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, 2018

NOTE 11 – STOCK-BASED COMPENSATION

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 1,281,307 shares under the “2015 Plan” available for future issuance as of December 31, 2018. 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 2018 and 2017. 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, 2018		45,000		$	8.57		—	$	—
Exercised		(45,000	)		8.57		—		—
Expired		—			—		—		—
Outstanding at December 31, 2018		—			—		—		—

Exercisable at December 31, 2018		—		$	—		—	$	—

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

	2018		2017
Intrinsic value of options exercised	$	72	$	—
Cash received from option exercises		386		68
Tax benefit realized from option exercises		19		8

There was no compensation cost for stock options in 2018 and 2017.

As of December 31, 2018, 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, 2018		105,048		$	8.73	$	1,050,480
Granted		43,991			10.47		423,193
Vested		(55,607	)		7.84		534,939
Forfeited		(3,206	)		8.72		30,842
Outstanding at December 31, 2018		90,226		$	10.13	$	867,974

Compensation cost related to restricted stock awards totaled $452,000 and $465,000 for 2018 and 2017, respectively.

As of December 31, 2018, there was $797,000 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 1.53 years. The total grant date fair value of restricted stock awards vested during 2018 was $436,000. The total grant date fair value of restricted stock awards vested during 2017 was $440,000.