FORM 10-KSB
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------


                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                                       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 333-45755

                            MACATAWA BANK CORPORATION
             (Exact name of registrant as specified in its charter)

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

                   250 E. 8th Street, Holland, Michigan 49423
               (Address of principal executive offices) (Zip Code)

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

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

   Securities registered pursuant to Section 12(g) of the Exchange Act: None.

                                   -----------

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. 
Yes _X_ No ____

Check here if there is no disclosure  by  delinquent  filers in response to Item
405 of Regulation  S-B is not  contained in this form and no disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. |X|

The registrant's  revenues for 1998 were $7,487,487.  The aggregate market value
of the  voting  and  non-voting  common  equity  held by  non-affiliates  of the
Registrant,  based on a per  share  price of  $15.00  as of March 26, 1999,  was
$30,607,875  (common  stock,  no par  value).  As of March 26, 1999,  there were
outstanding 2,435,125 shares of the Company's common stock (no par value).

Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held April 15, 1999 are  incorporated  by reference  into Part II and Part
III of this Report.
<PAGE>
                                     PART I

ITEM 1:   Business

General

     Macatawa  Bank  Corporation  (the  "Company")  is a  bank  holding  company
organized in 1997 under  Michigan  law. The Company owns all of the common stock
of Macatawa Bank (the "Bank").  The Bank was organized and commenced  operations
in November,  1997 as a Michigan chartered bank with depository accounts insured
by the FDIC to the extent  permitted by law.  The Bank  provides a full range of
commercial and consumer banking services primarily in the communities of Holland
and  Zeeland,  Michigan,  as well as the  surrounding  market  area  principally
located in Ottawa  County.  The Bank's  services  include  checking  and savings
accounts  (including  certificates  of deposit),  safe deposit boxes,  travelers
checks,  money  orders,  trust  services and  commercial,  mortgage and consumer
loans.  As of December 31, 1998, the Company had total assets of $189.2 million,
total  deposits of $167.0  million,  14,809 deposit  accounts and  shareholders'
equity of $19.6 million.

     Significant  events in 1998  included the  Company's  establishment  as the
parent of the Bank and the Company's  underwritten  initial  public  offering in
April 1998. The Company issued  1,495,000  shares of common stock in the initial
public offering, resulting in net proceeds to the Company of $14.1 million.

     The  Company's  main  office  is  located  at 250 E. 8th  Street,  Holland,
Michigan 49423, and its telephone  number is (616) 820-1444.  Unless the context
clearly suggests  otherwise,  financial  information and other references to the
Company include the Bank.

Products and Services

     Deposit  Services.  The Bank  offers a broad  range  of  deposit  services,
including  checking  accounts,  savings  accounts  and time  deposits of various
types.  Transaction accounts and time certificates are tailored to the principal
market area at rates  competitive  with those  offered in the area.  All deposit
accounts are insured by the FDIC up to the maximum amount  permitted by law. The
Bank  solicits  these  accounts  from  individuals,   businesses,  associations,
churches,   nonprofit  organizations,   financial  institutions  and  government
authorities.  The Bank  may also use  alternative  funding  sources  as  needed,
including  advances  from Federal  Home Loan Banks,  conduit  financing  and the
packaging of loans for securitization and sale.

     Real Estate Loans. The Bank originates  residential  mortgage loans,  which
are generally long-term with either fixed or variable interest rates. The Bank's
general policy, which is subject to review by management as a result of changing
market and  economic  conditions  and other  factors,  is to retain all variable
interest rate mortgage  loans in the Bank's loan portfolio and to sell all fixed
rate loans in the secondary market. The Bank also offers home equity loans.

     The retention of variable rate loans on the Bank's loan portfolio  helps to
reduce the Bank's  exposure to fluctuations  in interest  rates.  However,  such
loans  generally  pose credit risks  different  from the risks inherent in fixed
rate loans,  primarily  because as interest rates rise, the underlying  payments
from the borrowers rise, thereby increasing the potential for default.

     Personal  Loans and  Credit.  The Bank  makes  personal  loans and lines of
credit  available to  consumers  for various  purposes,  such as the purchase of
automobiles,  boats and  other  recreational  vehicles,  home  improvements  and
personal  investments.  The Bank's current policy is to retain substantially all
of such loans.

     Commercial  Loans.  Commercial  loans  are  made  primarily  to  small  and
mid-sized businesses. These loans are and will be both secured and unsecured and
are made available for general operating  purposes,  acquisition of fixed assets
including  real  estate,  purchases  of equipment  and  machinery,  financing of
inventory  and accounts  receivable,  as well as any other  purposes  considered
appropriate. The Bank generally looks to a borrower's business operations as the
principal  source  of  repayment,  but  will  also  receive,  when  appropriate,
mortgages on real estate,  security interests in inventory,  accounts receivable
and other personal property and/or personal guarantees.
<PAGE>
     Although the Bank takes a progressive and competitive  approach to lending,
it  stresses  high  quality  in its  loans.  On a  regular  basis,  the Board of
Directors reviews selected loans. In addition,  a loan committee of the Board of
Directors of the Bank also reviews larger loans for prior approval when the loan
request exceeds the established  limits for the lending officers.  The Bank also
maintains a loan review  process  designed to promote  early  identification  of
credit quality problems. Any past due loans and identified problem loans will be
reviewed with the Board of Directors on a regular basis.

     Regulatory and supervisory  loan-to-value limits are established by Section
304 of  the  Federal  Deposit  Insurance  Corporation  Improvement  Act of  1991
("FDICIA").  The Bank's internal  limitations follow those limits and in certain
cases are more restrictive than those required by the regulators.

     The Bank has established  relationships with correspondent  banks and other
independent  financial  institutions to provide other services  requested by its
customers, including loan participations where the requested loan amounts exceed
the Bank's policies or legal lending limits.

     Trust Services. The Bank began offering trust services in January, 1999, to
further  provide for the financial  needs of its  customers.  As of February 23,
1999, the Trust Department had assets of approximately $31 million.

Competition

     The Company's  primary  market area is Ottawa County,  Michigan.  There are
many bank,  thrift and credit union offices located within the Company's  market
area. Most are branches of larger financial institutions. The Company also faces
competition from finance companies,  insurance  companies,  mortgage  companies,
securities  brokerage firms, money market funds and other providers of financial
services.  Most of the Company's  competitors  have been in business a number of
years,  have  established  customer  bases,  are larger and have higher  lending
limits than the Company.  The Company competes for loans principally through its
ability to communicate effectively with its customers and to understand and meet
their needs.  Management believes that the Company's personal service philosophy
enhances its ability to compete  favorably in attracting  individuals  and small
businesses. The Company actively solicits customers and competes for deposits by
offering customers personal  attention,  professional  service,  and competitive
interest rates.

Environmental Matters

     The Company does not believe that existing  environmental  regulations will
have  any  material  effect  upon  the  capital  expenditures,   earnings,   and
competitive position of the Company.

Employees

     As of  December  31,  1998,  the Bank  had 88  full-time  and 24  part-time
employees.  The Company  has  assembled a staff of  experienced,  dedicated  and
highly qualified professionals whose goal is to provide outstanding service. The
majority  of the  Company's  management  team have at least 10 years of  banking
experience,  and  several  key  personnel  have  more  than 20 years of  banking
experience.  None of the  Company's  employees  are  represented  by  collective
bargaining agents.

                                       -2-
<PAGE>
Selected Statistical Data

     Selected  Statistical  Data for Macatawa Bank  Corporation is presented for
1998. Macatawa Bank commenced operations on November 25, 1997, and therefore the
Guide 3 Statistical Disclosure by Bank Holding companies would not be meaningful
for 1997 and is not included.

Table 1 Performance Ratios (in thousands, except per share data).
<TABLE>
                                                        Year Ended
                                                    December 31, 1998
<S>                                                    <C>
Net Loss......................................          $(2,489)
  Basic loss per share........................            (1.22)

Earnings (Loss) ratios:
  Return on average assets....................           (2.91%)
  Return on average equity....................          (15.15%)
  Average equity to average assets............            19.59%
  Dividend payout ratio.......................               N/A
</TABLE>

Net Interest Income

     The following schedule presents the average daily balances, interest income
and interest  expense and average rates earned and paid for the Company's  major
categories  of assets,  liabilities,  and  stockholders'  equity for the periods
indicated:


                                       -3-
<PAGE>
Table 2 - Interest Yields and Costs (in thousands)
<TABLE>
                                                    Year ended December 31,
                                                              1998
                                            Average                            Yield/
                                            Balance        Interest             Cost
Assets:
<S>                                        <C>             <C>                 <C>
Short term investments                       9,027            479               5.31%
Securities:
  Taxable                                   16,471            980               5.99
  Tax-exempt                                    --             --                 --
Loans(1)                                    60,299          5,339               8.85
Total earning assets/total interest         85,797          6,804               7.93
income
Cash and due from banks                      4,523
Unrealized Gain(Loss)                            3
All other assets                             3,845
Allowance for loan loss                       (829)
  Total assets                              93,339
Liabilities and
  Stockholders' Equity
Interest bearing deposits:
MMDA, Savings/NOW accounts                  46,163          1,990               4.31
Time                                        20,899          1,196               5.72
Fed Funds Purchased                             78              4               5.13
Other Borrowed Money                            --             --                 --
Total interest bearing liabilities/         67,140          3,190               4.75
   total interest expense
Noninterest bearing deposits                 8,991
All other liabilities                          313
Stockholders' Equity:
Unrealized Holding Gain(Loss)                    2
Common Stock, Surplus, Retained             16,893
Earnings
Total liabilities and                       93,339
  stockholders' equity

Interest spread                                             3,614
Net interest income-FTE                                                         3.18
Net Interest Margin as a Percentage                                             4.21
of Average Earning Assets - FTE
</TABLE>
                                       -4-
<PAGE>
(1)      Nonaccruing loans are not significant during the periods indicated, and
         for  purposes of the  computations  above,  are included in the average
         daily loan balances.

     Net interest  income is the difference  between  interest  earned on loans,
securities,  and other earning assets and interest paid on deposits and borrowed
funds. Cost of funds are influenced by economic conditions and activities of the
Federal Reserve.  The Bank's  asset/liability  committee seeks to manage sources
and uses of  funds,  and to  monitor  the gap in  maturities  of these  funds to
maintain a steady net interest margin in varying market conditions.


Table 3 - Composition of Average Earning Assets and Interest Paying Liabilities
<TABLE>
                                                                            Year Ended
                                                                        December 31, 1998 
<S>                                                                        <C>
As a percent of average earning assets                               
  Loans........................................                                  70.28%
  Other earning assets.........................                                  29.72%
     Average earning assets....................                             $85,797,230

As a percent of average interest bearing
liabilities
  Savings and NOW accounts.....................                                  68.76%
  Time deposits................................                                  31.13%
  Other borrowings.............................                                   0.11%
     Average interest bearing liabilities......                              67,140,576

Earning asset ratio............................                                   1.28%
</TABLE>

Table 4 - Noninterest Income (in thousands)
<TABLE>
                                                                              Year Ended
                                                                           December 31, 1998
<S>                                                                        <C>
Service fee income ..........................                                        157

Net gains (losses) on asset sales:
  Loans......................................                                        521
  Securities.................................                                          0
Other........................................                                          5

     Total noninterest income................                                        683
</TABLE>
Non-interest Income

     Non-interest  income  consists  of service  charges  on  deposit  accounts,
service fees, and gains from sales of residential mortgage loans.

                                       -5-
<PAGE>
Table 5  Net Gains on the Sale of Residential Real Estate Mortgage Loans
         (in thousands)
<TABLE>
                                                                                 Year Ended
                                                                              December 31, 1998
<S>                                                                             <C>
Real estate mortgage loan originations.......                                   44,146

Real estate mortgage loan sales..............                                   44,667

Net gains on the sale of real                                                      521
    estate mortgage loans....................

Net gains as a percent of real                                                   1.17%
    estate mortgage loan sales...............
</TABLE>

     The Bank sells the majority of its fixed-rate  obligations.  Such loans are
sold without recourse.

Noninterest Expense

Table 6 - Noninterest Expense (in thousands)
<TABLE>
                                                                                 Year Ended
                                                                              December 31, 1998
<S>                                                                             <C>
Salaries and employee benefits...............                                    2,726
Occupancy and equipment......................                                      305
Furniture and equipment expense..............                                      253
Legal and professional fees..................                                      157
Advertising..................................                                      199
Supplies.....................................                                      233
Data processing fees.........................                                      197
Check printing fees..........................                                       89
Other outside services.......................                                       76
Organizational expenses......................                                       66
Other expenses...............................                                      462
                                                                                ------
  Total noninterest expense..................                                    4,763
</TABLE>
     Table 6 lists the Bank's most significant noninterest expenses.

                                       -6-
<PAGE>
Table 7 - Loan Portfolio Composition (in thousands)
<TABLE>
                                                                    Year Ended
                                                                 December 31, 1998
                                                             Balance              %
<S>                                                          <C>                <C>
Commercial Real Estate.......................                $ 14,058              10%
Residential Real Estate......................                  22,529              16
Other Commercial.............................                  81,611              60
Consumer.....................................                  19,684              14
                                                             --------            ----
  Total loans...............................                 $137,882             100%

Less:
Allowance for Loan Losses...................                   (2,030)
                                                             --------
Total Loans Receivable, Net..................                $135,852
                                                             ========
</TABLE>

Table 8  Maturities and Sensitivities of Loans in Interest Rates

     The  following  table  shows the amount of total  loans  outstanding  as of
December 31, 1998 which, based on remaining  scheduled  repayments of principal,
are due in the periods indicated.
<TABLE>

                                                                                     Maturing
                                                                              (in thousands of dollars)
                                                                       After one but
                                                Within one Year      within five years        After five years     Total
<S>                                                <C>                     <C>                   <C>            <C>
Commercial Real Estate ..............               $  2,639                $8,785                $2,634         $14,058
Residential Real Estate..............                  6,411                   906                15,212          22,529
Other Commercial.....................                 31,439                44,885                 5,287          81,611
Consumer ............................                  1,282                15,060                 3,342          19,684
                                                    --------                ------               -------        --------
      Totals.........................                $41,771               $69,636               $26,475        $137,882
Allowance for Loan Losses............                                                                             (2,030)
                                                                                                               ---------
Total Loans Receivable, Net..........                                                                           $135,852
                                                                                                                ========
</TABLE>

                                       -7-
<PAGE>
     Below is a schedule of the loan  amounts  maturing or  repricing  which are
classified according to their sensitivity to changes in interest rates.
<TABLE>
                                                                                         Interest Sensitivity
                                                                                      (in thousands of dollars)
                                                                        Fixed Rate            Variable Rate       Total
<S>                                                                   <C>                   <C>              <C>
Due within 3 months....................................                 $ 6,447              $40,861            $47,308
Due after 3 months within 1 year.......................                  19,145                   47             19,192
Due after one but within five years....................                  53,331                2,612             55,943
Due after five years...................................                  13,928                1,511             15,439
                                                                         ------              -------          ---------
Total..................................................                 $92,851              $45,031           $137,882
Allowance for Loan Losses..............................                                                          (2,030)
                                                                                                              ---------
Total Loans Receivable, Net............................                                                        $135,852
                                                                                                               ========
</TABLE>

Table 9 - Nonperforming Assets(in thousands)

     There  are no  nonperforming  loans as of  December  31,  1998.  Management
believes  that the  allowance  for  loan  losses  is  adequate  for the  lending
portfolio.  Loan  performance  is reviewed  regularly  by  external  loan review
specialists,  loan officers, and senior management. When reasonable doubt exists
concerning  collectibility of interest or principal,  the loan will be placed in
nonaccrual  status.  Any interest  previously  accrued but not collected at that
time will be reversed and charged against current  earnings.  As of December 31,
1998 there were no other interest bearing assets which required  classification.
Management is not aware of any recommendations by regulatory agencies, which, if
implemented, would have a material impact on the Company's liquidity, capital or
operations.

                                       -8-
<PAGE>
Table 10 - Loan Loss Experience (in thousands)

     The  following is a summary of loan  balances at the end of each period and
their daily average balances,  changes in the allowance for possible loan losses
arising from loans charged off and recoveries on loans  previously  charged off,
and additions to the allowance which have been expensed.
<TABLE>
                                                                              Year Ended
                                                                            December 31, 1998
<S>                                                                           <C>
Loans:
  Average daily balance of loans for the year....................              $60,299
  Amount of loans outstanding at end of period...................              137,882

Allowance for loan losses:
  Balance at beginning of year...................................                  7.5

  Additions to allowance charged to operations...................                2,023
        Balance at end of year...................................                2,030.5

Ratios:
  Net (recoveries) charge offs...................................                    0
  Allowance for loan losses to loans outstanding at year end.....                 1.47%
</TABLE>


Table 11 - Allocation of the Allowance for Loan Losses

     The allowance for loan losses is analyzed  quarterly by  management.  In so
doing,  management assigns a portion of the allowance to the entire portfolio by
loan type and to specific credits that have been identified as problem loans and
reviews past loss  experience.  The local economy and particular  concentrations
are considered, as well as a number of other factors.
<TABLE>
                                    Year ended December 31, 1998

                                                       % of each
                                                       category
                                       Allowance       to total
                                        Amount           loans
<S>                                    <C>              <C>
Commercial....................          $  871           42.9%
Real estate mortgages.........              57             2.8
Consumer......................             165             8.1
Unallocated...................             937            46.2
                                       -------          ------
  Total.......................          $2,030          100.0%
                                        ======          ======
</TABLE>
     The above allocations are not intended to imply limitations on usage of the
allowance. The entire allowance is available for any future loans without regard
to loan type.

                                       -9-
<PAGE>
Table 12 - Securities Available for Sale Portfolio (in thousands)
<TABLE>
                                                                          Year Ended
                                                                      December 31, 1998
<S>                                                                       <C>
U. S. Treasury and U.S. Government Agencies.....................           $27,007
</TABLE>

     Excluding those holdings of the investment  portfolio in U.S.  Treasury and
U.S.  Government Agency  Securities,  there were no investments in securities of
any one issuer which exceeded 10% of shareholders' equity.

Table 13 - Schedule of Maturities of Investment Securities and Weighted Average 
           Yields

     The following is a schedule of maturities and their weighted  average yield
of each category of investment securities as of December 31, 1998.
<TABLE>


                                                                                     Maturing
                                                                              (Dollars in Thousands)
                                                                                                                   Investments With
                                Due Within              One to                Five to               After           No Contractual
                                 One Year             Five Years             Ten Years            Ten Years            Maturity
                           Estimated               Estimated             Estimated             Estimated           Estimated
                            Market      Avg.       Market     Avg.       Market     Avg.       Market    Avg.      Market      Avg.
                            Value       Yield      Value      Yield      Value      Yield      Value     Yield     Value       Yield
<S>                        <C>          <C>        <C>        <C>        <C>        <C>        <C>       <C>       <C>         <C>
Available for Sale:
U.S. Treasury
and U.S.
Government
Agencies                      0           0%       26,002      5.85       1,005      6.00         0       0%          0         0%
</TABLE>

Table 14 - Average Daily Deposits (in thousands)

     The  following  table  sets  forth the  average  deposit  balances  and the
weighted average rates paid thereon.
<TABLE>
                                        Average for the Year 1998

                                       Amount        Average Rate
<S>                                    <C>                <C>
Noninterest bearing demand...........   8,991               0%
NOW accounts.........................  10,420             3.0
MMDA/Savings ........................  35,743             4.7
Time.................................  20,899             5.7
                                       ------             ---
   Total Deposits....................  76,053             4.2%
</TABLE>

                                      -10-
<PAGE>
Table 15 - Maturity Distribution of Time Deposits of $100,000 Or More

     The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity as of December 31, 1998:
<TABLE>
                                                                                    Amount
                     <S>                                                         <C>
                     Three months or less.............................            $  7,700,408
                     Over 3 months through 6 months...................               3,858,566
                     Over 6 months through 1 year....................                3,675,228
                     Over 1 year......................................              11,855,896
                                                                                  ------------
                                                                                   $27,090,098
</TABLE>
     The Bank operates in a very competitive  environment.  Management  monitors
rates at other  financial  institutions  in the area to ascertain that its rates
are  competitive  with the  market.  Management  also  attempts  to offer a wide
variety  of  products  to meets  the  needs of its  customers.  The Bank  offers
business  and  consumer  checking  accounts,  regular and money  market  savings
accounts, and certificates having many options in their terms.

Table 16 - Capital Resources (in thousands)
<TABLE>
                                                      Tier 1
                                                     Leverage           Tier 1           Total Risk-Based
                                                      Ratio          Capital Ratio         Capital Ratio
<S>                                                   <C>                 <C>                   <C>
Minimum regulatory requirement for                        4%                 4%                   8%
capital adequacy..........................
Well capitalized regulatory level.........                5%                 6%                  10%
Consolidated..............................             11.8%              11.3%                12.4%
Bank......................................             11.2%              10.7%                11.9%
</TABLE>
     The following  table shows the amounts by which the  Corporation's  capital
(on a consolidated  basis) exceeds current  regulatory  requirements on a dollar
amount basis:
<TABLE>
                                                                                        Total
                                                        Tier 1         Tier 1         Risk-based
                                                       Leverage        Capital          Capital
                                                                (In Thousands of Dollars)
<S>                                                    <C>          <C>              <C>
Capital balances at December 31, 1998
   Required regulatory capital.....................    $   6,676    $  6,961          $13,923
   Capital in excess of regulatory minimums
     for capital adequacy..........................       12,931      12,646            7,714
                                                       ---------    --------          -------
Actual capital balances............................     $19,607     $19,607           $21,637
                                                        =======     =======           =======
</TABLE>

                                      -11-
<PAGE>
Table 17 - Asset/Liability Gap Position (in thousands)
<TABLE>
                                                                         December 31, 1998                                   
                                                      0-3            4-12             1-5             5+
                                                    Months          Months           Years           Years           Total
<S>                                                 <C>            <C>             <C>              <C>            <C>
Interest earning assets:
  Short-term investments..................           4,500           2,000               0               0           6,500
  Securities..............................               0               0          26,002           1,005          27,007
  Loans...................................          47,308          19,192          55,943          15,439         137,882

  Total interest earning assets...........          51,808          21,192          81,945          16,444         171,389

Interest bearing liabilities:                                                                               
  Savings & NOW...........................          99,329               0               0               0          99,329
  Time....................................          10,177          15,486          23,448              31          49,142
  Total deposits..........................         109,506          15,486          23,448              31         148,471
  Other borrowings........................           2,000               0               0               0           2,000

   Total interest bearing liabilities.....         111,506          15,486          23,448              31         150,471

Rate sensitivity gap and ratios:
  Gap for period..........................         (59,698)          5,706          58,497          16,413          20,918
  Cumulative gap..........................         (59,698)        (53,992)          4,505          20,918
Percent of cumulative gap to
  total assets............................            (32%)           (29%)             2%             11%
</TABLE>

     The savings and NOW accounts are  categorized in the above table based upon
the Bank's historical experience.

                                      -12-
<PAGE>
                           SUPERVISION AND REGULATION

     The following is a summary of certain  statutes and  regulations  affecting
the Company and the Bank.  This  summary is  qualified  in its  entirety by such
statutes and regulations.  A change in applicable laws or regulations may have a
material effect on the Company, the Bank and the business of the Company and the
Bank.

General

     Financial   institutions  and  their  holding   companies  are  extensively
regulated  under  federal and state law.  Consequently,  the growth and earnings
performance  of the Company and the Bank can be affected not only by  management
decisions and general economic conditions, but also by the statutes administered
by,  and the  regulations  and  policies  of,  various  governmental  regulatory
authorities.  Those  authorities  include,  but are not limited to, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the FDIC,
the Commissioner of the Michigan Financial Institutions Bureau ("Commissioner"),
the Internal Revenue Service,  and state taxing authorities.  The effect of such
statutes,  regulations and policies can be significant,  and cannot be predicted
with a high degree of certainty.

     Federal and state laws and  regulations  generally  applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments,  reserves against deposits, capital levels relative to
operations,   lending  activities  and  practices,  the  nature  and  amount  of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends.  The system of supervision  and regulation  applicable to the Company
and  the  Bank  establishes  a  comprehensive  framework  for  their  respective
operations  and is intended  primarily for the  protection of the FDIC's deposit
insurance  funds,  the  depositors  of the Bank,  and the  public,  rather  than
shareholders of the Bank or the Company.

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

The Company

     General.  The Company is a bank holding company and, as such, is registered
with,  and subject to  regulation  by, the Federal  Reserve Board under the Bank
Holding  Company Act, as amended (the  "BHCA").  Under the BHCA,  the Company is
subject to periodic examination by the Federal Reserve Board, and is required to
file with the Federal Reserve Board periodic  reports of its operations and such
additional information as the Federal Reserve Board may require.

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

     Investments and Activities.  In general, any direct or indirect acquisition
by the  Company  of any  voting  shares of any bank  which  would  result in the
Company's  direct or indirect  ownership or control of more than 5% of any class
of voting shares of such bank,  and any merger or  consolidation  of the Company
with  another  bank  company,  will  require the prior  written  approval of the
Federal  Reserve  Board  under the BHCA.  In  acting on such  applications,  the
Federal Reserve Board must consider various statutory  factors,  including among
others,  the effect of the  proposed  transaction  on  competition  in  relevant
geographic and product markets, and each party's financial condition, managerial
resources,  and record of  performance  under the  Community  Reinvestment  Act.
Effective  September 29, 1995, bank holding  companies may acquire banks located
in any state in the United States without regard to geographic  restrictions  or

                                      -13-
<PAGE>
reciprocity   requirements   imposed  by  state  law,  but  subject  to  certain
conditions,  including  limitations on the aggregate amount of deposits that may
be held by the acquiring company and all of its insured  depository  institution
affiliates.

     The merger or  consolidation  of an existing bank subsidiary of the Company
with another bank, or the  acquisition by such a subsidiary of assets of another
bank, or the assumption of liability by such a subsidiary to pay any deposits in
another bank, will require the prior written approval of the responsible Federal
depository institution regulatory agency under the Bank Merger Act, based upon a
consideration of statutory  factors similar to those outlined above with respect
to the BHCA. In addition, in certain such cases an application to, and the prior
approval of, the Federal  Reserve  Board under the BHCA and/or the  Commissioner
under the Michigan Banking Code, may be required.

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

     In  evaluating  a  proposal  to  engage  (either  de  novo or  through  the
acquisition of a going concern) in a non-banking  activity,  the Federal Reserve
Board will consider  various  factors,  including among others the financial and
managerial  resources of the bank company,  and the relative public benefits and
adverse  effects  which may be expected to result  from the  performance  of the
activity by an  affiliate of the bank  company.  The Federal  Reserve  Board may
apply  different  standards to  activities  proposed to be commenced de novo and
activities commenced by acquisition, in whole or in part, of a going concern.

     Capital  Requirements.  The Federal  Reserve  Board uses  capital  adequacy
guidelines  in its  examination  and  regulation of bank holding  companies.  If
capital falls below minimum guidelines,  a bank company may, among other things,
be  denied  approval  to  acquire  or  establish  additional  banks or  non-bank
businesses.

     The Federal  Reserve  Board's  capital  guidelines  establish the following
minimum  regulatory  capital  requirements  for bank  holding  companies:  (i) a
leverage capital requirement expressed as a percentage of total assets, and (ii)
a  risk-based  requirement  expressed  as a  percentage  of total  risk-weighted
assets. The leverage capital  requirement  consists of a minimum ratio of Tier 1
capital (which consists principally of shareholders'  equity) to total assets of
3% for the most highly rated  companies,  with minimum  requirements of 4% to 5%
for all others. The risk- based requirement consists of a minimum ratio of total
capital to total risk-weighted  assets of 8%, of which at least one-half must be
Tier 1 capital.

     The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum  requirements,  and higher  capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations.  For example,  Federal  Reserve  Board  regulations  provide that
additional  capital  may be required to take  adequate  account of,  among other
things,  interest  rate risk and the risks  posed by  concentrations  of credit,
nontraditional activities or securities trading activities. Further, any banking
organization  experiencing or anticipating  significant growth would be expected
to maintain capital ratios,  including  tangible capital positions (i.e., Tier 1
capital less all intangible assets),  well above the minimum levels. The Federal
Reserve Board has not advised the Company of any specific minimum Tier 1 Capital
leverage ratio applicable to it.

     Dividends.  The Company is a  corporation  separate and  distinct  from the
Bank.  Most of the  Company's  revenues  will be  received  by it in the form of
dividends,  if  any,  paid by the  Bank.  Thus,  the  Company's  ability  to pay
dividends  to  its   shareholders   will  indirectly  be  limited  by  statutory
restrictions on its ability to pay dividends.  See

                                      -14-
<PAGE>
"Supervision  and  Regulation  - the Bank -  Dividends."  Further,  the  Federal
Reserve Board has issued a policy  statement on the payment of cash dividends by
bank holding  companies.  In the policy  statement,  the Federal  Reserve  Board
expressed its view that a bank company  experiencing  earnings weaknesses should
not pay cash  dividends  exceeding its net income or which can only be funded in
ways that weakened the bank company's  financial  health,  such as by borrowing.
Additionally,  the Federal Reserve Board possesses  enforcement powers over bank
holding  companies and their non-bank  subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable  statutes
and  regulations.  Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.  Similar  enforcement powers over
the Bank are possessed by the FDIC. The "prompt corrective action" provisions of
federal law and regulation  authorizes the Federal Reserve Board to restrict the
payment of  dividends  by the  Company  for an insured  bank which fails to meet
specified capital levels.

     In addition to the restrictions on dividends imposed by the Federal Reserve
Board,  the Michigan  Business  Corporation  Act provides that  dividends may be
legally declared or paid only if after the  distribution a corporation,  such as
the Company,  can pay its debts as they come due in the usual course of business
and its total assets equal or exceed the sum of its liabilities  plus the amount
that would be needed to satisfy the preferential  rights upon dissolution of any
holders of  preferred  stock  whose  preferential  rights are  superior to those
receiving the  distribution.  The Company is authorized to issue preferred stock
but it has no current plans to issue any such preferred stock.

The Bank

     General.  The  Bank is a  Michigan  banking  corporation  and  its  deposit
accounts are insured by the Bank  Insurance  Fund (the "BIF") of the FDIC.  As a
BIF-insured  Michigan  chartered  bank, the Bank is subject to the  examination,
supervision,  reporting and enforcement requirements of the Commissioner, as the
chartering  authority for Michigan banks,  and the FDIC, as administrator of the
BIF.  These  agencies and the federal and state laws  applicable to the Bank and
its operations,  extensively  regulate  various aspects of the banking  business
including,   among  other  things,  permissible  types  and  amounts  of  loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits,  the  maintenance  of  non-interest  bearing  reserves on
deposit accounts, and the safety and soundness of banking practices.

     Deposit Insurance. As an FDIC-insured institution,  the Bank is required to
pay deposit  insurance  premium  assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance  premiums,  based upon
their  respective  levels of  capital  and  results of  supervisory  evaluation.
Institutions  classified  as  well-capitalized  (as  defined  by the  FDIC)  and
considered  healthy pay the lowest premium while institutions that are less than
adequately  capitalized  (as defined by the FDIC) and  considered of substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

     The Federal Deposit  Insurance Act ("FDIA")  requires the FDIC to establish
assessment  rates at levels which will maintain the Deposit  Insurance Fund at a
mandated  reserve  ratio of not less than 1.25% of estimated  insured  deposits.
Accordingly,  the FDIC established the schedule of BIF insurance assessments for
the first semi-annual assessment period of 1998, ranging from 0% of deposits for
institutions in the lowest risk category to .27% of deposits for institutions in
the highest risk category.

     The FDIC may  terminate  the deposit  insurance  of any insured  depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound  practices,  or have
violated any applicable  law,  regulation,  order,  or any condition  imposed in
writing by, or written  agreement with, the FDIC, or if the institution is in an
unsafe or unsound  condition to continue  operations.  The FDIC may also suspend
deposit  insurance  temporarily  during  the  hearing  process  for a  permanent
termination of insurance if the institution has no tangible capital.

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

                                      -15-
<PAGE>
     FICO  Assessments.  Pursuant to federal  legislation  enacted September 30,
1996,  the Bank, as a member of the BIF, is subject to  assessments to cover the
payments on outstanding  obligations of the Financing Corporation ("FICO"). FICO
was created in 1987 to finance the  recapitalization  of the Federal Savings and
Loan Insurance  Corporation,  the predecessor to the FDIC's Savings  Association
Insurance  Fund (the "SAIF") which insures the deposits of thrift  institutions.
Until  January 1, 2000,  the FICO  assessments  made against BIF members may not
exceed  20% of the  amount  of  FICO  assessments  made  against  SAIF  members.
Currently,  SAIF members pay FICO  assessments at a rate equal to  approximately
0.063% of deposits  while BIF members  pay FICO  assessments  at a rate equal to
approximately  0.013% of deposits.  Between  January 1, 2000 and the maturity of
the  outstanding  FICO  obligations  in 2019,  BIF members and SAIF members will
share the cost of the  interest  on the FICO  bonds on a pro rata  basis.  It is
estimated that FICO  assessments  during this period will be less than 0.025% of
deposits

     Capital  Requirements.  The  FDIC has  established  the  following  minimum
capital standards for  state-chartered,  FDIC-insured  non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum  requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum  ratio of total  capital to total  risk-weighted  assets of 8%, at least
one-half of which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders'  equity.  These  capital  requirements  are minimum  requirements.
Higher   capital  levels  will  be  required  if  warranted  by  the  particular
circumstances  or risk profiles of individual  institutions.  For example,  FDIC
regulations provide that higher capital may be required to take adequate account
of, among other things, interest rate risk and the risks posed by concentrations
of credit,  nontraditional  activities or securities  trading  activities.  As a
condition to regulatory approval of the Bank's formation,  the Bank was required
to have an  initial  capitalization  sufficient  to  provide  a ratio  of Tier 1
capital to total estimated assets of at least 8% at the end of the third year of
operation.

     Federal law provides  the federal  banking  regulators  with broad power to
take  prompt  corrective  action to resolve  the  problems  of  undercapitalized
institutions.  The extent of the  regulators'  powers  depends  on  whether  the
institution  in  question  is  "well  capitalized,"   "adequately  capitalized,"
"undercapitalized,"    "significantly    undercapitalized,"    or    "critically
undercapitalized."  Federal  regulations  define  these  capital  categories  as
follows:
<TABLE>
                                           Total                  Tier 1
                                           Risk-Based             Risk-Based
                                           Capital Ratio          Capital Ratio           Leverage Ratio
<S>                                        <C>                    <C>                     <C>
Well capitalized                           10% or above           6% or above             5% or above
Adequately capitalized                      8% or above           4% or above             4% or above
Undercapitalized                           Less than 8%           Less than 4%            Less than 4%
Significantly undercapitalized             Less than 6%           Less than 3%            Less than 3%
Critically undercapitalized                          --                     --            A ratio of tangible
                                                                                          equity to total assets
                                                                                          of 2% or less
</TABLE>
As of December 31, 1998, the Company was "well capitalized."

     Depending  upon the capital  category to which an  institution is assigned,
the regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on activities;
requiring  the  institution  to  issue   additional   capital  stock  (including
additional  voting  stock)  or to be  acquired;  restricting  transactions  with
affiliates;  restricting  the interest rate the institution may pay on deposits;
ordering a new election of directors of the  institution;  requiring that senior
executive  officers or directors be dismissed;  prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest
certain  subsidiaries;  prohibiting  the  payment of  principal  or  interest on
subordinated debt; and ultimately, appointing a receiver for the institution.

         In general,  a depository  institution  may be  reclassified to a lower
category  than is indicated  by its capital  levels if the  appropriate  federal
depository  institution  regulatory  agency  determines  the  institution  to be
otherwise in an unsafe

                                      -16-
<PAGE>
or unsound  condition  or to be engaged in an unsafe or unsound  practice.  This
could   include  a  failure  by  the   institution,   following   receipt  of  a
less-than-satisfactory  rating on its most recent examination report, to correct
the deficiency.

     Dividends.  Under  Michigan  law, the Bank is  restricted as to the maximum
amount  of  dividends  it may pay on its  common  stock.  The  Bank  may not pay
dividends  except out of net profits after deducting its losses and bad debts. A
Michigan state bank may not declare or pay a dividend  unless the bank will have
a surplus  amounting  to at least 20% of its  capital  after the  payment of the
dividend.  If the Bank has a surplus less than the amount of its capital, it may
not  declare or pay any  dividend  until an amount  equal to at least 10% of net
profits for the preceding one-half year (in the case of quarterly or semi-annual
dividends) or full-year (in the case of annual  dividends) has been  transferred
to surplus. A Michigan state bank may, with the approval of the Commissioner, by
vote of  shareholders  owning 2/3 of the stock  eligible  to vote  increase  its
capital  stock by a  declaration  of a stock  dividend,  provided that after the
increase  the  bank's  surplus  equals at least  20% of its  capital  stock,  as
increased.  The Bank may not declare or pay any  dividend  until the  cumulative
dividends on preferred  stock (should any such stock be issued and  outstanding)
have been paid in full. The Bank's  Articles of  Incorporation  do not authorize
the  issuance  of  preferred  stock and there are no current  plans to seek such
authorization.

     Federal law generally  prohibits a depository  institution  from making any
capital distribution  (including payment of a dividend) or paying any management
fee  to  its  company  if  the  depository   institution   would  thereafter  be
undercapitalized.  The FDIC may prevent an insured bank from paying dividends if
the  bank is in  default  of  payment  of any  assessment  due to the  FDIC.  In
addition,  the FDIC may prohibit  the payment of dividends by the Bank,  if such
payment is determined,  by reason of the financial  condition of the Bank, to be
an unsafe and unsound banking practice.

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

     Safety and Soundness  Standards.  The federal banking agencies have adopted
guidelines to promote the safety and soundness of federally  insured  depository
institutions.  These  guidelines  establish  standards  for  internal  controls,
information  systems,   internal  audit  systems,  loan  documentation,   credit
underwriting,  interest  rate  exposure,  asset growth,  compensation,  fees and
benefits,  asset quality and earnings.  In general, the guidelines prescribe the
goals to be achieved in each area, and each  institution will be responsible for
establishing its own procedures to achieve those goals. If an institution  fails
to  comply  with  any  of  the  standards  set  forth  in  the  guidelines,  the
institution's  primary federal regulator may require the institution to submit a
plan for achieving and  maintaining  compliance.  The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose  failure to meet one or more of the  standards is of such severity that it
could  threaten  the safe and sound  operation  of the  institution.  Failure to
submit an acceptable compliance plan , or failure to adhere to a compliance plan
that has been accepted by the appropriate  regulator,  would constitute  grounds
for further enforcement action.

     State Bank Activities. Under federal law and FDIC regulations, FDIC-insured
state  banks are  prohibited,  subject to  certain  exceptions,  from  making or
retaining  equity  investments  of a  type,  or  in  an  amount,  that  are  not
permissible   for  a  national  bank.   Federal  law,  as  implemented  by  FDIC
regulations,  also prohibits  FDIC-insured  state banks and their  subsidiaries,
subject to certain  exceptions,  from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory  capital  requirements
and the FDIC  determines the activity  would not pose a significant  risk to the
deposit insurance fund of which the bank is a member.  Impermissible investments
and activities must be divested or  discontinued  within certain time frames set
by the FDIC in accordance with federal law. These restrictions are not currently
expected to have a material impact on the operations of the Bank.

                                      -17-
<PAGE>
     Consumer  Protection Laws. The Bank's business includes making a variety of
types of loans to  individuals.  In making these  loans,  the Bank is subject to
State usury and regulatory  laws and to various  federal  statutes,  such as the
Equal  Credit  Opportunity  Act,  the Fair Credit  Reporting  Act,  the Truth in
Lending Act, the Real Estate  Settlement  Procedures  Act, and the Home Mortgage
Disclosure  Act, and the  regulations  promulgated  thereunder,  which  prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement  costs,  and regulate the mortgage loan  servicing  activities of the
Bank,  including  the  maintenance  and  operation  of escrow  accounts  and the
transfer of mortgage loan servicing.  In receiving deposits, the Bank is subject
to extensive  regulation under State and federal law and regulations,  including
the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic  Funds Transfer Act, and the Federal Deposit  Insurance Act.
Violation of these laws could result in the  imposition of  significant  damages
and fines upon the Bank and its directors and officers.

     Branching  Authority.  Michigan banks, such as the Bank, have the authority
under  Michigan  law to  establish  branches  anywhere in the State of Michigan,
subject to receipt of all required regulatory  approvals (including the approval
of the Commissioner and the FDIC).

     Effective  June 1, 1997 (or earlier if expressly  authorized  by applicable
state law), the Riegle-Neal  Interstate Banking and Branching  Efficiency Act of
1994 (the "IBBEA") allows banks to establish  interstate branch networks through
acquisitions of other banks,  subject to certain  conditions,  including certain
limitations  on the  aggregate  amount  of  deposits  that  may be  held  by the
surviving bank and all of its insured  depository  institution  affiliates.  The
establishment  of de novo  interstate  branches or the acquisition of individual
branches  of a  bank  in  another  state  (rather  than  the  acquisition  of an
out-of-state  bank in its  entirety)  is allowed  by IBBEA only if  specifically
authorized by state law. The legislation  allowed individual states to "opt-out"
of interstate branching authority by enacting  appropriate  legislation prior to
June 1, 1997.

     Michigan  did not opt out of IBBEA,  and now permits both U.S. and non-U.S.
banks to  establish  branch  offices in  Michigan.  The  Michigan  Banking  Code
permits, in appropriate circumstances and with the approval of the Commissioner,
(i)  the  acquisition  of  all  or   substantially   all  of  the  assets  of  a
Michigan-chartered  bank by an FDIC- insured bank,  savings bank, or savings and
loan association  located in another state,  (ii) the acquisition by a Michigan-
chartered  bank of all or  substantially  all of the  assets of an  FDIC-insured
bank,  savings bank or savings and loan  association  located in another  state,
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks,  savings banks or savings and loan  associations  located in other states
having laws  permitting  such  consolidation,  with the  resulting  organization
chartered by Michigan,  (iv) the  establishment by a foreign bank, which has not
previously  designated any other state as its home state under the International
Banking Act of 1978, of branches located in Michigan,  and (v) the establishment
or  acquisition of branches in Michigan by  FDIC-insured  banks located in other
states,  the District of Columbia or U.S.  territories or  protectorates  having
laws  permitting   Michigan-chartered   banks  to  establish  branches  in  such
jurisdiction. Further, the Michigan Banking Code permits, upon written notice to
the  Commissioner,  (i) the acquisition by a  Michigan-chartered  bank of one or
more  branches (not  comprising  all or  substantially  all of the assets) of an
FDIC-insured  bank,  savings  bank or savings  and loan  association  located in
another state,  the District of Columbia,  or a U.S.  territory or protectorate,
(ii) the establishment by Michigan-chartered  banks of branches located in other
states,  the District of Columbia,  or U.S.  territories or  protectorates,  and
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks,  savings banks or savings and loan associations  located in other states,
with the resulting organization chartered by one of such other states.

                                      -18-
<PAGE>
ITEM 2:   Description of Property.

     The Company's  headquarters  and the Bank's main office is located at 51 E.
Main  Street,  Zeeland,  Michigan  49464,  and the  telephone  number  is  (616)
741-1491. The main office consists of approximately 1,700 square feet located on
the first floor of an office building and approximately 1,500 square feet in the
basement.  This  location is in the heart of the City of Zeeland on Main Street,
which  management  believes  provides  recognition and a visible presence in the
Holland-Zeeland  community.  The main office includes three teller stations, two
customer  service  offices,  two  administrative  offices,  and a vault and safe
deposit boxes.  The Bank has entered into a three year lease with respect to its
main office,  with renewal options for up to four  successive  three year terms.
The initial rental rate is $800.00 per month,  which  increases by 7.5% for each
three  year  renewal  period.  The  Bank is  also  obligated  to pay  all  costs
associated with taxes, assessments, maintenance, utilities and insurance.

     The Company owns or leases facilities  located in Ottawa County,  Michigan.
The Company's facilities as of February 1, 1999, were as follows:
<TABLE>
    Location of Facility                         Use           
<S>                                          <C>
51 E. Main Street, Zeeland*                  Main Branch
250 E. 8th Street, Holland*                  Operations Center 
139 E. 8th Street, Holland*                  Branch Office
489 Butternut Dr., Holland                   Branch Office
701 Maple Avenue, Holland                    Branch Office
699 E. 16th Street, Holland*                 Branch Office
106 E. 8th Street, Holland*                  Trust Department
348 Waverly Road, Holland*                   Retail Loan Center
41 N. State Street, Zeeland                  Branch Office
2020 Baldwin Street, Jenison                 Branch Office
6299 Lake Michigan Dr., Allendale            Branch Office

*Leased facility
</TABLE>
     The Company believes its facilities are well-maintained, adequately insured
and  primarily  utilized.  Because  of the  Company's  growth,  the  Company  is
continually evaluating the need for additional space and branches.

ITEM 3:   Legal Proceedings.

     As the date hereof, there were no material pending legal proceedings, other
than  routine  litigation  incidental  to the  business  of banking to which the
Company or any of its  subsidiaries is a party of or which any of its properties
is the subject.


ITEM 4:   Submission of Matters to a Vote of Security Holders.

     No matters were  submitted  during the fourth  quarter of 1998 to a vote of
the Registrant's stockholders.

                                      -19-
<PAGE>
                                     PART II

ITEM 5:   Market for Common Equity and Related Stockholder Matters.

     The Company's common stock has traded in the over-the-counter  market since
the completion of the Company's  initial public offering in April 1998. High and
low bid  prices,  as  reported  on the OTC  Bulletin  Board,  for each since the
Company's April 1998 initial public offering are as follows:
<TABLE>
                 1998                                  High              Low
         <S>                                         <C>               <C>
         2nd Quarter                                 $15.25            $14.50

         3rd Quarter                                 $16.50            $14.00

         4th Quarter                                 $16.75            $15.75
</TABLE>
     These  quotations  reflect  inter-dealer  prices,  without retail  mark-up,
mark-down or commission and may not represent actual  transactions.  Fiscal 1998
quotations do not include  intra-day highs and lows. On February 26, 1999, there
were  approximately 800 owners of record and, in addition,  approximately  1,300
beneficial owners of the Company's common stock.

     No cash dividends have been declared to date on the Company's common stock.
The Company  expects that all earnings,  if any, will be retained to finance the
growth of the Company and the Bank and that no cash  dividends  will be paid for
the foreseeable future. If and when dividends are declared,  the Company will be
dependent  upon  dividends  paid to it by the Bank for funds to pay dividends on
the common stock.


ITEM 6:   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.

     The  information  set forth in Appendix A, under the caption  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,"  of
the  Registrant's  definitive  Proxy  Statement  dated March 5, 1999,  is hereby
incorporated  by reference and is filed as Exhibit 13 to this Form 10-KSB Annual
Report.


ITEM 7:   Financial Statements.

     The  information  set forth in  Appendix A, under the  captions  "Report of
Independent  Auditors,"   "Consolidated  Financial  Statements"  and  "Notes  to
Consolidated   Financial  Statements"  of  the  Registrant's   definitive  Proxy
Statement dated March 5, 1999, is hereby  incorporated by reference and is filed
as Exhibit 13 to this Form 10-KSB Annual Report.

ITEM 8:  Changes in and Disagreements With Accountants and Financial Disclosure.

     There have been no  disagreements  with the  Company's  independent  public
accountants.

                                      -20-
<PAGE>
                                    PART III

ITEM 9:   Directors, Executive Officers, Promotors and Control Persons;
          Compliance with Section 16(a) of the Exchange Act.

     The  information  set forth on pages 3-5,  under the  caption  "Information
About Directors" of the  Registrant's  definitive Proxy Statement dated March 5,
1999,  is hereby  incorporated  by reference  and is filed as Exhibit 13 to this
Form 10-KSB Annual Report.

     The Company's common stock is not registered under the Securities  Exchange
Act of 1934, and therefore the Company's officers and directors are not required
to and do not file beneficial ownership reports pursuant to Section 16(a) of the
Securities Exchange Act of 1934.


ITEM 10:  Executive Compensation.

     Information relating to compensation of the Registrant's executive officers
and  directors  is  contained  on  Exhibit  13,  under  the  captions  "Director
Compensation" and "Executive Compensation," in the Registrant's definitive Proxy
Statement  dated March 5, 1999, and is  incorporated  herein by reference and is
filed as Exhibit 13 to this Form 10-KSB Annual Report.


ITEM 11:  Security Ownership of Certain Beneficial Owners and Management.

     Information relating to security ownership of certain beneficial owners and
management  is  contained  on page 8, under the caption  "Security  Ownership of
Management" in the Registrant's  definitive Proxy Statement dated March 5, 1999,
and is incorporated  herein by reference and is filed as Exhibit 13 to this Form
10-KSB Annual Report.


ITEM 12:  Certain Relationships and Related Transactions.

     Information  relating to certain  relationships and related transactions is
contained on page 12, under the caption  "Transactions  Involving Management" in
the  Registrant's  definitive  Proxy  Statement  dated  March  5,  1999,  and is
incorporated  herein by reference and is filed as Exhibit 13 to this Form 10-KSB
Annual Report.

                                      -21-
<PAGE>
ITEM 13:  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.

(a)  Financial Statements.

         1.       The following documents are filed as part of Item 7 of this
                  report:

                  Report of Independent Auditors
                  Consolidated Balance Sheets as of December 31, 1998 and 1997
                  Consolidated Statements of Income for the years ended December
                  31, 1998 and 1997  
                  Consolidated Statements of Changes in Shareholders  Equity for
                  the years ended December 31, 1998 and 1997 
                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1998 and 1997 
                  Notes to Consolidated Financial Statements

         2.       Schedules to the consolidated financial statements required by
                  Article 9 of Regulation S-X are not required under the related
                  instructions  or are  inapplicable,  and  therefore  have been
                  omitted.

         3.       The  following  exhibits  are  filed  as part of this  report:
                  Reference  is made to the  exhibit  index  which  follows  the
                  signature page of this report.

                  The Registrant  will furnish a copy  of any exhibits listed on
                  the  Exhibit  Index  to  any  shareholder  of  the  Registrant
                  without  charge  upon  written  request of  Philip J.  Koning,
                  Macatawa   Bank  Corporation,  51 E.  Main  Street,   Zeeland,
                  Michigan 49464.

(b)  Reports on Form 8-K

         During  the last  quarter of the period  covered  by this  report,  the
         Registrant filed no Current Reports on Form 8-K.

                                      -22-
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, dated March 18, 1999.

                                    MACATAWA BANK CORPORATION


                                    /s/ Benj. S. Smith, III       
                                    Benj. A. Smith, III
                                    Chairman and Chief Executive Officer
                                    (Principal Executive Officer)


                                    /s/ Philip J. Koning       
                                    Philip J. Koning
                                    Treasurer and Secretary
                                    (Principal Financial and Accounting Officer)


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed  below on March 18,  1999,  by the  following  persons on
behalf of the Registrant and in the capacities  indicated.  Each director of the
Registrant,  whose signature appears below,  hereby appoints Benj. A. Smith, III
and Philip J. Koning, and each of them severally,  as his  attorney-in-fact,  to
sign in his name and on his behalf, as a director of the Registrant, and to file
with the Commission any and all Amendments to this Report on Form 10-KSB.

                           Signature


/s/ Benj. A. Smith, III                                           March 18, 1999
Benj. A. Smith, III, Principal Executive Officer and a Director


/s/ Philip J. Koning                                              March 18, 1999
Philip J. Koning, Principal Financial and Accounting Officer
   and a Director


/s/ James L. Batts                                                March 18, 1999
James L. Batts, Director


/s/ G. Thomas Boylan                                              March 18, 1999
G. Thomas Boylan, Director


                                      -23-
<PAGE>

________________________________________________
Jessie F. Dalman, Director


/s/ Robert E. DenHerder                                           March 18, 1999
Robert E. DenHerder, Director


________________________________________________
Wayne J. Elhart, Director


________________________________________________
Brian J. Hansen, Director


/s/ James L. Jurries                                              March 18, 1999
James L. Jurries, Director


/s/ John F. Koetje                                                March 18, 1999
John F. Koetje, Director



                                      -24-
<PAGE>
                                  EXHIBIT INDEX



                                                                    Sequentially
                                                                        Numbered
                      Exhibit Number and Description                        Page


2          Consolidation    Agreement    dated   December   10,   1997,
           incorporated  by reference to Exhibit 2 to the Macatawa Bank
           Corporation    Registration    Statement    on   Form   SB-2
           (Registration No. 333-45755).

3.1        Articles  of  Incorporation  of Macatawa  Bank  Corporation,
           incorporated  by  reference  to Exhibit 3.1 to the  Macatawa
           Bank  Corporation   Registration   Statement  on  Form  SB-2
           (Registration No. 333-45755).

3.2        Bylaws  of  Macatawa  Bank   Corporation,   incorporated  by
           reference  to Exhibit 3.2 to the Macatawa  Bank  Corporation
           Registration   Statement  on  Form  SB-2  (Registration  No.
           333-45755).

4          Specimen  stock  certificate  of Macatawa Bank  Corporation,
           incorporated  by reference to Exhibit 4 to the Macatawa Bank
           Corporation    Registration    Statement    on   Form   SB-2
           (Registration No. 333-45755).

10.1       Macatawa   Bank   Corporation   Stock   Compensation   Plan,
           incorporated  by  reference  to Exhibit 10.1 to the Macatawa
           Bank  Corporation   Registration   Statement  on  Form  SB-2
           (Registration No. 333-45755).

10.2       Macatawa Bank Corporation 1998 Directors' Stock Option Plan,
           incorporated  by  reference  to Exhibit 10.2 to the Macatawa
           Bank  Corporation   Registration   Statement  on  Form  SB-2
           (Registration No. 333-45755).

10.3       Lease Agreement dated July 8, 1997, for the facility located
           at 51 E. Main,  incorporated by reference to Exhibit 10.3 to
           the Macatawa Bank Corporation Registration Statement on Form
           SB-2 (Registration No. 333-45755).

10.4       Lease  Agreement  dated  January 1, 1998,  for the  facility
           located at 139 East 8th  Street,  Holland,  Michigan  49423,
           incorporated  by  reference  to Exhibit 10.4 to the Macatawa
           Bank  Corporation   Registration   Statement  on  Form  SB-2
           (Registration No. 333-45755).

                                      -25-
<PAGE>
10.5       Lease  Agreement  dated  December 22, 1997, for the facility
           located  at  106  E.8th  Street,  Holland,  Michigan  49423,
           incorporated  by  reference  to Exhibit 10.5 to the Macatawa
           Bank  Corporation   Registration   Statement  on  Form  SB-2
           (Registration No. 333-45755).

10.6       Data  Processing  Agreement  between  Rurbanc Data Services,
           Inc. and Macatawa Bank dated  October 1, 1997,  incorporated
           by  reference   to  Exhibit   10.8  to  the  Macatawa   Bank
           Corporation    Registration    Statement    on   Form   SB-2
           (Registration No. 333-45755).

10.7       MagicLine Product Services Agreement between MagicLine, Inc.
           and Macatawa  Bank dated October 1, 1997.,  incorporated  by
           reference to Exhibit 10.9 to the Macatawa  Bank  Corporation
           Registration   Statement  on  Form  SB-2  (Registration  No.
           333-45755).

10.8       FTB  Participating  Bank Agreement  between First  Tennessee
           Bank  National  Association  and Macatawa Bank dated October
           24, 1997,  incorporated by reference to Exhibit 10.10 to the
           Macatawa  Bank  Corporation  Registration  Statement on Form
           SB-2 (Registration No. 333-45755).

13         Proxy Statement to  shareholders.  This exhibit,  except for
           those portions  expressly  incorporated by reference in this
           filing,  is furnished for the  information of the Securities
           and Exchange Commission and is not deemed "filed" as part of
           this filing.

21         Subsidiaries of the Registrant

23         Consent of Crowe, Chizek and Company LLP, independent public
           accountants

24         Power of Attorney (included on the signature page on page 15
           of the Annual Report on Form 10-KSB)

27         Financial Data Schedule


                                      -26-
<PAGE>
EXHIBIT 13
                                                                          [LOGO]

                                                                   MACATAWA BANK
                                                                     CORPORATION

                                                                   March 5, 1999

                                                               Dear Shareholder:

                                                                           
                                                We invite you to attend the 1999
                                                 Annual Meeting of Shareholders.
                                                This year's meeting will be held
                                                 on Thursday, April 15, 1999, at
                                             10:00 a.m., at Ridgepoint Community
                                                     Church, 340 - 104th Avenue,
                                                        Holland, Michigan 49423.


                                                Our audited financial statements
                                             are included in an appendix to this
                                                     Proxy Statement and provide
                                                 important information about our
                                                        accomplishments in 1998.

                                                It is important that your shares
                                                   are represented at the Annual
                                              Meeting. Please carefully read the
                                                    Notice of Annual Meeting and
                                             Proxy Statement. Whether or not you
                                            expect to attend the Annual Meeting,
                                                           please sign, date and
                                                return the enclosed proxy in the
                                                       envelope provided at your
                                                           earliest convenience.

                                                                      Sincerely,


                                                         /s/ Benj. A. Smith, III
                                                             Benj. A. Smith, III
                                                       Chairman of the Board and
                                                         Chief Executive Officer
<PAGE>
                            MACATAWA BANK CORPORATION

                                51 E. Main Street
                             Zeeland, Michigan 49464




                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                            TO BE HELD APRIL 15, 1999


To Our Shareholders:

     The Annual Meeting of  Shareholders  of Macatawa Bank  Corporation  will be
held at Ridgepoint Community Church, 340 104th Avenue, Holland,  Michigan 49423,
on  Thursday,  April 15,  1999 at 10:00  A.M.,  local  time,  for the  following
purposes:

     1. To elect three directors, each to hold office for a three year term.

     2. To consider  and vote upon a proposal to approve the First  Amendment to
        the Stock Compensation Plan.

     3. To transact such other  business as may properly come before the meeting
        or at any adjournment thereof.

     Shareholders of record at the close of business  February 26, 1999, will be
entitled to vote at the meeting or any adjournment  thereof.  Whether or not you
expect  to be  present  in  person  at this  meeting,  you are urged to sign the
enclosed Proxy and return it promptly in the enclosed envelope. If you do attend
the  meeting  and wish to vote in  person,  you may do so even  though  you have
submitted a Proxy.

                                             By order of the Board of Directors
Dated: March 5, 1999


Holland, Michigan                            /s/ Philip J. Koning

                                             Philip J. Koning
                                             Secretary
<PAGE>
                                                            Dated: March 5, 1999

                            MACATAWA BANK CORPORATION

                                51 E. Main Street
                             Zeeland, Michigan 49464

                               ------------------

                                 PROXY STATEMENT

                     For the Annual Meeting of Shareholders
                            to be held April 15, 1999
                               ------------------

                   SOLICITATION OF PROXIES FOR ANNUAL MEETING

     This Proxy  Statement  is furnished to the  Shareholders  of Macatawa  Bank
Corporation  (the "Company") in connection with the solicitation by the Board of
Directors of proxies to be used at the Annual Meeting of Shareholders which will
be held at Ridgepoint  Community  Church,  340 104th Avenue,  Holland,  Michigan
49423, April 15, 1999, at 10:00 A.M., local time.

     The Annual Meeting is being held for the following purposes:

     1. To elect three directors, each to hold office for a three year term.

     2. To consider  and vote upon a proposal to approve the First  Amendment to
        the Stock Compensation Plan.

     3. To transact such other  business as may properly come before the meeting
        or at any adjournment thereof.

     If a proxy in the form  distributed by the Company's  Board of Directors is
properly  executed and returned to the Company,  the shares  represented  by the
proxy will be voted at the Annual Meeting of Shareholders and at any adjournment
of that meeting. Where shareholders specify a choice, the proxy will be voted as
specified.  If no choice is specified,  the shares represented by the proxy will
be voted FOR the  nominees  named by the Board of Directors in the proxy and FOR
the proposal described in this Proxy Statement. Shares not voted at the meeting,
whether by abstention,  broker  non-vote,  or otherwise,  will not be treated as
votes cast at the meeting. Votes cast at the meeting and submitted by proxy will
be tabulated by the Company's transfer agent, Macatawa Bank.

     A proxy may be revoked prior to its exercise by delivering a written notice
of revocation to the secretary of the Company,  executing and delivering a proxy
of a later date or attending the meeting and voting in person. Attendance at the
meeting does not automatically act to revoke a proxy.
<PAGE>
                 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

     On February 26, 1999,  the record date for  determination  of  shareholders
entitled to vote at the Annual Meeting,  there were outstanding 2,435,125 shares
of common stock of the Company. Shares cannot be voted unless the shareholder is
present at the meeting or is represented by proxy.

     As of  February  26,  1999,  no person  was known to  management  to be the
beneficial owner of more than 5% of the Company's common stock.


                              ELECTION OF DIRECTORS

     The  Company's  Articles of  Incorporation  provide for the division of the
Board of  Directors  into  three  classes of nearly  equal  size with  staggered
three-year  terms of office.  The number of directors  constituting the Board of
Directors is determined  from time to time by the Board of Directors.  The Board
is currently  composed of ten members.  Three  persons have been  nominated  for
election  to the Board,  each to serve a  three-year  term  expiring at the 2002
Annual Meeting of  Shareholders.  The Board has nominated  Robert E. Den Herder,
James L. Jurries, and Philip J. Koning, each of whom is an incumbent director.

     Holders of common stock  should  complete the  accompanying  proxy.  Unless
otherwise directed by a shareholder's  proxy, it is intended that the votes cast
upon  exercise of proxies in the form  accompanying  this  statement  will be in
favor of electing the nominees as directors for the terms indicated above.  Each
of the nominees are presently serving as directors.  The following pages of this
Proxy Statement  contain more information about the nominees and other directors
of the Company.

     A  plurality  of the votes cast at the Annual  Meeting is required to elect
the nominees as directors of the Company.  As such,  the three  individuals  who
receive this number of votes cast by the holders of the  Company's  common stock
will be  elected  as  directors.  Shares  not voted at the  meeting,  whether by
abstention,  broker non-vote, or otherwise, will not be treated as votes cast at
the meeting.  Votes cast at the meeting and submitted by proxy will be tabulated
by the Company.

     Except those persons nominated by the Board of Directors,  no other persons
may be nominated for election at the 1999 Annual Meeting. The Company's Articles
of  Incorporation  require  at least 60 days prior  written  notice of any other
proposed nomination and no such notice has been received.

     If any nominee becomes  unavailable for election due to  circumstances  not
now known, the accompanying  proxy will be voted for such other person to become
a director as the Board of Directors selects.

     The Board of  Directors  recommends  a vote FOR the election of each of the
persons nominated by the Board.

                                        2
<PAGE>
                           INFORMATION ABOUT DIRECTORS

     The content of the following table is based upon information as of February
1, 1999,  furnished to the Company by the directors.  Except as described in the
notes  following  the  table,  the  following  directors  have sole  voting  and
dispositive power as to all of the shares set forth in the following table.
<TABLE>
                                                                                           Amount and              Percent
                                                                   Year First               Nature of                 of
                                                                    Became a               Beneficial               Common
                        Name                            Age         Director              Ownership(1)              Stock
     ----------------------------------------          -----      ------------           --------------           -------- 
<S>                                                     <C>           <C>                    <C>                     <C>
Nominees for Election as Directors for
Terms Expiring in 2002

Robert E. Den Herder (c) (d) (e)                         44           1997                   57,750                  2.3%

James L. Jurries (a)                                     57           1998                   38,000(2)               1.5%

Philip J. Koning (b) (c) (d)                             44           1997                   25,500                  1.0%


Directors Whose Terms Expire in 2000

James L. Batts (e)                                       40           1998                   13,500                    *

G. Thomas Boylan (b) (c) (e)                             76           1997                   73,750                  3.0%

Wayne J. Elhart (a)                                      44           1998                   24,250(3)                 *

Benj. A. Smith, III (b) (c) (d) (e)                      55           1997                   86,350(4)               3.5%


Directors Whose Terms Expire in 2001

Jessie F. Dalman (a)                                     65           1998                    2,000                    *

John F. Koetje (a)                                       63           1998                   38,500                  1.6%

Brian J. Hansen (c) (d)                                  50           1997                   35,000                  1.4%

*Denotes ownership of less than one percent.
</TABLE>
------------------------------------
(a)      Member of the Audit Committee
(b)      Member of the Investment Committee
(c)      Member of the Loan Committee
(d)      Member of the Trust Committee
(e)      Member of the Compensation Committee

                                        3
<PAGE>
                                      NOTES

(1)  Except as described in the following notes,  each nominee and director owns
     the shares  directly  and has sole  voting and  investment  power or shares
     voting and investment  power with his or her spouse under joint  ownership.
     Includes shares of common stock that are issuable under options exercisable
     within  sixty (60) days.  The share  ownership of the  following  directors
     includes  shares  subject to options that become  exercisable  on March 19,
     1999: Mr. DenHerder (6,000 shares),  Mr. Jurries (2,000 shares), Mr. Koning
     (9,000 shares),  Mr. Batts (2,000 shares),  Mr. Boylan (6,000 shares),  Mr.
     Elhart (2,000 shares), Mr. Smith (6,000 shares), Ms. Dalman (2,000 shares),
     Mr. Koetje (2,000 shares) and Mr. Hansen (2,000 shares).

(2)  Includes  27,750  shares  held in trusts for the  benefit  of Mr.  Jurries'
     children and parents for which Mr.  Jurries  shares  investment  and voting
     power.

(3)  Includes 5,000 shares owned by Mr. Elhart's spouse.

(4)  Includes 15,900 shares owned by Mr. Smith's spouse.  Includes 43,250 shares
     held in a trust for the benefit of Mr. Smith's spouse.

-------------------------

     Benj. A. Smith, III is the Chairman, Chief Executive Officer and a director
of the Company and is also Chairman and a director of the Bank.  Mr. Smith is an
investment  advisor and has served from 1992 to the present as the  President of
Smith & Associates Investment Management Services, an investment management firm
located  in  Holland,  Michigan.  Prior to 1992,  Mr.  Smith  gained 21 years of
banking experience at FMB and its subsidiary FMB-First Michigan Bank of Zeeland,
Michigan.

     Philip J. Koning has served as President of the Bank since its inception in
November,  1997, and serves as the Secretary and Treasurer of the Company and as
a director of both the Company and the Bank.  Mr. Koning was employed by Smith &
Associates Investment Management Services prior to February 1998. Mr. Koning has
over 23 years of commercial banking experience,  most recently from 1984 to 1997
with First of  America  Bank in  Holland,  where he served as a  Community  Bank
President.

     James L. Batts is a director  of the Company  and the Bank.  Mr.  Batts has
been employed by Batts Inc., a manufacturer  of coat hangers,  since 1993,  most
recently as Vice President, International.

     G. Thomas  Boylan is a director of the Company and the Bank.  Mr. Boylan is
the President of Light Metals  Corporation,  a manufacturing  company located in
Wyoming, Michigan, where he has been employed since 1947.

     Jessie F. Dalman is a director  of the  Company  and the Bank.  In 1998 Ms.
Dalman  completed  her  fourth  term in the  Michigan  House of  Representatives
representing the 90th District (Holland).

     Robert  E.  DenHerder  is a  director  of the  Company  and the  Bank.  Mr.
DenHerder is the President of Uniform  Color Co., a company  located in Holland,
Michigan,  which  manufactures  color  concentrate  for  the  plastics  industry
focusing on automotive suppliers.

                                        4
<PAGE>
     Wayne J. Elhart is a director of the Company and the Bank.  Mr.  Elhart has
served  since  1990 as the  President  of Elhart  Pontiac  GMC Jeep in  Holland,
Michigan.

     Brian J. Hansen is a director of the  Company and the Bank.  Mr.  Hansen is
the President of Dew-El Portables, Inc., a company located in Holland, Michigan,
which sells and leases modular buildings  primarily to the school market,  where
he has been employed since 1992.

     James L. Jurries is a director of the Company and the Bank. Mr. Jurries has
served  since 1992 as  President  of Jurries  Capital  Management,  Inc., a real
estate, venture capital and investment company located in Holland, Michigan.

     John F. Koetje is a director of the Company and the Bank.  Mr.  Koetje is a
partner in John F. Koetje and Associates, a West Michigan builder of residential
and light  commercial  real  estate and  apartment  complexes  where he has been
employed for 35 years.

     The  Board of  Directors  had 12  meetings  in  1998.  The  Company  has no
nominating  committee.  All  directors  attended at least  three-fourths  of the
aggregate  number of meetings of the Board and Board  committees which they were
eligible to attend.


                            COMPENSATION OF DIRECTORS

     During  1998,  directors of the Company and the Bank were not paid any cash
compensation for Board of Directors meetings attended.  Directors of the Company
and the Bank  were paid  $150 per  committee  meeting  attended.  Directors  are
reimbursed for their  out-of-pocket  expenses for each meeting attended.  During
1999, the directors of the Company and the Bank will receive an annual  retainer
of  $4,000  and  will be paid  $500  per  board  meeting  attended  and $250 per
committee meeting attended.

     Effective  March 19, 1998,  the Company  awarded  stock options to purchase
2,000  shares of common  stock to each of  Messrs.  Smith,  Batts,  Boylan,  Den
Herder,  Elhart,  Hansen, Jurries and Koetje and Ms. Dalman. These stock options
were granted pursuant to the 1998 Directors' Stock Option Plan, have an exercise
price of $10.00 per share, are exercisable  beginning March 19, 1999, and expire
on March 19, 2008.


                                        5
<PAGE>
                             EXECUTIVE COMPENSATION

     The following table sets forth the annual and long-term  compensation  paid
by the Company to its Chief  Executive  Officer and the  President  of the Bank.
(collectively  referred to as the "Named  Executives") for services  rendered to
the Company during 1998, the Company's  first full year of operations.  No other
executive  officers of the Company or the Bank received  annual  compensation in
excess of $100,000 during 1998.
<TABLE>
                                           Summary Compensation Table
                                                                                          Long Term
                                                    Annual Compensation                 Compensation
                                           -------------------------------------        ------------
                                                                        Other
                                                                        Annual           Securities            All Other
                                                                       Compen-           Underlying             Compen-
Name and Principal Position                Year         Salary        sation ($)         Options(#)             sation
---------------------------                ----         ------        ----------         ----------             ------
<S>                                        <C>          <C>              <C>               <C>                <C>
Benj. A. Smith, III.....................   1998         $32,500           0                31,000             $     0
     Chairman of the Board and                                                       
       Chief Executive Officer
Philip J. Koning........................   1998        $144,184           0                12,000             $ 3,020(1)
     President of the Bank                                                                                  
     Treasurer and Secretary
</TABLE>

(1) Includes a $2,637 automobile  allowance and life insurance  premiums of $383
paid by the Company.

                                        6
<PAGE>
     Option  Grants  in 1998.  Shown  below is  information  on  grants of stock
options pursuant to the Company's Stock Compensation Plan and the Company's 1998
Directors' Stock Option Plan.
<TABLE>
                                                             Individual Grants
                         --------------------------------------------------------------------------------------
                                                                                                                        Potential
                                                                                                                       Realizable
                                                                                                                        Value at
                                                                                                                         Assumed
                                                                                                                      Annual Rates
                                                                                                                     of Stock Price
                                 Number of             Percent of                                                     Appreciation
                                Securities            Total Options                                                    For Option
                                Underlying             Granted to           Exercise or                                 Term (3)
                                  Options             Employees in          Base Price           Expiration
           Name                 Granted(1)                1998            (per share)(2)            Date            5%         10%
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>                  <C>             <C>                 <C>        <C>
Benj. A. Smith, III                 2,000                 2.37%            $   10.00          March 19, 2008      $12,578    $31,875
Benj. A. Smith, III                 4,000                 4.67%            $   10.00          March 19, 2008       25,156     63,750
Benj. A. Smith, III                25,000                29.20%            $   16.50          Nov. 19, 2008       259,419    657,419
Philip J. Koning                    4,000                 4.67%            $   10.00          March 19, 2008       25,156     63,750
Philip J. Koning                    5,000                 5.84%            $   10.00          March 19, 2008       31,445     79,687
Philip J. Koning                    3,000                 3.50%            $   16.50          Nov. 19, 2008        31,130     78,890
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      Indicates  number of shares which may be purchased  pursuant to options
         granted under the Company's Stock Compensation Plan and 1998 Directors'
         Stock Option Plan as of December 31, 1998. Options may not be exercised
         in full or in part prior to the expiration of one year from the date of
         grant.
(2)      The  exercise  price equals the  prevailing  market price of the Common
         Stock on the date of grant.  The exercise price may be paid in cash, by
         the delivery of previously  owned shares,  through the  withholding  of
         shares otherwise issuable upon exercise or a combination thereof.
(3)      These  amounts  are based on  assumed  rates of  appreciation  over the
         entire  option  period  without any discount to present  value.  Actual
         gains,  if any, on stock option  exercises will be dependent on overall
         market conditions and on the future performance of the Company's Common
         Stock.  There can be no  assurance  that the amounts  reflected in this
         table will be realized.

                                        7
<PAGE>
     Year-End  Options  Values.  Shown  below is  information  with  respect  to
unexercised  options to purchase  shares of the  Company's  Common Stock granted
under the Option Plans to the Named  Executives and held by them at December 31,
1998. None of the Named Executives exercised any stock options during 1998.
<TABLE>
                                                 Number of Shares Subject to               Value of Unexercised
                                                  Unexercised Options Held                In-the-Money Options at
                                                    at December 31, 1998                   December 31, 1998(1)
                                                   ----------------------                 ---------------------
                   Name                       Exercisable        Unexercisable       Exercisable        Unexercisable
----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>                  <C>            <C>
Benj. A. Smith III........................         0                31,000               $0             $ 31,500

Philip J. Koning..........................         0                12,000               $0             $ 47,250
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      The value of unexercised  options reflects the increase in market value
         of the Company's  Common Stock from the date of grant through  December
         31,  1998 (when the closing  price of the  Company's  Common  Stock was
         $15.25 per share).  Value actually  realized upon exercise by the Named
         Executives  will depend on the value of the  Company's  Common Stock at
         the time of exercise.

     Benefits. The Company provides group health and life insurance benefits and
supplemental unemployment benefits to its regular employees, including executive
officers. In January 1999, the Company implemented a 401(k) plan.

     Security Ownership of Management. The following table shows, as of February
1, 1999, the number of shares beneficially owned by each of the Named Executives
identified in the executive  compensation  tables of this proxy statement and by
all  Directors  and  Executive  Officers as a group.  Except as described in the
notes  following  the  table,  the  following   persons  have  sole  voting  and
dispositive power as to all of their respective shares.
<TABLE>
                                                                         Amount and Nature
Name                                                                       of Beneficial              Percent of
                                                                           Ownership(1)              Common Stock
------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                         <C>
Benj. A. Smith, III...............................................            86,350                      3.5%
Philip J. Koning..................................................            25,500                      1.0%
All Executive Officers and Directors as a Group (10                          394,600                     15.9%
persons)
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  See Footnotes 1 and 4 to the Information About Directors table appearing on
     page 4 of this Proxy Statement.

                                        8
<PAGE>
                     APPROVAL OF THE FIRST AMENDMENT TO THE
                            MACATAWA BANK CORPORATION
                             STOCK COMPENSATION PLAN

     On January 21,  1999,  the Board of Directors  adopted the First  Amendment
(the "Amendment") to the Macatawa Bank Corporation Stock  Compensation Plan (the
"Plan"),  subject to  approval  by the  Company's  shareholders.  The  following
summary of the Plan is  subject  to the  specific  provisions  contained  in the
complete  text of the Plan and in the  Amendment set forth in Appendix B to this
Proxy Statement.

     Amendment.  The Amendment  increases the maximum number of shares available
under the Plan from 100,000 to 200,000 shares of common stock.

     Purpose. The purpose of the Plan is to promote the long-term success of the
Company  for the  benefit  of the  Company's  shareholders  through  stock-based
compensation  by aligning the personal  interests of the Company's key employees
with those of its shareholders.

     Eligibility.  Employees of the Company and its subsidiaries are eligible to
participate  in the Plan.  The number of persons  eligible to participate in the
Plan as of February 1, 1999, was approximately 100.

     Administration.  The Plan is  administered  by a committee  of the Board of
Directors  (the  "Committee").  The Committee will be composed of at least three
directors,  each of whom is not an employee of the  Company.  Each member of the
Committee is required to be a "disinterested  person" within the meaning of Rule
16b-3 of the General Rules and Regulations under the Securities and Exchange Act
of 1934, as amended,  and no member of the Committee is eligible to  participate
in the Plan.  Subject to the Company's  Articles,  Bylaws, and the provisions of
the Plan, the Committee has the authority to select key employees to whom Awards
(as defined below) may be awarded;  the type of Awards (or combination  thereof)
to be granted; the number of shares of Common Stock to be covered by each Award;
and the terms and  conditions of any Award,  such as  conditions of  forfeiture,
transfer restrictions and vesting requirements.

     The Plan  provides  for the  granting of a variety of  stock-based  Awards,
described in more detail below, such as stock options, including incentive stock
options,  as defined in Section 422 of the  Internal  Revenue  Code of 1986,  as
amended  (the  "Code"),   restricted  stock,   performance   shares,  and  other
stock-based awards.  These Awards are granted at no cost to the recipients.  The
term of the Plan is ten years, and no Awards may be granted under the Plan after
January 25, 2008.

     Types of Awards.  The following  types of awards  ("Awards") may be granted
under the Plan:

     An  "Option"  is a  contractual  right to  purchase a number of shares at a
price  determined at the date the Option is granted.  Options include  incentive
stock  options,  as defined in Section 422 of the Code, as well as  nonqualified
stock options.  The exercise price included in both incentive  stock options and
nonqualified  stock options must equal at least 100% of the fair market value of
the Common  Stock at the date of grant.  Options  are  granted at no cost to the
recipients.

     "Restricted Stock" are shares of Common Stock granted to an employee for no
or nominal consideration. Title to the shares passes to the employee at the time
of the grant; however, the ability to sell or otherwise dispose of the shares is
subject to restrictions and conditions determined by the Committee.

                                        9
<PAGE>
     "Performance  Shares" are an Award of the right to receive stock or cash of
an  equivalent  value at the end of the  specified  performance  period upon the
attainment of specified performance goals.

     An "Other  Stock-Based  Award" is any other Award that may be granted under
the Plan that is valued in whole or in part by  reference to or is payable in or
otherwise based on Common Stock.

     Shares Subject to Plan. A total of 100,000  shares of the Company's  Common
Stock are  reserved  for use under the Plan,  and a total of  200,000  shares of
common  stock will be  reserved  for  issuance  under the Plan if the  Company's
shareholders approve the First Amendment. The shares to be issued under the Plan
will be  authorized  and unissued  shares,  including  shares  reacquired by the
Company  which have that  status.  The number of shares that may be issued under
the Plan and the number of shares  subject to Options are subject to adjustments
in the event of a merger, reorganization, consolidation, recapitalization, stock
dividend,  stock split or other  change in  corporate  structure  affecting  the
Common  Stock.  Subject to certain  restrictions,  unexercised  Options,  lapsed
shares of  Restricted  Stock,  and shares  surrendered  in payment for exercised
Options may be reissued under the Plan.

     Termination  or  Amendment  of the Plan.  The Board may at any time  amend,
discontinue,  or  terminate  the  Plan  or any  part  thereof;  however,  unless
otherwise  required  by law,  the rights of a  participant  may not be  impaired
without the consent of such  participant.  In addition,  without the approval of
the Company's  shareholders,  no amendment may be made which would  increase the
aggregate  number of shares of Common  Stock that may be issued  under the Plan,
change the  definition of employees  eligible to receive  Awards under the Plan,
extend the maximum  option  period under the Plan,  decrease the Option price of
any  Option  to less than  100% of the fair  market  value on the date of grant,
otherwise  materially increase the benefits to participants in the Plan or cause
the  Plan  not  to  comply  with  certain  applicable  securities  and  tax  law
requirements.

     Participation and  Assignability.  Neither the Plan nor any Award agreement
granted under the Plan entitles any  participant  or other employee to any right
to continued employment by the Company or any subsidiary.  Generally,  no Award,
Option,  or other  benefit  payable  under  the Plan may,  except  as  otherwise
specifically provided by law, be subject in any manner to assignment,  transfer,
or encumbrance.  However,  Nonqualified Stock Options may be transferred without
consideration  to: (i) an immediate family member of the optionee,  (ii) a trust
for the benefit of the  immediate  family  members of the  optionee,  or (iii) a
partnership  or limited  liability  Company  whose only  partners or members are
immediate  family  members  of the  optionee,  if the  optionee  satisfies  such
conditions to the transfer as may be required by the Committee. Upon termination
of employment,  any portion of unexercised  Options which are exercisable on the
termination  date  must  generally  be  exercised  within  three  months  of the
termination  date  for any  termination  other  than as a result  of the  death,
disability,  or retirement of the employee,  in which case the Plan provides for
longer exercise periods.

     Federal Tax Consequences.  The following summarizes the consequences of the
grant and  acquisition of Awards under the Plan for federal income tax purposes,
based on management's  understanding  of existing  federal income tax laws. This
summary is  necessarily  general in nature and does not purport to be  complete.
Also,  state and local income tax  consequences  are not  discussed and may vary
from locality to locality.

                                       10
<PAGE>
     Options. Plan participants will not recognize taxable income at the time an
Option is granted  under the Plan unless the Option has a readily  ascertainable
market  value at the time of grant.  Management  understands  that Options to be
granted  under  the Plan  will not have a readily  ascertainable  market  value;
therefore,  income will not be  recognized  by  participants  before the time of
exercise of an Option.  For nonqualified  stock options,  the difference between
the fair market value of the shares at the time an Option is  exercised  and the
Option price  generally will be treated as ordinary  income to the optionee,  in
which case the Company  will be  entitled to a deduction  equal to the amount of
the  optionee's  ordinary  income.  With  respect to  incentive  stock  options,
participants will not realize income for federal income tax purposes as a result
of the  exercise of such  Options.  In addition,  if common stock  acquired as a
result of the exercise of an incentive stock option is disposed of more than two
years after the date the Option is granted and more than one year after the date
the Option was exercised,  the entire gain, if any, realized upon disposition of
such common  stock will be treated for  federal  income tax  purposes as capital
gain. Under these  circumstances,  no deduction will be allowable to the Company
in  connection  with either the grant or exercise of an incentive  stock option.
Exceptions  to  the  general  rules  apply  in  the  case  of  a  "disqualifying
disposition."  If a  participant  disposes  of shares of common  stock  acquired
pursuant to the exercise of an incentive  stock option before the  expiration of
one year after the date of exercise  or two years  after the date of grant,  the
sale of such  stock  will be  treated  as a  "disqualifying  disposition."  As a
result, such a participant would recognize ordinary income and the Company would
be entitled to a deduction in the year in which such disposition occurred.

     The amount of the  deduction  and the  ordinary  income  recognized  upon a
disqualifying  disposition  would  generally  be equal to the lesser of: (a) the
sale price of the shares  sold minus the Option  price,  or (b) the fair  market
value of the shares at the time of exercise and minus the Option  price.  If the
disposition  is to a related party (such as a spouse,  brother,  sister,  lineal
descendant,  or certain trusts for business entities in which the seller holds a
direct or indirect interest),  the ordinary income recognized generally is equal
to the excess of the fair  market  value of the  shares at the time of  exercise
over the exercise price.  Any additional gain  recognized upon  disposition,  in
excess of the ordinary income, will be taxable as capital gain. In addition, the
exercise of incentive  stock  options may result in an  alternative  minimum tax
liability.

     Restricted  Stock.  Recipients of shares of  Restricted  Stock that are not
"transferable"  and are subject to "substantial  risk of forfeiture" at the time
of grant will not be subject to federal  income taxes until the lapse or release
of the restrictions on sale of the shares, unless the recipient files a specific
election under the Code to be taxed at the time of grant. The recipient's income
and the Company's  deduction will be equal to the excess of the then fair market
value (or sale price) of the shares less any purchase price.

     Performance   Shares.   Participants  are  not  taxed  upon  the  grant  of
Performance Shares. Upon receipt of the underlying shares or cash, a participant
will be taxed at  ordinary  income tax rates  (subject  to  withholding)  on the
amount of cash received  and/or the current fair market value of stock received,
and the Company will be entitled to a corresponding deduction. The participant's
basis in any Performance Shares received will be equal to the amount of ordinary
income on which he or she was taxed and, upon subsequent  disposition,  any gain
or loss will be capital gain or loss.

     Required Vote for Approval.  On January 21, 1999, the Board of Directors of
the Company approved the Plan,  subject to shareholder  approval.  At the Annual
Meeting,  the shareholders are being requested to consider and approve the First
Amendment to the Plan,  which would  increase the number of shares  reserved for
issuance  under the Plan from  100,000 to  200,000.  The  affirmative  vote of a
majority of the holders of

                                       11
<PAGE>
the  Company's  outstanding  voting  stock  represented  and voted at the Annual
Meeting is required to approve the Plan.

     The  Board  of  Directors  recommends  a vote  FOR  approval  of the  First
Amendment to the Macatawa Bank Corporation Stock Compensation Plan.


                        TRANSACTIONS INVOLVING MANAGEMENT

     Directors and officers of the Company and their  associates  were customers
of, and had  transactions  with,  subsidiaries  of the  Company in the  ordinary
course of  business  during  1998.  All loans and  commitments  included in such
transactions  were made in the ordinary course of business on substantially  the
same terms, including interest rates and collateral,  as those prevailing at the
time for  comparable  transactions  with  other  persons  and do not  involve an
unusual risk of collectibility or present other unfavorable features.

     The Bank leases its Holland office  located at 106 E. 8th Street,  Holland,
Michigan  49423,  from a  corporation  wholly  owned by Benj A.  Smith,  III, an
officer and director of the Company.  The terms of the lease were  negotiated on
an arm's-length  basis,  and the Company  believes that the rent and other terms
reflect fair market value.


                RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

     The combined  consolidated  financial  statements  of the Company have been
examined  by  Crowe,  Chizek  and  Company  LLP,  independent  certified  public
accountants. A representative of Crowe, Chizek and Company LLP is expected to be
present at the annual  meeting  with the  opportunity  to make a  statement,  if
desired,  and will be  available  to respond  to  appropriate  questions.  It is
anticipated  that the  Company's  Audit  Committee  will  select  the  Company's
auditors before the end of this calendar year.


                   SHAREHOLDER PROPOSALS--2000 ANNUAL MEETING

     Any proposal of a  shareholder  intended to be presented  for action at the
2000 annual meeting of the Company must be received by the Company at 250 E. 8th
Street,  Holland,  Michigan  49423,  not later than  November 15,  2000,  if the
shareholder  wishes the proposal to be included in the Company's proxy materials
for that meeting.

                      AVAILABILITY OF 10-KSB ANNUAL REPORT

     An annual report on Form 10-KSB to the Securities  and Exchange  Commission
for the year ended December 31, 1998, will be provided free to shareholders upon
written  request.  Write to  Macatawa  Bank  Corporation,  Attention:  Philip J.
Koning, 250 E. 8th Street, Holland,  Michigan 49423. The Form 10-KSB and certain
other periodic  filings are filed with the  Securities  and Exchange  Commission
(the "Commission").  The Commission maintains an Internet web site that contains
reports and other information  regarding companies,  including the Company, that
file electronically. The Commission's web site address is http:\\www.sec.gov.

                                       13
<PAGE>
                                  MISCELLANEOUS

     The  management  of the  Company  is not  aware of any  other  matter to be
presented  for  action at the  meeting.  However,  if any such  other  matter is
properly  presented for action,  it is the intention of the persons named in the
accompanying  form of  proxy to vote  thereon  in  accordance  with  their  best
judgment.

     The cost of soliciting  proxies in the accompanying  forms will be borne by
the Company.  In addition to solicitation  by mail,  proxies may be solicited in
person, or by telephone or telegraph, by some regular employees of the Company.

                                             By order of the Board of Directors



March 5, 1999.                               /s/ Philip J. Koning
                                             Philip J. Koning
                                             Secretary



                                       13
<PAGE>
                                   APPENDIX A


TABLE OF CONTENTS


Management's Discussion and Analysis.........................................A-2

Report of Independent Auditors...............................................A-7

Consolidated Financial Statements............................................A-8

Notes to Consolidated Financial Statements..................................A-12






                                       A-1
<PAGE>
                                   APPENDIX A

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Macatawa Bank Corporation (the "Company") is a Michigan  corporation and is
the bank holding  company for Macatawa  Bank (the  "Bank").  The Bank  commenced
operations  on November 25,  1997.  The Bank is a Michigan  chartered  bank with
depository  accounts insured by the Federal Deposit Insurance  Corporation.  The
Bank  provides  a full  range  of  commercial  and  consumer  banking  services,
primarily in the  communities of Holland and Zeeland,  Michigan,  as well as the
surrounding market area primarily located in Ottawa County, Michigan.

     The  Company's  initial plan of operation in November 1997 was to establish
its management  team within the first few months of its  operations.  Management
believes that it has been  successful in  establishing  a very  experienced  and
capable management team which can administer the Company's growth.

     The Company has experienced  rapid and  substantial  growth as total assets
increased from $10,722,193 at December 31, 1997, to $189,228,673 at December 31,
1998. At December 31, 1998, the Bank had a total of eight branch banking offices
and two service facilities.  The Company also completed an underwritten  initial
public offering of common stock on April 7, 1998.  Although  management believes
the Company will continue to grow in 1999,  the rate of increase is not expected
to be as rapid as it was in 1998.

     The Bank  established a Trust  Department in the fourth  quarter of 1998 to
further  provide for customers'  financial  needs.  The Trust  Department  began
business  on  January  3,  1999 and as of  February  23,  1999,  had  assets  of
approximately $31 million.

Financial Condition

     Total assets of the Company  increased by  $178,506,480  to $189,228,673 at
December 31, 1998, from $10,722,193 at December 31, 1997. The increase in assets
is primarily  attributable to the Bank continuing to attract  customer  deposits
and then lending and otherwise investing these funds. The fourth quarter of 1998
was the Company's  fourth full quarter of operations,  and the number of deposit
accounts  increased  from 465 at December 31, 1997, to more than 14,000  deposit
accounts  at December  31,  1998.  Management  attributes  the strong  growth in
deposits to quality  customer  service,  the desire of  customers to deal with a
local bank, and convenient  accessibility  through the expansion of branches. In
addition,  the Company's  public offering of common stock in April 1998 resulted
in net proceeds to the Company, and an increase in total assets, of $14,123,378.
The Company  anticipates that the Bank's assets will continue to increase during
1999,  which  will  be the  Bank's  second  full  year of  operations.  However,
management does not believe that the rate of increase will be as rapid as it was
during 1998.

     Cash and cash equivalents,  which include federal funds sold and short-term
investments,  increased  $10,538,057 to $17,953,177  at December  31,1998,  from
$7,415,120 at December 31, 1997. The increase is primarily the result of deposit
growth since December 31, 1997, and the initial public offering.

                                       A-2
<PAGE>
     Securities  available for sale  increased  $25,006,900  to  $27,007,300  at
December 31, 1998 from  $2,000,400  at December  31,  1997.  The increase is the
result of the  investment of customer  deposits  that have been  obtained  since
December 31, 1997.

     Total loans  increased  $137,384,556  to  $137,882,260 at December 31, 1998
from $497,704 at December 31, 1997. While  management  believes that total loans
will  continue  to  increase,  the  rate  of  increase  in the  future  will  be
substantially  less than the rate of increase  during the  Company's  first full
year of operations.

     The  allowance  for loan  losses as of  December  31,  1998 was  $2,030,000
representing  approximately 1.5% of gross loans outstanding,  compared to $7,500
at December 31, 1997.  Macatawa  Bank has not  experienced  any material  credit
losses as of December 31, 1998.

     Bank  premises and  equipment  increased to $7,125,755 at December 31, 1998
from $681,807 at December 31, 1997.  The increase  resulted from the purchase of
the Butternut  Drive and Maple Drive branch offices in Holland,  the purchase of
the real estate and  construction  of the facilities for the Zeeland,  Allendale
and 16th Street branch offices,  as well as additional  furniture,  fixtures and
equipment necessary to operate the Bank branches.

     Deposits increased to $166,988,675 at December 31, 1998, from $2,712,223 at
December 31, 1997.  This was  primarily as a result of deposits  being  obtained
from new customers of the Bank.

Results of Operations

     Comparative  information on results of operations  between 1997 and 1998 is
not provided  because the Bank commenced  operations on November 25, 1997,  and,
therefore, had only six weeks of operations during 1997.

     The net loss for the year ended  December 31, 1998, was  $2,488,551.  As of
December 31,  1997,  the Company had a retained  deficit of $165,525,  and as of
December  31,  1998,  the  Company  had a retained  deficit of  $2,654,076.  The
retained  deficit and net losses are primarily the result of provisions for loan
losses which totaled  $2,022,500.  Wages paid to employees and fees and expenses
incurred in forming the Company and  applying  for  regulatory  approval for the
Bank's existing and proposed  branches also  contributed to the retained deficit
and net  losses.  Management  believes  that the Company  will  realize a modest
profit for 1999.  Earnings  will  continue to be curtailed for much of 1999 as a
result of additional  loan loss reserves,  together with the time needed to more
effectively  utilize its capital and  generate  loan  interest and fee income by
making additional loans.  Management believes that the expenditures made in 1997
and 1998 will create the infrastructure and lay the foundation for future growth
and profitability in subsequent years.

     Interest  income  for the year  ended  December  31,  1998 was  $6,804,105,
related to interest income on securities,  loans, and interest earning deposits.
Interest  expense was  $3,190,237  for the year ended 1998,  related to interest
incurred on interest bearing deposits.

     The Company had an allowance for loan losses of approximately 1.5% of total
loans at December 31,  1998.  The  provision  for loan losses for the year ended
December  31, 1998 was  $2,022,500.  This amount was provided as a result of the
increase in the total loan  portfolio.  Management  considered it prudent during
the

                                       A-3
<PAGE>
first  year of  operations  to  provide  for loan  losses at a  relatively  high
percentage  of total loans to be  consistent  with the loss  inherent in similar
loan  portfolios.  Management will continue to monitor its loan loss performance
and adjust its loan loss reserve to more closely align itself to its own history
of loss  experience.  This may reduce its loan loss reserve as a  percentage  of
total loans in the future.

     Non-interest  income for the year ended  December 31, 1998,  was  $683,382,
consisting  primarily of gain on sales of loans. These loans consisted primarily
of conforming mortgage loans which were sold to the secondary market. Management
believes this activity will continue to be a significant  source of non-interest
income in 1999.  At the present  time,  the Bank is not  servicing  the loans it
sells, but may consider doing so in the future.

     The main  components of  non-interest  expense were primarily  salaries and
benefits.  Non-interest  expense  for the year  ended  December  31,  1998,  was
$4,763,301.  Other significant  components of non-interest  expense consisted of
occupancy and equipment expenses, legal and accounting fees, marketing expenses,
insurance and supplies.

Liquidity and Capital Resources

     The Company  obtained its initial  equity  capital as a result of a private
placement  on behalf of the Bank to investors  in  November,  1997.  The Company
raised additional equity capital in its initial public offering  completed April
7, 1998,  which resulted in net proceeds of $14,123,378.  Given the rapid growth
of the Bank,  it is expected  that  additional  equity  capital will be required
during 1999. A public offering of additional common stock is being considered to
raise additional capital.

     As a condition to regulatory approval of the Bank's formation,  the Bank is
required  to  maintain  capitalization  sufficient  to provide a ratio of Tier 1
Capital  to total  assets  of at least  8% at the end of the  third  year of its
operations.  At  December  31,  1998,  the Bank's Tier 1 Capital as a percent of
total assets was 10.95%.  The Company has approximately $1 million in additional
capital which it could contribute to the Bank's capital if necessary.

     The  Company's  sources of liquidity  include loan  payments by  borrowers,
maturity  and sales of  securities  available  for sale,  growth of deposits and
deposit equivalents,  federal funds sold,  borrowings from the Federal Home Loan
Bank, and the issuance of common stock.

     Asset liability management aids the Company in maintaining  liquidity while
maintaining  a balance  between  interest  earning  assets and interest  bearing
liabilities.  Liquidity  management  involves  the ability to meet the cash flow
requirements of the Company's customers. These customers may be either borrowers
with  credit  needs or  depositors  wanting to  withdraw  funds.  Management  of
interest rate sensitivity  attempts to avoid widely varying net interest margins
and to achieve  consistent  net  interest  income  through  periods of  changing
interest rates.

Year 2000 Compliance

     Because many computerized systems use only two digits to record the year in
date fields (for example, the year 1998 is recorded as 98), such systems may not
be able to  accurately  process  dates  ending in the year 2000 and  after.  The
effects of the issue will vary from  system to system and may  adversely  affect
the ability of a financial  institution's  operations  as well as its ability to
prepare financial statements. The

                                       A-4
<PAGE>
Company  and the Bank  were  organized  in 1997  and the  Company  acquired  its
computer  equipment  within the past eighteen  months and has contracted  with a
leading supplier of information  processing  services.  This equipment and these
services were purchased with manufacturer assurances of Year 2000 compliance.

     Company  management has developed and the Board of Directors has approved a
comprehensive  Year 2000  Compliance  Plan.  The plan  consists of five  phases:
awareness, assessment,  renovation,  validation and implementation.  The Company
has an internal task force to assess Year 2000  compliance  by the Company,  its
vendors,  and major deposit  customers.  In addition,  the Bank asks  commercial
borrowers about Year 2000 compliance as part of the loan  application and review
process.

     To  date,  the  Company  has  spent  approximately  $28,000  on  Year  2000
compliance.  Management  believes  that the  additional  costs to  complete  the
Company's Year 2000 compliance will be minimal.

     The  Company  presently  anticipates  that it will  complete  its Year 2000
assessment and any necessary remediation by June 30, 1999. However, there can be
no assurance that the Company will be successful in  implementing  its Year 2000
remediation plan according to the anticipated schedule. In addition, the Company
may be adversely  affected by the  inability of other  companies  whose  systems
interact with the Company to become Year 2000 compliant.

     The Bank's  core  processing  applications  are  provided  by a third party
vendor,  Rurbanc  Data  Services,  Inc.  (RDSI).  The Company  receives  regular
correspondence  from  RDSI  which  documents  the  status  of  their  Year  2000
compliance.  The  Company  has  been  advised  that  RDSI's  software  has  been
successfully tested for Year 2000 compliance.

     Although the Company expects its internal systems to be Year 2000 compliant
as described  above,  the Company is in the process of  preparing a  contingency
plan that will  specify  what it plans to do if  important  internal or external
systems are not Year 2000 compliant in a timely manner.

     Management  does  not  anticipate  that the  Company  will  incur  material
operating  expenses  or  be  required  to  invest  heavily  in  computer  system
improvements  to be Year 2000  compliant.  Nevertheless,  the  inability  of the
Company to successfully  address Year 2000 issues could result in  interruptions
in the Company's  business and have a material  adverse  effect on the Company's
results of operations.

Recent Regulatory Developments

     Various  bills have been  introduced  in the Congress that would allow bank
holding companies to engage in a wider range of nonbanking activities, including
greater  authority to engage in securities and insurance  activities.  While the
scope of permissible  nonbanking  activities and the conditions  under which the
new powers  could be  exercised  varies  among the bills,  the  expanded  powers
generally  would be available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well- capitalized and well-managed. The
bills also impose various  restrictions on  transactions  between the depository
institution   subsidiaries   of  bank  holding   companies  and  their  non-bank
affiliates.   These   restrictions   are  intended  to  protect  the  depository
institutions from the risks of the new nonbanking  activities  permitted to such
affiliates.  At this time,  the Company is unable to predict  whether any of the
pending  bills will be enacted and,  therefore,  is unable to predict the impact
such legislation may have on the operations of the Company and the Bank.

                                       A-5
<PAGE>
Forward Looking Statements

     This report contains certain forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identifiable  by use  of the  words  "believe,"  "expect,"  "intend,"
"anticipate,"  "estimate,"  "project"  or  similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest  rates,  general  economic  conditions,
legislative/regulatory  changes,  monetary  and  fiscal  policies  of  the  U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such  statements.  Further
information  concerning  the  Company  and its  business,  including  additional
factors  that  could  materially  affect the  Company's  financial  results,  is
included in the Company's filings with the Securities and Exchange Commission.


                                       A-6
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
Macatawa Bank Corporation
Zeeland, Michigan


We have audited the  accompanying  consolidated  balance sheets of Macatawa Bank
Corporation  as of  December  31,  1998 and 1997  and the  related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
year  ended  December  31,  1998 and for the period  from May 21,  1997 (date of
inception)  through  December  31,  1997.  These  financial  statements  are the
responsibility  of the Bank's  management.  Our  responsibility is to express an
opinion on these financial statements based on our audit.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Macatawa  Bank
Corporation at December 31, 1998 and 1997, and the results of its operations and
its cash flows for the year ended  December 31, 1998 and for the period from May
21,  1997 (date of  inception)  through  December  31, 1997 in  conformity  with
generally accepted accounting principles.


                                              /s/ Crowe, Chizek and Company LLP
                                              Crowe, Chizek and Company LLP

Grand Rapids, Michigan
February 17, 1999

--------------------------------------------------------------------------------

                                                                             A-7
<PAGE>
                            MACATAWA BANK CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1998 and 1997
<TABLE>
-----------------------------------------------------------------------------------------
                                                              1998                 1997
                                                              ----                 ----
<S>                                                        <C>              <C>
ASSETS
     Cash and due from banks                               $  11,453,177    $     415,120
     Short-term investments                                    6,500,000        7,000,000
                                                           -------------    -------------
         Cash and cash equivalents                            17,953,177        7,415,120

     Securities available for sale, at fair value             27,007,300        2,000,400

     Total loans                                             137,882,260          497,704
         Allowance for loan losses                            (2,030,000)          (7,500)
                                                           -------------    -------------
                                                             135,852,260          490,204

         Premises and equipment - net                          7,125,755          681,807
         Accrued interest receivable                           1,226,199           38,532
         Organizational costs                                       --             66,139
         Other assets                                             63,982           29,991
                                                           -------------    -------------
                  Total assets                             $ 189,228,673    $  10,722,193
                                                           =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
         Deposits
                  Noninterest-bearing                      $  18,517,550    $     245,812
                  Interest-bearing                           148,471,125        2,466,411
                                                           -------------    -------------
              Total                                          166,988,675        2,712,223
     Federal funds purchased                                   2,000,000             --
     Accrued expenses and other liabilities                      628,610           37,963
                                                           -------------    -------------
         Total liabilities                                   169,617,285        2,750,186


Shareholders' equity
     Preferred stock, no par value, 500,000 shares
       authorized; no shares issued and outstanding
     Common stock,  no par value, 9,500,000 shares
     authorized; 2,435,125 and 940,125 shares issued
     and outstanding at December 31, 1998 and 1997,
     respectively                                             22,260,646        8,137,268
     Retained deficit                                         (2,654,076)        (165,525)
     Accumulated other comprehensive income, net
       of income tax of $2,482 and $136                            4,818              264
                                                           -------------    -------------
         Total shareholders' equity                           19,611,388        7,972,007
                                                           -------------    -------------
              Total liabilities and shareholders' equity   $ 189,228,673    $  10,722,193
                                                           =============    =============
-----------------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                                                             A-8
<PAGE>
                            MACATAWA BANK CORPORATION
                     CONSOLIDATED STATEMENTS OF INCOME Year
              ended December 31, 1998 and period from May 21, 1997
                  (date of inception) through December 31, 1997
<TABLE>
--------------------------------------------------------------------------------
                                                       1998             1997
                                                       ----             ----
Interest income
<S>                                                   <C>            <C>
     Loans, including fees                            $ 5,338,963    $     3,448
     Securities
         Taxable                                          986,372          4,268
     Short-term investments                               478,770         68,566
                                                       ----------     ----------
         Total interest income                          6,804,105         76,282

Interest expense
     Deposits                                           3,186,309          5,339
     Other                                                  3,928            213
                                                       ----------     ----------
         Total interest expense                         3,190,237          5,552
                                                       ----------     ----------
Net interest income                                     3,613,868         70,730

Provision for loan losses                              (2,022,500)        (7,500)

Net interest income after provision for loan losses     1,591,368         63,230

Noninterest income
     Service fees                                         157,109
     Gain on sales of loans                               520,645
     Other                                                  5,628
                                                       ----------
         Total noninterest income                         683,382

Noninterest expense
     Salaries and benefits                              2,726,885        111,341
     Occupancy expense of premises                        305,214          9,226
     Furniture and equipment expense                      253,074          5,328
     Legal and professional fees                          157,077         18,437
     Advertising                                          198,826         27,698
     Supplies                                             232,835         30,729
     Data processing fees                                 196,665            119
     Check printing fees                                   88,596          1,218
     Other outside services                                75,762          2,765
     Organizational expenses                               66,139
     Other expense                                        462,228         21,894
                                                       ----------     ----------
         Total noninterest expenses                     4,763,301        228,755
                                                       ----------     ----------
Net loss                                              $(2,488,551)   $  (165,525)
                                                      ===========    ===========
Basic loss per share                                  $     (1.22)   $      (.18)
                                                      ===========    ===========
Weighted average shares outstanding                     2,041,920        940,125
                                                      ===========    ===========
--------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                                                             A-9
<PAGE>
<TABLE>
                            MACATAWA BANK CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
           Year ended December 31, 1998 and period from May 21, 1997
                  (date of inception) through December 31, 1997
--------------------------------------------------------------------------------------------------------------------
                                                                                   Accumulated
                                                                                       Other
                                                                                   Comprehensive        Total
                                              Common            Retained             Income,         Shareholders'
                                              Stock             Deficit             Net of Tax          Equity
<S>                                          <C>                <C>                 <C>                 <C>
Balance, May 21, 1997                        $         0        $          0        $          0        $          0

Proceeds from sale of stock on 
 November 7, 1997, 940,125 shares              8,137,268                                                   8,137,268

Net loss for the period from
 May 21, 1997 (date of inception)
 through December 31, 1997                                          (165,525)                               (165,525)

Other comprehensive income:
     Net change in unrealized appreciation
      on securities available for sale, net
      of tax of $136                                                                         264                 264
                                                                                                         -----------
         Comprehensive loss                                                                                 (165,261)
                                             -----------         -----------         -----------         -----------
Balance, December 31, 1997                     8,137,268            (165,525)                264           7,972,007

Proceeds from sale of stock on
 April 7, 1998, 1,495,000 shares              14,123,378                                                  14,123,378

Net loss                                                          (2,488,551)                             (2,488,551)

Other comprehensive income:
     Net change in unrealized appreciation
      on securities available for sale, net
      of tax of $2,346                                                                    4,554                4,554
                                                                                                         -----------
         Comprehensive loss                                                                               (2,483,997)
                                             -----------         -----------         ----------          -----------
Balance, December 31, 1998                   $22,260,646         $2,654,076)             $4,818          $19,611,388
                                             ===========         ===========         ==========          ===========
--------------------------------------------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                                                            A-10
<PAGE>
                            MACATAWA BANK CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            Year ended December 31, 1998 and period from May 21, 1997
                  (date of inception) through December 31, 1997
<TABLE>
---------------------------------------------------------------------------------------------------------
                                                                            1998               1997
                                                                            ----               ----
<S>                                                                        <C>              <C>
Cash flows from operating activities
     Net loss                                                             $  (2,488,551)   $    (165,525)
     Adjustments to reconcile net loss to net
       cash from operating activities
         Depreciation and amortization                                          271,458            5,769
                  Provision for loan losses                                   2,022,500            7,500
                  Origination of loans for sale                             (44,146,300)            --
                  Proceeds from sales of loans originated for sale           44,666,945             --
                  Gain on sales of loans                                       (520,645)            --
                  Net change in
                           Organizational costs                                  66,139          (66,139)
                           Accrued interest receivable and other assets      (1,221,658)         (68,523)
                           Accrued expenses and other liabilities               588,301           37,827
                                    Net cash from operating activities         (761,811)        (249,091)

Cash flows from investing activities
         Net increase in loans                                             (137,384,556)        (497,704)
         Activity in securities available for sale
                  Purchase                                                  (29,000,000)      (2,000,000)
                  Maturities                                                  4,000,000             --
         Additions to premises and equipment                                 (6,715,406)        (687,576)
                                                                          -------------    -------------
                  Net cash from investing activities                       (169,099,962)      (3,185,280)

Cash flows from financing activities
         Net increase in federal funds purchased                              2,000,000             --
         Net increase in deposits                                           164,276,452        2,712,223
         Proceeds from the issuance of common stock                          14,123,378        8,137,268
                                                                          -------------    -------------
                  Net cash from financing activities                        180,399,830       10,849,491
                                                                          -------------    -------------
Net change in cash and cash equivalents                                      10,538,057        7,415,120

Beginning cash and cash equivalents                                           7,415,120             --

Ending cash and cash equivalents                                          $  17,953,177    $   7,415,120
                                                                          =============    =============

Supplemental disclosures of cash flow information
         Cash paid during the period for
         Interest                                                         $   2,725,880    $         640
--------------------------------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                                                            A-11
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  The Company became the bank holding  company for Macatawa
Bank (the  "Bank") on  February  23,  1998,  when all of the Bank's  outstanding
common stock (817,500  shares) was converted into all of the outstanding  common
stock of the Company (940,125 shares) and all of the Bank's  shareholders became
all of the Company's shareholders. The exchange ratio in the conversion was 1.15
shares of Company  common stock for each share of Bank common stock.  The Bank's
common  stock had been  issued to its  shareholders  as of November 7, 1997 as a
result of a private  offering of the Bank's  common  stock at a price of $10 per
share  or  a  total  of  $8,175,000.   As  this  was   essentially  an  internal
reorganization, the consolidated financial statements are presented by including
operations of the Company and Bank for all periods presented.  Further share and
per share data has been  adjusted  for the  conversion  ratio of 1.15  shares of
Company  stock for one  share of Bank  stock.  Macatawa  Bank  Corporation  is a
regional,  community-based financial institution,  located in Zeeland, Michigan.
The Bank's primary services include  accepting  deposits and making  commercial,
mortgage and installment loans in the Michigan  counties of Allegan,  Ottawa and
Kent. The Bank commenced its application process on May 21, 1997,  completed its
common stock sale on November 7, 1997 and opened for  operations on November 25,
1997 after several  months of work by  incorporators  and employees in preparing
applications with the various  regulatory  agencies and obtaining  insurance and
building space.  The costs  associated with the  organization of the Company are
included in the 1998 income statement.

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Company and its  wholly-owned  subsidiary,  Macatawa Bank, after
elimination of intercompany accounts and transactions.

Use of Estimates:  To prepare financial  statements in conformity with generally
accepted accounting principles, 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,  the deferred tax asset
valuation   allowance  and  the  fair  values  of  financial   instruments   are
particularly subject to change.

Concentration  of Credit  Risk:  Loans are granted to, and deposits are obtained
from,  customers  primarily in the western  Michigan  area as  described  above.
Substantially  all loans are secured by specific items of collateral,  including
residential  real  estate,  commercial  real estate and consumer  assets.  Other
financial instruments which potentially subject the Company to concentrations of
credit risk include deposit accounts in other financial institutions.

Cash Flow  Reporting:  Cash and cash  equivalents  include cash on hand,  demand
deposits with other financial institutions and short-term securities (securities
with  maturities of equal to or less than 90 days and federal funds sold).  Cash
flows  are   reported   net  for   customer   loan  and  deposit   transactions,
interest-bearing time deposits with other financial  institutions and short-term
borrowings with maturities of 90 days or less.
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-12
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities:  Securities  available  for sale consist of those  securities  which
might be sold prior to  maturity  due to changes in interest  rates,  prepayment
risks,  yield and  availability of alternative  investments,  liquidity needs or
other factors. Securities classified as available for sale are reported at their
fair value and the related unrealized  holding gain or loss is reported,  net of
related income tax effects,  as a separate  component of  shareholders'  equity,
until realized.

Loans: Loans are reported at the principal balance outstanding,  net of deferred
loan fees and costs, the allowance for loan losses, and charge-offs.  Loans held
for sale are  reported at the lower of cost or market,  on an  aggregate  basis.
While the Company does sell loans on the secondary  market,  there were no loans
held for sale at December 31, 1998 or 1997.  Interest  income is reported on the
interest method.

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance,  increased  by the  provision  for loan  losses and  recoveries,  and
decreased by charge-offs.  Management  estimates the allowance  balance required
based on known and inherent  risks in the  portfolio,  economic  conditions  and
other 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  impairment  is  reported  when full  payment  under the loan  terms is not
expected.  Impairment  is evaluated in aggregate  for  smaller-balance  loans of
similar  nature such as  residential  mortgage  and  consumer  loans,  and on an
individual loan basis for other loans.  If a loan is impaired,  a portion of the
allowance is allocated so that the loan is reported,  net, at the present  value
of  estimated  future  cash flows  using the  loan's  existing  rate.  Loans are
evaluated for impairment  when payments are delayed,  typically 90 days or more,
or when the internal grading system indicates a doubtful  classification.  There
were no loans classified as impaired as of December 31, 1998 and 1997 or for the
year  ended  December  31,  1998 and for the period  from May 21,  1997 (date of
inception) through December 31, 1997.

Foreclosed  Assets:  Assets acquired  through or instead of loan foreclosure are
initially  recorded at fair value when acquired,  establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense. Costs
after  acquisition are expensed.  The Bank held no foreclosed assets at December
31, 1998 or 1997.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated depreciation.  Depreciation is computed using both straight-line and
accelerated  methods over the estimated  useful lives of the respective  assets.
Maintenance,  repairs and minor alterations are charged to current operations as
expenditures  occur and major  improvements  are  capitalized.  These assets are
reviewed  for  impairment  under SFAS No. 121 when events  indicate the carrying
amount may not be recoverable.
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-13
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Compensation:  Employee  compensation  expense under stock option plans is
reported if options  are granted  below  market  price at grant date.  Pro forma
disclosures  of net income and earnings per share are shown using the fair value
method of SFAS No. 123 to measure expense for options  granted,  using an option
pricing model to estimate fair value.

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 has been
established  to the extent of net deferred tax assets due to a lack of operating
performance to ensure that it is more likely than not it would be recovered.

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

Basic Loss Per Share:  Basic loss per share is based on net loss  divided by the
weighted  average  number of  shares  outstanding  during  the  period.  Options
outstanding at December 31, 1998 were not  considered in computing  diluted loss
per share as the impact was antidilutive.

Comprehensive Income (Loss):  Comprehensive income (loss) consists of net income
(loss) and  unrealized  gains and losses on securities  available for sale which
are also recognized as separate  components of equity.  The accounting  standard
that requires reporting comprehensive income (loss) first applies for 1998, with
prior information restated to be comparable.

Segment Reporting: Macatawa Bank Corporation,  through the branch network of its
subsidiary,  Macatawa  Bank,  provides a broad  range of  financial  services to
individuals and companies in western  Michigan.  These services  include demand,
time and savings deposits;  lending;  ATM processing and cash management.  While
the Company's  chief decision  makers monitor the revenue streams of the various
Company products and services,  operations are managed and financial performance
is evaluated on a Company-wide basis. Accordingly,  all of the Company's banking
operations  are  considered by  management  to be  aggregated in one  reportable
operating segment.

Dividend  Restriction:  Banking  regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to the holding company or by
the holding company to shareholders.

Reclassifications: Certain amounts on the 1997 consolidated financial statements
have been reclassified to conform with the 1998 presentation.
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-14
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 2 - CASH AND DUE FROM BANKS

Minimum cash balances, which are based on the deposit levels of the Company, are
required to be maintained by the Federal Reserve as legal reserve  requirements.
Cash balances restricted from usage due to these requirements were approximately
$803,000 at year-end 1998.


NOTE 3 - SECURITIES

The amortized cost and fair values of securities at year-end were as follows:
<TABLE>
Available for Sale
                                                                       Gross           Gross
                                                  Amortized         Unrealized      Unrealized           Fair
                                                    Cost               Gains          Losses            Values
                                                    ----               -----          ------            ------
<S>                                             <C>                 <C>            <C>               <C>
1998
     U.S. Treasury securities and
       obligations of U.S. Government
       corporations and agencies                $ 27,000,000        $ 35,700       $  (28,400)       $ 27,007,300
                                                ============        ========       ===========       ============
1997
     U.S. Treasury securities and
       obligations of U.S. Government
       corporations and agencies                $  2,000,000        $    400                         $  2,000,400
                                                ============        ========                         ============
</TABLE>
Contractual maturities of debt securities at year end 1998 were as follows:
<TABLE>
                                                                                       Available for Sale
                                                                                   Amortized             Fair
                                                                                     Cost                Value
                                                                                     ----                -----
     <S>                                                                        <C>                <C>
     Due from one to five years                                                 $  26,000,000      $  26,002,100
     Due from five to ten years                                                     1,000,000          1,005,200
                                                                                -------------      -------------
                                                                                $  27,000,000      $  27,007,300
                                                                                =============      =============
</TABLE>
There were no sales of securities  for the year ended  December 31, 1998 and for
the period from May 21, 1997 (date of inception) through December 31, 1997.

--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-15
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 4 - LOANS

Year-end loans are as follows:
<TABLE>
                                           1998                1997
                                           ----                ----
     <S>                                <C>              <C>
     Commercial                         $  95,669,151    $     130,000
     Mortgage                              22,528,687          207,245
     Consumer                              19,684,422          160,459
                                        -------------    -------------
                                          137,882,260          497,704
     Allowance for loan losses             (2,030,000)          (7,500)
                                        -------------    -------------
                                        $ 135,852,260    $     490,204
                                        =============    =============
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
                                                                    1998                1997
                                                                    ----                ----
     <S>                                                         <C>                 <C>
     Beginning balance                                           $     7,500           $     0
                  Provision charged to operating expense           2,022,500             7,500
                                                                 -----------           -------
     Ending balance                                              $ 2,030,000           $ 7,500
                                                                 ===========           =======
</TABLE>

NOTE 5 - PREMISES AND EQUIPMENT - NET

Year-end premises and equipment are as follows:
<TABLE>
                                                                1998                1997
                                                                ----                ----
     <S>                                                    <C>                 <C>
     Land                                                   $ 1,177,184         $     0
     Building and improvements                                3,661,701          196,761
     Furniture and equipment                                  2,553,229          490,815
                                                            -----------         --------
                                                              7,392,114          687,576
     Less accumulated depreciation                             (266,359)          (5,769)
                                                            -----------         --------
                                                            $ 7,125,755        $ 681,807
                                                            ===========         ========
</TABLE>
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-16
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 6 - DEPOSITS

Deposits at year-end are summarized as follows:
<TABLE>
                                                 1998                1997
                                                 ----                ----
     <S>                                     <C>                 <C>
     Noninterest-bearing demand              $ 18,517,550        $    245,812
         Money market                          71,091,206           1,173,742
         NOW and Super NOW                     22,425,439             628,653
         Savings                                5,812,028             146,973
         Certificates of deposit               49,142,452             517,043
                                             ------------        ------------
                                             $166,988,675        $  2,712,223
                                             ============        ============
</TABLE>
At year-end 1998,  maturities of certificates  of deposits were as follows,  for
the next five years:
<TABLE>
         <S>                            <C>
         1999                           $  25,663,169
         2000                               6,847,724
         2001                              10,068,637
         2002                               6,531,770
         2003                                       0
         2004 and thereafter                   31,152
                                        -------------
                                        $  49,142,452
                                        =============
</TABLE>
The Bank had  approximately  $27,090,000  and $200,000 in time  certificates  of
deposit which were in denominations of $100,000 or more at December 31, 1998 and
1997.


NOTE 7 - RELATED PARTY TRANSACTIONS

Loans to principal  officers,  directors,  and their  affiliates in 1998 were as
follows.
<TABLE>
         <S>                                      <C>
         Beginning balance                        $          0
         New loans                                   5,815,804
         Repayments                                 (1,418,909)
                                                  ------------
              Ending balance                      $  4,396,895
                                                  ============
</TABLE>
Deposits from principal  officers,  directors,  and their affiliates at year-end
1998 and 1997 were $16,535,000 and $611,000.

                                   (Continued)
--------------------------------------------------------------------------------
                                                                            A-17
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 8 - STOCK OPTIONS

Options to buy stock are granted to officers  and  employees  under the Employee
Stock  Option Plan (the  Employees'  Plan),  which  provides  for issue of up to
100,000  options.  Options are also  granted to directors  under the  Directors'
Stock  Option Plan (the  Directors'  Plan),  which  provides  for issue of up to
40,000 options. Exercise price is the market price at the date of grant for both
plans.  The  maximum  option  term is ten  years  with  options  vesting  over a
three-year  period for the  Employees'  Plan and over a one-year  period for the
Directors' Plan.

A summary of the activity in the plans at year-end 1998 is as follows.
<TABLE>
                                                                                Weighted
                                                                                Average
                                                                                Exercise
                                                            Shares               Price
                                                            ------               -----
     <S>                                                    <C>                 <C>
     Outstanding at beginning of year                              0            $      0
     Granted                                                 123,600               12.92
     Exercised                                                     0                   0
     Forfeited                                                   100               10.00
     Outstanding at end of year                              123,500               12.83

     Options exercisable at year-end                               0                   0
     Options available for grant at year-end                  16,500
     Weighted-average fair value of options
       granted during year                                                          3.53
</TABLE>
There were no options granted in 1997 under either plan.

Options outstanding at year-end 1998 were as follows.
<TABLE>
                                                                          Weighted Average
                                                                            Remaining
                  Exercise                                                 Contractual
                   Prices                                    Number          Life
                   ------                                    ------          ----
                  <S>                                       <C>            <C>
                  $10.00                                     65,500          9.20
                  $15.00                                      9,000          9.42
                  $16.25                                      8,500          9.75
                  $16.50                                     40,500          9.92
                                                           --------      --------
                                                            123,500          9.49
                                                           ========      ========
</TABLE>
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-18
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 8 - STOCK OPTIONS (Continued)

Had  compensation  cost for stock options been measured using FASB Statement No.
123,  net loss and basic loss per share  would  have been the pro forma  amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
<TABLE>
                                                                     1998
                                                                     ----
     <S>                                                         <C>
     Net loss as reported                                        $   (2,488,551)
     Pro forma net loss                                              (2,500,958)

     Basic loss per share as reported                                     (1.22)
     Pro forma basic loss per share                                       (1.22)
</TABLE>
The pro forma  effects are  computed  using  option  pricing  models,  using the
following weighted-average assumptions as of grant date.
<TABLE>
                                                                    1998
                                                                    ----
     <S>                                                          <C>
     Risk-free interest rate                                      $   4.72
     Expected option life                                          7 years
     Expected stock price volatility                                 8.46%
     Dividend yield                                                  0.00%
</TABLE>

NOTE 9 - FEDERAL INCOME TAXES

The Company recorded no current or deferred benefit for income taxes as a result
of recording the valuation allowance in the amount of net deferred tax assets.

Year-end deferred tax assets and liabilities consist of:
<TABLE>
                                                              1998               1997
                                                              ----               ----
     <S>                                                    <C>                 <C>
     Deferred tax assets
         Net operating loss carryforward (expiration
           beginning in 2017)                               $   373,787         $  53,656
                  Provision for loan losses                     573,002             2,550
                  Other                                          35,502

         Deferred tax liabilities
                  Depreciation                                  (84,555)
                  Net unrealized appreciation on
                    securities available for sale                (2,482)             (136)
                                                            ------------        ---------
     Net deferred tax asset                                     895,254            56,070

     Valuation allowance for deferred tax assets               (897,736)          (56,206)
                                                            -----------         ---------
           Net deferred tax liability after
            valuation allowance                             $    (2,482)        $    (136)
                                                            ===========         ==========
</TABLE>
As a result  of the  valuation  allowance,  the  Bank's  effective  tax rate was
reduced from the statutory rate of 34% to 0%.
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-19
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

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 notional or contractual  amounts of financial  instruments with
off-balance-sheet risk at year-end follows:
<TABLE>
                                                   1998                   1997
                                                   ----                   ----
     <S>                                          <C>                 <C>
     Commitments to make loans                    $ 17,876,000        $ 2,290,000
         Unused lines of credit                     65,699,435            131,763
</TABLE>

Approximately  50% of the Bank's  commitments  to make loans are at fixed rates,
offered at current market rates.  The majority of the variable rate  commitments
noted above are tied to prime and expire within 30 days.  The Bank has no unused
lines of credit at fixed rates.

The Bank  conducts  substantially  all of its  business  operations  in  western
Michigan.

The Bank leases certain office and branch premises and equipment under operating
lease  agreements.  Total rental  expense for all  operating  leases  aggregated
$117,886 in 1998. Future minimum rentals under noncancelable operating leases as
of December 31, 1998 are as follows:
<TABLE>
                  <S>                                                             <C>
                  1999                                                            $      239,277
                  2000                                                                   182,286
                  2001                                                                   130,002
                  2002                                                                   125,502
                  2003                                                                   127,071
                  2004 and thereafter                                                  2,341,146
                                                                                  --------------
                                                                                  $    3,145,284
                                                                                  ==============
</TABLE>
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-20
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 11 - REGULATORY MATTERS

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 classifications, including
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized, and critically undercapitalized,  although these terms are not
used to represent overall financial condition.  If only adequately  capitalized,
regulatory   approval   is   required   to   accept   brokered   deposits.    If
undercapitalized,  capital  distributions  are  limited,  as is asset growth and
expansion,   and  plans  for  capital  restoration  are  required.  The  minimum
requirements are:
<TABLE>
                                                              Capital to Risk-
                                                               Weighted Assets            
                                                               ---------------             Tier 1 Capital
                                                           Total           Tier 1         to Average Assets
                                                           -----           ------         -----------------
     <S>                                                   <C>                <C>                 <C>
     Well capitalized                                       10%                6%                 5%
     Adequately capitalized                                  8                 4                  4
     Undercapitalized                                        6                 3                  3
</TABLE>
At year-end,  actual capital levels (in thousands) and minimum  required  levels
for the Bank were:
<TABLE>
                                                                                                    To Be Well
                                                                         Minimum Required        Capitalized Under
                                                                            For Capital          Prompt Corrective
                                                       Actual            Adequacy Purposes      Action Regulations
                                                       ------            -----------------      ------------------
1998                                             Amount      Ratio      Amount       Ratio       Amount      Ratio
----                                             ------      -----      ------       -----       ------      ------
<S>                                            <C>            <C>      <C>           <C>       <C>            <C>
   Total capital (to risk weighted assets)
     Consolidated                              $  21,637      12.4%    $   13,923    8.0%      $   17,403     10.0%
     Bank                                         20,722      11.9         13,923    8.0           17,403     10.0
   Tier 1 capital (to risk weighted assets)
     Consolidated                                 19,607      11.3          6,961    4.0           10,442      6.0
     Bank                                         18,692      10.7          6,961    4.0           10,442      6.0
   Tier 1 capital (to average assets)
     Consolidated                                 19,607      11.8          6,676    4.0            8,345      5.0
     Bank                                         18,692      11.2          6,676    4.0            8,345      5.0

1997
   Total capital (to risk weighted assets)     $   7,980     133.8%    $      477    8.0%      $      596     10.0%
   Tier 1 capital (to risk weighted assets)        7,972     133.7            239    4.0              358      6.0
   Tier 1 capital (to average assets)              7,972      83.3            383    4.0              478      5.0
</TABLE>
The Company and the Bank were  categorized as well  capitalized at year-end 1998
and 1997.
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-21
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS

Carrying  amount and  estimated  fair values of  financial  instruments  were as
follows at year-end.
<TABLE>
                                                        1 9 9 8                            1 9 9 7
                                                        -------                            -------
                                               Carrying            Fair           Carrying            Fair
                                                Amount             Value           Amount             Value
                                                ------             -----           ------             -----
Financial assets
<S>                                            <C>                 <C>            <C>                 <C>
Cash and cash equivalents                      $ 17,953,177        $ 17,953,177   $ 7,415,120         $ 7,415,120
Securities available for sale                    27,007,300          27,007,300     2,000,400           2,000,400
Loans, net                                      135,852,260         136,086,762       490,204             490,204
Accrued interest receivable                       1,226,199           1,226,199        38,532              38,532
Financial liabilities
Deposits                                       (166,988,675)       (167,496,412)   (2,712,223)         (2,712,223)
Federal funds purchased                          (2,000,000)         (2,000,000)           (0)                 (0)
Accrued interest payable                           (469,264)           (469,264)       (4,912)             (4,912)
</TABLE>
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,
short-term borrowings, accrued interest receivable and payable, demand deposits,
short-term debt, and variable rate loans or deposits that reprice frequently and
fully.  Security fair values are based on market prices or dealer quotes, and if
no such  information  is  available,  on the rate and term of the  security  and
information about the issuer.  For fixed rate loans or deposits and for variable
rate loans or deposits with infrequent repricing or repricing limits, fair value
is based on  discounted  cash flows using  current  market rates  applied to the
estimated  life and credit risk.  The fair value of  off-balance-sheet  items is
based on the  current  fees or cost  that  would  be  charged  to enter  into or
terminate such arrangements.

--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-22
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 13 - CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

Following are condensed parent company only financial statements:
<TABLE>
                                              CONDENSED BALANCE SHEET
                                                 December 31, 1998
     <S>                                                              <C>
     ASSETS
         Cash and cash equivalents                                    $     914,643
         Investment in subsidiary                                        18,696,745
                                                                      -------------

              Total assets                                            $  19,611,388
                                                                      =============

     SHAREHOLDERS' EQUITY
         Shareholders' equity
              Common stock                                            $  22,260,646
              Retained deficit                                           (2,654,076)
              Accumulated other comprehensive income,
                net of income tax of $2,482                                   4,818
                                                                      -------------

                  Total shareholders' equity                          $  19,611,388
                                                                      =============
</TABLE>
<TABLE>
                          CONDENSED STATEMENT OF INCOME
                Period from February 23, 1998 (date of inception)
                            through December 31, 1998
     <S>                                                              <C>
     Expenses
         Other operating expenses                                     $      54,840
                                                                      -------------
     Loss before income tax and equity in

       undistributed net loss of subsidiaries                                54,840

     Federal income tax expense                                                   0

     Equity in undistributed net loss of subsidiary                       2,185,393
                                                                      -------------

     Net loss                                                         $  (2,240,233)
                                                                      =============
</TABLE>
--------------------------------------------------------------------------------
                                   (Continued)
                                                                            A-23
<PAGE>
                            MACATAWA BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
--------------------------------------------------------------------------------

NOTE 13 - CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
  (Continued)
<TABLE>
                        CONDENSED STATEMENT OF CASH FLOWS
                Period from February 23, 1998 (date of inception)
                            through December 31, 1998
     <S>                                                              <C>               
     Cash flows from operating activities
         Net loss                                                     $  (2,240,233)
         Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
              Equity in undistributed net loss of
                  Subsidiary                                              2,185,393
                      Net cash from operating activities                    (54,840)

     Cash flows from investing activities
         Investment in subsidiary                                       (13,153,895)
              Net cash from investing activities                        (13,153,895)

     Cash flows from financing activities
         Proceeds from sale of 1,495,000 share of common stock           14,123,378
                                                                      -------------
              Net cash from financing activities                         14,123,378
                                                                      -------------

     Net change in cash and cash equivalents                                914,643

     Cash and cash equivalents at beginning of period                             0
                                                                      -------------

     Cash and cash equivalents at end of period                       $     914,643
                                                                      =============

     Noncash transaction related to origination of holding company in 1998
         Investment in subsidiary                                     $  (7,723,689)
         Common stock                                                     8,137,268
         Retained deficit                                                  (413,843)
         Accumulated other comprehensive income                                 264
</TABLE>

--------------------------------------------------------------------------------
                                                                            A-24
<PAGE>
                                   APPENDIX B

                                 FIRST AMENDMENT
                                     TO THE
                            MACATAWA BANK CORPORATION
                             STOCK COMPENSATION PLAN

     This First Amendment to the Macatawa Bank  Corporation  Stock  Compensation
Plan  (the  "Plan")  is  adopted  by  Macatawa  Bank  Corporation,   a  Michigan
corporation (the "Company") with respect to the following:

  o  The Company adopted the Plan in 1998.
  o  The Company wishes to amend the Plan.
  o  The Board of Directors of the Company has approved this Amendment to
     the Plan.

     NOW, THEREFORE, the Plan is amended as follows:

1.   The first sentence of Article 4 is amended in its entirety to read as
     follows:

     Subject to  adjustment as  provided  in  Section  12.1,  the  maximum
     aggregate number of shares of Common Stock which may be issued  under
     this  Plan shall  not  exceed  200,000  shares,  which  may be either
     unauthorized   and  unissued  Common  Stock  or  issued Common  Stock
     reacquired by the Company ("Plan Shares").

     This Amendment will be effective upon approval of the  shareholders  of the
Company at the annual shareholders meeting to be held April 15, 1999.

     IN WITNESS  WHEREOF,  the Company has caused this  Amendment to be executed
this 1st day of March, 1999.

                                             MACATAWA BANK CORPORATION


                                             By:   /s/ Philip J. Koning
                                                   Philip J. Koning
                                                   Secretary

                                       B-1

::ODMA\PCDOCS\GRR\242952\1
<PAGE>
Exhibit 21 - Subsidiaries of Registrant

         Macatawa Bank - 100% owned
         Incorporated as a Michigan Banking Corporation
         51 E. Main Street
         Zeeland, Michigan 49464
<PAGE>
EXHIBIT 23


                       CONSENT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Macatawa Bank Corporation

We consent to the  incorporation by reference in the registration  statements on
Form S-8  (File  No.  333-53593  and File No.  333-53595)  of our  report  dated
February 17, 1999, on our audit of the consolidated  financial  statements as of
December 31, 1998 and 1997,  and for the year ended  December 31, 1998,  and for
the period from May 21, 1997 (date of  inception)  through  December  31,  1997,
which report is included in this Annual Report on Form 10-KSB.

                                               /s/ CROWE, CHIZEK and COMPANY LLP
March 30, 1999                                 CROWE, CHIZEK and COMPANY LLP
Grand Rapids, Michigan




::ODMA\PCDOCS\GRR\243029\5