Macatawa Bank Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2017

NOTE 11 – STOCK-BASED COMPENSATION

The Company has stock-based compensation plans for its employees (the Employees' Plans) and directors (the Directors' Plans). The Employees' Plans permit the grant of stock options or the issuance of restricted stock for up to 1,917,210 shares of common stock. The Directors' Plans permit the grant of stock options or the issuance of restricted stock for up to 473,278 shares of common stock. No additional issuances of stock options or restricted stock are permitted under these plans.

On May 5, 2015, the Company's shareholders approved the Macatawa Bank Corporation Stock Incentive Plan of 2015 (the 2015 Plan). The 2015 Plan provides for grant of up to 1,500,000 shares of Macatawa common stock in the form of stock options or restricted stock awards to employees and directors. There were 1,322,092 shares under the "2015 Plan" available for future issuance as of December 31, 2017. The Company issues new shares under the 2015 Plan from its authorized but unissued shares.

Stock Options

Option awards are granted with an exercise price equal to the market price at the date of grant. Option awards have vesting periods ranging from one to three years and have ten year contractual terms.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The Company expects that all options granted will vest and become exercisable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during 2017, 2016 and 2015. A summary of option activity in the plans is as follows (dollars in thousands, except per option data):

Options	Number Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at January 1, 2017		53,000		$	8.57		---		---
Exercised		(8,000	)		8.57		---		---
Expired		---			---		---		---
Outstanding at December 31, 2017		45,000		$	8.57		0.05	$	64,350

Exercisable at December 31, 2017		45,000		$	8.57		0.05	$	64,350

Information related to stock options during each year follows (dollars in thousands):

	2017		2016		2015
Intrinsic value of options exercised	$	---	$	---	$	---
Cash received from option exercises		68		---		---
Tax benefit realized from option exercises		8		---		---

There was no compensation cost for stock options in 2017, 2016 and 2015.

As of December 31, 2017, there was no unrecognized cost related to nonvested stock options granted under the Company’s stock-based compensation plans.

Restricted Stock Awards

Restricted stock awards have vesting periods of up to three years. A summary of changes in the Company’s nonvested restricted stock awards for the year follows:

Nonvested Stock Awards	Shares			Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at January 1, 2017		132,548		$	6.88	$	1,325,480
Granted		49,770			9.87		497,700
Vested		(70,215	)		6.26		702,150
Forfeited		(7,055	)		6.60		70,550
Outstanding at December 31, 2017		105,048		$	8.73	$	1,050,480

Compensation cost related to restricted stock awards totaled $465,000, $536,000 and $478,000 for 2017, 2016 and 2015, respectively.

As of December 31, 2017, there was $844,000 of total remaining unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock-based compensation plans. The cost is expected to be recognized over a weighted-average period of 1.47 years. The total grant date fair value of restricted stock awards vested during 2017 was $440,000. The total grant date fair value of restricted stock awards vested during 2016 was $588,000. The total grant date fair value of restricted stock awards vested during 2015 was $471,000.