# FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

[X] ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year
ended December 31, 2008

OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________

Commission file number
000-25927

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

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

10753 Macatawa Drive,
Holland, Michigan 49424(Address of principal
executive offices) (Zip Code)

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

Securities registered
pursuant to Section 12(b) of the Exchange Act:

|Title of each class
Common Stock | Name of each exchange on which registered
The Nasdaq Stock Market LLC
|-------------------------------- | ---------------------------------------------------------------------

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

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  [_]   No  [X]

Indicate by check mark if
the  registrant  is not required to file reports  pursuant to Section 13 or Section 15(d)
of the Exchange Act.  Yes  [_]   No  [X]

Indicate by check mark 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  [_]

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K 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-K or any amendments to this Form 10-K. [_]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.
Large accelerated filer  [_]   Accelerated filer  [X]   
Non-accelerated filer  [_]   Smaller reporting company  [_]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  [_]   No  [X]

The aggregate market value of the
registrants common stock held by non-affiliates of the registrant, as of June 30,
2008 was $124,508,264 based on the closing sale price of $8.00 as reported on the National
Association of Securities Dealers Automated Quotation System. There were 17,161,515
outstanding shares of the Companys common stock (no par value) as of March 5, 2009.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Companys Proxy Statement for the Annual Meeting of Shareholders to
be held April 23, 2009 are incorporated by reference into Part II and Part III of the
Report.

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# MACATAWA BANK
CORPORATIONFORM 10-K ANNUAL REPORTTABLE OF CONTENTS

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|PART IItem 1:  |  |     
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|PART II        |  |     
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|Item 9b:       |  |     
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|PART III       |  |     
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|Item 10:       |  |     
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|Item 14:       |  |     
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|PART IV        |  |     
|Item 15:       |  |     
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|SIGNATURES     |  |     
|               |  |     
|CERTIFICATIONS |  |     

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# PART I

# ITEM 1:      Business

As used in this Annual Report, the
terms we, us, our and Macatawa mean
Macatawa Bank Corporation and its subsidiaries, unless the context indicates another
meaning.

# General

Macatawa Bank Corporation is a
Michigan corporation and is the bank holding company for its wholly owned banking
subsidiary, Macatawa Bank, as well as Macatawa Statutory Trust I and Macatawa Statutory
Trust II. Effective November 1, 2006, Macatawa Investment Services, Inc., which was a
subsidiary of the holding company, ceased doing business as a registered broker-dealer. On
November 1, 2006 Macatawa Bank began offering brokerage services to its customers through
an arrangement with Infinex Investments, Inc. (Infinex). Infinex is a full
service investment provider, a registered broker-dealer and a member of the Financial
Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation
(SIPC). As more fully discussed in our Form 8-K dated October 11, 2006, Macatawa Bank
Corporation entered into an Agreement and Plan of Merger with the Smith & Associates
investment advisory firm based in Holland, Michigan. The Smith & Associates
acquisition became effective on January 1, 2007 and that business is now part of Macatawa
Bank. Macatawa Bank commenced operations on November 25, 1997. Grand Bank was formed in
1987 and operated from a single location in Grand Rapids, Michigan. Grand Bank became a
wholly owned subsidiary effective April 1, 2002 upon the completion of the acquisition of
Grand Bank Financial Corporation (GBFC), and its results are included in the consolidated
statements of income since this effective date. To achieve further synergies from the
Grand Bank acquisition, we merged Grand Bank into Macatawa Bank effective January 1, 2003
with the combined bank named Macatawa Bank. At the same time, Grand Bank Mortgage Company
was merged into Macatawa Bank Mortgage Company.

Macatawa Bank is a Michigan chartered
bank with depository accounts insured by the Federal Deposit Insurance Corporation. The
bank operates twenty-six branch offices and a lending and operational service facility
offering commercial and personal banking services, including checking, savings and
certificates of deposit accounts, cash management, safe deposit boxes, travelers checks,
money orders, trust services and commercial, mortgage and consumer loans in Kent County,
Ottawa County, and northern Allegan County, Michigan. Other service delivery channels we
offer include ATMs, internet banking, telephone banking and debit cards. Macatawa Bank
provides various brokerage services including discount brokerage through Infinex, personal
financial planning and consultation regarding mutual funds. Macatawa Statutory Trust I is
a grantor trust that issued a pooled trust preferred security in July, 2003. Macatawa
Statutory Trust II is a grantor trust that issued a pooled trust preferred security in
March, 2004. Macatawa Bank Mortgage Company, a subsidiary of Macatawa Bank, originates and
sells residential mortgage loans into the secondary market on a servicing released basis.
As of December 31, 2008, we had total assets of $2.15 billion, total deposits of $1.67
billion, approximately 102,000 deposit accounts and shareholders equity of $149.2
million.

Our headquarters and administrative
offices are located at 10753 Macatawa Drive, Holland, Michigan 49424, and our telephone
number is (616) 820-1444. Our internet website address is www.macatawabank.com. We
make available free of charge through this website our annual report on Form 10-K, our
quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those
reports as soon as reasonably practicable after filing such reports with the Securities
and Exchange Commission. The reference to our website address does not constitute
incorporation by reference of the information contained on the website, and the
information contained on the website is not part of this document.

# Products and Services

Deposit
Services. We offer a broad range of deposit services, including checking
accounts, savings accounts and time deposits of various types. Transaction accounts and
savings 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. In the fourth quarter of 2008, we also elected
to participate in the FDICs Temporary Liquidity Guarantee Program which provides
insurance on all noninterest-bearing deposits and certain interest-bearing deposits. We
solicit deposit services from individuals, businesses, associations, churches, nonprofit
organizations, financial institutions and government authorities. We may also use
alternative funding sources as needed, including short-term borrowings, advances from the
Federal Home Loan Bank of Indianapolis or the Federal Reserve Bank of Chicago, securities
sold under agreements to repurchase (repo borrowings) and certificates of
deposit purchased from brokers and the packaging of loans for securitization and sale.

Deposits are gathered primarily from
the communities we serve through our network of 26 branches. We offer business and
consumer checking accounts, regular and money market savings accounts, and certificates of
deposit with many term options.

-3-

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We set our deposit pricing to be
competitive with other banks in our market area. We periodically purchase brokered
deposits to supplement funding needs. These are time accounts originated outside of our
local market area. Brokered deposits comprised approximately 20% of total deposits at
December 31, 2008 and approximately 13% at December 31, 2007. We operate in a very
competitive environment, competing with other local banks similar in size and with
significantly larger regional banks. We monitor rates at other financial institutions in
the area to ascertain that our rates are competitive with the market. We also attempt to
offer a wide variety of products to meet the needs of our customers.

Deposit Portfolio Composition.The following table sets forth the average deposit balances and the
weighted average rates paid thereon.

|Average for the Year             
|---------------------------------
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Noninterest bearing demand       
|Interest bearing demand          
|Savings and money market accounts
|Time                             
|                                 
|Total deposits                   
|                                 

The following table summarizes time
deposits in amounts of $100,000 or more by time remaining until maturity as of December
31, 2008:

|Amount                        
|------------------------------
|                              
|                              
|Three months or less          
|Over 3 months through 6 months
|Over 6 months through 1 year  
|Over 1 year                   
|                              
|Total                         
|                              

Lending Activities.

Loan Portfolio
Composition.The following table reflects the composition of our loan
portfolio and the corresponding percentage of our total loans represented by each class of
loans as of the dates indicated.

|Year Ended December 31     
|---------------------------
|                           
|                           
|                           
|                           
|                           
|                           
|Commercial real estate     
|Residential real estate    
|Other commercial           
|Consumer                   
|                           
|Total loans                
|                           
|Less:                      
|Allowance for loan losses  
|                           
|                           
|Total loans receivable, net
|                           

Nonperforming Assets.
The following table shows the composition and amount of our nonperforming assets.

|                                                    | December 31
|--------------------------------------------------- | -----------
|                                                    |            
|(Dollars in thousands)                              |            
|                                                    |            
|                                                    |            
|Nonaccrual loans                                    |            
|Loans 90 days or more delinquent and still accruing |            
|Restructured loans                                  |            
|                                                    |            
|Total nonperforming loans                           |            
|                                                    |            
|                                                    |            
|Foreclosed assets                                   |            
|Repossessed assets                                  |            
|                                                    |            
|                                                    |            
|Total nonperforming assets                          |            
|                                                    |            
|                                                    |            
|Nonperforming loans to total loans                  |            
|Nonperforming assets to total assets                |            

-4-

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The increase in nonperforming loan
balances in 2008 is more fully discussed under the section Loan Portfolio and Asset
Quality included in the Management Discussion and Analysis of Results of Operations and
Financial Condition.

Loan Loss Experience.The following is a summary of our loan balances at the end of each period
and the daily average balances of these loans. It also includes changes in the allowance
for loan losses arising from loans charged-off and recoveries on loans previously
charged-off, and additions to the allowance which we have expensed.

|                                             | December 31
|-------------------------------------------- | -----------
|                                             |            
|(Dollars in thousands)                       |            
|                                             |            
|                                             |            
|Loans:                                       |            
|Average daily balance of loans for the year  |            
|Amount of loans outstanding at end of period |            
|                                             |            
|Allowance for loan losses:                   |            
|Balance at beginning of year                 |            
|Addition to allowance charged to operations  |            
|Loans charged-off:                           |            
|Commercial                                   |            
|Residential Real Estate                      |            
|Consumer                                     |            
|Recoveries:                                  |            
|Commercial                                   |            
|Residential Real Estate                      |            
|Consumer                                     |            
|                                             |            
|                                             |            
|Balance at end of year                       |            
|                                             |            
|                                             |            
|Ratios:                                      |            
|Net charge-offs to average loans outstanding |            
|Allowance for loan losses to loans           |            
|outstanding at year end                      |            

Allocation of the Allowance for
Loan Losses.The following table shows the allocation of the allowance for
loan loss at the dates indicated to the extent specific allocations have been determined
relative to particular loans.

|Year Ended December 31
|----------------------
|                      
|                      
|                      
|                      
|                      
|                      
|Commercial and        
|commercial real       
|estate                
|Real estate           
|mortgages             
|Consumer              
|Unallocated           
|                      
|Total                 
|                      

Maturities and Sensitivities of
Loans to Changes in Interest Rates.The following table shows the amount of
total loans outstanding as of December 31, 2008 which, based on remaining scheduled
repayments of principal, are due in the periods indicated.

|Maturing               
|-----------------------
|                       
|                       
|                       
|                       
|Commercial real estate 
|Residential real estate
|Other commercial       
|Consumer               
|                       
|Totals                 
|                       

-5-

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Interest Sensitivity.Below is a schedule of the loan amounts maturing or repricing which are
classified according to their sensitivity to changes in interest rates at December 31,
2008.

|Fixed Rate (a)                        | Variable Rate (a) | Total
|------------------------------------- | ----------------- | -----
|                                      |                   |      
|                                      |                   |      
|Due within 3 months                   |                   |      
|Due after 3 months, but within 1 year |                   |      
|Due after one but within 5 years      |                   |      
|Due after 5 years                     |                   |      
|                                      |                   |      
|                                      |                   |      
|Total                                 |                   |      
|                                      |                   |      

(a)       
          Does not include loans on non-accrual.

Residential Real Estate
Loans. We originate owner-occupied residential mortgage loans, which are
generally long-term with either fixed or adjustable interest rates. Our general policy,
which is subject to review by our management as a result of changing market and economic
conditions and other factors, is to sell the majority of our fixed rate residential
mortgage loans in the secondary market due primarily to the interest rate risk associated
with these loans. During 2008 and 2007, we retained a larger portion of our residential
mortgage loan volume than we have historically. We retained approximately half of the
dollar volume of our loan originations in these two years, selling the remaining half in
the secondary market. In late 2008, we focused on refinancing and selling existing
portfolios to the secondary market, reducing our balance sheet exposure.

Our borrowers generally qualify and
are underwritten using industry standards for quality residential mortgage loans. We do
not originate loans that are considered sub-prime. Residential mortgage loan originations
derive from a number of sources, including advertising, direct solicitation, real estate
broker referrals, existing borrowers and depositors, builders and walk-in customers. Loan
applications are accepted at most of our offices. The substantial majority of these loans
are secured by properties in our market area.

Our adjustable rate mortgage loans
are fully amortizing loans with contractual maturities of up to 30 years. These loans
generally carry interest rates which are reset to a stated margin over an independent
index, generally the one-year constant maturity treasury index or the one year LIBOR
index. Increases or decreases in the interest rate of our adjustable rate mortgage loans
are generally limited to 2% annually with lifetime interest rate caps of 6% over the
initial interest rate. Our adjustable rate mortgage loans do not contain prepayment
penalties and do not produce negative amortization. Our borrowers are generally qualified
at the fully indexed rate.

We also offer fixed rate mortgage
loans to owner occupants with maturities up to 30 years, which conform to secondary market
standards. Interest rates charged on these fixed rate loans are priced on a daily basis
according to market conditions. These loans generally do not include prepayment penalties.
We generally sell long-term, conforming fixed-rate loans with terms of 15 years or greater
in the secondary market.

We generally originate residential
mortgage loans with loan-to-value ratios not to exceed 80%. For loans with loan-to-value
ratios that equal or exceed 90% at origination, we require private mortgage insurance in
an amount sufficient to reduce our exposure to 80% or less of the lower of the appraised
value or purchase price of the underlying collateral. In underwriting one- to four-family
residential real estate loans, we evaluate both the borrowers ability to make
monthly payments and the value of the property securing the loan. Properties securing one-
to four-family residential real estate loans that we made are appraised by independent
appraisers. We require borrowers to obtain title insurance and fire, property and, if
necessary, flood insurance.

Multi-Family and Commercial
Real Estate Loans. We originate permanent loans secured by multi-family and
commercial real estate. Our permanent multi-family and commercial real estate loan
portfolio includes loans secured by apartment buildings, condominiums, small office
buildings, small business facilities, medical facilities and other non-residential
building properties, substantially all of which are located within our primary market
area.

Permanent multi-family and commercial
real estate loans have a maximum maturity of 10 years with an amortization period of up to
20 years. Most of these loans, however, have maturities of 5 years or less with
amortization periods of 15 and 20 years. Multi-family loans and commercial real estate
loans are generally written in amounts of up to 80% of the lesser of the appraised value
of the property or the purchase price, and borrowers are generally personally liable for
all or part of the indebtedness.

-6-

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Appraisals on properties securing
multi-family and commercial real estate loans that we originate are primarily performed by
independent appraisers who we designate at the time the loan is made. Management reviews
all appraisals on multi-family and commercial real estate loans. In addition, our
underwriting procedures generally require verification of the borrowers credit
history, income and financial statements, banking relationships, references, and
historical and projected cash flows for the property that indicate minimum debt service
coverage ratios.

Multi-family and commercial real
estate loans generally present a higher level of risk than loans secured by owner occupied
one- to four-family residences. This greater risk is due to several factors, including the
concentration of principal in a limited number of loans and borrowers, the effects of
general economic conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of loans
secured by multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If cash flow from the project is
reduced, the borrowers ability to repay the loan may be impaired. For example, if
leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a
major tenant is unable to fulfill its lease obligations, cash flow from the project will
be reduced.

Construction and Development
Loans. We make construction loans to individuals for the construction of
their residences and to commercial customers for the construction of their business
facilities. Construction loans are also made to builders and developers for the
construction of one- to four-family residences and the development of one- to four-family
lots, residential subdivisions, condominium developments and other commercial
developments.

Construction and development loans
are obtained principally through continued business from commercial customers, developers
and builders who have previously borrowed from us, as well as referrals from existing
customers. As part of the application process, the applicant must submit accurate plans,
specifications and costs of the project to be constructed or developed. These items are
used as a basis to determine the appraised value of the subject property. Loans are based
on the lesser of current appraised value and/or the cost of construction (land plus
building). Construction and development loans to borrowers other than owner-occupants
involve many of the same risks discussed above regarding multi-family and commercial real
estate loans and tend to be more sensitive to general economic conditions than many other
types of loans. Further, because of the uncertainties inherent in estimating development
and construction costs and the market for the project upon completion, it is relatively
difficult to evaluate accurately the total loan funds required to complete a project, the
related loan-to-value ratios and the likelihood of ultimate success of the project.

Construction loans to individuals for
their residences are structured to be refinanced to permanent loans at the end of the
construction phase, which typically runs six to nine months. These construction loans have
rates and terms which generally are competitive in the marketplace. The interest rate for
the end loan is not guaranteed until the home is complete. The borrower pays interest
only. Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent, owner-occupied one-to-four family residential
real estate loans.

Construction or development loans to
builders of one- to four-family residences generally require the payment of interest only
for up to one year with adjustable rates. These loans may also provide for the payment of
loan fees from loan proceeds. We also make loans to residential land developers for the
purpose of developing one- to four-family lots and residential condominium projects. These
loans typically have terms of two years or less with maximum loan to value ratios of 80%.
These loans may provide for the payment of loan fees from loan proceeds. Loan principal is
typically paid down as lots or units are sold. During 2007 and 2008, the Company
experienced a significant increase in non-performing loan levels primarily associated with
this loan segment. The increase in nonperforming loan balances is more fully discussed
under the section Loan Portfolio and Asset Quality included in the Management Discussion
and Analysis of Results of Operations and Financial Condition. The increase was largely
associated with a decline in general market conditions that significantly reduced the
demand for new construction of one-to-four family residential real estate. Accordingly,
the Company has generally curtailed this type of lending for new customers. For current
borrowing customers, we will continue to support the projects for which we have already
advanced funds in order to facilitate success of the projects and ultimate repayment of
our loans. Any new loans made for the development of residential real estate are only to
current borrowers that can establish repayment ability from sources independent of the
project itself.

Commercial Business
Loans. Our commercial business lending portfolio contains loans with a
variety of purposes and security, including loans to finance operations and equipment.
Generally, our commercial business lending has been limited to borrowers headquartered, or
doing business, in our primary market area. These credit relationships typically require
the satisfaction of appropriate loan covenants and debt formulas; including, but not
limited to, net worth, debt to net worth, and accounts receivable aging requirements.
These loan covenants and debt formulas are monitored through periodic, required reporting
of accounts receivable aging schedules and financial statements, and in the case of larger
business operations, reviews or audits by independent professional firms.

-7-

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Unlike residential mortgage loans,
which generally are made on the basis of the borrowers ability to make repayment
from his or her employment and other income, and which are secured by real property whose
value tends to be more easily ascertainable, commercial business loans are of higher risk
and typically are made on the basis of the borrowers ability to make repayment from
the cash flow of the borrowers business. As a result, the availability of funds for
the repayment of commercial business loans may be substantially dependent on the success
of the business itself. Further, the collateral securing the loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based on the success of the
business.

Consumer Loans.
We originate a variety of different types of consumer loans, including automobile loans,
home equity lines of credit and installment loans, home improvement loans, deposit account
loans and other loans for household and personal purposes. Our automobile loans typically
are originated at fixed interest rates with terms up to 60 months for new and used
vehicles. Loans secured by automobiles are generally originated for up to 80% of the
National Automobile Dealers Association book value of the automobile securing the loan.

Our home equity installment loans are
written so that the total commitment amount, when combined with the balance of the first
mortgage lien, generally will not exceed the greater of 85% of the appraised value of the
property or 85% of one and one-half times the Michigan real estate assessment value. These
loans have a maximum maturity of 5 years with an amortization period of up to 15 years,
and carry fixed rates of interest.

We also originate home equity lines
of credit utilizing the same underwriting standards as for home equity installment loans.
Home equity lines of credit are revolving line of credit loans. The majority of our
existing home equity line of credit portfolio has variable rates with floors and ceilings,
interest only payments and a maximum maturity of ten years.

The underwriting standards that we
employ for consumer loans include a determination of the applicants payment history
on other debts and ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in relation to
the proposed loan amount. Consumer loans may entail greater credit risk than do
residential mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. In addition, consumer loan collections are dependent on the
borrowers continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal and state
laws, including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans.

Securities.    
          Our security portfolio is classified as either available for sale or
          held to maturity. Securities classified as available for
          sale may be sold prior to maturity due to changes in interest rates,
          prepayment risks, and availability of alternative investments, or to meet our
          liquidity needs. The primary objective of our investing activities is to provide
          for the safety of the principal invested. Our secondary considerations include
          the maximization of earnings, liquidity and to help decrease our overall
          exposure to changes in interest rates. The following table reflects the
          composition of our securities portfolio as of the dates indicated.

|Year Ended December 31                    
|------------------------------------------
|                                          
|                                          
|                                          
|                                          
|U.S. Treasury and U.S. Government Agencies
|State and municipal bonds                 
|Other equity securities                   
|                                          
|Total                                     
|                                          

Excluding our investment portfolio
holdings in U.S. Treasury and U.S. Government Agency Securities, we had no investments in
securities of any one issuer which exceeded 10% of shareholders equity.

-8-

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Schedule of Maturities of
Investment Securities and Weighted Average Yields. The following is a
schedule of investment security maturities and their weighted average yield by category at
December 31, 2008.

|Due Within One Year     | One to Five Years | Five to Ten Years | After Ten Years | No Contractual Maturity
|----------------------- | ----------------- | ----------------- | --------------- | -----------------------
|                        |                   |                   |                 |                        
|                        |                   |                   |                 |                        
|                        |                   |                   |                 |                        
|                        |                   |                   |                 |                        
|U.S. Treasury and U.S.  |                   |                  
|Government Agencies     |                   |                   | $               | 53,314                 
|Tax-exempt state and    |                   |                  
|municipal bonds (1)     |                   |                   |                 | --                     
|Other equity securities |                   |                   |                 | --                     
|                        |                   |                   |                 |                        
|Total (1)               |                   |                   | $               | 53,314                 
|                        |                   |                   |                 |                        

(1)    
          Yields on tax-exempt securities are computed on a fully taxable-equivalent
          basis.

Trust
Services.We began offering trust services in January 1999 to
further provide for the financial needs of our customers. With the acquisition of Grand
Bank in April 2002 our trust assets increased by over $500 million, and with the
acquisition of Smith & Associates our trust assets increased by over $100 million. As
of December 31, 2008, the Trust Department had assets of approximately $860.6 million. Our
types of service include both personal trust and retirement plan services.

Our personal trust services include
financial planning, investment management services, trust and estate administration and
custodial services. As of December 31, 2008, our personal trust assets totaled
approximately $737.9 million. Our retirement plan services provide all types of qualified
retirement plans including profit sharing, 401(k)s and pension plans. As of December 31,
2008, our retirement plan assets totaled approximately $122.7 million.

# Market Area

Our primary market area includes
Ottawa, Kent and northern Allegan Counties, all located in Western Michigan. This area
consists of two mid-sized cities, Grand Rapids and Holland, and rural areas. Grand Rapids
is the second largest city in Michigan and Holland is the largest city in Ottawa County.
Both cities and surrounding areas have a solid and diverse economic base, which includes
health and life sciences services, tourism, office furniture, automotive components and
assemblies, pharmaceutical, transportation, equipment, food and construction supplies.
Companies operating in the market area include the Van Andel Institute, Steelcase, Herman
Miller, Alticor, Gentex, Spectrum Health, Haworth, Johnson Controls, General Motors,
Gerber, SPX, Magna Donnelly, and Meijer.

Much of our success as a retail and
small to mid-sized business lender has been due to our market areas favorable
population, housing and income demographics. Population growth levels have been positive
year over year, but most recently population levels have slowed and stabilized. Population
within our three county market area grew 18.0% from 1990 to 2000, and 6% from 2000 to
2007. Median household income levels in our market area exceed state and national levels
while unemployment levels are generally below state levels but above national levels.

# Competition

There are many bank, thrift and
credit union offices located within our market area. Most are branches of larger financial
institutions. We also face competition from finance companies, insurance companies,
mortgage companies, securities brokerage firms, money market funds and other providers of
financial services. Many of our competitors have been in business a number of years, have
established customer bases, are larger and have higher lending limits than we do. We
compete for loans, deposits and other financial services based on our ability to
communicate effectively with our customers, to understand and meet their needs and to
provide high quality customer service. Our management believes that our personal service
philosophy enhances our ability to compete favorably in attracting individuals and small
businesses. We actively solicit customers by offering our customers personal attention,
professional service, and competitive interest rates.

# Environmental Matters

We do not believe that existing
environmental regulations will have any material effect upon our capital expenditures, our
earnings or our competitive position.

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# Employees

As of December 31, 2008, we had 338
full-time and 120 part-time employees. We have assembled a staff of experienced, dedicated
and highly qualified professionals whose goal is to meet the financial needs of our
customers while providing outstanding service. The majority of our management team has at
least 10 years of banking experience, and several key personnel have more than 20 years of
banking experience. None of our employees is represented by collective bargaining
agreements with us.

# Acquisitions

On April 1, 2002, Grand Bank
Financial Corporation was merged into Macatawa Bank Corporation. Macatawa Bank Corporation
became the holding company for Grand Bank. Effective January 1, 2003, Grand Bank was
merged into Macatawa Bank. On January 1, 2007, the Company completed the acquisition of
Smith & Associates. The Company in turn contributed the business to Macatawa Bank.

# SUPERVISION AND
REGULATION

The following is a summary of
certain statutes and regulations affecting Macatawa Bank Corporation and Macatawa 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 us and our business.

# General

Financial institutions and their
holding companies are extensively regulated under federal and state law. Consequently, our
growth and earnings performance 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 Federal Deposit Insurance Corporation
(FDIC), the Commissioner of the Michigan Office of Financial and Insurance
Regulation (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 us
and our bank establishes a comprehensive framework for our respective operations and is
intended primarily for the protection of the FDICs deposit insurance funds, our
depositors, and the public, rather than our shareholders.

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

Macatawa Bank Mortgage Company, a
subsidiary of Macatawa Bank, is subject to various state and federal regulations.

# Recent Regulatory
Developments

Emergency Economic Stabilization
Act of 2008.On October 3, 2008, the Emergency Economic Stabilization Act of
2008 (EESA) was enacted. EESA enables the federal government, under terms and
conditions to be developed by the Secretary of the Treasury, to insure troubled assets,
including mortgage-backed securities, and collect premiums from participating financial
institutions. EESA includes, among other provisions: (a) the $700 billion Troubled
Assets Relief Program (TARP), under which the Secretary of the Treasury is authorized to
purchase, insure, hold, and sell a wide variety of financial instruments, and (b) an
increase in the amount of deposit insurance provided by the Federal Deposit Insurance
Corporation (FDIC). Both of these specific provisions are discussed in the below sections.

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Under the TARP, the Department of
Treasury authorized a voluntary capital purchase program (CPP) to purchase senior
preferred shares of qualifying financial institutions that elected to participate by
November 14, 2008. We have applied to participate in the CPP but as of February 26,
2009, we have not yet been approved to participate and we have not made a final decision
about whether we would participate if our application is approved. Participating companies
must adopt certain standards for executive compensation, including (a) prohibiting
golden parachute payments as defined in EESA to senior Executive Officers;
(b) requiring recovery of any compensation paid to senior Executive Officers based on
criteria that is later proven to be materially inaccurate; and (c) prohibiting
incentive compensation that encourages unnecessary and excessive risks that threaten the
value of the financial institution. The terms of the CPP also limit certain uses of
capital by the issuer, including repurchases of company stock, and increases in dividends.

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

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

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

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

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

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

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

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

# Macatawa Bank Corporation

General.
Macatawa Bank Corporation 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, we are subject to periodic examination by the
          Federal Reserve Board, and are required to file with the Federal Reserve Board
          periodic reports of our operations and such additional information as the
          Federal Reserve Board may require.

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

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Investments and
Activities. In general, any direct or indirect acquisition by us of any
voting shares of any bank which would result in our direct or indirect ownership or
control of more than 5% of any class of voting shares of such bank, and any merger or
consolidation between us and another financial holding company or bank holding company,
will require the prior written approval of the Federal Reserve Board under the BHCA. No
Federal Reserve Board approval is required for us to acquire a company, other than a bank
holding company or bank, engaged in activities that are financial in nature as determined
by the Federal Reserve Board.

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

Capital
Requirements. The Federal Reserve Board uses capital adequacy guidelines in
its examination and regulation of bank holding companies. If capital falls below minimum
guidelines, a bank holding company may, among other items, 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 average 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 average
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.

Dividends.
Macatawa Bank Corporation is a corporation separate and distinct from Macatawa
          Bank. Most of our revenues are dividends paid by our bank. Thus, our ability to
          pay dividends to our shareholders is indirectly limited by statutory
          restrictions on our banks ability to pay dividends described below.
          Further, in a policy statement, the Federal Reserve Board has expressed its view
          that a bank holding company experiencing earnings weaknesses should not pay cash
          dividends exceeding its net income or which can only be funded in ways that
          weaken the bank holding companys financial health, such as by borrowing.
          Additionally, the Federal Reserve Board possesses enforcement powers over bank
          holding companies and their non-bank subsidiaries to prevent or remedy actions
          that represent unsafe or unsound practices or violations of applicable statutes
          and regulations. Among these powers is the ability to proscribe the payment of
          dividends by banks and bank holding companies. Similar enforcement powers over
          our 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 us 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, like us, 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.

Federal Securities Regulation.Our common stock is registered with the Securities and Exchange Commission
(SEC) under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended. The Sarbanes-Oxley Act of 2002 provides for numerous
changes to the reporting, accounting, corporate governance and business practices of
companies as well as financial and other professionals who have involvement with the U.S.
public markets. The SEC continues to issue new and proposed rules implementing various
provisions of the Sarbanes-Oxley Act.

# Macatawa Bank

General.
Macatawa Bank is a Michigan banking corporation, and its deposit accounts are
          insured by the Deposit Insurance Fund (the DIF) of the FDIC. As a
          DIF insured Michigan chartered bank, Macatawa 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 DIF. These agencies and the federal and state laws applicable
          to our 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.

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

The FDIC is required to establish
assessment rates for insured depository institutions at levels that will maintain the DIF
at a Designated Reserve Ratio (DRR) selected by the FDIC within a range of 1.15% to
1.50%. The FDIC is allowed to manage the pace at which the reserve ratio varies within
this range. The DRR is currently established at 1.25%.

Under the FDICs rate schedule,
most well-capitalized banks will pay from 12 to 14 basis points (calculated against the
banks deposit base) annually for the first quarter of 2009, increasing to 50 basis
points for banks that pose significant supervisory concerns. Effective April 1, 2009, most
well-capitalized banks will pay from 12 to 16 basis points annually, increasing to 45
basis points for banks that pose significant supervisory concerns. This base rate may be
adjusted based upon the level of unsecured debt, secured liabilities or brokered deposits,
as defined, resulting in adjusted rates ranging from 7 to 24 basis points annually for
most well capitalized banks and 43 to 77.5 basis points annually for banks that pose
significant supervisory concerns.

The FDIC issued an interim rule that
provides for a special assessment on June 30, 2009 to be collected on September 30, 2009,
and that the Board may impose additional special assessments thereafter under certain
circumstances. The interim rule was adopted to ensure the strength of the DIF in response
to the recent and anticipated failures of FDIC-insured institutions resulting from the
deterioration in banking and economic conditions. The FDIC has sought comment on the
interim rule and thus, it could be revised prior to its effective date of April 1, 2009.

FICO
Assessments. Our 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 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. From now until 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.

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.

Capital
Requirements. The FDIC has established the following minimum capital
standards for state-chartered, FDIC insured non-member banks, such as Macatawa Bank: a
leverage requirement consisting of a minimum ratio of Tier 1 capital to total average
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.

Federal law provides the federal
banking regulators with broad power to take prompt corrective action to resolve the
problems of undercapitalized institutions. The extent of the regulators powers
depends on whether the institution in question is well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized, or critically undercapitalized.

Federal regulations define these
capital categories as follows:

|                               | Total Risk-Based Capital Ratio | Tier 1 Risk-Based Capital Ratio | Leverage Ratio
|------------------------------ | ------------------------------ | ------------------------------- | --------------
|                               |                                |                                 |               
|                               |                                |                                 |               
|Well capitalized               |                                |                                 | 10% or above  
|Adequately capitalized         |                                |                                 | 8% or above   
|Undercapitalized               |                                |                                 | Less than 8%  
|Significantly undercapitalized |                                |                                 | Less than 6%  
|Critically undercapitalized    |                                |                                 | --            
|                               |                                |                                 |               
|                               |                                |                                 |               

As of December 31, 2008, each of Macatawa
Banks ratios exceeded minimum requirements for the well capitalized category.

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

In general, a depository institution
may be reclassified to a lower category than is indicated by its capital levels if the
appropriate federal depository institution regulatory agency determines the institution to
be otherwise in an unsafe or unsound condition or to be engaged in an unsafe or unsound
practice. This could include a failure by the institution, following receipt of a
less-than-satisfactory rating on its most recent examination report, to correct the
deficiency.

Dividends.
          Under Michigan law, our bank is restricted as to the maximum amount of dividends
          it may pay on its common stock. Our bank may not pay dividends except out of net
          income after deducting its losses and bad debts. A Michigan state bank may not
          declare or pay a dividend unless the bank will have surplus amounting to at
          least 20% of its capital after the payment of the dividend.

Federal law generally prohibits a
depository institution from making any capital distribution (including payment of a
dividend) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. 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 our bank, if such
payment is determined, by reason of the financial condition of our bank, to be an unsafe
and unsound banking practice.

Insider
Transactions. Our bank is subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to us or our subsidiaries, on investments
in the stock or other securities of our or our subsidiaries and the acceptance of the
stock or other securities of us or our subsidiaries as collateral for loans. Certain
limitations and reporting requirements are also placed on extensions of credit by our bank
to its directors and officers, to our directors and officers, the directors and officers
of our bank, to our principal shareholders 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 our company
or one of its subsidiaries or a principal shareholder in our company may obtain credit
from banks with which our 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.

Investments and Other
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 our bank.

Consumer Protection
Laws. Our banks business includes making a variety of types of loans
to individuals. In making these loans, we are is subject to State usury and regulatory
laws and to various federal statutes, including the privacy of consumer financial
information provisions of the Gramm-Leach-Bliley Act and regulations promulgated
thereunder, 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 our bank, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, our 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 our bank and its directors and officers.

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Branching
Authority. Michigan banks have the authority under Michigan law to
establish branches anywhere in the State of Michigan, subject to receipt of all required
regulatory approvals. Banks may establish interstate branch networks through acquisitions
of other banks. The establishment of de novo interstate branches or the acquisition of
individual branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed only if specifically authorized by state
law.

Michigan permits both U.S. and
non-U.S. banks to establish branch offices in Michigan. The Michigan Banking Code permits,
in appropriate circumstances and with the approval of the Michigan Office of Financial and
Insurance Regulation, Division of Financial Institutions, (1) acquisition of Michigan
banks by FDIC-insured banks, savings banks or savings and loan associations located in
other states, (2) sale by a Michigan bank of branches to an FDIC-insured bank, savings
bank or savings and loan association located in a state in which a Michigan bank could
purchase branches of the purchasing entity, (3) consolidation of Michigan banks and
FDIC-insured banks, savings banks or savings and loan associations located in other states
having laws permitting such consolidation, (4) establishment of branches in Michigan by
FDIC-insured banks located in other states, the District of Columbia or U.S. territories
or protectorates having laws permitting a Michigan bank to establish a branch in such
jurisdiction, and (5) establishment by foreign banks of branches located in Michigan.

# ITEM 1A:      Risk Factors

You should carefully consider the
following risk factors, together with the other information provided in this Annual Report
on Form 10-K.

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

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

There Can Be No Assurance
that the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment
Act Will Stabilize the U.S. Economy and Financial System.

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

Changes in economic
conditions or interest rates may negatively affect our profitability.

The results of operations for
financial institutions, including our bank, may be materially and adversely affected by
changes in prevailing local and national economic conditions, including declines in real
estate market values, rapid increases or decreases in interest rates and changes in the
monetary and fiscal policies of the federal government. Our profitability is heavily
influenced by the quality of the Companys loan portfolio, and the spread between the
interest rates we earn on investments and loans and the interest rates we pay on deposits
and other interest-bearing liabilities. Substantially all our loans are to businesses and
individuals in Western Michigan and any decline in the economy of this area could
adversely affect us. Like most banking institutions, our net interest spread and margin
will be affected by general economic conditions and other factors that influence market
interest rates and our ability to respond to changes in such rates. At any given time, our
assets and liabilities may be such that they are affected differently by a given change in
interest rates.

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Our credit losses could
increase and our allowance for loan losses may not be adequate to cover actual loan losses.

The risk of nonpayment of loans is
inherent in all lending activities and nonpayment, if it occurs, may have a material
adverse affect on our earnings and overall financial condition as well as the value of our
common stock. We make various assumptions and judgments about the collectibility of our
loan portfolio and provide an allowance for potential losses based on a number of factors.
If our assumptions are wrong, our allowance for loan and lease losses may not be
sufficient to cover our losses, thereby having an adverse affect on our operating results,
and may cause us to increase the allowance in the future. The actual amount of future
provisions for loan losses cannot now be determined and may exceed the amounts of past
provisions. Additionally, federal banking regulators, as an integral part of their
supervisory function, periodically review our allowance for credit losses. These
regulatory agencies may require us to increase our provision for credit losses or to
recognize further loan or lease charge-offs based upon their judgments, which may be
different from ours. Any increase in the allowance for credit losses could have a negative
effect on our net income, financial condition and results of operations.

Our loan portfolio has
and will continue to be affected by the on-going correction in residential real estateprices
and reduced levels of home sales.

At December 31, 2008, we had
approximately $203.7 million of loans for the development or sale of 1-4 family
residential properties, down from $235.8 million at December 31, 2007. There continues to
be a general slowdown in the housing market in our market area, reflecting declining
prices and excess inventories of houses to be sold. As a result, home builders have shown
signs of financial deterioration. We expect the home builder market to continue to be
volatile and anticipate continued pressure on the home builder segment in the coming
months. As we continue our on-going portfolio monitoring, we will make credit and reserve
decisions based on the current conditions of the borrower or project combined with our
expectations for the future. If the slow down in the housing market continues, we could
experience higher charge-offs and delinquencies in this portfolio.

Our business is subject
to various lending risks depending on the nature of the borrowers business, its cash flow
and our collateral.

Repayment of our commercial loans
is often dependent on cash flow of the borrower, which may be unpredictable, and
collateral securing these loans may fluctuate in value.Our commercial loans are
primarily made based on the cash flow of the borrower and secondarily on the underlying
collateral provided by the borrower. Most often, this collateral is accounts receivable,
inventory, equipment or real estate. In the case of loans secured by accounts receivable,
the availability of funds for the repayment of these loans may be substantially dependent
on the ability of the borrower to collect amounts due from its customers. Other collateral
securing loans may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.

Our commercial real estate loans
involve higher principal amounts than other loans, and repayment of these loans may be
dependent on factors outside our control or the control of our borrowers. Commercial
real estate lending typically involves higher loan principal amounts, and the repayment of
these loans generally is dependent, in large part, on sufficient income from the
properties securing the loans to cover operating expenses and debt service. Because
payments on loans secured by commercial real estate often depend upon the successful
operating and management of the properties, repayment of such loans may be affected by
factors outside the borrowers control, such as adverse conditions in the real estate
market or the economy or changes in government regulation. If the cash flow from the
project is reduced, the borrowers ability to repay the loan and the value of the
security for the loan may be impaired.

Our construction and development
loans are based upon estimates of costs to construct and value associated with the
completed project.These estimates may be inaccurate. Because of the uncertainties
inherent in estimating construction costs, as well as the market value of the completed
project, it is relatively difficult to evaluate accurately the total funds required to
complete a project and the related loan-to-value ratio. As a result, construction loans
often involve the disbursement of substantial funds with repayment dependent, in part,
upon the success of the ultimate project and the ability of the borrower to sell or lease
the property, rather than the ability of the borrower or guarantor to repay principal and
interest. Delays in completing the project may arise from labor problems, material
shortages and other unpredictable contingencies. If the estimate of the cash of
construction is inaccurate, we may be required to advance additional funds to complete
construction. If our appraisal of the value of the completed project proves to be
overstated, we may have inadequate security for the repayment of the loan upon completion
of the project.

-16-

---



Our construction and development
loans also include loans to residential land developers for which repayment is generally
from the sale of residential lots and/or new construction residential one-to-four family
homes.Residential development loans typically involve higher loan principal amounts.
In addition, the sale of residential lots and/or new construction residential one-to-four
family residences is contingent upon general market conditions and the resulting impact on
the demand for residential property. If the demand for residential lots and/or new
construction residential one-to-four family residences slows, the borrowers ability
to repay the loan and the value of the security for the loan may be impaired.

Our consumer loans generally have
a higher risk of default than our other loans. Consumer loans entail greater risk than
our other loans, particularly in the case of consumer loans that are unsecured or secured
by rapidly depreciating assets. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of damage, loss or depreciation. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrowers continuing financial stability, and thus, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy, all of which increase when
the economy is weak. Furthermore, the application of various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans.

Litigation involving
Trade Partners may have a material adverse effect on our financial condition.

Item 3 of this Form 10-K includes
information about the Trade Partners, Inc. receivership and pending legal actions
involving Trade Partners, Inc., the Macatawa Bank Corporation and Macatawa Bank. If one or
more of these legal actions is determined adversely to the Macatawa Bank Corporation and
Macatawa Bank, or if one or more of these legal actions results in Macatawa Bank
Corporation or Macatawa Bank paying a substantial settlement, then such adverse
determination or settlement may have a material adverse effect on our financial condition.

The Company has reached a contingent
settlement agreement with counsel representing the majority of the Plaintiffs. The
settlement agreement remains subject to a number of conditions, as discussed further in
Item 3 of this Form 10-K.

We may experience
difficulties in managing our growth.

To sustain our continued growth, we
require additional capital to fund our expanding lending activities. As part of our
strategy for continued growth, we intend to open additional branches. New branches often
experience a period of unprofitability due to the impact of overhead expenses and the
start-up phase of generating loans and deposits. To the extent that we continue to open
additional branches, we may experience the effects of higher operating expenses relative
to operating income from the new operations, which may have an adverse affect on our
levels of net income, return on average equity and return on average assets.

In addition, we may acquire banks and
related businesses that we believe provide a strategic fit with our business. To the
extent that we grow through acquisitions, we cannot assure you that we will be able to
adequately or profitably manage such growth. Acquiring other banks and businesses involves
risks commonly associated with acquisitions.

We rely heavily on our
management and other key personnel, and the loss of any of them may adversely effect our operations.

We are and will continue to be
dependent upon the services of our management team, including our President and Chief
Executive Officer of Macatawa Bank, our Executive Vice President of Macatawa Bank, and our
other senior managers and commercial lenders. Losing one or more key members of the
management team could adversely affect our operations. We do not maintain key man life
insurance on any of our officers or directors.

We continually encounter
technological change, and we may have fewer resources than our competitors to continue to
invest in technological improvements.

The banking industry is undergoing
rapid technological changes with frequent introductions of new technology-driven products
and services. In addition to better serving customers, the effective use of technology
increases efficiency and enables financial institutions to reduce costs. Our future
success will depend, in part, on our ability to address the needs of our customers by
using technology to provide products and services that will satisfy customer demands for
convenience as well as to create additional efficiencies in our operations. Many of our
competitors have substantially greater resources to invest in technological improvements.
There can be no assurance that we will be able to effectively implement new
technology-driven products and services or be successful in marketing such products and
services to our customers.

-17-

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Our future success is
dependent on our ability to compete effectively in the highly competitive banking
industry.

We face substantial competition in
all phases of our operations from a variety of different competitors. Our future growth
and success will depend on our ability to compete effectively in this highly competitive
environment. We compete for deposits, loans and other financial services with numerous
Michigan-based and out-of-state banks, thrifts, credit unions and other financial
institutions as well as other entities which provide financial services. Some of the
financial institutions and financial services organizations with which we compete are not
subject to the same degree of regulation as we are. Most of our competitors have been in
business for many years, have established customer bases, are larger, and have
substantially higher lending limits than we do. The primary competitors in our market area
include Fifth Third Bancorp, Huntington Bancshares, and LaSalle Bank. The financial
services industry is also likely to become more competitive as further technological
advances enable more companies to provide financial services. These technological advances
may diminish the importance of depository institutions and other financial intermediaries
in the transfer of funds between parties.

We are subject to
significant government regulation, and any regulatory changes may adversely affect us.

The banking industry is heavily
regulated under both federal and state law. These regulations are primarily intended to
protect customers, not our creditors or shareholders. As a bank holding company, we are
also subject to extensive regulation by the Federal Reserve, in addition to other
regulatory and self-regulatory organizations. Our ability to establish new facilities or
make acquisitions is conditioned upon the receipt of the required regulatory approvals
from these organizations. Regulations affecting banks and financial services companies
undergo continuous change, and we cannot predict the ultimate effect of such changes,
which could have a material adverse effect on our profitability or financial condition.

Our articles of
incorporation and by-laws and Michigan laws contain certain provisions that could make a
takeover more difficult.

Our articles of incorporation and
by-laws, and the laws of Michigan, include provisions which are designed to provide our
board of directors with time to consider whether a hostile takeover offer is in our best
interest and the best interests of our shareholders. These provisions, however, could
discourage potential acquisition proposals and could delay or prevent a change in control.
The provisions also could diminish the opportunities for a holder of our common stock to
participate in tender offers, including tender offers at a price above the then-current
price for our common stock. These provisions could also prevent transactions in which our
shareholders might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of our shareholders to approve transactions that they
may deem to be in their best interests.

The Michigan Business Corporation Act
contains provisions intended to protect shareholders and prohibit or discourage certain
types of hostile takeover activities. In addition to these provisions and the provisions
of our articles of incorporation and by-laws, Federal law requires the Federal Reserve
Boards approval prior to acquisition of control of a bank holding
company. All of these provisions may have the effect of delaying or preventing a change in
control at the company level without action by our shareholders, and therefore, could
adversely affect the price of our common stock.

The market price for our
common stock fluctuates.

The market price for our common stock
has fluctuated, ranging between $2.60 and $14.49 for 2008. The overall market and the
price of our common stock may continue to fluctuate. There may be a significant impact on
the market price for our common stock due to, among other things:

| |  | Variations
in our anticipated or actual operating results or the results of our competitors;
| | - | --------------------------------------------------------------------------------------------

| |  | Changes
in investorsor analysts perceptions of the risks and conditions of our
business;
| | - | ------------------------------------------------------------------------------------------

| |  | The
size of the public float of our common stock;
| | - | -------------------------------------------------

| |  | Regulatory
developments;
| | - | ------------------------

| |  | Market
conditions; and
| | - | ----------------------

| |  | General
economic conditions.
| | - | ----------------------------

Additionally, the average daily
trading volume for our common stock as reported on the Nasdaq National Market was 78,593
shares during 2008, with daily volume ranging from a low of 7,901 shares to a high of
1,927,311 shares. There can be no assurance that a more active or consistent trading
market in our common stock will develop. As a result, relatively small trades could have a
significant impact on the price of our common stock.

-18-

---



Our ability to pay
dividends is limited by law and contract.

We are a holding company and
substantially all of our assets are held by our bank. Our ability to continue to make
dividend payments to our shareholders will depend primarily on available cash resources at
the holding company and dividends from our bank. Dividend payments or extensions of credit
from our bank are subject to regulatory limitations, generally based on capital levels and
current and retained earnings, imposed by regulatory agencies with authority over our
bank. The ability of our bank to pay dividends is also subject to its profitability,
financial condition, capital expenditures and other cash flow requirements. We also are
prohibited from paying dividends on our common stock if the required payments on our
subordinated debentures have not been made. We cannot assure you that our bank will be
able to pay dividends to us in the future.

# ITEM 1B:      Unresolved
Staff Comments.

| | None.
| | -----

# ITEM 2:      Properties.

We own or lease facilities located in
Ottawa County, Allegan County and Kent County, Michigan. Our administrative offices are
located at 10753 Macatawa Drive, Holland, Michigan 49424. Our administrative offices are
approximately 49,000 square feet and contain our administration, human resources, trust,
loan underwriting and processing, and deposit operations.

Our facilities as of February 26,
2009, were as follows:

|Location of Facility                        | Use
|------------------------------------------- | ---
|                                            |    
|                                            |    
|10753 Macatawa Drive, Holland               |    
|                                            |    
|815 E. Main Street, Zeeland                 |    
|125 Ottawa Avenue N.W., Grand Rapids*       |    
|126 Ottawa Avenue N.W., Grand Rapids*       |    
|141 E. 8th Street, Holland                  |    
|489 Butternut Dr., Holland                  |    
|701 Maple Avenue, Holland                   |    
|699 E. 16th Street, Holland                 |    
|41 N. State Street, Zeeland                 |    
|2020 Baldwin Street, Jenison                |    
|6299 Lake Michigan Dr., Allendale           |    
|132 South Washington, Douglas               |    
|4758 - 136th Street, Hamilton*              |    
|3526 Chicago Drive, Hudsonville             |    
|20 E. Lakewood Blvd., Holland               |    
|3191 - 44th Street, S.W., Grandville        |    
|2261 Byron Center Avenue S.W., Byron Center |    
|5271 Clyde Park Avenue, S.W., Wyoming       |    
|4590 Cascade Road, Grand Rapids             |    
|3177 Knapp Street, N.E., Grand Rapids       |    
|15135 Whittaker Way, Grand Haven            |    
|12415 Riley Street, Holland                 |    
|2750 Walker N.W., Walker                    |    
|1575 - 68th Street S.E., Grand Rapids       |    
|2820 - 10 Mile Road, Rockford               |    
|520 Baldwin Street, Jenison                 |    
|2440 Burton Street, S.E., Grand Rapids      |    
|6330 28th Street, S.E., Grand Rapids        |    

* Leased facility

We believe our facilities are
well-maintained and adequately insured. Because of our growth, we are continually
evaluating the need for additional space and branches.

-19-

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# ITEM 3.      LEGAL
PROCEEDINGS.

Please refer to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, (Part II, Item 1 Legal
Proceedings) for information concerning legal proceedings related to Trade Partners, Inc.

A lawsuit was filed in April 2003 by
John and Kathryn Brand in Oklahoma state court against Grand Bank, the Company, Trade
Partners and certain individuals and entities associated with Trade Partners. The
complaint sought damages for the asserted breach of certain escrow agreements for which
Grand Bank served as custodian and escrow agent. The claims asserted against the Company
and Grand Bank in this action have been settled and dismissed with prejudice.

In May 2003, a purported class action
complaint was filed by Forrest W. Jenkins and Russell S. Vail against the Company in the
United States District Court for the District of Western Michigan. As amended, this suit
alleges that Grand Bank breached escrow agreements and fiduciary duties and violated the
Michigan Uniform Securities Act with respect to the investments secured by the purported
class in viaticals and in interests in limited partnerships which made loans to Trade
Partners secured by viaticals, and with respect to loans made by purported class members
directly to Trade Partners. Plaintiffs motion for class certification was denied in
November 2006. The Company has answered this complaint denying the material allegations
and raising certain affirmative defenses.

Following denial of class
certification in the Jenkins case, nine new cases were filed in several different
jurisdictions. These complaints are identical in all material respects other than the
identity of the plaintiffs, and are substantially identical to the complaint in the
Jenkins litigation. None of these complaints contain class action allegations, but
the total number of named plaintiffs in all the nine cases is currently about 1,200. The
cases are: Ronald Ash, et. al. v. Macatawa Bank Corporation, et. al.filed
November 17, 2006 in the District Court for Oklahoma County, Oklahoma, subsequently
removed by the Company to the United States District Court for the Western District of
Oklahoma; Steven M. Adamson, et. al. v. Macatawa Bank Corporation, et.
al.filed November 15, 2006 in the United States District Court for the Western
District of Oklahoma; James Lee Myers et. al. v. Macatawa Bank Corporation, et.
al.filed November 14, 2006 in the Superior Court for Los Angeles County,
California, subsequently removed by the Company to the United States District Court for
the Central District of California; Frank V. Bailey et. al. v. Macatawa Bank
Corporation, et. al.filed November 29, 2006 in the United States District Court
for the Northern District of Texas; Eddie Elkins, et. al. v. Macatawa Bank
Corporationfiled January 29, 2007 in the United States District Court for the
Western District of Oklahoma; William A. Giese, et. al. v. Macatawa Bank Corporation,
et. al.filed November 17, 2006 in the Circuit Court for Kent County, Michigan;
Gerald Abraham, et. al. v. Macatawa Bank Corporation, et. al.filed November
29, 2006 in the Circuit Court for Kent County, Michigan; Jorge Acevedo, et. al. v.
Macatawa Bank Corporation, et. al.filed December 17, 2006 in the Circuit Court
for Kent County, Michigan; and Jose Javier Acasuso, et. al. v. Macatawa Bank
Corporation, et. al.filed January 17, 2007 in the Circuit Court for Kent County,
Michigan.

The Company believes it has
meritorious defenses to these cases, and has vigorously defended them.

On October 6, 2008 the Company
reached a preliminary contingent settlement with counsel for the Plaintiffs in these
proceedings. This agreement required various conditions to be satisfied by January 15,
2009. The Company does not believe it is likely that the contingencies, which are
discussed in more detail below, will be satisfied and entered into the agreement
anticipating that the plaintiffs response would help it assess the uncertainties of
the litigation.

Both parties entered into a
re-negotiation of the agreement in December and the preliminary contingent settlement was
amended on January 29, 2009. Under the terms of the Amended Agreement, if all
contingencies are satisfied and the settlement becomes final, the Company will pay the
plaintiffs $5.75 million in cash, and issue warrants to purchase a total of 1,500,000
shares of common stock at an exercise price of $9.00 per share with the warrants having a
term of five years from the date of issuance. The Amended Agreement further provides that
the plaintiffs are to receive amounts collected by the Company from other defendants up to
$250,000. If the Company collects less than $250,000 from these other defendants, it is to
make up the difference with cash. The Companys insurers will contribute $950,000 to
the cash portion of the settlement. The Amended Agreement includes deadlines for
satisfying certain contingencies. Under the terms of the Amended Agreement, the Company
will not issue shares of common stock as part of the settlement (except pursuant to the
warrant as described above).

The settlement involves no admission
of fault or wrongdoing by the Company or Macatawa Bank.

-20-

---



The original contingent settlement
agreement provided for a settlement of $2.75 million in cash, including $950,000 from the
Companys insurers, $250,000 in cash from third parties defendants or the Company,
common stock valued at $3.0 million and three warrants for each share of common stock to
be issued in the proposed settlement. The common stock was to have been issued at a price
based on the average closing price for the 20 trading days preceding the date the
settlement would have become final after the contingencies are satisfied, the stock
warrants would have expired after three years and would have had an exercise price equal
to 150% of the price per share at which the common stock was issued with the result that
the number of shares and warrants to be issued would have been determined based on the
stock price at the time the settlement becomes final. The Companys lower stock price
affected their ability to offer stock causing both parties to enter into re-negotiation in
December, 2008. The preliminary contingent settlement agreement was amended on January 29,
2009. The stock component of the original offer was replaced with cash, but the value of
the contingent settlement agreement was essentially unchanged.

Significant contingencies contained
in the Amended Agreement are beyond the Companys control and there can be no
assurance about if and when such additional contingencies will be satisfied. The
contingencies include the requirement that by no later than April 30, 2009, ninety-eight
percent (98%) of the total number of plaintiffs and ninety-eight percent (98%) of the
total dollar amount of the claims must be resolved by said plaintiffs signing a release of
claims. If the contingencies were satisfied and the litigation was settled, as proposed,
the impact on the Company would be the recording of an additional expense of approximately
$3.3 million, net of tax.

There are approximately 1,200
plaintiffs located in 40 states and 13 different countries. Plaintiffs claims differ
widely depending upon which of the many different escrow agreements to which they were a
party. This is not a class action and Plaintiffs counsel cannot act to bind the
Plaintiffs. The Company believes that resolving this litigation would be in the best
interests of the Company and its shareholders. However, based on thesignificance
of the contingencies precedent within the contingent settlement agreement, particularly
given the geographic disparity of the plaintiffs, the complicated nature of their varied
claims, and the high number of plaintiffs involved combined with the high threshold (98%)
required for release of claims, we do not believe it is probable that the contingencies
will be satisfied and the litigation settled as contemplated by the contingent settlement
agreement. The Company made the offer to settle, containing the contingencies noted above,
in an attempt to avoid exposure to future litigation and to avoid the cost of litigation,
although the Company did and does not believe the plaintiffs are likely to meet the terms
of the offer so as to be able to accept it.

If the contingencies are not
satisfied, and the offer accepted under its terms, the Company does not intend to extend
or amend the offer, the Trade Partners litigation will not be settled and the litigation
process will resume. If the litigation resumes, the Company believes it has strong
defenses and intends to continue to vigorously defend these actions. The outcome under
litigation, however, is uncertain, and we are therefore unable to determine to what extent
it will impact the Company. The outcome could involve less or more loss to the Company
than the amount proposed in the settlement offer. Accordingly, no amount has been accrued
at December 31, 2008 for this matter.

On April 15, 2003, the United States
District Court for the Western District of Michigan appointed a receiver for Trade
Partners. In order to prevent or minimize any loss to investors in the viaticals sold by
Trade Partners to investors, the court-appointed receiver coordinated the payment of
premiums on the approximately 1,000 outstanding viaticated insurance policies in the Trade
Partners portfolio so that the policies would not lapse. The receiver informed the Company
that nine policies with a total face value of approximately $1.4 million lapsed for
failure to pay premiums prior to the receivers coordination efforts. In addition,
the receiver unsuccessfully contested a partial lapse totaling about $700,000. In February
2008 the receiver reported that he had discovered that an unspecified number of group
policies in an unspecified face amount had apparently lapsed prior to the receivership
for various reasons, including companies that went out of business or employees who
had been terminated.

On July 1, 2003, the United States
District Court for the Western District of Michigan authorized the receiver to borrow
money from Macatawa Bank to pay premiums, if needed. Macatawa Bank agreed to extend a $4
million line of credit to the receiver, conditioned upon obtaining a security interest in
the viaticals. No draws were made against the line, and the line expired during the fourth
quarter of 2004.

The receiver received authorization
from the Court in July 2005 to sell the entire portfolio, which the receiver said had a
face value of approximately $170 million, to Universal Settlements International, Inc., a
Canadian company, for an amount equal to 26.58% of face value. Under the terms of the
sale, payments are to be made by Universal Settlements to the receivership as policy
transfers are processed by the issuing insurance companies. The receiver has reported that
as of January 15, 2009 he had received sale payments of approximately $39.7 million and
proceeds of maturities aggregating another $33.1 million.

-21-

---



The receiver on July 21, 2006 filed a
proposed amended plan of distribution and related disclosure statement, contemplating a
complete liquidation of the assets of Trade Partners. The plan was approved by the Court
on January 7, 2007. The receiver reported as of February 5, 2008 that claims against the
receivership estate totaled $169,430,383.85, but that contrary to his earlier reports he
now expected that there may be one or two additional claims in unspecified
amounts that will be filed.

The receiver reported that he
commenced distributions on January 19, 2007, and that as of January 15, 2009 $46,990,300
in court-approved claims and settlements had been distributed. There may be additional
distributions, but the Company does not know when they might be made or in what amount.

It is possible that one or more
additional legal actions may be initiated involving the custodial and escrow agent
services provided by Grand Bank in connection with Trade Partners. If any such legal
actions are commenced, the Company intends to defend them vigorously.

As of the date hereof, except as
disclosed above, there were no material pending legal proceedings, other than routine
litigation incidental to the business of banking to which we or any of our subsidiaries
are a party of or which any of our properties are the subject.

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

No matters were submitted during the
fourth quarter of 2008 to a vote of our shareholders.

# PART II

# ITEM 5:      Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.

Market Information.The Companys common stock is quoted on the Nasdaq Global Select
Market under the symbol MCBC. High and low sales prices (as reported on the Nasdaq Global
Select Market) for each quarter for the years ended December 31, 2008 and 2007 are set
forth in the table below. This information has been restated to reflect the impact of all
previously paid stock dividends and splits.

|               | 2008 | 2007
|-------------- | ---- | ----
|               |      |     
|               |      |     
|               |      |     
|               |      |     
|First Quarter  |      |     
|Second Quarter |      |     
|Third Quarter  |      |     
|Fourth Quarter |      |     

On February 26, 2009, there were
approximately 826 owners of record and, in addition, approximately 7,875 beneficial owners
of our common stock.

The Company declared its first cash
dividend, amounting to $.03 per share, during the fourth quarter of 2000. Quarterly cash
dividends totaling $.13 were paid during 2001, and a 3% stock dividend was declared during
the second quarter of 2001. Quarterly cash dividends totaling $.16 were paid during 2002,
and a 4% stock dividend was declared during the second quarter of 2002. Quarterly cash
dividends totaling $.21 were paid during 2003, and a 5% stock dividend was declared during
the second quarter of 2003. Quarterly cash dividends totaling $.27 were paid during 2004,
and a 5% stock dividend was declared during the second quarter of 2004. Quarterly cash
dividends totaling $.37 were paid during 2005, and a 15% stock dividend was declared
during the second quarter of 2005. Quarterly cash dividends totaling $.46 were paid during
2006, and a 5% stock dividend was declared in the second quarter of 2006. In addition, a
3-for-2 stock split was paid during the second quarter of 2006. Quarterly cash dividends
totaling $.51 were paid during 2007, and a 5% stock dividend was declared during the
second quarter of 2007. Quarterly cash dividends totaling $.26 were paid during 2008. All
of these cash dividend amounts have been retroactively adjusted to reflect the effect of
the stock dividends and stock split.

-22-

---



In order to augment its capital
position, the Company temporarily suspended its cash dividend to common shareholders after
payment of the second quarter cash dividend in 2008. Funds for the payment of future cash
dividends are primarily dependent upon cash currently held at the Company and from
dividends received from Macatawa Bank out of its earnings. The Company will continue to
reevaluate, on a quarterly basis, the declaration of cash and stock dividends on common
shares based primarily on the current and future projected levels of capital and cash held
by the Company, and the current and future projected levels of capital and earnings of
Macatawa Bank. There can be no assurance that we will have the financial resources to
continue to pay dividends in the future.

# SHAREHOLDER RETURN
PERFORMANCE GRAPH

The following graph shows the cumulative
total shareholder return on an investment in the Companys common stock compared to
the Hemscott Group Index of Regional-Midwest Banks and the Russell 2000 Index. The
comparison assumes a $100 investment on December 31, 2003 and assumes that dividends are
reinvested. The comparisons in this table are set forth in response to Securities and
Exchange Commission (SEC) disclosure requirements, and therefore are not intended to
forecast or be indicative of future performance of the common stock.



|                          | 2004 | 2005 | 2006 | 2007   | 2008
|------------------------- | ---- | ---- | ---- | ------ | ----
|                          |      |      |      |        |     
|                          |      |      |      |        |     
|Macatawa Bank Corporation |      |      |      | 121.72 |     
|Hemscott Group Index      |      |      |      | 106.62 |     
|Russell 2000 Index        |      |      |      | 117.49 |     

Issuer Purchases of Equity
Securities. On May 17, 2007, the Company announced a repurchase plan that
authorized share repurchases of up to $30 million of our common stock. The Company did not
repurchase any of its common stock in open market transactions under the repurchase plan
during 2008. The Company has remaining authority to repurchase up to $26,103,695 of market
value of its common stock under the repurchase plan.

-23-

---



# ITEM 6:      Selected
Financial Data.

The following selected consolidated
financial and other data are derived from the Companys Financial Statements and
should be read with the Consolidated Financial Statements and Notes thereto, and
Managements Discussion and Analysis of Results of Operations and Financial
Condition. The Consolidated Balance Sheets as of December 31, 2008 and 2007, and the
Consolidated Statements of Income for the years ended December 31, 2008, 2007, and 2006,
are included elsewhere in this Annual Report.

|As of and For the Year Ended December 31    
|--------------------------------------------
|                                            
|                                            
|                                            
|                                            
|Financial Condition                         
|Total assets                                
|Securities                                  
|Loans                                       
|Deposits                                    
|Other borrowed funds                        
|Shareholders' equity                        
|                                            
|Share Information*                          
|Basic earnings (loss) per common share      
|Diluted earnings (loss) per common share    
|Book value per common share                 
|Tangible book value per common share        
|Dividends per common share                  
|Average dilutive common shares outstanding  
|Common shares outstanding at end of period  
|                                            
|Operations                                  
|Interest income                             
|Interest expense                            
|Net interest income                         
|Provision for loan losses                   
|Net interest income after provision         
|for loan losses                             
|Total noninterest income                    
|Total noninterest expense                   
|Income (loss) before tax                    
|Federal income tax                          
|Net income (loss)                           
|Dividend declared on preferred shares       
|Net income (loss) available to common shares
|                                            
|Performance Ratios                          
|Return on average equity                    
|Return on average assets                    
|Yield on average interest-earning assets    
|Cost on average interest-bearing liabilities
|Average net interest spread                 
|Average net interest margin                 
|Efficiency ratio                            
|                                            
|Capital Ratios                              
|Equity to assets                            
|Total risk-based capital ratio              
|                                            
|Credit Quality Ratios                       
|Allowance for loan losses to total loans    
|Nonperforming assets to total assets        
|Net charge-offs to average loans            

*Retroactively adjusted to reflect
the effect of all stock splits and dividends.

-24-

---



# ITEM 7:      Management's
Discussion and Analysis of Results of Operations and Financial Condition.

Managements discussion and
analysis of results of operations and financial condition contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those projected in such forward-looking
statements.

The following section presents
additional information to assess the results of operations and financial condition of the
Company. This section should be read in conjunction with the consolidated financial
statements and the supplemental financial data contained elsewhere in this Annual Report.

# Overview

Macatawa Bank Corporation is a
Michigan corporation and is the holding company for a wholly owned subsidiary, Macatawa
Bank and for two trusts, Macatawa Statutory Trust I and Macatawa Statutory Trust II.
Effective November 1, 2006, Macatawa Investment Services, Inc., a wholly owned subsidiary
of Macatawa Bank Corporation, ceased doing business as a registered broker-dealer.
Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal
Deposit Insurance Corporation. The bank operates twenty-six branch offices and a lending
and operational service facility, providing a full range of commercial and consumer
banking and trust services in Kent County, Ottawa County, and northern Allegan County,
Michigan. On November 1, 2006, Macatawa Bank began offering brokerage services to its
customers through an arrangement with Infinex Investments, Inc. (Infinex).
Infinex is a full service investment provider, a registered broker-dealer and a member of
the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection
Corporation (SIPC). As more fully discussed in our Form 8-K dated October 11, 2006,
Macatawa Bank Corporation entered into an Agreement and Plan of Merger with the Smith
& Associates investment advisory firm based in Holland, Michigan. The Smith &
Associates acquisition became effective on January 1, 2007 and that business is now part
of Macatawa Bank. Macatawa Statutory Trusts I and II are grantor trusts and issued $20.0
million each of pooled trust preferred securities. These trusts are not consolidated in
the Corporations financial statements. For further information regarding
consolidation, see the Notes to the Consolidated Financial Statements included herein.
Macatawa Bank Mortgage Company, a subsidiary of Macatawa Bank, originates and sells
residential mortgage loans into the secondary market on a servicing released basis.

We have generally experienced rapid
growth since opening Macatawa Bank in November of 1997 with assets reaching $2.1 billion
as of December 31, 2008. At the end of 2007 and into 2008, the Company has managed its
growth at a slower rate to focus on maintaining asset quality within the generally weak
economic conditions in West Michigan. Since our inception in 1997, we have raised
approximately $131.9 million in capital through private and public common and preferred
stock offerings and trust preferred offerings to ensure the Companys safety and
soundness and to facilitate our growth and progress over these years.

We believe that growth in core
deposits is key to our long-term success and is our primary funding source for asset
growth. Establishing a branching network in our markets has been of high importance in
order to facilitate this core deposit growth. We have gained community awareness and
acceptance in our markets through this expanding branch network and our high quality
service standards.

The West Michigan markets within
which we operate continue to provide significant expansion opportunities for us. We opened
our twenty-sixth branch during the second quarter of 2007 on the southeast side of the
greater Grand Rapids area. Because of the significance of the greater Grand Rapids market
and as it represents the greatest opportunity for market share growth, we anticipate
additional branch openings in this market within the next few years. We also continue to
enjoy success in building new and existing relationships in the Holland/Zeeland and Grand
Haven markets.We anticipate that when economic conditions strengthen again we will
continue to experience growth in our balance sheet and in our earnings due to these
expansion opportunities.

-25-

---



# RESULTS OF OPERATIONS

Summary:Net loss available to
common shares was $39.7 million or $2.34 loss per common share for 2008 compared to net
income of $9.3 million or $0.54 per common diluted share for 2007, and net income of $19.8
million or $1.14 per common diluted share for 2006. The results for 2008 include a
non-cash, after tax impairment charge for goodwill and intangible assets of $27 million,
discussed more fully below.

The primary reason for the remaining
decline in earnings for 2008 and 2007 compared to 2006 was an increase in the provision
for loan losses to address continued deterioration in the loan portfolio, primarily
commercial real estate loans to residential land developers. The provision for loan losses
was $37.4 million in 2008, $15.8 million in 2007 and $7.7 million in 2006. Circumstances
associated with these losses are described under Loan Portfolio and Asset Quality and
Allowance for Loan Losses.

Net Interest Income:Net
interest income totaled $58.1 million during 2008 compared to $62.9 million during 2007
and $67.4 million during 2006.

The decrease in net interest income
during 2008 compared to 2007 was primarily due to a decline in the net interest margin
partially offset by an increase in average earning assets. Average interest earning assets
increased by $21.2 million, to $1.98 billion for 2008. The net interest margin decreased
27 basis points to 2.94% for 2008 from 3.21% for 2007. Approximately half of the decline
in net interest margin was from rising balances of non-performing assets throughout 2008.
The remaining decline was largely driven by the Federal funds and prime rate cuts that
began in late 2007, resulting in a more rapid decline in the yield on assets compared to
the cost of funds.

The yield on earning assets decreased
125 basis points to 5.86% for 2008 from 7.11% for 2007. The 325 basis point decline in the
prime rate that began in the third quarter of 2007 caused a decrease in the yield on our
variable rate loan portfolio and was the primary reason for the decrease in yield on
earning assets. Also contributing to the decrease was the impact of rising balances of
nonperforming loans throughout 2007 and into 2008 which resulted in a decline of
approximately 13 basis points in the yield on assets. The cost of funds decreased 109
basis points to 3.23% in 2008 from 4.32% in 2007. A decrease in the rates paid on our
deposit accounts in response to declining market rates, the rollover of time deposits at
lower rates, and the repositioning of other borrowings within the lower rate environment,
were the primary reasons for the decrease in the cost of funds.

The decrease in net interest income
during 2007 compared to 2006 was primarily due to a decline in the net interest margin
partially offset by an increase in average earning assets. Average interest earning assets
increased by $120.5 million, or 7%, to $1.96 billion for 2007. The net interest margin
decreased 46 basis points to 3.21% for 2007 from 3.67% for 2006 from both a decrease in
the yield on earning assets and an increase in the cost of funds.

The impact of rising balances of
nonperforming loans during 2007 was the primary reason for the 15 basis point decline in
the yield on assets during the period. The general increase in rates paid on deposit
accounts, the rollover of time deposits at higher rates and a shift to higher costing
funds within the generally high interest rate environment that occurred throughout 2006
and through the third quarter of 2007 are the primary reasons for the 31 basis point
increase in cost of funds during the period. The decrease in market rates that began in
late September of 2007, however, led to a decline in the cost of funds during the fourth
quarter of 2007, partially offsetting the increase in cost of funds for the year.

Anticipated growth in earning assets
is expected to continue at lower levels than we have experienced in the past due to the
generally weak economic conditions in Michigan that remain and are expected to continue
into 2009. The declines in the Federal funds and prime rates that occurred into late 2008
may have a negative impact on net interest income in early 2009, although the impact is
expected to be more than offset by a continued decline in the cost of funds, as term
funding is expected to rollover at lower costs throughout 2009.

-26-

---



The following table shows an analysis
of net interest margin for the years ended December 31, 2008, 2007 and 2006.

|                                         | For the years ended December 31,
|---------------------------------------- | --------------------------------
|                                         |                                 
|(Dollars in Thousands)                   |                                 
|                                         |                                 
|                                         |                                 
|                                         |                                 
|                                         |                                 
|Assets:                                  |                                 
|Taxable securities                       |                                 
|Tax-exempt securities (1)                |                                 
|Loans (2)                                |                                 
|Federal Home Loan Bank stock             |                                 
|Federal funds sold and other             |                                 
|short-term investments                   |                                 
|                                         |                                 
|Total interest earning assets(1)         |                                 
|Noninterest earning assets:              |                                 
|Cash and due from banks                  |                                 
|Other                                    |                                 
|                                         |                                 
|Total assets                             |                                 
|                                         |                                 
|Liabilities and Shareholders' Equity:    |                                 
|Deposits:                                |                                 
|Interest bearing demand                  |                                 
|Savings and money market accounts        |                                 
|Time deposits                            |                                 
|Borrowings:                              |                                 
|Other borrowed funds                     |                                 
|Long-term debt                           |                                 
|Federal funds purchased                  |                                 
|                                         |                                 
|Total interest bearing liabilities       |                                 
|Noninterest bearing liabilities:         |                                 
|Noninterest bearing demand accounts      |                                 
|Other noninterest bearing liabilities    |                                 
|Shareholders' equity                     |                                 
|                                         |                                 
|Total liabilities and                    |                                 
|Shareholders' equity                     |                                 
|                                         |                                 
|Net interest income                      |                                 
|                                         |                                 
|Net interest spread (1)                  |                                 
|Net interest margin (1)                  |                                 
|Ratio of average interest earning assets |                                 
|to average interest bearing liabilities  |                                 

(1)    
          Yields are adjusted for tax-exempt interest.
 (2)    
          Loan fees are included in interest income. Nonaccrual loans are included in
          average loans outstanding.

-27-

---



The following table presents the
dollar amount of changes in net interest income due to changes in volume and rate.

|For The Year Ended December 31   
|---------------------------------
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Interest income                  
|Taxable securities               
|Tax-exempt securities            
|Loans                            
|FHLB stock                       
|Fed funds sold and other         
|short-term investments           
|                                 
|Total interest income            
|                                 
|                                 
|Interest expense                 
|Interest bearing demand          
|Savings and money market accounts
|Time deposits                    
|Other borrowed funds             
|Long-term debt                   
|Fed funds purchased              
|                                 
|Total interest expense           
|                                 
|Net interest income              
|                                 

Provision for Loan Losses: The
provision for loan losses for 2008 was $37.4 million as compared to $15.8 million for 2007
and $7.7 million for 2006. The increase in the provision for loan losses for 2008 was the
result of higher net charge-offs and additional reserves considered necessary from
increasing impaired loan levels in 2008 as compared to 2007. The increase in the provision
for loan losses in 2007 was the result of additional reserves considered necessary from
increasing impaired loans in 2007 as compared to 2006. These higher charge-off and reserve
requirements are mostly associated with significant declines in the value of collateral
securing real estate loans primarily for residential land development.

The ultimate amount of the loan loss
provision in all periods is a byproduct of establishing our allowance for loan losses at
levels deemed necessary in our methodology for determining the adequacy of the allowance.
For more information about our allowance for loan losses and our methodology for
establishing its level, see the discussion under the section Allowance for Loan Losses.

Noninterest Income:Noninterest income totaled $18.1 million during 2008 compared to $16.1million
during 2007 and $14.2 million in 2006.

The 2.0 million overall increase in
2008 included approximately $412,000 and $832,000 of gains on the sale of securities and
gains realized on the settlement of interest rate swaps which were free standing
derivatives carried at fair value. The Company chose to execute these transactions to
support its shift to a more balanced sensitivity to future interest rate changes. For more
information about the interest rate swaps, refer to the notes of the Financial Statements.

Deposit service charge income
increased $255,000 or 5% to $5.3 million for 2008 compared to $5.1 million for 2007 and
$4.9 million for 2006. The increase in each period primarily reflects the continued
expansion of our deposit customer account base.

Gain on sales of loans primarily
includes gains on the sale of real estate mortgage loans, and to a lesser extent, gains on
the sale of the SBA guaranteed portion of certain commercial loans. We sell the majority
of the fixed-rate mortgage loans we originate. We do not retain the servicing rights for
the loans we sell. A summary of gain on sales of loans and related volume was as follows:

|For The Year Ended December 31                                 
|---------------------------------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Gain on the sale of SBA guaranteed loans                       
|Net gain on the sale of real estate mortgage loans             
|                                                               
|Gain on sales of loans                                         
|                                                               
|                                                               
|Real estate mortgage loans originated for sale                 
|Real estate mortgage loans sold                                
|Net gain on the sale of real estate mortgage loans as a        
|percent of real estate mortgage loans sold ("Loan sales margin)

-28-

---



Gain on sales of loans decreased
$40,000 and $431,000, respectively, in 2008 and 2007. The decline in 2008 was the result
of a slight decline in sales volumes. The decline in 2007 was impacted by lower sales
volumes and a declining sales margin. As sales volumes have declined since 2006,
competition has generally increased and resulted in the slight decline in loan sales
margin since 2006. Mortgage interest rate levels generally increased from 2007 into 2008
from corrections in the housing market, which contributed to the decline in residential
refinancing and new loan originations since 2006. The declines in 2008 and 2007 also
reflect the Companys interest in holding more of its mortgage loan volume in its
portfolio as discussed more fully below under Loan Portfolio and Asset Quality. Mortgage
interest rate levels have most recently declined in response to weakening economic
conditions and resulting government action intended to encourage bank lending. We expect
increased refinancing activity from these lower rates to positively impact gains on sales
of loans as we enter 2009.

Revenues from trust services
decreased $458,000 or 9% to $4.4 million for 2008 and increased $1.3 million or 37% to
$4.9 million for 2007. General declines in customer stock portfolio values associated with
the significant decline in the stock market during 2008 were the primary reason for the
decrease in trust income in 2008. The majority of the increase in trust fees in 2007 was
related to the impact of customer relationships added from the Smith & Associates
acquisition on January 1, 2007 and from the addition of new trust customers throughout
2007.

Other income increased $1.0 million
in 2008 and $822,000 in 2007. The increase for 2008 includes a $243,000 gain on the
termination of certain borrowings and the increase for 2007 includes a $288,000 unrealized
gain on the Companys interest rate swaps, both associated with the Companys
overall management of interest rate risk. For more information about the Companys
other borrowing activities and interest rate swaps, refer to the Notes to the Financial
Statements. The remaining increases in each period are primarily a result of growth in
customers and customer activity related to various banking services. Debit and ATM card
processing income increased $593,000 in 2008 and $443,000 in 2007, representing the
majority of the increase in other income. The increase in debit and ATM card processing
income reflects a continued increase in usage from current customers and overall growth in
the number of debit and ATM card customers. Promotional efforts to increase volume in
these low cost transaction alternatives continue to be met with success. Also contributing
to the increase in other income was increased revenues from investment services which grew
$234,000 or 41% to $802,000 for 2008 and $41,000 or 8% to $568,000 for 2007.

Noninterest Expense:
Noninterest expense totaled $86.1 million for 2008 as compared to $50.3 million for 2007
and $44.9 million for 2006.

The increase of $35.8 million in 2008
is primarily due to a non-recurring impairment charge for goodwill of $25.9 million and an
impairment charge for intangible assets of $1.7 million. During the fourth quarter of
2008, the Company completed its annual impairment testing for goodwill and intangible
assets. The Companys common stock price dropped during the fourth quarter resulting
in a decline in its market capitalization below its book value. Accordingly, the results
of its impairment testing showed that the estimated fair value of the Company was less
than its carrying value of equity and the value of certain intangible assets were less
than their carrying value. These impairment charges do not impact the Companys
tangible equity or regulatory capital ratios, and do not affect the Companys
liquidity position.

The remaining $8.2 million increase
in 2008 and the $5.4 million increase in 2007 is discussed more fully below.

The primary reason for the remaining
increase in total noninterest expense for 2008 related to the cost of higher levels of
nonperforming assets. Costs associated with nonperforming assets include legal costs,
repossessed and foreclosed property administration expense and losses on foreclosed
properties. Repossessed and foreclosed property administration expense includes survey and
appraisal, property maintenance and management and other disposition and carrying costs.
Losses on foreclosed properties include both net losses on the sale of foreclosed
properties and subsequent reductions from value declines for outstanding foreclosed
properties. These costs amounted to approximately $6.7 million for 2008, $1.2 million for
2007 and $461,000 for 2006 as itemized in the following table (in thousands):

|                                                   | 2008 | 2007 | 2006
|-------------------------------------------------- | ---- | ---- | ----
|                                                   |      |      |     
|                                                   |      |      |     
|Legal and professional                             |      |      | $   
|Repossessed and foreclosed property administration |      |      |     
|Losses on foreclosed properties                    |      |      |     
|                                                   |      |      |     
|Total                                              |      |      | $   
|                                                   |      |      |     

-29-

---



Salaries increased $1.0 million in
2008 primarily due to staff additions and merit increases. Staff additions occurred
primarily in the first half of the year in varied positions throughout the Company,
including risk management, credit administration and problem asset departments, and
selective sales personnel to support growth in deposits and commercial and industrial
lending. During the second half of 2008, salary and benefit levels began to experience a
decline primarily from staff reduction initiatives in certain operational and sales
functions and the elimination or outsourcing of certain backroom functions associated with
expense reduction initiatives. Salaries and benefits increased $708,000 in 2007 largely
from an increase in staff associated with the opening of two new branch locations and the
addition of the new Asset Management Group from the acquisition of Smith & Associates
on January 1. The costs associated with these staffing increases were partially offset by
a reduction in performance incentives associated with the decline in earnings levels.

Occupancy expense increased $217,000
in 2008 and $627,000 in 2007 and furniture and equipment expense increased $123,000 in
2008 and $735,000 in 2007. The increase in occupancy expense is consistent with our branch
and facility expansion. The Company opened four new facilities in 2007, including two new
branches and two branch relocations. The increase in furniture and equipment expense
relates to costs associated with improving our internal and customer technologies, as well
as costs associated with our facility expansion.

The $1.4 million increase in legal
and professional fees in 2008 relates to invoices received over time in connection with
the Trade Partners litigation which were expected to be paid by the Companys
insurance carrier, but have since been deemed non-reimbursable. The Trade Partners
litigation is further discussed in the Notes to the Financial Statements. When excluding
the impact of these legal costs, legal and professional fees have remained relatively flat
since 2006.

FDIC assessments increased by
$358,000 and $888,000 in 2008 and 2007. The increase in 2008 was primarily due to an
increase in insurance rates related to higher nonperforming asset levels. The increase in
2007 was primarily related to a change by the FDIC in their charges for all banks
effective January 1, 2007.

Remaining expense categories,
including marketing, data processing and other expense, declined in 2008 as a result of
expense reduction initiatives. In addition to eliminating or outsourcing certain backroom
functions discussed above, these initiatives further included restructuring third party
contracts, acceleration of electronic delivery for certain customers and significantly
trimming controllable costs. The increase in other expense of $1.3 million in 2007 was
primarily due to increases in various categories consistent with our customer account
growth. These costs included debit card and ATM processing, customer and internal courier,
brokerage account processing and outside service support.

Expense reduction initiatives that
began in early 2008 have allowed the Company to manage costs in other areas to offset the
increases driven by higher nonperforming asset levels. We expect efficiency, excluding the
additional costs necessary to manage non-performing assets, to continue to improve in
response to these initiatives and by better utilizing our capacity as we grow.

Federal Income Tax Expense
(Benefit):Our federal income tax expense has fluctuated generally commensurate with
changes in pre-tax earnings. In 2008, the Company recorded a tax benefit of $8.4 million
as a result of the net loss during the year. In 2007 and 2006, our federal income tax
expense was lower than the amount computed by applying our statutory federal income tax
rate of 35% to our pre-tax earnings primarily due to tax-exempt interest income and income
from bank-owned life insurance. Our effective tax rate was 28.7% and 31.5% for 2007 and
2006, respectively.

# FINANCIAL CONDITION

Summary:Total assets were
$2.15 billion at December 31, 2008, an increase of $16.4 million from $2.13 billion at
December 31, 2007. An increase in Federal funds and short-term investments and portfolio
loans were largely offset by declines in securities available for sale and goodwill and
other intangible assets. The growth in assets during 2008 was lower than historical levels
primarily because of the weak economic conditions in West Michigan that began in 2007 and
has continued throughout 2008. Because of these declining conditions, management focused
much of its efforts in 2008 on improving its financial condition, including diversifying
its asset base and improving its capital position, liquidity and asset quality.

The slight growth in assets during
2008 was funded by growth in deposits. The growth in deposits in excess of assets allowed
the Company to reduce its other borrowing levels.

-30-

---



Cash and Cash Equivalents: Our
cash and cash equivalents, which include federal funds sold and short-term investments,
were $68.3 million at December 31, 2008 compared to $49.8 million at December 31, 2007.
The increase in 2008 included an increase in seasonal balances associated with
institutional depositors, including municipalities and public fund authorities. In
addition, the Company increased its short-term investments to improve its liquidity
position during these turbulent times.

Securities:Securities
decreased $16.9 million to $186.5 million at December 31, 2008 from $203.4 million at
December 31, 2007. The decrease was primarily due to calls and maturities and the sale of
approximately $21.7 million of U.S. Government Agency bonds, partially offset by purchases
of U.S. Government Agency bonds. The sales of securities resulted in gross gains of
$412,000 and helped position its assets and liabilities to a more balanced sensitivity to
interest rates.

We maintain our security portfolio at
a level to provide diversity in the level of credit risk within our asset base, to support
our liquidity needs and to balance our interest rate risk. Our portfolio consists
primarily of high quality U.S government agency and state and local municipal bonds
classified as available for sale. These securities are generally purchased at fixed rates
to help offset the interest sensitivity of our variable rate loan portfolio. We expect
growth of our securities portfolio to be consistent with the growth of our company to
maintain the diversity of our assets and support our liquidity and interest rate risk
management.

Loan Portfolio and Asset Quality:Our total loan portfolio increased $23.4 million to $1.77 billion at December 31, 2008
from $1.75 billion at December 31, 2007. During 2008, residential mortgage loans increased
by $26.4 million, consumer loans increased $968,000, commercial and industrial loans
increased $8.6 million and commercial real estate loans declined $12.5 million.

Our residential real estate loan
portfolio, which also includes residential construction loans made to individual
homeowners, comprised approximately 16% and 15% of portfolio loans at the end of 2008 and
2007, respectively. Our residential real estate portfolio represents only a portion of our
residential origination loan volume, as we also sell a large portion of our fixed-rate
obligations on the secondary market with servicing released. We originated for sale $81.0
million in residential mortgages in 2008, $86.4 million in 2007 and $103.7 million in
2006. Loans held for sale were $2.3 million at December 31, 2008 compared to $3.1 million
at December 31, 2007.

Because of the relatively short
duration of our assets, the increase in rates on residential mortgage loans through most
of 2008 provided us an opportunity to hold more of these higher quality loans in our
portfolio. In response to continued corrections in the housing market and deterioration in
the economy, mortgage portfolio volume began to decline near the end of 2008. As we head
into 2009, mortgage interest rate levels have declined in response to the weakening
economic conditions and resulting government action intended to encourage bank lending.
This has generated an increase in residential real estate refinancing activity. As a
result, we anticipate a higher volume of residential mortgage loan sales into the
secondary market during 2009.

The slower loan growth in our
commercial and consumer loan portfolios during 2008 was a reflection of the weak economic
conditions in West Michigan. In particular, deterioration in residential land development
has impacted both asset growth and asset quality. Accordingly, the Company focused much of
its efforts in 2008 on reducing its reliance on residential land development, diversifying
its commercial loan portfolios and improving asset quality.

Total commercial and commercial real
estate loans were $1.29 billion at both December 31, 2008 and 2007. This portfolio remains
our largest loan segment and accounted for approximately 73% and 74% of the total loan
portfolio at December 31, 2008 and 2007, respectively. Our commercial and commercial real
estate portfolios are made up of loans to small and mid-sized business. The commercial
loan portfolio we have built reflects the acceptance of our lending approach by our
customers and the ability of our lending team to respond to their needs effectively. Our
commercial loan department is built around a well-seasoned officer team and our lending
approach involves an efficient loan approval process.

Our commercial and industrial
portfolio was $447 million at December 31, 2008 and represented 35% of our commercial
portfolio, up from 34% at December 31, 2007. A further breakdown of the composition of the
commercial loan portfolio is shown in the table below (in thousands):

|                                   | December 31, 2008 | December 31, 2007
|---------------------------------- | ----------------- | -----------------
|                                   |                   |                  
|                                   |                   |                  
|Construction/Land Development      |                   |                  
|Farmland and Agriculture           |                   |                  
|Nonfarm, Nonresidential            |                   |                  
|Multi-family                       |                   |                  
|                                   |                   |                  
|Total Commercial Real Estate Loans |                   |                  
|Commercial and Industrial          |                   |                  
|                                   |                   |                  
|Total Commercial Loans             |                   |                  
|                                   |                   |                  

-31-

---



Approximately 44% of the balance of
commercial real estate loans at December 31, 2008 was owner-occupied while 56% was
non-owner occupied.

Loans for the development or sale of
1-4 family residential properties were approximately $203.7 million and $235.8 million at
December 31, 2008 and 2007, respectively, representing approximately 66% and 70% of the
construction and land development portfolio. Of the balance at December 31, 2008,
approximately $27.1 million was secured by vacant land, $117.4 million was secured by
developed residential land and $59.3 million was secured by 1-4 family properties held for
speculative purposes. Vacant land is land zoned for residential purposes but with no
further development. Developed residential land is land that has been further developed
for future residential construction, including but not limited to completed lot surveys,
road work, water, sewer and other utility preparation and general land grade. 1-4 family
properties held for speculative purposes are on developed residential lots and include
completed residential homes or residential homes in the process of construction.

Our consumer loan portfolio includes
loans secured by personal property and home equity fixed term and line of credit loans.
Our consumer loan portfolio increased to $190.7 million at December 31, 2008 from $189.7
million at December 31, 2007. Consumer loans comprised approximately 11% of our portfolio
loans at the end of both 2008 and 2007.

Our loan portfolio is reviewed
regularly by an independent, internal loan review team, our own loan officers, and our
senior management. An administrative loan committee consisting of senior management and
seasoned lending and collections personnel meets monthly to manage the Companys
internal watch list and proactively manage high risk loans. When reasonable doubt exists
concerning collectibility of interest or principal of one of our loans, that loan is
placed in non-accrual status. Any interest previously accrued but not collected is
reversed and charged against current earnings.

Nonperforming assets are comprised of
nonperforming loans, foreclosed assets and repossessed assets. Nonperforming loans include
loans on non-accrual status, restructured loans and loans delinquent more than 90 days but
still accruing. Foreclosed and repossessed assets include assets acquired in settlement of
loans.

Nonperforming loans as of December
31, 2008 totaled $92.3 million or 5.20% of total portfolio loans compared to $73.9 million
or 4.22% of total portfolio loans at December 31, 2007.

Nonperforming loans for the
development or sale of 1-4 family residential properties were approximately $59.9 million
or 65% of total non-performing loans at December 31, 2008. Of this total, approximately
$3.8 million was secured by vacant land, $38.5 million was secured by developed
residential land and $17.6 million was secured by 1-4 family properties held for
speculative purposes. The remaining balance of nonperforming loans at the end of 2008
consist of a number of commercial loans most of which are on nonaccrual for which we
consider to be well collateralized or adequately reserved.

Loans for the development or sale of
1-4 family residential properties were approximately $57.4 million or 78% of total
non-performing loans at December 31, 2007. Of this total, approximately $3.2 million was
secured by vacant land, $40.8 million was secured by developed residential land and $13.4
million was secured by 1-4 family properties held for speculative purposes.

Foreclosed assets totaled $19.5
million at December 31, 2008 compared to $5.7 million at December 31, 2007. The increase
is the result of the migration of non-performing loans secured by real estate into
foreclosed assets as the foreclosure process is completed and any redemption period
expires. Of the $19.5 million, there were 33 commercial real estate properties totaling
$17.7 million. The remaining balance was comprised of 19 residential real estate
properties totaling $1.8 million. All properties are carried at their fair value less
costs to sell.

Total nonperforming assets amounted
to $112.1 million or 5.21% of total assets at December 31, 2008 compared to $79.8 million
or 3.75% as of December 31, 2007.

-32-

---



The following table shows the
composition and amount of our nonperforming assets.

|As of December 31                                  
|---------------------------------------------------
|                                                   
|                                                   
|                                                   
|                                                   
|Nonaccrual loans                                   
|Loans 90 days or more delinquent and still accruing
|Restructured loans                                 
|                                                   
|                                                   
|Total nonperforming loans                          
|                                                   
|                                                   
|Foreclosed assets                                  
|Repossessed assets                                 
|                                                   
|                                                   
|Total nonperforming assets                         
|                                                   
|                                                   
|Nonperforming loans to total loans                 
|Nonperforming assets to total assets               

Allowance for Loan Losses: Our
allowance for loan losses at December 31, 2008 was $38.3 million, or 2.16% of total
portfolio loans, compared to $33.4 million or 1.91% of total portfolio loans at December
31, 2007.

Our allowance for loan losses is
maintained at a level considered appropriate based upon our regular, quarterly assessment
of the probable estimated losses inherent in the loan portfolio. Our methodology for
measuring the appropriate level of allowance relies on several key elements, which include
specific allowances for loans considered impaired, formula allowance for graded loans,
general allocations based on historical trends for pools of similar loan types and under
certain circumstances, reserves related to current market conditions that are pertinent to
certain aspects of the loan portfolio. Based upon our internal analysis, in our judgment,
we have provided adequate allowances for loan losses, although there can be no assurance
that the allowance for losses on loans will be adequate to cover all losses.

The increase in the level of the
allowance was primarily related to an increase in impaired loans and a related increase in
the level of reserves for these loans. Specific allowances are established in cases where
senior credit management has identified significant conditions or circumstances related to
an individually impaired credit that we believe indicates the probability that a loss may
be incurred. This amount is determined by methods prescribed by SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. Impaired loans increased
$52.9 million to $151.9 million at December 31, 2008. The specific allowance for impaired
loans was $20.0 million at December 31, 2008 and $15.8 at December 31, 2007.

Approximately $76.0 million or 50% of
impaired loans were for the development or sale of 1-4 family residential properties. Of
this total, approximately $5.6 million was secured by vacant land, $53.8 million was
secured by developed residential land and $16.6 million was secured by 1-4 family
properties held for speculative purposes. In 2007, approximately $62.3 million or 63% of
impaired loans were for the development or sale of 1-4 family residential properties. Of
this total, approximately $3.3 million was secured by vacant land, $42.5 million was
secured by developed residential land and $16.5 million was secured by 1-4 family
properties held for speculative purposes.

The allowance allocated to commercial
loans that are not considered to be impaired is calculated by applying loss factors to
outstanding loans based on the internal risk grade of such loans. We use a loan rating
method based upon an eight point system. Loans are assigned a loss allocation factor for
each loan classification category. The lower the grade assigned to a loan category, the
greater the allocation percentage that is applied. Changes in risk grade of loans affect
the amount of the allowance allocation. The determination of our loss factors is based
upon our actual loss history by loan grade, and adjusted for consideration of significant
factors that, in managements judgment, affect the collectibility of the portfolio as
of the analysis date. The commercial loan allowance was $15.4 million at December 31, 2008
compared to $15.3 million at December 31, 2007.

Groups of homogeneous loans, such as
residential real estate, open- and closed-end consumer loans, etc., receive general
allowance allocations based on a review of loss trends by specific loan segments. These
loss allocations are then adjusted based upon past due status, and consideration for
general economic and business conditions, collateral values, seasoning of the portfolios
and most recent loss experience for similar pools of loans. The general allowance was $2.9
million at December 31, 2008 and $2.3 million at December 31, 2007. The increase was
largely related to an increase in the balance of residential real estate loans and a
slight increase in the past due status of these loans.

-33-

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The following table shows the
allocation of the allowance for loan loss at the dates indicated to the extent specific
allocations have been determined relative to particular loans.

|As of December 31        
|-------------------------
|                         
|As of December 31        
|                         
|                         
|                         
|                         
|Commercial and commercial
|real estate              
|Residential real estate  
|Consumer                 
|Unallocated              
|                         
|Total                    
|                         

The above allocations are not
intended to imply limitations on usage of the allowance. The entire allowance is available
for any loan losses without regard to loan type. Of the $38.3 million allowance at
December 31, 2008, 52% related to specific allocations on impaired loans, 40% related to
commercial loan portfolio allocations and 8% related to general allocations for
homogeneous loans.

Net charge-offs totaled $32.6 million
or 1.85% of average loans for 2008 compared to $5.6 million, or 0.32% of average loans for
2007 and $5.4 million or 0.33% of average loans for 2006. The majority of the net
charge-offs in 2008 and 2007 were largely associated with an increase in the level of
impaired loans from continued deterioration in the economy and significant declines in the
value of collateral securing impaired real estate loans, primarily residential land
development loans. For residential land development loans, cash flow to service the debt
is primarily expected from sales of lots and properties securing these loans, which has
declined markedly throughout 2007 and 2008. This significant deterioration in cash flows
and resulting expected future cash flows is the primary reason for the declines in the
value of the real estate securing these loans. Net charge-offs in 2006 include a $4.7
million charge-off related to one commercial borrower whose loans were allegedly falsely
secured by nonexistent collateral. The Company filed a lawsuit against this borrower in
2007 that is still pending. These charge-offs were considered necessary to bring loan
balances to levels considered collectible based upon current information.

The following is a summary of our
portfolio loan balances and changes in the allowance for loan losses and related ratios.

|December 31                                               
|----------------------------------------------------------
|                                                          
|                                                          
|                                                          
|                                                          
|Portfolio Loans:                                          
|Average daily balance of loans for the year               
|Amount of loans outstanding at end of period              
|                                                          
|Allowance for loan losses:                                
|Balance at beginning of year                              
|Addition to allowance charged to operations               
|Loans charged-off:                                        
|Commercial                                                
|Residential real estate                                   
|Consumer                                                  
|                                                          
|Recoveries:                                               
|Commercial                                                
|Residential real estate                                   
|Consumer                                                  
|                                                          
|                                                          
|Balance at end of year                                    
|                                                          
|                                                          
|Ratios:                                                   
|Net charge-offs to average loans outstanding              
|Allowance for loan losses to loans outstanding at year end

Premises and Equipment:Premises and equipment totaled $63.5 million at December 31, 2008, representing a
decrease of $1.1 million from December 31, 2007. The decline was largely from deprecation
of current facilities in excess of capital additions during 2008. There were no new
facilities constructed during 2008.

-34-

---



Deposits:Total deposits
increased $142.2 million to $1.67 billion at December 31, 2008, as compared to $1.52
billion at December 31, 2007. Of the $142.2 million in deposit growth, approximately
$135.0 million was from deposits generated through brokers.

The Company chose to utilize brokered
deposits in 2008 to replace borrowed funds and support asset growth because of their
generally low cost compared to other alternatives and to support improved liquidity. The
utilization of brokered deposits allowed the Company to reduce its reliance on borrowed
funds, increase its borrowing capacity and grow Federal funds and short-term investments
for future liquidity needs.

The growth in deposits within the
Companys markets was slower than historical levels. Because of the weakening
economic conditions that occurred in West Michigan and nationally throughout 2008, the
deposit base slowed or contracted in many of the Companys markets and access to
liquidity from the national sources impacted many financial institutions. Accordingly,
competition within the Companys markets continued to intensify for fewer deposit
dollars. Despite these market dynamics, the Company continued to experience overall new
account growth.

Noninterest bearing demand accounts
comprised approximately 12% of total deposits at both December 31, 2008 and December 31,
2007. Interest bearing demand, including money market and savings accounts, comprised
approximately 38% of total deposits at December 31, 2008, as compared to 43% at the end of
2007. Time accounts as a percentage of total deposits were approximately 50% at December
31, 2008, as compared to 45% at the end of 2007.

Although the current environment
presents challenges for core deposit growth in the near term, we believe that our
continued focus on quality customer service, the desire of customers to deal with a local
bank, and the convenience of our expanding and maturing branch network, will provide
growth in our core deposits over time.

Borrowed Funds: Borrowed funds
consist of advances from the Federal Home Loan Bank, securities sold under agreements to
repurchase (repo borrowings), long-term debt associated with the issuance of
trust preferred securities and federal funds purchased provided by our correspondent
banks.

Borrowed funds totaled $326.0 million
at December 31, 2008, including $194.8 million of Federal Home Loan Bank advances, $90.0
million in repo borrowings and $41.2 million in long-term debt associated with trust
preferred securities. Borrowed funds totaled $441.8 million at December 31, 2007 including
$244.1 million of Federal Home Loan Bank advances, $110.0 million in repo borrowings,
$41.2 million in long-term debt associated with trust preferred securities and $46.5
million in federal funds purchased. The decrease in borrowed funds in 2008 was primarily
due to the increase in deposits discussed above.

# CAPITAL RESOURCES AND
LIQUIDITY

Capital Resources: Total
shareholders equity was $149.2 million at December 31, 2008 compared to $160.6
million at December 31, 2007. The decrease of $11.4 million was primarily from the $38.9
million net loss the Company incurred in 2008, offset by an increase of $31.3 million from
the issuance of convertible preferred stock. Cash dividends of $4.4 million, or $.26 per
share, were declared and paid on common shares and $817,000, or $26.11 per share, were
declared on preferred shares during 2008.

In order to augment its capital
position, the Company temporarily suspended its cash dividend to common shareholders
during 2008. In addition, the Company completed a private offering of 31,290 shares of
12.0% Series A Non-Cumulative Perpetual Convertible Preferred Stock (Series A Preferred
Stock) with a liquidation preference of $1,000 per share, resulting in capital proceeds of
$31.3 million. The shares are convertible into common stock at the option of the holder at
a price per share of $8.95. On or after October 31, 2011, the preferred stock will be
subject to mandatory conversion into common stock under certain circumstances. For more
information regarding the private offering, see the Notes to the Consolidated Financial
Statements.

The increase in accumulated other
comprehensive income was due to an increase in the market value of securities available
for sale, as market interest rates for similar securities declined markedly during 2008.

Capital levels for the Company
continue to be maintained at levels well in excess of regulatory minimums for bank holding
companies.

-35-

---



The following table shows the
Companys various capital ratios for 2008 and 2007.

|As of and for the year ended December 31, | 2008 | 2007
|----------------------------------------- | ---- | ----
|                                          |      |     
|                                          |      |     
|Average equity to average assets          |      |     
|Total risk-based capital                  |      |     
|Tier 1 risk-based capital                 |      |     
|Tier 1 capital to average assets          |      |     

The regulatory ratios increased in
2008 primarily due to the issuance of the convertible preferred stock. The after-tax
impairment charge for goodwill and intangible assets did not impact the Companys
regulatory capital ratios.

The entire $40.0 million of trust
preferred securities outstanding at December 31, 2007 qualified as Tier 1 capital. For
more information regarding the trust preferred securities, please refer to the Notes to
the Consolidated Financial Statements.

Capital sources include, but are not
limited to, additional common stock offerings, preferred stock and trust preferred
securities offerings and subordinated debt. The Company is also carefully evaluating the
U.S. Treasury Departments Capital Purchase Program for making equity investments in
banks, and has applied to participate in that program.

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

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

We have historically grown our
portfolio loans more rapidly than our core deposits. Accordingly, we have relied upon
other wholesale funding sources (including brokered deposits, borrowings from the Federal
Home Loan Bank and other borrowing sources). We maintain a diversified wholesale funding
structure and actively manage our maturing wholesale sources to reduce the risk to
liquidity shortages.

In response to the volatile
conditions in the national markets throughout 2007 and 2008, we actively pursued
initiatives to further strengthen our liquidity position. During 2008, we reduced our
reliance on other borrowed funds by over $115 million, increased our liquid investments by
nearly $40 million and secured a borrowing facility under the Federal Reserve Bank of
Chicagos discount window. We feel our liquidity position is sufficient to meet our
normal and contingent liquidity needs.

In the normal course of business, we
enter into certain contractual obligations including obligations which are considered in
our overall liquidity management. The table below summarizes our significant contractual
obligations at December 31, 2008.

|1 year or less          | 2-3 years | 4-5 years | After 5 years
|----------------------- | --------- | --------- | -------------
|                        |           |           |              
|                        |           |           |              
|Time deposit maturities |           |           | $            
|Other borrowed funds    |           |           |              
|Long-term debt          |           |           |              
|                        |           |           |              
|Total                   |           |           | $            
|                        |           |           |              

In addition to normal loan funding,
we also maintain liquidity to meet customer financing needs through unused lines of
credit, unfunded loan commitments and standby letters of credit. The level and fluctuation
of these commitments is also considered in our overall liquidity management. At December
31, 2008, we had a total of $403.3 million in unused lines of credit, $10.3 million in
unfunded loan commitments and $14.8 million in standby letters of credit.

-36-

---



# CRITICAL ACCOUNTING AND
POLICIES ESTIMATES:

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

Our methodology for determining the
allowance for loan loss and the related provision for loan losses is described above in
the Allowance for Loan Loss discussion. This area of accounting requires
significant judgment due to the number of factors which can influence the collectibility
of a loan. Unanticipated changes in these factors could significantly change the level of
the allowance for loan losses and the related provision for loan losses. Although, based
upon our internal analysis, and in our judgment, we have provided an adequate allowance
for loan losses, there can be no assurance that our analysis has properly identified all
of the probable losses in our loan portfolio.

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

Our accounting for income taxes
involves the valuation of deferred tax assets and liabilities primarily associated with
differences in the timing of the recognition of revenues and expenses for financial
reporting and tax purposes. We have recorded no valuation allowance on the balance of our
deferred tax assets because we believe that the tax benefits associated with this asset
will more likely than not be realized based upon the levels of taxable income in prior
years and the expectation of a return to profitability in future years. However, changes
in tax laws, changes in tax rates and our future level of earnings can adversely impact
the ultimate realization of our net deferred tax asset.

Our goodwill and intangible assets
arose from our past acquisition of a Bank and our past acquisition of an investment
management firm, as discussed in previous filings. We test our goodwill and intangible
assets for impairment utilizing the methodology and guidelines established in
SFAS No. 142, Goodwill and Other Intangible Assets. This methodology involves
assumptions regarding the valuation of the business entities and intangible assets that
contain the acquired entities. We believe that the assumptions we utilize are reasonable.
Based upon our annual impairment analysis in 2008, we recorded goodwill and intangible
asset impairment charges of $27.6 million as described above under Noninterest
expense. There was no remaining goodwill as of December 31, 2008. Other intangible
assets were $874,000 at December 31, 2008.

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. We intend 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 are including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions and
describe our future plans, strategies, and expectations are generally identifiable by use
of the words believe, expect, intend, anticipate, estimate, project, may or similar
expressions. The presentation and discussion of the provision and allowance for loan
losses, statements concerning future profitability or future growth or increases, and
statements about the adequacy of our capital resources are examples of inherently
forward-looking statements in that they involve judgments and statements of belief as to
the outcome of future events. Our 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 our operations and future prospects include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition, demand for
financial services in our market area and accounting principles, policies, and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further information
concerning us and our business, including additional factors that could materially affect
our financial results, is included in our filings with the Securities and Exchange
Commission.

-37-

---



# ITEM 7A:      Quantitative
and Qualitative Disclosures About Market Risk.

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

Our market risk exposure is mainly
comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in
various categories of assets and liabilities, to changes in prevailing rates in the U.S.,
including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and
various money market indexes. As part of our asset/liability management process, we
identify and evaluate opportunities to structure our balance sheet to maximize our
earnings while balancing our liquidity and interest rate risk within established
parameters.

We utilize a simulation model as our
primary measurement technique in our interest rate risk management. Our simulation
analyses monitors the direction and magnitude of variations in net interest income and the
economic value of equity (EVE) resulting from potential changes in market
interest rates.

Key assumptions in the model include
the repricing of cash flows and maturities of interest-sensitive assets and
interest-sensitive liabilities at current market rates, prepayment speeds on certain
assets, and changes in market conditions impacting loan and deposit pricing. We also
assume certain levels of rate sensitivity to changes in market rates of our non-maturing
transaction deposits based upon our historical sensitivity under previous interest rate
cycles, and we include pricing floors on discretionary priced liability products which
limit how low various checking and savings products could go under declining interest
rates. These assumptions reflect our pricing philosophy in response to changing interest
rates.

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

The following table shows the impact
of changes in interest rates on net interest income over the next twelve months and EVE
based on our balance sheet as of December 31, 2008 (dollars in thousands).

|Interest Rate Scenario   | Economic Value of Equity | Percent Change | Net Interest Income | Percent Change
|------------------------ | ------------------------ | -------------- | ------------------- | --------------
|                         |                          |                |                     |               
|Change in Interest Rates |                          |                |                     |               
|200 basis point rise     |                          |                | $                   | 166,777       
|100 basis point rise     |                          |                |                     | 174,505       
|Base-rate scenario       |                          |                |                     | 181,171       
|100 basis point decline  |                          |                |                     | 182,329       
|200 basis point decline  |                          |                |                     | 182,037       

This analysis suggests that we are
well-balanced, with limited fluctuations in net interest income under each scenario over
the next twelve months. Further, our balanced sensitivity in time horizons beyond one year
results in little fluctuation in EVE under the various rate shock scenarios.

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

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

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

-38-

---



# ITEM 8:      Financial
Statements and Supplementary Data.

# MANAGEMENTS REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is
responsible for establishing and maintaining adequate internal control over financial
reporting. The Companys internal control system was designed to provide reasonable
assurance to the Companys management and board of directors regarding the
preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Company management assessed the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2008. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment we believe that, as of December 31,
2008, the Companys internal control over financial reporting is effective based on
those criteria.

| |  | /s/ Philip J. Koning
Philip J. KoningCo-Chief Executive Officer
| |  | -----------------------------------------------------------------------------

| |  | /s/ Ronald L. Haan
Ronald L. HaanCo-Chief Executive Officer
| |  | -------------------------------------------------------------------------

| |  | /s/ Jon W. Swets
Jon W. SwetsChief Financial Officer
| |  | ------------------------------------------------------------------

-39-

---



# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying
balance sheets of Macatawa Bank Corporation as of December 31, 2008 and 2007, and the
related statements of income, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2008. We also have audited Macatawa Bank
Corporations internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Macatawa Bank
Corporations management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Managements Annual Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on these financial statements and an opinion
on the companys internal control over financial reporting based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

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

| | /s/ Crowe Horwath LLP
Crowe Horwath LLP
| | ---------------------------------------

Grand Rapids, Michigan
March 9, 2009

-40-

---



MACATAWA BANK
CORPORATIONCONSOLIDATED BALANCE SHEETSDecember 31, 2008 and 2007
(Dollars in thousands)

---

|                                                                  | 2008 | 2007
|----------------------------------------------------------------- | ---- | ----
|                                                                  |      |     
|                                                                  |      |     
|ASSETS                                                            |      |     
|Cash and due from banks                                           |      |     
|Federal funds sold and other short-term investments               |      |     
|                                                                  |      |     
|Cash and cash equivalents                                         |      |     
|                                                                  |      |     
|Securities available for sale, at fair value                      |      |     
|Securities held to maturity (fair value 2008 - $1,867,            |      |     
|2007 - $1,961)                                                    |      |     
|Federal Home Loan Bank (FHLB) stock                               |      |     
|Loans held for sale                                               |      |     
|Total loans                                                       |      |     
|Allowance for loan losses                                         |      |     
|                                                                  |      |     
|                                                                  |      |     
|Premises and equipment - net                                      |      |     
|Accrued interest receivable                                       |      |     
|Goodwill                                                          |      |     
|Acquisition intangibles                                           |      |     
|Bank-owned life insurance                                         |      |     
|Other real estate owned                                           |      |     
|Other assets                                                      |      |     
|                                                                  |      |     
|                                                                  |      |     
|Total assets                                                      |      |     
|                                                                  |      |     
|                                                                  |      |     
|LIABILITIES AND SHAREHOLDERS' EQUITY                              |      |     
|Deposits                                                          |      |     
|Noninterest-bearing                                               |      |     
|Interest-bearing                                                  |      |     
|                                                                  |      |     
|Total                                                             |      |     
|Federal funds purchased                                           |      |     
|Other borrowed funds                                              |      |     
|Long-term debt                                                    |      |     
|Accrued expenses and other liabilities                            |      |     
|                                                                  |      |     
|Total liabilities                                                 |      |     
|                                                                  |      |     
|Commitments and contingent liabilities                            |      |     
|                                                                  |      |     
|Shareholders' equity                                              |      |     
|Preferred stock, no par value, 500,000 shares authorized;         |      |     
|31,290 shares of Series A Noncumulative Convertible               |      |     
|Perpetual Preferred Stock, liquidation value of $1,000 per share, |      |     
|issued and outstanding at December 31, 2008                       |      |     
|Common stock, no par value, 40,000,000 shares                     |      |     
|authorized; 17,161,515 and 16,968,398 shares                      |      |     
|issued and outstanding at December 31, 2008                       |      |     
|and 2007, respectively                                            |      |     
|Retained deficit                                                  |      |     
|Accumulated other comprehensive income                            |      |     
|                                                                  |      |     
|Total shareholders' equity                                        |      |     
|                                                                  |      |     
|                                                                  |      |     
|Total liabilities and shareholders' equity                        |      |     
|                                                                  |      |     

---

See accompanying notes to consolidated
financial statements.

-41-

---



MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2008, 2007 and 2006
(Dollars in thousands, except per share data)

---

|                                                    | 2008 | 2007 | 2006
|--------------------------------------------------- | ---- | ---- | ----
|                                                    |      |      |     
|                                                    |      |      |     
|Interest income                                     |      |     
|Loans, including fees                               |      |      | $   
|Securities                                          |      |     
|Taxable                                             |      |      |     
|Tax-exempt                                          |      |      |     
|FHLB stock                                          |      |      |     
|Federal funds sold and other short-term investments |      |      |     
|                                                    |      |      |     
|Total interest income                               |      |      |     
|                                                    |      |     
|Interest expense                                    |      |     
|Deposits                                            |      |      |     
|Other borrowings                                    |      |      |     
|Long-term debt                                      |      |      |     
|Federal funds purchased                             |      |      |     
|                                                    |      |      |     
|Total interest expense                              |      |      |     
|                                                    |      |      |     
|                                                    |      |     
|Net interest income                                 |      |      |     
|Provision for loan losses                           |      |      |     
|                                                    |      |      |     
|                                                    |      |     
|Net interest income after provision for loan losses |      |      |     
|                                                    |      |     
|Noninterest income                                  |      |     
|Service charges and fees                            |      |      |     
|Gain on sales of loans                              |      |      |     
|Trust fees                                          |      |      |     
|Gain on sales of securities                         |      |      |     
|Gain on settlement of interest rate swaps           |      |      |     
|Other                                               |      |      |     
|                                                    |      |      |     
|Total noninterest income                            |      |      |     
|                                                    |      |     
|Noninterest expense                                 |      |     
|Salaries and benefits                               |      |      |     
|Occupancy of premises                               |      |      |     
|Furniture and equipment                             |      |      |     
|Legal and professional                              |      |      |     
|Marketing and promotion                             |      |      |     
|Data processing                                     |      |      |     
|FDIC assessment                                     |      |      |     
|Impairment of goodwill and acquisition intangibles  |      |      |     
|Administration and disposition of problem assets    |      |      |     
|Other                                               |      |      |     
|                                                    |      |      |     
|Total noninterest expenses                          |      |      |     
|                                                    |      |      |     
|                                                    |      |     
|Income (loss) before income tax                     |      |      |     
|Income tax expense (benefit)                        |      |      |     
|                                                    |      |      |     
|                                                    |      |     
|Net income (loss)                                   |      |      |     
|Dividends declared on preferred shares              |      |      |     
|                                                    |      |      |     
|Net income (loss) available to common shares        |      |      | $   
|                                                    |      |      |     
|                                                    |      |     
|Basic earnings (loss) per common share              |      |      | $   
|                                                    |      |      |     
|Diluted earnings (loss) per common share            |      |      | $   
|                                                    |      |      |     
|Cash dividends per common share                     |      |      | $   
|                                                    |      |      |     

---

See accompanying notes to consolidated
financial statements.

-42-

---



MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY 
Years ended December 31, 2008, 2007 and 2006
(Dollars in thousands, except per share data)

---

|                                      | Preferred Stock | Common Stock | Retained Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity
|------------------------------------- | --------------- | ------------ | --------------------------- | --------------------------------------------- | --------------------------
|                                      |                 |              |                             |                                               |                           
|                                      |                 |              |                             |                                               |                           
|Balance, January 1, 2006              |                 |              | $                           | ---                                           |                           
|                                      |                 |             
|Net income                            |                 |              |                             |                                               |                           
|                                      |                 |             
|Other comprehensive income (loss):    |                 |             
|Net change in unrealized gain         |                 |             
|(loss) on derivative instruments,     |                 |             
|net of tax of $135                    |                 |              |                             |                                               |                           
|                                      |                 |             
|Net change in unrealized gain         |                 |             
|(loss) on securities available        |                 |             
|for sale, net of tax of $490          |                 |              |                             |                                               |                           
|                                      |                 |              |                             |                                               |                           
|Comprehensive income                  |                 |              |                             |                                               |                           
|                                      |                 |             
|Issued 513,283 shares in payment of   |                 |             
|5% stock dividend                     |                 |              |                             |                                               |                           
|                                      |                 |             
|Issued 5,401,190 shares in payment    |                 |             
|of 3-for-2 stock split                |                 |             
|                                      |                 |             
|Stock compensation expense            |                 |              |                             |                                               |                           
|                                      |                 |             
|Issued 90,714 shares for stock        |                 |             
|option exercises (net of 4,994        |                 |             
|shares exchanged and including        |                 |             
|$258 of tax benefit)                  |                 |              |                             |                                               |                           
|                                      |                 |             
|Cash dividends at $.46 per            |                 |             
|common share                          |                 |              |                             |                                               |                           
|                                      |                 |              |                             |                                               |                           
|                                      |                 |             
|Balance, December 31, 2006            |                 |              |                             | ---                                           |                           
|                                      |                 |             
|Net income                            |                 |              |                             |                                               |                           
|                                      |                 |             
|Other comprehensive income (loss):    |                 |             
|Net change in unrealized gain         |                 |             
|(loss) on derivative instruments,     |                 |             
|net of tax of $617                    |                 |              |                             |                                               |                           
|                                      |                 |             
|Net change in unrealized gain         |                 |             
|(loss) on securities available        |                 |             
|for sale, net of tax of $1,015        |                 |              |                             |                                               |                           
|                                      |                 |              |                             |                                               |                           
|Comprehensive income                  |                 |              |                             |                                               |                           
|                                      |                 |             
|Issued 819,223 shares in payment      |                 |             
|of 5% stock dividend                  |                 |              |                             |                                               |                           
|                                      |                 |             
|Issued 136,936 shares for acquisition |                 |             
|of Smith & Associates                 |                 |              |                             |                                               |                           
|                                      |                 |             
|Stock compensation expense            |                 |              |                             |                                               |                           

---

See accompanying notes to consolidated
financial statements.

-43-

---



MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (continued) 
Years ended December 31, 2008, 2007 and 2006 (Dollars in thousands, except per share data)

---

|                                        | Preferred Stock | Common Stock | Retained Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity
|--------------------------------------- | --------------- | ------------ | --------------------------- | --------------------------------------------- | --------------------------
|                                        |                 |              |                             |                                               |                           
|                                        |                 |              |                             |                                               |                           
|Issued 54,272 shares for stock          |                 |             
|option exercises (net of 3,833 shares   |                 |             
|exchanged and including $89 of          |                 |             
|tax benefit)                            |                 |              |                             |                                               |                           
|                                        |                 |             
|Repurchase 298,500 shares of stock      |                 |              |                             |                                               |                           
|                                        |                 |             
|Cash dividends at $.51 per              |                 |             
|common share                            |                 |              |                             |                                               |                           
|                                        |                 |              |                             |                                               |                           
|                                        |                 |             
|Balance, December 31, 2007              |                 |              |                             | ---                                           |                           
|                                        |                 |             
|Net loss                                |                 |              |                             |                                               |                           
|                                        |                 |             
|Other comprehensive income (loss):      |                 |             
|Net change in unrealized gain           |                 |             
|(loss) on securities available          |                 |             
|for sale, net of tax of $661            |                 |              |                             |                                               |                           
|                                        |                 |              |                             |                                               |                           
|Comprehensive loss                      |                 |              |                             |                                               |                           
|                                        |                 |             
|Stock compensation expense              |                 |              |                             |                                               |                           
|                                        |                 |             
|Issued 32,824 shares for stock          |                 |             
|option exercises (net of 1,010          |                 |             
|shares exchanged and including          |                 |             
|$40 of tax benefit)                     |                 |              |                             |                                               |                           
|                                        |                 |             
|Issued 31,790 shares of preferred stock |                 |              |                             | 30,637                                        |                           
|                                        |                 |             
|Cash dividends declared:                |                 |             
|Common shares ($.26 per share)          |                 |              |                             |                                               |                           
|Preferred shares                        |                 |              |                             |                                               |                           
|                                        |                 |              |                             |                                               |                           
|                                        |                 |             
|Balance, December 31, 2008              |                 |              | $                           | 30,637                                        |                           
|                                        |                 |              |                             |                                               |                           

---

See accompanying notes to consolidated
financial statements.

-44-

---



MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2008, 2007 and 2006
(Dollars in thousands)

---

|                                                                | 2008 | 2007 | 2006
|--------------------------------------------------------------- | ---- | ---- | ----
|                                                                |      |      |     
|                                                                |      |      |     
|Cash flows from operating activities                            |      |     
|Net income (loss)                                               |      |      | $   
|Adjustments to reconcile net income (loss)                      |      |     
|to net cash from operating activities                           |      |     
|Depreciation and amortization                                   |      |      |     
|Stock compensation expense                                      |      |      |     
|Provision for loan losses                                       |      |      |     
|Impairment of goodwill and acquisition intangibles              |      |      |     
|Origination of loans for sale                                   |      |      |     
|Proceeds from sales of loans originated for sale                |      |      |     
|Gain on sales of loans                                          |      |      |     
|Gain on sales of securities                                     |      |      |     
|Gain on settlement of interest rate swaps                       |      |      |     
|Write-down of other real estate                                 |      |      |     
|Loss on sales of other real estate                              |      |      |     
|Net change in                                                   |      |     
|Accrued interest receivable and other assets                    |      |      |     
|Bank-owned life insurance                                       |      |      |     
|Accrued expenses and other liabilities                          |      |      |     
|                                                                |      |      |     
|Net cash from operating activities                              |      |      |     
|                                                                |      |     
|Cash flows from investing activities                            |      |     
|Loan originations and payments, net                             |      |      |     
|Repurchase by FHLB of FHLB stock                                |      |      |     
|Purchases of securities available for sale                      |      |      |     
|Proceeds from:                                                  |      |     
|Maturities and calls of securities available for sale           |      |      |     
|Maturities and calls of securities held to maturity             |      |      |     
|Sales of securities available for sale                          |      |      |     
|Principal paydowns on securities                                |      |      |     
|Sales of other real estate                                      |      |      |     
|Additions to premises and equipment                             |      |      |     
|                                                                |      |      |     
|Net cash from investing activities                              |      |      |     
|                                                                |      |     
|Cash flows from financing activities                            |      |     
|Net increase (decrease) in deposits                             |      |      |     
|Net increase (decrease) in short-term borrowings                |      |      |     
|Proceeds from other borrowed funds                              |      |      |     
|Repayments of other borrowed funds                              |      |      |     
|Fractional shares purchased                                     |      |      |     
|Cash dividends paid on common shares                            |      |      |     
|Net proceeds from issuance of preferred stock                   |      |      |     
|Repurchase of common stock                                      |      |      |     
|Proceeds from exercises of stock options, including tax benefit |      |      |     
|                                                                |      |      |     
|Net cash from financing activities                              |      |      |     
|                                                                |      |      |     
|                                                                |      |     
|Net change in cash and cash equivalents                         |      |      |     
|                                                                |      |     
|Beginning cash and cash equivalents                             |      |      |     
|                                                                |      |      |     
|                                                                |      |     
|Ending cash and cash equivalents                                |      |      | $   
|                                                                |      |      |     

---

See accompanying notes to consolidated
financial statements.

-45-

---



MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)Years Ended December 31, 2008, 2007 and 2006
(Dollars in thousands)

---

|                                          | 2008 | 2007 | 2006
|----------------------------------------- | ---- | ---- | ----
|                                          |      |      |     
|                                          |      |      |     
|Supplemental cash flow information:       |      |     
|Interest paid                             |      |      | $   
|Income taxes paid                         |      |      |     
|                                          |      |     
|Supplemental noncash disclosures:         |      |     
|Transfers from loans to other real estate |      |      |     
|Preferred stock dividends accrued, paid   |      |     
|in subsequent quarter                     |      |      |     
|Acquisition of Smith & Associates:        |      |     
|Acquisition intangibles                   |      |      |     
|Other liabilities assumed                 |      |      |     
|Value of common stock issued              |      |      |     

---

See accompanying notes to consolidated
financial statements.

-46-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, Macatawa Bank and
Macatawa Investment Services, Inc., as well as Macatawa Banks wholly-owned
subsidiary, Macatawa Bank Mortgage Company. Macatawa Investment Services, Inc. ceased
doing business effective November l, 2006 as discussed below. All significant intercompany
accounts and transactions have been eliminated in consolidation.

The Company also owns all of the
common securities of Macatawa Statutory Trust I and Macatawa Statutory Trust II. These are
grantor trusts that issued trust preferred securities and are discussed in a separate
note.

Macatawa Bank is a Michigan chartered
bank with depository accounts insured by the Federal Deposit Insurance Corporation. The
Bank operates 26 full service branch offices providing a full range of commercial and
consumer banking and trust services in Kent County, Ottawa County, and northern Allegan
County, Michigan. Macatawa Bank Mortgage Company originates and sells residential mortgage
loans into the secondary market on a servicing released basis. Macatawa Investment
Services, a broker/dealer that provided various brokerage services including discount
brokerage, personal financial planning and consultation regarding individual stocks and
mutual funds ceased doing business as a registered broker-dealer effective November 1,
2006. On November 1, 2006, Macatawa Bank began offering brokerage services to its
customers through an arrangement with Infinex Investments, Inc. (Infinex).
Infinex is a full service investment provider, a registered broker-dealer and a member of
the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection
Corporation (SIPC). On October 11, 2006, Macatawa Bank Corporation entered into an
Agreement and Plan of Merger with Benj. A. Smith & Associates, Ltd. and Benj. A.
Smith, III. Smith & Associates is an investment advisory firm based in Holland,
Michigan. The transaction was structured as a merger of Smith & Associates into
Macatawa, which in turn contributed the business to Macatawa Bank. The transaction closed
effective as of January 1, 2007. Macatawa Statutory Trust I and Macatawa Statutory Trust
II are grantor trusts that were established on July 15, 2003 and March 18, 2004 through
which trust preferred securities were issued. Under generally accepted accounting
principles, these trusts are not consolidated into the financial statements of the
Company.

Use of Estimates: To prepare
financial statements in conformity with accounting principles generally accepted in the
United States of America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The allowance
for loan losses, the fair value of intangible assets, the status of contingencies, the
fair value of other real estate owned 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, commercial assets
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 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.

Securities: Securities are
classified as held to maturity and carried at amortized cost when management has the
positive intent and ability to hold them to maturity. 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 in other
comprehensive income, net of tax.

-47-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

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

Interest income includes amortization
of purchase premium or discount. Premiums and discounts on securities are amortized on the
level yield method without anticipating prepayments. Gains and losses on sales are based
on the amortized cost of the security sold.

Declines in the fair value of
securities below their cost that are other than temporary are reflected as realized
losses. In estimating other-than-temporary losses, management considers: the length of
time and extent that fair value has been less than cost, the financial condition and near
term prospects of the issuer, and the Companys ability and intent to hold the
security for a period sufficient to allow for any anticipated recovery in fair value.

Federal Home Loan Bank (FHLB)
Stock: The Bank is a member of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other factors, and may invest in
additional amounts. FHLB stock is carried at cost, classified as a restricted security,
and periodically evaluated for impairment. Because this stock is viewed as a long term
investment, impairment is based on ultimate recovery of par value. Both cash and stock
dividends are reported as income.

Loans: Loans that management
has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of unearned interest, deferred loan
fees and costs and an allowance for loan losses. Loans held for sale are reported at the
lower of cost or market, on an aggregate basis. Loans are sold servicing released;
therefore no mortgage servicing right assets are established.

Interest income is accrued on the
unpaid principal balance and includes amortization of net deferred loan fees and costs
over the loan term using the level yield method without anticipating prepayments. Interest
income is not reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days (180 days for residential mortgages).
Consumer loans are typically charged-off no later than 120 days past due. Past due status
is based on the contractual terms of the loan. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or interest is
considered doubtful.

All interest accrued but not received
for loans placed on nonaccrual is reversed against interest income. Interest received on
such loans is accounted for on the cash-basis or cost-recovery method, until qualifying
for return to accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are reasonably
assured.

Allowance for Loan Losses: The
allowance for loan losses is a valuation allowance for probable incurred credit losses,
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, past loan loss experience, information about specific borrower situations
and estimated collateral values, 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 losses are charged
against the allowance when management believes the uncollectibility of a loan balance is
confirmed.

The allowance consists of specific
and general components. The specific component relates to loans that are individually
classified as impaired or loans otherwise classified substandard or doubtful. The general
component covers non-classified loans and is based on historical loss experience adjusted
for current factors.

Loan impairment is reported when full
payment under the loan terms is not expected. 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 or at the fair value of
collateral if repayment is expected solely from the collateral. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when the internal
grading system indicates a doubtful classification. Large groups of smaller balance
homogeneous loans, such as consumer and residential real estate loans, are collectively
evaluated for impairment, and accordingly, they are not separately identified for
impairment disclosures.

-48-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

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

Transfers of Financial Assets:
Transfers of financial assets are accounted for as sales, when control over the assets has
been relinquished. Control over transferred assets is deemed to be surrendered when the
assets have been isolated from the Company, the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.

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

Premises and Equipment: Land
is carried at cost. Premises and equipment are stated at cost less accumulated
depreciation. Buildings and related components are depreciated using the straight-line
method with useful lives ranging from 5 to 40 years.

Furniture, fixtures and equipment are
depreciated using the straight-line method with useful lives ranging from 3 to 15 years.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized.

Bank-Owned Life Insurance: The
Bank has purchased life insurance policies on certain officers. Bank-owned life insurance
is recorded at its currently realizable cash surrender value. Changes in cash surrender
value are recorded in other income.

Goodwill: Goodwill results
from prior business acquisitions and represents the excess of the purchase price over the
fair value of acquired tangible assets and liabilities and identifiable intangible assets.
Goodwill is assessed at least annually for impairment and any such impairment will be
recognized in the period identified.

Acquisition Intangibles:
Acquisition intangibles consist of core deposit and acquired customer relationship
intangible assets arising from acquisitions. They are initially measured at fair value and
then are amortized on an accelerated method with estimated useful lives of ten to sixteen
years. These assets are reviewed for impairment when events indicate the carrying amount
may not be recoverable.

Long-term Assets: Premises and
equipment, core deposit and other intangible assets, and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments and Related
Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial letters of credit, issued to
meet customer financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.

Derivatives: Derivative
financial instruments are recognized as assets or liabilities at fair value. The
accounting for changes in the fair value of derivatives depends on the use of the
derivatives and whether the derivatives qualify for hedge accounting. The Companys
derivatives consist of interest rate swap agreements, which are used as part of its asset
liability management to help manage interest rate risk. The Company does not use
derivatives for trading purposes.

Changes in the fair value of
derivatives that are designated as a hedge of the variability of cash flows to be received
on various loans and are effective are reported in other comprehensive income and later
reclassified into earnings in the same periods during which the hedged transaction affects
earnings. If hedge accounting does not apply, changes in the fair value of derivatives are
recognized immediately in current earnings as noninterest income or loss.

-49-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

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

If designated as a hedge, the Company
formally documents the relationship between derivatives as hedged items, as well as the
risk-management objective and the strategy for undertaking hedge transactions. This
documentation includes linking cash flow hedges to specific assets on the balance sheet.
If designated as a hedge, the Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivative instruments that are used are
highly effective in offsetting changes in cash flows of the hedged items. The Company
discontinues hedge accounting when it determines the derivative is no longer effective in
offsetting changes in the cash flows of the hedged item, the derivative is settled or
terminates, or treatment of the derivative as a hedge is no longer appropriate or
intended.

Mortgage Banking Derivatives:
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary
market and forward commitments for the future delivery of these mortgage loans are
accounted for as derivatives not qualifying for hedge accounting. Fair values of these
mortgage derivatives are estimated based on changes in mortgage interest rates from the
date of the commitments. Changes in the fair values of these derivatives are included in
other noninterest income.

Stock-Based Compensation:
Compensation cost is recognized for stock options and restricted stock awards issued to
employees, based on the fair value of these awards at the date of grant. A Black-Scholes
model is utilized to estimate the fair value of stock options, while the market price of
the Corporations common stock at the date of grant is used for restricted stock
awards. Compensation cost is recognized over the required service period, generally
defined as the vesting period. For awards with graded vesting, compensation cost is
recognized on a straight-line basis over the requisite service period for the entire
award.

Income Taxes: Income tax
expense is the sum of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected
future tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, computed using enacted tax rates. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted FASB
Interpretation 48, Accounting for Uncertainty in Income Taxes
(FIN 48), as of January 1, 2007. A tax position is recognized as a
benefit only if it is more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount
recognized is the largest amount of tax benefit that is greater than 50% likely of being
realized on examination. For tax positions not meeting the more likely than
not test, no tax benefit is recorded. The adoption had no effect on the
Companys financial statements.

The Company recognizes interest
and/or penalties related to income tax matters in income tax expense.

Earnings Per Common Share:
Basic earnings per common share is net income divided by the weighted average number of
common shares outstanding during the period, excluding unvested restricted stock awards.
Diluted earnings per common share include the dilutive effect of additional potential
common shares issuable under stock options, restricted stock awards and the conversion of
the Companys convertible preferred stock. Earnings and dividends per share are
restated for all stock splits and dividends through the date of issue of the financial
statements.

Comprehensive Income:
Comprehensive income consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) includes unrealized gains and losses on securities available
for sale and unrealized gains and losses on cash flow hedges which are also recognized as
separate components of equity.

Loss Contingencies: Loss
contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an
amount or range of loss can be reasonably estimated.

Restrictions on Cash: Cash on
hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve
and clearing requirements. These balances do not earn interest.

Stock Splits and Dividends:
The fair value of shares issued for stock dividends of 20% or less is transferred from
retained earnings to common stock, to the extent of available retained earnings. No
transfer is recorded for stock dividends or splits in excess of 20%. All share and per
share amounts are retroactively adjusted for stock splits and dividends.

-50-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

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

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

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 couldsignificantly 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.

Segment Reporting: The
Company, through the branch network of the 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; cash management; and trust and
brokerage services. While the Companys management team monitors 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.

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

Adoption of New
Accounting Standards:

In September 2006, the FASB issued
Statement No. 157, Fair Value Measurements. This Statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about the assumptions used
to measure fair value and clarifies assumptions about risk and the effect of a restriction
on the sale or use of an asset. The standard is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS
157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal years.
The Company adopted the standard effective January 1, 2008 and disclosures have been added
in the accompanying Notes to the Financial Statements.

In February 2007, the FASB issued
Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. Effective January 1, 2008, the standard provides companies with an option
to report selected financial assets and liabilities at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of assets and
liabilities. The Company adopted Statement No. 159 for loans originated for sale beginning
April 1, 2008. The impact was not material to the Companys financial statements.

On November 5, 2007, the SEC issued
Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value
through Earnings(SAB 109). Previously, SAB 105, Application of
Accounting Principles to LoanCommitments, stated that in measuring the fair value
of a derivative loan commitment, a company should not incorporate the expected net future
cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and
indicates that the expected net future cash flows related to the associated servicing of
the loan should be included in measuring fair value for all written loan commitments that
are accounted for at fair value through earnings. SAB 105 also indicated that
internally-developed intangible assets should not be recorded as part of the fair value of
a derivative loan commitment, and SAB 109 retains that view. SAB 109 was effective for
derivative loan commitments issued or modified in fiscal quarters beginning after December
15, 2007. The impact of adoption was not material.

-51-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

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

Effect of Newly Issued
But Not Yet Effective Accounting Standards:

In December 2007, the FASB
issued FAS No. 141 (revised 2007), Business Combinations (FAS 141(R)), which
establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and measurement of
goodwill acquired in a business combination.  FAS No. 141(R) is effective for
fiscal years beginning on or after December 15, 2008.  Earlier adoption is
prohibited.  The adoption of this standard did not have a material effect on the
Corporations results of operations or financial position.

In December 2007, the FASB
issued SFAS No. 160,Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS No. 160),
which will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of equity within
the consolidated balance sheets. FAS No. 160 is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited. The adoption of FAS No. 160 did not have any impact on the
Corporations results of operations or financial position.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities, an
amendment of SFAS No. 133". FAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 for derivative instruments and hedging activities. FAS No.
161 requires qualitative disclosure about objectives and strategies for using derivative
and hedging instruments, quantitative disclosures about fair value amounts of the
instruments and gains and losses on such instruments, as well as disclosures about
credit-risk features in derivative agreements. FAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The adoption of this standard did not have a material
effect on the Corporations results of operations or financial position.

-52-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 2  ACQUISITION

On January 1, 2007,  the
 Company  completed  the  acquisition  of Benj.  A.  Smith &  Associates,  Ltd.  ("Smith & Associates").

Under the terms of the transaction,
Smith & Associates was merged into the Company in exchange for 143,783 shares of
common stock. The Company in turn contributed the business to Macatawa Bank. The value of
the common stock was based on the average closing price during the month of September 2006
($21.91 per share). Share and per share amounts have been adjusted for the 5% stock
dividend distributed on May 30, 2007.

The acquisition was accounted for
under the purchase method of accounting, resulting in customer relationship intangibles
valued at $1,920,000 and goodwill of $2,004,000. The goodwill and intangible assets are
evaluated annually for impairment as discussed in a separate note.

Under the terms of the transaction,
one $300,000 contingent payment would have been paid in the form of the Companys
common stock if revenue from transferred account balances, principal additions to
transferred account balances generated by Mr. Smith and new accounts generated by Mr.
Smith exceeded $1,600,000 in 2007. An additional $300,000 contingent payment would have
been paid in the form of the Companys common stock if such revenue exceeded
$1,700,000 in 2008. For 2008 and 2007, revenue did not exceed these targets; therefore the
contingent payments for each year were not made.

# NOTE 3  SECURITIES

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

|                                 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
|-------------------------------- | -------------- | ---------------------- | ----------------------- | ----------
|                                 |                |                        |                         |           
|                                 |                |                        |                         |           
|Available for Sale 2008          |                |                       
|U.S. Treasury and federal agency |                |                       
|securities                       |                |                        | $                       | 129,982   
|State and municipal bonds        |                |                        |                         | 49,794    
|Other equity securities          |                |                        |                         | 1,000     
|                                 |                |                        |                         |           
|                                 |                |                       
|                                 |                |                        | $                       | 180,776   
|                                 |                |                        |                         |           
|Held to Maturity 2008            |                |                       
|State and municipal bonds        |                |                        | $                       | 1,835     
|                                 |                |                        |                         |           
|                                 |                |                       
|                                 |                |                        | $                       | 1,835     
|                                 |                |                        |                         |           
|Available for Sale 2007          |                |                       
|U.S. Treasury and federal agency |                |                       
|securities                       |                |                        | $                       | 149,021   
|State and municipal bonds        |                |                        |                         | 49,460    
|Other equity securities          |                |                        |                         | 1,000     
|                                 |                |                        |                         |           
|                                 |                |                       
|                                 |                |                        | $                       | 199,481   
|                                 |                |                        |                         |           
|Held to Maturity 2007            |                |                       
|State and municipal bonds        |                |                        | $                       | 1,917     
|                                 |                |                        |                         |           
|                                 |                |                       
|                                 |                |                        | $                       | 1,917     
|                                 |                |                        |                         |           

-53-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 3  SECURITIES
(Continued)

Securities with unrealized losses at
year-end 2008 and 2007, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, are as follows
(dollars in thousands):

|                           | Less than 12 Months | 12 Months or More | Total
|-------------------------- | ------------------- | ----------------- | -----
|                           |                     |                   |      
|                           |                     |                   |      
|                           |                     |                   |      
|                           |                     |                   |      
|December 31, 2008          |                     |                  
|                           |                     |                  
|U.S. Treasury and federal  |                     |                  
|agency securities          |                     |                   | $    
|State and municipal bonds  |                     |                   |      
|Other equity securities    |                     |                   |      
|                           |                     |                   |      
|                           |                     |                  
|Total temporarily impaired |                     |                   | $    
|                           |                     |                   |      

|                           | Less than 12 Months | 12 Months or More | Total
|-------------------------- | ------------------- | ----------------- | -----
|                           |                     |                   |      
|                           |                     |                   |      
|                           |                     |                   |      
|                           |                     |                   |      
|December 31, 2007          |                     |                  
|                           |                     |                  
|U.S. Treasury and federal  |                     |                  
|agency securities          |                     |                   | $    
|State and municipal bonds  |                     |                   |      
|Other equity securities    |                     |                   |      
|                           |                     |                   |      
|                           |                     |                  
|Total temporarily impaired |                     |                   | $    
|                           |                     |                   |      

For unrealized losses on securities,
no loss has been recognized into income because management has the intent and ability to
hold these securities for the foreseeable future and the declines are largely due to
differences in market interest rates as compared to those of the underlying securities.
The declines in fair value are considered temporary and are expected to recover as the
bonds approach their maturity date.

Contractual maturities of debt
securities at December 31, 2008 were as follows (dollars in thousands):

|                           | Held-to-Maturity Securities | Available-for-Sale Securities
|-------------------------- | --------------------------- | -----------------------------
|                           |                             |                              
|                           |                             |                              
|                           |                             |                              
|                           |                             |                              
|Due in one year or less    |                             |                              
|Due from one to five years |                             |                              
|Due from five to ten years |                             |                              
|Due after ten years        |                             |                              
|                           |                             |                              
|                           |                             |                              
|                           |                             |                              
|                           |                             |                              

-54-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 3  SECURITIES
(Continued)

Proceeds from the sale of available
for sale securities were $21,704,000 and resulted in gross gains of $412,000 for the year
ended December 31, 2008. There were no sales of securities for the years ended
December 31, 2007 and 2006.

At December 31, 2008 and 2007,
securities with a carrying value of approximately $4,200,000 and $1,000,000, respectively,
were pledged as security for public deposits, letters of credit and for other purposes
required or permitted by law. At December 31, 2008 and 2007, securities with a carrying
value of approximately $102,944,000 and $120,263,000 were pledged as collateral for
securities sold under agreements to repurchase.

# NOTE 4  LOANS

Year-end loans were as follows
(dollars in thousands):

|                     | 2008 | 2007
|-------------------- | ---- | ----
|                     |      |     
|                     |      |     
|Commercial           |      |     
|Commercial mortgage  |      |     
|Residential mortgage |      |     
|Consumer             |      |     
|                     |      |     
|                     |      |     
|                     |      |     
|                     |      |     

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

|                          | 2008 | 2007 | 2006
|------------------------- | ---- | ---- | ----
|                          |      |      |     
|                          |      |      |     
|Beginning balance         |      |      | $   
|Provision for loan losses |      |      |     
|Loans charged-off         |      |      |     
|Recoveries                |      |      |     
|                          |      |      |     
|                          |      |     
|Ending balance            |      |      | $   
|                          |      |      |     

The increase in both net charge-offs
and the provision for loan losses in 2008 and the provision for loan losses in 2007 were
largely in response to increased levels of impaired loans resulting from the continued
deterioration in the economy and significant declines in the value of collateral securing
impaired real estate loans, primarily residential land development loans. For residential
land development loans, cash flow to service the debt is primarily expected from sales of
lots and properties securing these loans, which has declined markedly throughout 2007 and
2008. This significant deterioration in cash flows and resulting expected future cash
flows is the primary reason for the declines in the value of the real estate securing
these loans.

Loans charged off in 2006 include a
$4.7 million charge related to one commercial borrower whose loans were allegedly falsely
secured by nonexistent collateral. Accordingly, the provision for loan losses for 2006
also included a $4.7 million additional provision related to this borrower. The Company
filed a lawsuit against this borrower in 2007 that is still pending.

-55-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 4  LOANS
(Continued)

Impaired loans were as follows
(dollars in thousands):

|                                                  | 2008 | 2007
|------------------------------------------------- | ---- | ----
|                                                  |      |     
|                                                  |      |     
|Loans with no allocated allowance for loan losses |      |     
|Loans with allocated allowance for loan losses    |      |     
|                                                  |      |     
|                                                  |      |     
|                                                  |      |     
|                                                  |      |     
|                                                  |      |     
|Amount of the allowance for loan losses allocated |      |     
|                                                  |      |     

|                                             | 2008 | 2007 | 2006
|-------------------------------------------- | ---- | ---- | ----
|                                             |      |      |     
|                                             |      |      |     
|Average of impaired loans during the period  |      |      | $   
|Interest income recognized during impairment |      |      |     
|Cash-basis interest income recognized        |      |      |     

Nonperforming loans were
as follows at year-end (dollars in thousands):

|                                             | 2008 | 2007
|-------------------------------------------- | ---- | ----
|                                             |      |     
|                                             |      |     
|Loans past due over 90 days still on accrual |      |     
|Nonaccrual loans                             |      |     
|Renegotiated loans                           |      |     
|                                             |      |     
|                                             |      |     
|                                             |      |     
|                                             |      |     

Nonperforming loans include both
smaller balance homogeneous loans that are collectively evaluated for impairment and
individually classified impaired loans.

The balance of impaired and
nonperforming loans at the end of 2008 includes approximately $76.0 and $59.9 million,
respectively, of loans for the development or sale of 1-4 family residential properties.
The balance of impaired and nonperforming loans at the end of 2007 includes approximately
$62.3 and $57.4 million, respectively, of loans for the development or sale of 1-4 family
residential properties.

# NOTE 5  OTHER REAL
ESTATE OWNED

Year-end other real estate owned was
as follows (dollars in thousands):

|                                                        | 2008 | 2007
|------------------------------------------------------- | ---- | ----
|                                                        |      |     
|                                                        |      |     
|Other real estate owned, initial balance transferred in |      |     
|Less: valuation allowance                               |      |     
|                                                        |      |     
|                                                        |      |     
|                                                        |      |     
|                                                        |      |     

Activity in the valuation
allowance was as follows:

|                             | 2008 | 2007 | 2006
|---------------------------- | ---- | ---- | ----
|                             |      |      |     
|                             |      |      |     
|Beginning balance            |      |      | $   
|Additions charged to expense |      |      |     
|Deletions upon disposition   |      |      |     
|                             |      |      |     
|                             |      |     
|Ending balance               |      |      | $   
|                             |      |      |     

Net losses on sales of other real
estate were $496,000 in 2008, $68,000 in 2007 and $39,000 in 2006.

-56-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 6  FAIR VALUE

Statement 157 establishes a fair
value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:

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

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

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

The fair values of securities
available for sale are determined by obtaining quoted prices on nationally recognized
securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique
widely used to in the industry to value debt securities without relying exclusively on
quoted prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of loans held for sale
is based upon binding quotes from 3rd party investors (Level 2 inputs)

The fair value of collateral
dependent impaired loans with specific allocations of the allowance for loan losses is
generally based on recent real estate appraisals. These appraisals may utilize a single
valuation approach or a combination of approaches including comparable sales and the
income approach. Adjustments are routinely made in the appraisal process by the appraisers
to adjust for differences between the comparable sales and income data available (Level 3
inputs).

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

|                              | Fair Value Measurements at December 31, 2008 Using
|----------------------------- | --------------------------------------------------
|                              |                                                   
|                              |                                                   
|                              |                                                   
|                              |                                                   
|Assets:                       |                                                   
|Available for sale securities |                                                   
|Loans held for sale           |                                                   

Assets and Liabilities
Measured on a Non-Recurring Basis

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

|               | Fair Value Measurements at December 31, 2008 Using
|-------------- | --------------------------------------------------
|               |                                                   
|               |                                                   
|               |                                                   
|               |                                                   
|Assets:        |                                                   
|Impaired loans |                                                   

-57-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 6  FAIR VALUE
(Continued)

The following represent impairment
charges recognized during the period:

Impaired loans, which are measured for
impairment using the fair value of the collateral for collateral dependent loans, had a
carrying amount of $39.3 million with a valuation allowance of $3.6 million at December
31, 2008, resulting in an additional provision for loan losses of approximately $13.2
million for the year.

Carrying amount and estimated fair
values of financial instruments, not previously presented, were as follows at year-end
(dollars in thousands).

|                                       | 2008 | 2007
|-------------------------------------- | ---- | ----
|                                       |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     
|Financial assets                       |      |     
|Cash and cash equivalents              |      |     
|Securities held to maturity            |      |     
|FHLB stock                             |      |     
|Loans, net                             |      |     
|Accrued interest receivable            |      |     
|Interest rate swaps                    |      |     
|Bank-owned life insurance              |      |     
|                                       |      |     
|Financial liabilities                  |      |     
|Deposits                               |      |     
|Federal funds purchased                |      |     
|Other borrowed funds                   |      |     
|Long-term debt                         |      |     
|Accrued interest payable               |      |     
|                                       |      |     
|Off-balance sheet credit-related items |      |     
|Loan commitments                       |      |     

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

Carrying amount is the estimated fair
value for cash and cash equivalents, short-term borrowings, Federal Home Loan Bank stock,
accrued interest receivable and payable, bank-owned life insurance, 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. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying collateral
values. Fair value of debt is based on current rates for similar financing. It was not
practicable to determine the fair value of FHLB stock due to restrictions placed on its
transferability. The fair value of off-balance sheet credit-related items is not
significant.

-58-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 7  PREMISES
AND EQUIPMENT  NET

Year-end premises and equipment were
as follows (dollars in thousands):

|                              | 2008 | 2007
|----------------------------- | ---- | ----
|                              |      |     
|                              |      |     
|Land                          |      |     
|Building                      |      |     
|Leasehold improvements        |      |     
|Furniture and equipment       |      |     
|Construction in progress      |      |     
|                              |      |     
|                              |      |     
|Less accumulated depreciation |      |     
|                              |      |     
|                              |      |     
|                              |      |     

Depreciation expense was $3,404,000, $3,290,000
and $2,949,000 for each of the years ending December 31, 2008, 2007 and 2006.

The Bank leases certain office and
branch premises and equipment under operating lease agreements. Total rental expense for
all operating leases aggregated to $345,000, $359,000 and $382,000 for each of the years
ending December 31, 2008, 2007 and 2006. Future minimum rental expense under noncancelable
operating leases as of December 31, 2008 is as follows (dollars in thousands):

|     |  |  |  
|---- |  |  | -
|     |  | 
|     |  |  |  
|2009 |  |  | $
|2010 |  |  |  
|2011 |  |  |  
|2012 |  |  |  
|     |  | 
|     |  |  | $
|     |  | 

# NOTE 8  GOODWILL
AND ACQUISITION INTANGIBLES

Goodwill and intangible assets were
as follows at year-end (dollars in thousands):

|                              | 2008 | 2007
|----------------------------- | ---- | ----
|                              |      |     
|                              |      |     
|Goodwill                      |      |     
|                              |      |     
|                              |      |     
|Acquisition Intangibles:      |      |     
|Core deposits                 |      |     
|Less accumulated amortization |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|Trust relationships           |      |     
|Customer relationships        |      |     
|                              |      |     
|                              |      |     
|Less accumulated amortization |      |     
|Less impairment               |      |     
|                              |      |     
|                              |      |     
|                              |      |     

-59-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 8  GOODWILL AND
ACQUISITION INTANGIBLES (Continued)

During the fourth quarter of 2008,
the Company completed its annual impairment analysis of goodwill and other intangible
assets as required under Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
As a result of its analysis, the Company determined it was necessary to record pre-tax,
non-cash impairment charges of $25.9 million associated with goodwill and $1.7 million
associated with customer relationship intangibles of its trust department.

Like many publicly traded financial
institutions, during 2008 the Companys stock price and market capitalization
declined to a level well below its book value, and the Company recorded declining profits
primarily associated with much higher credit losses. These trends were evident throughout
the financial services sector. Further, continued deterioration in the equity markets has
resulted in declining revenues associated with the Companys trust department. As a
result of its annual impairment analysis, the Company determined its goodwill and customer
and trust relationship intangibles were fully impaired. The Companys remaining
intangible assets at December 31, 2008 consisted of $874,000 of core deposit intangibles.

Amortization expense for the years
ended December 31, 2008, 2007 and 2006 was $434,000, $460,000 and $378,000. Estimated
amortization expense for the next four years is as follows (dollars in thousands):

|     |  |  |  
|---- |  |  | -
|     |  |  |  
|     |  |  |  
|2009 |  |  | $
|2010 |  |  |  
|2011 |  |  |  
|2012 |  |  |  

# NOTE 9  DEPOSITS

Deposits at year-end were as follows
(dollars in thousands):

|                                  | 2008 | 2007
|--------------------------------- | ---- | ----
|                                  |      |     
|                                  |      |     
|Noninterest bearing demand        |      |     
|Interest bearing demand           |      |     
|Savings and money market accounts |      |     
|Certificates of deposit           |      |     
|                                  |      |     
|                                  |      |     
|                                  |      |     

The following table depicts the
maturity distribution of certificates of deposit at December 31, 2008 (dollars in
thousands):

|     |  |  |  
|---- |  |  | -
|     |  |  |  
|     |  |  |  
|2009 |  |  | $
|2010 |  |  |  
|2011 |  |  |  
|2012 |  |  |  
|2013 |  |  |  
|     |  | 
|     |  |  | $
|     |  | 

Approximately $574,861,000 and
$457,769,000 in certificates of deposit were in denominations of $100,000 or more at
December 31, 2008 and 2007. Brokered deposits totaled approximately $337,768,000 and
$202,839,000 at December 31, 2008 and 2007. At December 31, 2008 and 2007, brokered
deposits had interest rates ranging from 3.25% to 4.90% and 3.65% to 5.20%, respectively,
and at year-end 2008, maturities ranging from February 2009 to December 2011.

-60-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 10  OTHER
BORROWED FUNDS

Other borrowed funds include advances
from the Federal Home Loan Bank and securities sold under agreements to repurchase.

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

|Principal Terms                     | Advance Amount | Range of Maturities | Weighted Average Interest Rate
|----------------------------------- | -------------- | ------------------- | ------------------------------
|                                    |                |                     |                               
|December 31, 2008                   |                |                     |                               
|                                    |                |                    
|Single maturity fixed rate advances |                |                     | $                             
|Putable advances                    |                |                     |                               
|Amortizable mortgage advances       |                |                     |                               
|                                    |                |                     |                               
|                                    |                |                    
|                                    |                |                     | $                             
|                                    |                |                     |                               

|                                    |  |  |   |         |  |                                 | 
|----------------------------------- |  |  | - | ------- |  | ------------------------------- | 
|                                    |  |  |   |         |  |                                 | 
|                                    |  |  |   |         |  |                                 | 
|December 31, 2007                   |  | 
|                                    |  | 
|Single maturity fixed rate advances |  |  | $ | 135,000 |  | March 2008 to November 2010     | 
|Daily variable rate advance         |  |  |   | 70,000  |  | June 2008                       | 
|Putable advances                    |  |  |   | 31,000  |  | September 2009 to December 2010 | 
|Amortizable mortgage advances       |  |  |   | 8,052   |  | February 2008 to July 2018      | 
|                                    |  |  |   |        
|                                    |  | 
|                                    |  |  | $ | 244,052 | 
|                                    |  |  |   |        

Each advance is payable at its maturity
date and contains a prepayment penalty. Putable advances are fixed rate advances that can
be changed to a variable rate at the option of the FHLB. If the FHLB exercises that
option, these advances may be repaid without penalty. These advances were collateralized
by residential and commercial real estate loans totaling $617,899,000 and $611,055,000
under a blanket lien arrangement at December 31, 2008 and 2007.

Maturities as of December 31, 2008
were as follows (in thousands):

|           |  |  |  
|---------- |  |  | -
|           |  | 
|           |  |  |  
|2009       |  |  | $
|2010       |  |  |  
|2011       |  |  |  
|2012       |  |  |  
|2013       |  |  |  
|Thereafter |  |  |  
|           |  | 
|           |  |  | $
|           |  | 

Securities Sold Under
Agreements to RepurchaseSecurities sold under agreements to
repurchase (repo borrowings) are financing arrangements secured by U.S.
federal agency securities. These borrowings were collateralized by securities that had a
carrying amount of approximately $102,944,000 and $120,263,000 at December 31, 2008 and
2007. At maturity, the securities underlying the arrangements are returned to the Company.

-61-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 10  OTHER
BORROWED FUNDS (Continued)

At year-end, repo borrowings were as
follows (dollars in thousands):

|Principal Terms          | Amount | Range of Maturities | Weighted Averate Interest Rate
|------------------------ | ------ | ------------------- | ------------------------------
|                         |        |                     |                               
|                         |        |                     |                               
|December 31, 2008        |        |                    
|                         |        |                    
|Fixed rate borrowings    |        |                     | $                             
|                         |        |                    
|December 31, 2007        |        |                    
|                         |        |                    
|Fixed rate borrowings    |        |                     | $                             
|Floating rate borrowings |        |                     |                               
|                         |        |                     |                               
|                         |        |                     | $                             
|                         |        |                     |                               

Maturities as of December 31, 2008
were as follows (in thousands):

|     |  |  |  
|---- |  |  | -
|2009 |  |  | $
|2010 |  |  |  
|     |  |  |  
|     |  |  | $
|     |  | 

The Company terminated $20,000,000 of
floating rate borrowings during the second quarter of 2008 resulting in gross gains of
$243,000, which was included in other noninterest income for the year ended December 31,
2008.

# NOTE 11  LONG-TERM
DEBT

The Company has issued $40.0 million
of pooled trust preferred securities (Preferred Securities) through its
wholly-owned subsidiary grantor trusts. Macatawa Statutory Trust I issued $619,000 of
common securities to the Company and $20.0 million of Preferred Securities on July 15,
2003 at a floating interest rate of three-month LIBOR plus 3.05%. Macatawa Statutory Trust
II issued $619,000 of common securities and $20.0 million of Preferred Securities on March
18, 2004 at a floating interest rate of three-month LIBOR plus 2.75%.

The Company issued subordinated
debentures (Debentures) to each trust in exchange for the proceeds of the
offerings, which Debentures represent the sole asset of each trust. The Preferred
Securities represent an interest in the Companys subordinated debentures, which have
terms that are similar to the Preferred Securities. As provided in each trusts
indenture, the Preferred Securities accrue and pay distributions quarterly at a specified
rate and are subject to mandatory redemption upon the maturity of the Debentures, 30 years
from the date of issuance, or upon earlier redemption. The Company has the right to redeem
the Debentures in whole or in part beginning five years from the date of issuance at a
redemption price specified in each trusts indenture.

At December 31, 2008 and 2007, the
Debentures totaling $41,238,000 are reported in liabilities as long-term debt, and the
common securities of $1,238,000 and unamortized debt issuance costs are included in other
assets.

At December 31, 2008 and 2007, the
entire $40 million of Preferred Securities issued qualified as Tier 1 capital for
regulatory capital purposes.

-62-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 12  RELATED
PARTY TRANSACTIONS

Loans to principal officers,
directors, and their affiliates were as follows (dollars in thousands).

|                        | 2008 | 2007
|----------------------- | ---- | ----
|                        |      |     
|                        |      |     
|Beginning balance       |      |     
|New loans and renewals  |      |     
|Repayments and renewals |      |     
|                        |      |     
|                        |      |     
|Ending balance          |      |     
|                        |      |     

Deposits from principal officers,
directors, and their affiliates at December 31, 2008 and 2007 were $4,785,000 and
$5,787,000.

On October 11, 2006, Macatawa Bank
Corporation (Macatawa) entered into an Agreement and Plan of Merger with Benj.
A. Smith & Associates, Ltd. (Smith & Associates) and Benj. A. Smith,
III (Mr. Smith). On October 11, 2006, Macatawa also entered into a
Noncompetition Agreement with Mr. Smith. Macatawa completed the acquisition of Smith &
Associates on January 1, 2007.

Smith & Associates was an
investment advisory firm based in Holland, Michigan. Mr. Smith was the owner of Smith
& Associates. Mr. Smith is also the founder and Chairman of Macatawa Bank Corporation.
The transaction was structured as a merger of Smith & Associates into Macatawa, which
in turn contributed the business to Macatawa Bank. For further details regarding the
transaction, refer to Note 2, Acquisition.

# NOTE 13 
STOCK-BASED COMPENSATION

The Company has stock-based
compensation plans for its employees (the Employees Plans) and directors (the
Directors Plans). The Employees Plans permit the grant of stock options or the
issuance of restricted stock for up to 1,917,210 shares of common stock. The
Directors Plans permit the grant of stock options or the issuance of restricted
stock for up to 473,278 shares of common stock. There were 501,368 shares under the
Employees Plans and 165,375 shares under the Directors Plans available for
future issuance as of December 31, 2008. The Company issues new shares under its
stock-based compensation plans from its authorized but unissued shares.

# Stock Options

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

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

-63-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

NOTE 13  STOCK-BASED
COMPENSATION(Continued)

There were no options granted during
2007. The fair value of options granted during 2008 and 2006 was determined using the
following weighted-average assumptions as of grant date.

|                                               | 2008 | 2007
|---------------------------------------------- | ---- | ----
|                                               |      |     
|                                               |      |     
|Risk-free interest rate                        |      |     
|Expected option life                           |      |     
|Expected stock price volatility                |      |     
|Dividend yield                                 |      |     
|Weighted average fair value of options granted |      |     

A summary of option activity in the
plans is as follows (dollars in thousands, except per option data):

|Options                          | Number Outstanding | Weighted-Average Exercise Price | Weighted-Average remaining Contractual Life in Years | Aggregate Intrinsic Value
|-------------------------------- | ------------------ | ------------------------------- | ---------------------------------------------------- | -------------------------
|                                 |                    |                                 |                                                      |                          
|                                 |                    |                                 |                                                      |                          
|Outstanding at January 1, 2008   |                    |                                 |                                                      | 957,765                  
|Granted                          |                    |                                 |                                                      | 114,000                  
|Exercised                        |                    |                                 |                                                      | (33,834                  
|Forfeited                        |                    |                                 |                                                      | (26,890                  
|Expired                          |                    |                                 |                                                      | (34,450                  
|                                 |                    |                                 |                                                      |                          
|Outstanding at December 31, 2008 |                    |                                 |                                                      | 976,591                  
|                                 |                    |                                 |                                                      |                          
|                                 |                    |                                
|Exercisable at December 31, 2008 |                    |                                 |                                                      | 761,516                  
|                                 |                    |                                 |                                                      |                          

Information related to stock options
during each year follows:

|                                           | 2008 | 2007 | 2006
|------------------------------------------ | ---- | ---- | ----
|                                           |      |      |     
|                                           |      |      |     
|Intrinsic value of options exercised       |      |      | $   
|Cash received from option exercises        |      |      |     
|Tax benefit realized from option exercises |      |      |     

Compensation cost for stock options
was $368,000 or $320,000 after tax, representing $0.02 per share for 2008, $446,000 or
$400,000 after tax, representing $0.02 per share for 2007 and $657,000 or $522,000 after
tax, representing $0.03 per share for 2006.

As of December 31, 2008, there was
approximately $309,000 of total unrecognized compensation cost related to nonvested stock
options granted under the Companys stock-based compensation plans. The cost is
expected to be recognized over a weighted-average period of 1.5 years.

# Stock Awards

Stock awards have vesting periods of
up to four years. A summary of changes in the Companys nonvested stock awards for
the year follows:

|Nonvested Stock Awards           | Shares | Weighted-Average Grant-Date Fair Value
|-------------------------------- | ------ | --------------------------------------
|                                 |        |                                       
|                                 |        |                                       
|Outstanding at January 1, 2008   |        |                                       
|Granted                          |        |                                       
|Vested                           |        |                                       
|Forfeited                        |        |                                       
|                                 |        |                                       
|                                 |        |                                       
|Outstanding at December 31, 2008 |        |                                       
|                                 |        |                                       

-64-

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MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

NOTE 13  STOCK-BASED
COMPENSATION(Continued)

Compensation cost for stock awarded
in 2008 and 2007 was $223,000 and $145,000. Compensation cost for stock awarded in 2006
was nominal.

As of December 31, 2008, there was
$663,000 of total unrecognized compensation cost related to nonvested shares granted under
the Companys stock-based compensation plans. The cost is expected to be recognized
over a weighted-average period of 2.0 years. The total fair value of shares vested was
$6,200 during the year ended December 31, 2008. There were no shares vested during the
years ended December 31, 2007 and 2006.

# NOTE 14  EMPLOYEE
BENEFITS

The Company sponsors a 401(k) plan
which covers substantially all employees. Employees may elect to contribute to the plan up
to the maximum percentage of compensation and dollar amount subject to statutory
limitations. The Company makes matching contributions equal to 100% of the first 3% of
employee contributions and 50% of employee contributions in excess of 3%, up to 6%. The
Companys contributions for the years ended December 31, 2008, 2007 and 2006 were
approximately $790,000, $767,000 and $691,000.

The Company sponsors an Employee
Stock Purchase Plan which covers substantially all employees. Employees are allowed to
direct the Company to withhold payroll dollars and purchase Company stock at market price
on a payroll by payroll basis. The Company has reserved 210,000 shares of common stock to
be issued under the plan. The plan allows for shares to be issued directly from the
Company or purchased on the open market.

# NOTE 15  EARNINGS
PER COMMON SHARE

A reconciliation of the numerators
and denominators of basic and diluted earnings per common share are as follows (dollars in
thousands except per share data):

|                                              | 2008 | 2007 | 2006
|--------------------------------------------- | ---- | ---- | ----
|                                              |      |      |     
|                                              |      |      |     
|Net income (loss)                             |      |      | $   
|Dividends declared on preferred shares        |      |      |     
|                                              |      |      |     
|Net income (loss) available to common shares  |      |      | $   
|                                              |      |      |     
|                                              |      |     
|Weighted average shares outstanding - Basic   |      |      |     
|Dilutive potential common shares:             |      |     
|Stock options and restricted stock awards     |      |      |     
|Conversion of preferred stock                 |      |      |     
|                                              |      |      |     
|Weighted average shares outstanding - Diluted |      |      |     
|                                              |      |      |     
|                                              |      |     
|Basic earnings (loss) per common share        |      |      | $   
|Diluted earnings (loss) per common share (1)  |      |      |     

|(1) | For
any period in which a loss is recorded, the assumed exercise of stock
                    options and the impact of restricted stock awards would have an
anti-dilutive                     impact on loss per share and thus are ignored in the
diluted per share                     calculation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock options and nonvested stock
awards for 1,160,223, 507,562, and 335,959 shares of common stock were not considered in
computing diluted earnings per common share for December 31, 2008, 2007 and 2006,
respectively, because they were antidilutive. Potential common shares associated with the
convertible preferred stock issued in the fourth quarter of 2008 were excluded from
dilutive potential common shares as they were antidilutive.

-65-

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MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 16  FEDERAL
INCOME TAXES

The consolidated provision for income
taxes was as follows (dollars in thousands):

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

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

|                                              | 2008 | 2007 | 2006
|--------------------------------------------- | ---- | ---- | ----
|                                              |      |      |     
|                                              |      |      |     
|Statutory rate                                |      |      |     
|Statutory rate applied to income before taxes |      |      | $   
|Add (deduct)                                  |      |     
|Tax-exempt interest income                    |      |      |     
|Bank-owned life insurance                     |      |      |     
|Goodwill impairment                           |      |      |     
|Other, net                                    |      |      |     
|                                              |      |      |     
|                                              |      |      | $   
|                                              |      |      |     

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

|                                                 | 2008 | 2007
|------------------------------------------------ | ---- | ----
|                                                 |      |     
|Deferred tax asset                               |      |     
|Allowance for loan losses                        |      |     
|Nonaccrual loan interest                         |      |     
|Valuation allowance on other real estate owned   |      |     
|Other                                            |      |     
|                                                 |      |     
|                                                 |      |     
|Deferred tax liabilities                         |      |     
|Depreciation                                     |      |     
|Purchase accounting adjustments                  |      |     
|Unrealized gain on derivative instruments        |      |     
|Unrealized gain on securities available for sale |      |     
|Prepaid expenses                                 |      |     
|Other                                            |      |     
|                                                 |      |     
|                                                 |      |     
|Net deferred tax asset                           |      |     
|                                                 |      |     

A valuation allowance related to
deferred tax assets is required when it is considered more likely than not that all or
part of the benefit related to such assets will not be realized. Based on the levels of
taxable income in prior years and the Companys expectation of a return to
profitability in future years, management has determined that no valuation allowance was
required at December 31, 2008 or 2007.

There were no unrecognized tax
benefits at December 31, 2008 and the Company does not expect the total amount of
unrecognized tax benefits to significantly increase or decrease in the next twelve months.

The Company is no longer subject to
examination by the Internal Revenue Service for years before 2005.

-66-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 17 
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 was as follows at
year-end (dollars in thousands):

|                          | 2008 | 2007
|------------------------- | ---- | ----
|                          |      |     
|                          |      |     
|Commitments to make loans |      |     
|Letters of credit         |      |     
|Unused lines of credit    |      |     

At year-end 2008, approximately 29%
of the Banks commitments to make loans were at fixed rates, offered at current
market rates. The remainder of the commitments to make loans was at variable rates tied to
prime and generally expire within 30 days. The majority of the unused lines of credit were
at variable rates tied to prime.

# NOTE 18 
CONTINGENCIES

The Company and its subsidiaries
periodically become defendants in certain claims and legal actions arising in the ordinary
course of business.

On July 8, 2003, the Company filed a
Form 8-K (dated July 1, 2003) with the Securities and Exchange Commission reporting events
related to a former trust customer, Trade Partners, Inc. (Trade Partners), of
the former Grand Bank, which the Company acquired effective April 1, 2002. Trade Partners
was involved in purchasing and selling interests in viaticals, which are interests in life
insurance policies of the terminally ill or elderly. Beginning in 1996, Grand Bank served
as a custodian and escrow agent with respect to viaticals purchased by Trade Partners and
sold to investors. Two lawsuits were filed, one in December 2002 and another in March
2003, against Trade Partners, Grand Bank and the Company alleging that Grand Bank breached
certain escrow agreements related to viatical settlement contracts. Both of these lawsuits
have been dismissed although the plaintiffs reserved the right to pursue the claims in the
future. A third lawsuit was filed in April 2003 by two individual investors against Grand
Bank, the Company, Trade Partners and certain individuals and entities associated with
Trade Partners. The claims against Grand Bank and the Company in this lawsuit have been
settled and dismissed with prejudice. In May 2003 a purported class action complaint was
filed against the Company. As amended, this suit alleges that Grand Bank breached escrow
agreements and fiduciary duties and violated the Michigan Uniform Securities Act with
respect to the investments secured by the purported class in viaticals and in interests in
limited partnerships which made loans to Trade Partners secured by viaticals, and with
respect to loans made by purported class members directly to Trade Partners. The Company
has answered the complaint denying the material allegations and raising certain
affirmative defenses. In November 2006 the court denied class certification in this case.
The Company believes that the class action, if it had been approved by the court, might
have involved as many as 2,000 to 3,000 individual claimants. Since that denial of class
certification, nine new actions, none of which is a class action, raising substantially
the same allegations as the former class action have been filed in several jurisdictions
on behalf of approximately 1,400 Trade Partners investors, though some have been dismissed
over the course of the litigation and the current total is approximately 1,200. Management
believes the Company has strong defenses and will vigorously defend the cases.

-67-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 18 
CONTINGENCIES (Continued)

Trade Partners is now in
receivership. The supervising court authorized the receiver to borrow money from Macatawa
Bank to pay premiums, if needed. Macatawa Bank extended a $4 million line of credit to the
receiver, conditioned upon obtaining a security interest in the viaticals. No draws were
made against the line, and the line expired during the fourth quarter of 2004.

On October 6, 2008 the Company
reached a preliminary contingent settlement with counsel for the Plaintiffs in these
proceedings. This agreement required various conditions to be satisfied by January 15,
2009. The Company does not believe it is likely that the contingencies, which are
discussed in more detail below, will be satisfied and entered into the agreement
anticipating that the plaintiffs response would help it assess the uncertainties of
the litigation.

Both parties entered into a
re-negotiation of the agreement in December and the preliminary contingent settlement was
amended on January 29, 2009. Under the terms of the Amended Agreement, if all
contingencies are satisfied and the settlement becomes final, the Company will pay the
plaintiffs $5.75 million in cash, and issue warrants to purchase a total of 1,500,000
shares of common stock at an exercise price of $9.00 per share with the warrants having a
term of five years from the date of issuance. The Amended Agreement further provides that
the plaintiffs are to receive amounts collected by the Company from other defendants up to
$250,000. If the Company collects less than $250,000 from these other defendants, it is to
make up the difference with cash. The Companys insurers will contribute $950,000 to
the cash portion of the settlement. The Amended Agreement includes deadlines for
satisfying certain contingencies. Under the terms of the Amended Agreement, the Company
will not issue shares of common stock as part of the settlement (except pursuant to the
warrant as described above).

The settlement involves no admission
of fault or wrongdoing by the Company or Macatawa Bank.

The original contingent settlement
agreement provided for a settlement of $2.75 million in cash, including $950,000 from the
Companys insurers, $250,000 in cash from third parties defendants or the Company,
common stock valued at $3.0 million and three warrants for each share of common stock to
be issued in the proposed settlement. The common stock was to have been issued at a price
based on the average closing price for the 20 trading days preceding the date the
settlement would have become final after the contingencies are satisfied, the stock
warrants would have expired after three years and would have had an exercise price equal
to 150% of the price per share at which the common stock was issued with the result that
the number of shares and warrants to be issued would have been determined based on the
stock price at the time the settlement becomes final. The Companys lower stock price
affected their ability to offer stock causing both parties to enter into re-negotiation in
December, 2008. The preliminary contingent settlement agreement was amended on January 29,
2009. The stock component of the original offer was replaced with cash, but the value of
the contingent settlement agreement was essentially unchanged.

Significant contingencies contained
in the Amended Agreement are beyond the Companys control and there can be no
assurance about if and when such additional contingencies will be satisfied. The
contingencies include the requirement that by no later than April 30, 2009, ninety-eight
percent (98%) of the total number of plaintiffs and ninety-eight percent (98%) of the
total dollar amount of the claims must be resolved by said plaintiffs signing a release of
claims. If the contingencies were satisfied and the litigation was settled, as proposed,
the impact on the Company would be the recording of an additional expense of approximately
$3.3 million, net of tax.

There are approximately 1,200
plaintiffs located in 40 states and 13 different countries. Plaintiffs claims differ
widely depending upon which of the many different escrow agreements to which they were a
party. This is not a class action and Plaintiffs counsel cannot act to bind the
Plaintiffs. The Company believes that resolving this litigation would be in the best
interests of the Company and its shareholders. However, based on thesignificance
of the contingencies precedent within the contingent settlement agreement, particularly
given the geographic disparity of the plaintiffs, the complicated nature of their varied
claims, and the high number of plaintiffs involved combined with the high threshold (98%)
required for release of claims, we do not believe it is probable that the contingencies
will be satisfied and the litigation settled as contemplated by the contingent settlement
agreement. The Company made the offer to settle, containing the contingencies noted above,
in an attempt to avoid exposure to future litigation and to avoid the cost of litigation,
although the Company did and does not believe the plaintiffs are likely to meet the terms
of the offer so as to be able to accept it.

-68-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 18 
CONTINGENCIES (Continued)

If the contingencies are not
satisfied, and the offer accepted under its terms, the Company does not intend to extend
or amend the offer, the Trade Partners litigation will not be settled and the litigation
process will resume. If the litigation resumes, the Company believes it has strong
defenses and intends to continue to vigorously defend these actions. The outcome under
litigation, however, is uncertain, and we are therefore unable to determine to what extent
it will impact the Company. The outcome could involve less or more loss to the Company
than the amount proposed in the settlement offer. Accordingly, no amount has been accrued
at December 31, 2008 for this matter.

It is possible that one or more
additional legal actions may be initiated involving the custodial and escrow agent
services provided by Grand Bank in connection with Trade Partners. If any such legal
actions are commenced, the Company intends to defend them vigorously.

# NOTE 19  INTEREST
RATE SWAPS

The Company entered into five
interest rate swap agreements (i.e. swaps) during 2002, 2003 and 2004, each with a
notional amount of $20,000,000. A large portion of the Companys assets are loans on
which the interest rates are variable. The Company entered into these swaps to convert the
variable rate interest cash inflows on certain of its loans to fixed rates of interest.
These swaps paid interest to the Company at a fixed rate and required interest payments
from the Company at a variable rate.

Prior to December 31, 2007, these
interest rate swap agreements were reported, and had been since their inception, as cash
flow hedges as the Company believed the critical terms of the swap agreements matched the
critical terms of the variable rate loans and concluded that interest rate swap agreements
were effective cash flow hedges. At December 31, 2007, the Company determined that
accounting for these swaps as cash flow hedges was not appropriate. Accordingly, changes
in fair value of these swaps are reported in noninterest income rather than other
comprehensive income.

At December 31, 2007, outstanding
swaps with a notional amount of $60,000,000 had weighted average pay rates of 7.25%,
weighted average receive rates of 6.65% and a weighted average maturity of 1.5 years.
These swaps had a fair value of $288,000 which was reported in other noninterest income.

In February of 2008, the Company
chose to terminate all of its outstanding swaps, which had a total notional amount of
$60,000,000. The Company realized a gain of approximately $832,000 associated with their
settlements which was included in other noninterest income. There were no outstanding
swaps at December 31, 2008.

# NOTE 20 
SHAREHOLDERS EQUITY

# Regulatory Capital

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

The prompt corrective action
regulations provide five classifications, including well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent overall financial
condition. If the Bank is only adequately capitalized, regulatory approval is required to
accept brokered deposits; and if the Bank is undercapitalized, capital distributions are
limited, as is asset growth and expansion, and plans for capital restoration are required.

-69-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

NOTE 20  SHAREHOLDERS
EQUITY(Continued)

Actual capital levels (dollars in
thousands) and minimum required levels were as follows at year-end:

|                                         | Actual | Minimum Required For Capital Adequacy Purposes | To Be Well Capitalized Under
Prompt Corrective Action Regulations
|---------------------------------------- | ------ | ---------------------------------------------- | -----------------------------------------------------------------
|                                         |        |                                                |                                                                  
|                                         |        |                                                |                                                                  
|                                         |        |                                                |                                                                  
|                                         |        |                                                |                                                                  
|December 31, 2008                        |        |                                               
|Total capital (to risk weighted assets)  |        |                                               
|Consolidated                             |        |                                                | $                                                                
|Bank                                     |        |                                                |                                                                  
|Tier 1 capital (to risk weighted assets) |        |                                               
|Consolidated                             |        |                                                |                                                                  
|Bank                                     |        |                                                |                                                                  
|Tier 1 capital (to average assets)       |        |                                               
|Consolidated                             |        |                                                |                                                                  
|Bank                                     |        |                                                |                                                                  
|                                         |        |                                               
|                                         |        |                                               
|December 31, 2007                        |        |                                               
|Total capital (to risk weighted assets)  |        |                                               
|Consolidated                             |        |                                                | $                                                                
|Bank                                     |        |                                                |                                                                  
|Tier 1 capital (to risk weighted assets) |        |                                               
|Consolidated                             |        |                                                |                                                                  
|Bank                                     |        |                                                |                                                                  
|Tier 1 capital (to average assets)       |        |                                               
|Consolidated                             |        |                                                |                                                                  
|Bank                                     |        |                                                |                                                                  

The Bank was categorized as well
capitalized at December 31, 2008 and 2007. There are no conditions or events since
December 31, 2008 that management believes have changed its category.

# Issuance of Convertible
Preferred Stock

In the fourth quarter of 2008, the
Company completed a private offering of 31,290 shares of 12.0% Series A Non-Cumulative
Perpetual Convertible Preferred Stock (Series A Preferred Stock) with a liquidation
preference of $1,000 per share, resulting in an aggregate liquidation preference of $31.3
million. Proceeds of $30.6 million from issuance were net of $653,000 of costs.

Each share of the Series A Preferred
Stock is non-voting and may be convertible at any time, at the option of the holder, into
111.73 shares of common stock of the Company, which represents an approximate initial
conversion price of $8.95 per share of common stock (for a total of approximately 3.5
million shares at December 31, 2008). The conversion rate and conversion price will be
subject to adjustments in certain circumstances. On or after the third anniversary of the
issue date, at the option of the Company, the Series A Preferred Stock will be subject to
mandatory conversion into common stock at the prevailing conversion rate, if the closing
price of the Companys common stock exceeds 130% of the then applicable conversion
price for 20 trading days during any 30 consecutive trading day period and the Company has
paid full dividends on the Series A Preferred Stock for four consecutive quarters.

On December 18, 2008, the board of
directors declared a quarterly cash dividend on the Series A Preferred Stock of $26.11 per
share. This amount was pro-rated over the initial dividend period as further set forth in
the Certificate of Designation classifying the preferred stock. The dividend is payable
February 2, 2009, to shareholders of record on January 15, 2009.

-70-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 21  CONDENSED
FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

Following are condensed parent
company only financial statements (dollars in thousands):

CONDENSED BALANCE SHEETS

|                                           | 2008 | 2007
|------------------------------------------ | ---- | ----
|                                           |      |     
|                                           |      |     
|ASSETS                                     |      |     
|                                           |      |     
|Cash and cash equivalents                  |      |     
|Investment in Bank subsidiary              |      |     
|Investment in other subsidiaries           |      |     
|Other assets                               |      |     
|                                           |      |     
|                                           |      |     
|Total assets                               |      |     
|                                           |      |     
|                                           |      |     
|LIABILITIES AND SHAREHOLDERS' EQUITY       |      |     
|                                           |      |     
|Long-term debt                             |      |     
|Other liabilities                          |      |     
|                                           |      |     
|Total liabilities                          |      |     
|                                           |      |     
|Total shareholders' equity                 |      |     
|                                           |      |     
|                                           |      |     
|Total liabilities and shareholders' equity |      |     
|                                           |      |     

CONDENSED STATEMENTS OF
INCOME

|                                                        | 2008 | 2007 | 2006
|------------------------------------------------------- | ---- | ---- | ----
|                                                        |      |      |     
|                                                        |      |      |     
|Income                                                  |      |     
|Dividends from subsidiaries                             |      |      | $   
|                                                        |      |     
|Expense                                                 |      |     
|Interest expense                                        |      |      |     
|Other expense                                           |      |      |     
|                                                        |      |      |     
|Total expense                                           |      |      |     
|                                                        |      |     
|Income before income tax and equity in                  |      |     
|undistributed net income (loss) of subsidiaries         |      |      |     
|                                                        |      |     
|Equity in undistributed earnings (loss) of subsidiaries |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Income before income tax                                |      |      |     
|Income tax benefit                                      |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Net income (loss)                                       |      |      |     
|Dividends declared on preferred shares                  |      |      |     
|                                                        |      |      |     
|Net income (loss) available to common stock             |      |      | $   
|                                                        |      |      |     

-71-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

# NOTE 21  CONDENSED
FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
(Continued)

CONDENSED STATEMENTS OF
CASH FLOWS

|                                                        | 2008 | 2007 | 2006
|------------------------------------------------------- | ---- | ---- | ----
|                                                        |      |      |     
|                                                        |      |      |     
|Cash flows from operating activities                    |      |     
|Net income (loss)                                       |      |      | $   
|Adjustments to reconcile net income (loss) to net cash  |      |     
|from operating activities:                              |      |     
|Equity in undistributed (earnings) loss of subsidiaries |      |      |     
|Stock compensation expense                              |      |      |     
|(Increase) decrease in other assets                     |      |      |     
|Increase (decrease) in other liabilities                |      |      |     
|                                                        |      |      |     
|Net cash from operating activities                      |      |      |     
|                                                        |      |     
|Cash flows from investing activities                    |      |     
|Investment in subsidiaries                              |      |      |     
|Net cash received from dissolution of subsidiary        |      |      |     
|                                                        |      |      |     
|Net cash from investing activities                      |      |      |     
|                                                        |      |     
|Cash flows from financing activities                    |      |     
|Proceeds from exercises of stock options                |      |      |     
|Fractional shares purchased                             |      |      |     
|Cash dividends paid                                     |      |      |     
|Net proceeds from issuance of preferred stock           |      |      |     
|Repurchase of stock                                     |      |      |     
|                                                        |      |      |     
|Net cash from financing activities                      |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Net change in cash and cash equivalents                 |      |      |     
|                                                        |      |     
|Cash and cash equivalents at beginning of year          |      |      |     
|                                                        |      |      |     
|                                                        |      |     
|Cash and cash equivalents at end of year                |      |      | $   
|                                                        |      |      |     
|                                                        |      |     
|Supplemental noncash disclosures:                       |      |     
|Preferred stock dividends accrued, paid                 |      |     
|in subsequent quarter                                   |      |      | $   

-72-

---



MACATAWA BANK
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2008 and 2007

---

NOTE 22  QUARTERLY FINANCIAL
DATA(Unaudited)
(Dollars in thousands except per share data)

|               |  |  |   |        | Earnings Per Common Share
|-------------- |  |  | - | ------ | -------------------------
|               |  |  |   |        |                          
|               |  |  |   |        |                          
|               |  |  |   |        |                          
|               |  |  |   |        |                          
|2008           |  |  |   |        |                          
|First quarter  |  |  | $ | 31,317 |                          
|Second quarter |  |  |   | 29,199 |                          
|Third quarter  |  |  |   | 28,614 |                          
|Fourth quarter |  |  |   | 26,945 |                          
|               |  | 
|2007           |  |  |   |        |                          
|First quarter  |  |  | $ | 34,931 |                          
|Second quarter |  |  |   | 35,683 |                          
|Third quarter  |  |  |   | 35,391 |                          
|Fourth quarter |  |  |   | 33,368 |                          

Net income for the fourth quarter of
2008 includes a $27.6 million ($27.0 million after tax, or $1.60 per share) impairment
charge for goodwill and other intangible assets, as discussed in a separate note.

-73-

---



# ITEM 9:      Changes in and
Disagreements With Accountants on Accounting and Financial Disclosure.

There have been no disagreements with
our independent public accountants.

# ITEM 9A:      Controls and
Procedures.

|(a) | Evaluation
of Disclosure Controls and Procedures.
|--- | -------------------------------------------------

The Companys Co-Chief Executive
Officers and Chief Financial Officer, after evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report, have
concluded that as of the end of the period covered by this Report the Companys
disclosure controls and procedures were adequate and effective to ensure that material
information relating to the Company would be made known to them by others within the
company, particularly during the period in which this Form 10-K Annual Report was being
prepared.

|(b) | Managements
Report on Internal Control over Financial Reporting.
|--- | -----------------------------------------------------------------

The management of the Company is
responsible for establishing and maintaining adequate internal control over financial
reporting. The Companys internal control system was designed to provide reasonable
assurance to the Companys management and board of directors regarding the
preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Company management assessed the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2008. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment we believe that, as of December 31,
2008, the Companys internal control over financial reporting is effective based on
those criteria.

Internal control over financial
reporting as of December 31, 2008 has been audited by Crowe Horwath LLP, an independent
registered certified public accounting firm, as stated in their report included in Item 8
to this Annual Report on Form 10-K.

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

There were no significant changes in
the Companys internal controls over financial reporting during the fourth quarter
ended December 31, 2008, that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.

# ITEM 9B:      Other
Information.

| | None.
| | -----

# PART III

# ITEM 10:      Directors,
Executive Officers and Corporate Governance.

The information set forth under the
captions Information About Directors, Audit Committee Report,
Corporate Governance-Director Nominations, and Section 16(a) Beneficial
Ownership Reporting Compliance in our definitive Proxy Statement relating to our
April 23, 2009 Annual Meeting of Shareholders and the information within that section is
incorporated by reference.

Information relating to our Executive
Officers is included in Part I hereof entitled Executive Officers of the
Registrant. There are no family relationships between or among the above-named
executive officers. There are no arrangements or understandings between any of the
above-named officers pursuant to which any of them was named an officer.

We have adopted a Senior Officer Code
of Ethics. A copy of our Senior Officer Code of Ethics is available upon request by
writing to the Chief Financial Officer, Macatawa Bank Corporation, 10753 Macatawa Drive,
Holland, Michigan 49424 and is also available at www.macatawabank.com under
investor relations.

-74-

---



# ITEM 11:      Executive
Compensation.

Information relating to compensation
of our executive officers and directors is contained under the captions Compensation
of Directors, Executive Compensation, Compensation Discussion and
Analysis, Summary Compensation Table and Potential Payments Upon
Termination or Change of Control in our definitive Proxy Statement relating to our
April 23, 2009 Annual Meeting of Shareholders and the information within those sections is
incorporated by reference.

# ITEM 12:      Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

Information relating to security
ownership of certain beneficial owners and management is contained under the captions
Voting Securities and Principal Holders Thereof and Security Ownership
of Management in our definitive Proxy Statement relating to our April 23, 2009
Annual Meeting of Shareholders and the information within that section is incorporated by
reference.

Equity Compensation Plan
Information. The Company maintains certain equity compensation plans under
which common stock is authorized for issuance to employees, consultants and directors in
exchange for services, including the 1998 Stock Compensation Plan, the 1998
Directors Stock Option Plan, the 2006 Stock Compensation Plan, the 2006
Directors Stock Compensation Plan, the Grand Bank Financial Corporation 1998 Stock
Option Plan and the Grand Bank Financial Corporation Stock Option Plan of 1997.

The following table sets forth
certain information regarding the above referenced equity compensation plans as of
December 31, 2008. The following information has been adjusted to reflect the effect of
all stock dividends and stock splits.

|Equity Compensation Plan Information
|------------------------------------
|                                    
|                                    
|                                    
|                                    
|Equity compensation plans           
|approved by security holders        
|                                    
|                                    
|Equity compensation plans           
|not approved by security            
|holders                             
|                                    
|                                    
|Total                               
|                                    

# ITEM 13:      Certain
Relationships and Related Transactions, and Director Independence.

Information relating to certain
relationships and related transactions, and director independence is contained under the
captions Transactions Involving Management and Corporate
Governance-Director Independence in our definitive Proxy Statement relating to our
April 23, 2009 Annual Meeting of Shareholders and the information within that section is
incorporated by reference.

# ITEM 14:      Principal
Accountant Fees and Services.

Information relating to principal
accountant fees and services is contained under the caption Principal Accounting
Firm Fees in our definitive Proxy Statement relating to our April 23, 2009 Annual
Meeting of Shareholders and the information within that section is incorporated by
reference.

-75-

---



# PART IV

# ITEM 15:      Exhibits and
Financial Statement Schedules.

|(a)1. | The
following documents are filed as part of Item 8 of this report:
|----- | -------------------------------------------------------------------

| | Managements Report on Internal Control Over Financial Reporting 
Report of Independent Registered Public Accounting Firm on Financial Statements 
Consolidated Balance Sheets as of December 31, 2008 and 2007 
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006 
Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2008, 2007 and 2006 
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 
Notes to Consolidated Financial Statements
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a)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.
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a)3. | The
following exhibits are filed as part of this report:
|----- | --------------------------------------------------------

| | Exhibit Number
and Description
| | ------------------------------

| | 3.1 | Articles
of Incorporation of Macatawa Bank Corporation, as amended, incorporated by reference to
Exhibit 3.1 to the Macatawa Bank Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, to Exhibit 3.1 to the Macatawa Bank Corporation Form 10-Q
for the quarter ended June 30, 2006, to Exhibit 4.1 to the Macatawa Bank Corporation
Current Report on Form 8-K dated November 5, 2008.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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)
together with the Amendment attached as Exhibit 3.2 to the Macatawa Bank Corporation
Annual Report on Form 10-K for the year ended December 31, 2007.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 Registrants Form SB-2 Registration Statement (No. 333-45755), as amended by the
First Amendment included as Appendix B to the Macatawa Bank Corporation Proxy Statement
dated March 5, 1999 for the Annual Meeting of Shareholders held April 15, 1999, as
further amended by the Second Amendment included as Appendix A to the Macatawa Bank
Corporation Proxy Statement dated March 7, 2002 for the Annual Meeting of Shareholders
held April 18, 2002.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2* | Macatawa
Bank Corporation 1998 Directors Stock Option Plan incorporated by reference to
Exhibit 10.2 to the Registrants Form SB-2 Registration Statement (No. 333-45755),
as amended by the First Amendment included as Appendix B to the Macatawa Bank Corporation
Proxy Statement dated March 7, 2002 for the Macatawa Bank Corporation Annual Meeting of
Shareholders held April 18, 2002.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3* | Macatawa
Bank Corporation 2006 Stock Compensation Plan incorporated by reference to Appendix A to
the Macatawa Bank Corporation Proxy Statement dated March 6, 2006.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4* | Macatawa
Bank Corporation 2006 Directors Stock Compensation Plan incorporated by reference
to Appendix B to the Macatawa Bank Corporation Proxy Statement dated March 6, 2006.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5* | Amended
and Restated Employment Agreement between Benj. A Smith III and Macatawa Bank Corporation
dated May 9, 2007, incorporated by reference to Exhibit 10.1 to the Macatawa Bank
Corporation Quarterly Report on Form 10-Q dated May 10, 2007.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-76-

---



| | 10.6 | Agreement
and Plan of Merger dated October 11, 2006 by and among Macatawa Bank Corporation,
Benj. A. Smith & Associates, Ltd. (Smith & Associates) and Benj. A.
Smith, III, incorporated by reference to Exhibit 10.1 to the
Macatawa Bank Corporation Current Report on Form 8-K dated October
11, 2006.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7* | Noncompetition
Agreement dated October 11, 2006, by and between Macatawa Bank Corporation and Benj. A.
Smith, III, incorporated by reference to Exhibit 10.2 to the Macatawa Bank Corporation
Current Report on Form 8-K dated October 11, 2006.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | Form
of Indemnity Agreement between Macatawa Bank Corporation and each of its directors,
incorporated by reference to Exhibit 10.2 to the Macatawa Bank Corporation Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | Investment
  Management  Agreement  between  Macatawa  Bank  and  Smith  &  Associates  Investment
                 Management Services dated October 1, 2008.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10* | Form
of Stock Option Agreement, incorporated by reference to Exhibit 10.6 to the Macatawa Bank
Corporation Annual Report on Form 10-K for the year ended December 31, 2004.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11* | Form
of Stock Option Agreement for non-qualified stock options, incorporated by reference to
Exhibit 10.3 to the Macatawa Bank Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12* | Form
of Stock Option Agreement for incentive stock options, incorporated by reference to
Exhibit 10.4 to the Macatawa Bank Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13* | Form
of Stock Option Agreement under the Directors Stock Compensation Plan, incorporated
by reference to Exhibit 10.5 to the Macatawa Bank Corporation Quarterly Report on Form
10-Q for the quarter ended June 30, 2006.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14* | Form
of Restricted Stock Agreement, incorporated by reference to Exhibit 10.15 to the Macatawa
Bank Corporation Annual Report on Form 10-K for the year ended December 31, 2006.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 | Board
Representation Agreement dated November 5, 2008, between Macatawa Bank Corporation and
White Bay Capital, LLC, incorporated by reference to Exhibit 10.2 to the Management Bank
Corporation Current Report on Form 8-K dated November 5, 2008
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 | Form
of Subscription and Purchase Agreement between Macatawa Bank Corporation and purchasers
of Series A Noncumulative Perpetual Preferred Stock, incorporated by reference to Exhibit
10.1 to the Macatawa Bank Corporation Current Report on Form 8-K dated November 5, 2008.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17 | First
Amended Settlement and Release and Warrant Issuance Agreement dated January 30, 2009,
incorporated by reference to Exhibit 10.1 to the Macatawa Bank Corporation Current Report
on Form 8-K dated January 30, 2009.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18 | Consulting
Agreement between G. Thomas Boylan and Macatawa Bank Corporation dated March 10, 2009.
| | ----- | -------------------------------------------------------------------------------------------------

| | 21 | Subsidiaries
of the Registrant
| | -- | ------------------------------

| | 23 | Consent
of Crowe Horwath LLP, independent registered public accounting firm
| | -- | ---------------------------------------------------------------------------

| | 24 | Power
of Attorney (included on the signature page of this Annual Report on Form 10-K)
| | -- | -------------------------------------------------------------------------------------

| | 31.1 | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------

| | 31.2 | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------

| | 31.3 | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------

-77-

---



| | 32.1 | Certificate
of the Co-Chief Executive Officers and Chief Financial Officer of Macatawa Bank
Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 | Letter
to Shareholders
| | ---- | ----------------------

*
Management contract or compensatory plan.

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 to Chief Financial Officer, Macatawa Bank
Corporation, 10753 Macatawa Drive, Holland, Michigan 49424.

-78-

---



# 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 9, 2009.

|MACATAWA BANK CORPORATION
/s/ Philip J. Koning
Philip J. Koning
Co-Chief Executive Officer, Office of the Chief Executive
(Principal Executive Officer) | /s/ Ronald L. Haan
Ronald L. Haan
Co-Chief Executive Officer, Office of the Chief Executive
(Principal Executive Officer)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------

|/s/ Jon W. Swets
Jon W. Swets
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) | 
|------------------------------------------------------------------------------------------------------------------------------------------ | 

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below on March 9, 2009 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 Philip J.
Koning and Ronald L. Haan, 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-K.

|Signature
/s/ Robert E. DenHerder

Robert E. Denherder, Director and Chairman | March 9, 2009
|----------------------------------------------------------------------------------------------- | -------------

|/s/ G. Thomas Boylan

G. Thomas Boylan, Director | March 9, 2009
|------------------------------------------------------------------ | -------------

|/s/ Mark Bugge

Mark Bugge, Director | March 9, 2009
|------------------------------------------------------ | -------------

|/s/ Ronald L. Haan

Ronald L. Haan, Director, Secretary and Treasurer | March 9, 2009
|--------------------------------------------------------------------------------------- | -------------

|/s/ John F. Koetje

John F. Koetje, Director | March 9, 2009
|-------------------------------------------------------------- | -------------

|/s/ Philip J. Koning

Philip J. Koning, Director and President | March 9, 2009
|-------------------------------------------------------------------------------- | -------------

|/s/ Arend D. Lubbers

Arend D. Lubbers, Director | March 9, 2009
|------------------------------------------------------------------ | -------------

|/s/ Benj. A. Smith

Benj. A. Smith, III, Director | March 9, 2009
|------------------------------------------------------------------- | -------------

|/s/ Jon W. Swets

Jon W. Swets, Principal Financial and Accounting Officer | March 9, 2009
|-------------------------------------------------------------------------------------------- | -------------

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