      | $ 57 |     
|Gross realized losses         |      | (61  | )   
|                              |      |      |     
|Net realized gain on sales of |     
|available-for-sale securities |      | ($ 4 | )   
|                              |      |      |     

The
unrealized losses shown in the following table resulted primarily from an increase in
market rates across the yield curve. The issuers of the bonds are of high quality and the
fair value is expected to recover as the bonds approach the maturity date. The Bank has
the intent and ability to hold the bonds for foreseeable future and therefore the
unrealized losses on securities are considered temporary and have not been recognized into
income.

|December 31, 2005                 | Less than 12 months | 12 months or longer | Total
|--------------------------------- | ------------------- | ------------------- | -----
|
|U S government securities         |                     | $14,367             |      
|Mortgage-backed securities        |                     | 7,768               |      
|States and political subdivisions |                     | 19,364              |      
|Other                             |                     | 985                 |      
|                                  |                     |                     |      
|                                  |                     | $42,484             |      

|December 31, 2004                 | Less than 12 months | 12 months or longer | Total
|--------------------------------- | ------------------- | ------------------- | -----
|
|U S government securities         |                     | $  8,161            |      
|Mortgage-backed securities        |                     | 17,121              |      
|States and political subdivisions |                     | 17,034              |      
|Other                             |                     | 3,604               |      
|                                  |                     |                     |      
|                                  |                     | $45,920             |      

-45-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 5.  LOANS AND
ALLOWANCE FOR LOAN LOSSES (in thousands)

Major loan classifications at
December 31, are as follows:

|                        | 2005 | 2004    
|----------------------- | ---- | --------
|Commercial real estate  |      | $259,886
|Residential real estate |      | 86,638  
|Commercial              |      | 87,440  
|Consumer                |      | 19,915  
|                        |      |         
|Total loans             |      | $453,879
|                        |      |         

The following is an analysis of
changes in the allowance for loan losses for the years ended December 31:

|                           | 2005 | 2004    | 2003
|-------------------------- | ---- | ------- | ----
|Balance, beginning of year |      | $ 6,846 |     
|Provision for loan losses  |      | 480     |     
|Recoveries                 |      | 284     |     
|Loans charged off          |      | (450    | )   
|                           |      |         |     
|Balance, end of year       |      | $ 7,160 |     
|                           |      |         |     

The following is a summary of
information pertaining to impaired loans as of December 31:

|                                              | 2005 | 2004     
|--------------------------------------------- | ---- | ---------
|Impaired loans without a valuation allowance  |      | $  6,672 
|Impaired loans with a valuation allowance     |      | 4,436    
|                                              |      |          
|Total impaired loans                          |      | 11,108   
|Valuation allowance related to impaired loans |      | $  2,036 
|Total non-accrual loans                       |      | $  1,178 
|Total loans past due ninety days or more and  |     
|still accruing                                |      | $     374

The following is a summary of information
pertaining to impaired loans for the years ended December 31:

|                                                             | 2005 | 2004     | 2003
|------------------------------------------------------------ | ---- | -------- | ----
|Average investment in impaired loans                         |      | $12,434  |     
|Interest income recognized on impaired loans                 |      | $  1,034 |     
|Interest income recognized on a cash basis on impaired loans |      | -        |     

No additional funds are committed to
be advanced in connection with impaired loans.

-46-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 6. PREMISES AND
EQUIPMENT (in thousands)

A summary of premises and equipment
at December 31 follows:

|                              |  |         
|----------------------------- |  | --------
|Land and land improvements    |  | $  3,461
|Building and improvements     |  | 13,396  
|Furniture and equipment       |  | 7,447   
|                              |  |         
|Total premises and equipment  |  | 24,304  
|Less accumulated depreciation |  | 9,587   
|                              |  |         
|Premises and equipment, net   |  | $14,717 
|                              |  |         

Depreciation expense was $1.0
million, $1.1 million and $1.1 million for each of the years ending December 31, 2005,
2004 and 2003.

# NOTE 7. SERVICING (in
thousands)

Mortgage
servicing rights (MSRs) reflect the present value of the future income stream
attained from mortgage servicing fees, ancillary income from processing mortgage related
payments, delinquency effects and overnight income of processing (float). The
value is the sum of the present value of these future income streams, which is impacted by
assumptions on prepayment or decay rates, mortgage classifications and the applied
discount rate.

The
process is to classify the serviced mortgages into groups based on maturity, payment
terms, seasoning and interest rate. The result is a series of mortgage pools with
homogeneous characteristics, which are then subjected to appropriate prepayment speeds to
derive a future stream of expected cash flows for each pool. The current industry accepted
rate is used to discount the future cash flows. The sum of the present value of each pool
is the mortgage servicing portion of the valuation. The Bank employs an independent third
party to determine the fair value of the mortgage servicing rights.

Loans
serviced for others are not included on the accompanying consolidated balance sheets. The
unpaid principal balances of mortgage and other loans serviced for others were $205
million and $240 millionat December 31, 2005 and 2004, respectively.

The
balance of capitalized servicing rights, net of valuation allowance, included in other
assets at December 31, 2005 and 2004, was $1.8 million and $2.2 million respectively. The
fair value of these rights was $2.0 million and $2.4 million, respectively. The fair value
of servicing rights was determined using an average discount rate of 8.46 percent and
prepayment speeds ranging from 5.0 percent to 42.1 percent.

The
following table summarizes the mortgage servicing rights capitalized and amortized, along
with the aggregate activity in related valuation allowances:

|                                      | 2005 | 2004   | 2003
|------------------------------------- | ---- | ------ | ----
|Mortgage servicing rights capitalized |      | $  17  |     
|Mortgage servicing rights amortized   |      | $435   |     
|Valuation Allowances:                 |     
|Balance at beginning or year          |      | -      |     
|Net change in valuation allowance     |      | -      |     
|                                      |      |        |     
|Balance at end of year                |      | $    - |     
|                                      |      |        |     

-47-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 8. DEPOSITS
(dollars in thousands)

Deposits at year-end were as follows:

|                                    | 2005 | 2004     
|----------------------------------- | ---- | ---------
|Noninterest-bearing demand          |      | $  68,445
|Interest-bearing checking           |      | 120,722  
|Money market and savings            |      | 84,445   
|Time deposits less than $100,000    |      | 81,329   
|Time deposits greater than $100,000 |      | 132,956  
|                                    |      |          
|Total deposits                      |      | $487,897 
|                                    |      |          

At December 31, 2005, scheduled
maturities of certificates of deposit are as follows:

|                    | 
|------------------- | 
|2006                | 
|2007                | 
|2008                | 
|2009                | 
|2010                | 
|2011                | 
|                    | 
|Total time deposits | 
|                    | 

Brokered deposits, which are included
in certificates of deposit, over $100,000 totaled approximately $75.2 million and $51.0
million at December 31, 2005 and 2004.

# NOTE 9. SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE

Securities
sold under agreements to repurchase at December 31, 2005 and 2004 mature
within one day from the transaction date and have an average interest
rate of 0.74 percent and 0.73 percent, respectively. The U.S. government agency
securities underlying the agreements have a carrying value and a fair value of
approximately $12.1 million and $64.2 million at December 31, 2005 and 2004,
respectively. Such securities remain under the control of the Bank.

The
maximum amount of repurchase borrowings outstanding at any month end during the years
ended December 31, 2005 and 2004 was $24.4 million and $55.6 million,
respectively; the daily average balance was $7.5 million and $44.6 million, respectively.

# NOTE 10. FEDERAL HOME
LOAN ADVANCES

Each
advance is payable at its maturity date, and is subject to a prepayment fee if paid prior
to the maturity date. Advances with put options held by the Federal Home Loan Bank
amounted to $16.8 million at December 31, 2005 and 2004. At December 31, 2005, the Federal
Home Loan Bank borrowings were collateralized by a blanket lien on all qualified 1 to 4
family residential mortgage loans and U.S. government agency securities with a carrying
value of approximately $15.6 million. At December 31, 2004, the Federal Home Loan Bank
borrowings were collateralized by specific 1 to 4 family residential mortgage loans with a
carrying value of approximately $38.2 million and U.S. government agency securities with a
carrying value of approximately $9.5 million. The average interest rate was 5.70 percent
and 5.39 percent, for 2005 and 2004, respectively.

-48-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

The Federal Home Loan Bank advances
at December 31, 2005 and their contractual maturities are as follows:

|(in thousands) | Balance | Rates  
|-------------- | ------- | -------
|Due in 2006    |         | 3,563  
|Due in 2007    |         | 2,664  
|Due in 2008    |         | 4,773  
|Due in 2010    |         | 16,800 
|               |         |        
|               |         | $27,800
|               |         |        

# NOTE 11. FEDERAL INCOME
TAXES (in thousands)

The provision for federal income
taxes for the years ended December 31 consists of:

|                           | 2005 | 2004    | 2003
|-------------------------- | ---- | ------- | ----
|Current                    |      | $ 2,843 |     
|Deferred expense (benefit) |      | (365    | )   
|                           |      |         |     
|Federal income tax expense |      | $ 2,478 |     
|                           |      |         |     

A reconciliation between federal income
tax expense and the amount computed by applying the statutory federal income tax rate of
34 percent to income before taxes for the years ended December 31, is as follows:

|                                     | 2005 | 2004    | 2003
|------------------------------------ | ---- | ------- | ----
|Statutory rate applied to income     |      |         |     
|before income taxes                  |      | $ 2,902 |     
|Effect of tax-exempt interest income |      | (404    | )   
|Other - net                          |      | (20     | )   
|                                     |      |         |     
|Federal income tax expense           |      | $ 2,478 |     
|                                     |      |         |     

The net deferred income tax asset
recorded includes the following amounts of deferred tax assets and liabilities:

|                                                 | 2005 | 2004   
|------------------------------------------------ | ---- | -------
|Deferred tax assets                              |      |        
|Allowance for loan losses                        |      | $ 2,434
|Deferred compensation plan                       |      | 384    
|Deferred loan fees                               |      | 95     
|Non-accrual interest                             |      | 46     
|Unrealized loss on securities available for sale |      | 270    
|Other                                            |      | 5      
|                                                 |      |        
|Total deferred tax assets                        |      | 3,234  
|Deferred tax liabilities                         |     
|Depreciation                                     |      | (419   
|Discount accretion                               |      | (47    
|Unrealized gain on securities available for sale |      | -      
|Loan servicing rights                            |      | (613   
|Other                                            |      | (117   
|                                                 |      |        
|Total deferred tax liabilities                   |      | (1,196 
|Net deferred tax asset                           |      | $ 2,038
|                                                 |      |        

-49-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 12. RELATED PARTY
TRANSACTIONS

Certain
directors, executive officers and their related interests were loan customers of the Bank.
All such loans were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions and do not
represent more than a normal risk of collectibility or present other unfavorable features.
The total loans outstanding to these customers aggregated approximately $485,000 and
$431,000 at December 31, 2005 and 2004, respectively. New loans and repayments during 2005
were approximately $188,000 and $134,000, respectively.

# NOTE 13.  OFF-BALANCE
SHEET ACTIVITIES (in thousands)

The
Bank 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 sheets.
The Bank follows the same credit policy to make such commitments, including collateral as
is followed for those loans recorded in the consolidated financial statements; no
significant losses are anticipated as a result of these commitments.

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

At
December 31, 2005 and 2004, the following financial instruments were outstanding whose
contract amounts represent credit risk:

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

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The commitments for
equity lines of credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements. The amount of
collateral obtained, if it is deemed necessary by the Bank, 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 usually do not contain a specified maturity
date and may not be drawn upon to the total extent to which the Bank is committed; a
portion are unsecured.

Commercial
and standby letters-of-credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those letters-of-credit are primarily
issued to support public and private borrowing arrangements. Essentially all letters of
credit issued have expiration dates within one year. The credit risk involved in issuing
letters-of-credit is essentially the same as that involved in extending loan facilities to
customers. The Bank generally holds collateral supporting those commitments if deemed
necessary.

-50-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 14. REGULATORY
MATTERS (dollars in thousands)

The
Corporation (on a consolidated basis) and the Bank are subject to various regulatory
capital requirements administered by its primary regulator, the FRB. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by the FRB 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
their assets, liabilities, capital and certain off-balance-sheet items as defined in the
regulations and 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
measurements 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 capital and Tier 1 capital to risk weighted assets and Tier 1 capital to average
assets. Management believes, as of December 31, 2005, that the Corporation and
the Bank meet all capital adequacy requirements to which they are subject. As of December
31, 2005 the most recent notification from the FRB categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the following table. There are no conditions or
events since the most recent notification that management believes has changed the
Banks category.

The
Corporations and the Banks actual capital amounts and ratios as of
December 31, 2005 and 2004 are also presented in the table below:

|                                         | Actual | Minimum CapitalRequirement | Minimum to be well
 Capitalized Under
 Prompt CorrectiveAction Provisions
|---------------------------------------- | ------ | -------------------------- | -------------------------------------------------------------------------
|
|As of December 31, 2005                  |        |                            |                                                                          
|Total capital (to risk weighted assets)  |       
|Consolidated                             |        | $67,241                    |                                                                          
|Bank                                     |        | $65,515                    |                                                                          
|Tier 1 capital (to risk weighted assets) |       
|Consolidated                             |        | $60,853                    |                                                                          
|Bank                                     |        | $59,127                    |                                                                          
|Tier 1 capital (to average assets)       |       
|Consolidated                             |        | $60,853                    |                                                                          
|Bank                                     |        | $59,127                    |                                                                          
|As of December 31, 2004                  |       
|Total capital (to risk weighted assets)  |       
|Consolidated                             |        | $62,141                    |                                                                          
|Bank                                     |        | $60,842                    |                                                                          
|Tier 1 capital (to risk weighted assets) |       
|Consolidated                             |        | $56,475                    |                                                                          
|Bank                                     |        | $55,176                    |                                                                          
|Tier 1 capital (to average assets)       |       
|Consolidated                             |        | $56,475                    |                                                                          
|Bank                                     |        | $55,176                    |                                                                          

-51-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

The
Bank is also subject to limitations under the Federal Reserve Act on the amount of loans
or advances that can be extended to the Corporation and dividends that can be paid to the
Corporation. Loans or advances are limited to 10 percent of the Banks capital stock
and surplus on a secured basis. Generally, approval is needed if total dividends declared
in any calendar year exceed the retained net profit (as defined in the Federal
Reserve Act) of that year plus the retained net profit of the preceding two
years. In addition, dividends paid by the Bank to the Corporation would be prohibited if
the effect thereof would cause the Banks capital to be reduced below applicable
minimum capital requirements. At January 1, 2006, the corporations subsidiary bank,
without obtaining prior governmental approvals, could declare aggregate dividends of
approximately $6.2 million from retained net profits of the proceeding two years, plus an
amount approximately equal to the net profits (as measured under current regulations), if
any, earned for the period from January 1, 2006 through the date of declaration.

# NOTE 15. EMPLOYEE
BENEFIT PLANS AND POST RETIREMENT BENEFITS

The
Corporation maintains a 401(k) covering substantially all employees. The Corporation
matches employee contributions to the 401(k) up to a maximum of 4.5 percent of
employees eligible wages.

The
Corporation maintained a Profit Sharing Plan covering substantially all employees. The
Corporations contribution to the profit sharing plan was based on defined
performance targets established annually by the board of directors. The Profit Sharing
Plan was terminated as of January 1, 2004, as such, no employer contribution was made in
2004.

The
Corporation maintained an internally leveraged Employee Stock Ownership Plan (ESOP)
covering substantially all employees, which was terminated in the fourth quarter of 2003.
The shares allocated to participants became fully vested as of the termination date.
During 2005, a favorable IRS determination was received, which allowed the assets of the
ESOP to be distributed to the participants. As a result of this distribution, 548 shares
were issued to participants and 3,379 shares were sold to the company. The proceeds, as
elected by the participants, were distributed in the form of cash or deposited to the
participants 401k plan.

The ESOP shares as of December 31,
were as follows:

|                                          | 2005 | 2004   | 2003
|----------------------------------------- | ---- | ------ | ----
|Allocated shares                          |      | 3,570  |     
|Additional shares from 10% stock dividend |      | 357    |     
|Shares repurchased and retired            |      | (3,379 | )   
|Shares issued                             |      | (548   | )   
|                                          |      |        |     
|Total ESOP shares                         |      | -      |     
|                                          |      |        |     

The
total Corporation contributions to the 401(k) match, profit sharing plan and ESOP were
$214,000, $158,000 and $301,000 for 2005, 2004 and 2003, respectively.

The
Bank adopted deferred compensation plans for all directors who wish to participate. The
cost of the plan was $187,000, ($257,000) and ($142,000) in 2005, 2004 and 2003,
respectively. The credit to expense in 2004 reflects an amendment to the plan on February
1, 2004, to change the earnings credit from a fixed rate of 12 percent to an annually
adjusted rate. The rate, which is provided by an independent third party, was 7.7 percent
in 2004 and 7.5 percent in 2005. The credit to expense in 2003 reflects a decrease in the
benefit obligation resulting from the reduction in benefits payable to a former director
as prescribed by the plan. The accrued benefit obligation for this plan was $1,128,000 and
$1,171,000 as of December 31, 2005 and 2004, respectively, and is included in
other liabilities. The cash surrender value value of the plans was $2,039,552 and
$1,896,995 at December 31, 2005 and 2004, respectively. The Bank has purchased life
insurance policies on participating directors.

-52-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 16. STOCK OPTIONS

The
Corporation maintains stock option plans for non-employee directors (the Directors
Plan) and employees and officers of the Corporation and its subsidiary (the
Employees Plan). The stock compensation plans were established in 1999, and
authorize the issue of up to 181,500 options under the Employees Plan and up to
38,500 options under the Directors Plan.

Generally
options under both plans become exercisable after the first anniversary of the award date.
The option exercise price is at least 100 percent of the market value of the common stock
at the grant date. During 2005, 1,500 options were granted and vested at an exercise price
of $42.00 per share. During 2004, 1,100 options were awarded with an exercise price of
$40.91 per share. No options were awarded during 2003.

The following tables summarize
information about stock option transactions:

|                               | 2005 | 2004   | 2003
|------------------------------ | ---- | ------ | ----
|
|Outstanding, beginning of year |      | 31,076 |     
|Granted                        |      | 1,500  |     
|Exercised                      |      | -      |     
|Forfeited/expired              |      | (2,200 | )   
|                               |      |        |     
|Outstanding, end of year       |      | 30,376 |     
|                               |      |        |     
|Exercisable, end of year       |      | 30,376 |     
|                               |      |        |     

|Exercise  Price | Number       
    Outstanding    
 December 31, 2005 | Weighted Average  
     Remaining    
 Contractual Life | Number of       
     Options
   Exercisable     
 December 31, 2005 | Weighted Average

   Exercise Price
  December 31, 2005
|--------------- | ---------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------
|$40.45          |                                                      | 9,891                                                   |                                                                      | 6.1 years                                              
|$40.91          |                                                      | 1,100                                                   |                                                                      | 8.3 years                                              
|$42.00          |                                                      | 1,500                                                   |                                                                      | 9.3 years                                              
|$45.45          |                                                      | 12,274                                                  |                                                                      | 4.3 years                                              
|$50.00          |                                                      | 5,611                                                   |                                                                      | 4.0 years                                              
|                |                                                      |                                                         |                                                                      |                                                        
|Total           |                                                      | 30,376                                                  |                                                                      | 4.8 years                                              
|                |                                                      |                                                         |                                                                      |                                                        

All
options expire 10 years after the date of the grant; 156,891 shares are reserved for
future issuance under the Stock Compensation Plan and 31,900 shares are reserved for
future issuance under the Stock Option Plan for non-employee directors.

-53-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 17.  EARNINGS PER
SHARE (in thousands, except earnings per share)

A
reconciliation of basic and diluted earnings per share for the years ended December 31,
follows:

|                                                                                               | 2005 | 2004    | 2003
|---------------------------------------------------------------------------------------------- | ---- | ------- | ----
|Net income                                                                                     |      | $6,058  |     
|                                                                                               |      |         |     
|Average common shares outstanding                                                              |      | 2,237   |     
|Assumed exercise of dilutive stock options                                                     |      | -       |     
|                                                                                               |      |         |     
|Average common shares outstanding, including the    assumed exercise of dilutive stock options |      | 2,237   |     
|                                                                                               |      |         |     
|Net income per share:                                                                          |     
|Basic                                                                                          |      | $  2.71 |     
|Diluted                                                                                        |      | $  2.71 |     

Note:
Earnings per share data has been adjusted to reflect a 10% stock dividend on May 31, 2005.

# NOTE 18.  FAIR VALUES OF
FINANCIAL INSTRUMENTS (in thousands)

The
carrying amount and estimated fair values of financial instruments at December 31, are as
follows:

|                                                 | 2005 | 2004     
|------------------------------------------------ | ---- | ---------
|
|Financial assets                                 |      |          
|Cash and cash equivalents                        |      | $  12,943
|Available-for-sale securities                    |      | 102,563  
|Loans receivable, net                            |      | 446,719  
|Loans held for sale                              |      | 598      
|Accrued interest receivable                      |      | 3,153    
|Restricted investments                           |      | 3,119    
|Financial liabilities                            |     
|Deposits                                         |      | 487,897  
|FHLB advances and other borrowed funds           |      | 31,369   
|Securities sold under agreements   to repurchase |      | 796      
|Federal funds purchased                          |      | 6,050    

Carrying
amount is the estimated fair value of cash and cash equivalents, accrued interest
receivable and payable, restricted investments, demand deposits, short-term borrowings,
and variable rate loans or deposits that reprice frequently and fully. Security fair
values are based on market prices or dealer quotes, and if no such information is
available, on the rate and term of security and information about the issuer. For fixed
rate loans or deposits and for variable rate loans or deposits with infrequent repricing
or repricing limits, fair value is based on discounted cash flows using current market
rates applied to the estimated life and credit risk. Fair values for impaired loans are
estimated using discounted cash flow analysis or underlying collateral values. Fair value
of loans held for sale is based on market quotes. Fair value of debt is based on current
rates for similar financing.

-54-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# NOTE 19.  OAK FINANCIAL
CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL INFORMATION (in thousands)

The
following summarizes parent company only condensed balance sheets as of December 31, 2005
and 2004 and the related condensed statements of income and cash flows for each of the
three years in the period ended December 31, 2005, 2004 and 2003:

# Condensed Balance
Sheets

|                                           | 2005 | 2004     
|------------------------------------------ | ---- | ---------
|Assets                                     |      |          
|Cash                                       |      | $  1,173 
|Investment in subsidiary                   |      | 58,895   
|Available-for-sale securities              |      | 1,018    
|Other Assets                               |      | 9        
|                                           |      |          
|Total assets                               |      | $61,095  
|                                           |      |          
|Other liabilities                          |      | $     500
|Stockholders' equity                       |      | 60,595   
|                                           |      |          
|Total liabilities and stockholders' equity |      | $61,095  
|                                           |      |          

# Condensed Statements
of Income

|                                            | 2005 | 2004    | 2003
|------------------------------------------- | ---- | ------- | ----
|Income                                      |      |         |     
|Dividends from subsidiary                   |      | $ 2,300 |     
|Interest from available-for-sale securities |      | 35      |     
|Net realized gain on sale of                |     
|available-for-sale securities               |      | -       |     
|                                            |      |         |     
|Total income                                |      | 2,335   |     
|Other expenses                              |      | 276     |     
|                                            |      |         |     
|Income before income taxes and equity in    |     
|undistributed net income of subsidiary      |      | 2,059   |     
|Applicable income tax provision (benefit)   |      | (88     | )   
|                                            |      |         |     
|                                            |      | 2,147   |     
|Equity in undistributed net income of       |     
|subsidiary                                  |      | 3,911   |     
|                                            |      |         |     
|Net income                                  |      | $ 6,058 |     
|                                            |      |         |     

-55-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------ | ------------------------------------------
|                                          

# Condensed Statements
of Cash Flows

|                                              | 2005 | 2004    | 2003
|--------------------------------------------- | ---- | ------- | ----
|Cash flows from operating activities          |      |         |     
|Net income                                    |      | $ 6,058 |     
|Adjustments to reconcile net income           |     
|to net cash provided by operating activities  |     
|Net gain on available-for-sale securities     |      | -       |     
|Undistributed earnings of subsidiary          |      | (3,911  | )   
|Amortization of available-for-sale securities |      | 2       |     
|Changes in other liabilities                  |      | 100     |     
|                                              |      |         |     
|Net cash provided by operating activities     |      | 2,249   |     
|                                              |      |         |     
|Cash flows from investing activities          |     
|Available-for-sale securities                 |     
|Proceeds from sales                           |      | -       |     
|Purchases                                     |      | (537    | )   
|                                              |      |         |     
|Net cash provided by investing activities     |      | (537    | )   
|                                              |      |         |     
|Cash flows from financing activities          |     
|Repayment of long-term debt                   |      | -       |     
|Proceeds from allocation of ESOP              |      | -       |     
|Redemption of ESOP shares                     |      | (142    | )   
|Dividends paid                                |      | (1,488  | )   
|                                              |      |         |     
|Net cash used in financing activities         |      | (1,630  | )   
|                                              |      |         |     
|Net (decrease) increase in cash and cash      |     
|equivalents                                   |      | 82      |     
|Cash and cash equivalents, beginning of year  |      | 1,091   |     
|                                              |      |         |     
|Cash and cash equivalents, end of year        |      | $ 1,173 |     
|                                              |      |         |     

-56-

---



# Item 9.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

| | None
| | ----

# Item 9A Controls and
Procedures

| | (a) | Evaluation
of Disclosure Controls and Procedures.
| | --- | -------------------------------------------------

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

| | (b) | Managements
Report on Internal Control Over Financial Reporting.
| | --- | -----------------------------------------------------------------

The
Corporations management report on internal control over financial reporting is
included in Item 8 on page 30 of this Annual Report and is incorporated herein by
reference. The attestation report of Plante & Moran, PLLC, the Corporations
independent registered public accounting firm, on managements assessment of the
effectiveness of the Corporations internal control over financial reporting is
included in Item 8 on page 31 of this Annual Report and is incorporated herein by
reference.

| | (c) | Changes
in Internal Controls.
| | --- | -----------------------------

During
the fourth quarter ended December 31, 2005, there have been no changes in the
Corporations internal control over financial reporting that have materially affected
or are reasonably likely to materially affect the Corporations internal control over
financial reporting.

# Item 9B Other Information

| | None.
| | -----

# PART III

# Item 10.  Directors and
Executive Officers of the Registrant.

# Directors

The
information with respect to Directors and Nominees of the Registrant, set forth under the
caption Information About Directors and Director Nominees on pages 4 through 6
and under the caption Section 16(a) Beneficial Ownership Reporting Compliance
on page 12 of the Companys definitive proxy statement, as filed with the Commission,
relating to the April 20, 2006 Annual Meeting of Shareholders, is incorporated herein by
reference.

# Audit Committee
Financial Expert

The
Board of Directors of the Corporation has determined that Robert F. Dentzman, a director
and member of the Audit Committee, qualifies as an Audit Committee Financial
Expert as defined in rules adopted by the Securities and Exchange Committee pursuant
to the Sarbanes-Oxley Act of 2002 and is independent, as defined in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.

# Executive Officers

Reference
is made to additional item under Part I of this report on Form 10-K.

-57-

---



# Code of Ethics

The
honesty, integrity and sound judgment of the chief executive officer and senior financial
officers is fundamental to the reputation and success of OAK Financial Corporation. While
all employees, officers, and directors are required to adhere to the OAK Financial
Corporation Code of Ethics, the professional and ethical conduct of the chief executive
officer and senior financial officers is essential to the proper function and success of
OAK Financial Corporation as a leading financial services provider. Executives of OAK
Financial Corporation subject to this Code include the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer, the Controller, and any other officer
performing accounting, auditing, financial management or similar functions. The Code of
Ethics is incorporated by reference as an exhibit to this Report on Form 10-K.

Item 11. Executive
Compensation.

The
information set forth under the caption Summary Executive Compensation Table
and Shareholders Return Performance Graph, on pages 9, 10, 11 and 12 of the
Companys definitive proxy statement, as filed with the Commission, relating to the
April 20, 2006 Annual Meeting of Shareholders, is incorporated herein by reference.
Information under the caption Committee Report on Executive Compensation on
pages 8 and 9 of the definitive proxy statement is not incorporated by reference herein
and is not deemed to be filed with the Securities and Exchange Commission.

# Item 12. Security
Ownership of Certain Beneficial Owners and Management.

The
information set forth under the caption Voting Securities and Principal Holders
Thereof on page 2 of the Companys definitive proxy statement, as filed with
the Commission, relating to the April 20, 2006 Annual Meeting of Shareholders, is
incorporated herein by reference.

Securities
Authorized for Issuance Under Equity Compensation Plans. The Company had the following
equity compensation plans at December 31, 2005:

# EQUITY COMPENSATION
PLAN INFORMATION

|Plan Category                 | Number of securities to
be issued upon exercise of
outstandingoptions | Weighted-average
  exercise price of 
outstandingoptions | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected inthe first column)
|----------------------------- | --------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans     |                                                                       |                                                          |                                                                                                                                                 
|approved by security holders  |                                                                       | 30,376                                                   |                                                                                                                                                 
|Equity compensation plans not |                                                                      
|approved by security holders  |                                                                       | -                                                        |                                                                                                                                                 
|                              |                                                                       |                                                          |                                                                                                                                                 
|Total                         |                                                                       | 30,376                                                   |                                                                                                                                                 

These
equity compensation plans are more fully described in Note 16 to the Consolidated
Financial Statements.

# Item 13. Certain
Relationships and Related Transactions.

The
information set forth under the caption Certain Transactions on page 11 of the
Companys definitive proxy statement, as filed with the Commission, relating to the
April 20, 2006 Annual Meeting of Shareholders, is incorporated herein by reference.

# Item 14.  Principal
Accountant Fees and Services.

The
information set forth under the heading Fees of Independent Accountants on
page 13 of the Companys definitive proxy statement, as filed with the Commission,
relating to the April 20, 2006 Annual Meeting of Shareholders, is incorporated herein
by reference.

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# Item 15. Exhibits and
Financial Statement Schedules.

|(a) | 1. | Financial Statements
|--- | -- | --------------------

| | Independent Auditors' Report
Consolidated Financial Statements
     Consolidated Balance Sheets as of
         December 31, 2005 and 2004
     Consolidated Statements of Income for the Years Ended
         December 31, 2005, 2004 and 2003
     Consolidated Statements of Comprehensive Income for the
         Years Ended December 31, 2005, 2004 and 2003
     Consolidated Statements of Changes in Stockholders' Equity
         for the Years Ended December 31, 2005, 2004 and 2003
     Consolidated Statements of Cash Flows for each of the Years Ended
          December 31, 2005, 2004 and 2003
     Notes to Consolidated Financial Statements
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Financial
Statement Schedules                   Not applicable
| | -- | --------------------------------------------------------------

| | 3. | Exhibits
(Numbered in accordance with Item 601 of Regulation S-K) The Exhibit                Index
is located on the final page of this report on Form 10-K.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 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 10, 2006.

| |  | OAK FINANCIAL CORPORATION/s/ Patrick K. Gill
Patrick K. GillPresident, Chief Executive Officer(Principal Executive Officer)/s/ James A. Luyk
James A. LuyksExecutive Vice President(Chief Financial Officer and Chief Operating Officer)
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Each director of the Registrant, whose signature appears below, hereby appoints
Patrick K. Gill and James A. Luyk, and each of them severally, as his or her
attorney-in-fact, to sign in his or her name and on his or her behalf, as a director of
the Registrant, and to file with the Commission any and all Amendments to this Report on
Form 10-K.

|Signature                                               | Date          
|------------------------------------------------------- | --------------
|/s/ Robert F. Dentzman
Robert F. Dentzman | March 10, 2006

|/s/ Patrick K. Gill
Patrick K. Gill | March 10, 2006
|------------------------------------------------- | --------------

|/s/ Norm J. Fifelski
Norman Fifelski | March 10, 2006
|-------------------------------------------------- | --------------

|/s/ Dellvan J. Hoezee
Dellvan Hoezee | March 10, 2006
|-------------------------------------------------- | --------------

|/s/ Grace O. Shearer
Grace O. Shearer | March 10, 2006
|--------------------------------------------------- | --------------

|/s/ David G. Van Solkema
David  Van Solkema | March 10, 2006
|--------------------------------------------------------- | --------------

|/s/ James B. Meyer
James B. Meyer | March 10, 2006
|----------------------------------------------- | --------------

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---



# EXHIBIT INDEX

The
following exhibits are filed herewith, indexed according to the applicable assigned
number:

ExhibitNumber

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

|24 | Powers
of Attorney.  Contained on the signature page of this report.
|-- | --------------------------------------------------------------------

|31.1 | Certificate
of Chief Executive Officer of OAK Financial  Corporation.  pursuant to 15 U.S.C. Section
7241,          as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Certificate
of Chief Financial Officer of OAK Financial Corporation pursuant to 15 U.S.C. Section
7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

The
following exhibits, indexed according to the applicable assigned number, were previously
filed by the Registrant and are incorporated by reference in this Form 10-K Annual Report.

ExhibitNumber

|3.1 | Articles
of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 of the
Registrants Registration Statement on Form 10, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Amendment
to the Articles of Incorporation of Registrant filed April 28, 1998, increasing
authorized shares of common stock from 2,000,000 to 4,000,000 shares, incorporated by
reference to Exhibit 3 of Registrants Report on Form 10-K for the year ended
December 31, 1998.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | Bylaws
of the Registrant are incorporated by reference to Exhibit 3.1 of the Registrants
Registration Statement on Form 10, as amended.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|4 | Form
of Registrants Stock Certificate are incorporated by reference to Exhibit 3.1 of
the Registrants Registration Statement on Form 10, as amended.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Form
of Employee Stock Options is incorporated by reference to Exhibit 10.1 of Registrants
Report on Form 10-K for the year ended December 31, 2004.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Form
of Non-employee Director Stock Option is incorporated by reference to Exhibit 10.2 of
Registrants Report on Form 10-K for the year ended December 31, 2004.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | 1999
Stock Compensation Plan, incorporated by reference to Appendix A to the Registrants
Definitive Proxy Statement filed with respect to its April 22, 1999 annual meeting of
shareholders.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|10.4 | Nonemployee
Directors Stock Option Plan, incorporated by reference to Appendix A to the
Registrants Definitive Proxy Statement filed with respect to its April 22, 1999
annual meeting of shareholders.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | 1988
Director Deferred Compensation Plan is incorporated by reference to Exhibit 10 of the
Registrants Registration Statement on Form 10, as amended.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Director
Deferred Compensation Plan is incorporated by reference to Exhibit 10 of the Registrants
Report on Form 10-K for the year ended December 31, 2000.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Income
Protection Agreement between Registrant and James Luyk is incorporated by reference to
Exhibit 10 of Registrants Report on Form 10-K for the year ended December 31, 2001.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Employment
Agreement between Byron Center State Bank and Patrick K. Gill is incorporated by
reference to Exhibit 10.1 to the Registrants Report on Form 10-K for the year ended
December 31, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Form
of Indemnity Agreement executed between OAK Financial Corporation and each of Grace O.
Shearer and Robert F. Dentzman is incorporated by reference to Exhibit 10.3 to Registrants
Report on Form 10-K for the year ended December 31, 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14 | Code
of Ethics is incorporated by reference to Exhibit 14 to Registrants Report on Form
10-K for the year ended December 31, 2003.
|-- | -----------------------------------------------------------------------------------------------------------------------------------

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