10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

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: 000-25927

MACATAWA BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan	38-3391345
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10753 Macatawa Drive, Holland, Michigan 49424

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (616) 820-1444

Indicate by checkmark 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if 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 ☒

The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 33,866,789 shares of the Company's Common Stock (no par value) were outstanding as of July 23, 2015.

Forward-Looking Statements

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Macatawa Bank Corporation. Forward-looking statements are identifiable by words or phrases such as “outlook”, “plan” or “strategy”; that an event or trend “may”, “should”, “will”, “is likely”, or is “probable” to occur or “continue”, has “begun” or “is scheduled” or “on track” or that the Company or its management “anticipates”, “believes”, “estimates”, “plans”, “forecasts”, “intends”, “predicts”, “projects”, or “expects” a particular result, or is “committed”, “confident”, “optimistic” or has an “opinion” that an event will occur, or other words or phrases such as “ongoing”, “future”, “signs”, “efforts”, “tend”, “exploring”, “appearing”, “until”, “near term”, “going forward”, “focus”, “starting”, “initiative,” “trend” and variations of such words and similar expressions. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, future levels of earning assets, statements related to stabilization of our loan portfolio, trends in credit quality metrics, future capital levels and capital needs, including the impact of Basel III, real estate valuation, future levels of repossessed and foreclosed properties and nonperforming assets, future levels of losses and costs associated with the administration and disposition of repossessed and foreclosed properties and nonperforming assets, future levels of loan charge-offs, future levels of other real estate owned, future levels of provisions for loan losses, the rate of asset dispositions, future dividends, future growth and funding sources, future cost of funds, future liquidity levels, future profitability levels, future FDIC assessment levels, future net interest margin levels, building and improving our investment portfolio, diversifying our credit risk, the effects on earnings of changes in interest rates, future economic conditions, future effects of new or changed accounting standards, future loss recoveries, future balances of short-term investments, future loan demand and loan growth, future levels of mortgage banking revenue and the future level of other revenue sources. Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including deferred tax assets) and other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involves judgments that are inherently forward-looking. All statements with references to future time periods are forward-looking. All of the information concerning interest rate sensitivity is forward-looking. Our ability to sell other real estate owned at its carrying value or at all, successfully implement new programs and initiatives, increase efficiencies, maintain our current levels of deposits and other sources of funding, maintain liquidity, respond to declines in collateral values and credit quality, increase loan volume, originate high quality loans, maintain or improve mortgage banking income, realize the benefit of our deferred tax assets, continue payment of dividends and improve profitability is not entirely within our control and is not assured. The future effect of changes in the real estate, financial and credit markets and the national and regional economy on the banking industry, generally, and Macatawa Bank Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Macatawa Bank Corporation does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

Risk factors include, but are not limited to, the risk factors described in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2014. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

INDEX

		Page Number
Part I.	Financial Information:
	Item 1.
	Consolidated Financial Statements	4
	Notes to Consolidated Financial Statements	10
	Item 2.
	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3.
	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.
	Controls and Procedures	54
Part II.	Other Information:
	Item 6.
	Exhibits	55
Signatures		56

Part I Financial Information

Item 1.

MACATAWA BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

As of June 30, 2015 (unaudited) and December 31, 2014

(Dollars in thousands, except per share data)

	June 30, 2015			December 31, 2014
ASSETS
Cash and due from banks	$	28,853		$	31,503
Federal funds sold and other short-term investments		112,721			97,952
Cash and cash equivalents		141,574			129,455
Interest-bearing time deposits in other financial institutions		20,000			20,000
Securities available for sale, at fair value		158,866			161,874
Securities held to maturity (fair value 2015 - $43,810 and 2014 - $31,428)		43,229			31,585
Federal Home Loan Bank (FHLB) stock		11,558			11,238
Loans held for sale, at fair value		5,114			2,347
Total loans		1,130,024			1,118,483
Allowance for loan losses		(18,181	)		(18,962	)
Net loans		1,111,843			1,099,521
Premises and equipment – net		52,132			52,894
Accrued interest receivable		3,633			3,399
Bank-owned life insurance		28,528			28,195
Other real estate owned - net		26,303			28,242
Net deferred tax asset		10,935			12,265
Other assets		4,299			2,831
Total assets	$	1,618,014		$	1,583,846
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	389,828		$	404,143
Interest-bearing		937,985			902,182
Total deposits		1,327,813			1,306,325
Other borrowed funds		96,836			88,107
Long-term debt		41,238			41,238
Accrued expenses and other liabilities		5,284			5,657
Total liabilities		1,471,171			1,441,327
Commitments and contingent liabilities		---			---
Shareholders' equity
Common stock, no par value, 200,000,000 shares authorized;  33,866,789 shares issued and outstanding at June 30, 2015 and December 31, 2014		216,422			216,460
Retained deficit		(69,629	)		(74,002	)
Accumulated other comprehensive income		50			61
Total shareholders' equity		146,843			142,519
Total liabilities and shareholders' equity	$	1,618,014		$	1,583,846

See accompanying notes to consolidated financial statements.

- 4 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Three and Six Month Periods Ended June 30, 2015 and 2014

(unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Interest income
Loans, including fees	$	11,152		$	10,547		$	22,115		$	21,491
Securities
Taxable		501			499			1,002			998
Tax-exempt		376			264			720			519
FHLB Stock		111			104			228			260
Federal funds sold and other short-term investments		98			114			184			230
Total interest income		12,238			11,528			24,249			23,498
Interest expense
Deposits		610			620			1,229			1,360
Other borrowings		452			426			867			857
Subordinated and long-term debt		331			326			656			650
Total interest expense		1,393			1,372			2,752			2,867
Net interest income		10,845			10,156			21,497			20,631
Provision for loan losses		(500	)		(1,000	)		(1,500	)		(2,000	)
Net interest income after provision for loan losses		11,345			11,156			22,997			22,631
Noninterest income
Service charges and fees		1,097			1,065			2,098			2,056
Net gains on mortgage loans		821			468			1,544			726
Trust fees		723			701			1,457			1,332
ATM and debit card fees		1,219			1,203			2,329			2,255
Gain on sales of securities		---			41			83			51
Other		652			590			1,296			1,158
Total noninterest income		4,512			4,068			8,807			7,578
Noninterest expense
Salaries and benefits		6,134			5,544			12,316			11,367
Occupancy of premises		903			932			1,875			1,940
Furniture and equipment		813			751			1,596			1,591
Legal and professional		191			238			431			443
Marketing and promotion		263			272			568			552
Data processing		648			583			1,226			1,172
FDIC assessment		289			320			571			647
Interchange and other card expense		285			265			560			537
Bond and D&O Insurance		146			163			292			327
Net (gains) losses on repossessed and foreclosed properties		(31	)		371			420			185
Administration and disposition of problem assets		284			516			660			1,172
Other		1,297			1,283			2,569			2,475
Total noninterest expenses		11,222			11,238			23,084			22,408
Income before income tax		4,635			3,986			8,720			7,801
Income tax expense		1,420			1,231			2,665			2,408
Net income	$	3,215		$	2,755		$	6,055		$	5,393
Basic earnings per common share	$	0.09		$	0.08		$	0.18		$	0.16
Diluted earnings per common share	$	0.09		$	0.08		$	0.18		$	0.16
Cash dividends per common share	$	0.03		$	0.02		$	0.05		$	0.04

See accompanying notes to consolidated financial statements.

- 5 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three and Six Month Periods Ended June 30, 2015 and 2014

(unaudited)

(Dollars in thousands)

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Net income	$	3,215		$	2,755		$	6,055		$	5,393
Other comprehensive income:
Unrealized gains:
Net change in unrealized gains (losses) on securities available for sale		(1,214	)		1,190			67			2,334
Tax effect		425			(416	)		(24	)		(817	)
Net change in unrealized gains (losses) on securities available for sale, net of tax		(789	)		774			43			1,517
Less: reclassification adjustments:
Reclassification for gains included in net income		---			41			83			51
Tax effect		---			(14	)		(29	)		(18	)
Reclassification for gains included in net income, net of tax		---			27			54			33
Other comprehensive income, net of tax		(789	)		747			(11	)		1,484
Comprehensive income	$	2,426		$	3,502		$	6,044		$	6,877

See accompanying notes to consolidated financial statements.

- 6 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Six Month Periods Ended June 30, 2015 and 2014

(unaudited)

(Dollars in thousands, except per share data)

	Common Stock			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, January 1, 2014	$	216,263		$	(81,786	)	$	(1,955	)	$	132,522
Net income for the six months ended June 30, 2014		---			5,393			---			5,393
Common stock issuance costs		(102	)		---			---			(102	)
Cash dividends at $.04 per share		---			(1,352	)		---			(1,352	)
Net change in unrealized gain (loss) on securities available for sale, net of tax		---			---			1,484			1,484
Stock compensation expense		147			---			---			147
Balance, June 30, 2014	$	216,308		$	(77,745	)	$	(471	)	$	138,092
Balance, January 1, 2015	$	216,460		$	(74,002	)	$	61		$	142,519
Net income for the six months ended June 30, 2015		---			6,055			---			6,055
Cash dividends at $.05 per share		---			(1,682	)		---			(1,682	)
Net change in unrealized gain (loss) on securities available for sale, net of tax		---			---			(11	)		(11	)
Tax effect of expired common stock warrants		(280	)		---			---			(280	)
Stock compensation expense		242			---			---			242
Balance, June 30, 2015	$	216,422		$	(69,629	)	$	50		$	146,843

See accompanying notes to consolidated financial statements.

- 7 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Month Periods Ended June 30, 2015 and 2014

(unaudited)

(Dollars in thousands)

	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Cash flows from operating activities
Net income	$	6,055		$	5,393
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		1,522			1,558
Stock compensation expense		242			147
Tax effect of expired common stock warrants		(280	)		---
Provision for loan losses		(1,500	)		(2,000	)
Origination of loans for sale		(51,416	)		(26,760	)
Proceeds from sales of loans originated for sale		50,193			27,992
Net gains on mortgage loans		(1,544	)		(726	)
Gain on sales of securities		(83	)		(51	)
Write-down of other real estate		624			661
Net gain on sales of other real estate		(205	)		(476	)
Change in net deferred tax asset		1,336			2,348
Change in accrued interest receivable and other assets		(1,702	)		249
Earnings in bank-owned life insurance		(333	)		(328	)
Change in accrued expenses and other liabilities		(703	)		2,841
Net cash from operating activities		2,206			10,848
Cash flows from investing activities
Loan originations and payments, net		(12,264	)		(2,175	)
Change in interest-bearing deposits in other financial institutions		---			(7,500	)
Purchases of securities available for sale		(19,604	)		(21,210	)
Purchases of securities held to maturity		(11,826	)		---
Purchase FHLB stock		(320	)		---
Proceeds from:
Maturities and calls of securities available for sale		8,944			4,500
Sales of securities available for sale		12,063			5,164
Principal paydowns on securities		1,952			1,675
Sales of other real estate		2,962			7,362
Additions to premises and equipment		(529	)		(910	)
Net cash from investing activities		(18,622	)		(13,094	)
Cash flows from financing activities
Change in deposits		21,488			(34,010	)
Repayments of other borrowed funds		(1,271	)		(1,217	)
Proceeds from other borrowed funds		10,000			---
Cash dividends paid		(1,682	)		(1,352	)
Common stock issuance costs		---			(102	)
Net cash from financing activities		28,535			(36,681	)
Net change in cash and cash equivalents		12,119			(38,927	)
Cash and cash equivalents at beginning of period		129,455			156,892
Cash and cash equivalents at end of period	$	141,574		$	117,965

See accompanying notes to consolidated financial statements.

- 8 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Month Periods Ended June 30, 2015 and 2014

(unaudited)

(Dollars in thousands)

	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Supplemental cash flow information
Interest paid	$	2,758		$	2,873
Income taxes paid		3,675			50
Supplemental noncash disclosures:
Transfers from loans to other real estate		1,442			2,274
Security settlement		(330	)		(553	)

See accompanying notes to consolidated financial statements.

- 9 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Macatawa Bank Corporation ("the Company", "our", "we") and its wholly-owned subsidiary, Macatawa Bank ("the Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation.

Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank operates 26 full service branch offices providing a full range of commercial and consumer banking and trust services in Kent County, Ottawa County, and northern Allegan County, Michigan.

The Company owns all of the common stock of Macatawa Statutory Trust I and Macatawa Statutory Trust II. These are grantor trusts that issued trust preferred securities and are not consolidated with the Company under accounting principles generally accepted in the United States of America.

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) believed necessary for a fair presentation have been included.

Operating results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates:  To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.  The allowance for loan losses, valuation of deferred tax assets, loss contingencies, fair value of other real estate owned and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses: The allowance for loan losses (allowance) is a valuation allowance for probable incurred credit losses inherent in our loan portfolio, increased by the provision for loan losses and recoveries, and decreased by charge-offs of loans. Management believes the allowance for loan losses balance to be adequate based on known and inherent risks in the portfolio, past loan loss experience, information about specific borrower situations and estimated collateral values, economic conditions and other relevant factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the allowance for loan losses.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2015, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

A loan is impaired when, based on current information and events, it is believed to be probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and a concession has been made, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

- 10 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Commercial and commercial real estate loans with relationship balances exceeding $500,000 and an internal risk grading of 6 or worse are evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated and the loan is reported at the present value of estimated future cash flows using the loan’s existing interest rate or at the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and they are not separately identified for impairment disclosures.

Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure, primarily other real estate owned, are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed unless they add value to the property.

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 consequences 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.

We recognize a tax position as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. We recognize interest and penalties related to income tax matters in income tax expense.

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2015 and December 31, 2014, the total notional amount of such agreements was $20.0 million and resulted in a derivative asset with a fair value of $184,000 and $140,000, respectively, which were included in other assets and a derivative liability of $184,000 and $140,000, respectively, which were included in other liabilities.

Reclassifications: Some items in the prior period financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards:

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.  These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required.  The amendments are effective for  annual periods and interim periods within those annual periods beginning after December 15, 2014. Adoption of this ASU by the Company in the first six months of 2015 resulted in five residential real estate properties totaling $657,000 being classified as other real estate owned at June 30, 2015.

- 11 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in this Update change the requirements for reporting discontinued operations.  A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.  The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position.  This Update also requires additional disclosures about discontinued operations including pretax profit or loss, and any ongoing involvement with the discontinued operation.   The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. The impact of adoption of this ASU by the Company was not material.

FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  This update requires creditors to reclassify loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them to other real estate owned. The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor.  The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The impact of adoption of this ASU by the Company was not material.

Newly Issued Not Yet Effective Standards:

FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016.  At the July 9, 2015 FASB meeting, the FASB voted to delay the implementation requirement by one year.  The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.  This update provides guidance related to the accounting for internal-use software accessed through a hosting arrangement (e.g., cloud computing, software as a service, etc.) only if both of the following criteria are met: (1) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty (there is no significant penalty if the customer has the ability to take delivery of the software without incurring significant cost and the ability to use the software separately without significant loss of utility or value); and (2) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. If both of the criteria are present in a hosting arrangement, then the arrangement contains a software license and the customer should generally capitalize and subsequently amortize the cost of the license. If both of the criteria are not present, the customer should account for the arrangement as a service contract (i.e., expense fees as incurred). The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The impact of adoption of this ASU by the Company is not expected to be material.

- 12 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES

The amortized cost and fair value of securities at period-end were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2015
Available for Sale:
U.S. Treasury and federal agency securities	$	70,725		92		(276	)	$	70,541
U.S. Agency MBS and CMOs		14,808		55		(89	)		14,774
Tax-exempt state and municipal bonds		34,903		279		(285	)		34,897
Taxable state and municipal bonds		24,148		316		(39	)		24,425
Corporate bonds and other debt securities		12,705		44		(17	)		12,732
Other equity securities		1,500		---		(3	)		1,497
	$	158,789	$	786	$	(709	)	$	158,866
Held to Maturity
Tax-exempt state and municipal bonds	$	43,229	$	584	$	(3	)	$	43,810
December 31, 2014
Available for Sale:
U.S. Treasury and federal agency securities	$	67,612	$	53	$	(501	)	$	67,164
U. S. Agency MBS and CMOs		16,692		67		(71	)		16,688
Tax-exempt state and municipal bonds		37,203		419		(161	)		37,461
Taxable state and municipal bonds		25,012		351		(70	)		25,293
Corporate bonds and other debt securities		13,762		34		(30	)		13,766
Other equity securities		1,500		2		---			1,502
	$	161,781	$	926	$	(833	)	$	161,874
Held to Maturity:
Tax-exempt state and municipal bonds	$	31,585	$	64	$	(221	)	$	31,428

There were no sales of securities in the three month period ended June 30, 2015.  Proceeds from the sale of securities available for sale were $12.1 million in the six month period ended June 30, 2015 resulting in net gains on sale of $83,000, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $83,000 ($54,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the six month period ended June 30, 2015.   Proceeds from the sale of securities available for sale were $4.6 million in the three month period ended June 30, 2014 and $5.2 million in the six month period ended June 30, 2014 resulting in net gains on sale of $41,000 and $51,000, respectively, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $41,000 ($27,000 net of tax) and $51,000 ($33,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the three and six month periods ended June 30, 2014.

Contractual maturities of debt securities at June 30, 2015 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	21,004	$	21,015	$	5,404	$	5,448
Due from one to five years		8,312		8,481		94,430		94,614
Due from five to ten years		13,813		14,211		40,081		39,935
Due after ten years		100		103		17,374		17,372
	$	43,229	$	43,810	$	157,289	$	157,369

- 13 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (Continued)

Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2015	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	28,741	$	(109	)	$	17,751	$	(167	)	$	46,492	$	(276	)
U.S. Agency MBS and CMOs		8,969		(83	)		985		(6	)		9,954		(89	)
Tax-exempt state and municipal bonds		14,656		(197	)		1,977		(88	)		16,633		(285	)
Taxable state and municipal bonds		5,480		(28	)		1,195		(14	)		6,675		(42	)
Corporate bonds and other debt securities		3,573		(13	)		498		(4	)		4,071		(17	)
Other equity securities		1,500		(3	)		---		---			1,500		(3	)
Total temporarily impaired	$	62,919	$	(433	)	$	22,406	$	(279	)	$	85,325	$	(712	)

	Less than 12 Months					12 Months or More					Total
December 31, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	16,426	$	(45	)	$	35,350	$	(456	)	$	51,776	$	(501	)
U.S. Agency MBS and CMOs		---		---			9,732		(71	)		9,732		(71	)
Tax-exempt state and municipal bonds		26,820		(264	)		4,545		(118	)		31,365		(382	)
Taxable state and municipal bonds		3,982		(19	)		3,240		(51	)		7,222		(70	)
Corporate bonds and other debt securities		4,187		(13	)		1,988		(17	)		6,175		(30	)
Other equity securities		---		---			---		---			---		---
Total temporarily impaired	$	51,415	$	(341	)	$	54,855	$	(713	)	$	106,270	$	(1,054	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Management determined that the unrealized losses for each period were attributable to changes in interest rates and not due to credit quality.  As such, no OTTI charges were necessary during the three and six month periods ended June 30, 2015 and 2014.

Securities with a carrying value of approximately $1.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at June 30, 2015 and December 31, 2014.

- 14 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS

Portfolio loans were as follows (dollars in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	350,202		$	327,674
Commercial real estate:
Residential developed		10,664			12,771
Unsecured to residential developers		7,627			7,496
Vacant and unimproved		44,108			50,372
Commercial development		1,804			4,082
Residential improved		68,591			69,612
Commercial improved		270,145			269,757
Manufacturing and industrial		71,466			76,441
Total commercial real estate		474,405			490,531
Consumer
Residential mortgage		199,972			190,249
Unsecured		764			948
Home equity		95,042			98,887
Other secured		9,639			10,194
Total consumer		305,417			300,278
Total loans		1,130,024			1,118,483
Allowance for loan losses		(18,181	)		(18,962	)
	$	1,111,843		$	1,099,521

Activity in the allowance for loan losses by portfolio segment was as follows (dollars in thousands):

Three months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	8,570		$	3,907		$	29	$	18,680
Charge-offs		(173	)		---			(29	)		---		(202	)
Recoveries		44			117			42			---		203
Provision for loan losses		336			(748	)		(89	)		1		(500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30	$	18,181

Three months ended June 30, 2014	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,087	$	10,372		$	3,875		$	49	$	20,383
Charge-offs		---		(23	)		(69	)		---		(92	)
Recoveries		327		363			68			---		758
Provision for loan losses		307		(1,371	)		59			5		(1,000	)
Ending Balance	$	6,721	$	9,341		$	3,933		$	54	$	20,049

- 15 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

Six months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,173		$	8,690		$	4,046		$	53		$	18,962
Charge-offs		(173	)		---			(107	)		---			(280	)
Recoveries		128			725			146			---			999
Provision for loan losses		253			(1,476	)		(254	)		(23	)		(1,500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30		$	18,181

Six months ended June 30, 2014	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	10,868		$	3,703		$	53	$	20,798
Charge-offs		(39	)		(23	)		(112	)		---		(174	)
Recoveries		366			953			106			---		1,425
Provision for loan losses		220			(2,457	)		236			1		(2,000	)
Ending Balance	$	6,721		$	9,341		$	3,933		$	54	$	20,049

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):

June 30, 2015	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,451	$	610	$	926	$	---	$	3,987
Collectively evaluated for impairment		3,930		7,329		2,905		30		14,194
Total ending allowance balance	$	6,381	$	7,939	$	3,831	$	30	$	18,181
Loans:
Individually reviewed for impairment	$	5,405	$	27,131	$	14,420	$	---	$	46,956
Collectively evaluated for impairment		344,797		447,274		290,997		---		1,083,068
Total ending loans balance	$	350,202	$	474,405	$	305,417	$	---	$	1,130,024

December 31, 2014	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,429	$	743	$	893	$	---	$	4,065
Collectively evaluated for impairment		3,744		7,947		3,153		53		14,897
Total ending allowance balance	$	6,173	$	8,690	$	4,046	$	53	$	18,962
Loans:
Individually reviewed for impairment	$	9,084	$	29,818	$	14,495	$	---	$	53,397
Collectively evaluated for impairment		318,590		460,713		285,783		---		1,065,086
Total ending loans balance	$	327,674	$	490,531	$	300,278	$	---	$	1,118,483

- 16 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015 (dollars in thousands):

June 30, 2015	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	385	$	385	$	---
Commercial real estate:
Residential developed		126		126		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,210		1,210		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	1,595	$	1,595	$	---
With an allowance recorded:
Commercial and industrial	$	5,020	$	5,020	$	2,451
Commercial real estate:
Residential developed		470		470		31
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,401		1,401		34
Commercial development		194		194		5
Residential improved		6,124		6,124		178
Commercial improved		15,307		15,307		342
Manufacturing and industrial		2,425		2,425		20
		25,921		25,921		610
Consumer:
Residential mortgage		9,030		9,030		556
Unsecured		---		---		---
Home equity		5,390		5,390		370
Other secured		---		---		---
		14,420		14,420		926
	$	45,361	$	45,361	$	3,987
Total	$	46,956	$	46,956	$	3,987

- 17 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014 (dollars in thousands):

December 31, 2014	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	3,019	$	3,019	$	---
Commercial real estate:
Residential developed		531		531		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,615		1,615		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	4,634	$	4,634	$	---
With an allowance recorded:
Commercial and industrial	$	6,065	$	6,065	$	2,429
Commercial real estate:
Residential developed		550		550		35
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,499		1,499		43
Commercial development		199		199		5
Residential improved		7,323		7,323		240
Commercial improved		16,113		16,113		389
Manufacturing and industrial		2,519		2,519		31
		28,203		28,203		743
Consumer:
Residential mortgage		9,492		9,484		584
Unsecured		---		---		---
Home equity		5,182		5,011		309
Other secured		---		---		---
		14,674		14,495		893
	$	48,942	$	48,763	$	4,065
Total	$	53,576	$	53,397	$	4,065

- 18 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Average of impaired loans during the period:
Commercial and industrial	$	7,084	$	11,908	$	8,394	$	13,096
Commercial real estate:
Residential developed		682		4,085		810		4,308
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		1,416		1,650		1,453		1,735
Commercial development		195		483		196		505
Residential improved		7,018		9,863		7,340		10,141
Commercial improved		16,363		18,133		16,561		18,212
Manufacturing and industrial		2,650		6,404		2,678		6,562
Consumer		14,583		14,400		14,683		14,408
Interest income recognized during impairment:
Commercial and industrial		292		273		618		611
Commercial real estate		336		454		692		907
Consumer		128		137		264		269
Cash-basis interest income recognized
Commercial and industrial		292		276		620		615
Commercial real estate		334		471		685		922
Consumer		128		137		267		271

- 19 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014:

June 30, 2015	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	2,392	$	---
Commercial real estate:
Residential developed		174		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		589		---
Commercial improved		376		---
Manufacturing and industrial		---		---
		1,188		---
Consumer:
Residential mortgage		2		---
Unsecured		34		---
Home equity		11		72
Other secured		17		---
		64		72
Total	$	3,644	$	72

December 31, 2014	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	5,605	$	---
Commercial real estate:
Residential developed		245		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		29		---
Residential improved		766		---
Commercial improved		866		117
Manufacturing and industrial		---		---
		1,906		117
Consumer:
Residential mortgage		305		---
Unsecured		40		---
Home equity		436		17
Other secured		---		---
		781		17
Total	$	8,292	$	134

- 20 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans (dollars in thousands):

June 30, 2015	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	124	$	6	$	130	$	350,072	$	350,202
Commercial real estate:
Residential developed		---		---		---		10,664		10,664
Unsecured to residential developers		---		---		---		7,627		7,627
Vacant and unimproved		---		---		---		44,108		44,108
Commercial development		---		49		49		1,755		1,804
Residential improved		20		440		460		68,131		68,591
Commercial improved		682		197		879		269,266		270,145
Manufacturing and industrial		---		---		---		71,466		71,466
		702		686		1,388		473,017		474,405
Consumer:
Residential mortgage		234		---		234		199,738		199,972
Unsecured		16		---		16		748		764
Home equity		29		72		101		94,941		95,042
Other secured		---		17		17		9,622		9,639
		279		89		368		305,049		305,417
Total	$	1,105	$	781	$	1,886	$	1,128,138	$	1,130,024

December 31, 2014	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	54	$	---	$	54	$	327,620	$	327,674
Commercial real estate:
Residential developed		---		---		---		12,771		12,771
Unsecured to residential developers		---		---		---		7,496		7,496
Vacant and unimproved		100		---		100		50,272		50,372
Commercial development		---		29		29		4,053		4,082
Residential improved		100		440		540		69,072		69,612
Commercial improved		---		958		958		268,799		269,757
Manufacturing and industrial		---		---		---		76,441		76,441
		200		1,427		1,627		488,904		490,531
Consumer:
Residential mortgage		338		303		641		189,608		190,249
Unsecured		---		18		18		930		948
Home equity		79		422		501		98,386		98,887
Other secured		---		---		---		10,194		10,194
		417		743		1,160		299,118		300,278
Total	$	671	$	2,170	$	2,841	$	1,115,642	$	1,118,483

- 21 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The Company had allocated $3,987,000 and $4,065,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDRs”) as of June 30, 2015 and December 31, 2014, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  The Company has been active at utilizing these programs and working with its customers to reduce the risk of foreclosure.  For commercial loans, these modifications typically include an interest only period and, in some cases, a lowering of the interest rate on the loan.  In some cases, the modification will include separating the note into two notes with the first note structured to be supported by current cash flows and collateral, and the second note made for the remaining unsecured debt.  The second note is charged off immediately and collected only after the first note is paid in full.  This modification type is commonly referred to as an A-B note structure.  For consumer mortgage loans, the restructuring typically includes a lowering of the interest rate to provide payment and cash flow relief.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

Based upon recently issued regulatory guidance, the Company has determined that in situations where there is a subsequent modification or renewal and the loan is brought to market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, the TDR and impaired loan designations may be removed.  This guidance was first applied to loans outstanding at September 30, 2014 resulting in a reduction of $5.9 million in loans designated as TDR and impaired.  In addition, the TDR designation may also be removed from loans modified under an A-B note structure.  If the remaining “A” note is at a market rate at the time of restructuring (taking into account the borrower’s credit risk and prevailing market conditions), the loan can be removed from TDR designation in a subsequent calendar year after six months of performance in accordance with the new terms.  The market rate relative to the borrower’s credit risk is determined through analysis of market pricing information gathered from peers and use of a loan pricing model.  The general objective of the model is to achieve a consistent return on equity from one credit to the next, taking into consideration differences in credit risk.  In the model, credits with higher risk receive a higher potential loss allocation, and therefore require a higher interest rate to achieve the target return on equity.

As with other impaired loans, an allowance for loan loss is estimated for each TDR based on the most likely source of repayment for each loan.  For impaired commercial real estate loans that are collateral dependent, the allowance is computed based on the fair value of the underlying collateral, less estimated costs to sell.  For impaired commercial loans where repayment is expected from cash flows from business operations, the allowance is computed based on a discounted cash flow computation.  Certain groups of TDRs, such as residential mortgages, have common characteristics and for them the allowance is computed based on a discounted cash flow computation on the change in weighted rate for the pool.  The allowance allocations for commercial TDRs where we have reduced the contractual interest rate are computed by measuring cash flows using the new payment terms discounted at the original contractual rate.

The following table presents information regarding troubled debt restructurings as of June 30, 2015 and December 31, 2014 (dollars in thousands):

	June 30, 2015				December 31, 2014
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		36	$	5,405		36	$	9,085
Commercial real estate		74		27,131		84		29,817
Consumer		132		14,420		106		14,495
		242	$	46,956		226	$	53,397

- 22 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents information related to accruing troubled debt restructurings as of June 30, 2015 and December 31, 2014.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2015		December 31, 2014
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		43,617		46,197
Accruing TDR - upgraded to accruing after six consecutive payments		---		---
	$	43,617	$	46,197

The following tables present information regarding troubled debt restructurings executed during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

Three Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		---			---			---
Consumer		2			72			---
		2		$	72		$	---

Three Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		6			1,783			---
Consumer		1			70			---
		7		$	1,853		$	---

Six Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	408	$	---
Commercial real estate		1		42		---
Consumer		31		753		---
		33	$	1,203	$	---

Six Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	60	$	---
Commercial real estate		10		4,046		---
Consumer		2		74		---
		13	$	4,180	$	---

- 23 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

According to the accounting standards, not all loan modifications are TDRs.  TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress.  The Company reviews all modifications and renewals for determination of TDR status.  In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession.  These modifications are not considered TDRs.  In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress.  This could be the case if the Company is matching a competitor’s interest rate.  These modifications would also not be considered TDRs.  Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs.  As with other loans not considered TDR or impaired, allowance allocations are based on the historical based allocation for the applicable loan grade and loan class.

The tables below present, by class, information regarding troubled debt restructured loans which had payment defaults during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands). Included are loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring.

	Three Months Ended June 30, 2015					Three Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		---			---
Consumer		---			---		---			---

	Six Months Ended June 30, 2015					Six Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		1			131
Consumer		---			---		---			---

- 24 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

Credit Quality Indicators:The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Company analyzes commercial loans individually and classifies these relationships by credit risk grading.  The Company uses an eight point grading system, with grades 5 through 8 being considered classified, or watch, credits.  All commercial loans are assigned a grade at origination, at each renewal or any amendment.  When a credit is first downgraded to a watch credit (either through renewal, amendment, loan officer identification or the loan review process), an Administrative Loan Review (“ALR”) is generated by the credit department and the loan officer.  All watch credits have an ALR completed monthly which analyzes the collateral position and cash flow of the borrower and its guarantors.  The loan officer is required to complete both a short term and long term plan to rehabilitate or exit the credit and to give monthly comments on the progress to these plans.  Management meets quarterly with loan officers to discuss each of these credits in detail and to help formulate solutions where progress has stalled.  When necessary, the loan officer proposes changes to the assigned loan grade as part of the ALR.  Additionally, Loan Review reviews all loan grades upon origination, renewal or amendment and again as loans are selected though the loan review process.  The credit will stay on the ALR until either its grade has improved to a 4 or the credit relationship is at a zero balance.  The Company uses the following definitions for the risk grades:

1. Excellent - Loans supported by extremely strong financial condition or secured by the Bank’s own deposits. Minimal risk to the Bank and the probability of serious rapid financial deterioration is extremely small.

2. Above Average - Loans supported by sound financial statements that indicate the ability to repay or borrowings secured (and margined properly) with marketable securities. Nominal risk to the Bank and probability of serious financial deterioration is highly unlikely. The overall quality of these credits is very high.

3. Good Quality - Loans supported by satisfactory asset quality and liquidity, good debt capacity coverage, and good management in all critical positions. Loans are secured by acceptable collateral with adequate margins. There is a slight risk of deterioration if adverse market conditions prevail.

4. Acceptable Risk - Loans carrying an acceptable risk to the Bank, which may be slightly below average quality. The borrower has limited financial strength with considerable leverage. There is some probability of deterioration if adverse market conditions prevail. These credits should be monitored closely by the Relationship Manager.

5. Marginally Acceptable - Loans are of marginal quality with above normal risk to the Bank. The borrower shows acceptable asset quality but very little liquidity with high leverage. There is inconsistent earning performance without the ability to sustain adverse market conditions. The primary source of repayment is questionable, but the secondary source of repayment still remains an option. Very close attention by the Relationship Manager and management is needed.

6. Substandard - Loans are inadequately protected by the net worth and paying capacity of the borrower or the collateral pledged. The primary and secondary sources of repayment are questionable. Heavy debt condition may be evident and volume and earnings deterioration may be underway. It is possible that the Bank will sustain some loss if the deficiencies are not immediately addressed and corrected.

7. Doubtful - Loans supported by weak or no financial statements, as well as the ability to repay the entire loan, are questionable. Loans in this category are normally characterized less than adequate collateral, insolvent, or extremely weak financial condition. A loan classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses makes collection or liquidation in full highly questionable. The possibility of loss is extremely high, however, activity may be underway to minimize the loss or maximize the recovery.

8. Loss - Loans are considered uncollectible and of little or no value as a bank asset.

- 25 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

As of June 30, 2015 and December 31, 2014, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2015		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	239	$	10,932	$	133,304	$	192,471	$	9,845	$	1,019	$	2,392	$	---	$	350,202
Commercial real estate:
Residential developed		---		---		2,204		4,917		2,563		806		174		---		10,664
Unsecured to residential developers		---		---		---		7,627		---		---		---		---		7,627
Vacant and unimproved		---		---		15,701		21,548		6,859		---		---		---		44,108
Commercial development		---		---		---		1,362		199		194		49		---		1,804
Residential improved		---		---		16,155		44,748		5,283		1,816		589		---		68,591
Commercial improved		---		4,782		56,518		184,891		21,022		2,556		376		---		270,145
Manufacturing & industrial		---		1,196		28,190		37,096		4,663		321		---		---		71,466
	$	239	$	16,910	$	252,072	$	494,660	$	50,434	$	6,712	$	3,580	$	---	$	824,607

December 31, 2014		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	343	$	11,177	$	118,382	$	182,651	$	8,448	$	1,068	$	5,605	$	---	$	327,674
Commercial real estate:
Residential developed		---		---		2,491		4,702		4,491		842		245		---		12,771
Unsecured to residential developers		---		---		---		7,496		---		---		---		---		7,496
Vacant and unimproved		---		---		12,105		30,997		7,241		29		---		---		50,372
Commercial development		---		---		---		3,643		211		199		29		---		4,082
Residential improved		---		103		16,291		43,928		6,428		2,096		766		---		69,612
Commercial improved		---		4,392		61,543		178,169		20,558		4,229		866		---		269,757
Manufacturing & industrial		---		1,508		27,396		42,494		4,713		330		---		---		76,441
	$	343	$	17,180	$	238,208	$	494,080	$	52,090	$	8,793	$	7,511	$	---	$	818,205

Commercial loans rated a 6 or worse per the Company’s internal risk rating system are considered substandard, doubtful or loss. Commercial loans classified as substandard or worse were as follows at period-end (dollars in thousands):

	June 30, 2015			December 31, 2014
Not classified as impaired		$	1,891		$	4,220
Classified as impaired			8,401			12,084
Total commercial loans classified substandard or worse		$	10,292		$	16,304

- 26 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in consumer loans based on payment activity (dollars in thousands):

June 30, 2015	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	199,972		$	764		$	94,970		$	9,622
Nonperforming			---			---			72			17
Total		$	199,972		$	764		$	95,042		$	9,639

December 31, 2014	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	189,946		$	930		$	98,465		$	10,194
Nonperforming			303			18			422			---
Total		$	190,249		$	948		$	98,887		$	10,194

NOTE 4 – OTHER REAL ESTATE OWNED

Other real estate owned was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Year Ended December 31, 2014				Six Months Ended June 30, 2014
Beginning balance		$	43,071			$	53,501			$	53,501
Additions, transfers from loans			1,442				4,932				2,274
Proceeds from sales of other real estate owned			(2,962	)			(12,487	)			(7,362	)
Valuation allowance reversal upon sale			(427	)			(3,499	)			(2,564	)
Gain (loss) on sale of other real estate owned			205				624				476
			41,329				43,071				46,325
Less: valuation allowance			(15,026	)			(14,829	)			(14,802	)
Ending balance		$	26,303			$	28,242			$	31,523

Activity in the valuation allowance was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
Beginning balance		$	14,829			$	16,705
Additions charged to expense			624				661
Reversals upon sale			(427	)			(2,564	)
Ending balance		$	15,026			$	14,802

- 27 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value include:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Investment Securities: The fair values of investment securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).  The fair values of certain securities held to maturity are determined by computing discounted cash flows using observable and unobservable market inputs (Level 3 inputs).

Loans Held for Sale: The fair value of loans held for sale is based upon binding quotes from third party investors (Level 2 inputs).

Impaired Loans: Loans identified as impaired are measured using one of three methods: the loan’s observable market price, the fair value of collateral or the present value of expected future cash flows.  For each period presented, no impaired loans were measured using the loan’s observable market price.  If an impaired loan has had a chargeoff or if the fair value of the collateral is less than the recorded investment in the loan, we establish a specific reserve and report the loan as nonrecurring Level 3.  The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Other real estate owned (OREO) properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis.  Adjustments to OREO are measured at fair value, less costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification.  In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as nonrecurring Level 3.

Interest Rate Swaps:   For interest rate swap agreements, we measure fair value utilizing pricing provided by a third-party pricing source that that uses market observable inputs, such as forecasted yield curves, and other unobservable inputs and accordingly, interest rate swap agreements are classified as Level 3.

- 28 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
U.S. Treasury and federal agency securities	$	70,541		$	---	$	70,541	$	---
U.S. Agency MBS and CMOs		14,774			---		14,774		---
Tax-exempt state and municipal bonds		34,897			---		34,897		---
Taxable state and municipal bonds		24,425			---		24,425		---
Corporate bonds and other debt securities		12,732			---		12,732		---
Other equity securities		1,497			---		1,497		---
Loans held for sale		5,114			---		5,114		---
Interest rate swaps		184			---		---		184
Interest rate swaps		(184	)		---		---		(184	)
December 31, 2014
U.S. Treasury and federal agency securities	$	67,164		$	---	$	67,164	$	---
U.S. Agency MBS and CMOs		16,688			---		16,688		---
Tax-exempt state and municipal bonds		37,461			---		37,461		---
Taxable state and municipal bonds		25,293			---		25,293		---
Corporate bonds and other debt securities		13,766			---		13,766		---
Other equity securities		1,502			---		1,502		---
Loans held for sale		2,347			---		2,347		---
Interest rate swaps		140			---		---		140
Interest rate swaps		(140	)		---		---		(140	)

Assets measured at fair value on a non-recurring basis are summarized below (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
Impaired loans	$	7,779	$	---	$	---	$	7,779
Other real estate owned		22,577		---		---		22,577
December 31, 2014
Impaired loans	$	12,649	$	---	$	---	$	12,649
Other real estate owned		22,472		---		---		22,472

- 29 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis were as follows at period end (dollars in thousands):

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2015
Impaired Loans	$	7,779	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	11.0
Other real estate owned		22,577	Sales comparison approach	Adjustment for differences between comparable sales		4.5	to	22.0
			Income approach	Capitalization rate		9.5	to	11.0

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2014
Impaired Loans	$	12,649	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	12.0
Other real estate owned		22,472	Sales comparison approach	Adjustment for differences between comparable sales		3.0	to	22.7
			Income approach	Capitalization rate		9.5	to	12.0

- 30 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2015 and December 31, 2014 (dollars in thousands).

	Level in	June 30, 2015						December 31, 2014
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	28,853		$	28,853		$	31,503		$	31,503
Cash equivalents	Level 2		112,721			112,721			97,952			97,952
Interest-bearing time deposits in other financial institutions	Level 2		20,000			20,052			20,000			20,062
Securities held to maturity	Level 3		43,229			43,810			31,585			31,428
FHLB stock			11,558		NA				11,238		NA
Loans, net	Level 2		1,104,063			1,097,584			1,086,872			1,082,675
Bank owned life insurance	Level 3		28,528			28,528			28,195			28,195
Accrued interest receivable	Level 2		3,633			3,633			3,399			3,399
Financial liabilities
Deposits	Level 2		(1,327,813	)		(1,327,724	)		(1,306,325	)		(1,306,671	)
Other borrowed funds	Level 2		(96,836	)		(97,555	)		(88,107	)		(89,066	)
Long-term debt	Level 2		(41,238	)		(35,626	)		(41,238	)		(35,396	)
Accrued interest payable	Level 2		(283	)		(283	)		(289	)		(289	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

The methods and assumptions used to estimate fair value are described as follows.

Carrying amount is the estimated fair value for cash and cash equivalents, bank owned life insurance, accrued interest receivable and payable, demand deposits, short-term borrowings and variable rate loans or deposits that reprice frequently and fully. Security fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities as discussed above. For fixed rate loans, interest-bearing time deposits in other financial institutions, 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 (including consideration of widening credit spreads). Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet credit-related items is not significant.

- 31 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – DEPOSITS

Deposits are summarized as follows (in thousands):

	June 30, 2015		December 31, 2014
Noninterest-bearing demand	$	389,828	$	404,143
Interest bearing demand		348,490		340,053
Savings and money market accounts		490,258		442,246
Certificates of deposit		99,237		119,883
	$	1,327,813	$	1,306,325

Approximately $37.8 million and $50.1 million in certificates of deposit were in denominations of $100,000 or more at June 30, 2015 and December 31, 2014, respectively.

NOTE 7 - OTHER BORROWED FUNDS

Other borrowed funds include advances from the Federal Home Loan Bank and borrowings from the Federal Reserve Bank.

Federal Home Loan Bank Advances

At period-end, advances from the Federal Home Loan Bank were as follows (dollars in thousands):

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2015
Single maturity fixed rate advances	$	90,000	August 2016 to March 2020		1.69	%
Amortizable mortgage advances		6,836	March 2018 to July 2018		3.76	%
	$	96,836

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2014
Single maturity fixed rate advances	$	80,000	August 2016 to February 2019		1.69	%
Amortizable mortgage advances		8,107	March 2018 to July 2018		3.78	%
	$	88,107

Each advance is subject to a prepayment fee if paid prior to its maturity date.  Fixed rate advances are payable at maturity.   Amortizable mortgage advances are fixed rate advances with scheduled repayments based upon amortization to maturity.  These advances were collateralized by residential and commercial real estate loans totaling $436,914,000 and $441,252,000 under a blanket lien arrangement at June 30, 2015 and December 31, 2014, respectively.

- 32 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - OTHER BORROWED FUNDS (Continued)

Scheduled repayments of FHLB advances as of June 30, 2015 were as follows (in thousands):

2015	$	667
2016		21,996
2017		2,055
2018		52,118
2019		10,000
Thereafter		10,000
	$	96,836

Federal Reserve Bank borrowings

The Company has a financing arrangement with the Federal Reserve Bank.  There were no borrowings outstanding at June 30, 2015 and December 31, 2014, and the Company had approximately $21.6 million and $22.8 million in unused borrowing capacity based on commercial and mortgage loans pledged to the Federal Reserve Bank totaling $24.2 million and $25.9 million at June 30, 2015 and December 31, 2014, respectively.

NOTE 8 - EARNINGS PER COMMON SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2015 and 2014 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Net income available to common shares	$	3,215	$	2,755	$	6,055	$	5,393
Weighted average shares outstanding, including participating stock awards - Basic		33,866,789		33,788,431		33,866,789		33,789,481
Dilutive potential common shares:
Stock options		---		---		---		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,866,789		33,788,431		33,866,789		33,789,481
Basic earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16
Diluted earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16

Stock options for 258,361 shares of common stock for both the three and six month periods ended June 30, 2015 were not considered in computing diluted earnings per share because they were antidilutive.  Stock options for 355,328 shares of common stock for both the three and six month periods ended June 30, 2014 were not considered in computing diluted earnings per share because they were antidilutive.

- 33 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Current	$	676	$	36	$	1,329	$	60
Deferred		744		1,195		1,336		2,348
	$	1,420	$	1,231	$	2,665	$	2,408

The difference between the financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income was reconciled as follows (dollars in thousands):

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	1,622		$	1,395		$	3,052		$	2,730
Add (deduct)
Tax-exempt interest income		(127	)		(89	)		(244	)		(174	)
Bank-owned life insurance		(60	)		(61	)		(117	)		(115	)
Other, net		(15	)		(14	)		(26	)		(33	)
	$	1,420		$	1,231		$	2,665		$	2,408

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.  No valuation allowance was necessary at June 30, 2015 or December 31, 2014.

- 34 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - FEDERAL INCOME TAXES (Continued)

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

	June 30, 2015			December 31, 2014
Deferred tax assets
Allowance for loan losses	$	6,363		$	6,637
Nonaccrual loan interest		1,037			935
Valuation allowance on other real estate owned		5,259			5,190
Unrealized loss on securities available for sale		---			---
Other		551			1,896
Gross deferred tax assets		13,210			14,658
Valuation allowance		---			---
Total net deferred tax assets		13,210			14,658
Deferred tax liabilities
Depreciation		(1,792	)		(1,908	)
Prepaid expenses		(21	)		(21	)
Unrealized gain on securities available for sale		(27	)		(33	)
Other		(435	)		(431	)
Gross deferred tax liabilities		(2,275	)		(2,393	)
Net deferred tax asset	$	10,935		$	12,265

There were no unrecognized tax benefits at June 30, 2015 or December 31, 2014 and the Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company is no longer subject to examination by the Internal Revenue Service for years before 2012.

NOTE 10 – COMMITMENTS AND OFF BALANCE-SHEET RISK

Some financial instruments are used to meet customer financing needs and to reduce exposure to interest rate changes.  These financial instruments include commitments to extend credit and standby letters of credit.  These involve, to varying degrees, credit and interest rate risk in excess of the amount reported in the financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment, and generally have fixed expiration dates.  Standby letters of credit are conditional commitments to guarantee a customer’s performance to a third party.  Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit and standby letters of credit.  Collateral or other security is normally not obtained for these financial instruments prior to their use and many of the commitments are expected to expire without being used.

A summary of the contractual amounts of financial instruments with off‑balance‑sheet risk was as follows at period-end (dollars in thousands):

	June 30, 2015		December 31, 2014
Commitments to make loans	$	139,330	$	81,274
Letters of credit		13,027		11,862
Unused lines of credit		391,015		389,099

The notional amount of commitments to fund mortgage loans to be sold into the secondary market was approximately $24.2 million and $14.2 million at June 30, 2015 and December 31, 2014, respectively.

- 35 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – COMMITMENTS AND OFF BALANCE-SHEET RISK (Continued)

At June 30, 2015, approximately 43.7% of the Bank’s commitments to make loans were at fixed rates, offered at current market rates.  The remainder of the commitments to make loans were at variable rates tied to prime and generally expire within 30 days.  The majority of the unused lines of credit were at variable rates tied to prime.

NOTE 11 – CONTINGENCIES

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business. On January 27, 2014, the Company’s former Chairman and Chief Executive Officer, Mr. Benj. A. Smith III, commenced legal action against the Company claiming that the Company breached an alleged employment agreement pursuant to which he claimed entitlement to $20,833 monthly for a period of six years from the date of his resignation in February 2009.  On February 10, 2015, the Company entered into a settlement agreement with Mr. Smith related to this litigation.  A liability of $516,000, net of insurance proceeds, was accrued and the related expense was included in other noninterest expense at December 31, 2014.  The amounts due were paid to Mr. Smith during the first quarter of 2015.   As of June 30, 2015, there were no material pending legal proceedings to which we or any of our subsidiaries are a party or which any of our properties are the subject.

NOTE 12 – SHAREHOLDERS' EQUITY

Regulatory Capital

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

In July 2013, the Board of Governors of the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.

- 36 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – SHAREHOLDERS' EQUITY (Continued)

At June 30, 2015 and December 31, 2014, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
CET1 capital (to risk weighted assets)
Consolidated	$	146,392		10.9	%	$	60,626		4.5	%		N/A		N/A
Bank		181,020		13.4			60,615		4.5		$	87,555		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		186,392		13.8			80,834		6.0			N/A		N/A
Bank		181,020		13.4			80,820		6.0			107,759		8.0
Total capital (to risk weighted assets)
Consolidated		203,249		15.1			107,779		8.0			N/A		N/A
Bank		197,874		14.7			107,759		8.0			134,699		10.0
Tier 1 capital (to average assets)
Consolidated		186,392		11.7			63,720		4.0			N/A		N/A
Bank		181,020		11.4			63,650		4.0			79,563		5.0
December 31, 2014
Tier 1 capital (to risk weighted assets)
Consolidated	$	174,084		14.3	%	$	48,706		4.0	%		N/A		N/A
Bank		170,983		14.0			48,788		4.0		$	73,182		6.0	%
Total capital (to risk weighted assets)
Consolidated		189,353		15.6			97,420		8.0			N/A		N/A
Bank		186,276		15.3			97,575		8.0			121,969		10.0
Tier 1 capital (to average assets)
Consolidated		174,084		11.6			59,998		4.0			N/A		N/A
Bank		170,983		11.4			59,923		4.0			74,904		5.0

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2015 and December 31, 2014, respectively, qualified as Tier 1 capital. Refer to our 2014 Form 10-K for more information on the trust preferred securities.

The Bank was categorized as "well capitalized" at June 30, 2015 and December 31, 2014.

Warrants

In 2009 the Company and Macatawa Bank entered into a Settlement and Release and Stock and Warrant Issuance Agreement in connection with legal proceedings related to Trade Partners, Inc.  In connection with the Settlement, the Company issued warrants to purchase a total of 1,478,811 shares of common stock at an exercise price of $9.00 per share.  The fair value of the warrants issued was $806,000 and was recorded in Common Stock based upon $0.54 per warrant as determined using a Black-Scholes model.  The warrants were issued in two issuances.  1,361,753 warrants were issued on June 18, 2009 and these warrants expired on June 17, 2015 (five years after commencement of exercise period), with 392 warrants having been executed during the exercise period.  The remaining warrants expired unused.  117,058 warrants were issued on July 28, 2009 and these warrants expire on July 27, 2015 (five years after commencement of exercise period).

- 37 -

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Macatawa Bank Corporation is a Michigan corporation and a registered bank holding company. It wholly-owns Macatawa Bank, Macatawa Statutory Trust I and Macatawa Statutory Trust II. Macatawa Bank is a Michigan chartered bank with depository accounts insured by the FDIC. The Bank operates twenty-six branch offices and a lending and operational service facility, providing a full range of commercial and consumer banking and trust services in Kent County, Ottawa County, and northern Allegan County, Michigan. Macatawa Statutory Trusts I and II are grantor trusts and issued $20.0 million each of pooled trust preferred securities. These trusts are not consolidated in our Consolidated Financial Statements. For further information regarding consolidation, see the Notes to the Consolidated Financial Statements.

At June 30, 2015, we had total assets of $1.62 billion, total loans of $1.13 billion, total deposits of $1.33 billion and shareholders' equity of $146.8 million.  During the second quarter of 2015, we recognized net income of $3.2 million compared to net income of $2.8 million in the second quarter of 2014.  The Bank was categorized as “well capitalized” under regulatory capital standards at June 30, 2015.

We paid a dividend of $0.02 per share in each quarter in 2014 and in the first quarter of 2015, and increased the paid dividend to $0.03 per share in the second quarter of 2015.

RESULTS OF OPERATIONS

Summary: Net income for the quarter ended June 30, 2015 was $3.2 million, compared to net income of $2.8 million in the second quarter of 2014. Net income per common share on a diluted basis was $0.09 for the second quarter of 2015 and $0.08 for the second quarter of 2014.  For the first six months ended June 30, 2015, net income was $6.1 million, compared to $5.4 million for the same period in 2014.  Net income per share on a diluted basis for the six months ended June 30, 2015 was $0.18 compared to $0.16 for the same period in 2014.

The increase in earnings in the second quarter of 2015 compared to the second quarter of 2014, as well as for the year to date six month periods, was primarily due to growth in net interest income resulting from growth in earning assets, continued reductions in our nonperforming asset expenses, and increases in income from mortgage banking activities.  Nonperforming asset expenses (including administration costs and losses) were $253,000 for the second quarter of 2015 compared to $887,000 for the second quarter of 2014.  For the six months ended June 30, 2015, nonperforming asset expenses were $1.1 million compared to $1.4 million for the same period in 2014.  We took negative provisions for loan losses in the second quarters of 2015 and 2014 and the first six months of 2015 and 2014.  The provision for loan losses was a negative $500,000  for the three month period ended June 30, 2015 compared to a negative $1.0 million for the same period in 2014 and a negative $1.5 million in the first six months of 2015 compared to a negative $2.0 million for the same period in 2014.  We were in a net loan recovery position for the second quarter of 2015, with $1,000 in net loan recoveries, compared to $666,000 in net loan recoveries in the second quarter of 2014.  Mortgage banking volume was up in both the three and six month periods ended June 30, 2015, resulting in an increase in net gains on sales of residential mortgages from $468,000 in the second quarter of 2014 to $821,000 in the second quarter of 2015 and $1.5 million in the first six months of 2015 compared to $726,000 in the first six months of 2014.  Lost interest from elevated levels of nonperforming assets was approximately $350,000 and $765,000, respectively, for the three and six months ended June 30, 2015 compared to $456,000 and $1.0 million, respectively, for the three and six months ended June 30, 2014.

Net Interest Income: Net interest income totaled $10.8 million for second quarter of 2015 compared to $10.2 million for the second quarter of 2014.  For the first six months of 2015, net interest income was $21.5 million compared to $20.6 million for the same period in 2013.

Net interest income was positively impacted in the second quarter of 2015 by an increase in average earning assets of $122.2 million compared to the second quarter of 2014.  Our average yield on earning assets for the second quarter of 2015 decreased 8 basis points compared to the same period in 2014 from 3.47% to 3.39%.  Average interest earning assets totaled $1.46 billion for the second quarter of 2015 compared to $1.38 billion for the second quarter of 2014. The net interest margin was 3.01% for the second quarter of 2015 compared to 3.06% for the second quarter of 2014.  Increases of $99.8 million in average loans and $26.1 million in average securities between periods mitigated the impact of reduction in average loan yield from 4.02% in the second quarter of 2014 to 3.87% in the second quarter of 2015.

- 38 -

Average interest earning assets increased to $1.44 billion for the first six months of 2015, compared to $1.34 billion for the first six months of 2014.  Our average yield on earning assets declined 10 basis points for the first half of 2015 in comparison to the same period in 2014.  Our net interest margin was 3.04% for the first six months of 2015 compared to 3.11% for the same period in 2014.  Net interest income was positively impacted in the first six months of 2014 due in part to a one-time recovery of interest of $337,000 on a previously charged off loan in the first quarter of 2014.

The decreases in yields on interest earning assets for the three and six month periods ended June 30, 2015 were primarily due to new loan volume containing lower risk, high credit quality loans resulting in lower interest rates.  Also impacting the yields in these periods was the downward repricing of certain loans in this extended low interest rate environment.  The yield on our commercial, residential and consumer loan portfolios decreased in these periods, but at a slower pace than experienced in recent periods.  For the six month period ended June 30, 2014, a one-time recovery of interest on a previously charged off loan partially offset the decreases in the yield on our commercial, residential and consumer loan portfolios.

We believe the bulk of our loans subject to repricing in this low interest rate environment have already repriced and that our portfolio rates have now stabilized.  As we are now experiencing loan growth and continue to deploy our excess liquidity, net interest margin should be positively impacted.

The cost of funds decreased 3 basis points to 0.52% in the second quarter of 2015 from 0.55% in the same period in 2014. The cost of funds decreased 5 basis points to 0.52% for the six months ended June 30, 2015 compared to 0.57% for the same period in 2014.  A decrease in the rates paid on our savings and money market accounts in response to declining market rates within the current rate environment caused the reduction in our cost of funds. Also contributing to the reduction was a shift in our deposit mix from higher costing time deposits to lower costing demand and savings accounts.

- 39 -

The following table shows an analysis of net interest margin for the three month periods ended June 30, 2015 and 2014.
 

	For the three months ended June 30,
	2015								2014
	Average Balance			Interest Earned or paid		Average Yield or cost			Average Balance			Interest Earned or paid		Average Yield or cost
	(Dollars in thousands)
Assets
Taxable securities	$	119,892		$	501		1.67	%	$	119,876		$	499		1.66	%
Tax-exempt securities (1)		77,650			376		3.17	%		51,555			264		3.26	%
Loans (2)		1,141,373			11,152		3.87	%		1,041,612			10,547		4.02	%
Federal Home Loan Bank stock		11,361			111		3.86	%		11,236			104		3.66	%
Federal funds sold and other short-term investments		109,749			98		0.36	%		113,543			114		0.40	%
Total interest earning assets (1)		1,460,025			12,238		3.39	%		1,337,822			11,528		3.47	%
Noninterest earning assets:
Cash and due from banks		25,163								24,969
Other		109,177								114,323
Total assets	$	1,594,365							$	1,477,114
Liabilities
Deposits:
Interest bearing demand	$	344,471			102		0.12	%	$	271,295			68		0.10	%
Savings and money market accounts		474,383			219		0.19	%		451,957			216		0.19	%
Time deposits		114,356			289		1.01	%		141,908			336		0.95	%
Borrowings:
Other borrowed funds		98,594			452		1.81	%		88,774			426		1.90	%
Long-term debt		41,238			331		3.18	%		41,238			326		3.13	%
Total interest bearing liabilities		1,073,042			1,393		0.52	%		995,172			1,372		0.55	%
Noninterest bearing liabilities:
Noninterest bearing demand accounts		369,138								340,033
Other noninterest bearing liabilities		5,781								4,746
Shareholders' equity		146,404								137,163
Total liabilities and shareholders' equity	$	1,594,365							$	1,477,114
Net interest income				$	10,845							$	10,156
Net interest spread (1)							2.87	%							2.92	%
Net interest margin (1)							3.01	%							3.06	%
Ratio of average interest earning assets to average interest bearing liabilities		136.06	%							134.43	%

(1) Yield adjusted to fully tax equivalent.

(2) Includes average nonaccrual loans of approximately $9.7 million and $11.8 million for the three months ended June 30, 2015 and 2014.

- 40 -

The following table shows an analysis of net interest margin for the six month periods ended June 30, 2015 and 2014.

	For the six months ended June 30,
	2015								2014
	Average Balance			Interest Earned or paid		Average Yield or cost			Average Balance			Interest Earned or paid		Average Yield or cost
	(Dollars in thousands)
Assets
Taxable securities	$	119,802			1,002		1.67	%	$	119,092		$	998		1.67	%
Tax-exempt securities (1)		74,229			720		3.15			50,657			519		3.24
Loans (2)		1,131,687			22,115		3.89			1,040,126			21,491		4.12
Federal Home Loan Bank stock		11,300			228		4.00			11,236			260		4.60
Federal funds sold and other short-term investments		100,939			184		0.37			122,752			230		0.38
Total interest earning assets (1)		1,437,957			24,249		3.43			1,343,863			23,498		3.53
Noninterest earning assets:
Cash and due from banks		24,719								25,070
Other		109,817								116,180
Total assets	$	1,572,493							$	1,485,113
Liabilities
Deposits:
Interest bearing demand	$	334,714			199		0.12	%	$	275,536			146		0.11	%
Savings and money market accounts		469,399			435		0.19			461,407			533		0.23
Time deposits		117,719			595		1.02			145,685			681		0.94
Borrowings:
Other borrowed funds		93,543			867		1.84			89,278			857		1.91
Long-term debt		41,238			656		3.17			41,238			650		3.14
Total interest bearing liabilities		1,056,613			2,752		0.52			1,013,144			2,867		0.57
Noninterest bearing liabilities:
Noninterest bearing demand accounts		365,043								331,881
Other noninterest bearing liabilities		5,598								4,255
Shareholders' equity		145,239								135,833
Total liabilities and shareholders' equity	$	1,572,493							$	1,485,113
Net interest income				$	21,497							$	20,631
Net interest spread (1)							2.91	%							2.96	%
Net interest margin (1)							3.04	%							3.11	%
Ratio of average interest earning assets to average interest bearing liabilities		136.09	%							132.64	%

(1) Yield adjusted to fully tax equivalent.

(2) Includes average nonaccrual loans of approximately $10.5 million and $12.2 million for the six months ended June 30, 2015 and 2014.

- 41 -

Provision for Loan Losses: The provision for loan losses for the second quarter of 2015 was a negative $500,000 compared to a negative $1.0 million for the second quarter of 2014.  The negative provision for loan losses for both periods was caused by stabilizing real estate values on problem credits, continued improvement in asset quality metrics and net loan recoveries.  At June 30, 2015, we had experienced net loan recoveries in five of the past six quarters.  The provision for loan losses for the first half of 2015 was a negative $1.5 million compared to a negative $2.0 million for the same period in 2014.

Net loan recoveries were $1,000 in the second quarter of 2015 compared to net loan recoveries of $666,000 for the second quarter of 2014. In the second quarter of 2015, we had $202,000 in charge-offs, compared to $92,000 in the second quarter of 2014.  We continue to experience positive results from our collection efforts as evidenced by our net loan recoveries.  Gross loan recoveries were $203,000 for the second quarter of 2015 and $758,000 for the same period in 2014.  For the six months ended June 30, 2015, we experienced net recoveries of $719,000 compared to net recoveries of $1.3 million for the same period in 2014.  Gross loan recoveries for the six months ended June 30, 2015 were $999,000 compared to $1.4 million for the same period in 2014.  While we expect our collection efforts to produce further recoveries, they may not continue at the same level we have experienced the past several quarters.

We have also experienced a decline in the pace of commercial loans migrating to a worse loan grade, which receive higher allocations in our loan loss reserve, as more fully discussed under the heading "Allowance for Loan Losses" below. In addition to experiencing fewer downgrades of credits, we continue to see an increase in the quality of some credits resulting in an improved loan grade. Over the past two years, we have experienced improvements in our overall weighted average loan grade. We believe efforts that began in late 2009 and in early 2010 to improve loan administration and loan risk management practices as well as improving market conditions have had a significant impact, ultimately allowing for the reduction in the level of the allowance for loan losses since then.

The amounts of loan loss provision in both the most recent quarter and comparable prior year period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance. The sustained lower level of quarterly net charge-offs over the past several quarters had a significant effect on the historical loss component of our methodology. More information about our allowance for loan losses and our methodology for establishing its level may be found under the heading "Allowance for Loan Losses" below.

Noninterest Income: Noninterest income for the three and six month periods ended June 30, 2015 increased to $4.5 million and $8.8 million from $4.1 million and $7.6 million, respectively, for the same periods in 2014. The components of noninterest income are shown in the table below (in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Service charges and fees on deposit accounts	$	1,097	$	1,065	$	2,098	$	2,056
Net gains on mortgage loans		821		468		1,544		726
Trust fees		723		701		1,457		1,332
Gain as sales of securities		---		41		83		51
ATM and debit card fees		1,219		1,203		2,329		2,255
Bank owned life insurance (“BOLI”) income		171		174		333		328
Investment services fees		278		245		561		490
Other income		203		171		402		340
Total noninterest income	$	4,512	$	4,068	$	8,807	$	7,578

Net gains on mortgage loans increased significantly in the second quarter of 2015 compared to the second quarter of 2014, and in the six month periods, as a result of increased volume arising from market decreases in mortgage loan rates beginning at the end of 2014 as well as improved execution, resulting in higher gain margins.  Loans originated for sale in the second quarter of 2015 were $28.0 million, compared to $10.6 million in the second quarter of 2014.  Loans originated for sale for the first six months of 2015 were $51.4 million, compared to $26.8 million for the same period in 2014.  Trust fees and investment service fees were also up in the second quarter of 2015 and for the year to date period due to investment market improvement.

- 42 -

Noninterest Expense: Noninterest expense was stable at $11.2 million for the three month periods ended June 30, 2015 and 2014, and increased to $23.1 million for the six month period ended June 30, 2015 compared to $22.4 million for the same period in 2014. The components of noninterest expense are shown in the table below (in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Salaries and benefits	$	6,134	$	5,544	$	12,316	$	11,367
Occupancy of premises		903		932		1,875		1,940
Furniture and equipment		813		751		1,596		1,591
Legal and professional		191		238		431		443
Marketing and promotion		263		272		568		552
Data processing		648		583		1,226		1,172
FDIC assessment		289		320		571		647
Interchange and other card expense		285		265		560		537
Bond and D&O insurance		146		163		292		327
Administration and disposition of problem assets		253		887		1,080		1,357
Outside services		340		394		733		790
Other noninterest expense		957		889		1,836		1,685
Total noninterest expense	$	11,222	$	11,238	$	23,084	$	22,408

Most categories of other noninterest expense had reductions compared to 2014 due to our ongoing efforts to manage expenses and scale our operations. Our largest component of noninterest expense, salaries and benefits, increased in the second quarter of 2015 from the second quarter of 2014. We had 347 full-time equivalent employees at June 30, 2015 compared to 348 at June 30, 2014. The increased expense for 2015 was primarily attributable to increases in salaries and incentive based compensation resulting from increased production in the mortgage banking and investment services areas as well as expenses associated with restricted stock awards and increased medical insurance expense resulting from higher actual claims experienced in the first six months of 2015.

Costs associated with administration and disposition of problem assets remain elevated, but have decreased significantly over the past few years.  These expenses include legal costs, repossessed and foreclosed property administration expense and losses on repossessed and foreclosed properties. Repossessed and foreclosed property administration expense includes survey and appraisal, property maintenance and management and other disposition and carrying costs. Losses on repossessed and foreclosed properties include both net gains and losses on the sale of properties and unrealized losses from value declines for outstanding properties.  We experienced decreases in two of these three expense categories in 2015.

These costs are itemized in the following table (in thousands):

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Legal and professional – nonperforming assets	$	46		$	94	$	135	$	195
Repossessed and foreclosed property administration		239			422		525		977
Net losses on repossessed and foreclosed properties		(32	)		371		420		185
Total	$	253		$	887	$	1,080	$	1,357

The costs associated with nonperforming assets decreased for the second quarter of 2015 and for the six months ended June 30, 2015 compared to the same periods in 2014.  These decreases were driven by lower valuation writedowns and holding costs. We are encouraged that the overall holding costs continue to decline as we continue to decrease the level of our other real estate owned.  Other real estate owned decreased from $31.5 million at June 30, 2014 to $26.3 million at June 30, 2015.  As our level of problem loans and other real estate owned decreases, we believe we will experience more reductions in these costs going forward.

Losses on repossessed assets and foreclosed properties for the six month period ended June 30, 2015, increased $235,000 from the same period in 2014.  This increase was primarily due to a lower level of gains on sales of other real estate properties in 2015.  In the first six months of 2014, we recognized gains totaling $476,000 on such sales, compared to $205,000 in the first six months of 2015.  The gains in 2014 were unusually high due to the sale of the final lots remaining on one of our development properties with a very low carry value.

- 43 -

Federal Income Tax Expense:  Werecorded $1.4 million and $2.7 million in federal income tax expense for the three and six month periods ended June 30, 2015 compared to $1.2 million and $2.4 million, respectively, in the same periods in 2014.  At December 31, 2012 and since that time, we have concluded that a valuation allowance on our deferred tax asset was not required.  As a result, the financial results for each period reflect federal income tax expense, at an effective tax rate of 30.63% and 30.57% for the three and six month periods ended June 30, 2015, compared to 30.88% and 30.87%, respectively, for the same periods in 2014.

FINANCIAL CONDITION

Summary:  Since the economic recession in 2008 and 2009, we had been focused on improving our loan portfolio, reducing exposure in higher loan concentration types, building our investment portfolio, and improving our financial condition through diversification of credit risk, improved capital ratios, and reduced reliance on non-core funding.   We experienced positive results in each of these areas over the past several years. With the success in strengthening our financial condition, we have turned our focus more recently to achieving high quality loan portfolio growth.

Total assets were $1.618 billion at June 30, 2015, an increase of $34.2 million from $1.584 billion at December 31, 2014. This change reflected increases of $12.1 million in cash and cash equivalents, $11.6 million in securities held to maturity and $11.5 million in our loan portfolio, partially offset by decreases of $3.0 million in securities available for sale. Total deposits increased by $21.5 million and other borrowed funds increased by $8.7 million at June 30, 2015 compared to December 31, 2014.

Cash and Cash Equivalents: Our cash and cash equivalents, which include federal funds sold and short-term investments, were $141.6 million at June 30, 2015 compared to $129.5 million at December 31, 2014. The $12.1 million increase was primarily the result of a higher level of deposit balances at June 30, 2015 by some of our larger commercial customers.  We expect declines in our balances of short term investments as loan demand continues to increase and seasonal deposits return to more normal levels.

Interest-bearing Time Deposits with Other Financial Institutions: We opened a time deposit account with our primary correspondent bank totaling $20.0 million in the first quarter of 2014 which matures in February 2016.  This time deposit provides a higher interest rate than federal funds sold or other short-term investments.

Securities: Securities available for sale were $158.9 million at June 30, 2015 compared to $161.9 million at December 31, 2014. The balance at June 30, 2015 primarily consisted of U.S. agency securities, agency mortgage backed securities and various municipal investments. Our held to maturity portfolio increased from $31.6 million at December 31, 2014 to $43.2 million at June 30, 2015.  Our held to maturity portfolio is comprised of state and municipal bonds.

Portfolio Loans and Asset Quality: Total portfolio loans increased by $11.5 million to $1.13 billion at June 30, 2015 compared to $1.12 billion at December 31, 2014. During the first six months of 2015, our commercial portfolio increased by $6.4 million, while our consumer portfolio decreased by $4.6 million and our residential mortgage portfolio increased by $9.7 million.  We have been focusing efforts to increase our consumer and residential mortgage portfolio segments to further diversify our credit risk.

The volume of residential mortgage loans originated for sale in the first six months of 2015 increased significantly compared to the same period in 2014 due partially to the mortgage rate environment.  Also, we added mortgage loan origination officers in early 2015, contributing to the volume increase.  Residential mortgage loans originated for sale were $51.4 million in the first six months of 2015 compared to $26.8 million in the first six months of 2014.  We also experienced an increase in volume of residential mortgages for portfolio which totaled $34.9 million in the first six months of 2015 compared to $21.4 million in the first six months of 2014.

Our commercial loan portfolio balances declined in recent years leading up to 2014 reflecting the continued soft economic conditions in west Michigan and our interest in improving the quality of our loan portfolio through reducing our exposure to these generally higher credit risk assets. We have focused our efforts on reducing our exposure to residential land development loans, diversifying our commercial loan portfolio and improving asset quality. We believe our loan portfolio has stabilized and we experienced year over year growth in commercial loan balances for the first time in many years in 2014, increasing $71.8 million from December 31, 2013.  We plan to continue measured, high quality loan portfolio growth in 2015, and achieved further growth of $11.5 million in the first six months of 2015.  Most of growth took place in our commercial and industrial portfolio, which grew by $22.5 million whereas our exposure to commercial real estate loans declined by $16.1 million in the same period.  This mix shift within the commercial portfolio also helps diversify credit risk.

Commercial and commercial real estate loans remained our largest loan segment and accounted for approximately 73% of the total loan portfolio at June 30, 2015 and December 31, 2014. Residential mortgage and consumer loans comprised approximately 27% of total loans at June 30, 2015 and December 31, 2014.

- 44 -

A further breakdown of the composition of the loan portfolio is shown in the table below (in thousands):
 

	June 30, 2015					December 31, 2014
	Balance		Percent of Total Loans			Balance		Percent of Total Loans
Commercial real estate: (1)
Residential developed	$	10,664		0.9	%	$	12,771		1.1	%
Unsecured to residential developers		7,627		0.7			7,496		0.7
Vacant and unimproved		44,108		3.9			50,372		4.5
Commercial development		1,804		0.2			4,082		0.4
Residential improved		68,591		6.1			69,612		6.2
Commercial improved		270,145		23.9			269,757		24.1
Manufacturing and industrial		71,466		6.3			76,441		6.9
Total commercial real estate		474,405		42.0			490,531		43.9
Commercial and industrial		350,202		31.0	%		327,674		29.3	%
Total commercial		824,607		73.0			818,205		73.2
Consumer
Residential mortgage		199,972		17.7			190,249		17.0
Unsecured		764		0.1			948		0.1
Home equity		95,042		8.4			98,887		8.8
Other secured		9,639		0.8			10,194		0.9
Total consumer		305,417		27.0			300,278		26.8
Total loans	$	1,130,024		100.0	%	$	1,118,483		100.0	%

(1) Includes both owner occupied and non-owner occupied commercial real estate.

Commercial real estate loans accounted for approximately 42% of the total loan portfolio at June 30, 2015 and consisted primarily of loans to business owners and developers of owner and non-owner occupied commercial properties and loans to developers of single and multi-family residential properties. In the table above, we show our commercial real estate portfolio by loans secured by residential and commercial real estate, and by stage of development. Improved loans are generally secured by properties that are under construction or completed and placed in use. Development loans are secured by properties that are in the process of development or fully developed. Vacant and unimproved loans are secured by raw land for which development has not yet begun and agricultural land.

Total commercial real estate loans decreased $16.1 million since December 31, 2014. Our commercial and industrial loan portfolio increased by $22.5 million to $350.2 million at June 30, 2015 and represented 31% of our loan portfolio.

Our consumer residential mortgage loan portfolio, which also includes residential construction loans made to individual homeowners, comprised approximately 18% of portfolio loans at June 30, 2015 and 17% at December 31, 2014.  We expect to continue to retain in our loan portfolio certain types of residential mortgage loans (primarily high quality, low loan to value loans) in an effort to continue to diversify our credit risk and deploy our excess liquidity. A large portion of our residential mortgage loan production continues to be sold on the secondary market with servicing released.

The volume of residential mortgage loans originated for sale during the first six months of 2015 increased from the same period of 2014 as interest rates decreased late in the fourth quarter of 2014. We added two experienced mortgage lenders in the first quarter of 2015. We are also experiencing a shift in production to financing new home purchases versus refinancings.  We have not yet had to repurchase any residential mortgage loans sold to historical purchasers; however, due to market conditions many banks are being required to repurchase loans resulting from actual or alleged failure to strictly conform to the investor’s purchase criteria.

Our portfolio of other consumer loans includes loans secured by personal property and home equity fixed term and line of credit loans. Consumer loans decreased by $4.6 million to $105.4 million at June 30, 2015 from $110.0 million at December 31, 2014, due primarily to a decrease in home equity loans.  Consumer loans comprised approximately 9% of our portfolio loans at June 30, 2015 and 10% at  December 31, 2014.

- 45 -

The following table shows our loan origination activity for portfolio loans during the first six months of 2015, broken out by loan type and also shows average originated loan size (dollars in thousands):

	Portfolio Originations		Percent of Total Originations			Average Loan Size
Commercial real estate:
Residential developed	$	3,321		1.4	%	$	277
Unsecured to residential developers		---		---			---
Vacant and unimproved		2,437		1.0			222
Commercial development		1,111		0.5			1,111
Residential improved		26,241		11.3			226
Commercial improved		13,535		5.9			410
Manufacturing and industrial		4,826		2.1			483
Total commercial real estate		51,471		22.2			281
Commercial and industrial		123,504		53.3			48
Total commercial		174,975		75.5			64
Consumer
Residential mortgage		34,916		15.1			200
Unsecured		35		---			5
Home equity		19,162		8.3			71
Other secured		2,468		1.1			29
Total consumer		56,581		24.5			106
Total loans	$	231,556		100.0	%		71

Our loan portfolio is reviewed regularly by our senior management, our loan officers, and an internal loan review team that is independent of our loan originators and credit administration. An administrative loan committee consisting of senior management and seasoned lending and collections personnel meets monthly to manage our internal watch list and proactively manage high risk loans.

When reasonable doubt exists concerning collectability of interest or principal of one of our loans, the loan is placed in nonaccrual status. Any interest previously accrued but not collected is reversed and charged against current earnings.

Nonperforming assets are comprised of nonperforming loans, foreclosed assets and repossessed assets. At June 30, 2015, nonperforming assets totaled $30.0 million compared to $36.7 million at December 31, 2014. Additions to other real estate owned in the first six months of 2015 were $1.4 million, compared to $2.3 million in the first six months of 2014.  Based on the loans currently in their redemption period, we expect there to be fewer additions to other real estate owned in the second half of 2015 than there were in 2014.  Proceeds from sales of foreclosed properties were $3.0 million in the first six months of 2015, resulting in a net realized gain on sale of $205,000.  Proceeds from sales of foreclosed properties were $7.4 million in the first six months of 2014 resulting in a net realized gain on sale of $476,000.  We expect the level of sales of foreclosed properties in the remainder of 2015 to be higher than the levels experienced in the first six months of 2015.

Nonperforming loans include loans on nonaccrual status and loans delinquent more than 90 days but still accruing. As of June 30, 2015, nonperforming loans totaled $3.7 million, or 0.33% of total portfolio loans, compared to $8.4 million, or 0.75% of total portfolio loans, at December 31, 2014.

Loans for development or sale of 1-4 family residential properties comprised approximately $174,000, or 4.7% of total nonperforming loans, at June 30, 2015 compared to $245,000, or 2.9% of total nonperforming loans, at December 31, 2014. The remaining balance of nonperforming loans at June 30, 2015 consisted of $1.0 million of commercial real estate loans secured by various types of non-residential real estate, $2.4 million of commercial and industrial loans, and $136,000 of consumer and residential mortgage loans.

Foreclosed and repossessed assets include assets acquired in settlement of loans. Foreclosed assets totaled $26.3 million at June 30, 2015 and $28.2 million at December 31, 2014. Of this balance at June 30, 2015, there were 52 commercial real estate properties totaling approximately $25.0 million. The remaining balance was comprised of 12 residential properties totaling approximately $1.3 million. Three commercial real estate properties comprised $11.5 million, or 44%, of total other real estate owned at June 30, 2015.  All properties acquired through or in lieu of foreclosure are initially transferred at their fair value less estimated costs to sell and then evaluated monthly for impairment after transfer using a lower of cost or market approach. Updated property valuations are obtained at least annually on all foreclosed assets.

- 46 -

At June 30, 2015, our foreclosed asset portfolio had a weighted average age held in portfolio of 4.08 years. Below is a breakout of our foreclosed asset portfolio at June 30, 2015 by property type and the percentages the property has been written down since taken into our possession and the combined writedown percentage, including losses taken when the property was loan collateral (dollars in thousands):

Foreclosed Asset Property Type	Carrying Value at June 30, 2015		Foreclosed Asset Writedown			Combined Writedown (Loan and Foreclosed Asset)
Single Family	$	939		---	%		5.1	%
Residential Lot		344		31.8			51.2
Multi-Family		---		---			---
Vacant Land		4,002		42.8			54.3
Residential Development		8,629		37.4			79.0
Commercial Office		789		31.5			53.8
Commercial Industrial		---		---			---
Commercial Improved		11,600		33.6			45.8
	$	26,303		35.6			64.5

The following table shows the composition and amount of our nonperforming assets (dollars in thousands):

	June 30, 2015			December 31, 2014
Nonaccrual loans	$	3,644		$	8,292
Loans 90 days or more delinquent and still accruing		72			134
Total nonperforming loans		3,716			8,426
Foreclosed assets		26,303			28,242
Repossessed assets		---			38
Total nonperforming assets (NPAs)		30,019			36,706
Accruing troubled debt restructurings (TDRs) (1)		43,617			46,197
Total NPAs and accruing TDRs	$	73,636		$	82,903
NPLs to total loans		0.33	%		0.75	%
NPAs to total assets		1.86	%		2.32	%

(1) Comprised of approximately $29.2 million and $32.0 million of commercial loans and $14.4 million and $14.2 million of consumer loans whose terms have been restructured at June 30, 2015 and December 31, 2014, respectively. Interest is being accrued on these loans under their restructured terms as they are less than 90 days past due.

We had a total of $47.0 million of loans whose terms have been modified in troubled debt restructurings (“TDRs”) as of June 30, 2015 and $53.4 million as of December 31, 2014.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive monthly payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

- 47 -

Based upon recently issued regulatory guidance, we have determined that in situations where there is a subsequent modification or renewal and the loan is brought to market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, the TDR and impaired designations may be removed.  This guidance was applied to loans outstanding at December 31, 2014, resulting in a reduction of $5.9 million in loans designated as TDR and impaired.

As with other impaired loans, an allowance for loan loss is estimated for each TDR based on the most likely source of repayment for each loan.  For impaired commercial real estate loans that are collateral dependent, the allowance is computed based on the fair value of the underlying collateral, less estimated costs to sell.  For impaired commercial loans where repayment is expected from cash flows from business operations, the allowance is computed based on a discounted cash flow computation.  Certain groups of TDRs, such as residential mortgages, have common characteristics and for them the allowance is computed based on a discounted cash flow computation on the change in weighted rate for the pool.  The allowance allocations for commercial TDRs where we have reduced the contractual interest rate are computed by measuring cash flows using the new payment terms discounted at the original contractual rate.

Allowance for loan losses: The allowance for loan losses at June 30, 2015 was $18.2 million, a decrease of $781,000, compared to $19.0 million at December 31, 2014. The balance of the allowance for loan losses represented 1.61% of total portfolio loans at June 30, 2015 compared to 1.70% of total portfolio loans at December 31, 2014.  The allowance for loan losses to nonperforming loan coverage ratio increased from 225.04% at December 31, 2014 to 489.26% at June 30, 2015.

The table below shows the changes in these metrics over the past five quarters:

(in millions)	Quarter Ended June 30, 2015		Quarter Ended March 31, 2015			Quarter Ended December 31, 2014		Quarter Ended September 30, 2014			Quarter Ended June 30, 2014
Commercial loans	$	824.6	$	829.6		$	818.2	$	753.8		$	748.7
Nonperforming loans		3.7		9.8			8.4		8.4			8.1
Other real estate owned and repo assets		26.3		27.1			28.3		28.8			31.6
Total nonperforming assets		30.0		36.9			36.7		37.2			39.6
Net charge-offs (recoveries)		---		(0.7	)		0.1		(0.3	)		(0.7	)
Total delinquencies		1.9		2.5			2.8		5.1			5.2

Nonperforming loans continually declined since the first quarter of 2010 to $3.7 million at June 30, 2015.  As discussed earlier, we have had net loan recoveries in several quarters over the last two years and in five of the last six quarters.  Our total delinquencies have continued to stabilize and were $1.9 million at June 30, 2015 and $5.2 million at June 30, 2014.  Our delinquency percentage at June 30, 2015 was the lowest quarterly level in Company history.

These factors all provide for a reduction in our allowance for loan losses, and thus impacts our provision for loan losses. The allowance for loan losses decreased $781,000 in the first six months of 2015 due to a negative provision for loan losses of $1.5 million for the six months ended June 30, 2015 compared to a negative $2.0 million for the same period of 2014.  Net loan recoveries were $719,000 for the six months ended June 30, 2015, compared to net loan recoveries of $1.25 million for the same period in 2014. The ratio of net recoveries to average loans was (0.13)% on an annualized basis for the first six months of 2015, compared to (0.24)% for the first six months of 2014.

We are encouraged by the reduced level of charge-offs over recent quarters. We do, however, recognize that future charge-offs and resulting provisions for loan losses are expected to be impacted by the timing and extent of changes in the overall economy and the real estate markets.

Our allowance for loan losses is maintained at a level believed appropriate based upon our monthly assessment of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of allowance and related provision for loan losses relies on several key elements, which include specific allowances for loans considered impaired, general allowance for commercial loans not considered impaired based upon applying our loan rating system, and general allocations based on historical trends for homogeneous loan groups with similar risk characteristics.

- 48 -

Impaired loans declined to $47.0 million at June 30, 2015 compared to $53.4 million at December 31, 2014.  The specific allowance for impaired loans decreased $78,000 to $4.0 million, compared to $4.1 million at December 31, 2014.  The specific allowance for impaired loans represented 8.5% of total impaired loans at June 30, 2015 and 7.6% at December 31, 2014.  The overall balance of impaired loans remained elevated partially due to an accounting rule (ASU 2011-02) adopted in 2011 that requires us to identify classified loans that renew at existing contractual rates as troubled debt restructurings (“TDRs”) if the contractual rate is less than market rates for similar loans at the time of renewal.

The general allowance allocated to commercial loans that were not considered to be impaired was based upon the internal risk grade of such loans.  We use a loan rating method based upon an eight point system.  Loans are stratified between real estate secured and non real estate secured.  The real estate secured portfolio is further stratified by the type of real estate.  Each stratified portfolio is assigned a loss allocation factor.  A higher numerical grade assigned to a loan category generally results in a greater allocation percentage.  Changes in risk grade of loans affect the amount of the allowance allocation.

The determination of our loss factors is based upon our actual loss history by loan grade and adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date.  We use a rolling 18 month actual net chargeoff history as the base for our computation.  Over the past two years, the 18 month period computations have reflected sizeable decreases in net chargeoff experience.  We addressed this volatility in the qualitative factor considerations applied in our allowance for loan losses computation. Adjustments to the qualitative factors also involved consideration of different loss periods for the Bank, including 12, 24, 36 and 48 month periods. Considering the change in our qualitative factors and our commercial loan portfolio balances, the general allowance allocated to commercial loans decreased to $11.3 million at June 30, 2015 compared to $11.7 million at December 31, 2014.  This resulted in a general reserve percentage allocated at June 30, 2015 of 1.4% of commercial loans, a slight decrease from 1.5% at December 31, 2014.  The qualitative component of our general allowance allocated to commercial loans decreased from $11.7 million at December 31, 2014 to $11.3 million at June 30, 2015.

Groups of homogeneous loans, such as residential real estate and open- and closed-end consumer loans, receive allowance allocations based on loan type.  A rolling 12 month (four quarter) historical loss experience period was applied to residential mortgage and consumer loan portfolios.  As with commercial loans that are not considered impaired, the determination of the allowance allocation percentage is based principally on our historical loss experience.  These allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools of loans.  The homogeneous loan allowance was $2.9 million at June 30, 2015 and $3.2 million at December 31, 2014.

The allowance allocations are not intended to imply limitations on usage of the allowance for loan losses.  The entire allowance for loan losses is available for any loan losses without regard to loan type.

Premises and Equipment:  Premises and equipment totaled $52.1 million at June 30, 2015, down $762,000 from $52.9 million at December 31, 2014 as depreciation more than offset capital additions of current facilities during the first six months of 2015.

Deposits and Other Borrowings: Total deposits increased $21.5 million to $1.328 billion at June 30, 2015, as compared to $1.306 billion at December 31, 2014.  Non-interest checking account balances decreased $14.3 million during the first six months of 2015.  Interest bearing demand account balances increased $8.4 million and savings and money market account balances increased $48.0 million in the first six months of 2015.  We decreased higher costing certificates of deposits by $20.6 million in the first six months of 2015.  We believe our success in maintaining the balances of personal and business checking and savings accounts was primarily attributable to our focus on quality customer service, the desire of customers to deal with a local bank, the convenience of our maturing branch network and the breadth and depth of our sophisticated product line.

Noninterest bearing demand accounts comprised 29% of total deposits at June 30, 2015 and 31% at December 31, 2014.  These balances typically increase at year end for many of our commercial customers, then decline in the first quarter.  Interest bearing demand, including money market and savings accounts, comprised 63% of total deposits at June 30, 2015 and 60% at December 31, 2014. Time accounts as a percentage of total deposits were 8% at June 30, 2015 and 9% at December 31, 2014.

Borrowed funds totaled $138.0 million at June 30, 2015, including $96.8 million of Federal Home Loan Bank advances and $41.2 million in long-term debt associated with trust preferred securities.  Borrowed funds totaled $129.3 million at December 31, 2014, including $88.1 million of Federal Home Loan Bank advances and $41.2 million in long-term debt associated with trust preferred securities.  Borrowed funds increased by $8.7 million in the first six months of 2015 due to a $10.0 million advance taken in the first quarter of 2015, partially offset by an annual payment on an amortizing Federal Home Loan Bank advance.

- 49 -

CAPITAL RESOURCES

Total shareholders' equity of $146.8 million at June 30, 2015 increased $4.3 million from $142.5 million at December 31, 2014. The increase was primarily a result of net income of $6.1 million earned in the first six months of 2015, partially offset by the payment of $1.7 million in cash dividends to shareholders.  The Bank was categorized as “well capitalized” at June 30, 2015.

In July 2013, the Board of Governors of the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which were applicable for the Company and the Bank beginning on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures. We expect that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well capitalized minimum capital requirements as the phase-in period progresses.

The following table shows our regulatory capital ratios (on a consolidated basis) for the past several quarters:

	June 30, 2015			March 31, 2015			Dec 31, 2014			Sept 30, 2014			June 30, 2014
Total capital to risk weighted assets		15.1	%		15.0	%		15.6	%		16.3	%		16.3	%
Common Equity Tier 1 to risk weighted assets		10.9			10.7			N/A			N/A			N/A
Tier 1 capital to average assets		11.7			11.9			11.6			11.6			11.4

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2015 qualified as Tier 1 capital.

LIQUIDITY

Liquidity of Macatawa Bank: The liquidity of a financial institution reflects its ability to manage a variety of sources and uses of funds. Our Consolidated Statements of Cash Flows categorize these sources and uses into operating, investing and financing activities. We primarily focus on developing access to a variety of borrowing sources to supplement our deposit gathering activities and provide funds for our investment and loan portfolios. Our sources of liquidity include our borrowing capacity with the FRB's discount window, the Federal Home Loan Bank, federal funds purchased lines of credit and other secured borrowing sources with our correspondent banks, loan payments by our borrowers, maturity and sales of our securities available for sale, growth of our deposits, federal funds sold and other short-term investments, and the various capital resources discussed above.

Liquidity management involves the ability to meet the cash flow requirements of our customers. Our customers may be either borrowers with credit needs or depositors wanting to withdraw funds. Our liquidity management involves periodic monitoring of our assets considered to be liquid and illiquid, and our funding sources considered to be core and non-core and short-term (less than 12 months) and long-term. We have established parameters that monitor, among other items, our level of liquid assets to short-term liabilities, our level of non-core funding reliance and our level of available borrowing capacity. We maintain a diversified wholesale funding structure and actively manage our maturing wholesale sources to reduce the risk to liquidity shortages. We have also developed a contingency funding plan to stress test our liquidity requirements arising from certain events that may trigger liquidity shortages, such as rapid loan growth in excess of normal growth levels or the loss of deposits and other funding sources under extreme circumstances.

We have actively pursued initiatives to maintain a strong liquidity position.  The Bank reduced its reliance on non-core funding sources, including brokered deposits, and focused on achieving a non-core funding dependency ratio below its peer group average.  We have had no brokered deposits on our balance sheet since December 2011.  We also reduced other borrowed funds by $56.8 million in 2012, $1.8 million in 2013 and $1.9 million in 2014.  We continue to maintain significant on-balance sheet liquidity.  At June 30, 2015, the Bank held $112.7 million of federal funds sold and other short-term investments and $20.0 million in time deposits with other financial institutions with maturities of less than 18 months.  In addition, the Bank has available borrowing capacity from correspondent banks of approximately $251.6 million as of June 30, 2015.

- 50 -

In the normal course of business, we enter into certain contractual obligations, including obligations which are considered in our overall liquidity management.  The table below summarizes our significant contractual obligations at June 30, 2015.

(Dollars in thousands)	Less than 1 year		1-3 years		3-5 years		More than 5 years
Long term debt	$	---	$	---	$	---	$	41,238
Time deposit maturities		65,611		28,023		5,603		---
Other borrowed funds		1,996		54,173		40,667		---
Total	$	67,607	$	82,196	$	46,270	$	41,238

In addition to normal loan funding, we also maintain liquidity to meet customer financing needs through unused lines of credit, unfunded loan commitments and standby letters of credit.  The level and fluctuation of these commitments is also considered in our overall liquidity management.  At June 30, 2015, we had a total of $391.0 million in unused lines of credit, $139.3 million in unfunded loan commitments and $13.0 million in standby letters of credit.

Liquidity of Holding Company: The primary sources of liquidity for the Company are dividends from the Bank, existing cash resources and the capital markets if the need to raise additional capital arises.  Banking regulations and the laws of the State of Michigan in which our Bank is chartered limit the amount of dividends the Bank may declare and pay to the Company in any calendar year.  Under the state law limitations, the Bank is restricted from paying dividends to the Company in excess of retained earnings. In 2014, the Company resumed payment of quarterly cash dividends to Company shareholders.  In 2014, the Bank paid dividends to the Company totaling $4.1 million.  In the same period, the Company paid dividends to its shareholders totaling $2.7 million.  The Company retained the remaining balance for general corporate purposes.  In February 2015, the Bank paid a dividend of $1.2 million to the Company in anticipation of the common share cash dividend of $0.02 per share paid on February 27, 2015 to shareholders of record on February 10, 2015.  The cash distributed for this cash dividend payment totaled $677,000.  The Company retained the remaining balance for general corporate purposes. In May 2015, the Bank paid a dividend of $1.28 million to the Company in anticipation of the common share cash dividend of $0.03 per share paid on May 29, 2015 to Company shareholders of record on May 14, 2015.  The cash distributed for this cash dividend payment totaled $1.02 million.  The Company retained the remaining balance for general corporate purposes.  At June 30, 2015, the Bank had a retained earnings balance of $21.3 million.

During the first quarter of 2015, the Company also received a payment from the Bank totaling $4.0 million, representing the Bank’s intercompany tax liability for the 2014 tax year in accordance with the Company’s tax allocation agreement.  During the first quarter of 2014, the Company received a payment from the Bank totaling $1.9 million, representing the Bank’s intercompany tax liability for the 2013 tax year.  During the second quarter of 2015, the Company received payments from the Bank totaling $2.4 million, representing the Bank’s intercompany tax liability for the first six months of 2015.

The Company has the right to defer interest payments for 20 consecutive quarters on its trust preferred securities if necessary for liquidity purposes.  During the deferral period, the Company may not declare or pay any dividends on its common stock or make any payment on any outstanding debt obligations that rank equally with or junior to the trust preferred securities.

The Company’s cash balance at June 30, 2015 was $5.0 million.  The Company believes that it has sufficient liquidity to meet its cash flow obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and future results could differ.  The allowance for loan losses, other real estate owned valuation, loss contingencies and income taxes are deemed critical due to the required level of management judgment and the use of estimates, making them particularly subject to change.

Our methodology for determining the allowance for loan losses and the related provision for loan losses is described above in the "Allowance for Loan Losses" discussion.  This area of accounting requires significant judgment due to the number of factors which can influence the collectability of a loan.  Unanticipated changes in these factors could significantly change the level of the allowance for loan losses and the related provision for loan losses.  Although, based upon our internal analysis, and in our judgment, we believe that we have provided an adequate allowance for loan losses, there can be no assurance that our analysis has properly identified all of the probable losses in our loan portfolio.  As a result, we could record future provisions for loan losses that may be significantly different than the levels that we recorded in the first six months of 2015.

- 51 -

Assets acquired through or instead of foreclosure, primarily other real estate owned, are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis.  New real estate appraisals are generally obtained at the time of foreclosure and are used to establish fair value.  If fair value declines, a valuation allowance is recorded through expense.  Estimating the initial and ongoing fair value of these properties involves a number of factors and judgments including holding time, costs to complete, holding costs, discount rate, absorption and other factors.

Loss contingencies are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.  This, too, is an accounting area that involves significant judgment.  Although, based upon our judgment, internal analysis, and consultations with legal counsel we believe that we have properly accounted for loss contingencies, future changes in the status of such contingencies could result in a significant change in the level of contingent liabilities and a related impact to operating earnings.

Our accounting for income taxes involves the valuation of deferred tax assets and liabilities primarily associated with differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes.  At June 30, 2015, we had gross deferred tax assets of $13.2 million, gross deferred tax liabilities of $2.3 million resulting in a net deferred tax asset of $10.9 million.  Accounting standards require that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard.  From mid 2009 through the end of 2012, we had maintained a full valuation allowance on our net deferred tax asset.  At December 31, 2012, we considered all reasonably available positive and negative evidence and determined that with completing our eleventh consecutive profitable quarter, continued significant improvement in asset quality measures for the third straight year, the termination of our previous regulatory orders and our moving to a cumulative income position in the most recent three year period, that it was “more likely than not” that we would be able to realize our deferred tax assets and, as such, the full $18.9 million valuation allowance was reversed as of December 31, 2012.  With the positive results in the first six months of 2015, we again concluded at June 30, 2015 that no valuation allowance on our net deferred tax asset was required.  Changes in tax laws, changes in tax rates, changes in ownership and our future level of earnings can impact the ultimate realization of our net deferred tax asset.

- 52 -

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has only limited agricultural-related loan assets, and therefore has no significant exposure to changes in commodity prices.

Our balance sheet has sensitivity, in various categories of assets and liabilities, to changes in prevailing rates in the U.S. for prime rate, mortgage rates, U.S. Treasury rates and various money market indexes. Our asset/liability management process aids us in providing liquidity while maintaining a balance between interest earning assets and interest bearing liabilities.

We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and the economic value of equity (“EVE”) resulting from potential changes in market interest rates. Key assumptions in the model include contractual cash flows and maturities of interest-sensitive assets and interest-sensitive liabilities, prepayment speeds on certain assets, and changes in market conditions impacting loan and deposit pricing. We also include pricing floors on discretionary priced liability products which limit how low various checking and savings products could go under declining interest rates. These floors reflect our pricing philosophy in response to changing interest rates.

We forecast the next twelve months of net interest income under an assumed environment of gradual changes in market interest rates under various scenarios. The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates. The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.

The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of June 30, 2015 (dollars in thousands).

Interest Rate Scenario	Economic Value of Equity			Percent Change			Net Interest Income			Percent Change
Interest rates up 200 basis points		$	183,754		(0.39	)%		$	45,077		3.07	%
Interest rates up 100 basis points			184,908		0.23				44,385		1.48
No change			184,475		---				43,736		---
Interest rates down 100 basis points			169,739		(7.99	)			43,320		(0.95	)
Interest rates down 200 basis points			168,453		(8.69	)			43,024		(1.63	)

If interest rates were to increase, this analysis suggests that we are positioned for an improvement in net interest income over the next twelve months.

We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.

The quarterly simulation analysis is monitored against acceptable interest rate risk parameters by the Asset/Liability Committee and reported to the Board of Directors.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences.

- 53 -

Item 4: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of June 30, 2015, the end of the period covered by this report.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating whether the benefits of the controls and procedures that the Company adopts outweigh their costs.

Our CEO and CFO, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.

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

- 54 -

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business.  During the first quarter of 2015, the Company entered into a settlement agreement which terminated a legal action against the Company brought by former Chairman and Chief Executive Officer, Mr. Benj. A. Smith III.  The description of that settlement in Part II Item 1 of the Company's Form 10-Q Quarterly Report for its quarter ended March 31, 2015 is here incorporated by reference.  As of June 30, 2015, there were no material pending legal proceedings to which we or any of our subsidiaries are a party or which any of our properties are the subject.

Item 6. Exhibits.

3.1	Restated Articles of Incorporation. Previously filed with the Commission on April 28, 2011 in Macatawa Bank Corporation’s Quarterly Report on Form 10-Q, Exhibit 3.1. Here incorporated by reference.
3.2	Bylaws. Previously filed with the Commission on February 19, 2015 in Macatawa Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2014, Exhibit 3.1. Here incorporated by reference.
4.1	Restated Articles of Incorporation. Exhibit 3.1 is here incorporated by reference.
4.2	Bylaws. Exhibit 3.2 is here incorporated by reference.
4.3	First Amended Settlement and Release and Warrant Issuance Agreement dated January 30, 2009.  Previously filed with the Commission on April 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.3. Here incorporated by reference.
4.4	Second Amendment to Settlement and Release and Warrant Issuance Agreement dated April 30, 2009. Previously filed with the Commission on July 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.4.  Here incorporated by reference.
4.5	Warrant Agreement between Macatawa Bank Corporation and Registrar and Transfer Company dated June 16, 2009.  Previously filed with the Commission on July 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.5.  Here incorporated by reference.
4.6	Warrant Agreement Addendum between Macatawa Bank Corporation and Registrar and Transfer Company dated July 27, 2009.   Previously filed with the Commission on July 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.6.  Here incorporated by reference.
4.7	Form of Warrant Certificate (first series).  Previously filed with the Commission on July 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.7.  Here incorporated by reference.
4.8	Form of Warrant Certificate (second series). Previously filed with the Commission on July 24, 2014 in Macatawa Bank Corporation's Quarterly Report on Form 10-Q, Exhibit 4.8.  Here incorporated by reference.
4.9	Long-Term Debt. The registrant has outstanding long-term debt which at the time of this report does not exceed 10% of the registrant's total consolidated assets. The registrant agrees to furnish copies of the agreements defining the rights of holders of such long-term debt to the SEC upon request.
10.1	Change in Control Agreement with Ronald L. Haan.  Previously filed with the Commission as an exhibit to Macatawa Bank Corporation’s Form 8-K current report dated June 22, 2015.  Here incorporated by reference.
10.2	Change in Control Agreement with Jon W. Swets.  Previously filed with the Commission as an exhibit to Macatawa Bank Corporation’s Form 8-K current report dated June 22, 2015.  Here incorporated by reference.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

- 55 -

SIGNATURES

Pursuant to the requirements 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.

	MACATAWA BANK CORPORATION
	/s/ Ronald L. Haan
	Ronald L. Haan
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Jon W. Swets
	Jon W. Swets
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Dated: July 23, 2015

- 56 -

EX-31.1

EXHIBIT 31.1

I, Ronald L. Haan, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2015 of Macatawa Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

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

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

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

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

Dated:  July 23, 2015
	/s/ Ronald L. Haan
	Ronald L. Haan
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

I, Jon W. Swets, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2015 of Macatawa Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

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

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

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

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

Dated: July 23, 2015
	/s/ Jon W. Swets
	Jon W. Swets
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of Macatawa Bank Corporation (the "Company") that the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2015 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

	/s/ Ronald L. Haan
	Ronald L. Haan
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Jon W. Swets
	Jon W. Swets
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Dated: July 23, 2015

XML

LOANS, Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	$ 1,595		$ 1,595		$ 4,634
With no allowance, Recorded Investment	1,595		1,595		4,634
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	45,361		45,361		48,942
With related allowance, Recorded Investment	45,361		45,361		48,763
Allowance Allocated	3,987		3,987		4,065
Total impaired, Unpaid Principal Balance	46,956		46,956		53,576
Total impaired, Recorded Investment, Total	46,956		46,956		53,397
Commercial and Industrial [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	385		385		3,019
With no allowance, Recorded Investment	385		385		3,019
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	5,020		5,020		6,065
With related allowance, Recorded Investment	5,020		5,020		6,065
Allowance Allocated	2,451		2,451		2,429
Impaired loans [Abstract]
Average of impaired loans	7,084	$ 11,908	8,394	$ 13,096
Interest income recognized during impairment	292	273	618	611
Cash-basis interest income recognized	292	276	620	615
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	1,210		1,210		1,615
With no allowance, Recorded Investment	1,210		1,210		1,615
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	25,921		25,921		28,203
With related allowance, Recorded Investment	25,921		25,921		28,203
Allowance Allocated	610		610		743
Impaired loans [Abstract]
Interest income recognized during impairment	336	454	692	907
Cash-basis interest income recognized	334	471	685	922
Commercial Real Estate [Member] | Residential Developed [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	126		126		531
With no allowance, Recorded Investment	126		126		531
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	470		470		550
With related allowance, Recorded Investment	470		470		550
Allowance Allocated	31		31		35
Impaired loans [Abstract]
Average of impaired loans	682	4,085	810	4,308
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	0		0		0
With related allowance, Recorded Investment	0		0		0
Allowance Allocated	0		0		0
Impaired loans [Abstract]
Average of impaired loans	0	0	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	1,401		1,401		1,499
With related allowance, Recorded Investment	1,401		1,401		1,499
Allowance Allocated	34		34		43
Impaired loans [Abstract]
Average of impaired loans	1,416	1,650	1,453	1,735
Commercial Real Estate [Member] | Commercial Development [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	194		194		199
With related allowance, Recorded Investment	194		194		199
Allowance Allocated	5		5		5
Impaired loans [Abstract]
Average of impaired loans	195	483	196	505
Commercial Real Estate [Member] | Residential Improved [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	547		547		547
With no allowance, Recorded Investment	547		547		547
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	6,124		6,124		7,323
With related allowance, Recorded Investment	6,124		6,124		7,323
Allowance Allocated	178		178		240
Impaired loans [Abstract]
Average of impaired loans	7,018	9,863	7,340	10,141
Commercial Real Estate [Member] | Commercial Improved [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	331		331		331
With no allowance, Recorded Investment	331		331		331
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	15,307		15,307		16,113
With related allowance, Recorded Investment	15,307		15,307		16,113
Allowance Allocated	342		342		389
Impaired loans [Abstract]
Average of impaired loans	16,363	18,133	16,561	18,212
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	206		206		206
With no allowance, Recorded Investment	206		206		206
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	2,425		2,425		2,519
With related allowance, Recorded Investment	2,425		2,425		2,519
Allowance Allocated	20		20		31
Impaired loans [Abstract]
Average of impaired loans	2,650	6,404	2,678	6,562
Consumer [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	14,420		14,420		14,674
With related allowance, Recorded Investment	14,420		14,420		14,495
Allowance Allocated	926		926		893
Impaired loans [Abstract]
Average of impaired loans	14,583	14,400	14,683	14,408
Interest income recognized during impairment	128	137	264	269
Cash-basis interest income recognized	128	$ 137	267	$ 271
Consumer [Member] | Residential Mortgage [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	9,030		9,030		9,492
With related allowance, Recorded Investment	9,030		9,030		9,484
Allowance Allocated	556		556		584
Consumer [Member] | Unsecured [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	0		0		0
With related allowance, Recorded Investment	0		0		0
Allowance Allocated	0		0		0
Consumer [Member] | Home Equity [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	5,390		5,390		5,182
With related allowance, Recorded Investment	5,390		5,390		5,011
Allowance Allocated	370		370		309
Consumer [Member] | Other Secured [Member]
With no related allowance recorded [Abstract]
With no allowance, Unpaid Principal Balance	0		0		0
With no allowance, Recorded Investment	0		0		0
With related allowance recorded [Abstract]
With related allowance, Unpaid Principal Balance	0		0		0
With related allowance, Recorded Investment	0		0		0
Allowance Allocated	$ 0		$ 0		$ 0

XML

EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Reconciliation of numerators and denominators of basic and diluted earnings per common share [Abstract]
Net income available to common shares	$ 3,215	$ 2,755	$ 6,055	$ 5,393
Weighted average shares outstanding, including participating stock awards - Basic (in shares)	33,866,789	33,788,431	33,866,789	33,789,481
Dilutive potential common shares [Abstract]
Stock options (in shares)	0	0	0	0
Stock warrants (in shares)	0	0	0	0
Weighted average shares outstanding - Diluted (in shares)	33,866,789	33,788,431	33,866,789	33,789,481
Basic earnings per common share (in dollars per share)	$ 0.09	$ 0.08	$ 0.18	$ 0.16
Diluted earnings per common share (in dollars per share)	$ 0.09	$ 0.08	$ 0.18	$ 0.16
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	258,361	355,328	258,361	355,328

XML

DEPOSITS (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Summary of deposit [Abstract]
Noninterest-bearing demand	$ 389,828	$ 404,143
Interest bearing demand	348,490	340,053
Savings and money market accounts	490,258	442,246
Certificates of deposit	99,237	119,883
Total deposits	1,327,813	1,306,325
Certificate of deposits, $100,000 or more denominations	$ 37,800	$ 50,100

XML

SECURITIES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Available for Sale [Abstract]
Amortized Cost	$ 158,789		$ 158,789		$ 161,781
Gross Unrealized Gains	786		786		926
Gross Unrealized Losses	(709)		(709)		(833)
Fair Value	158,866		158,866		161,874
Proceeds from sale of available-for-sale securities	0	$ 4,600	12,063	$ 5,164
Gain on sale of securities	0	41	83	51
Reclassification adjustment for securities gain recognized in earnings, net of tax	0	$ 27	54	$ 33
Held to Maturity [Abstract]
Amortized Cost	43,229		43,229		31,585
Fair Value	43,810		43,810		31,428
U.S. Treasury and Federal Agency Securities [Member]
Available for Sale [Abstract]
Amortized Cost	70,725		70,725		67,612
Gross Unrealized Gains	92		92		53
Gross Unrealized Losses	(276)		(276)		(501)
Fair Value	70,541		70,541		67,164
U.S. Agency MBS and CMOs [Member]
Available for Sale [Abstract]
Amortized Cost	14,808		14,808		16,692
Gross Unrealized Gains	55		55		67
Gross Unrealized Losses	(89)		(89)		(71)
Fair Value	14,774		14,774		16,688
Tax-Exempt State and Municipal Bonds [Member]
Available for Sale [Abstract]
Amortized Cost	34,903		34,903		37,203
Gross Unrealized Gains	279		279		419
Gross Unrealized Losses	(285)		(285)		(161)
Fair Value	34,897		34,897		37,461
Taxable State and Municipal Bonds [Member]
Available for Sale [Abstract]
Amortized Cost	24,148		24,148		25,012
Gross Unrealized Gains	316		316		351
Gross Unrealized Losses	(39)		(39)		(70)
Fair Value	24,425		24,425		25,293
Corporate Bonds and Other Debt Securities [Member]
Available for Sale [Abstract]
Amortized Cost	12,705		12,705		13,762
Gross Unrealized Gains	44		44		34
Gross Unrealized Losses	(17)		(17)		(30)
Fair Value	12,732		12,732		13,766
Other Equity Securities [Member]
Available for Sale [Abstract]
Amortized Cost	1,500		1,500		1,500
Gross Unrealized Gains	0		0		2
Gross Unrealized Losses	(3)		(3)		0
Fair Value	1,497		1,497		1,502
Tax-Exempt State and Municipal Bonds [Member]
Held to Maturity [Abstract]
Amortized Cost	43,229		43,229		31,585
Gross Unrealized Gains	584		584		64
Gross Unrealized Losses	(3)		(3)		(221)
Fair Value	$ 43,810		$ 43,810		$ 31,428

XML

FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE [Abstract]

Assets measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
U.S. Treasury and federal agency securities	$	70,541		$	---	$	70,541	$	---
U.S. Agency MBS and CMOs		14,774			---		14,774		---
Tax-exempt state and municipal bonds		34,897			---		34,897		---
Taxable state and municipal bonds		24,425			---		24,425		---
Corporate bonds and other debt securities		12,732			---		12,732		---
Other equity securities		1,497			---		1,497		---
Loans held for sale		5,114			---		5,114		---
Interest rate swaps		184			---		---		184
Interest rate swaps		(184	)		---		---		(184	)
December 31, 2014
U.S. Treasury and federal agency securities	$	67,164		$	---	$	67,164	$	---
U.S. Agency MBS and CMOs		16,688			---		16,688		---
Tax-exempt state and municipal bonds		37,461			---		37,461		---
Taxable state and municipal bonds		25,293			---		25,293		---
Corporate bonds and other debt securities		13,766			---		13,766		---
Other equity securities		1,502			---		1,502		---
Loans held for sale		2,347			---		2,347		---
Interest rate swaps		140			---		---		140
Interest rate swaps		(140	)		---		---		(140	)

Assets measured at fair value on a non-recurring basis

Assets measured at fair value on a non-recurring basis are summarized below (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
Impaired loans	$	7,779	$	---	$	---	$	7,779
Other real estate owned		22,577		---		---		22,577
December 31, 2014
Impaired loans	$	12,649	$	---	$	---	$	12,649
Other real estate owned		22,472		---		---		22,472

Quantitative information about level 3 fair value measurements measured on a non-recurring basis

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis were as follows at period end (dollars in thousands):

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2015
Impaired Loans	$	7,779	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	11.0
Other real estate owned		22,577	Sales comparison approach	Adjustment for differences between comparable sales		4.5	to	22.0
			Income approach	Capitalization rate		9.5	to	11.0

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2014
Impaired Loans	$	12,649	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	12.0
Other real estate owned		22,472	Sales comparison approach	Adjustment for differences between comparable sales		3.0	to	22.7
			Income approach	Capitalization rate		9.5	to	12.0

Carrying amounts and estimated fair values of financial instruments, not previously presented

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2015 and December 31, 2014 (dollars in thousands).

	Level in	June 30, 2015						December 31, 2014
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	28,853		$	28,853		$	31,503		$	31,503
Cash equivalents	Level 2		112,721			112,721			97,952			97,952
Interest-bearing time deposits in other financial institutions	Level 2		20,000			20,052			20,000			20,062
Securities held to maturity	Level 3		43,229			43,810			31,585			31,428
FHLB stock			11,558		NA				11,238		NA
Loans, net	Level 2		1,104,063			1,097,584			1,086,872			1,082,675
Bank owned life insurance	Level 3		28,528			28,528			28,195			28,195
Accrued interest receivable	Level 2		3,633			3,633			3,399			3,399
Financial liabilities
Deposits	Level 2		(1,327,813	)		(1,327,724	)		(1,306,325	)		(1,306,671	)
Other borrowed funds	Level 2		(96,836	)		(97,555	)		(88,107	)		(89,066	)
Long-term debt	Level 2		(41,238	)		(35,626	)		(41,238	)		(35,396	)
Accrued interest payable	Level 2		(283	)		(283	)		(289	)		(289	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

XML

COMMITMENTS AND OFF BALANCE-SHEET RISK (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Notional amount of commitments to fund mortgage loans to be sold into the secondary market	$ 24,200	$ 14,200
Commitments to make loans at fixed rates (in hundredths)	43.70%
Expiration period of commitment to make variable rate loan	30 days
Commitments to Make Loans [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	$ 139,330	81,274
Letters of Credit [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	13,027	11,862
Unused Lines of Credit [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	$ 391,015	$ 389,099

XML

LOANS, Credit Quality Indicators (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Grading	Dec. 31, 2014 USD ($)
Risk grade category of commercial loans by class of loans [Abstract]
Number point grading system used for loan quality | Grading	8
Total loans	$ 824,607	$ 818,205
Internal ratings of loans considered substandard, or worse	6 or worse
Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	$ 239	343
Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	16,910	17,180
Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	252,072	238,208
Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	494,660	494,080
Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	50,434	52,090
Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	6,712	8,793
Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	3,580	7,511
Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Loans [Member] | Substandard or Worse [Member]
Loans classified as substandard or worse [Abstract]
Not classified as impaired	1,891	4,220
Classified as impaired	8,401	12,084
Loans classified as substandard or worse	10,292	16,304
Commercial and Industrial [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	350,202	327,674
Commercial and Industrial [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	239	343
Commercial and Industrial [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	10,932	11,177
Commercial and Industrial [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	133,304	118,382
Commercial and Industrial [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	192,471	182,651
Commercial and Industrial [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	9,845	8,448
Commercial and Industrial [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,019	1,068
Commercial and Industrial [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	2,392	5,605
Commercial and Industrial [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial and Industrial [Member] | Residential Developed [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	10,664
Commercial and Industrial [Member] | Residential Developed [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Residential Developed [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Residential Developed [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	2,204
Commercial and Industrial [Member] | Residential Developed [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	4,917
Commercial and Industrial [Member] | Residential Developed [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	2,563
Commercial and Industrial [Member] | Residential Developed [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	806
Commercial and Industrial [Member] | Residential Developed [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	174
Commercial and Industrial [Member] | Residential Developed [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	7,627
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	7,627
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Unsecured to Residential Developers [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Vacant and Unimproved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	44,108
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	15,701
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	21,548
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	6,859
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Vacant and Unimproved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Development [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,804
Commercial and Industrial [Member] | Commercial Development [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Development [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Development [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Development [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,362
Commercial and Industrial [Member] | Commercial Development [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	199
Commercial and Industrial [Member] | Commercial Development [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	194
Commercial and Industrial [Member] | Commercial Development [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	49
Commercial and Industrial [Member] | Commercial Development [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Residential Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	68,591
Commercial and Industrial [Member] | Residential Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Residential Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Residential Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	16,155
Commercial and Industrial [Member] | Residential Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	44,748
Commercial and Industrial [Member] | Residential Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	5,283
Commercial and Industrial [Member] | Residential Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,816
Commercial and Industrial [Member] | Residential Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	589
Commercial and Industrial [Member] | Residential Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	270,145
Commercial and Industrial [Member] | Commercial Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Commercial Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	4,782
Commercial and Industrial [Member] | Commercial Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	56,518
Commercial and Industrial [Member] | Commercial Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	184,891
Commercial and Industrial [Member] | Commercial Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	21,022
Commercial and Industrial [Member] | Commercial Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	2,556
Commercial and Industrial [Member] | Commercial Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	376
Commercial and Industrial [Member] | Commercial Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Manufacturing & Industrial [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	71,466
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,196
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	28,190
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	37,096
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	4,663
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	321
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial and Industrial [Member] | Manufacturing & Industrial [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0
Commercial Real Estate [Member] | Residential Developed [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		12,771
Commercial Real Estate [Member] | Residential Developed [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Residential Developed [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Residential Developed [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		2,491
Commercial Real Estate [Member] | Residential Developed [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,702
Commercial Real Estate [Member] | Residential Developed [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,491
Commercial Real Estate [Member] | Residential Developed [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		842
Commercial Real Estate [Member] | Residential Developed [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		245
Commercial Real Estate [Member] | Residential Developed [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		7,496
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		7,496
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		50,372
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		12,105
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		30,997
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		7,241
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		29
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Development [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,082
Commercial Real Estate [Member] | Commercial Development [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Development [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Development [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Development [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		3,643
Commercial Real Estate [Member] | Commercial Development [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		211
Commercial Real Estate [Member] | Commercial Development [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		199
Commercial Real Estate [Member] | Commercial Development [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		29
Commercial Real Estate [Member] | Commercial Development [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Residential Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		69,612
Commercial Real Estate [Member] | Residential Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Residential Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		103
Commercial Real Estate [Member] | Residential Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		16,291
Commercial Real Estate [Member] | Residential Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		43,928
Commercial Real Estate [Member] | Residential Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		6,428
Commercial Real Estate [Member] | Residential Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		2,096
Commercial Real Estate [Member] | Residential Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		766
Commercial Real Estate [Member] | Residential Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		269,757
Commercial Real Estate [Member] | Commercial Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Commercial Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,392
Commercial Real Estate [Member] | Commercial Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		61,543
Commercial Real Estate [Member] | Commercial Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		178,169
Commercial Real Estate [Member] | Commercial Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		20,558
Commercial Real Estate [Member] | Commercial Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,229
Commercial Real Estate [Member] | Commercial Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		866
Commercial Real Estate [Member] | Commercial Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		76,441
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		1,508
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		27,396
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		42,494
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		4,713
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		330
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans		0
Consumer Loan [Member] | Residential Mortgage [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	199,972	190,249
Consumer Loan [Member] | Residential Mortgage [Member] | Performing [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	199,972	189,946
Consumer Loan [Member] | Residential Mortgage [Member] | Nonperforming [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	0	303
Consumer Loan [Member] | Unsecured [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	764	948
Consumer Loan [Member] | Unsecured [Member] | Performing [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	764	930
Consumer Loan [Member] | Unsecured [Member] | Nonperforming [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	0	18
Consumer Loan [Member] | Home Equity [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	95,042	98,887
Consumer Loan [Member] | Home Equity [Member] | Performing [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	94,970	98,465
Consumer Loan [Member] | Home Equity [Member] | Nonperforming [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	72	422
Consumer Loan [Member] | Other Secured [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	9,639	10,194
Consumer Loan [Member] | Other Secured [Member] | Performing [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	9,622	10,194
Consumer Loan [Member] | Other Secured [Member] | Nonperforming [Member]
Recorded investment in consumer loans based on payment activity [Abstract]
Recorded investment in consumer loans	$ 17	$ 0

XML

LOANS, Allowance for Loans Losses by Portfolio (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	$ 18,680	$ 20,383	$ 18,962	$ 20,798
Charge-offs	(202)	(92)	(280)	(174)
Recoveries	203	758	999	1,425
Provision for loan losses	(500)	(1,000)	(1,500)	(2,000)
Ending balance	18,181	20,049	18,181	20,049
Commercial and Industrial [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	6,174	6,087	6,173	6,174
Charge-offs	(173)	0	(173)	(39)
Recoveries	44	327	128	366
Provision for loan losses	336	307	253	220
Ending balance	6,381	6,721	6,381	6,721
Commercial Real Estate [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	8,570	10,372	8,690	10,868
Charge-offs	0	(23)	0	(23)
Recoveries	117	363	725	953
Provision for loan losses	(748)	(1,371)	(1,476)	(2,457)
Ending balance	7,939	9,341	7,939	9,341
Consumer [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	3,907	3,875	4,046	3,703
Charge-offs	(29)	(69)	(107)	(112)
Recoveries	42	68	146	106
Provision for loan losses	(89)	59	(254)	236
Ending balance	3,831	3,933	3,831	3,933
Unallocated [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	29	49	53	53
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	1	5	(23)	1
Ending balance	$ 30	$ 54	$ 30	$ 54

XML

SHAREHOLDERS' EQUITY (Details)			6 Months Ended	12 Months Ended
	Jul. 28, 2009 shares	Jun. 18, 2009 shares	Jun. 30, 2015 USD ($) Category	Dec. 31, 2009 USD ($) Issuance $ / shares shares	Dec. 31, 2014 USD ($)
SHAREHOLDERS' EQUITY [Abstract]
Number of classification of prompt corrective action regulations | Category			5
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
CET1 capital (to risk weighted assets), required capital conservation buffer (in hundredths)			2.50%
CET1 capital (to risk weighted assets), minimum required for capital adequacy purposes with capital conservation buffer fully phased in (in hundredths)			7.00%
CET1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations with capital conservation buffer fully phased in (in hundredths)			8.50%
Total capital (to risk weighted assets) minimum required for capital adequacy purposes with capital conservation buffer fully phased in (in hundredths)			10.50%
Summary of actual capital levels and minimum required levels [Abstract]
CET1 capital (to risk weighted assets), actual amount			$ 146,392,000
CET1 capital (to risk weighted assets), actual ratio (in hundredths)			10.90%
Tier 1 capital (to risk weighted assets), actual amount			$ 186,392,000		$ 174,084,000
Tier 1 capital (to risk weighted assets), actual ratio (in hundredths)			13.80%		14.30%
Total capital (to risk weighted assets), actual amount			$ 203,249,000		$ 189,353,000
Total capital (to risk weighted assets), actual ratio (in hundredths)			15.10%		15.60%
Tier 1 capital (to average assets), actual amount			$ 186,392,000		$ 174,084,000
Tier 1 capital (to average assets), actual ratio (in hundredths)			11.70%		11.60%
CET1 capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 60,626,000
CET1 capital (to risk weighted assets), minimum required for capital adequacy purposes, ratio (in hundredths)			4.50%
Tier 1 capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 80,834,000		$ 48,706,000
Tier 1 capital (to risk weighted assets), minimum required for capital adequacy purposes, ratio (in hundredths)			6.00%		4.00%
Total capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 107,779,000		$ 97,420,000
Total capital (to risk weighted assets) minimum required for capital adequacy purposes, ratio (in hundredths)			8.00%		8.00%
Tier 1 capital (to average assets), minimum required for capital adequacy purposes, amount			$ 63,720,000		$ 59,998,000
Tier 1 capital (to average assets), minimum required for capital adequacy purposes, ratio (in hundredths)			4.00%		4.00%
Trust preferred securities that qualified as Tier one risk based capital			$ 40,000,000		$ 40,000,000
Bank [Member]
Summary of actual capital levels and minimum required levels [Abstract]
CET1 capital (to risk weighted assets), actual amount			$ 181,020,000
CET1 capital (to risk weighted assets), actual ratio (in hundredths)			13.40%
Tier 1 capital (to risk weighted assets), actual amount			$ 181,020,000		$ 170,983,000
Tier 1 capital (to risk weighted assets), actual ratio (in hundredths)			13.40%		14.00%
Total capital (to risk weighted assets), actual amount			$ 197,874,000		$ 186,276,000
Total capital (to risk weighted assets), actual ratio (in hundredths)			14.70%		15.30%
Tier 1 capital (to average assets), actual amount			$ 181,020,000		$ 170,983,000
Tier 1 capital (to average assets), actual ratio (in hundredths)			11.40%		11.40%
CET1 capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 60,615,000
CET1 capital (to risk weighted assets), minimum required for capital adequacy purposes, ratio (in hundredths)			4.50%
Tier 1 capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 80,820,000		$ 48,788,000
Tier 1 capital (to risk weighted assets), minimum required for capital adequacy purposes, ratio (in hundredths)			6.00%		4.00%
Total capital (to risk weighted assets), minimum required for capital adequacy purposes, amount			$ 107,759,000		$ 97,575,000
Total capital (to risk weighted assets) minimum required for capital adequacy purposes, ratio (in hundredths)			8.00%		8.00%
Tier 1 capital (to average assets), minimum required for capital adequacy purposes, amount			$ 63,650,000		$ 59,923,000
Tier 1 capital (to average assets), minimum required for capital adequacy purposes, ratio (in hundredths)			4.00%		4.00%
CET1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount			$ 87,555,000
CET1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio (in hundredths)			6.50%
Tier 1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount			$ 107,759,000		$ 73,182,000
Tier 1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio (in hundredths)			8.00%		6.00%
Total capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount			$ 134,699,000		$ 121,969,000
Total capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio (in hundredths)			10.00%		10.00%
Tier 1 capital (to average assets) to be well capitalized under prompt corrective action regulations, amount			$ 79,563,000		$ 74,904,000
Tier 1 capital (to average assets) to be well capitalized under prompt corrective action regulations, ratio (in hundredths)			5.00%		5.00%
Warrant [Member]
Warrant issued [Abstract]
Warrants issued to purchase common stock (in shares) | shares	117,058	1,361,753		1,478,811
Exercise price of warrants (in dollars per share) | $ / shares				$ 9.00
Fair value of warrants issued				$ 806,000
Fair value per warrant (in dollars per share) | $ / shares				$ 0.54
Number of issuance | Issuance				2
Warrants executed (in shares) | shares				392
Warrants exercise period			5 years
Warrant [Member] | Issuance on June 18, 2009 [Member]
Warrant issued [Abstract]
Warrants expiration date			Jun. 17, 2015
Warrant [Member] | Issuance on July 28, 2009 [Member]
Warrant issued [Abstract]
Warrants expiration date			Jul. 27, 2015

XML

OTHER BORROWED FUNDS (Details) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 96,836,000	$ 88,107,000
Residential and commercial real estate loans pledged as collateral for Federal Home Loan Bank advances	436,914,000	441,252,000
Scheduled repayments of FHLB advances [Abstract]
2015	667,000
2016	21,996,000
2017	2,055,000
2018	52,118,000
2019	10,000,000
Thereafter	10,000,000
Total	96,836,000	88,107,000
Federal Reserve Bank borrowings [Abstract]
Unused borrowing capacity to Federal Reserve Bank	21,600,000	22,800,000
Commercial and mortgage loans pledged to the Federal Reserve Bank	24,200,000	25,900,000
Single Maturity Fixed Rate Advances [Member]
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 90,000,000	$ 80,000,000
Range of maturities, earliest	2016	2016
Range of maturities, last	2020	2019
Weighted average interest rate (in hundredths)	1.69%	1.69%
Scheduled repayments of FHLB advances [Abstract]
Total	$ 90,000,000	$ 80,000,000
Amortizable Mortgage Advances [Member]
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 6,836,000	$ 8,107,000
Range of maturities, earliest	2018	2018
Range of maturities, last	2018	2018
Weighted average interest rate (in hundredths)	3.76%	3.78%
Scheduled repayments of FHLB advances [Abstract]
Total	$ 6,836,000	$ 8,107,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Macatawa Bank Corporation ("the Company", "our", "we") and its wholly-owned subsidiary, Macatawa Bank ("the Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation.

Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank operates 26 full service branch offices providing a full range of commercial and consumer banking and trust services in Kent County, Ottawa County, and northern Allegan County, Michigan.

The Company owns all of the common stock of Macatawa Statutory Trust I and Macatawa Statutory Trust II. These are grantor trusts that issued trust preferred securities and are not consolidated with the Company under accounting principles generally accepted in the United States of America.

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) believed necessary for a fair presentation have been included.

Operating results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates:  To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.  The allowance for loan losses, valuation of deferred tax assets, loss contingencies, fair value of other real estate owned and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses: The allowance for loan losses (allowance) is a valuation allowance for probable incurred credit losses inherent in our loan portfolio, increased by the provision for loan losses and recoveries, and decreased by charge-offs of loans. Management believes the allowance for loan losses balance to be adequate based on known and inherent risks in the portfolio, past loan loss experience, information about specific borrower situations and estimated collateral values, economic conditions and other relevant factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the allowance for loan losses.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2015, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

A loan is impaired when, based on current information and events, it is believed to be probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and a concession has been made, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Commercial and commercial real estate loans with relationship balances exceeding $500,000 and an internal risk grading of 6 or worse are evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated and the loan is reported at the present value of estimated future cash flows using the loan’s existing interest rate or at the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and they are not separately identified for impairment disclosures.

Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure, primarily other real estate owned, are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed unless they add value to the property.

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 consequences 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.

We recognize a tax position as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. We recognize interest and penalties related to income tax matters in income tax expense.

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2015 and December 31, 2014, the total notional amount of such agreements was $20.0 million and resulted in a derivative asset with a fair value of $184,000 and $140,000, respectively, which were included in other assets and a derivative liability of $184,000 and $140,000, respectively, which were included in other liabilities.

Reclassifications: Some items in the prior period financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards:

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.  These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required.  The amendments are effective for  annual periods and interim periods within those annual periods beginning after December 15, 2014. Adoption of this ASU by the Company in the first six months of 2015 resulted in five residential real estate properties totaling $657,000 being classified as other real estate owned at June 30, 2015.

FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in this Update change the requirements for reporting discontinued operations.  A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.  The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position.  This Update also requires additional disclosures about discontinued operations including pretax profit or loss, and any ongoing involvement with the discontinued operation.   The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. The impact of adoption of this ASU by the Company was not material.

FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  This update requires creditors to reclassify loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them to other real estate owned. The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor.  The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The impact of adoption of this ASU by the Company was not material.

Newly Issued Not Yet Effective Standards:

FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016.  At the July 9, 2015 FASB meeting, the FASB voted to delay the implementation requirement by one year.  The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.  This update provides guidance related to the accounting for internal-use software accessed through a hosting arrangement (e.g., cloud computing, software as a service, etc.) only if both of the following criteria are met: (1) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty (there is no significant penalty if the customer has the ability to take delivery of the software without incurring significant cost and the ability to use the software separately without significant loss of utility or value); and (2) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. If both of the criteria are present in a hosting arrangement, then the arrangement contains a software license and the customer should generally capitalize and subsequently amortize the cost of the license. If both of the criteria are not present, the customer should account for the arrangement as a service contract (i.e., expense fees as incurred). The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The impact of adoption of this ASU by the Company is not expected to be material.

XML

OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014	Jun. 30, 2015
Period-end other real estate owned [Roll Forward]
Beginning balance	$ 43,071	$ 53,501	$ 53,501
Additions, transfers from loans	1,442	2,274	4,932
Proceeds from sales of other real estate owned	(2,962)	(7,362)	(12,487)
Valuation allowance reversal upon sale	(427)	(2,564)	(3,499)
Gain (loss) on sale of other real estate owned	205	476	624
Other real estate owned, gross	41,329	46,325	43,071
Less: valuation allowance	(14,829)	(14,802)	(14,829)	$ (15,026)
Ending balance		31,523	28,242	$ 26,303
Activity in valuation allowance [Roll Forward]
Beginning balance	14,829	16,705	16,705
Additions charged to expense	624	661
Reversals upon sale	(427)	(2,564)
Ending balance	$ 15,026	$ 14,802	$ 14,829

XML

FEDERAL INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2015

FEDERAL INCOME TAXES [Abstract]

Income tax expense

Income tax expense was as follows (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Current	$	676	$	36	$	1,329	$	60
Deferred		744		1,195		1,336		2,348
	$	1,420	$	1,231	$	2,665	$	2,408

Difference between financial statement tax expense and amount computed by applying statutory federal tax rate to pretax income

The difference between the financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income was reconciled as follows (dollars in thousands):

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	1,622		$	1,395		$	3,052		$	2,730
Add (deduct)
Tax-exempt interest income		(127	)		(89	)		(244	)		(174	)
Bank-owned life insurance		(60	)		(61	)		(117	)		(115	)
Other, net		(15	)		(14	)		(26	)		(33	)
	$	1,420		$	1,231		$	2,665		$	2,408

Deferred tax assets and liabilities

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

	June 30, 2015			December 31, 2014
Deferred tax assets
Allowance for loan losses	$	6,363		$	6,637
Nonaccrual loan interest		1,037			935
Valuation allowance on other real estate owned		5,259			5,190
Unrealized loss on securities available for sale		---			---
Other		551			1,896
Gross deferred tax assets		13,210			14,658
Valuation allowance		---			---
Total net deferred tax assets		13,210			14,658
Deferred tax liabilities
Depreciation		(1,792	)		(1,908	)
Prepaid expenses		(21	)		(21	)
Unrealized gain on securities available for sale		(27	)		(33	)
Other		(435	)		(431	)
Gross deferred tax liabilities		(2,275	)		(2,393	)
Net deferred tax asset	$	10,935		$	12,265

XML

EARNINGS PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2015

EARNINGS PER COMMON SHARE [Abstract]

Reconciliation of numerators and denominators of basic and diluted earnings per common share

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2015 and 2014 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Net income available to common shares	$	3,215	$	2,755	$	6,055	$	5,393
Weighted average shares outstanding, including participating stock awards - Basic		33,866,789		33,788,431		33,866,789		33,789,481
Dilutive potential common shares:
Stock options		---		---		---		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,866,789		33,788,431		33,866,789		33,789,481
Basic earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16
Diluted earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16

XML

FAIR VALUE (Details) $ in Thousands	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($)	Jun. 30, 2015 USD ($) Level	Dec. 31, 2014 USD ($)
FAIR VALUE [Abstract]
Number of levels of input | Level		3
Recurring Basis [Member]
Asset measured at fair value on recurring basis [Abstract]
U.S. Treasury and federal agency securities	$ 70,541	$ 70,541	$ 67,164
U.S. Agency MBS and CMOs	14,774	14,774	16,688
Tax-exempt state and municipal bonds	34,897	34,897	37,461
Taxable state and municipal bonds	24,425	24,425	25,293
Corporate bonds and other debt securities	12,732	12,732	13,766
Other equity securities	1,497	1,497	1,502
Loans held for sale	5,114	5,114	2,347
Interest rate swaps	184	184	140
Interest rate swaps	(184)	(184)	(140)
Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
U.S. Treasury and federal agency securities	0	0	0
U.S. Agency MBS and CMOs	0	0	0
Tax-exempt state and municipal bonds	0	0	0
Taxable state and municipal bonds	0	0	0
Corporate bonds and other debt securities	0	0	0
Other equity securities	0	0	0
Loans held for sale	0	0	0
Interest rate swaps	0	0	0
Interest rate swaps	0	0	0
Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
U.S. Treasury and federal agency securities	70,541	70,541	67,164
U.S. Agency MBS and CMOs	14,774	14,774	16,688
Tax-exempt state and municipal bonds	34,897	34,897	37,461
Taxable state and municipal bonds	24,425	24,425	25,293
Corporate bonds and other debt securities	12,732	12,732	13,766
Other equity securities	1,497	1,497	1,502
Loans held for sale	5,114	5,114	2,347
Interest rate swaps	0	0	0
Interest rate swaps	0	0	0
Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
U.S. Treasury and federal agency securities	0	0	0
U.S. Agency MBS and CMOs	0	0	0
Tax-exempt state and municipal bonds	0	0	0
Taxable state and municipal bonds	0	0	0
Corporate bonds and other debt securities	0	0	0
Other equity securities	0	0	0
Loans held for sale	0	0	0
Interest rate swaps	184	184	140
Interest rate swaps	(184)	(184)	(140)
Nonrecurring Basis [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	7,779	7,779	12,649
Other real estate owned	22,577	22,577	22,472
Nonrecurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	0	0	0
Other real estate owned	0	0	0
Nonrecurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	0	0	0
Other real estate owned	0	0	0
Nonrecurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	7,779	7,779	12,649
Other real estate owned	22,577	22,577	22,472
Impaired Loans [Member] | Sales Comparison Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset (liability) fair value	$ 7,779	7,779	$ 12,649
Impaired Loans [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales (in hundredths)	1.00%		1.00%
Impaired Loans [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales (in hundredths)	20.00%		20.00%
Impaired Loans [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate (in hundredths)	9.50%		9.50%
Impaired Loans [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate (in hundredths)	11.00%		12.00%
Other Real Estate Owned [Member] | Sales Comparison Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset (liability) fair value	$ 22,577	$ 22,577	$ 22,472
Other Real Estate Owned [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales (in hundredths)	4.50%		3.00%
Other Real Estate Owned [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales (in hundredths)	22.00%		22.70%
Other Real Estate Owned [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate (in hundredths)	9.50%		9.50%
Other Real Estate Owned [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate (in hundredths)	11.00%		12.00%

XML

COMMITMENTS AND OFF BALANCE-SHEET RISK (Tables)

6 Months Ended

Jun. 30, 2015

COMMITMENTS AND OFF BALANCE-SHEET RISK [Abstract]

Summary of contractual amounts of financial instruments with off-balance-sheet risk

A summary of the contractual amounts of financial instruments with off‑balance‑sheet risk was as follows at period-end (dollars in thousands):

	June 30, 2015		December 31, 2014
Commitments to make loans	$	139,330	$	81,274
Letters of credit		13,027		11,862
Unused lines of credit		391,015		389,099

XML

SHAREHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2015

SHAREHOLDERS' EQUITY [Abstract]

Actual capital levels and minimum required levels

At June 30, 2015 and December 31, 2014, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
CET1 capital (to risk weighted assets)
Consolidated	$	146,392		10.9	%	$	60,626		4.5	%		N/A		N/A
Bank		181,020		13.4			60,615		4.5		$	87,555		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		186,392		13.8			80,834		6.0			N/A		N/A
Bank		181,020		13.4			80,820		6.0			107,759		8.0
Total capital (to risk weighted assets)
Consolidated		203,249		15.1			107,779		8.0			N/A		N/A
Bank		197,874		14.7			107,759		8.0			134,699		10.0
Tier 1 capital (to average assets)
Consolidated		186,392		11.7			63,720		4.0			N/A		N/A
Bank		181,020		11.4			63,650		4.0			79,563		5.0
December 31, 2014
Tier 1 capital (to risk weighted assets)
Consolidated	$	174,084		14.3	%	$	48,706		4.0	%		N/A		N/A
Bank		170,983		14.0			48,788		4.0		$	73,182		6.0	%
Total capital (to risk weighted assets)
Consolidated		189,353		15.6			97,420		8.0			N/A		N/A
Bank		186,276		15.3			97,575		8.0			121,969		10.0
Tier 1 capital (to average assets)
Consolidated		174,084		11.6			59,998		4.0			N/A		N/A
Bank		170,983		11.4			59,923		4.0			74,904		5.0

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities
Net income	$ 6,055	$ 5,393
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	1,522	1,558
Stock compensation expense	242	147
Tax effect of expired common stock warrants	(280)	0
Provision for loan losses	(1,500)	(2,000)
Origination of loans for sale	(51,416)	(26,760)
Proceeds from sales of loans originated for sale	50,193	27,992
Net gains on mortgage loans	(1,544)	(726)
Gain on sales of securities	(83)	(51)
Write-down of other real estate	624	661
Net gain on sales of other real estate	(205)	(476)
Change in net deferred tax asset	1,336	2,348
Change in accrued interest receivable and other assets	(1,702)	249
Earnings in bank-owned life insurance	(333)	(328)
Change in accrued expenses and other liabilities	(703)	2,841
Net cash from operating activities	2,206	10,848
Cash flows from investing activities
Loan originations and payments, net	(12,264)	(2,175)
Change in interest-bearing deposits in other financial institutions	0	(7,500)
Purchases of securities available for sale	(19,604)	(21,210)
Purchases of securities held to maturity	(11,826)	0
Purchase FHLB stock	(320)	0
Proceeds from:
Maturities and calls of securities available for sale	8,944	4,500
Sales of securities available for sale	12,063	5,164
Principal paydowns on securities	1,952	1,675
Sales of other real estate	2,962	7,362
Additions to premises and equipment	(529)	(910)
Net cash from investing activities	(18,622)	(13,094)
Cash flows from financing activities
Change in deposits	21,488	(34,010)
Repayments of other borrowed funds	(1,271)	(1,217)
Proceeds from other borrowed funds	10,000	0
Cash dividends paid	(1,682)	(1,352)
Common stock issuance costs	0	(102)
Net cash from financing activities	28,535	(36,681)
Net change in cash and cash equivalents	12,119	(38,927)
Cash and cash equivalents at beginning of period	129,455	156,892
Cash and cash equivalents at end of period	141,574	117,965
Supplemental cash flow information
Interest paid	2,758	2,873
Income taxes paid	3,675	50
Supplemental noncash disclosures:
Transfers from loans to other real estate	1,442	2,274
Security settlement	$ (330)	$ (553)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	6 Months Ended		12 Months Ended
	Jun. 30, 2015 USD ($) Branch Grade InterestRateSwap Property	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of full service branch offices | Branch	26
Allowance for Loan Losses [Abstract]
Period for annualized historical loss experience used for commercial loans	18 months
Period of historical loss experience applied to residential mortgage and consumer loan portfolios	12 months
Threshold for commercial and commercial real estate loans evaluated for impairment	$ 500,000
Minimum internal risk grading of commercial and commercial real estate loans evaluated for impairment | Grade	6
Income Taxes [Abstract]
Percentage of more likely than not tax position that would be sustained in a tax examination (in hundredths)	50.00%
Derivatives [Abstract]
Number of freestanding interest rate swaps | InterestRateSwap	2
Notional amount of agreements	$ 20,000,000		$ 20,000,000
Derivative asset fair value	184,000		140,000
Derivative liability fair value	184,000		140,000
Real Estate Properties [Line Items]
Real estate properties classified as other real estate owned	$ 1,442,000	$ 2,274,000	$ 4,932,000
Residential Real Estate [Member]
Real Estate Properties [Line Items]
Number of real estate properties classified as other real estate owned | Property	5
Real estate properties classified as other real estate owned	$ 657,000

XML

LOANS, Past Due Loans (Details)	6 Months Ended	9 Months Ended
	Jun. 30, 2015 USD ($) Payment	Sep. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	$ 3,644,000		$ 8,292,000
Over 90 days Accruing	72,000		134,000
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	1,886,000		2,841,000
Loans Not Past Due	1,128,138,000		1,115,642,000
Total ending loans balance	1,130,024,000		1,118,483,000
Specific reserves allocated to customers with modified term loans in troubled debt restructurings	$ 3,987,000		4,065,000
Number of consecutive payment before nonaccrual restructured loan is upgraded | Payment	6
Reduction of loans designated as TDR and impaired		$ 5,900,000
Number of months of performance before a loan is removed from TDR	6 months
30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	$ 1,105,000		671,000
Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	781,000		2,170,000
Commercial and Industrial [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	2,392,000		5,605,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	130,000		54,000
Loans Not Past Due	350,072,000		327,620,000
Total ending loans balance	350,202,000		327,674,000
Commercial and Industrial [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	124,000		54,000
Commercial and Industrial [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	6,000		0
Commercial Real Estate [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	1,188,000		1,906,000
Over 90 days Accruing	0		117,000
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	1,388,000		1,627,000
Loans Not Past Due	473,017,000		488,904,000
Total ending loans balance	474,405,000		490,531,000
Commercial Real Estate [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	702,000		200,000
Commercial Real Estate [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	686,000		1,427,000
Commercial Real Estate [Member] | Residential Developed [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	174,000		245,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Loans Not Past Due	10,664,000		12,771,000
Total ending loans balance	10,664,000		12,771,000
Commercial Real Estate [Member] | Residential Developed [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Residential Developed [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0		0
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Loans Not Past Due	7,627,000		7,496,000
Total ending loans balance	7,627,000		7,496,000
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0		0
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		100,000
Loans Not Past Due	44,108,000		50,272,000
Total ending loans balance	44,108,000		50,372,000
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		100,000
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Commercial Development [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	49,000		29,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	49,000		29,000
Loans Not Past Due	1,755,000		4,053,000
Total ending loans balance	1,804,000		4,082,000
Commercial Real Estate [Member] | Commercial Development [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Commercial Development [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	49,000		29,000
Commercial Real Estate [Member] | Residential Improved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	589,000		766,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	460,000		540,000
Loans Not Past Due	68,131,000		69,072,000
Total ending loans balance	68,591,000		69,612,000
Commercial Real Estate [Member] | Residential Improved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	20,000		100,000
Commercial Real Estate [Member] | Residential Improved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	440,000		440,000
Commercial Real Estate [Member] | Commercial Improved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	376,000		866,000
Over 90 days Accruing	0		117,000
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	879,000		958,000
Loans Not Past Due	269,266,000		268,799,000
Total ending loans balance	270,145,000		269,757,000
Commercial Real Estate [Member] | Commercial Improved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	682,000		0
Commercial Real Estate [Member] | Commercial Improved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	197,000		958,000
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0		0
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Loans Not Past Due	71,466,000		76,441,000
Total ending loans balance	71,466,000		76,441,000
Commercial Real Estate [Member] | Manufacturing and Industrial [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Commercial Real Estate [Member] | Manufacturing and Industrial [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Consumer [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	64,000		781,000
Over 90 days Accruing	72,000		17,000
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	368,000		1,160,000
Loans Not Past Due	305,049,000		299,118,000
Total ending loans balance	305,417,000		300,278,000
Consumer [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	279,000		417,000
Consumer [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	89,000		743,000
Consumer [Member] | Residential Mortgage [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	2,000		305,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	234,000		641,000
Loans Not Past Due	199,738,000		189,608,000
Total ending loans balance	199,972,000		190,249,000
Consumer [Member] | Residential Mortgage [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	234,000		338,000
Consumer [Member] | Residential Mortgage [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		303,000
Consumer [Member] | Unsecured [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	34,000		40,000
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	16,000		18,000
Loans Not Past Due	748,000		930,000
Total ending loans balance	764,000		948,000
Consumer [Member] | Unsecured [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	16,000		0
Consumer [Member] | Unsecured [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		18,000
Consumer [Member] | Home Equity [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	11,000		436,000
Over 90 days Accruing	72,000		17,000
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	101,000		501,000
Loans Not Past Due	94,941,000		98,386,000
Total ending loans balance	95,042,000		98,887,000
Consumer [Member] | Home Equity [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	29,000		79,000
Consumer [Member] | Home Equity [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	72,000		422,000
Consumer [Member] | Other Secured [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	17,000		0
Over 90 days Accruing	0		0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	17,000		0
Loans Not Past Due	9,622,000		10,194,000
Total ending loans balance	9,639,000		10,194,000
Consumer [Member] | Other Secured [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0		0
Consumer [Member] | Other Secured [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	$ 17,000		$ 0

XML

CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
ASSETS
Cash and due from banks	$ 28,853	$ 31,503
Federal funds sold and other short -term investments	112,721	97,952
Cash and cash equivalents	141,574	129,455
Interest-bearing time deposits in other financial institutions	20,000	20,000
Securities available for sale, at fair value	158,866	161,874
Securities held to maturity (fair value 2015 - $43,810 and 2014 - $31,428)	43,229	31,585
Federal Home Loan Bank (FHLB) stock	11,558	11,238
Loans held for sale, at fair value	5,114	2,347
Total loans	1,130,024	1,118,483
Allowance for loan losses	(18,181)	(18,962)
Net loans	1,111,843	1,099,521
Premises and equipment - net	52,132	52,894
Accrued interest receivable	3,633	3,399
Bank-owned life insurance	28,528	28,195
Other real estate owned - net	26,303	28,242
Net deferred tax asset	10,935	12,265
Other assets	4,299	2,831
Total assets	1,618,014	1,583,846
Deposits
Noninterest-bearing	389,828	404,143
Interest-bearing	937,985	902,182
Total deposits	1,327,813	1,306,325
Other borrowed funds	96,836	88,107
Long-term debt	41,238	41,238
Accrued expenses and other liabilities	5,284	5,657
Total liabilities	$ 1,471,171	$ 1,441,327
Commitments and contingent liabilities
Shareholders' equity
Common stock, no par value, 200,000,000 shares authorized; 33,866,789 shares issued and outstanding at June 30, 2015 and December 31, 2014	$ 216,422	$ 216,460
Retained deficit	(69,629)	(74,002)
Accumulated other comprehensive income	50	61
Total shareholders' equity	146,843	142,519
Total liabilities and shareholders' equity	$ 1,618,014	$ 1,583,846

XML

FAIR VALUE, Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financial assets [Abstract]
Cash and due from banks	$ 28,853	$ 31,503
Securities held to maturity	43,810	31,428
Bank owned life insurance	28,528	28,195
Carrying Amount [Member]
Financial assets [Abstract]
FHLB stock	11,558	11,238
Commitments to Make Loans [Member] | Carrying Amount [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet credit-related items	0	0
Commitments to Make Loans [Member] | Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet credit-related items	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	28,853	31,503
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	28,853	31,503
Significant Other Observable Inputs (Level 2) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Cash equivalents	112,721	97,952
Interest-bearing time deposits in other financial	20,000	20,000
Loans, net	1,104,063	1,086,872
Accrued interest receivable	3,633	3,399
Financial liabilities [Abstract]
Deposits	(1,327,813)	(1,306,325)
Other borrowed funds	(96,836)	(88,107)
Long-term debt	(41,238)	(41,238)
Accrued interest payable	(283)	(289)
Significant Other Observable Inputs (Level 2) [Member] | Fair Value [Member]
Financial assets [Abstract]
Cash equivalents	112,721	97,952
Interest-bearing time deposits in other financial	20,052	20,062
Loans, net	1,097,584	1,082,675
Accrued interest receivable	3,633	3,399
Financial liabilities [Abstract]
Deposits	(1,327,724)	(1,306,671)
Other borrowed funds	(97,555)	(89,066)
Long-term debt	(35,626)	(35,396)
Accrued interest payable	(283)	(289)
Significant Unobservable Inputs (Level 3) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Securities held to maturity	43,229	31,585
Bank owned life insurance	28,528	28,195
Significant Unobservable Inputs (Level 3) [Member] | Fair Value [Member]
Financial assets [Abstract]
Securities held to maturity	43,810	31,428
Bank owned life insurance	$ 28,528	$ 28,195

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Retained Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2013	$ 216,263	$ (81,786)	$ (1,955)	$ 132,522
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		5,393		5,393
Common stock issuance costs	(102)			(102)
Cash dividends per share		(1,352)		(1,352)
Net change in unrealized gain (loss) on securities available for sale, net of tax			1,484	1,484
Stock compensation expense	147			147
Balance at Jun. 30, 2014	216,308	(77,745)	(471)	138,092
Balance at Dec. 31, 2014	216,460	(74,002)	61	142,519
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		6,055		6,055
Common stock issuance costs				0
Cash dividends per share		(1,682)		(1,682)
Net change in unrealized gain (loss) on securities available for sale, net of tax			(11)	(11)
Tax effect of expired common stock warrants	(280)			(280)
Stock compensation expense	242			242
Balance at Jun. 30, 2015	$ 216,422	$ (69,629)	$ 50	$ 146,843

XML

SECURITIES, Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	$ 62,919	$ 51,415
12 Months or More, Fair Value	22,406	54,855
Total, Fair Value	85,325	106,270
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(433)	(341)
12 Months or More, Unrealized Losses	(279)	(713)
Total, Unrealized Loss	(712)	(1,054)
Securities pledged as security for public deposits, letters of credit and for other purposes required or permitted by law	1,000	1,000
U.S. Treasury and Federal Agency Securities [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	28,741	16,426
12 Months or More, Fair Value	17,751	35,350
Total, Fair Value	46,492	51,776
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(109)	(45)
12 Months or More, Unrealized Losses	(167)	(456)
Total, Unrealized Loss	(276)	(501)
U.S. Agency MBS and CMOs [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	8,969	0
12 Months or More, Fair Value	985	9,732
Total, Fair Value	9,954	9,732
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(83)	0
12 Months or More, Unrealized Losses	(6)	(71)
Total, Unrealized Loss	(89)	(71)
Tax-Exempt State and Municipal Bonds [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	14,656	26,820
12 Months or More, Fair Value	1,977	4,545
Total, Fair Value	16,633	31,365
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(197)	(264)
12 Months or More, Unrealized Losses	(88)	(118)
Total, Unrealized Loss	(285)	(382)
Taxable State and Municipal Bonds [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	5,480	3,982
12 Months or More, Fair Value	1,195	3,240
Total, Fair Value	6,675	7,222
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(28)	(19)
12 Months or More, Unrealized Losses	(14)	(51)
Total, Unrealized Loss	(42)	(70)
Corporate Bonds and Other Debt Securities [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	3,573	4,187
12 Months or More, Fair Value	498	1,988
Total, Fair Value	4,071	6,175
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(13)	(13)
12 Months or More, Unrealized Losses	(4)	(17)
Total, Unrealized Loss	(17)	(30)
Other Equity Securities [Member]
Securities in continuous unrealized losses position, Fair value [Abstract]
Less than 12 Months, Fair Value	1,500	0
12 Months or More, Fair Value	0	0
Total, Fair Value	1,500	0
Securities in continuous unrealized loss position, Aggregate losses [Abstract]
Less than 12 Months, Unrealized Losses	(3)	0
12 Months or More, Unrealized Losses	0	0
Total, Unrealized Loss	$ (3)	$ 0

XML

SECURITIES (Tables)

6 Months Ended

Jun. 30, 2015

SECURITIES [Abstract]

Amortized cost and fair value of securities

The amortized cost and fair value of securities at period-end were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2015
Available for Sale:
U.S. Treasury and federal agency securities	$	70,725		92		(276	)	$	70,541
U.S. Agency MBS and CMOs		14,808		55		(89	)		14,774
Tax-exempt state and municipal bonds		34,903		279		(285	)		34,897
Taxable state and municipal bonds		24,148		316		(39	)		24,425
Corporate bonds and other debt securities		12,705		44		(17	)		12,732
Other equity securities		1,500		---		(3	)		1,497
	$	158,789	$	786	$	(709	)	$	158,866
Held to Maturity
Tax-exempt state and municipal bonds	$	43,229	$	584	$	(3	)	$	43,810
December 31, 2014
Available for Sale:
U.S. Treasury and federal agency securities	$	67,612	$	53	$	(501	)	$	67,164
U. S. Agency MBS and CMOs		16,692		67		(71	)		16,688
Tax-exempt state and municipal bonds		37,203		419		(161	)		37,461
Taxable state and municipal bonds		25,012		351		(70	)		25,293
Corporate bonds and other debt securities		13,762		34		(30	)		13,766
Other equity securities		1,500		2		---			1,502
	$	161,781	$	926	$	(833	)	$	161,874
Held to Maturity:
Tax-exempt state and municipal bonds	$	31,585	$	64	$	(221	)	$	31,428

Contractual maturities of debt securities

Contractual maturities of debt securities at June 30, 2015 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	21,004	$	21,015	$	5,404	$	5,448
Due from one to five years		8,312		8,481		94,430		94,614
Due from five to ten years		13,813		14,211		40,081		39,935
Due after ten years		100		103		17,374		17,372
	$	43,229	$	43,810	$	157,289	$	157,369

Securities in continuous unrealized loss position

Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2015	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	28,741	$	(109	)	$	17,751	$	(167	)	$	46,492	$	(276	)
U.S. Agency MBS and CMOs		8,969		(83	)		985		(6	)		9,954		(89	)
Tax-exempt state and municipal bonds		14,656		(197	)		1,977		(88	)		16,633		(285	)
Taxable state and municipal bonds		5,480		(28	)		1,195		(14	)		6,675		(42	)
Corporate bonds and other debt securities		3,573		(13	)		498		(4	)		4,071		(17	)
Other equity securities		1,500		(3	)		---		---			1,500		(3	)
Total temporarily impaired	$	62,919	$	(433	)	$	22,406	$	(279	)	$	85,325	$	(712	)

	Less than 12 Months					12 Months or More					Total
December 31, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	16,426	$	(45	)	$	35,350	$	(456	)	$	51,776	$	(501	)
U.S. Agency MBS and CMOs		---		---			9,732		(71	)		9,732		(71	)
Tax-exempt state and municipal bonds		26,820		(264	)		4,545		(118	)		31,365		(382	)
Taxable state and municipal bonds		3,982		(19	)		3,240		(51	)		7,222		(70	)
Corporate bonds and other debt securities		4,187		(13	)		1,988		(17	)		6,175		(30	)
Other equity securities		---		---			---		---			---		---
Total temporarily impaired	$	51,415	$	(341	)	$	54,855	$	(713	)	$	106,270	$	(1,054	)

XML

LOANS (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Portfolio loans [Abstract]
Total loans	$ 1,130,024	$ 1,118,483
Allowance for loan losses	(18,181)	(18,962)
Net loans	1,111,843	1,099,521
Commercial and Industrial [Member]
Portfolio loans [Abstract]
Total loans	350,202	327,674
Commercial Real Estate [Member]
Portfolio loans [Abstract]
Total loans	474,405	490,531
Commercial Real Estate [Member] | Residential Developed [Member]
Portfolio loans [Abstract]
Total loans	10,664	12,771
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Portfolio loans [Abstract]
Total loans	7,627	7,496
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Portfolio loans [Abstract]
Total loans	44,108	50,372
Commercial Real Estate [Member] | Commercial Development [Member]
Portfolio loans [Abstract]
Total loans	1,804	4,082
Commercial Real Estate [Member] | Residential Improved [Member]
Portfolio loans [Abstract]
Total loans	68,591	69,612
Commercial Real Estate [Member] | Commercial Improved [Member]
Portfolio loans [Abstract]
Total loans	270,145	269,757
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
Portfolio loans [Abstract]
Total loans	71,466	76,441
Consumer [Member]
Portfolio loans [Abstract]
Total loans	305,417	300,278
Consumer [Member] | Residential Mortgage [Member]
Portfolio loans [Abstract]
Total loans	199,972	190,249
Consumer [Member] | Unsecured [Member]
Portfolio loans [Abstract]
Total loans	764	948
Consumer [Member] | Home Equity [Member]
Portfolio loans [Abstract]
Total loans	95,042	98,887
Consumer [Member] | Other Secured [Member]
Portfolio loans [Abstract]
Total loans	$ 9,639	$ 10,194

XML

OTHER REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2015

OTHER REAL ESTATE OWNED [Abstract]

Period-end other real estate owned

Other real estate owned was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Year Ended December 31, 2014				Six Months Ended June 30, 2014
Beginning balance		$	43,071			$	53,501			$	53,501
Additions, transfers from loans			1,442				4,932				2,274
Proceeds from sales of other real estate owned			(2,962	)			(12,487	)			(7,362	)
Valuation allowance reversal upon sale			(427	)			(3,499	)			(2,564	)
Gain (loss) on sale of other real estate owned			205				624				476
			41,329				43,071				46,325
Less: valuation allowance			(15,026	)			(14,829	)			(14,802	)
Ending balance		$	26,303			$	28,242			$	31,523

Activity in valuation allowance

Activity in the valuation allowance was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
Beginning balance		$	14,829			$	16,705
Additions charged to expense			624				661
Reversals upon sale			(427	)			(2,564	)
Ending balance		$	15,026			$	14,802

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividend per share (in dollars per share)	$ 0.03	$ 0.02	$ 0.05	$ 0.04

XML

CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
ASSETS
Securities held to maturity fair value	$ 43,810	$ 31,428
Shareholders' equity
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	33,866,789	33,866,789
Common stock, shares outstanding (in shares)	33,866,789	33,866,789

XML

FEDERAL INCOME TAXES

6 Months Ended

Jun. 30, 2015

FEDERAL INCOME TAXES [Abstract]

FEDERAL INCOME TAXES

NOTE 9 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Current	$	676	$	36	$	1,329	$	60
Deferred		744		1,195		1,336		2,348
	$	1,420	$	1,231	$	2,665	$	2,408

The difference between the financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income was reconciled as follows (dollars in thousands):

	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014			Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	1,622		$	1,395		$	3,052		$	2,730
Add (deduct)
Tax-exempt interest income		(127	)		(89	)		(244	)		(174	)
Bank-owned life insurance		(60	)		(61	)		(117	)		(115	)
Other, net		(15	)		(14	)		(26	)		(33	)
	$	1,420		$	1,231		$	2,665		$	2,408

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.  No valuation allowance was necessary at June 30, 2015 or December 31, 2014.

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

	June 30, 2015			December 31, 2014
Deferred tax assets
Allowance for loan losses	$	6,363		$	6,637
Nonaccrual loan interest		1,037			935
Valuation allowance on other real estate owned		5,259			5,190
Unrealized loss on securities available for sale		---			---
Other		551			1,896
Gross deferred tax assets		13,210			14,658
Valuation allowance		---			---
Total net deferred tax assets		13,210			14,658
Deferred tax liabilities
Depreciation		(1,792	)		(1,908	)
Prepaid expenses		(21	)		(21	)
Unrealized gain on securities available for sale		(27	)		(33	)
Other		(435	)		(431	)
Gross deferred tax liabilities		(2,275	)		(2,393	)
Net deferred tax asset	$	10,935		$	12,265

There were no unrecognized tax benefits at June 30, 2015 or December 31, 2014 and the Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company is no longer subject to examination by the Internal Revenue Service for years before 2012.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 23, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	MACATAWA BANK CORP
Entity Central Index Key	0001053584
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		33,866,789
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015

XML

COMMITMENTS AND OFF BALANCE-SHEET RISK

6 Months Ended

Jun. 30, 2015

COMMITMENTS AND OFF BALANCE-SHEET RISK [Abstract]

COMMITMENTS AND OFF BALANCE-SHEET RISK

NOTE 10 – COMMITMENTS AND OFF BALANCE-SHEET RISK

Some financial instruments are used to meet customer financing needs and to reduce exposure to interest rate changes.  These financial instruments include commitments to extend credit and standby letters of credit.  These involve, to varying degrees, credit and interest rate risk in excess of the amount reported in the financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment, and generally have fixed expiration dates.  Standby letters of credit are conditional commitments to guarantee a customer’s performance to a third party.  Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit and standby letters of credit.  Collateral or other security is normally not obtained for these financial instruments prior to their use and many of the commitments are expected to expire without being used.

A summary of the contractual amounts of financial instruments with off‑balance‑sheet risk was as follows at period-end (dollars in thousands):

	June 30, 2015		December 31, 2014
Commitments to make loans	$	139,330	$	81,274
Letters of credit		13,027		11,862
Unused lines of credit		391,015		389,099

The notional amount of commitments to fund mortgage loans to be sold into the secondary market was approximately $24.2 million and $14.2 million at June 30, 2015 and December 31, 2014, respectively.

At June 30, 2015, approximately 43.7% of the Bank’s commitments to make loans were at fixed rates, offered at current market rates.  The remainder of the commitments to make loans were at variable rates tied to prime and generally expire within 30 days.  The majority of the unused lines of credit were at variable rates tied to prime.

XML

CONSOLIDATED STATEMENTS OF INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest income
Loans, including fees	$ 11,152	$ 10,547	$ 22,115	$ 21,491
Securities
Taxable	501	499	1,002	998
Tax-exempt	376	264	720	519
FHLB Stock	111	104	228	260
Federal funds sold and other short-term investments	98	114	184	230
Total interest income	12,238	11,528	24,249	23,498
Interest expense
Deposits	610	620	1,229	1,360
Other borrowings	452	426	867	857
Subordinated and long-term debt	331	326	656	650
Total interest expense	1,393	1,372	2,752	2,867
Net interest income	10,845	10,156	21,497	20,631
Provision for loan losses	(500)	(1,000)	(1,500)	(2,000)
Net interest income after provision for loan losses	11,345	11,156	22,997	22,631
Noninterest income
Service charges and fees	1,097	1,065	2,098	2,056
Net gains on mortgage loans	821	468	1,544	726
Trust fees	723	701	1,457	1,332
ATM and debit card fees	1,219	1,203	2,329	2,255
Gain on sales of securities	0	41	83	51
Other	652	590	1,296	1,158
Total noninterest income	4,512	4,068	8,807	7,578
Noninterest expense
Salaries and benefits	6,134	5,544	12,316	11,367
Occupancy of premises	903	932	1,875	1,940
Furniture and equipment	813	751	1,596	1,591
Legal and professional	191	238	431	443
Marketing and promotion	263	272	568	552
Data processing	648	583	1,226	1,172
FDIC assessment	289	320	571	647
Interchange and other card expense	285	265	560	537
Bond and D&O Insurance	146	163	292	327
Net (gains) losses on repossessed and foreclosed properties	(31)	371	420	185
Administration and disposition of problem assets	284	516	660	1,172
Other	1,297	1,283	2,569	2,475
Total noninterest expenses	11,222	11,238	23,084	22,408
Income before income tax	4,635	3,986	8,720	7,801
Income tax expense	1,420	1,231	2,665	2,408
Net income	$ 3,215	$ 2,755	$ 6,055	$ 5,393
Basic earnings per common share (in dollars per share)	$ 0.09	$ 0.08	$ 0.18	$ 0.16
Diluted earnings per common share (in dollars per share)	0.09	0.08	0.18	0.16
Cash dividends per common share (in dollars per share)	$ 0.03	$ 0.02	$ 0.05	$ 0.04

XML

OTHER REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2015

OTHER REAL ESTATE OWNED [Abstract]

OTHER REAL ESTATE OWNED

NOTE 4 – OTHER REAL ESTATE OWNED

Other real estate owned was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Year Ended December 31, 2014				Six Months Ended June 30, 2014
Beginning balance		$	43,071			$	53,501			$	53,501
Additions, transfers from loans			1,442				4,932				2,274
Proceeds from sales of other real estate owned			(2,962	)			(12,487	)			(7,362	)
Valuation allowance reversal upon sale			(427	)			(3,499	)			(2,564	)
Gain (loss) on sale of other real estate owned			205				624				476
			41,329				43,071				46,325
Less: valuation allowance			(15,026	)			(14,829	)			(14,802	)
Ending balance		$	26,303			$	28,242			$	31,523

Activity in the valuation allowance was as follows (dollars in thousands):

	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
Beginning balance		$	14,829			$	16,705
Additions charged to expense			624				661
Reversals upon sale			(427	)			(2,564	)
Ending balance		$	15,026			$	14,802

XML

LOANS

6 Months Ended

Jun. 30, 2015

LOANS [Abstract]

LOANS

NOTE 3 – LOANS

Portfolio loans were as follows (dollars in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	350,202		$	327,674
Commercial real estate:
Residential developed		10,664			12,771
Unsecured to residential developers		7,627			7,496
Vacant and unimproved		44,108			50,372
Commercial development		1,804			4,082
Residential improved		68,591			69,612
Commercial improved		270,145			269,757
Manufacturing and industrial		71,466			76,441
Total commercial real estate		474,405			490,531
Consumer
Residential mortgage		199,972			190,249
Unsecured		764			948
Home equity		95,042			98,887
Other secured		9,639			10,194
Total consumer		305,417			300,278
Total loans		1,130,024			1,118,483
Allowance for loan losses		(18,181	)		(18,962	)
	$	1,111,843		$	1,099,521

Activity in the allowance for loan losses by portfolio segment was as follows (dollars in thousands):

Three months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	8,570		$	3,907		$	29	$	18,680
Charge-offs		(173	)		---			(29	)		---		(202	)
Recoveries		44			117			42			---		203
Provision for loan losses		336			(748	)		(89	)		1		(500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30	$	18,181

Three months ended June 30, 2014	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,087	$	10,372		$	3,875		$	49	$	20,383
Charge-offs		---		(23	)		(69	)		---		(92	)
Recoveries		327		363			68			---		758
Provision for loan losses		307		(1,371	)		59			5		(1,000	)
Ending Balance	$	6,721	$	9,341		$	3,933		$	54	$	20,049

Six months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,173		$	8,690		$	4,046		$	53		$	18,962
Charge-offs		(173	)		---			(107	)		---			(280	)
Recoveries		128			725			146			---			999
Provision for loan losses		253			(1,476	)		(254	)		(23	)		(1,500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30		$	18,181

Six months ended June 30, 2014	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	10,868		$	3,703		$	53	$	20,798
Charge-offs		(39	)		(23	)		(112	)		---		(174	)
Recoveries		366			953			106			---		1,425
Provision for loan losses		220			(2,457	)		236			1		(2,000	)
Ending Balance	$	6,721		$	9,341		$	3,933		$	54	$	20,049

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):

June 30, 2015	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,451	$	610	$	926	$	---	$	3,987
Collectively evaluated for impairment		3,930		7,329		2,905		30		14,194
Total ending allowance balance	$	6,381	$	7,939	$	3,831	$	30	$	18,181
Loans:
Individually reviewed for impairment	$	5,405	$	27,131	$	14,420	$	---	$	46,956
Collectively evaluated for impairment		344,797		447,274		290,997		---		1,083,068
Total ending loans balance	$	350,202	$	474,405	$	305,417	$	---	$	1,130,024

December 31, 2014	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,429	$	743	$	893	$	---	$	4,065
Collectively evaluated for impairment		3,744		7,947		3,153		53		14,897
Total ending allowance balance	$	6,173	$	8,690	$	4,046	$	53	$	18,962
Loans:
Individually reviewed for impairment	$	9,084	$	29,818	$	14,495	$	---	$	53,397
Collectively evaluated for impairment		318,590		460,713		285,783		---		1,065,086
Total ending loans balance	$	327,674	$	490,531	$	300,278	$	---	$	1,118,483

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015 (dollars in thousands):

June 30, 2015	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	385	$	385	$	---
Commercial real estate:
Residential developed		126		126		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,210		1,210		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	1,595	$	1,595	$	---
With an allowance recorded:
Commercial and industrial	$	5,020	$	5,020	$	2,451
Commercial real estate:
Residential developed		470		470		31
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,401		1,401		34
Commercial development		194		194		5
Residential improved		6,124		6,124		178
Commercial improved		15,307		15,307		342
Manufacturing and industrial		2,425		2,425		20
		25,921		25,921		610
Consumer:
Residential mortgage		9,030		9,030		556
Unsecured		---		---		---
Home equity		5,390		5,390		370
Other secured		---		---		---
		14,420		14,420		926
	$	45,361	$	45,361	$	3,987
Total	$	46,956	$	46,956	$	3,987

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014 (dollars in thousands):

December 31, 2014	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	3,019	$	3,019	$	---
Commercial real estate:
Residential developed		531		531		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,615		1,615		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	4,634	$	4,634	$	---
With an allowance recorded:
Commercial and industrial	$	6,065	$	6,065	$	2,429
Commercial real estate:
Residential developed		550		550		35
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,499		1,499		43
Commercial development		199		199		5
Residential improved		7,323		7,323		240
Commercial improved		16,113		16,113		389
Manufacturing and industrial		2,519		2,519		31
		28,203		28,203		743
Consumer:
Residential mortgage		9,492		9,484		584
Unsecured		---		---		---
Home equity		5,182		5,011		309
Other secured		---		---		---
		14,674		14,495		893
	$	48,942	$	48,763	$	4,065
Total	$	53,576	$	53,397	$	4,065

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Average of impaired loans during the period:
Commercial and industrial	$	7,084	$	11,908	$	8,394	$	13,096
Commercial real estate:
Residential developed		682		4,085		810		4,308
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		1,416		1,650		1,453		1,735
Commercial development		195		483		196		505
Residential improved		7,018		9,863		7,340		10,141
Commercial improved		16,363		18,133		16,561		18,212
Manufacturing and industrial		2,650		6,404		2,678		6,562
Consumer		14,583		14,400		14,683		14,408
Interest income recognized during impairment:
Commercial and industrial		292		273		618		611
Commercial real estate		336		454		692		907
Consumer		128		137		264		269
Cash-basis interest income recognized
Commercial and industrial		292		276		620		615
Commercial real estate		334		471		685		922
Consumer		128		137		267		271

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014:

June 30, 2015	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	2,392	$	---
Commercial real estate:
Residential developed		174		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		589		---
Commercial improved		376		---
Manufacturing and industrial		---		---
		1,188		---
Consumer:
Residential mortgage		2		---
Unsecured		34		---
Home equity		11		72
Other secured		17		---
		64		72
Total	$	3,644	$	72

December 31, 2014	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	5,605	$	---
Commercial real estate:
Residential developed		245		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		29		---
Residential improved		766		---
Commercial improved		866		117
Manufacturing and industrial		---		---
		1,906		117
Consumer:
Residential mortgage		305		---
Unsecured		40		---
Home equity		436		17
Other secured		---		---
		781		17
Total	$	8,292	$	134

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans (dollars in thousands):

June 30, 2015	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	124	$	6	$	130	$	350,072	$	350,202
Commercial real estate:
Residential developed		---		---		---		10,664		10,664
Unsecured to residential developers		---		---		---		7,627		7,627
Vacant and unimproved		---		---		---		44,108		44,108
Commercial development		---		49		49		1,755		1,804
Residential improved		20		440		460		68,131		68,591
Commercial improved		682		197		879		269,266		270,145
Manufacturing and industrial		---		---		---		71,466		71,466
		702		686		1,388		473,017		474,405
Consumer:
Residential mortgage		234		---		234		199,738		199,972
Unsecured		16		---		16		748		764
Home equity		29		72		101		94,941		95,042
Other secured		---		17		17		9,622		9,639
		279		89		368		305,049		305,417
Total	$	1,105	$	781	$	1,886	$	1,128,138	$	1,130,024

December 31, 2014	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	54	$	---	$	54	$	327,620	$	327,674
Commercial real estate:
Residential developed		---		---		---		12,771		12,771
Unsecured to residential developers		---		---		---		7,496		7,496
Vacant and unimproved		100		---		100		50,272		50,372
Commercial development		---		29		29		4,053		4,082
Residential improved		100		440		540		69,072		69,612
Commercial improved		---		958		958		268,799		269,757
Manufacturing and industrial		---		---		---		76,441		76,441
		200		1,427		1,627		488,904		490,531
Consumer:
Residential mortgage		338		303		641		189,608		190,249
Unsecured		---		18		18		930		948
Home equity		79		422		501		98,386		98,887
Other secured		---		---		---		10,194		10,194
		417		743		1,160		299,118		300,278
Total	$	671	$	2,170	$	2,841	$	1,115,642	$	1,118,483

The Company had allocated $3,987,000 and $4,065,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDRs”) as of June 30, 2015 and December 31, 2014, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  The Company has been active at utilizing these programs and working with its customers to reduce the risk of foreclosure.  For commercial loans, these modifications typically include an interest only period and, in some cases, a lowering of the interest rate on the loan.  In some cases, the modification will include separating the note into two notes with the first note structured to be supported by current cash flows and collateral, and the second note made for the remaining unsecured debt.  The second note is charged off immediately and collected only after the first note is paid in full.  This modification type is commonly referred to as an A-B note structure.  For consumer mortgage loans, the restructuring typically includes a lowering of the interest rate to provide payment and cash flow relief.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

Based upon recently issued regulatory guidance, the Company has determined that in situations where there is a subsequent modification or renewal and the loan is brought to market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, the TDR and impaired loan designations may be removed.  This guidance was first applied to loans outstanding at September 30, 2014 resulting in a reduction of $5.9 million in loans designated as TDR and impaired.  In addition, the TDR designation may also be removed from loans modified under an A-B note structure.  If the remaining “A” note is at a market rate at the time of restructuring (taking into account the borrower’s credit risk and prevailing market conditions), the loan can be removed from TDR designation in a subsequent calendar year after six months of performance in accordance with the new terms.  The market rate relative to the borrower’s credit risk is determined through analysis of market pricing information gathered from peers and use of a loan pricing model.  The general objective of the model is to achieve a consistent return on equity from one credit to the next, taking into consideration differences in credit risk.  In the model, credits with higher risk receive a higher potential loss allocation, and therefore require a higher interest rate to achieve the target return on equity.

As with other impaired loans, an allowance for loan loss is estimated for each TDR based on the most likely source of repayment for each loan.  For impaired commercial real estate loans that are collateral dependent, the allowance is computed based on the fair value of the underlying collateral, less estimated costs to sell.  For impaired commercial loans where repayment is expected from cash flows from business operations, the allowance is computed based on a discounted cash flow computation.  Certain groups of TDRs, such as residential mortgages, have common characteristics and for them the allowance is computed based on a discounted cash flow computation on the change in weighted rate for the pool.  The allowance allocations for commercial TDRs where we have reduced the contractual interest rate are computed by measuring cash flows using the new payment terms discounted at the original contractual rate.

The following table presents information regarding troubled debt restructurings as of June 30, 2015 and December 31, 2014 (dollars in thousands):

	June 30, 2015				December 31, 2014
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		36	$	5,405		36	$	9,085
Commercial real estate		74		27,131		84		29,817
Consumer		132		14,420		106		14,495
		242	$	46,956		226	$	53,397

The following table presents information related to accruing troubled debt restructurings as of June 30, 2015 and December 31, 2014.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2015		December 31, 2014
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		43,617		46,197
Accruing TDR - upgraded to accruing after six consecutive payments		---		---
	$	43,617	$	46,197

The following tables present information regarding troubled debt restructurings executed during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

Three Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		---			---			---
Consumer		2			72			---
		2		$	72		$	---

Three Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		6			1,783			---
Consumer		1			70			---
		7		$	1,853		$	---

Six Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	408	$	---
Commercial real estate		1		42		---
Consumer		31		753		---
		33	$	1,203	$	---

Six Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	60	$	---
Commercial real estate		10		4,046		---
Consumer		2		74		---
		13	$	4,180	$	---

According to the accounting standards, not all loan modifications are TDRs.  TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress.  The Company reviews all modifications and renewals for determination of TDR status.  In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession.  These modifications are not considered TDRs.  In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress.  This could be the case if the Company is matching a competitor’s interest rate.  These modifications would also not be considered TDRs.  Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs.  As with other loans not considered TDR or impaired, allowance allocations are based on the historical based allocation for the applicable loan grade and loan class.

The tables below present, by class, information regarding troubled debt restructured loans which had payment defaults during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands). Included are loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring.

	Three Months Ended June 30, 2015					Three Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		---			---
Consumer		---			---		---			---

	Six Months Ended June 30, 2015					Six Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		1			131
Consumer		---			---		---			---

Credit Quality Indicators:The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Company analyzes commercial loans individually and classifies these relationships by credit risk grading.  The Company uses an eight point grading system, with grades 5 through 8 being considered classified, or watch, credits.  All commercial loans are assigned a grade at origination, at each renewal or any amendment.  When a credit is first downgraded to a watch credit (either through renewal, amendment, loan officer identification or the loan review process), an Administrative Loan Review (“ALR”) is generated by the credit department and the loan officer.  All watch credits have an ALR completed monthly which analyzes the collateral position and cash flow of the borrower and its guarantors.  The loan officer is required to complete both a short term and long term plan to rehabilitate or exit the credit and to give monthly comments on the progress to these plans.  Management meets quarterly with loan officers to discuss each of these credits in detail and to help formulate solutions where progress has stalled.  When necessary, the loan officer proposes changes to the assigned loan grade as part of the ALR.  Additionally, Loan Review reviews all loan grades upon origination, renewal or amendment and again as loans are selected though the loan review process.  The credit will stay on the ALR until either its grade has improved to a 4 or the credit relationship is at a zero balance.  The Company uses the following definitions for the risk grades:

1. Excellent - Loans supported by extremely strong financial condition or secured by the Bank’s own deposits. Minimal risk to the Bank and the probability of serious rapid financial deterioration is extremely small.

2. Above Average - Loans supported by sound financial statements that indicate the ability to repay or borrowings secured (and margined properly) with marketable securities. Nominal risk to the Bank and probability of serious financial deterioration is highly unlikely. The overall quality of these credits is very high.

3. Good Quality - Loans supported by satisfactory asset quality and liquidity, good debt capacity coverage, and good management in all critical positions. Loans are secured by acceptable collateral with adequate margins. There is a slight risk of deterioration if adverse market conditions prevail.

4. Acceptable Risk - Loans carrying an acceptable risk to the Bank, which may be slightly below average quality. The borrower has limited financial strength with considerable leverage. There is some probability of deterioration if adverse market conditions prevail. These credits should be monitored closely by the Relationship Manager.

5. Marginally Acceptable - Loans are of marginal quality with above normal risk to the Bank. The borrower shows acceptable asset quality but very little liquidity with high leverage. There is inconsistent earning performance without the ability to sustain adverse market conditions. The primary source of repayment is questionable, but the secondary source of repayment still remains an option. Very close attention by the Relationship Manager and management is needed.

6. Substandard - Loans are inadequately protected by the net worth and paying capacity of the borrower or the collateral pledged. The primary and secondary sources of repayment are questionable. Heavy debt condition may be evident and volume and earnings deterioration may be underway. It is possible that the Bank will sustain some loss if the deficiencies are not immediately addressed and corrected.

7. Doubtful - Loans supported by weak or no financial statements, as well as the ability to repay the entire loan, are questionable. Loans in this category are normally characterized less than adequate collateral, insolvent, or extremely weak financial condition. A loan classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses makes collection or liquidation in full highly questionable. The possibility of loss is extremely high, however, activity may be underway to minimize the loss or maximize the recovery.

8. Loss - Loans are considered uncollectible and of little or no value as a bank asset.

As of June 30, 2015 and December 31, 2014, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2015		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	239	$	10,932	$	133,304	$	192,471	$	9,845	$	1,019	$	2,392	$	---	$	350,202
Commercial real estate:
Residential developed		---		---		2,204		4,917		2,563		806		174		---		10,664
Unsecured to residential developers		---		---		---		7,627		---		---		---		---		7,627
Vacant and unimproved		---		---		15,701		21,548		6,859		---		---		---		44,108
Commercial development		---		---		---		1,362		199		194		49		---		1,804
Residential improved		---		---		16,155		44,748		5,283		1,816		589		---		68,591
Commercial improved		---		4,782		56,518		184,891		21,022		2,556		376		---		270,145
Manufacturing & industrial		---		1,196		28,190		37,096		4,663		321		---		---		71,466
	$	239	$	16,910	$	252,072	$	494,660	$	50,434	$	6,712	$	3,580	$	---	$	824,607

December 31, 2014		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	343	$	11,177	$	118,382	$	182,651	$	8,448	$	1,068	$	5,605	$	---	$	327,674
Commercial real estate:
Residential developed		---		---		2,491		4,702		4,491		842		245		---		12,771
Unsecured to residential developers		---		---		---		7,496		---		---		---		---		7,496
Vacant and unimproved		---		---		12,105		30,997		7,241		29		---		---		50,372
Commercial development		---		---		---		3,643		211		199		29		---		4,082
Residential improved		---		103		16,291		43,928		6,428		2,096		766		---		69,612
Commercial improved		---		4,392		61,543		178,169		20,558		4,229		866		---		269,757
Manufacturing & industrial		---		1,508		27,396		42,494		4,713		330		---		---		76,441
	$	343	$	17,180	$	238,208	$	494,080	$	52,090	$	8,793	$	7,511	$	---	$	818,205

Commercial loans rated a 6 or worse per the Company’s internal risk rating system are considered substandard, doubtful or loss. Commercial loans classified as substandard or worse were as follows at period-end (dollars in thousands):

	June 30, 2015			December 31, 2014
Not classified as impaired		$	1,891		$	4,220
Classified as impaired			8,401			12,084
Total commercial loans classified substandard or worse		$	10,292		$	16,304

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in consumer loans based on payment activity (dollars in thousands):

June 30, 2015	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	199,972		$	764		$	94,970		$	9,622
Nonperforming			---			---			72			17
Total		$	199,972		$	764		$	95,042		$	9,639

December 31, 2014	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	189,946		$	930		$	98,465		$	10,194
Nonperforming			303			18			422			---
Total		$	190,249		$	948		$	98,887		$	10,194

XML

LOANS (Tables)

6 Months Ended

Jun. 30, 2015

LOANS [Abstract]

Portfolio loans

Portfolio loans were as follows (dollars in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	350,202		$	327,674
Commercial real estate:
Residential developed		10,664			12,771
Unsecured to residential developers		7,627			7,496
Vacant and unimproved		44,108			50,372
Commercial development		1,804			4,082
Residential improved		68,591			69,612
Commercial improved		270,145			269,757
Manufacturing and industrial		71,466			76,441
Total commercial real estate		474,405			490,531
Consumer
Residential mortgage		199,972			190,249
Unsecured		764			948
Home equity		95,042			98,887
Other secured		9,639			10,194
Total consumer		305,417			300,278
Total loans		1,130,024			1,118,483
Allowance for loan losses		(18,181	)		(18,962	)
	$	1,111,843		$	1,099,521

Activity in allowance for loan losses by portfolio segment

Activity in the allowance for loan losses by portfolio segment was as follows (dollars in thousands):

Three months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	8,570		$	3,907		$	29	$	18,680
Charge-offs		(173	)		---			(29	)		---		(202	)
Recoveries		44			117			42			---		203
Provision for loan losses		336			(748	)		(89	)		1		(500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30	$	18,181

Three months ended June 30, 2014	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,087	$	10,372		$	3,875		$	49	$	20,383
Charge-offs		---		(23	)		(69	)		---		(92	)
Recoveries		327		363			68			---		758
Provision for loan losses		307		(1,371	)		59			5		(1,000	)
Ending Balance	$	6,721	$	9,341		$	3,933		$	54	$	20,049

Six months ended June 30, 2015	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,173		$	8,690		$	4,046		$	53		$	18,962
Charge-offs		(173	)		---			(107	)		---			(280	)
Recoveries		128			725			146			---			999
Provision for loan losses		253			(1,476	)		(254	)		(23	)		(1,500	)
Ending Balance	$	6,381		$	7,939		$	3,831		$	30		$	18,181

Six months ended June 30, 2014	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	6,174		$	10,868		$	3,703		$	53	$	20,798
Charge-offs		(39	)		(23	)		(112	)		---		(174	)
Recoveries		366			953			106			---		1,425
Provision for loan losses		220			(2,457	)		236			1		(2,000	)
Ending Balance	$	6,721		$	9,341		$	3,933		$	54	$	20,049

Allowance for loan losses and recorded investment in loans by portfolio segment based on impairment method

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):

June 30, 2015	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,451	$	610	$	926	$	---	$	3,987
Collectively evaluated for impairment		3,930		7,329		2,905		30		14,194
Total ending allowance balance	$	6,381	$	7,939	$	3,831	$	30	$	18,181
Loans:
Individually reviewed for impairment	$	5,405	$	27,131	$	14,420	$	---	$	46,956
Collectively evaluated for impairment		344,797		447,274		290,997		---		1,083,068
Total ending loans balance	$	350,202	$	474,405	$	305,417	$	---	$	1,130,024

December 31, 2014	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	2,429	$	743	$	893	$	---	$	4,065
Collectively evaluated for impairment		3,744		7,947		3,153		53		14,897
Total ending allowance balance	$	6,173	$	8,690	$	4,046	$	53	$	18,962
Loans:
Individually reviewed for impairment	$	9,084	$	29,818	$	14,495	$	---	$	53,397
Collectively evaluated for impairment		318,590		460,713		285,783		---		1,065,086
Total ending loans balance	$	327,674	$	490,531	$	300,278	$	---	$	1,118,483

Loans individually evaluated for impairment by class of loans

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015 (dollars in thousands):

June 30, 2015	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	385	$	385	$	---
Commercial real estate:
Residential developed		126		126		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,210		1,210		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	1,595	$	1,595	$	---
With an allowance recorded:
Commercial and industrial	$	5,020	$	5,020	$	2,451
Commercial real estate:
Residential developed		470		470		31
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,401		1,401		34
Commercial development		194		194		5
Residential improved		6,124		6,124		178
Commercial improved		15,307		15,307		342
Manufacturing and industrial		2,425		2,425		20
		25,921		25,921		610
Consumer:
Residential mortgage		9,030		9,030		556
Unsecured		---		---		---
Home equity		5,390		5,390		370
Other secured		---		---		---
		14,420		14,420		926
	$	45,361	$	45,361	$	3,987
Total	$	46,956	$	46,956	$	3,987

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014 (dollars in thousands):

December 31, 2014	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	3,019	$	3,019	$	---
Commercial real estate:
Residential developed		531		531		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		547		547		---
Commercial improved		331		331		---
Manufacturing and industrial		206		206		---
		1,615		1,615		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
	$	4,634	$	4,634	$	---
With an allowance recorded:
Commercial and industrial	$	6,065	$	6,065	$	2,429
Commercial real estate:
Residential developed		550		550		35
Unsecured to residential developers		---		---		---
Vacant and unimproved		1,499		1,499		43
Commercial development		199		199		5
Residential improved		7,323		7,323		240
Commercial improved		16,113		16,113		389
Manufacturing and industrial		2,519		2,519		31
		28,203		28,203		743
Consumer:
Residential mortgage		9,492		9,484		584
Unsecured		---		---		---
Home equity		5,182		5,011		309
Other secured		---		---		---
		14,674		14,495		893
	$	48,942	$	48,763	$	4,065
Total	$	53,576	$	53,397	$	4,065

Average balances of impaired loans and interest recognized on impaired loans

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Average of impaired loans during the period:
Commercial and industrial	$	7,084	$	11,908	$	8,394	$	13,096
Commercial real estate:
Residential developed		682		4,085		810		4,308
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		1,416		1,650		1,453		1,735
Commercial development		195		483		196		505
Residential improved		7,018		9,863		7,340		10,141
Commercial improved		16,363		18,133		16,561		18,212
Manufacturing and industrial		2,650		6,404		2,678		6,562
Consumer		14,583		14,400		14,683		14,408
Interest income recognized during impairment:
Commercial and industrial		292		273		618		611
Commercial real estate		336		454		692		907
Consumer		128		137		264		269
Cash-basis interest income recognized
Commercial and industrial		292		276		620		615
Commercial real estate		334		471		685		922
Consumer		128		137		267		271

Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014:

June 30, 2015	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	2,392	$	---
Commercial real estate:
Residential developed		174		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		589		---
Commercial improved		376		---
Manufacturing and industrial		---		---
		1,188		---
Consumer:
Residential mortgage		2		---
Unsecured		34		---
Home equity		11		72
Other secured		17		---
		64		72
Total	$	3,644	$	72

December 31, 2014	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	5,605	$	---
Commercial real estate:
Residential developed		245		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		29		---
Residential improved		766		---
Commercial improved		866		117
Manufacturing and industrial		---		---
		1,906		117
Consumer:
Residential mortgage		305		---
Unsecured		40		---
Home equity		436		17
Other secured		---		---
		781		17
Total	$	8,292	$	134

Aging of recorded investment in past due loans by class of loans

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans (dollars in thousands):

June 30, 2015	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	124	$	6	$	130	$	350,072	$	350,202
Commercial real estate:
Residential developed		---		---		---		10,664		10,664
Unsecured to residential developers		---		---		---		7,627		7,627
Vacant and unimproved		---		---		---		44,108		44,108
Commercial development		---		49		49		1,755		1,804
Residential improved		20		440		460		68,131		68,591
Commercial improved		682		197		879		269,266		270,145
Manufacturing and industrial		---		---		---		71,466		71,466
		702		686		1,388		473,017		474,405
Consumer:
Residential mortgage		234		---		234		199,738		199,972
Unsecured		16		---		16		748		764
Home equity		29		72		101		94,941		95,042
Other secured		---		17		17		9,622		9,639
		279		89		368		305,049		305,417
Total	$	1,105	$	781	$	1,886	$	1,128,138	$	1,130,024

December 31, 2014	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	54	$	---	$	54	$	327,620	$	327,674
Commercial real estate:
Residential developed		---		---		---		12,771		12,771
Unsecured to residential developers		---		---		---		7,496		7,496
Vacant and unimproved		100		---		100		50,272		50,372
Commercial development		---		29		29		4,053		4,082
Residential improved		100		440		540		69,072		69,612
Commercial improved		---		958		958		268,799		269,757
Manufacturing and industrial		---		---		---		76,441		76,441
		200		1,427		1,627		488,904		490,531
Consumer:
Residential mortgage		338		303		641		189,608		190,249
Unsecured		---		18		18		930		948
Home equity		79		422		501		98,386		98,887
Other secured		---		---		---		10,194		10,194
		417		743		1,160		299,118		300,278
Total	$	671	$	2,170	$	2,841	$	1,115,642	$	1,118,483

Troubled debt restructurings

The following table presents information regarding troubled debt restructurings as of June 30, 2015 and December 31, 2014 (dollars in thousands):

	June 30, 2015				December 31, 2014
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		36	$	5,405		36	$	9,085
Commercial real estate		74		27,131		84		29,817
Consumer		132		14,420		106		14,495
		242	$	46,956		226	$	53,397

The following table presents information related to accruing troubled debt restructurings as of June 30, 2015 and December 31, 2014.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2015		December 31, 2014
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		43,617		46,197
Accruing TDR - upgraded to accruing after six consecutive payments		---		---
	$	43,617	$	46,197

The following tables present information regarding troubled debt restructurings executed during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands):

Three Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		---			---			---
Consumer		2			72			---
		2		$	72		$	---

Three Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance			Principal Writedown upon Modification
Commercial and industrial		---		$	---		$	---
Commercial real estate		6			1,783			---
Consumer		1			70			---
		7		$	1,853		$	---

Six Months Ended June 30, 2015	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	408	$	---
Commercial real estate		1		42		---
Consumer		31		753		---
		33	$	1,203	$	---

Six Months Ended June 30, 2014	Number of Loans		Pre-Modification Outstanding Recorded Balance		Principal Writedown upon Modification
Commercial and industrial		1	$	60	$	---
Commercial real estate		10		4,046		---
Consumer		2		74		---
		13	$	4,180	$	---

Troubled debt restructured loans that defaulted during the period

The tables below present, by class, information regarding troubled debt restructured loans which had payment defaults during the three and six month periods ended June 30, 2015 and 2014 (dollars in thousands). Included are loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring.

	Three Months Ended June 30, 2015					Three Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		---			---
Consumer		---			---		---			---

	Six Months Ended June 30, 2015					Six Months Ended June 30, 2014
	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance
Commercial and industrial		---		$	---		---		$	---
Commercial real estate		---			---		1			131
Consumer		---			---		---			---

Risk grade category of loans by class of loans

As of June 30, 2015 and December 31, 2014, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2015		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	239	$	10,932	$	133,304	$	192,471	$	9,845	$	1,019	$	2,392	$	---	$	350,202
Commercial real estate:
Residential developed		---		---		2,204		4,917		2,563		806		174		---		10,664
Unsecured to residential developers		---		---		---		7,627		---		---		---		---		7,627
Vacant and unimproved		---		---		15,701		21,548		6,859		---		---		---		44,108
Commercial development		---		---		---		1,362		199		194		49		---		1,804
Residential improved		---		---		16,155		44,748		5,283		1,816		589		---		68,591
Commercial improved		---		4,782		56,518		184,891		21,022		2,556		376		---		270,145
Manufacturing & industrial		---		1,196		28,190		37,096		4,663		321		---		---		71,466
	$	239	$	16,910	$	252,072	$	494,660	$	50,434	$	6,712	$	3,580	$	---	$	824,607

December 31, 2014		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	343	$	11,177	$	118,382	$	182,651	$	8,448	$	1,068	$	5,605	$	---	$	327,674
Commercial real estate:
Residential developed		---		---		2,491		4,702		4,491		842		245		---		12,771
Unsecured to residential developers		---		---		---		7,496		---		---		---		---		7,496
Vacant and unimproved		---		---		12,105		30,997		7,241		29		---		---		50,372
Commercial development		---		---		---		3,643		211		199		29		---		4,082
Residential improved		---		103		16,291		43,928		6,428		2,096		766		---		69,612
Commercial improved		---		4,392		61,543		178,169		20,558		4,229		866		---		269,757
Manufacturing & industrial		---		1,508		27,396		42,494		4,713		330		---		---		76,441
	$	343	$	17,180	$	238,208	$	494,080	$	52,090	$	8,793	$	7,511	$	---	$	818,205

Commercial loans classified as substandard or worse

Commercial loans rated a 6 or worse per the Company’s internal risk rating system are considered substandard, doubtful or loss. Commercial loans classified as substandard or worse were as follows at period-end (dollars in thousands):

	June 30, 2015			December 31, 2014
Not classified as impaired		$	1,891		$	4,220
Classified as impaired			8,401			12,084
Total commercial loans classified substandard or worse		$	10,292		$	16,304

Recorded investment in consumer loans based on payment activity

The following table presents the recorded investment in consumer loans based on payment activity (dollars in thousands):

June 30, 2015	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	199,972		$	764		$	94,970		$	9,622
Nonperforming			---			---			72			17
Total		$	199,972		$	764		$	95,042		$	9,639

December 31, 2014	Residential Mortgage			Consumer Unsecured			Home Equity			Consumer Other
Performing		$	189,946		$	930		$	98,465		$	10,194
Nonperforming			303			18			422			---
Total		$	190,249		$	948		$	98,887		$	10,194

XML

CONTINGENCIES

6 Months Ended

Jun. 30, 2015

CONTINGENCIES [Abstract]

CONTINGENCIES

NOTE 11 – CONTINGENCIES

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business. On January 27, 2014, the Company’s former Chairman and Chief Executive Officer, Mr. Benj. A. Smith III, commenced legal action against the Company claiming that the Company breached an alleged employment agreement pursuant to which he claimed entitlement to $20,833 monthly for a period of six years from the date of his resignation in February 2009.  On February 10, 2015, the Company entered into a settlement agreement with Mr. Smith related to this litigation.  A liability of $516,000, net of insurance proceeds, was accrued and the related expense was included in other noninterest expense at December 31, 2014.  The amounts due were paid to Mr. Smith during the first quarter of 2015.   As of June 30, 2015, there were no material pending legal proceedings to which we or any of our subsidiaries are a party or which any of our properties are the subject.

XML

OTHER BORROWED FUNDS

6 Months Ended

Jun. 30, 2015

OTHER BORROWED FUNDS [Abstract]

OTHER BORROWED FUNDS

NOTE 7 - OTHER BORROWED FUNDS

Other borrowed funds include advances from the Federal Home Loan Bank and borrowings from the Federal Reserve Bank.

Federal Home Loan Bank Advances

At period-end, advances from the Federal Home Loan Bank were as follows (dollars in thousands):

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2015
Single maturity fixed rate advances	$	90,000	August 2016 to March 2020		1.69	%
Amortizable mortgage advances		6,836	March 2018 to July 2018		3.76	%
	$	96,836

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2014
Single maturity fixed rate advances	$	80,000	August 2016 to February 2019		1.69	%
Amortizable mortgage advances		8,107	March 2018 to July 2018		3.78	%
	$	88,107

Each advance is subject to a prepayment fee if paid prior to its maturity date.  Fixed rate advances are payable at maturity.   Amortizable mortgage advances are fixed rate advances with scheduled repayments based upon amortization to maturity.  These advances were collateralized by residential and commercial real estate loans totaling $436,914,000 and $441,252,000 under a blanket lien arrangement at June 30, 2015 and December 31, 2014, respectively.

Scheduled repayments of FHLB advances as of June 30, 2015 were as follows (in thousands):

2015	$	667
2016		21,996
2017		2,055
2018		52,118
2019		10,000
Thereafter		10,000
	$	96,836

Federal Reserve Bank borrowings

The Company has a financing arrangement with the Federal Reserve Bank.  There were no borrowings outstanding at June 30, 2015 and December 31, 2014, and the Company had approximately $21.6 million and $22.8 million in unused borrowing capacity based on commercial and mortgage loans pledged to the Federal Reserve Bank totaling $24.2 million and $25.9 million at June 30, 2015 and December 31, 2014, respectively.

XML

FAIR VALUE

6 Months Ended

Jun. 30, 2015

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 5 – FAIR VALUE

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value include:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Investment Securities: The fair values of investment securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).  The fair values of certain securities held to maturity are determined by computing discounted cash flows using observable and unobservable market inputs (Level 3 inputs).

Loans Held for Sale: The fair value of loans held for sale is based upon binding quotes from third party investors (Level 2 inputs).

Impaired Loans: Loans identified as impaired are measured using one of three methods: the loan’s observable market price, the fair value of collateral or the present value of expected future cash flows.  For each period presented, no impaired loans were measured using the loan’s observable market price.  If an impaired loan has had a chargeoff or if the fair value of the collateral is less than the recorded investment in the loan, we establish a specific reserve and report the loan as nonrecurring Level 3.  The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Other real estate owned (OREO) properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis.  Adjustments to OREO are measured at fair value, less costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification.  In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as nonrecurring Level 3.

Interest Rate Swaps:   For interest rate swap agreements, we measure fair value utilizing pricing provided by a third-party pricing source that that uses market observable inputs, such as forecasted yield curves, and other unobservable inputs and accordingly, interest rate swap agreements are classified as Level 3.

Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
U.S. Treasury and federal agency securities	$	70,541		$	---	$	70,541	$	---
U.S. Agency MBS and CMOs		14,774			---		14,774		---
Tax-exempt state and municipal bonds		34,897			---		34,897		---
Taxable state and municipal bonds		24,425			---		24,425		---
Corporate bonds and other debt securities		12,732			---		12,732		---
Other equity securities		1,497			---		1,497		---
Loans held for sale		5,114			---		5,114		---
Interest rate swaps		184			---		---		184
Interest rate swaps		(184	)		---		---		(184	)
December 31, 2014
U.S. Treasury and federal agency securities	$	67,164		$	---	$	67,164	$	---
U.S. Agency MBS and CMOs		16,688			---		16,688		---
Tax-exempt state and municipal bonds		37,461			---		37,461		---
Taxable state and municipal bonds		25,293			---		25,293		---
Corporate bonds and other debt securities		13,766			---		13,766		---
Other equity securities		1,502			---		1,502		---
Loans held for sale		2,347			---		2,347		---
Interest rate swaps		140			---		---		140
Interest rate swaps		(140	)		---		---		(140	)

Assets measured at fair value on a non-recurring basis are summarized below (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2015
Impaired loans	$	7,779	$	---	$	---	$	7,779
Other real estate owned		22,577		---		---		22,577
December 31, 2014
Impaired loans	$	12,649	$	---	$	---	$	12,649
Other real estate owned		22,472		---		---		22,472

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis were as follows at period end (dollars in thousands):

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2015
Impaired Loans	$	7,779	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	11.0
Other real estate owned		22,577	Sales comparison approach	Adjustment for differences between comparable sales		4.5	to	22.0
			Income approach	Capitalization rate		9.5	to	11.0

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2014
Impaired Loans	$	12,649	Sales comparison approach	Adjustment for differences between comparable sales		1.0	to	20.0
			Income approach	Capitalization rate		9.5	to	12.0
Other real estate owned		22,472	Sales comparison approach	Adjustment for differences between comparable sales		3.0	to	22.7
			Income approach	Capitalization rate		9.5	to	12.0

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2015 and December 31, 2014 (dollars in thousands).

	Level in	June 30, 2015						December 31, 2014
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	28,853		$	28,853		$	31,503		$	31,503
Cash equivalents	Level 2		112,721			112,721			97,952			97,952
Interest-bearing time deposits in other financial institutions	Level 2		20,000			20,052			20,000			20,062
Securities held to maturity	Level 3		43,229			43,810			31,585			31,428
FHLB stock			11,558		NA				11,238		NA
Loans, net	Level 2		1,104,063			1,097,584			1,086,872			1,082,675
Bank owned life insurance	Level 3		28,528			28,528			28,195			28,195
Accrued interest receivable	Level 2		3,633			3,633			3,399			3,399
Financial liabilities
Deposits	Level 2		(1,327,813	)		(1,327,724	)		(1,306,325	)		(1,306,671	)
Other borrowed funds	Level 2		(96,836	)		(97,555	)		(88,107	)		(89,066	)
Long-term debt	Level 2		(41,238	)		(35,626	)		(41,238	)		(35,396	)
Accrued interest payable	Level 2		(283	)		(283	)		(289	)		(289	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

The methods and assumptions used to estimate fair value are described as follows.

Carrying amount is the estimated fair value for cash and cash equivalents, bank owned life insurance, accrued interest receivable and payable, demand deposits, short-term borrowings and variable rate loans or deposits that reprice frequently and fully. Security fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities as discussed above. For fixed rate loans, interest-bearing time deposits in other financial institutions, 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 (including consideration of widening credit spreads). Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet credit-related items is not significant.

XML

DEPOSITS

6 Months Ended

Jun. 30, 2015

DEPOSITS [Abstract]

DEPOSITS

NOTE 6 – DEPOSITS

Deposits are summarized as follows (in thousands):

	June 30, 2015		December 31, 2014
Noninterest-bearing demand	$	389,828	$	404,143
Interest bearing demand		348,490		340,053
Savings and money market accounts		490,258		442,246
Certificates of deposit		99,237		119,883
	$	1,327,813	$	1,306,325

Approximately $37.8 million and $50.1 million in certificates of deposit were in denominations of $100,000 or more at June 30, 2015 and December 31, 2014, respectively.

XML

EARNINGS PER COMMON SHARE

6 Months Ended

Jun. 30, 2015

EARNINGS PER COMMON SHARE [Abstract]

EARNINGS PER COMMON SHARE

NOTE 8 - EARNINGS PER COMMON SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2015 and 2014 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014		Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Net income available to common shares	$	3,215	$	2,755	$	6,055	$	5,393
Weighted average shares outstanding, including participating stock awards - Basic		33,866,789		33,788,431		33,866,789		33,789,481
Dilutive potential common shares:
Stock options		---		---		---		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,866,789		33,788,431		33,866,789		33,789,481
Basic earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16
Diluted earnings per common share	$	0.09	$	0.08	$	0.18	$	0.16

Stock options for 258,361 shares of common stock for both the three and six month periods ended June 30, 2015 were not considered in computing diluted earnings per share because they were antidilutive.  Stock options for 355,328 shares of common stock for both the three and six month periods ended June 30, 2014 were not considered in computing diluted earnings per share because they were antidilutive.

XML

SECURITIES, Contractual Maturities of Debt Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Held-to-Maturity Securities, Amortized Cost [Abstract]
Due in one year or less	$ 21,004
Due from one to five years	8,312
Due from five to ten years	13,813
Due after ten years	100
Amortized Cost	43,229	$ 31,585
Held-to-Maturity Securities, Fair Value [Abstract]
Due in one year or less	21,015
Due from one to five years	8,481
Due from five to ten years	14,211
Due after ten years	103
Fair Value	43,810	$ 31,428
Available-for-Sale Securities, Amortized Cost [Abstract]
Due in one year or less	5,404
Due from one to five years	94,430
Due from five to ten years	40,081
Due after ten years	17,374
Amortized Cost	157,289
Available-for-Sale Securities, Fair Value [Abstract]
Due in one year or less	5,448
Due from one to five years	94,614
Due from five to ten years	39,935
Due after ten years	17,372
Fair Value	$ 157,369

XML

CONTINGENCIES (Details) - Employment Agreement Litigation, Benj. A. Smith III [Member] - USD ($)	Jan. 27, 2014	Dec. 31, 2014
Loss Contingencies [Line Items]
Monthly entitlement claimed by plaintiff	$ 20,833
Period of monthly damage claims sought for employment agreement	6 years
Settlement liability, net of insurance proceeds		$ 516,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Macatawa Bank Corporation ("the Company", "our", "we") and its wholly-owned subsidiary, Macatawa Bank ("the Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation.

Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank operates 26 full service branch offices providing a full range of commercial and consumer banking and trust services in Kent County, Ottawa County, and northern Allegan County, Michigan.

The Company owns all of the common stock of Macatawa Statutory Trust I and Macatawa Statutory Trust II. These are grantor trusts that issued trust preferred securities and are not consolidated with the Company under accounting principles generally accepted in the United States of America.

Basis of Presentation

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) believed necessary for a fair presentation have been included.

Operating results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates

Use of Estimates:  To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.  The allowance for loan losses, valuation of deferred tax assets, loss contingencies, fair value of other real estate owned and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses

Allowance for Loan Losses: The allowance for loan losses (allowance) is a valuation allowance for probable incurred credit losses inherent in our loan portfolio, increased by the provision for loan losses and recoveries, and decreased by charge-offs of loans. Management believes the allowance for loan losses balance to be adequate based on known and inherent risks in the portfolio, past loan loss experience, information about specific borrower situations and estimated collateral values, economic conditions and other relevant factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the allowance for loan losses.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2015, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

A loan is impaired when, based on current information and events, it is believed to be probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and a concession has been made, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Commercial and commercial real estate loans with relationship balances exceeding $500,000 and an internal risk grading of 6 or worse are evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated and the loan is reported at the present value of estimated future cash flows using the loan’s existing interest rate or at the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and they are not separately identified for impairment disclosures.

Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Foreclosed Assets

Foreclosed Assets: Assets acquired through or instead of loan foreclosure, primarily other real estate owned, are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed unless they add value to the property.

Income Taxes

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 consequences 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.

We recognize a tax position as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. We recognize interest and penalties related to income tax matters in income tax expense.

Derivatives

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2015 and December 31, 2014, the total notional amount of such agreements was $20.0 million and resulted in a derivative asset with a fair value of $184,000 and $140,000, respectively, which were included in other assets and a derivative liability of $184,000 and $140,000, respectively, which were included in other liabilities.

Reclassifications

Reclassifications: Some items in the prior period financial statements were reclassified to conform to the current presentation.

New Accounting Standards

Adoption of New Accounting Standards:

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.  These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required.  The amendments are effective for  annual periods and interim periods within those annual periods beginning after December 15, 2014. Adoption of this ASU by the Company in the first six months of 2015 resulted in five residential real estate properties totaling $657,000 being classified as other real estate owned at June 30, 2015.

FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in this Update change the requirements for reporting discontinued operations.  A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.  The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position.  This Update also requires additional disclosures about discontinued operations including pretax profit or loss, and any ongoing involvement with the discontinued operation.   The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. The impact of adoption of this ASU by the Company was not material.

FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  This update requires creditors to reclassify loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them to other real estate owned. The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor.  The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The impact of adoption of this ASU by the Company was not material.

Newly Issued Not Yet Effective Standards:

FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016.  At the July 9, 2015 FASB meeting, the FASB voted to delay the implementation requirement by one year.  The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.  This update provides guidance related to the accounting for internal-use software accessed through a hosting arrangement (e.g., cloud computing, software as a service, etc.) only if both of the following criteria are met: (1) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty (there is no significant penalty if the customer has the ability to take delivery of the software without incurring significant cost and the ability to use the software separately without significant loss of utility or value); and (2) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. If both of the criteria are present in a hosting arrangement, then the arrangement contains a software license and the customer should generally capitalize and subsequently amortize the cost of the license. If both of the criteria are not present, the customer should account for the arrangement as a service contract (i.e., expense fees as incurred). The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The impact of adoption of this ASU by the Company is not expected to be material.

XML

DEPOSITS (Tables)

6 Months Ended

Jun. 30, 2015

DEPOSITS [Abstract]

Deposits at period-end

Deposits are summarized as follows (in thousands):

	June 30, 2015		December 31, 2014
Noninterest-bearing demand	$	389,828	$	404,143
Interest bearing demand		348,490		340,053
Savings and money market accounts		490,258		442,246
Certificates of deposit		99,237		119,883
	$	1,327,813	$	1,306,325

XML

FEDERAL INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Income tax expense (benefit) [Abstract]
Current	$ 676	$ 36	$ 1,329	$ 60
Deferred	744	1,195	1,336	2,348
Income tax expense (benefit)	$ 1,420	$ 1,231	$ 2,665	$ 2,408
Difference between financial statement tax expense (benefit) and amount computed by applying statutory federal tax rate to pretax income [Abstract]
Statutory rate (in hundredths)	35.00%	35.00%	35.00%	35.00%
Statutory rate applied to income before taxes	$ 1,622	$ 1,395	$ 3,052	$ 2,730
Add (deduct) [Abstract]
Tax-exempt interest income	(127)	(89)	(244)	(174)
Bank-owned life insurance	(60)	(61)	(117)	(115)
Other, net	(15)	(14)	(26)	(33)
Income tax expense (benefit)	1,420	$ 1,231	2,665	$ 2,408
Deferred tax assets [Abstract]
Allowance for loan losses	6,363		6,363		$ 6,637
Nonaccrual loan interest	1,037		1,037		935
Valuation allowance on other real estate owned	5,259		5,259		5,190
Unrealized loss on securities available for sale	0		0		0
Other	551		551		1,896
Gross deferred tax assets	13,210		13,210		14,658
Valuation allowance	0		0		0
Total net deferred tax assets	13,210		13,210		14,658
Deferred tax liabilities [Abstract]
Depreciation	(1,792)		(1,792)		(1,908)
Prepaid expenses	(21)		(21)		(21)
Unrealized gain on securities available for sale	(27)		(27)		(33)
Other	(435)		(435)		(431)
Gross deferred tax liabilities	(2,275)		(2,275)		(2,393)
Net deferred tax asset	10,935		10,935		12,265
Unrecognized tax benefits	$ 0		$ 0		$ 0
Period when unrecognized tax benefits is not expected to significantly increase or decrease			12 months

XML

LOANS, Troubled Debt Restructuring (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Dec. 31, 2014 USD ($) Loan
Troubled debt restructurings [Abstract]
Number of Loans | Loan	242		242		226
Outstanding Recorded Balance	$ 46,956		$ 46,956		$ 53,397
Accruing troubled debt restructurings [Abstract]
Accruing TDR - nonaccrual at restructuring	0		0		0
Accruing TDR - accruing at restructuring	43,617		43,617		46,197
Accruing TDR - upgraded to accruing after six consecutive payments	0		0		0
Total	$ 43,617		$ 43,617		$ 46,197
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	2	7	33	13
Pre-Modification Outstanding Recorded Balance	$ 72	$ 1,853	$ 1,203	$ 4,180
Principal Write-down upon Modification	$ 0	$ 0	$ 0	$ 0
Commercial and Industrial [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	36		36		36
Outstanding Recorded Balance	$ 5,405		$ 5,405		$ 9,085
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	0	0	1	1
Pre-Modification Outstanding Recorded Balance	$ 0	$ 0	$ 408	$ 60
Principal Write-down upon Modification	$ 0	$ 0	$ 0	$ 0
Loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring [Abstract]
Number of Loans | Loan	0	0	0	0
Outstanding Recorded Balance	$ 0	$ 0	$ 0	$ 0
Commercial Real Estate [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	74		74		84
Outstanding Recorded Balance	$ 27,131		$ 27,131		$ 29,817
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	0	6	1	10
Pre-Modification Outstanding Recorded Balance	$ 0	$ 1,783	$ 42	$ 4,046
Principal Write-down upon Modification	$ 0	$ 0	$ 0	$ 0
Loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring [Abstract]
Number of Loans | Loan	0	0	0	1
Outstanding Recorded Balance	$ 0	$ 0	$ 0	$ 131
Consumer [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	132		132		106
Outstanding Recorded Balance	$ 14,420		$ 14,420		$ 14,495
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	2	1	31	2
Pre-Modification Outstanding Recorded Balance	$ 72	$ 70	$ 753	$ 74
Principal Write-down upon Modification	$ 0	$ 0	$ 0	$ 0
Loans that became delinquent more than 90 days past due or transferred to nonaccrual within 12 months of restructuring [Abstract]
Number of Loans | Loan	0	0	0	0
Outstanding Recorded Balance	$ 0	$ 0	$ 0	$ 0

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) [Abstract]
Net income	$ 3,215	$ 2,755	$ 6,055	$ 5,393
Unrealized gains:
Net change in unrealized gains (losses) on securities available for sale	(1,214)	1,190	67	2,334
Tax effect	425	(416)	(24)	(817)
Net change in unrealized gains (losses) on securities available for sale, net of tax	(789)	774	43	1,517
Less: reclassification adjustments:
Reclassification for gains included in net income	0	41	83	51
Tax effect	0	(14)	(29)	(18)
Reclassification for gains included in net income, net of tax	0	27	54	33
Other comprehensive income, net of tax	(789)	747	(11)	1,484
Comprehensive income	$ 2,426	$ 3,502	$ 6,044	$ 6,877

XML

SECURITIES

6 Months Ended

Jun. 30, 2015

SECURITIES [Abstract]

SECURITIES

NOTE 2 – SECURITIES

The amortized cost and fair value of securities at period-end were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2015
Available for Sale:
U.S. Treasury and federal agency securities	$	70,725		92		(276	)	$	70,541
U.S. Agency MBS and CMOs		14,808		55		(89	)		14,774
Tax-exempt state and municipal bonds		34,903		279		(285	)		34,897
Taxable state and municipal bonds		24,148		316		(39	)		24,425
Corporate bonds and other debt securities		12,705		44		(17	)		12,732
Other equity securities		1,500		---		(3	)		1,497
	$	158,789	$	786	$	(709	)	$	158,866
Held to Maturity
Tax-exempt state and municipal bonds	$	43,229	$	584	$	(3	)	$	43,810
December 31, 2014
Available for Sale:
U.S. Treasury and federal agency securities	$	67,612	$	53	$	(501	)	$	67,164
U. S. Agency MBS and CMOs		16,692		67		(71	)		16,688
Tax-exempt state and municipal bonds		37,203		419		(161	)		37,461
Taxable state and municipal bonds		25,012		351		(70	)		25,293
Corporate bonds and other debt securities		13,762		34		(30	)		13,766
Other equity securities		1,500		2		---			1,502
	$	161,781	$	926	$	(833	)	$	161,874
Held to Maturity:
Tax-exempt state and municipal bonds	$	31,585	$	64	$	(221	)	$	31,428

There were no sales of securities in the three month period ended June 30, 2015.  Proceeds from the sale of securities available for sale were $12.1 million in the six month period ended June 30, 2015 resulting in net gains on sale of $83,000, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $83,000 ($54,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the six month period ended June 30, 2015.   Proceeds from the sale of securities available for sale were $4.6 million in the three month period ended June 30, 2014 and $5.2 million in the six month period ended June 30, 2014 resulting in net gains on sale of $41,000 and $51,000, respectively, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $41,000 ($27,000 net of tax) and $51,000 ($33,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the three and six month periods ended June 30, 2014.

Contractual maturities of debt securities at June 30, 2015 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	21,004	$	21,015	$	5,404	$	5,448
Due from one to five years		8,312		8,481		94,430		94,614
Due from five to ten years		13,813		14,211		40,081		39,935
Due after ten years		100		103		17,374		17,372
	$	43,229	$	43,810	$	157,289	$	157,369

Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2015	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	28,741	$	(109	)	$	17,751	$	(167	)	$	46,492	$	(276	)
U.S. Agency MBS and CMOs		8,969		(83	)		985		(6	)		9,954		(89	)
Tax-exempt state and municipal bonds		14,656		(197	)		1,977		(88	)		16,633		(285	)
Taxable state and municipal bonds		5,480		(28	)		1,195		(14	)		6,675		(42	)
Corporate bonds and other debt securities		3,573		(13	)		498		(4	)		4,071		(17	)
Other equity securities		1,500		(3	)		---		---			1,500		(3	)
Total temporarily impaired	$	62,919	$	(433	)	$	22,406	$	(279	)	$	85,325	$	(712	)

	Less than 12 Months					12 Months or More					Total
December 31, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	16,426	$	(45	)	$	35,350	$	(456	)	$	51,776	$	(501	)
U.S. Agency MBS and CMOs		---		---			9,732		(71	)		9,732		(71	)
Tax-exempt state and municipal bonds		26,820		(264	)		4,545		(118	)		31,365		(382	)
Taxable state and municipal bonds		3,982		(19	)		3,240		(51	)		7,222		(70	)
Corporate bonds and other debt securities		4,187		(13	)		1,988		(17	)		6,175		(30	)
Other equity securities		---		---			---		---			---		---
Total temporarily impaired	$	51,415	$	(341	)	$	54,855	$	(713	)	$	106,270	$	(1,054	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Management determined that the unrealized losses for each period were attributable to changes in interest rates and not due to credit quality.  As such, no OTTI charges were necessary during the three and six month periods ended June 30, 2015 and 2014.

Securities with a carrying value of approximately $1.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at June 30, 2015 and December 31, 2014.

XML

OTHER BORROWED FUNDS (Tables)

6 Months Ended

Jun. 30, 2015

OTHER BORROWED FUNDS [Abstract]

Advances from Federal Home Loan Bank

At period-end, advances from the Federal Home Loan Bank were as follows (dollars in thousands):

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2015
Single maturity fixed rate advances	$	90,000	August 2016 to March 2020		1.69	%
Amortizable mortgage advances		6,836	March 2018 to July 2018		3.76	%
	$	96,836

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2014
Single maturity fixed rate advances	$	80,000	August 2016 to February 2019		1.69	%
Amortizable mortgage advances		8,107	March 2018 to July 2018		3.78	%
	$	88,107

Scheduled repayments of FHLB advances

Scheduled repayments of FHLB advances as of June 30, 2015 were as follows (in thousands):

2015	$	667
2016		21,996
2017		2,055
2018		52,118
2019		10,000
Thereafter		10,000
	$	96,836

XML

LOANS, Allowance for Loans Losses (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	$ 3,987		$ 4,065
Collectively evaluated for impairment	14,194		14,897
Total ending allowance balance	18,181	$ 18,680	18,962	$ 20,049	$ 20,383	$ 20,798
Loans [Abstract]
Individually reviewed for impairment	46,956		53,397
Collectively evaluated for impairment	1,083,068		1,065,086
Total ending loans balance	1,130,024		1,118,483
Commercial and Industrial [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	2,451		2,429
Collectively evaluated for impairment	3,930		3,744
Total ending allowance balance	6,381	6,174	6,173	6,721	6,087	6,174
Loans [Abstract]
Individually reviewed for impairment	5,405		9,084
Collectively evaluated for impairment	344,797		318,590
Total ending loans balance	350,202		327,674
Commercial Real Estate [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	610		743
Collectively evaluated for impairment	7,329		7,947
Total ending allowance balance	7,939	8,570	8,690	9,341	10,372	10,868
Loans [Abstract]
Individually reviewed for impairment	27,131		29,818
Collectively evaluated for impairment	447,274		460,713
Total ending loans balance	474,405		490,531
Consumer [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	926		893
Collectively evaluated for impairment	2,905		3,153
Total ending allowance balance	3,831	3,907	4,046	3,933	3,875	3,703
Loans [Abstract]
Individually reviewed for impairment	14,420		14,495
Collectively evaluated for impairment	290,997		285,783
Total ending loans balance	305,417		300,278
Unallocated [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	0		0
Collectively evaluated for impairment	30		53
Total ending allowance balance	30	$ 29	53	$ 54	$ 49	$ 53
Loans [Abstract]
Individually reviewed for impairment	0		0
Collectively evaluated for impairment	0		0
Total ending loans balance	$ 0		$ 0

XML

SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2015

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 12 – SHAREHOLDERS' EQUITY

Regulatory Capital

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

In July 2013, the Board of Governors of the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.

At June 30, 2015 and December 31, 2014, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
CET1 capital (to risk weighted assets)
Consolidated	$	146,392		10.9	%	$	60,626		4.5	%		N/A		N/A
Bank		181,020		13.4			60,615		4.5		$	87,555		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		186,392		13.8			80,834		6.0			N/A		N/A
Bank		181,020		13.4			80,820		6.0			107,759		8.0
Total capital (to risk weighted assets)
Consolidated		203,249		15.1			107,779		8.0			N/A		N/A
Bank		197,874		14.7			107,759		8.0			134,699		10.0
Tier 1 capital (to average assets)
Consolidated		186,392		11.7			63,720		4.0			N/A		N/A
Bank		181,020		11.4			63,650		4.0			79,563		5.0
December 31, 2014
Tier 1 capital (to risk weighted assets)
Consolidated	$	174,084		14.3	%	$	48,706		4.0	%		N/A		N/A
Bank		170,983		14.0			48,788		4.0		$	73,182		6.0	%
Total capital (to risk weighted assets)
Consolidated		189,353		15.6			97,420		8.0			N/A		N/A
Bank		186,276		15.3			97,575		8.0			121,969		10.0
Tier 1 capital (to average assets)
Consolidated		174,084		11.6			59,998		4.0			N/A		N/A
Bank		170,983		11.4			59,923		4.0			74,904		5.0

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2015 and December 31, 2014, respectively, qualified as Tier 1 capital. Refer to our 2014 Form 10-K for more information on the trust preferred securities.

The Bank was categorized as "well capitalized" at June 30, 2015 and December 31, 2014.

Warrants

In 2009 the Company and Macatawa Bank entered into a Settlement and Release and Stock and Warrant Issuance Agreement in connection with legal proceedings related to Trade Partners, Inc.  In connection with the Settlement, the Company issued warrants to purchase a total of 1,478,811 shares of common stock at an exercise price of $9.00 per share.  The fair value of the warrants issued was $806,000 and was recorded in Common Stock based upon $0.54 per warrant as determined using a Black-Scholes model.  The warrants were issued in two issuances.  1,361,753 warrants were issued on June 18, 2009 and these warrants expired on June 17, 2015 (five years after commencement of exercise period), with 392 warrants having been executed during the exercise period.  The remaining warrants expired unused.  117,058 warrants were issued on July 28, 2009 and these warrants expire on July 27, 2015 (five years after commencement of exercise period).