# UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, 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, 2008

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 or 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, a non-accelerated filer or
a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act.
Large Accelerated Filer    
Accelerated Filer  X  
Non-Accelerated Filer    
Smaller Reporting Company

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
of Common Stock Held by Non-Affiliates as of June 30, 2008: $66,511,900 As of February
19, 2009, there were outstanding 2,703,009 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 16, 2009 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
affiliated 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 14
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 primarily 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.

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. 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.

# 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.

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# Bank Competition

The
Bank has 14 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.
Additional competition comes from internet based financial services companies and other
national banks offering web based services. 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 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:

|Percent of total revenue:           | 2008* | 2007 | 2006
|----------------------------------- | ----- | ---- | ----
|                                    |       |      |     
|                                    |       |      |     
|Net interest revenue                |       |      |     
|Non-interest revenue                |       |      |     
|Insurance premiums & brokerage fees |       |      |     
|Mortgage banking revenue            |       |      |     

*
2008 revenue totals exclude the impairment charge on investment securities.

# Employees

As
of December 31, 2008, the Company and its subsidiaries employed 161 full-time and 92
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 Regulation (OFIR), 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 fund, 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.

# Recent Regulatory
Developments

Emergency
Economic Stabilization Act of 2008.On October 3, 2008, the Emergency
Economic Stabilization Act of 2008 (EESA) was enacted. EESA enables the federal
government, under terms and conditions to be developed by the Secretary of the Treasury,
to insure troubled assets, including mortgage-backed securities, and collect premiums from
participating financial institutions. EESA includes, among other provisions: (a) the
$700 billion Troubled Assets Relief Program (TARP), under which the Secretary of the
Treasury is authorized to purchase, insure, hold, and sell a wide variety of financial
instruments, and (b) an increase in the amount of deposit insurance provided by the
Federal Deposit Insurance Corporation (FDIC). Under the TARP program, the Department of
Treasury authorized a voluntary capital purchase program (CPP) to purchase senior
preferred shares of qualifying financial institutions that elected to participate by
November 14, 2008. Our application to participate in the TARP program was approved,
however after careful consideration we decided not to participate in the program.

Federal
Deposit Insurance Corporation (FDIC).EESA temporarily raised the limit on federal
deposit insurance coverage from $100,000 to $250,000 per depositor. Separate from EESA, in
October 2008, the FDIC also announced the Temporary Liquidity Guarantee Program.
Under one component of this program, the FDIC temporarily provides unlimited coverage for
noninterest bearing transaction deposit accounts through December 31, 2009. The
limits are scheduled to return to $100,000 on January 1, 2010.

Financial
Stability Plan.On February 10, 2009, the Financial Stability Plan (FSP) was
announced by the U.S. Treasury Department. The FSP is a comprehensive set of measures
intended to shore up the financial system. The core elements of the plan include making
bank capital injections, creating a public-private investment fund to buy troubled assets,
establishing guidelines for loan modification programs and expanding the Federal Reserve
lending program. The U.S. Treasury Department has indicated more details regarding the FSP
are to be announced at a future date.

American
Recovery and Reinvestment Act of 2009.On February 17, 2009, the American Recovery
and Reinvestment Act of 2009 (ARRA) was enacted. ARRA is intended to provide a stimulus to
the U.S. economy in the wake of the economic downturn brought about by the subprime
mortgage crisis and the resulting credit crunch. The bill includes federal tax cuts,
expansion of unemployment benefits and other social welfare provisions, and domestic
spending in education, healthcare, and infrastructure, including the energy structure. The
new law also includes numerous non-economic recovery related items, including a limitation
on executive compensation in federally aided banks. Under ARRA, an institution will be
subject to a number of restrictions and standards through out the period in which any
obligation arising from financial assistance provided under TARP remains outstanding.

Homeowner
Affordability and Stability Plan.On February 18, 2009, the Homeowner
Affordability and Stability Plan (HASP) was announced by the President of the United
States. HASP is intended to support a recovery in the housing market and ensure that
workers can continue to pay off their mortgages through the following elements:

| |  | Provide
access to low-cost refinancing for responsible homeowners suffering from falling home
prices.
| | - | -----------------------------------------------------------------------------------------------------

| |  | A
$75 billion homeowner stability initiative to prevent foreclosure and help responsible
families stay in their homes.
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | Support
low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
| | - | -------------------------------------------------------------------------------------

More
details regarding HASP are to be announced at a future date.

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# 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 OFIR
deems the Banks capital to be impaired, OFIR 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 OFIR 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.

-5-

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Securities
Regulation. 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 Company is generally subject to these requirements as well as SEC
rules and regulation that implement the provisions of the 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.

On
October 16, 2008 the Corporations Board of Directors adopted a resolution to amend
our articles of incorporation to authorize the issuance of 500,000 shares of preferred
stock. The resolution was voted on and approved at a special meeting of the shareholders
that was held on December 22, 2008 and adjourned to January 9, 2009.

# 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 Deposit Insurance Fund (the
          DIF) 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 OFIR, 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.

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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
four 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.

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 Bank Insurance Fund 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.

On
October 14, 2008 the FDIC announced the Temporary Liquidity Guarantee Program (TLGP). The
new program will (1) guarantee newly issued senior unsecured debt of eligible
institutions, including FDIC-insured banks and thrifts, as well as certain holding
companies (the Debt Guarantee Program), and (2) provide full deposit insurance coverage
for non-interest bearing deposit transaction accounts in FDIC insured institutions,
regardless of the dollar amount (the Transaction Account Guarantee Program). The insurance
on senior unsecured debt, under the Transaction Account Guarantee Program, would be
assessed an annualized fee based upon the maturity of the debt. The fee will be lower for
shorter-term debt and higher for longer-term debt. The insurance on non-interest bearing
transaction deposit accounts, under the Transaction Account Guarantee Program, would be
assessed a fee equal to 10 basis points on deposits not otherwise covered by the existing
deposit insurance limit of $250,000. Deposit insurance coverage under the Transaction
Account Guarantee Program last through December 31, 2009. Debt, under the Debt Guarantee
Program, must be issued by June 30, 2009 and is guaranteed until its maturity date or June
30, 2012, whichever comes first. Both of the programs under the TLGP were optional for
banks to participate in. After evaluating the costs and benefits of both programs, the
Bank elected to participate in both the Debt Guarantee Program and Transaction Account
Guarantee Program.

On
October 20, 2008, the FDIC announced a proposed rule on assessments, which would amend the
system for risk based assessments and change assessment rates. For the first quarter of
2009, the FDIC is raising the current rates uniformly by 7 basis points. The FDIC also
established new initial base assessment rates that will be subject to three adjustments
based on (1) a potential decrease for long-term unsecured debt, including senior and
subordinated debt, and for small institutions, a portion of Tier one capital; (2) a
potential increase for secured liabilities above a threshold amount; and (3) for non-Risk
Category I institutions, a potential increase for brokered deposits above a threshold
amount. The new rule will significantly increase our FDIC insurance fees in 2009.

FICO
Assessments. The Bank, as a member of the DIF, 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, DIF 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 0.030 percent of deposits.

OFIR
Assessments. Michigan banks are required to pay supervisory fees to OFIR 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 OFIR.

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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-Based Capital 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, 2008 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.

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.

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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, 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, the Home
Mortgage Disclosure Act, and regulations issued under each of those statutes. These laws
generally 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.

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.

-9-

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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 OFIR, (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 notbe 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.

-10-

---



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.

-11-

---



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 or
more. This slowdown has intensified during 2008 with the decline in the auto industry and
the decline in the real estate market. 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.

A
continued deterioration in economic conditions 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.

-12-

---



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 files 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.

The
value of certain securities in our investment portfolio may be negatively affected by
disruptions in the market for those securities and future declines or other-than-temporary
impairments could materially adversely affect our future earnings and regulatory capital.

Continued
volatility in the market value for certain of our investment securities, whether caused by
changes in market perceptions of credit risk, as reflected in the expected market yield of
the security, or actual defaults in the portfolio could result in significant fluctuations
in the value of the securities. During the fourth quarter of 2008, the Corporation
recorded an impairment charge on certain money market preferred and preferred stock
securities in our portfolio. Further impairment of these securities or other securities is
possible. In addition, changes in accounting resulting from changes in and interpretations
of applicable accounting standards may affect how we account for certain investment
securities in our portfolio. The valuation and accounting for our investment securities
could have a material adverse impact on our net income and shareholders equity
depending on the direction of the fluctuations. Furthermore, future downgrades or defaults
in these securities could result in future classifications as other than temporarily
impaired. This could have a material impact on our future earnings and financial
condition.

The
state of financial markets and the economy may adversely affect our sources of liquidity
and capital.

There
has been significant recent turmoil and volatility in worldwide financial markets which
is, at present, ongoing. These conditions have resulted in a disruption in the liquidity
of financial markets, and could directly impact us to the extent we need to access capital
markets to raise funds to support our business and overall liquidity position. This
situation could affect the cost of such funds or our ability to raise such funds. If we
were unable to access any of these funding sources when needed, it could adversely impact
our financial condition, results of operations, cash flows, and level of
regulatory-qualifying capital.

There
can be no assurance that the Emergency Economic Stabilization Act of 2008 and the American Recovery
and Reinvestment Act will stabilize the U.S. economy and financial system.

The
U.S. Congress enacted the EESA in response to the impact of the volatility and disruption
in the capital and credit markets on the financial sector. The U.S. Department of the
Treasury and the federal banking regulators are implementing a number of programs under
this legislation that are intended to address these conditions and the asset quality,
capital and liquidity issues they have caused for certain financial institutions and to
improve the general availability of credit for consumers and businesses. In addition, the
U.S. Congress recently enacted the American Recovery and Reinvestment Act
(ARRA) in an effort to save and create jobs, stimulate the U.S. economy and
promote long-term growth and stability. There can be no assurance that EESA, ARRA or the
programs that are implemented under them will achieve their intended purposes. The failure
of EESA, ARRA or the programs that are implemented under them to achieve their intended
purposes could result in a continuation or worsening of current economic and market
conditions, and this could adversely affect our financial condition, results of
operations, and/or the trading price of our common stock.

# 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.

-13-

---



Item 2. Properties.

The
Company and the Bank own a total of 13 facilities and lease 1 facility in West 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, at December 31, 2008, the Bank owned another
facility, which was previously occupied by the Banks mortgage lending operations,
which were consolidated into the main office in Byron Center. A sales agreement has been
reached on this facility and the transaction is expected to be closed in the first quarter
of 2009. The agreed upon sales price of the property was below the Companys book
value, which resulted in an impairment charge that was recorded in December of 2008.

# 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.

A
special meeting of shareholders was held on December 22, 2008, which was adjourned to
January 9, 2009. At that meeting the shareholders approved an amendment to the Articles of
Incorporation to authorize up to 500,000 shares of preferred stock. 1,422,494 shares voted
in favor of the amendment, 779,939 shares voted against the amendment and 16,176 shares
were withheld.

# 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, 2008:

|Name            | Age | Position with Company | Year Became an Executive Officer
|--------------- | --- | --------------------- | --------------------------------
|                |     |                       |                                 
|                |     |                       |                                 
|Patrick K. Gill |     |                       | 57                              
|                |     |                       |                                 
|                |     |                      
|James A. Luyk   |     |                       | 46                              
|                |     |                       |                                 
|                |     |                       |                                 
|                |     |                      
|Joel F. Rahn    |     |                       | 42                              
|                |     |                       |                                 

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 2006, Mr. Rahn served
as Vice President, in charge of commercial lending, at the Bank for more than three years.
Prior to joining the Bank Mr. Rahn served as Senior Vice President in charge of the
Traverse City, Michigan region, at Irwin Union Bank.

-14-

---



# 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 2008 and 2007, based on information available to the Company, as well
as per share cash dividends declared during those periods.

|               | Sales Prices | 
|-------------- | ------------ | 
|               |              | 
|               |              | 
|               |             
|               |              | 
|First Quarter  |              | 
|               |             
|Second Quarter |              | 
|               |             
|Third Quarter  |              | 
|               |             
|Fourth Quarter |              | 
|               |             

|2007           | High | Low |  
|-------------- | ---- | --- | -
|               |     
|               |      |     |  
|First Quarter  |      |     | $
|               |     
|Second Quarter |      |     | $
|               |     
|Third Quarter  |      |     | $
|               |     
|Fourth Quarter |      |     | $
|               |     

At
February 4, 2009, the Company has 747 record holders of our common stock. In addition to
these record holders, we estimate that there were approximately 450 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.

The
Company is a holding company and substantially all of its assets are held by its
subsidiaries. The Companys ability to pay dividends to its shareholders depends
primarily on the Banks ability to pay dividends to the Company. Dividend payments
and extensions of credit to the Company from the 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 the Bank. The ability of the Bank to
pay dividends is also subject to its profitability, financial condition, capital
expenditures and other cash flow requirements.

-15-

---



# SHAREHOLDER RETURN
PERFORMANCE GRAPH

Set
forth below is a line graph comparing the yearly percentage change in the cumulative total
shareholder return on the Corporations common stock with that of the cumulative
total return on the Hemscott Group Index and the NASDAQ Market Index for the five-year
period ended December 31, 2008. The Hemscott Group Index is an index composed of over 100
banks and bank holding companies located in the Midwest. The following information is
based on an investment of $100, on December 31, 2003, in the Companys common stock,
the Hemscott Group Index, and the NASDAQ Stock Market Index, with dividends reinvested.
The Companys Common Stock is thinly traded on the OTC Bulletin Board. Accordingly,
the returns reflected in the following graph and table is based on sale prices of the
Companys stock of which management is aware. There may have been sales at higher or
lower prices, of which management is not aware.



|                    | 2003 | 2004 | 2005 | 2006   | 2007 | 2008
|------------------- | ---- | ---- | ---- | ------ | ---- | ----
|                    |      |      |      |        |      |     
|OAK Financial Corp. |      |      |      | 100.00 |      |     
|                    |      |      |      |        |      |     
|Hemscot Group Index |      |      |      | 100.00 |      |     
|                    |      |      |      |        |      |     
|NASDAQ Market Index |      |      |      | 100.00 |      |     
|                    |      |      |      |        |      |     

Source: HEMSCOTT, Inc.,
Richmond, Virginia

# Unregistered Sales of
Common Stock

The Company did not sell any shares
of its common stock during 2008 that were not registered under the Securities Act of 1933,
as amended, except as may have been previously reported by the Company in a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K.

# Repurchases of Common
Stock

The Company did not repurchase any
shares of its common stock during the fourth quarter of 2008.

-16-

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

# SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA

|                                      | Year Ended December 31,
|------------------------------------- | -----------------------
|                                      |                        
|                                      |                        
|                                      |                        
|                                      |                        
|Consolidated Results of Operations:   |                        
|Interest income                       |                        
|Interest expense                      |                        
|                                      |                        
|Net interest income                   |                        
|Provision for loan losses             |                        
|Non-interest income                   |                        
|Non-interest expenses                 |                        
|                                      |                        
|Income before federal income taxes    |                        
|Federal income taxes                  |                        
|                                      |                        
|Net income                            |                        
|                                      |                        
|                                      |                        
|Per Share Data:                       |                        
|Net income                            |                        
|Cash dividends declared               |                        
|Book Value                            |                        
|Weighted average shares outstanding   |                        
|                                      |                        
|Consolidated Balance Sheet Data:      |                        
|Total assets                          |                        
|Loans, net of unearned income         |                        
|Allowance for loan losses             |                        
|Deposits                              |                        
|Stockholders' equity                  |                        
|                                      |                        
|Consolidated Financial Ratios:        |                        
|Tax equivalent net interest income to |                        
|average earning assets                |                        
|Return on average equity              |                        
|Return on average assets              |                        
|Non-performing assets                 |                        
|Efficiency ratio                      |                        
|Dividend payout ratio                 |                        
|Equity to asset ratio                 |                        
|Tier 1 leverage ratio                 |                        

-17-

---



# 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 effect 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 other filings with the Securities and
Exchange Commission.

# Item 7.

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONSFOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006

The
following financial review presents managements discussion and analysis of
consolidated financial condition and results of operations during the period of 2006
through 2008. 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.

-18-

---



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.

Fair
value of securities available-for-sale Securities available-for-sale represent
those securities not classified as trading or held to maturity and are reported at fair
value with unrealized gains and losses, net of applicable income taxes reported in
comprehensive income. The Company determines whether a decline in fair value below the
amortized cost basis is other than temporary. If the decline in value is judged to be
other than temporary, the cost basis of the security is written down to fair value as a
new cost basis and the amount of the write-down is recognized as a charge to non-interest
income. In determining fair value for financial assets the use of assumptions about future
cash flows and appropriately risk-adjusted discount rates are acceptable when relevant
observable inputs are not available. In some cases an entity may determine that observable
inputs require significant adjustment based on unobservable data. More information on the
specific methods used to determine fair values of the Companys securities
available-for-sale at December 31, 2008 can be found under Fair Values of Financial
Instruments in the accompanying notes to the consolidated financial statements.

Gains
and losses realized on the sale of securities available for sale are determined using the
specific identification method and are recognized on a trade-date basis. Premiums and
discounts are recognized in interest income computed on the level-yield method.

-19-

---



# FINANCIAL CONDITION

# Summary

Total
assets increased $97 million, or 13 percent during 2008 to $840 million. For the year,
total loans outstanding increased $105 million, or 18 percent and total deposits increased
$112 million, or 20 percent. The increase in total loans was primarily due to an increase
in commercial and commercial real estate loans. Commercial loans increased $30 million, or
21 percent, and commercial real estate loans increased $63 million, or 19 percent, in
2008. The increase in total deposits was largely due to an increase in time deposits
greater than $100,000, including brokered time 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, mortgage-backed securities, money market preferred stocks, and
preferred stocks. 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, to secure
repurchase agreements and for other purposes as required or permitted by law. During 2008
the Bank increased the amount of pledged securities at FHLB to take advantage of lower
funding costs. The Bank also has securities pledged at the Federal Reserve Bank Discount
Window as part of the Banks liquidity contingency plan.

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 declined
approximately $10 million from December 31, 2007 to December 31, 2008. The decrease is
partially the result of the asset liability management of the Bank in relation to the loan
and deposit growth the Bank experienced in 2008. The tax equivalent yield on our
investment portfolio was 5.29 percent for 2008, compared to 5.03 percent for 2007.

The
Bank owned four money market preferred MMP securities, which it had purchased
in 2007 with an original par value totaling $7.5 million. These securities were marketed
and sold as liquid, short-term investments in highly rated corporations. The market for
MMP securities, a type of auction-rate-securities, (ARS), froze in February
2008 when all the ARS market-maker, (broker-dealer) firms ceased making a market. Most of
the broker-dealers have reached settlement agreements with the State Attorney Generals and
/ or the Securities and Exchange Commission. In general, the settlement agreements require
the repurchase of all ARS sold to retail customers, but do not specifically require the
repurchase of ARS products sold to institutional holders, which includes financial
institutions.

There
is no longer an active market for ARS securities we own, which complicates our ability to
sell the securities and our ability to determine an accurate market price. In addition to
the difficulty of determining an accurate fair-market price, the regulators
and accountants are struggling to determine the proper application of accounting rules
related to the de-securitization of the ARS and the appropriate classification of any
unrealized loss.

Due
to the high level of uncertainty surrounding the ARS, management has applied a
conservative approach to account for these securities. An unrealized loss of $3.2 million
was recorded as an other-than-temporary impairment, using the illiquid market price of the
underlying collateral at December 31, 2008 to determine the fair-market value.

No
assurance can be provided regarding the future performance of these securities. It is
possible that further market deterioration would require additional impairment charges.
Conversely, it is possible that one or all of these securities would be repurchased at
amounts that would allow the reversal of the recorded impairment charges.

-20-

---



All
four issuers of these securities are rated A by Standard & Poors
Corporation. Additionally, all four securities are current on all interest and dividend
payments. After the impairment charge, the tax-equivalent book yield on these securities
is approximately 9.9%. More information on the impairment charge can be found under
Fair Values of Financial Instruments in the accompanying notes to the
consolidated financial statements.

The
Bank also owns capital stock in the Federal Reserve Bank System (FRB) and the
Federal Home Loan Bank of Indianapolis (FHLBI), which are classified as
restricted investments. On January 16, 2009, FHLBI announced that they were deferring the
declaration of their fourth quarter dividend. This decision was being deferred because of
the need to finalize the review of their private-label mortgage-backed securities
portfolio for other-than-temporary impairment. The outcome of this review resulted in the
determination that none of its private label-label mortgage backed securities were
other-than-temporarily impaired as of December 31, 2008. The quarterly dividend paid to
the Bank was reduced by 75 basis points due to the current challenging economic
environment.

|Securities available-for-sale: | AmortizedCost | FairValue | AmountPledged
|------------------------------ | ------------- | --------- | -------------
|                               |               |           |              
|                               |               |           |              
|December 31, 2008              |               |           | $            
|December 31, 2007              |               |           | $            

# 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, 2008. The weighted average interest
rates have been computed on a fully taxable equivalent basis, using a 34 percent tax rate,
based on amortized cost.

|                        
|------------------------
|                        
|                        
|                        
|                        
|                        
|                        
|Available for Sale:     
|US government securities
|Mortgage-backed         
|securities              
|States and Political    
|Subdivisions            
|                        
|Other Securities        
|                        
|Total Securities        
|                        

-21-

---



# 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. The Bank uses
the services of an independent third party, to periodically review the credit quality of
the loan portfolio, separate from the loan approval process. 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. Loan requests in excess of specific lending officers
authority, are required to be presented to the Commercial Loan Committee, the
Directors Loan Committee or the Board of Directors for review and approval.

The
Bank does not have any foreign loans and there were no large concentrations of 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 North American Industry Classification System
(NAICS) code.

Despite
the slow economy and the turmoil in the financial markets, we continue to have many
opportunities to grow our loan portfolio. During 2008 the Banks commercial real
estate and commercial loan portfolios increased $63 million, or 19 percent, and $30
million, or 21 percent, respectively. 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. Included in the total commercial and
commercial real estate loans, were $77 million in loans that were related to construction
and land development. This accounted for approximately 11 percent of the Banks loan
portfolio as of December 31, 2008. Loans secured by residential real estate increased $13
million, or 14 percent, from December 31, 2007 to December 31, 2008. The increase was
primarily due to increases in the Banks home equity line of credit product. Consumer
loans declined $1 million, or 9 percent from December 31, 2007 to December 31, 2008. The
decline in total consumer loans is the result of the continued run-off of the Banks
consumer indirect lending business.

It
is the Banks general practice to sell all conforming residential real estate loans.
During 2008, the Bank sold loans totaling less than $1 million with the servicing rights
retained and $69 million with the servicing rights released. As a result of fewer loans
being sold with servicing rights retained, the Banks servicing portfolio continues
to decline. At December 31, 2008 and 2007, the Bank was servicing loans for others
totaling approximately $136 million and $158 million, respectively.

In
addition to the communities served by the Banks branches, principal lending markets
include nearby communities and metropolitan areas. The Bank has been able to expand its
services to the broader market through its Mobile Banking service. 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.

-22-

---



# Loan Portfolio
Composition (in thousands)

|                                | Year ended December 31,
|------------------------------- | -----------------------
|                                |                        
|                                |                        
|                                |                        
|                                |                        
|                                |                        
|                                |                        
|Commercial Real Estate          |                        
|Commercial                      |                        
|Residential Real Estate         |                        
|Construction & Land Development |                        
|Consumer                        |                        
|                                |                        
|Total loans                     |                        
|                                |                        

|                                | 2005 | 2004
|------------------------------- | ---- | ----
|                                |      |     
|                                |      |     
|                                |      |     
|                                |      |     
|Commercial Real Estate          |      |     
|Commercial                      |      |     
|Residential Real Estate         |      |     
|Construction & Land Development |      |     
|Consumer                        |      |     
|                                |      |     
|Total loans                     |      |     
|                                |      |     

Commercial,
Construction & Land Development 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. However, asset quality is also dependent upon general and local
economic conditions and other factors outside of the Banks control.

-23-

---



# 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 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 or 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               |             
|                                          |             
|                                          |             
|Non-performing loans to total loans       |             
|Non-performing assets to total assets     |             
|Allowance for loan losses to total loans  |             
|Allowance for loan losses as a percentage |             
|of non-performing loans                   |             
|                                          |             

The
Banks total non-performing assets decreased $1.6 million to $5.3 million at December
31, 2008. Non-accrual loans declined $1.4 million from December 31, 2007 to December 31,
2008. The balance at December 31, 2008 consists primarily of credits related to
construction and real-estate development. Loans that were 90 days or more past due and
still accruing interest declined $1.3 million from December 31, 2007 to December 31, 2008.
The entire balance at December 31, 2007 consisted of one commercial loan, which was fully
guaranteed by the USDA and was in the process of collection. Other real estate increased
$1.0 million from December 31, 2007 to December 31, 2008.

There
continues to be significant economic weakness, which has made it more difficult for
customers to pay their loans as originally agreed. Although non-performing loans have
declined, credit quality continues to be under pressure due to the decline in real estate
values and the weakening economy. As a result, the allowance for loan losses as a
percentage of portfolio loans increased from 1.20 percent at December 31, 2007 to 1.33
percent at December 31, 2008. As of December 31, 2008 there were no other interest bearing
assets, which required classification.

-24-

---



# 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 for the years presented 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             |                                
|                   |                                

|                   | 2005 | 2004
|------------------ | ---- | ----
|                   |      |     
|                   |      |     
|                   |      |     
|                   |      |     
|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.. |                        

-25-

---



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 deterioration in credit quality, declines in real estate market
values and the weakening economy, the allowance for loan losses as a percent of total
loans increased from 1.20 percent at December 31, 2007 to 1.33 percent at December 31,
2008.

During
2008, the Bank recorded approximately $2.8 million in net loans charged off, or .45
percent of average loans outstanding. That compares to $1.7 million in net loans charged
off, or .31 percent of average loans outstanding in 2007. The increase is across broad
categories of loans, resulting from the increased stresses in the economy on borrowers,
combined with the declines in real estate values. The Bank did not have any losses
associated with sub-prime mortgages, as the Bank did not invest in sub-prime
mortgages.

# 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                 |                        
|                      |                        

|                      | 2005 | 2004
|--------------------- | ---- | ----
|                      |      |     
|                      |      |     
|                      |      |     
|                      |      |     
|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 credit quality of the Banks loan
portfolio.

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.

-26-

---



The
third element is determined by assigning allocations based principally upon the five-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 also consider a number of subjective factors when
determining the allowance for loan losses, including local and general economic business
factors and trends, portfolio concentrations and changes in the size, mix and general
terms of the loan portfolios.

Considerable
attention has been devoted to the national housing market and the national economy. The
Michigan economy continues to struggle due to the current housing slump, the struggling
auto industry and high unemployment rates. The economy in West Michigan, while stronger
than the state as a whole, is influenced by the states economy. Although highly
subjective, the economic conditions in Michigan are reflected in the amount reserved in
the allowance for possible loan losses.

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.

# Sources of Funds

The
primary sources of funding for the Bank are deposits (including brokered deposits),
Federal Home Loan Bank advances, federal funds purchased and other borrowed funds. Total
deposits increased $112 million, or 20 percent, from December 31, 2007 to December 31,
2008. The largest change came from a $119 million, or 87 percent increase in time deposits
over $100,000, which was slightly off-set by a $18 million, or 15 percent decline in time
deposits less than $100,000. The increase in time deposits over $100,000 was largely from
brokered time deposits, which were used as a significant source to fund the growth of the
Banks loan portfolio. The current economic environment has had an adverse effect on
local deposit pricing. We have elected to use brokered deposits versus paying higher
interest rates for local deposits. The Bank also increased its use of Federal Home Loan
Bank Advances during 2008. FHLB advances increased $20 million from December 31, 2007 to
December 31, 2008. The shift from core deposit sources to brokered deposits and
non-deposit funding sources was in response to asset and liability management objectives
and funding cost advantages. Brokered deposits and non-deposit funding sources are used by
the Bank to fund loan growth, when loan growth exceeds the Banks ability to grow
local deposits. The Bank plans to continue to use brokered deposits and alternative
funding sources as part of its asset and liability management plan.

Total
non-deposit funding sources such as Fed funds purchased, repurchase agreements and Federal
Home Loan Bank advances declined $14 million from December 31, 2007 to December 31, 2008.
Federal funds purchased decreased $35million, repurchase agreements remained flat, and
FHLB advances increased $20 million.

Deposits
are gathered from the communities the Bank serves. Increasing core deposits is a key
element of the Banks strategic plan. 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. This
service continues to be a key factor in attracting new business customers to the Bank.

-27-

---



# Average Deposit Balances
(dollars in thousands)

The
following table lists the total average deposit balances during 2008 and 2007 and the
weighted average rates paid on the funds provided:

|                             | Average for the Year
|---------------------------- | --------------------
|                             |                     
|                             |                     
|                             |                     
|                             |                     
|                             |                     
|                             |                     
|Non-interest bearing demand  |                     
|NOW Accounts                 |                     
|MMDA/Savings                 |                     
|Time - less than $100,000    |                     
|Time - greater than $100,000 |                     
|                             |                     
|Total Deposits               |                     
|                             |                     

The
Bank operates in a very competitive environment. Management monitors rates at other
financial institutions in the area to insure that its rates are competitive with the
market. The Bank also offers 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. A decline in
short-term market interest rates contributed to a significant decrease in the average
rates paid on deposits.

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

|                        | December 31, 2008 | December 31, 2007
|----------------------- | ----------------- | -----------------
|                        |                   |                  
|                        |                   |                  
|                        |                   |                  
|                        |                   |                  
|Repurchase agreements   |                   |                  
|FHLB Borrowings         |                   |                  
|Federal funds purchased |                   |                  
|Other borrowings        |                   |                  
|                        |                   |                  
|                        |                   |                  
|                        |                   |                  

The
repurchase agreements are fixed rate borrowings arrangements that are secured by U.S.
federal agency securities. These securities are being held by the counterparty to the
repurchase agreement. The maximum amounts outstanding at any month end during both 2007
and 2008 were $20 million. The yield on the repurchase agreements at both December 31,
2007 and December 31, 2008 were 4.82%.

The
majority of the Banks FHLB borrowings have a fixed term and fixed interest rate,
some of which can be called by the issuer after a lockout period. At December 31, 2008 we
also had a variable rate FHLB advance, which can be pre-paid at any time.

-28-

---



# RESULTS OF OPERATIONS

# Summary

The
Companys net income was $1.5 million in 2008, down 77 percent from the $6.7 million
reported for 2007. Basic and diluted earnings per share for the full year amounted to
$0.57, a decline of 77 percent from the $2.49 reported in 2007. The decline in net income
can be attributed to a few significant or unusual items reflected in the results for 2008.
These items include a $3.7 million increase in the loan loss provision, a $3.2 million
impairment charge on investment securities, $0.8 million in impairment charges and losses
on other real estate and a $0.3 million increase in loan collection expenses.

Net
interest income increased $0.9 million, or 4 percent in 2008, compared to 2007. This was
due to the increase in average earning assets that occurred during the year, which was
partially offset by a decline in the net interest margin from 2007 to 2008. Average
earning assets increased $76 million from 2007 to 2008. The net interest margin was 3.40
percent in 2008 compared to 3.63 percent in 2007. Non-interest income declined $2.9
million, or 36 percent from 2007 to 2008. The decline can be attributed to a $3.2 million
impairment charge on the Banks money-market preferred (MMP) auction rate securities.
The impairment charge represents approximately 43% of the $7.5 million par value of these
securities. While it is normal for security values to rise and fall, it was determined
that the decline in market value of the MMPs was other-than-temporary. All four
securities that the company owns continue to be investment grade and are current on all
interest and dividend payments. Excluding the impairment charge on investments,
non-interest income increased 3 percent over the prior year. Deposit service charges
increased 4 percent and mortgage banking fees increased 19 percent in 2008, compared to
2007. Total non-interest expenses increased $2.1 million, or 10 percent from 2007 to 2008.
This was largely due to increases in occupancy expenses related to our new East Paris
branch and the renovation of a couple of older branches, increases in FDIC fees, losses on
other real estate and loan collection costs.

Net
interest income increased $.5 million, or 2 percent in 2007, compared to 2006. This was
due to the increase in average earning assets that occurred during the year, which was
partially offset by a decline in the net interest margin from 2006 to 2007. The net
interest margin was 3.63 percent in 2007 compared to 3.92 percent in 2006. Non-interest
income increased $1.8 million, or 27 percent from 2006 to 2007. Increases in service
charge income, mortgage banking revenue and insurance premiums and brokerage fees
contributed to the increase in non-interest income. Total non-interest expenses increased
$2.5 million, or 13 percent from 2006 to 2007. This was largely due to increases in
employee benefits costs, data processing and software expenses due to technology upgrades
and professional and legal fees related to loan collection efforts.

# 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 declined 77 percent from 2007 to 2008. Increases in net interest income, service
charges on deposit accounts and mortgage banking revenue, were offset by a significantly
higher provision for loan losses, an impairment charge on investment securities, losses on
other real estate and higher loan and collection expenses. This resulted in a decline in
earnings per share from $2.49 in 2007 to $0.57 in 2008.

Net
income declined 4 percent from 2006 to 2007. The decline in net income was the result of
increases in the provision for loan losses and higher operating expenses, which was
partially offset by an 8% increase in revenue from net interest income and non-interest
income. This resulted in a decline in earnings per share from $2.60 in 2006 to $2.49 in
2007.

-29-

---



# 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     |                        
|All other assets            |                        
|                            |                        
|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           |                        
|                            |                        
|Total stockholders' 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
               $3,771,000, $2,702,000 and $1,049,000 in 2008, 2007 and 2006 respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Interest
on loans includes net origination fees totaling $81,000 in 2008,                $102,000
in 2007, and $203,000 in 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------

-30-

---



Net
interest income is our principal source of income. In the current year, tax equivalent net
interest income increased $1.0 million to $25.4 million in 2008, a 4 percent increase from
2007. This resulted in a net interest margin, as a percentage of average earning assets,
on a fully taxable equivalent basis, of 3.40 percent.

In
2008, the yield on total earning assets declined 106 basis points, compared to a 105 basis
point decline in the total interest-bearing liabilities cost of funds. The decline in the
interest yield was primarily the result of a decline in the yield that was earned on
variable rate loans, due to the decline in short term interest rates. The decline in the
cost of funds was a result of decline in the interest rates paid on deposits and a shift
of funds to lower cost alternative sources of funds. This resulted in the Companys
net interest margin declining 23 basis points, from 3.63 percent in 2007 to 3.40 percent
in 2008.

In
2007, the yield on total earning assets increased 8 basis points, compared to a 38 basis
point increase in the total interest-bearing liabilities cost of funds. The increase in
the interest yield was primarily the result of an increase in the yield that was earned on
tax-exempt municipal securities and money market preferred stocks. The increase in the
cost of funds was a result of a combination of a lag in the rise of the cost-of-funds
related to increases in short-term rates that occurred during 2006 and the competitive
market for deposits. This resulted in the Companys net interest margin declining 29
basis points, from 3.92 percent in 2006 to 3.63 percent in 2007.

Due
to the decline in short-term interest rates that occurred in late 2008, we expect that
there will be continued pressure on the net interest margin in the early part of 2009. 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)

|                                | 2008 Compared to 2007 | 2007 Compared to 2006
|------------------------------- | --------------------- | ---------------------
|                                |                       |                      
|                                |                       |                      
|                                |                       |                      
|                                |                       |                      
|Increase (decrease) in interest |                       |                      
|expense (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                            |                       |                      
|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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

-31-

---



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. Fully tax
equivalent interest income decreased $2.6 million from 2007 to 2008, compared to a $3.6
million decrease in interest expense for the same period, resulting in a $1.0 million
increase in fully tax equivalent net interest income. The increase in net interest income
that was the result of the growth in earning assets was largely offset by the decline in
net interest income that was the result of the decline in interest rates.

Fully
tax equivalent interest income increased $5.3 million from 2006 to 2007, compared to a
$4.5 million increase in interest expense for the same period, resulting in a $.8 million
increase in fully tax equivalent net interest income. The primary reason for the increase
was due to the increase in the size of the loan portfolio.

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                                        |                        
|Repurchase agreements, fed funds purchased and other |                        
|borrowings                                           |                        
|                                                     |                        
|Average interest bearing liabilities                 |                        
|                                                     |                        
|Average earning asset to total assets                |                        
|Free funds ratio                                     |                        

The
Banks earning asset ratio has remained at 95 percent for 2008, 2007 and 2006.

The free
funds ratio, funds on which the Bank does not pay interest, was 15 percent in 2008,
compared to 17 percent in 2007 and 2006. The decline is mainly the result of the increase
in interest bearing deposits.

# Provision and Allowance
for Loan Loss

The
provision for loan losses charged to earnings was $4,955,000 in 2008. This compares to a
charge of $1,221,000 in 2007 and $540,000 in 2006. The significant increase in the
provision that was charged to earnings in 2008 reflects credit deterioration in the
weakening economy as well as the strong growth that the Bank has had in its loan
portfolio. Due to the current state of the economy, both in Michigan and nationally, we
are projecting that the provision for loan losses charged to income in 2009 will remain at
an elevated level, to support 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.

Management
monitors the underwriting standards and loan administration of the Bank, to ensure that
they 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.

-32-

---



# Non-interest Income (in
thousands)

|                                          | Year Ended December 31,
|----------------------------------------- | -----------------------
|                                          |                        
|                                          |                        
|                                          |                        
|                                          |                        
|Service charges on deposit accounts       |                        
|Net gains on asset sales:                 |                        
|Loans                                     |                        
|Securities                                |                        
|Impairment of investment securities       |                        
|Amortization of mortgage servicing rights |                        
|Loan servicing fees                       |                        
|Insurance premium revenue                 |                        
|Brokerage revenue                         |                        
|Other                                     |                        
|                                          |                        
|Total non-interest income                 |                        
|                                          |                        

Non-interest
income declined $2,935,000, or 36 percent in 2008, compared to 2007. The decline was the
result of a $3,231,000 impairment charge on the Banks money-market preferred
securities, due to deterioration in the market value of these securities. Excluding this
charge, non-interest income increased $296,000, or 4 percent, in 2008, compared to 2007.
Service charges on deposit accounts increased $192,000, or 4 percent in 2008, compared to
2007. The increase was due to increases in ATM fee income, resulting from the placement of
several new offsite ATMs during 2008. Net gains on the sale of loans increased
$274,000, or 26 percent in 2008, compared to 2007. The increase was due to increased
mortgage activity as well as income derived from the sale of the guaranteed portion of
some SBA loans. Insurance premium revenue declined $112,000, or 12 percent from 2007 to
2008. This was due to a decline in annual profit-sharing income received from the
insurance underwriters, which is based on the production of the insurance agency and the
loss rate of the policyholders.

Non-interest
income increased $1,763,000, or 27 percent in 2007, compared to 2006. The increase was
largely due to a $1,302,000, or 33 percent increase in service charges on deposit
accounts. The significant increase was due to growth of deposit accounts, improved
collection of overdraft fees and continued growth resulting from the introduction of the
overdraft privilege product in the second half of 2006. Net gains on the sale of loans
increased $323,000, or 48 percent in 2007, compared to 2006. The increase was due to
increased mortgage activity that resulted from the addition of some lenders during the
year. Insurance premium revenue increased $95,000, or 11 percent from 2006 to 2007. This
was due to an increase in annual profit-sharing income. Brokerage revenue increased
$123,000, or 53 percent from 2006 to 2007. The increase was largely due staffing additions
within our investments unit.

-33-

---



# 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 increased 23 percent from 2007 to 2008. We
experienced high volume of mortgage refinancing activity both early in 2008 and late in
2008 as interest rates on mortgages dropped for periods of time. Total real estate
mortgages originated increased to $83 million in 2008, compared to $73 million in 2007 and
$52 million in originations that occurred in 2006. We sell the majority of the loans that
we originate with servicing rights released. Selling loans with servicing rights released
reduces the Banks exposure to changes in the value of the servicing rights, due to
changes in interest rates. Net gains as a percentage of real estate mortgage loan sales
for 2008 was 1.77 percent, compared to 1.64 percent in 2007 and 1.71 percent in 2006.

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 real estate services.

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

|     | Year ended December 31,
|---- | -----------------------
|     |                        
|     |                        
|     |                        
|     |                        
|2008 |                        
|2007 |                        
|2006 |                        

The
Company recognized a net gain of $57,000 on the sale of securities in 2008, compared to a
net gain of $12,000 in 2007 and a net gain of $18,000 in 2006. 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.

-34-

---



# 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                        |                        
|FDIC insurance fees              |                        
|Loss (gain) on other real estate |                        
|Loan and collection              |                        
|Other                            |                        
|                                 |                        
|Total non-interest expense       |                        
|                                 |                        

Non-interest
expense increased $2,070,000, or 10 percent in 2008, compared to 2007. Salaries and
employee benefits expenses increased $114,000 or less than 1 percent from 2007 to 2008.
Increases from normal annual salary adjustments and increases in employee medical
insurance costs were largely offset by the reversal of annual incentive accruals in the
fourth quarter of 2008. Occupancy and equipment costs increased $437,000, or 16 percent in
2008, compared to 2007. The increase is the result of the addition of our new East Paris
branch as well as the renovation of a couple of older branches. Data processing and
software expenses increased $233,000, or 12 percent in 2008, compared to 2007, as we
continue to invest in technology and software upgrades. FDIC insurance fees increased
$271,000, or 157 percent in 2008, compared to 2007. The increase in FDIC insurance fees
reflects the full utilization of the Banks FDIC credits during 2007. The loss on
other real estate and loan and collection costs increased $925,000, or 497 percent, from
2007 to 2008. The increase is a result of a decline in credit quality and the significant
decline in real estate values.

Non-interest
expense increased $2,515,000, or 13 percent in 2007, compared to 2006. Salaries and
employee benefits expenses increased $1,085,000 or 10 percent from 2006 to 2007. The
increase was largely due to increases in employee medical insurance costs and higher
mortgage and investment commissions, resulting from the increased production in those
areas. Equipment costs increased $164,000, or 17 percent in 2007, compared to 2006, and
data processing and software expenses increased $336,000, or 21 percent in 2007, compared
to 2006. These increases were the result of technology and software upgrades that have
been made. Professional and legal fees increased $317,000, or 61 percent, from 2006 to
2007. The increase was primarily due to legal proceeding and collection expenses related
to one commercial credit. Other items that contributed to the increase in non-interest
expense were a $111,000 increase in FDIC fees and an $80,000 increase in other loan
collection expenses.

On
October 14, 2008 the FDIC announced the Temporary Liquidity Guarantee Program (TLGP). The
new program will (1) guarantee newly issued senior unsecured debt of eligible
institutions, including FDIC-insured banks and thrifts, as well as certain holding
companies, and (2) provide full deposit insurance coverage for non-interest bearing
deposit transaction accounts in FDIC insured institutions, regardless of the dollar
amount. The insurance on senior unsecured debt would be assessed an annualized fee based
upon the term of the debt guaranteed under the program. The insurance on non-interest
bearing transaction deposit accounts would be assessed a fee equal to 10 basis points on
deposits not otherwise covered by the existing deposit insurance limit of $250,000. Both
of the programs under the TLGP were optional for banks to participate in. We elected to
participate in both the debt guarantee program and the transaction deposit account
guarantee program. We currently do not have any debt that qualifies under the debt
guarantee program, but the participation in the transaction account guarantee program will
increase our FDIC insurance fees during 2009.

-35-

---



On
October 20, 2008, the FDIC announced a proposed rule on assessments, which would amend the
system for risk based assessments and change assessment rates. For the first quarter of
2009, the FDIC is raising the current rates uniformly by 7 basis points. The FDIC also
established a new initial base assessment rates that will be subject to three adjustments
based on (1) a potential decrease for long-term unsecured debt, including senior and
subordinated debt, and for small institutions, a portion of Tier one capital; (2) a
potential increase for secured liabilities above a threshold amount; and (3) for non-Risk
Category I institutions, a potential increase for brokered deposits above a threshold
amount. The new rule will significantly increase our FDIC insurance fees in 2009.

# Provision for Income
Taxes

The
provision for income taxes was a credit of $395,000 in 2008, compared with $2,286,000 in
2007 and $2,893,000 in 2006. The Companys effective tax rate approximated a 35
percent credit in 2008, 25 percent in 2007 and 29 percent in 2006. The significant change
in the effective tax rate is the result of the percentage of income that is exempt from
federal taxes in comparison to the Companys overall income before taxes.

# 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 $70.4 million at December 31,
2008, a decline of $0.5 million, or 1 percent from a year ago. The decrease resulted from
the dividends that were paid during 2008 being higher than the Companys net income
for the year. The recent growth of the loan portfolio, combined with the effects of the
weakening economy, has resulted in a decline in our capital ratios. The Company generally
funds growth from existing capital and the retention of earnings. We regularly review the
capital level of the Bank and the Corporation. We believe that the current level of
capital is adequate for current and projected needs at both the Bank and Corporation.

In
2008, the Company declared cash dividends totaling $2.3 million, approximately 155 percent
of earnings. In 2007, the Company declared cash dividends totaling $2.3 million, or
approximately 35 percent of earnings.

On
October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008
(EESA), which provides the U.S. Secretary of Treasury with broad authority to
implement certain actions to help restore stability and liquidity to U.S. markets. On
October 14, 2008 the U.S. Treasury Department announced the Treasury Capital Purchase
Program (CPP), which provides direct equity investment of perpetual preferred
stock by the Treasury in qualified financial institutions. This is a voluntary capital
purchase program to encourage U.S. financial institutions to build capital to increase the
flow of financing to U.S. businesses and consumers and to support the economy.
Participation in this program is not automatic and is subject to approval by the Treasury.

The
Treasury Capital Purchase Program requires that participating entities have preferred
securities authorized for issuance. On October 16, 2008 the Corporations Board of
Directors adopted a resolution to amend our articles of incorporation to authorize the
issuance of 500,000 shares of preferred stock. The resolution was voted on and approved at
a special meeting of the shareholders that was held on December 22, 2008, which was
adjourned to January 9, 2009.

The
Company applied for $20 million in funds under the Capital Purchase Program and received
preliminary approval of the application from the U.S. Treasury in January, 2009. After
careful consideration and evaluation, a decision was made to decline participation in the
program. We believe that our capital is adequate to support our business. Furthermore, the
constraints and uncertainty of participating in the CPP outweigh the expected benefits.

-36-

---



# 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 at December 31, 2008,
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.

-37-

---



# Maturities and
Sensitivities of Loans to Changes in Interest Rates

The
following table shows the amount of total loans outstanding as of December 31, 2008, 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, 2008, 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         |                                   
|                                    |                                   

-38-

---



# Asset/Liability Gap
Position (in thousands)

|                                           | December 31, 2008
|------------------------------------------ | -----------------
|                                           |                  
|                                           |                  
|                                           |                  
|                                           |                  
|Assets:                                    |                  
|Fed funds sold & due from time             |                  
|Loans                                      |                  
|Securities (including restricted           |                  
|investments)                               |                  
|Loans held for sale                        |                  
|Other assets, net                          |                  
|                                           |                  
|Total Assets                               |                  
|                                           |                  
|                                           |                  
|Liabilities and Equity:                    |                  
|Savings & NOW                              |                  
|Time                                       |                  
|Other borrowings                           |                  
|Non-interest bearing deposits              |                  
|Other liabilities                          |                  
|Stockholders' 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.

At
December 31, 2008 the cumulative one-year liability gap position was approximately 1
percent of earning assets. The previous table reflects that the Bank has a asset-repricing
gap of approximately $75 million at 3 months and a liability-repricing gap of $6 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 monitor the Banks sensitivity to
changes in interest rates. Management regularly reviews the asset liability gap position
and other available information to manage the overall interest rate risk of the Bank.

-39-

---



# 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, federal funds purchased and repurchase agreements. 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 Valueof PortfolioEquity(1) | PercentChange | Net InterestIncome(2) | PercentChange
|------------------------ | --------------------------------- | ------------- | --------------------- | -------------
|                         |                                   |               |                       |              
|                         |                                   |               |                       |              
|300 basis point rise     |                                   |               | $                     | 61,038       
|200 basis point rise     |                                   |               | $                     | 65,525       
|100 basis point rise     |                                   |               | $                     | 69,593       
|Base rate                |                                   |               | $                     | 72,868       
|100 basis point decline  |                                   |               | $                     | 76,667       
|200 basis point decline  |                                   |               | $                     | 83,304       
|300 basis point decline  |                                   |               | $                     | 91,721       

|(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.

Our
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 2008 was
primarily funded through brokered time deposits and FHLB advances. Brokered time deposits
increased by $136 million and advances from the Federal Home Loan Bank increased by $20
million at December 31, 2008 compared to December 31, 2007.

The
Bank has the ability to borrow money on a daily basis through one of its correspondent
banks using an established federal funds purchased lines. The Bank has established an
unsecured federal funds purchased borrowing limit totaling $25 million. At December 31,
2008, the Bank had $2 million in federal funds purchased. During 2008, the Banks
federal funds purchased position averaged $17.9 million and its federal funds sold
position averaged $1.3 million. In addition, as a member of the Federal Home Loan Bank of
Indianapolis (FHLBI), the Bank has access to FHLBIs borrowing programs.
At December 31, 2008, FHLB advances totaled $63.7 million and the Bank could borrow an
additional $16.8 million without pledging any additional collateral.

-40-

---



It
has been our practice to use overnight federal funds lines of credit with correspondent
banks as a short-term source of liquidity. The recent events, within the financial
industry, have caused some of our correspondent to reduce or eliminate the lines of credit
that were available to us. At December 31, 2008, we had an available federal funds line of
credit totaling $25 million from one of our correspondent banks. This compares to $65
million in available lines of credit at December 31, 2007. For these reasons we have
replaced over $35 million in federal funds purchased with longer term brokered deposits.
We intend to maintain a more neutral federal funds position for the near future.

We
recently expanded our liquidity contingency plan by pledging collateral at the Federal
Reserve Discount Window. During the fourth quarter of 2008 we pledged approximately $15
million of municipal securities, which were unable to be pledged towards other borrowings.

Net
cash flows from operating activities can fluctuate from year to year based on the amount
of the Companys earnings for the year, the provision for loan losses recorded during
the year, the dollar amount of mortgage loans originated compared to the amount of
mortgage loans sold, and the gain generated from the sale of those loans. The changes from
2007 to 2008 and from 2006 to 2007 are largely due to lower net income and a higher
provision for loan losses being offset by higher gains from the sale of loans and the
deferred tax asset that resulted from the impairment charge on investment securities.

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 and proceeds from the maturities of available for sale securities. Total
loans increased by $107 million from 2007 to 2008 compared to an increase of $69 million
from 2006 to 2007. Proceeded from the maturities of investment securities were $44 million
in 2007 compared to $35 million in 2007.

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 $112 million, a net
increase in FHLB borrowings of $20 million and a decrease in federal funds purchased of
$35 million.

The
Companys cash and cash equivalents remained flat at $15 million at December 31,
2008. Overall liquidity is primarily determined by deposit and loan growth in addition to
borrowing and security investment activity.

-41-

---



# Contractual Obligations
(dollars in thousands)

|                                   | Payments Due by Period
|---------------------------------- | ----------------------
|                                   |                       
|                                   |                       
|                                   |                       
|                                   |                       
|Time deposits                      |                       
|Federal funds purchased            |                       
|FHLB advances                      |                       
|Repurchase agreements              |                       
|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. The amount of unfunded commitments increased 7% from 2007 to 2008.

# 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.

-42-

---



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

|                               | Three Months Ended
|------------------------------ | ------------------
|                               |                   
|                               |                   
|                               |                   
|                               |                   
|Periods Ended, 2008            |                   
|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, 2007            |                   
|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               |                   

# 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.

-43-

---



# 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, 2008. 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, 2008, 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 6, 2009

| |  | /s/ Patrick K. Gill
Patrick K. GillPresident and Chief Executive Officer
| |  | --------------------------------------------------------------------------------------

| |  | /s/ James A. Luyk
James A. LuykChief Financial Officer and Chief Operating Officer
| |  | ------------------------------------------------------------------------------------------------

-44-

---



# 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 balance sheets of O.A.K. Financial Corporation as of
December 31, 2008 and 2007, and the related statements of income, stockholders
equity and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2008. We also have audited the Companys internal control
over financial reporting as of December 31, 2008, 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 these
financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying financial statements. Our responsibility is to express an
opinion on these financial statements and an opinion on the companys internal
control over financial reporting 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
audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.

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 its 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, the financial statements referred to above present fairly, in all material
respects, the financial position of O.A.K. Financial Corporation as of December 31, 2008
and 2007, and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, O.A.K. Financial
Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).

/s/ Plante & Moran, PLLC

Auburn Hill, MichiganMarch
2, 2009

-45-

---



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

|(dollars in thousands, except per share data) | 
|--------------------------------------------- | 

|                                                         | December 31,
|-------------------------------------------------------- | ------------
|                                                         |             
|                                                         |             
|                                                         |             
|                                                         |             
|ASSETS                                                   |             
|                                                         |             
|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                                           |             
|                                                         |             
|Federal funds purchased                                  |             
|Repurchase Agreements                                    |             
|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: 2,703,009 at December 31, |             
|2008 and 2007                                            |             
|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.

-46-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATEMENTSOF 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                                         |                        
|Federal funds purchased                          |                        
|Repurchase agreements                            |                        
|FHLB advances                                    |                        
|Other borrowed funds                             |                        
|                                                 |                        
|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 (loss) gain on available for sale securities |                        
|Insurance premiums & brokerage fees              |                        
|Other                                            |                        
|                                                 |                        
|Total non-interest income                        |                        
|                                                 |                        
|Non-interest expenses                            |                        
|Salaries                                         |                        
|Employee benefits                                |                        
|Occupancy (net)                                  |                        
|Furniture and fixtures                           |                        
|Data processing and software                     |                        
|Professional and legal fees                      |                        
|Loss (gain) on other real estate                 |                        
|Loan and collection                              |                        
|FDIC fees                                        |                        
|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 the 10% stock dividends on May 31, 2007 and May 31, 2006.

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

-47-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OFCHANGES IN STOCKHOLDERS' EQUITY
|------------------------------------------ | ---------------------------------------------------------

|(in thousands) | 
|-------------- | 

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

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

-48-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | CONSOLIDATED STATAEMENTS OFCASH 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 gain on sales of available-for-sale securities           |                        
|Impairment of available-for-sale securities                  |                        
|Net gain on sales of loans held for sale                     |                        
|Net amortization of investment premiums                      |                        
|Net loss on sales of property and equipment                  |                        
|Deferred federal income taxes                                |                        
|Changes in operating assets and liabilities,                 |                        
|which provided (used) cash:                                  |                        
|Accrued interest receivable                                  |                        
|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 (purchases) redemptions of restricted investments at par |                        
|Net increase 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 (decrease) in TT&L note                         |                        
|Proceeds from FHLB borrowings                                |                        
|Repayments of FHLB borrowings                                |                        
|Dividends declared                                           |                        
|Net increase (decrease) repurchase agreements                |                        
|Net (decrease) increase in fed funds purchased               |                        
|                                                             |                        
|Net cash provided by financing activities                    |                        
|Net increase 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.

-49-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATEDFINANCIAL 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 commercial banking activities include 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 State chartered 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, the fair market value of investment securities 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 particularly sensitive to estimates and assumption. Actual
results may vary from these estimates.

Principles
of Consolidation:The consolidated financial statements
include the accounts of OAK Financial 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, amounts due from 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.
Trading securities are bought and held principally for the purpose of selling them in the
near term and are reported at fair value with realized and unrealized gains and losses
included in earnings. We do not have any trading securities. Securities held to maturity
represent those securities for which we have the positive intent and ability to hold until
maturity and are reported at cost, adjusted for amortization of premiums and accretion of
discounts computed on the level-yield method. We did not have any securities held to
maturity at December 31, 2008 and 2007. Securities available for sale represent those
securities not classified as trading or held to maturity and are reported at fair value
with unrealized gains and losses, net of applicable income taxes reported in comprehensive
income. We determine whether a decline in fair value below the amortized cost basis is
other than temporary. If the decline in value is judged to be other than temporary, the
cost basis of the security is written down to fair value as a new cost basis and the
amount of the write-down is recognized as a charge to non-interest income. Gains and
losses realized on the sale of securities available for sale are determined using the
specific identification method and are recognized on a trade-date basis. Premiums and
discounts are recognized in interest income computed on the level-yield method.

-50-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATEDFINANCIAL 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. Payments received on loans that are on non-accrual are generally
applied to the principal balance until the loan qualifies to be returned to accrual
status. A non-accrual loan may be restored to accrual status when interest and principal
payments are current and the loan appears otherwise collectible. 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.

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 changes in lending
policies and procedures, local and general economic business conditions and trends,
portfolio concentrations, experience and depth of lending management, and external
conditions that may effect the performance 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.

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.

-51-

---



|OAK FINANCIAL CORPORATION
AND SUBSIDIARIES | NOTES TO CONSOLIDATEDFINANCIAL 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.

We adopted Financial Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, which clarifies the
accounting for uncertainty in income taxes recognized in a companys financial
statements on January 1, 2007. The adoption of FIN 48 did not have a material impact on
our financial statements

Off
Balance Sheet Instruments: In the ordinary course of business, the Bank
enters into commitments to extend credit, including commitments under credit card
arrangements, commercial letters of credit, standby letters of credit, and forward
contracts for the sale of mortgage loans held for sale. Unless otherwise required, these
financial instruments are recorded when they are funded.

Derivative
Financial Instruments: Derivatives are required to be recorded on the
balance sheet as assets and liabilities measured at their fair value. The accounting for
increases and decreases in the value of derivatives depends upon the use of derivatives
and whether the derivatives qualify for hedge accounting. The Bank does not currently
designate the use of any derivatives as hedges.

The
fair-value of derivative financial instruments, not designated as hedges, are recorded on
our balance sheet and are adjusted on an ongoing basis to reflect their then current fair
value. The changes in the fair value of derivative financial instruments not designated as
hedges are recognized currently in earnings.

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.

-52-

---



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

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

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 fair
value method. No compensation cost related to stock options was recognized during 2008,
2007 or 2006, as no options were granted in those years.

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
periodically 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.

Reclassifications:Certain amounts in the 2007 and 2006 consolidated financial statements have been
reclassified to conform with the 2008 presentation.

-53-

---



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

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

# Recent Pronouncements:

In
October 2008, the Financial Accounting Standards Board (FASB) issued FSP
157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active. FSP 157-3 provides clarification of the application of FASB 157 in an
inactive market. FSP 157-3 is effective for the Companys annual financial statements
as of December 31, 2008. See Note 18 of these financial statements for more information on
the determination of fair value used by the Corporation.

In
January 2009, the Financial Accounting Standards Board issued FSP EITF 99-20-1,
Amendments to the Impairment Guidance of EITF Issue No. 99-20.EITF 99-20-1 amends
the impairment guidance in EITF 99-20 to achieve more consistent determination of whether
an other-than-temporary impairment (OTTI) has occurred. Key points addressed
in the FSP include: (1) It is inappropriate to automatically conclude that a security is
not OTTI because all of the scheduled payments to date have been received. (2) In making
its OTTI assessment, the holder should consider all available information relevant to the
collectibility of the security, including information about past events, current
conditions, and reasonable and supportable forecasts, when developing the estimate of
future cash flows. FSP EITF 99-20-1 is effective for the Corporations annual
financial statements as of December 31, 2008. The guidance was used in the determination
of OTTI charges recorded for the Companys investment securities.

# NOTE 2. COMPREHENSIVE
INCOME (in thousands)

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

|                                                        | 2008 | 2007 | 2006
|------------------------------------------------------- | ---- | ---- | ----
|                                                        |      |      |     
|                                                        |      |      |     
|Unrealized gains (losses) on available-for-sale         |      |     
|securities arising during the year                      |      |      |     
|                                                        |      |     
|Reclassification adjustment for realized and unrealized |      |     
|gains (losses) included in net income                   |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Other comprehensive income                              |      |     
|before income taxes                                     |      |      |     
|                                                        |      |     
|Income taxes related to                                 |      |     
|other comprehensive income                              |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Other comprehensive income                              |      |      |     
|                                                        |      |     
|Net income                                              |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Comprehensive income                                    |      |      | $   
|                                                        |      |      |     

-54-

---



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

# 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, 2008 and 2007, those required reserve balances were $1,105,000
and $984,000, 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
|--------------------------------- | --------------- | ---------------------- | ----------------------- | ---------
|                                  |                 |                        |                         |          
|                                  |                 |                        |                         |          
|2008                              |                 |                       
|U S government securities         |                 |                        | $                       | 22,969   
|Mortgage-backed securities        |                 |                        |                         | 18,316   
|States and political subdivisions |                 |                        |                         | 60,632   
|Other                             |                 |                        |                         | 4,269    
|                                  |                 |                        |                         |          
|Total                             |                 |                        | $                       | 106,186  
|                                  |                 |                        |                         |          
|                                  |                 |                       
|2007                              |                 |                       
|U S government securities         |                 |                        | $                       | 24,978   
|Mortgage-backed securities        |                 |                        |                         | 17,151   
|States and political subdivisions |                 |                        |                         | 64,416   
|Other                             |                 |                        |                         | 10,600   
|                                  |                 |                        |                         |          
|Total                             |                 |                        | $                       | 117,145  
|                                  |                 |                        |                         |          

Investment
securities with carrying values of approximately $54.3 million and $35.5 million at
December 31, 2008 and 2007, 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, 2008 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.

|                                       | AmortizedCost | FairValue
|-------------------------------------- | ------------- | ---------
|                                       |               |          
|                                       |               |          
|Due in one year or less                |               |          
|Due after one year through five years  |               |          
|Due after five years through ten years |               |          
|Due after ten years                    |               |          
|                                       |               |          
|Subtotal                               |               |          
|                                       |               |          
|Mortgage-backed securities             |               |          
|                                       |               |          
|                                       |               |          
|Total                                  |               |          
|                                       |               |          

-55-

---



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

# NOTE 4.
AVAILABLE-FOR-SALE SECURITIES (Continued)

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

|                              | 2008 | 2007 | 2006
|----------------------------- | ---- | ---- | ----
|                              |      |      |     
|Gross realized gains          |      |      | $   
|Gross realized losses         |      |      |     
|                              |      |      |     
|Net realized gain on sales of |      |     
|available-for-sale securities |      |      | $   
|                              |      |      |     

The
unrealized losses shown in the following table resulted primarily from changes 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. At
December 31, 2008, the Corporation had 55 securities that were in a loss position,
compared to 54 securities that were in a loss position at December 31, 2007.

|December 31, 2008                   | Less than 12 months | 12 months or longer | Total
|----------------------------------- | ------------------- | ------------------- | -----
|                                    |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     |      
|U S government securities           |                     |                     | $    
|Mortgage-backed securities          |                     |                     |      
|States and political subdivisions.. |                     |                     |      
|Other                               |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     | $    
|                                    |                     |                     |      

|December 31, 2007                   | Less than 12 months | 12 months or longer | Total
|----------------------------------- | ------------------- | ------------------- | -----
|                                    |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     |      
|U S government securities           |                     |                     | $    
|Mortgage-backed securities          |                     |                     |      
|States and political subdivisions.. |                     |                     |      
|Other                               |                     |                     |      
|                                    |                     |                     |      
|                                    |                     |                     | $    
|                                    |                     |                     |      

-56-

---



|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:

|                                | 2008 | 2007
|------------------------------- | ---- | ----
|                                |      |     
|                                |      |     
|Commercial real estate          |      |     
|Commercial                      |      |     
|Residential real estate         |      |     
|Construction & land development |      |     
|Consumer                        |      |     
|                                |      |     
|Total loans                     |      |     
|                                |      |     

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

|                           | 2008 | 2007 | 2006
|-------------------------- | ---- | ---- | ----
|                           |      |      |     
|                           |      |      |     
|Balance, beginning of year |      |      | $   
|Provision for loan losses  |      |      |     
|Recoveries                 |      |      |     
|Loans charged off          |      |      |     
|                           |      |      |     
|Balance, end of year       |      |      | $   
|                           |      |      |     

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

|                                              | 2008 | 2007
|--------------------------------------------- | ---- | ----
|                                              |      |     
|                                              |      |     
|Impaired loans without a valuation allowance  |      |     
|Impaired loans with a valuation allowance     |      |     
|                                              |      |     
|Total impaired loans                          |      |     
|                                              |      |     
|Valuation allowance related to impaired loans |      |     
|Total non-accrual loans                       |      |     
|Total loans past due ninety days or more and  |      |     
|still accruing                                |      |     

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

|                                                       | 2008 | 2007 | 2006
|------------------------------------------------------ | ---- | ---- | ----
|                                                       |      |      |     
|                                                       |      |      |     
|Average investment in impaired loans                   |      |      | $   
|                                                       |      |     
|Interest income recognized on impaired loans           |      |      | $   
|                                                       |      |     
|Interest income recognized on a cash basis on impaired |      |     
|loans                                                  |      |      | $   

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

-57-

---



|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:

|                              | 2008 | 2007
|----------------------------- | ---- | ----
|                              |      |     
|                              |      |     
|Land and land improvements    |      |     
|Building and improvements     |      |     
|Furniture and equipment       |      |     
|                              |      |     
|Total premises and equipment  |      |     
|Less accumulated depreciation |      |     
|                              |      |     
|Premises and equipment, net   |      |     
|                              |      |     

Depreciation expense for each of the
years ending December 31, 2008, 2007 and 2006 was $1.4 million, $1.2 million and $1.0
million, respectively.

# 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 $136
million and $158 millionat December 31, 2008 and 2007, respectively.

The
balance of capitalized servicing rights, net of valuation allowance, included in other
assets at December 31, 2008 and 2007, was $538,000 and $960,000 respectively. The fair
value of these rights was $1.4 million and $1.6 million, at December 31, 2008 and 2007,
respectively. The fair value of servicing rights was determined using an average discount
rate of 7.94 percent in 2008 and 8.17 percent in 2007, with prepayment speeds ranging from
0 percent to 19.3 percent in 2008 and from 0 percent to 20.7 percent in 2007.

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

|                                      | 2008 | 2007 | 2006
|------------------------------------- | ---- | ---- | ----
|                                      |      |      |     
|                                      |      |      |     
|Mortgage servicing rights capitalized |      |      | $   
|                                      |      |     
|Mortgage servicing rights amortized   |      |      | $   
|                                      |      |     
|Valuation Allowances:                 |      |     
|Balance at beginning or year          |      |      |     
|Net change in valuation allowance     |      |      |     
|                                      |      |      |     
|Balance at end of year                |      |      | $   
|                                      |      |      |     

-58-

---



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

# NOTE 8. DEPOSITS
(dollars in thousands)

Deposits at year-end were as follows:

|                                    | 2008 | 2007
|----------------------------------- | ---- | ----
|                                    |      |     
|                                    |      |     
|Noninterest-bearing demand          |      |     
|Interest-bearing checking           |      |     
|Money market and savings            |      |     
|Time deposits less than $100,000    |      |     
|Time deposits greater than $100,000 |      |     
|                                    |      |     
|Total deposits                      |      |     
|                                    |      |     

At December 31, 2008, scheduled
maturities of certificates of deposit are as follows:

|                    |  |  |  
|------------------- |  |  | -
|                    |  | 
|                    |  |  |  
|2009                |  |  | $
|2010                |  |  |  
|2011                |  |  |  
|2012                |  |  |  
|2013                |  |  |  
|2014                |  |  |  
|2015                |  |  |  
|                    |  | 
|Total time deposits |  |  | $
|                    |  | 

Brokered time deposits totaled
approximately $202 million and $66 million at December 31, 2008 and 2007.

# NOTE 9. FEDERAL FUNDS
PURCHASED & REPURCHASE AGREEMENTS

The
Bank has the ability to borrow money on a daily basis through one of its correspondent
banks using an established federal funds purchased line of credit. The Bank has
established unsecured federal funds purchased borrowing limits totaling $25 million at
December 31, 2008. At December 31, 2008 and 2007 the Bank had $2 million and $38 million
outstanding, respectively. During 2008, the Banks federal funds purchased position
averaged $18 million, compared to an average federal funds purchased position of $16
million for 2007. The average rate paid on federal funds purchased during 2008 and 2007
were 2.77% and 5.27%, respectively.

Repurchase
agreements are financing arrangements secured by U.S. federal agency securities. At
December 31, 2008, the Bank had three repurchase agreements totaling $20.4 million.
These borrowings were secured by securities that had a carrying amount of $23.2 million at
December 31, 2008. At maturity, the securities underlying the arrangements are returned to
the Bank.

The repurchase agreements at December
31, 2008 and their contractual maturities are as follows:

|Balance                     | Rates
|--------------------------- | -----
|                            |      
|                            |      
|Due in 2009                 |      
|Due in 2010                 |      
|                            |      
|Total repurchase agreements |      
|                            |      

-59-

---



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

# NOTE 10. FHLB ADVANCES
& OTHER BORROWED FUNDS

Each
Federal Home Loan Bank advance is payable at its maturity date, and may be 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, 2008 and 2007. At
December 31, 2008 and 2007, the Federal Home Loan Bank borrowings were collateralized by a
blanket lien on all qualified 1 to 4 family residential mortgage loans, consumer home
equity loans, commercial real estate and U.S. government agency securities. U.S.
government agency securities pledged to FHLB borrowings had carrying values of
approximately $14.5 and $10.9 million, at December 31, 2008 and 2007, respectively. The
total available credit for FHLB borrowings at December 31, 2008 and December 31, 2007, was
$80.5 million and $46.1 million, respectively. At December 31, 2008, variable rate FHLB
advances totaled $2.0 million and fixed rate FHLB advances totaled $61.7 million. The
average interest rate on the FHLB borrowings was 4.74 percent and 5.53 percent, for 2008
and 2007, respectively.

The Federal Home Loan Bank advances
at December 31, 2008 and their contractual maturities are as follows:

|Balance             | Rates
|------------------- | -----
|                    |      
|                    |      
|Due in 2009         |      
|Due in 2010         |      
|Due in 2011         |      
|Due in 2012         |      
|Due in 2013         |      
|Due in 2014         |      
|Due in 2015         |      
|                    |      
|Total FHLB advances |      
|                    |      

Other
borrowed funds as of December 31, 2008 and December 31, 2007, were comprised entirely of
TT&L notes, with balances of $1,030,000 and $436,000, respectively.

# NOTE 11. FEDERAL INCOME
TAXES (in thousands)

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

|                           | 2008 | 2007 | 2006
|-------------------------- | ---- | ---- | ----
|                           |      |      |     
|                           |      |      |     
|Current                    |      |      | $   
|Deferred expense (benefit) |      |      |     
|                           |      |      |     
|Federal income tax expense |      |      |     
|                           |      |      |     

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:

|                                     | 2008 | 2007 | 2006
|------------------------------------ | ---- | ---- | ----
|                                     |      |      |     
|                                     |      |      |     
|Statutory rate applied to income     |      |     
|before income taxes                  |      |      | $   
|Effect of tax-exempt interest income |      |      |     
|Other - net                          |      |      |     
|                                     |      |      |     
|Federal income tax expense           |      |      |     
|                                     |      |      |     

-60-

---



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

# NOTE 11. FEDERAL INCOME
TAXES (Continued)

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

|                                                     | 2008 | 2007
|---------------------------------------------------- | ---- | ----
|                                                     |      |     
|                                                     |      |     
|Deferred tax assets                                  |      |     
|Allowance for loan losses                            |      |     
|Deferred compensation plan                           |      |     
|Deferred loan fees                                   |      |     
|Non-accrual interest                                 |      |     
|Valuation allowance on other real estate             |      |     
|Valuation allowance on securities available for sale |      |     
|Other                                                |      |     
|                                                     |      |     
|Total deferred tax assets                            |      |     
|                                                     |      |     
|Deferred tax liabilities                             |      |     
|Depreciation                                         |      |     
|Discount accretion                                   |      |     
|Unrealized gain on securities available for sale     |      |     
|Loan servicing rights                                |      |     
|Other                                                |      |     
|                                                     |      |     
|Total deferred tax liabilities                       |      |     
|                                                     |      |     
|Net deferred tax asset                               |      |     
|                                                     |      |     

The
impairment charge recorded on the Companys auction rate securities resulted in a
deferred tax asset of $1.1 million. If the Company were to sell these securities, the
associated loss would be considered a capital loss, which can only be recovered through
offsetting capital gains. The Companys management has identified strategies that
could be used to generate capital gains to offset the capital loss, if the value of these
securities does not recover. Management has not determined if, or when, it would implement
these strategies.

# 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 $83,000 and
$106,000 at December 31, 2008 and 2007, respectively. During 2008, new loans were
approximately $16,000 and repayments were approximately $39,000.

-61-

---



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

# 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.

At
December 31, 2008 and 2007, 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 of these commitments 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.

Mandatory
forward sales commitments:The Company enters into commitments to sell loans (service
released) with investors, whereby the agreed upon price for the loan or group of loans is
determined prior to the sale of the loans. These commitments have expiration dates ranging
from 45 to 75 days, and contain late fee provisions and pair-off fee provisions if the
loans are not delivered timely. The Company does not designate these derivatives as
hedging instruments and, accordingly recognize the change in their fair value in earnings.
The fair value for mandatory forward sales commitments is based on current market prices
versus the committed prices. At December 31, 2008 the Company had $10.9 million in
mandatory forward sales commitments.

Rate
lock commitments with customers:The Company enters into commitments to originate
loans whereby the interest rate on the loan is determined prior to funding (rate lock
commitments). Rate lock commitments on mortgage loans that are intended to be sold are
considered to be derivatives. Accordingly, such commitments, along with any related fees
received from potential borrowers, are recorded at fair value in derivative assets or
liabilities, with changes in fair value recorded in the net gain or loss on sale of
mortgage loans. Fair value is based on fees currently charged to enter into similar
agreements, and for fixed-rate commitments also considers the difference between current
levels of interest rates and the committed rates. At December 31, 2008 the Company had
$18.0 million in rate lock commitments with customers.

-62-

---



|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, 2008, that the Corporation and
the Bank meet all capital adequacy requirements to which they are subject. As of December
31, 2008 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, 2008 and 2007 are also presented in the table below:

|                                         | Actual | Minimum Capital Requirement | Minimum to be well
Capitalized Under Prompt Corrective Action Provisions
|---------------------------------------- | ------ | --------------------------- | ------------------------------------------------------------------------
|                                         |        |                             |                                                                         
|                                         |        |                             |                                                                         
|                                         |        |                             |                                                                         
|                                         |        |                             |                                                                         
|At December 31, 2008                     |        |                            
|Total capital (to risk weighted assets)  |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       
|Tier 1 capital (to risk weighted assets) |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       
|Tier 1 capital (to average assets)       |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       
|                                         |        |                            
|At December 31, 2007                     |        |                            
|Total capital (to risk weighted assets)  |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       
|Tier 1 capital (to risk weighted assets) |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       
|Tier 1 capital (to average assets)       |        |                            
|Consolidated                             |        |                             | $                                                                       
|Bank                                     |        |                             | $                                                                       

-63-

---



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

# NOTE 14. REGULATORY
MATTERS (Continued)

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, 2009, the corporations subsidiary bank,
without obtaining prior governmental approvals, could declare aggregate dividends of
approximately $2.1 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, 2009 through the date of declaration.

On
October 16, 2008 the Corporations Board of Directors adopted a resolution to amend
the articles of incorporation to authorize the issuance of 500,000 share of preferred
stock. The resolution was voted on and approved at a special meeting of the shareholders
that was held on December 22, 2008 and adjourned to January 9, 2009.

# 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 total Corporation contributions to the 401(k) match
were $353,000, $334,000, and $275,000 for 2008, 2007 and 2006 respectively. The
Corporation does not offer any other pension or retirement plans.

The
Bank offers a deferred compensation plan for all directors who elect to participate. The
cost of the plan was $89,000, $120,000 and $152,000 in 2008, 2007, and 2006, respectively.
The accrued benefit obligation for this plan was $1,161,000 and $1,173,000 as of
December 31, 2008 and 2007, respectively, and is included in other liabilities.
The Bank has purchased life insurance policies on the participating directors to fund the
deferred compensation. The cash surrender value of the policies was $2,508,000 and
$2,342,000 at December 31, 2008 and 2007, respectively, and is included in other assets.

-64-

---



|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 219,615 options under the Employees Plan and up to
46,585 options under the Directors Plan. The 1999 Employees Stock Option Plan
expired on January 28, 2009. Stock options granted prior to the expiration of the plan can
be exercised for a period of 10 years from the date granted.

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. No options have been granted during the periods presented below.

The following tables summarize
information about stock option transactions:

|                               | 2008 | 2007 | 2006
|------------------------------ | ---- | ---- | ----
|                               |      |      |     
|                               |      |      |     
|                               |      |      |     
|                               |      |      |     
|Outstanding, beginning of year |      |      |     
|Granted                        |      |      |     
|Exercised                      |      |      |     
|Forfeited/expired              |      |      |     
|                               |      |      |     
|Outstanding, end of year       |      |      |     
|                               |      |      |     
|                               |      |     
|Exercisable, end of year       |      |      |     
|                               |      |      |     

|Exercise Price | Number Outstanding December 31, 2008 | Weighted Average Remaining Contractual Life | Number of Options Exercisable December 31, 2008 | Weighted Average Exercise Price December 31, 2008
|-------------- | ------------------------------------ | ------------------------------------------- | ----------------------------------------------- | -------------------------------------------------
|               |                                      |                                             |                                                 |                                                  
|               |                                      |                                             |                                                 |                                                  
|$33.43         |                                      |                                             |                                                 | 9,933                                            
|$33.81         |                                      |                                             |                                                 | 1,331                                            
|$34.71         |                                      |                                             |                                                 | 1,815                                            
|$37.57         |                                      |                                             |                                                 | 12,190                                           
|$41.32         |                                      |                                             |                                                 | 6,124                                            
|               |                                      |                                             |                                                 |                                                  
|Total          |                                      |                                             |                                                 | 31,393                                           
|               |                                      |                                             |                                                 |                                                  

All
options expire 10 years after the date of the grant; 192,539 shares are reserved for
future issuance under the Employee Stock Option Plan and 41,261 shares are reserved for
future issuance under the Directors Stock Option Plan for non-employee directors.

-65-

---



|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:

|                                                 | 2008 | 2007 | 2006
|------------------------------------------------ | ---- | ---- | ----
|                                                 |      |      |     
|                                                 |      |      |     
|Net income                                       |      |      | $   
|                                                 |      |      |     
|                                                 |      |     
|Average common shares outstanding                |      |      |     
|Assumed exercise of dilutive stock options       |      |      |     
|                                                 |      |      |     
|Average common shares outstanding, including the |      |      |     
|assumed exercise of dilutive stock options       |      |     
|                                                 |      |      |     
|                                                 |      |     
|Net income per share:                            |      |     
|Basic                                            |      |      | $   
|Diluted                                          |      |      | $   

Note: Per share data has
been adjusted to reflect a 10% stock dividend on May 31, 2007 and May 31, 2006.

# NOTE 18. FAIR VALUES OF
FINANCIAL INSTRUMENTS

The
following table presents information about the Companys assets and liabilities
measured at fair value on a recurring basis at December 31, 2008, and indicate the fair
value hierarchy of the valuation techniques utilized by the Company to determine such fair
value.

In
general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to
access.

Fair
values determined by Level 2 inputs utilize inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets,
and inputs other than quoted prices that are observable for the asset or liability, such
as interest rates and yield curves that are observable at commonly quoted intervals.

Level
3 inputs are unobservable inputs for the asset or liability, and include situations where
there is little, if any, market activity for the asset or liability.

In
instances in which the inputs used to measure fair value may fall into different levels of
the fair value hierarchy, the level in the fair value hierarchy within which the fair
value measurement in its entirety has been determined is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Companys
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability.

-66-

---



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

# NOTE 18.  FAIR VALUES OF
FINANCIAL INSTRUMENTS (continued)

Disclosures concerning assets and
liabilities measured at fair value are as follows:

|Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2008
(dollars in thousands)
|--------------------------------------------------------------------------------------------------------------
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Assets                                                                                                        
|Available-for-sale securities                                                                                 

|Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)
|------------------------------------------------------------------------------------------------------------
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Balance at December 31, 2007                                                                                
|Total realized and unrealized gains (losses) included in income                                             
|Total unrealized gains (losses) included in other comprehensive income                                      
|Net purchases, sales, calls and maturities                                                                  
|Net transfers in/out of Level 3                                                                             
|                                                                                                            
|Balance at December 31, 2008                                                                                
|                                                                                                            

In
determining fair value for financial assets the use of assumptions about future cash flows
and appropriately risk-adjusted discount rates are acceptable when relevant observable
inputs are not available. In some cases an entity may determine that observable inputs
require significant adjustment based on unobservable data and thus would be considered a
Level 3 fair value measurement. The company had no investment securities available for
sale at December 31, 2008, for which it utilized significant Level 3 inputs to determine
fair value. This compares to $9.6 million in assets for which it utilized Level 3 inputs
to determine fair value as of December 31, 2007. During the twelve months ended December,
31, 2008, the Company had sales of $2.1 million of Level 3 investment securities available
for sale.

During
2008 the Company held four auction rate money market preferred securities with a par value
totaling $7.5 million. The auction facility for all auction rate securities has stopped,
resulting in an illiquid market. These securities were being valued using Level 3 inputs,
due to the illiquid nature of the auction rate securities market. Due to the failure of
the auction facility, these securities have begun to be converted into the preferred
stocks that were the underlying collateral for these securities. On November 14, 2008 one
of the securities converted to preferred stock and another security converted to preferred
stock on January 26, 2009. A third security is scheduled to be converted to preferred
stock in the first quarter of 2009. Due to the conversion of the securities to preferred
stock, in the fourth quarter of 2008, the Company transferred $7.5 million of MMP and
preferred stock investment securities, which had previously been classified as Level 3
assets, to Level 2 assets. The Level 2 inputs, used to determine the fair value of these
securities, included market prices on preferred stock with similar characteristics to the
underlying assets. These securities were then written down to the fair values. This
resulted in a $3.2 million impairment charge during the fourth quarter.

During
the twelve month period ended December, 31, 2008, we moved our municipal securities
portfolio from Level 1 assets to level 2 assets. This was due to the significantly reduced
trading activity in the municipals market, resulting from the current economic slowdown.
This required us to use a significant amount of other observable data to determine the
fair value of our municipal securities portfolio.

-67-

---



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

# NOTE 18.  FAIR VALUES OF
FINANCIAL INSTRUMENTS (continued)

The
Company also has certain assets that are measured at fair value on a nonrecurring
basis.  These assets are not measured at fair value on an ongoing basis, but are
subject to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment).   The following table presents the Companys
assets carried at fair value on a nonrecurring basis as of December 31, 2008.

|Assets and Liabilities
Measured at Fair Value on a Nonrecurring Basis at December 31, 2008
(dollars in thousands)
|-----------------------------------------------------------------------------------------------------------------
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Assets                                                                                                           
|Loans (net) accounted for under FAS 114                                                                          

The
fair value of impaired loans accounted for under SFAS No. 118 and SFAS No. 114 is
estimated using either discounted cash flows or collateral value.  Those
impaired loans not requiring an allowance represent loans for which the fair value of the
expected repayments or collateral exceed the recorded investments in such loans. At
December 31, 2008, substantially all of the total impaired loans were evaluated based on
the fair value of the collateral.  In accordance with SFAS 157, impaired loans
where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. Impaired loans are categorized as Level 3
assets because the values are based on available collateral (typically based on outside
appraisals) and customized discounting criteria, if deemed necessary. The change in fair
value of impaired loans is accounted for in the allowance for loan losses (see Note 5).

Other
assets, that under certain conditions, are subject to measurement at fair value, include
mortgage servicing rights and loans held for sale. The Company estimated the fair values
of these assets utilizing Level 3 inputs, including, the discounted present value of
expected future cash flows. At December 31, 2008, we estimate that there is no impairment
of these assets and therefore, no impairment charge to other expense was required to
adjust these assets to their estimated fair values.

-68-

---



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

# NOTE 18.  FAIR VALUES OF
FINANCIAL INSTRUMENTS (continued)

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

|                                       | 2008 | 2007
|-------------------------------------- | ---- | ----
|                                       |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     
|Financial assets                       |      |     
|Cash and cash equivalents              |      |     
|Available-for-sale securities          |      |     
|Loans receivable, net                  |      |     
|Loans held for sale                    |      |     
|Accrued interest receivable            |      |     
|Restricted investments                 |      |     
|                                       |      |     
|Financial liabilities                  |      |     
|Deposits                               |      |     
|FHLB advances and other borrowed funds |      |     
|Repurchase Agreements                  |      |     
|Federal funds purchased                |      |     

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.

-69-

---



|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, 2008
and 2007 and the related condensed statements of income and cash flows for each of the
three years in the period ended December 31, 2008, 2007 and 2006:

|Condensed Balance Sheets                  
|------------------------------------------
|                                          
|                                          
|                                          
|                                          
|Assets                                    
|Cash                                      
|Investment in subsidiary                  
|Available-for-sale securities             
|Other Assets                              
|                                          
|                                          
|Total assets                              
|                                          
|                                          
|Other liabilities                         
|Stockholders' equity                      
|                                          
|                                          
|Total liabilities and stockholders' equity
|                                          

|Condensed Statements of Income                 
|-----------------------------------------------
|                                               
|                                               
|                                               
|                                               
|Income                                         
|Dividends from subsidiary                      
|Interest from available-for-sale securities..  
|                                               
|Total income                                   
|                                               
|Other expenses                                 
|                                               
|Income before income taxes and equity in       
|undistributed net income of subsidiary         
|Applicable income tax provision (benefit)      
|                                               
|                                               
|(Distributions in excess of earnings) Equity in
|undistributed earnings of subsidiary           
|                                               
|Net income                                     
|                                               

-70-

---



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

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

|Condensed Statements of Cash Flows                
|--------------------------------------------------
|                                                  
|                                                  
|                                                  
|                                                  
|Cash flows from operating activities              
|Net income                                        
|                                                  
|Adjustments to reconcile net income               
|to net cash provided by operating activities      
|Distributions in excess of earnings (Undistributed
|earnings) of subsidiary                           
|Amortization of available-for-sale securities     
|Changes in other assets                           
|Changes in other liabilities                      
|                                                  
|Net cash provided by operating activities         
|                                                  
|Cash flows from investing activities              
|Available-for-sale securities                     
|Proceeds from maturities                          
|Purchases                                         
|                                                  
|Net cash provided by investing activities         
|                                                  
|Cash flows from financing activities              
|Dividends paid                                    
|                                                  
|Net cash used in financing activities             
|                                                  
|Net (decrease) increase in cash and cash          
|equivalents                                       
|                                                  
|Cash and cash equivalents, beginning of year      
|                                                  
|                                                  
|Cash and cash equivalents, end of year            
|                                                  

-71-

---



# 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 44 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 the effectiveness of the
Corporations internal control over financial reporting is included in Item 8 on page
45 of this Annual Report and is incorporated herein by reference.

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

During
the fourth quarter ended December 31, 2008, 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,
Executive Officers, and Corporate Governance.

# Directors

The
information with respect to Directors and Nominees of the Corporation, set forth under the
caption Information About Directors and Director Nominees on pages 4 through 7
and under the caption Section 16(a) Beneficial Ownership Reporting Compliance
on page 16 of the Corporations definitive proxy statement, as filed with the
Commission, relating to the April 16, 2009 Annual Meeting of Shareholders, is incorporated
herein by reference.

There
have been no material changes to the procedures by which shareholders may recommend
nominees to the Corporations Board of Directors.

# 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.

-72-

---



# Executive Officers

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

# 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 Director Compensation on pages 6 and
7, Human Resource (Compensation) Committee Report on page 11, Human
Resource (Compensation) Committee Interlocks and Insider Participation on page 11,
and Summary Executive Compensation Table on pages 12 thru 15 of the
Companys definitive proxy statement, as filed with the Commission, relating to the
April 16, 2009 Annual Meeting of Shareholders, is incorporated herein by reference.
Information under the caption Executive Compensation  Compensation Discussion
and Analysis on pages 10 and 11 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 and Related Shareholder Matters.

The
information set forth under the caption Voting Securities and Principal Holders
Thereof on page 2 and Beneficial Ownership on page 16 of the
Companys definitive proxy statement, as filed with the Commission, relating to the
April 16, 2009 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, 2008:

# EQUITY COMPENSATION
PLAN INFORMATION

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

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

-73-

---



# Item 13. Certain
Relationships and Related Transactions and Director Independence.

The
information set forth under the caption Related Party Transactions on page 16
of the Companys definitive proxy statement, as filed with the Commission, relating
to the April 16, 2009 Annual Meeting of Shareholders, is incorporated herein by reference.

Each
of the Corporations directors, other than Patrick Gill, are independent under Nasdaq
listing standards. See the information under Information About Directors and
Director Nominees on pages 4 and 5 of the Companys definitive proxy statement,
as filed with the Commission, relating to the April 16, 2009 Annual Meeting of
Shareholders, for a list of our directors.

# Item 14.  Principal
Accountant Fees and Services.

The
information set forth under the heading Fees of Independent Accountants on
page 17 of the Companys definitive proxy statement, as filed with the Commission,
relating to the April 16, 2009 Annual Meeting of Shareholders, is incorporated herein
by reference.

# PART IV

# Item 15. Exhibits and
Financial Statement Schedules.

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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 6, 2009.

| |  | OAK FINANCIAL CORPORATION/s/ Patrick K. Gill
Patrick K. Gill
President, Chief Executive Officer
(Principal Executive Officere)
| |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ James A. Luyk
James A. Luyk
Executive 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 6, 2009
|--------------------------------------------------------- | -------------

|/s/ Norm J. Fifelski

Norm J. Fifelski | March 6, 2009
|----------------------------------------------------- | -------------

|/s/ Patrick K. Gill

Patrick K. Gill | March 6, 2009
|--------------------------------------------------- | -------------

|/s/ Stephanie L. Leonardos

Stephanie L. Leonardos | March 6, 2009
|----------------------------------------------------------------- | -------------

|/s/ James B. Meyer

James B. Meyer | March 6, 2009
|------------------------------------------------- | -------------

|/s/ Grace O. Shearer

Grace O. Shearer | March 6, 2009
|----------------------------------------------------- | -------------

|/s/ David G. Van Solkema

David G. Van Solkema | March 6, 2009
|------------------------------------------------------------- | -------------

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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, as amended.
|--- | --------------------------------------------------------

|3.2 | 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 Option Agreement 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 Agreement 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.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | 1999
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 | Byron
Bank Deferred Compensation Plan for Directors, effective January 1, 2008, is incorporated
by reference to Exhibit 10.1 of the Registrants Current Report on Form 8-K filed
with the SEC on December 8, 2008.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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|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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