10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2017

OR

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

For the transition period from _______ to _______

Commission file number: 000-25927

MACATAWA BANK CORPORATION

(Exact name of registrant as specified in its charter)

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

10753 Macatawa Drive, Holland, Michigan 49424

(Address of principal executive offices) (Zip Code)

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

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging Growth Company ☐

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

The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 33,938,486 shares of the Company's Common Stock (no par value) were outstanding as of July 27, 2017.

Forward-Looking Statements

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

Risk factors include, but are not limited to, the risk factors described in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2016. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

INDEX

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

Part I Financial Information

Item 1.

MACATAWA BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

As of June 30, 2017 (unaudited) and December 31, 2016

(Dollars in thousands, except per share data)

	June 30, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	31,165		$	27,690
Federal funds sold and other short-term investments		114,104			62,129
Cash and cash equivalents		145,269			89,819
Securities available for sale, at fair value		184,761			184,433
Securities held to maturity (fair value 2017 - $69,816 and 2016 - $69,849)		68,818			69,378
Federal Home Loan Bank (FHLB) stock		11,558			11,558
Loans held for sale, at fair value		3,184			2,181
Total loans		1,251,355			1,280,812
Allowance for loan losses		(16,570	)		(16,962	)
Net loans		1,234,785			1,263,850
Premises and equipment – net		48,626			50,026
Accrued interest receivable		4,084			4,092
Bank-owned life insurance		39,781			39,274
Other real estate owned - net		7,097			12,253
Net deferred tax asset		5,869			8,863
Other assets		5,231			5,286
Total assets	$	1,759,063		$	1,741,013
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	481,769		$	501,478
Interest-bearing		978,221			947,246
Total deposits		1,459,990			1,448,724
Other borrowed funds		82,785			84,173
Long-term debt		41,238			41,238
Accrued expenses and other liabilities		4,875			4,639
Total liabilities		1,588,888			1,578,774
Commitments and contingent liabilities		---			---
Shareholders' equity
Common stock, no par value, 200,000,000 shares authorized;  33,938,486 and 33,940,788 shares issued and outstanding at June 30, 2017 and December 31, 2016		216,959			216,731
Retained deficit		(46,491	)		(53,008	)
Accumulated other comprehensive income (loss)		(293	)		(1,484	)
Total shareholders' equity		170,175			162,239
Total liabilities and shareholders' equity	$	1,759,063		$	1,741,013

See accompanying notes to consolidated financial statements.

- 4 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Three and Six Month Periods Ended June 30, 2017 and 2016

(unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Interest income
Loans, including fees	$	12,540		$	11,634		$	24,996		$	23,390
Securities
Taxable		646			565			1,285			1,115
Tax-exempt		546			441			1,084			874
FHLB Stock		121			122			244			246
Federal funds sold and other short-term investments		189			111			281			256
Total interest income		14,042			12,873			27,890			25,881
Interest expense
Deposits		557			439			1,038			902
Other borrowings		358			458			740			900
Long-term debt		422			368			824			733
Total interest expense		1,337			1,265			2,602			2,535
Net interest income		12,705			11,608			25,288			23,346
Provision for loan losses		(500	)		(750	)		(1,000	)		(850	)
Net interest income after provision for loan losses		13,205			12,358			26,288			24,196
Noninterest income
Service charges and fees		1,110			1,112			2,170			2,159
Net gains on mortgage loans		476			572			904			1,060
Trust fees		833			788			1,611			1,496
ATM and debit card fees		1,338			1,257			2,539			2,443
Gain on sales of securities		---			10			3			99
Bank owned life insurance ("BOLI") income		243			158			481			602
Other		478			639			1,001			1,285
Total noninterest income		4,478			4,536			8,709			9,144
Noninterest expense
Salaries and benefits		6,153			6,168			12,152			12,355
Occupancy of premises		991			901			2,017			1,883
Furniture and equipment		750			839			1,482			1,704
Legal and professional		197			188			422			347
Marketing and promotion		225			275			453			550
Data processing		731			688			1,413			1,347
FDIC assessment		134			220			270			472
Interchange and other card expense		324			308			637			594
Bond and D&O Insurance		118			131			234			263
Net losses (gains) on repossessed and foreclosed properties		(300	)		258			(385	)		294
Administration and disposition of problem assets		142			202			322			577
Other		1,327			1,292			2,662			2,635
Total noninterest expenses		10,792			11,470			21,679			23,021
Income before income tax		6,891			5,424			13,318			10,319
Income tax expense		2,129			1,679			4,095			3,079
Net income	$	4,762		$	3,745		$	9,223		$	7,240
Basic earnings per common share	$	0.14		$	0.11		$	0.27		$	0.21
Diluted earnings per common share	$	0.14		$	0.11		$	0.27		$	0.21
Cash dividends per common share	$	0.04		$	0.03		$	0.08		$	0.06

See accompanying notes to consolidated financial statements.

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MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three and Six Month Periods Ended June 30, 2017 and 2016

(unaudited)

(Dollars in thousands)

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Net income	$	4,762		$	3,745		$	9,223		$	7,240
Other comprehensive income:
Unrealized gains (losses):
Net change in unrealized gains (losses) on securities available for sale		772			590			1,835			1,654
Tax effect		(270	)		(206	)		(642	)		(579	)
Net change in unrealized gains (losses) on securities available for sale, net of tax		502			384			1,193			1,075
Less: reclassification adjustments:
Reclassification for gains included in net income		---			10			3			99
Tax effect		---			(3	)		(1	)		(35	)
Reclassification for gains included in net income, net of tax		---			7			2			64
Other comprehensive income (loss), net of tax		502			377			1,191			1,011
Comprehensive income	$	5,264		$	4,122		$	10,414		$	8,251

See accompanying notes to consolidated financial statements.

- 6 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Six Month Periods Ended June 30, 2017 and 2016

(unaudited)

(Dollars in thousands, except per share data)

	Common Stock			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, January 1, 2016	$	216,540		$	(64,910	)	$	347		$	151,977
Net income for the six months ended June 30, 2016		---			7,240			---			7,240
Cash dividends at $.06 per share		---			(2,025	)		---			(2,025	)
Repurchase of 2,824 shares for taxes withheld on vested restricted stock		(19	)		---			---			(19	)
Net change in unrealized gain on securities available for sale, net of tax		---			---			1,011			1,011
Stock compensation expense		278			---			---			278
Balance, June 30, 2016	$	216,799		$	(59,695	)	$	1,358		$	158,462
Balance, January 1, 2017	$	216,731		$	(53,008	)	$	(1,484	)	$	162,239
Net income for the six months ended June 30, 2017		---			9,223			---			9,223
Cash dividends at $.08 per share		---			(2,706	)		---			(2,706	)
Net change in unrealized loss on securities available for sale, net of tax		---			---			1,191			1,191
Stock compensation expense		228			---			---			228
Balance, June 30, 2017	$	216,959		$	(46,491	)	$	(293	)	$	170,175

See accompanying notes to consolidated financial statements.

- 7 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Month Periods Ended June 30, 2017 and 2016

(unaudited)

(Dollars in thousands)

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Cash flows from operating activities
Net income	$	9,223		$	7,240
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		973			1,403
Stock compensation expense		228			278
Provision for loan losses		(1,000	)		(850	)
Origination of loans for sale		(33,707	)		(37,891	)
Proceeds from sales of loans originated for sale		33,608			40,589
Net gains on mortgage loans		(904	)		(1,060	)
Gain on sales of securities		(3	)		(99	)
Write-down of other real estate		85			555
Net gain on sales of other real estate		(470	)		(260	)
Net loss on sale of premises and equipment		69			---
Deferred income tax expense		2,353			(147	)
Change in accrued interest receivable and other assets		63			(1,405	)
Earnings in bank-owned life insurance		(481	)		(602	)
Change in accrued expenses and other liabilities		236			2,182
Net cash from operating activities		10,273			9,933
Cash flows from investing activities
Loan originations and payments, net		30,005			(13,286	)
Change in interest-bearing deposits in other financial institutions		---			20,000
Purchases of securities available for sale		(14,683	)		(43,570	)
Purchases of securities held to maturity		(3,000	)		(1,144	)
Proceeds from:
Maturities and calls of securities		10,872			30,480
Sales of securities available for sale		5,807			9,648
Principal paydowns on securities		3,381			1,873
Sales of other real estate		5,601			3,313
Sales of premises and equipment		590			---
Death benefit from bank-owned life insurance		---			518
Additions to premises and equipment		(568	)		(501	)
Net cash from investing activities		38,005			7,331
Cash flows from financing activities
Change in deposits		11,266			(80,434	)
Repayments and maturities of other borrowed funds		(21,388	)		(1,329	)
Proceeds from other borrowed funds		20,000			10,000
Cash dividends paid		(2,706	)		(2,025	)
Repurchase of shares for taxes withheld on vested restricted stock		---			(19	)
Net cash from financing activities		7,172			(73,807	)
Net change in cash and cash equivalents		55,450			(56,543	)
Cash and cash equivalents at beginning of period		89,819			181,476
Cash and cash equivalents at end of period	$	145,269		$	124,933

See accompanying notes to consolidated financial statements.

- 8 -

MACATAWA BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Month Periods Ended June 30, 2017 and 2016

(unaudited)

(Dollars in thousands)

	Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Supplemental cash flow information
Interest paid	$	2,600	$	2,536
Income taxes paid		825		3,200
Supplemental noncash disclosures:
Transfers from loans to other real estate		60		102
Security settlement		---		---

See accompanying notes to consolidated financial statements.

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MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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

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

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2017, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

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

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MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2017 and December 31, 2016, the total notional amount of such agreements was $43.1 million and $48.1 million and resulted in a derivative asset with a fair value of $395,000 and $494,000, respectively, which were included in other assets and a derivative liability of $395,000 and $494,000, respectively, which were included in other liabilities.

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

Adoption of New Accounting Standards:  The Financial Accounting Standards Board “FASB” issued Accounting Standards Update (“ASU”) ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.  This ASU simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the following: Accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes.  The amendments are effective for annual periods beginning after December 15, 2016, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company was not material as no stock awards vested or were exercised in the six months ended June 30, 2017, but could cause some volatility in income tax expense in future periods where stock awards vest.

FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities.  This ASU changes generally accepted accounting principles (“GAAP”) to require premiums on purchased callable debt securities to be amortized to the earliest call date.  Previous GAAP allowed entities to amortize to contractual maturity or to call date.  The amendments in this ASU are effective for annual periods beginning after December 15, 2018, with early adoption permitted.  As the Company has consistently amortized premiums on its purchased callable debt securities, the Company has elected to early adopt this ASU effective January 1, 2017.  There was no impact of adoption of this ASU by the Company.

- 11 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Newly Issued Not Yet Effective Standards:  FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.  This ASU may require us to change how we recognize certain recurring revenue streams within trust and investment management fees, however, we do not expect these changes to have a significant effect on our financial statements.

FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  As the Company owns most of its branch locations, this ASU will apply primarily to operating leases and the impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance eliminates the probable initial recognition threshold and, instead, reflects an entity’s current estimate of all expected credit losses. The new guidance broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will now have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those years.  The Company is currently evaluating the impact of this new ASU on its consolidated financial statements.

FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force).  This ASU addresses concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.  The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company is not expected to be material.

- 12 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2017
Available for Sale:
U.S. Treasury and federal agency securities	$	85,385	$	47	$	(694	)	$	84,738
U.S. Agency MBS and CMOs		11,941		15		(113	)		11,843
Tax-exempt state and municipal bonds		39,097		696		(134	)		39,659
Taxable state and municipal bonds		35,306		78		(316	)		35,068
Corporate bonds and other debt securities		11,983		16		(25	)		11,974
Other equity securities		1,500		---		(21	)		1,479
	$	185,212	$	852	$	(1,303	)	$	184,761
Held to Maturity
Tax-exempt state and municipal bonds	$	68,818	$	1,003	$	(5	)	$	69,816

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2016
Available for Sale:
U.S. Treasury and federal agency securities	$	85,582	$	49	$	(1,281	)	$	84,350
U. S. Agency MBS and CMOs		12,037		11		(231	)		11,817
Tax-exempt state and municipal bonds		39,578		212		(603	)		39,187
Taxable state and municipal bonds		34,255		65		(437	)		33,883
Corporate bonds and other debt securities		13,765		16		(55	)		13,726
Other equity securities		1,500		---		(30	)		1,470
	$	186,717	$	353	$	(2,637	)	$	184,433
Held to Maturity:
Tax-exempt state and municipal bonds	$	69,378	$	573	$	(102	)	$	69,849

Proceeds from the sale of securities available for sale were $2.4 million in the three month period ended June 30, 2017 and $5.8 million in the six month period ended June 30, 2017 resulting in no gains or losses on sale for the three month period ended June 30, 2017 and net gains of $3,000 for the six month period ended June 30, 2017, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $3,000 ($2,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the six month period ended June 30, 2017.  Proceeds from the sale of securities available for sale were $230,000 in the three month period ended June 30, 2016 and $9.6 million in the six month period ended June 30, 2016 resulting in net gains on sale of $10,000 and $99,000, respectively, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $10,000 ($7,000 net of tax) and $99,000 ($64,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the three and six month periods ended June 30, 2016.

- 13 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (Continued)

Contractual maturities of debt securities at June 30, 2017 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	23,770	$	23,820	$	19,067	$	19,062
Due from one to five years		13,837		14,310		100,966		100,532
Due from five to ten years		10,342		10,659		49,141		49,266
Due after ten years		20,869		21,027		14,538		14,422
	$	68,818	$	69,816	$	183,712	$	183,282

Securities with unrealized losses at June 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2017	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	60,556	$	(684	)	$	3,025	$	(9	)	$	63,581	$	(693	)
U.S. Agency MBS and CMOs		10,874		(113	)		---		---			10,874		(113	)
Tax-exempt state and municipal bonds		8,560		(134	)		385		(5	)		8,945		(139	)
Taxable state and municipal bonds		20,420		(308	)		237		(9	)		20,657		(317	)
Corporate bonds and other debt securities		4,264		(21	)		1,000		(4	)		5,264		(25	)
Other equity securities		1,479		(21	)		---		---			1,479		(21	)
Total temporarily impaired	$	106,153	$	(1,281	)	$	4,647	$	(27	)	$	110,800	$	(1,308	)

	Less than 12 Months					12 Months or More					Total
December 31, 2016	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	59,129	$	(1,271	)	$	3,053	$	(10	)	$	62,182	$	(1,281	)
U.S. Agency MBS and CMOs		10,702		(231	)		---		---			10,702		(231	)
Tax-exempt state and municipal bonds		49,508		(698	)		1,672		(7	)		51,180		(705	)
Taxable state and municipal bonds		22,633		(437	)		---		---			22,633		(437	)
Corporate bonds and other debt securities		5,745		(50	)		500		(5	)		6,245		(55	)
Other equity securities		1,470		(30	)		---		---			1,470		(30	)
Total temporarily impaired	$	149,187	$	(2,717	)	$	5,225	$	(22	)	$	154,412	$	(2,739	)

- 14 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (Continued)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Management determined that the unrealized losses for each period were attributable to changes in interest rates and not due to credit quality.  As such, no OTTI charges were necessary during the three and six month periods ended June 30, 2017 and 2016.

Securities with a carrying value of approximately $2.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at June 30, 2017 and December 31, 2016.

NOTE 3 – LOANS

Portfolio loans were as follows (dollars in thousands):

	June 30, 2017			December 31, 2016
Commercial and industrial	$	435,218		$	449,342
Commercial real estate:
Residential developed		8,701			11,970
Unsecured to residential developers		4,734			4,734
Vacant and unimproved		38,357			40,286
Commercial development		492			378
Residential improved		77,047			75,348
Commercial improved		282,884			289,478
Manufacturing and industrial		102,325			95,787
Total commercial real estate		514,540			517,981
Consumer
Residential mortgage		212,745			217,614
Unsecured		280			396
Home equity		81,779			88,113
Other secured		6,793			7,366
Total consumer		301,597			313,489
Total loans		1,251,355			1,280,812
Allowance for loan losses		(16,570	)		(16,962	)
	$	1,234,785		$	1,263,850

- 15 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

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

Three months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,469		$	6,598		$	3,591		$	38		$	16,696
Charge-offs		(108	)		---			(31	)		---			(139	)
Recoveries		41			456			16			---			513
Provision for loan losses		(66	)		(471	)		45			(8	)		(500	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Three months ended June 30, 2016	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,945		$	8,449		$	3,699		$	36	$	17,129
Charge-offs		---			---			(36	)		---		(36	)
Recoveries		23			557			36			---		616
Provision for loan losses		(8	)		(941	)		195			4		(750	)
Ending Balance	$	4,960		$	8,065		$	3,894		$	40	$	16,959

Six months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,345		$	6,703		$	3,871		$	43		$	16,962
Charge-offs		(108	)		---			(57	)		---			(165	)
Recoveries		64			618			91			---			773
Provision for loan losses		35			(738	)		(284	)		(13	)		(1,000	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Six months ended June 30, 2016	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,826	$	8,457		$	3,761		$	37	$	17,081
Charge-offs		---		---			(112	)		---		(112	)
Recoveries		72		678			90			---		840
Provision for loan losses		62		(1,070	)		155			3		(850	)
Ending Balance	$	4,960	$	8,065		$	3,894		$	40	$	16,959

- 16 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

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

June 30, 2017	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	686	$	274	$	566	$	---	$	1,526
Collectively evaluated for impairment		5,650		6,309		3,055		30		15,044
Total ending allowance balance	$	6,336	$	6,583	$	3,621	$	30	$	16,570
Loans:
Individually reviewed for impairment	$	4,343	$	9,896	$	9,179	$	---	$	23,418
Collectively evaluated for impairment		430,875		504,644		292,418		---		1,227,937
Total ending loans balance	$	435,218	$	514,540	$	301,597	$	---	$	1,251,355

December 31, 2016	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	605	$	368	$	723	$	---	$	1,696
Collectively evaluated for impairment		5,740		6,335		3,148		43		15,266
Total ending allowance balance	$	6,345	$	6,703	$	3,871	$	43	$	16,962
Loans:
Individually reviewed for impairment	$	5,994	$	11,934	$	11,726	$	---	$	29,654
Collectively evaluated for impairment		443,348		506,047		301,763		---		1,251,158
Total ending loans balance	$	449,342	$	517,981	$	313,489	$	---	$	1,280,812

- 17 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2017 (dollars in thousands):

June 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	1,024	$	1,024	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		5		5		---
Commercial improved		1,018		1,018		---
Manufacturing and industrial		---		---		---
		1,023		1,023		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,047	$	2,047	$	---
With an allowance recorded:
Commercial and industrial	$	3,319	$	3,319	$	686
Commercial real estate:
Residential developed		183		183		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		396		396		10
Commercial development		189		189		6
Residential improved		2,418		2,418		122
Commercial improved		5,499		5,499		129
Manufacturing and industrial		188		188		3
		8,873		8,873		274
Consumer:
Residential mortgage		7,364		7,364		454
Unsecured		---		---		---
Home equity		1,815		1,815		112
Other secured		---		---		---
		9,179		9,179		566
Total with an allowance recorded	$	21,371	$	21,371	$	1,526
Total	$	23,418	$	23,418	$	1,526

- 18 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016 (dollars in thousands):

December 31, 2016	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	2,298	$	2,298	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		27		27		---
Commercial improved		350		350		---
Manufacturing and industrial		---		---		---
		377		377		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,675	$	2,675	$	---
With an allowance recorded:
Commercial and industrial	$	3,696	$	3,696	$	605
Commercial real estate:
Residential developed		187		187		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		387		387		9
Commercial development		189		189		6
Residential improved		4,687		4,687		216
Commercial improved		5,879		5,879		128
Manufacturing and industrial		228		228		5
		11,557		11,557		368
Consumer:
Residential mortgage		7,523		7,523		464
Unsecured		---		---		---
Home equity		4,203		4,203		259
Other secured		---		---		---
		11,726		11,726		723
Total with an allowance recorded	$	26,979	$	26,979	$	1,696
Total	$	29,654	$	29,654	$	1,696

- 19 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Average of impaired loans during the period:
Commercial and industrial	$	5,342	$	6,110	$	6,093	$	7,187
Commercial real estate:
Residential developed		183		---		184		---
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		262		436		320		441
Commercial development		189		192		189		192
Residential improved		2,665		5,488		3,376		5,516
Commercial improved		5,995		6,817		6,077		8,177
Manufacturing and industrial		327		237		276		238
Consumer		10,812		12,842		11,153		12,991
Interest income recognized during impairment:
Commercial and industrial		239		239		517		537
Commercial real estate		125		143		252		344
Consumer		118		116		226		238
Cash-basis interest income recognized
Commercial and industrial		266		262		531		551
Commercial real estate		126		144		249		344
Consumer		120		113		227		235

- 20 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2017 and December 31, 2016:

June 30, 2017	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	6	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		221		---
Commercial improved		166		---
Manufacturing and industrial		---		---
		436		---
Consumer:
Residential mortgage		2		204
Unsecured		10		---
Home equity		---		---
Other secured		12		---
		24		204
Total	$	466	$	204

December 31, 2016	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	36	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		6		---
Commercial improved		128		---
Manufacturing and industrial		---		---
		183		---
Consumer:
Residential mortgage		58		---
Unsecured		16		---
Home equity		7		---
Other secured		---		---
		81		---
Total	$	300	$	---

- 21 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016 by class of loans (dollars in thousands):

June 30, 2017	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	---	$	---	$	---	$	435,218	$	435,218
Commercial real estate:
Residential developed		---		---		---		8,701		8,701
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		38,357		38,357
Commercial development		189		49		238		254		492
Residential improved		142		79		221		76,826		77,047
Commercial improved		29		---		29		282,855		282,884
Manufacturing and industrial		---		---		---		102,325		102,325
		360		128		488		514,052		514,540
Consumer:
Residential mortgage		75		204		279		212,466		212,745
Unsecured		11		---		11		269		280
Home equity		19		12		31		81,748		81,779
Other secured		6		---		6		6,787		6,793
		111		216		327		301,270		301,597
Total	$	471	$	344	$	815	$	1,250,540	$	1,251,355

December 31, 2016	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	425	$	28	$	453	$	448,889	$	449,342
Commercial real estate:
Residential developed		---		---		---		11,970		11,970
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		40,286		40,286
Commercial development		---		49		49		329		378
Residential improved		74		5		79		75,269		75,348
Commercial improved		478		---		478		289,000		289,478
Manufacturing and industrial		---		---		---		95,787		95,787
		552		54		606		517,375		517,981
Consumer:
Residential mortgage		64		56		120		217,494		217,614
Unsecured		---		---		---		396		396
Home equity		187		---		187		87,926		88,113
Other secured		81		---		81		7,285		7,366
		332		56		388		313,101		313,489
Total	$	1,309	$	138	$	1,447	$	1,279,365	$	1,280,812

- 22 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The Company had allocated $1,526,000 and $1,696,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDRs”) as of June 30, 2017 and December 31, 2016, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  The Company has been active at utilizing these programs and working with its customers to reduce the risk of foreclosure.  For commercial loans, these modifications typically include an interest only period and, in some cases, a lowering of the interest rate on the loan.  In some cases, the modification will include separating the note into two notes with the first note structured to be supported by current cash flows and collateral, and the second note made for the remaining unsecured debt.  The second note is charged off immediately and collected only after the first note is paid in full.  This modification type is commonly referred to as an A-B note structure.  For consumer mortgage loans, the restructuring typically includes a lowering of the interest rate to provide payment and cash flow relief.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

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

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

The following table presents information regarding troubled debt restructurings as of June 30, 2017 and December 31, 2016 (dollars in thousands):

	June 30, 2017				December 31, 2016
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		21	$	4,343		25	$	5,994
Commercial real estate		40		9,896		49		11,933
Consumer		107		9,179		116		12,059
		168	$	23,418		190	$	29,986

- 23 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

The following table presents information related to accruing troubled debt restructurings as of June 30, 2017 and December 31, 2016.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2017		December 31, 2016
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		20,311		25,665
Accruing TDR - upgraded to accruing after six consecutive payments		2,787		4,172
	$	23,098	$	29,837

The following tables present information regarding troubled debt restructurings executed during the three month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017						Three Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		2		39		---
		3		1,192	$	---		2	$	39	$	---

The following tables present information regarding troubled debt restructurings executed during the six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Six Months Ended June 30, 2017						Six Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		6		277		---
		3		1,192	$	---		6	$	277	$	---

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

Payment defaults on TDRs have been minimal and during the three and six month periods ended June 30, 2017 and 2016, the balance of loans that became delinquent by more than 90 days past due or that were transferred to nonaccrual within 12 months of restructuring were not material.

- 24 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

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

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

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

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

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

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

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

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

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

- 25 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

As of June 30, 2017 and December 31, 2016, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2017		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	17,376	$	118,507	$	284,659	$	11,321	$	3,349	$	6	$	---	$	435,218
Commercial real estate:
Residential developed		---		---		1,252		6,614		835		---		---		---		8,701
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		15,826		19,012		3,519		---		---		---		38,357
Commercial development		---		---		116		138		---		189		49		---		492
Residential improved		---		---		6,180		67,695		1,628		1,323		221		---		77,047
Commercial improved		---		1,392		62,819		210,873		5,916		1,718		166		---		282,884
Manufacturing & industrial		---		1,386		44,673		53,468		2,249		549		---		---		102,325
	$	---	$	20,154	$	249,373	$	647,193	$	25,468	$	7,128	$	442	$	---	$	949,758

December 31, 2016		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	27,619	$	118,243	$	282,527	$	14,610	$	6,307	$	36	$	---	$	449,342
Commercial real estate:
Residential developed		---		---		2,328		8,786		856		---		---		---		11,970
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		17,672		19,028		3,586		---		---		---		40,286
Commercial development		---		---		---		140		---		189		49		---		378
Residential improved		---		---		7,100		63,957		2,628		1,657		6		---		75,348
Commercial improved		---		2,433		66,259		210,449		9,084		1,125		128		---		289,478
Manufacturing & industrial		---		1,665		38,719		51,718		3,076		609		---		---		95,787
	$	---	$	31,717	$	250,321	$	641,339	$	33,840	$	9,887	$	219	$	---	$	967,323

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

	June 30, 2017		December 31, 2016
Not classified as impaired	$	1,593	$	2,608
Classified as impaired		5,977		7,498
Total commercial loans classified substandard or worse	$	7,570	$	10,106

- 26 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (Continued)

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

June 30, 2017	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	212,541	$	280	$	81,767	$	6,793
Nonperforming		204		---		12		---
Total	$	212,745	$	280	$	81,779	$	6,793

December 31, 2016	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	217,558	$	396	$	88,113	$	7,366
Nonperforming		56		---		---		---
Total	$	217,614	$	396	$	88,113	$	7,366

NOTE 4 – OTHER REAL ESTATE OWNED

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

	Six Months Ended June 30, 2017			Year Ended December 31, 2016			Six Months Ended June 30, 2016
Beginning balance	$	22,864		$	28,377		$	28,377
Additions, transfers from loans		60			339			102
Proceeds from sales of other real estate owned		(5,601	)		(5,339	)		(3,313	)
Valuation allowance reversal upon sale		(6,395	)		(1,158	)		(334	)
Gain on sales of other real estate owned		470			645			260
		11,398			22,864			25,092
Less: valuation allowance		(4,301	)		(10,611	)		(11,026	)
Ending balance	$	7,097		$	12,253		$	14,066

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

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Beginning balance	$	10,611		$	10,805
Additions charged to expense		85			555
Reversals upon sale		(6,395	)		(334	)
Ending balance	$	4,301		$	11,026

- 27 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE

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

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

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

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

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

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

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

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

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

- 28 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

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

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
U.S. Treasury and federal agency securities	$	84,738		$	---	$	84,738	$	---
U.S. Agency MBS and CMOs		11,843			---		11,843		---
Tax-exempt state and municipal bonds		39,659			---		39,659		---
Taxable state and municipal bonds		35,068			---		35,068		---
Corporate bonds and other debt securities		11,974			---		11,974		---
Other equity securities		1,479			---		1,479		---
Loans held for sale		3,184			---		3,184		---
Interest rate swaps		395			---		---		395
Interest rate swaps		(395	)		---		---		(395	)
December 31, 2016
U.S. Treasury and federal agency securities	$	84,350		$	---	$	84,350	$	---
U.S. Agency MBS and CMOs		11,817			---		11,817		---
Tax-exempt state and municipal bonds		39,187			---		39,187		---
Taxable state and municipal bonds		33,883			---		33,883		---
Corporate bonds and other debt securities		13,726			---		13,726		---
Other equity securities		1,470			---		1,470		---
Loans held for sale		2,181			---		2,181		---
Interest rate swaps		494			---		---		494
Interest rate swaps		(494	)		---		---		(494	)

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

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
Impaired loans	$	3,052	$	---	$	---	$	3,052
Other real estate owned		4,811		---		---		4,811
December 31, 2016
Impaired loans	$	3,436	$	---	$	---	$	3,436
Other real estate owned		9,542		---		---		9,542

- 29 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

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

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2017
Impaired Loans	$	3,052	Sales comparison approach	Adjustment for differences between comparable sales	5.0 to 15.0
			Income approach	Capitalization rate	9.5 to 11.0
Other real estate owned		4,811	Sales comparison approach	Adjustment for differences between comparable sales	3.0 to 23.0
			Income approach	Capitalization rate	9.5 to 11.0

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2016
Impaired Loans	$	3,436	Sales comparison approach	Adjustment for differences between comparable sales	1.0 to 35.0
			Income approach	Capitalization rate	9.5 to 11.5
Other real estate owned		9,542	Sales comparison approach	Adjustment for differences between comparable sales	2.0 to 32.5
			Income approach	Capitalization rate	9.5 to 11.5

- 30 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUE (Continued)

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2017 and December 31, 2016 (dollars in thousands):

	Level in	June 30, 2017						December 31, 2016
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	31,165		$	31,165		$	27,690		$	27,690
Cash equivalents	Level 2		114,104			114,104			62,129			62,129
Securities held to maturity	Level 3		68,818			69,816			69,378			69,849
FHLB stock			11,558		NA				11,558		NA
Loans, net	Level 2		1,237,837			1,234,678			1,260,414			1,247,842
Bank owned life insurance	Level 3		39,781			39,781			39,274			39,274
Accrued interest receivable	Level 2		4,084			4,084			4,092			4,092
Financial liabilities
Deposits	Level 2		(1,459,990	)		(1,459,895	)		(1,448,724	)		(1,448,692	)
Other borrowed funds	Level 2		(82,785	)		(82,623	)		(84,173	)		(84,051	)
Long-term debt	Level 2		(41,238	)		(36,440	)		(41,238	)		(36,112	)
Accrued interest payable	Level 2		(283	)		(283	)		(282	)		(282	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

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

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

- 31 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – DEPOSITS

Deposits are summarized as follows (in thousands):

	June 30, 2017		December 31, 2016
Noninterest-bearing demand	$	481,769	$	501,478
Interest bearing demand		342,551		340,715
Savings and money market accounts		557,922		532,853
Certificates of deposit		77,748		73,678
	$	1,459,990	$	1,448,724

Time deposits that exceed the FDIC insurance limit of $250,000 were approximately $19.2 million at June 30, 2017 and $17.4 million at December 31, 2016.

NOTE 7 - OTHER BORROWED FUNDS

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

Federal Home Loan Bank Advances

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

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2017
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		2,785	March 2018 to July 2018		3.75	%
	$	82,785

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2016
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		4,173	March 2018 to July 2018		3.78	%
	$	84,173

Each advance is subject to a prepayment fee if paid prior to its maturity date.  Fixed rate advances are payable at maturity.   Amortizable mortgage advances are fixed rate advances with scheduled repayments based upon amortization to maturity.  These advances were collateralized by residential and commercial real estate loans totaling $442.9 million and $425.0 million under a blanket lien arrangement at June 30, 2017 and December 31, 2016, respectively.

- 32 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - OTHER BORROWED FUNDS

Scheduled repayments of FHLB advances as of June 30, 2017 were as follows (in thousands):

2017	$	667
2018		52,118
2019		10,000
2020		10,000
2021		10,000
Thereafter		---
	$	82,785

Federal Reserve Bank borrowings

The Company has a financing arrangement with the Federal Reserve Bank.  There were no borrowings outstanding at June 30, 2017 and December 31, 2016, and the Company had approximately $13.1 million and $18.1 million in unused borrowing capacity based on commercial and mortgage loans pledged to the Federal Reserve Bank totaling $15.7 million and $20.7 million at June 30, 2017 and December 31, 2016, respectively.

NOTE 8 - EARNINGS PER COMMON SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2017 and 2016 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Net income available to common shares	$	4,762	$	3,745	$	9,223	$	7,240
Weighted average shares outstanding, including participating stock awards - Basic		33,942,318		33,922,506		33,941,668		33,923,810
Dilutive potential common shares:
Stock options		5,809		---		6,703		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,948,127		33,922,506		33,948,371		33,923,810
Basic earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21
Diluted earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21

Stock options for 100,896 shares of common stock for both the three and six month periods ended June 30, 2016, were not considered in computing diluted earnings per share because they were antidilutive. There were no antidilutive shares of common stock in the three and six month periods ended June 30, 2017.

- 33 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - FEDERAL INCOME TAXES

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Current	$	(62	)	$	1,757		$	1,742	$	3,226
Deferred		2,191			(78	)		2,353		(147	)
	$	2,129		$	1,679		$	4,095	$	3,079

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	2,412		$	1,899		$	4,661		$	3,612
Deduct
Tax-exempt interest income		(186	)		(149	)		(369	)		(297	)
Bank-owned life insurance		(85	)		(56	)		(168	)		(211	)
Other, net		(12	)		(15	)		(29	)		(25	)
	$	2,129		$	1,679		$	4,095		$	3,079

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.  No valuation allowance was necessary at June 30, 2017 or December 31, 2016.

- 34 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - FEDERAL INCOME TAXES (Continued)

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

	June 30, 2017			December 31, 2016
Deferred tax assets
Allowance for loan losses	$	5,800		$	5,937
Nonaccrual loan interest		620			718
Valuation allowance on other real estate owned		1,505			3,714
Unrealized loss on securities available for sale		158			799
Other		255			176
Gross deferred tax assets		8,338			11,344
Valuation allowance		---			---
Total net deferred tax assets		8,338			11,344
Deferred tax liabilities
Depreciation		(1,669	)		(1,705	)
Prepaid expenses		(399	)		(399	)
Unrealized gain on securities available for sale		---			---
Other		(401	)		(377	)
Gross deferred tax liabilities		(2,469	)		(2,481	)
Net deferred tax asset	$	5,869		$	8,863

There were no unrecognized tax benefits at June 30, 2017 or December 31, 2016 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 2013.

NOTE 10 – COMMITMENTS AND OFF BALANCE-SHEET RISK

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

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

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

	June 30, 2017		December 31, 2016
Commitments to make loans	$	129,918	$	90,293
Letters of credit		12,450		13,823
Unused lines of credit		465,621		437,435

The notional amount of commitments to fund mortgage loans to be sold into the secondary market was approximately $10.6 million and $19.8 million at June 30, 2017 and December 31, 2016, respectively.

- 35 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

At June 30, 2017, approximately 36.3% of the Bank’s commitments to make loans were at fixed rates, offered at current market rates.  The remainder of the commitments to make loans were at variable rates tied to prime or one month LIBOR and generally expire within 30 days.  The majority of the unused lines of credit were at variable rates tied to prime.

NOTE 11 – CONTINGENCIES

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business. As of June 30, 2017, there were no material pending legal proceedings to which the Company or any of its subsidiaries are a party or which any of its properties are the subject.

NOTE 12 – SHAREHOLDERS' EQUITY

Regulatory Capital

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

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

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

- 36 -

MACATAWA BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – SHAREHOLDERS' EQUITY (Continued)

At June 30, 2017 and December 31, 2016, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Capital Adequacy					Minimum Capital Adequacy With Capital Buffer					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2017
CET1 capital (to risk weighted assets)
Consolidated	$	170,426		11.6	%	$	66,101		4.5	%	$	84,463		5.8	%		N/A		N/A
Bank		204,469		13.9			66,228		4.5			84,626		5.8		$	95,664		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		210,426		14.3			88,135		6.0			106,497		7.3			N/A		N/A
Bank		204,469		13.9			88,304		6.0			106,702		7.3			117,740		8.0
Total capital (to risk weighted assets)
Consolidated		226,996		15.5			117,153		8.0			135,876		9.3			N/A		N/A
Bank		221,039		15.0			117,739		8.0			136,137		9.3			147,175		10.0
Tier 1 capital (to average assets)
Consolidated		210,426		12.2			68,961		4.0			N/A		N/A			N/A		N/A
Bank		204,469		11.9			68,898		4.0			N/A		N/A			86,122		5.0
December 31, 2016
CET1 capital (to risk weighted assets)
Consolidated	$	163,663		11.0	%	$	66,743		4.5	%	$	76,013		5.1	%		N/A		N/A
Bank		197,972		13.4			66,737		4.5			76,006		5.1		$	96,398		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		203,663		13.7			88,991		6.0			98,261		6.6			N/A		N/A
Bank		197,972		13.4			88,983		6.0			98,252		6.6			118,644		8.0
Total capital (to risk weighted assets)
Consolidated		220,625		14.9			118,655		8.0			127,925		8.6			N/A		N/A
Bank		214,934		14.5			118,644		8.0			127,913		8.6			148,305		10.0
Tier 1 capital (to average assets)
Consolidated		203,663		12.0			67,810		4.0			N/A		N/A			N/A		N/A
Bank		197,972		11.7			67,742		4.0			N/A		N/A			84,677		5.0

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2017 and December 31, 2016, respectively, qualified as Tier 1 capital. Refer to our 2016 Form 10-K for more information on the trust preferred securities.

The Bank was categorized as "well capitalized" at June 30, 2017 and December 31, 2016.

- 37 -

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

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

At June 30, 2017, we had total assets of $1.76 billion, total loans of $1.25 billion, total deposits of $1.46 billion and shareholders' equity of $170.2 million.  During the second quarter of 2017, we recognized net income of $4.8 million compared to net income of $3.7 million in the second quarter of 2016.  For the six months ended June 30, 2017, we recognized net income of $9.2 million compared to $7.2 million for the same period in 2016.  The Bank was categorized as “well capitalized” under regulatory capital standards at June 30, 2017.

We paid a dividend of $0.03 per share in each quarter of 2016.  We increased the dividend to $0.04 per share in the first and second quarters of 2017.

RESULTS OF OPERATIONS

Summary: Net income for the quarter ended June 30, 2017 was $4.8 million, compared to net income of $3.7 million in the second quarter of 2016. Net income per common share on a diluted basis was $0.14 for the second quarter of 2017 and $0.11 for the second quarter of 2016.  For the six months ended June 30, 2017, net income was $9.2 million, compared to $7.2 million for the same period in 2016.  Net income per share on a diluted basis for the six months ended June 30, 2017 was $0.27 compared to $0.21 for the same period in 2016.

The increase in earnings in the second quarter of 2017 compared to the second quarter of 2016 was due primarily to increased net interest income and reduced nonperforming asset expenses.  Net interest income increased to $12.7 million in the second quarter of 2017 compared to $11.6 million in the same period in 2016.  The provision for loan losses was a negative $500,000 for the second quarter of 2017, compared to a negative $750,000 for the second quarter of 2016.  Nonperforming asset expenses (including administration costs and losses) were a negative $158,000 for the second quarter of 2017 compared to $460,000 for the second quarter of 2016, primarily as a result of a decrease of $469,000 in writedowns of other real estate owned.  We again were in a net loan recovery position for the second quarter of 2017, with $374,000 in net loan recoveries, compared to $580,000 in net loan recoveries in the second quarter of 2016.

The increase in earnings for the six month period ended June 30, 2017 compared to the same period of 2016, was due primarily to increased net interest income and reduced nonperforming asset expenses.  Net interest income increased to $25.3 million in the first six months of 2017 compared to $23.3 million in the same period in 2016.  Nonperforming asset expenses (including administration costs and losses) were a negative $63,000 for the first six months of 2017 compared to $871,000 for the first six months of 2016, primarily as a result of a net gains on other real estate owned of $385,000 for the first six months of 2017 compared to net losses of $294,000 for the same period in 2016.  The provision for loan losses was a negative $1.0 million for the first six months of 2017, compared to a negative $850,000 for the first six months of 2016.  We again were in a net loan recovery position for the first half of 2017, with $608,000 in net loan recoveries, compared to $728,000 in net loan recoveries in the first half of 2016.  Each of these items is discussed more fully below.

- 38 -

Net Interest Income: Net interest income totaled $12.7 million for the second quarter of 2017 and $11.6 million for the second quarter of 2016.  For the first six months of 2017, net interest income was $25.3 million compared to $23.3 million for the same period in 2016.

Net interest income was positively impacted in the second quarter of 2017 by an increase in average earning assets of $63.3 million compared to the second quarter of 2016.  Our average yield on earning assets for the second quarter of 2017 increased 17 basis points compared to the same period in 2016 from 3.41% to 3.58%.  Average interest earning assets totaled $1.59 billion for the second quarter of 2017 compared to $1.53 billion for the second quarter of 2016. The net interest margin was 3.24% for the second quarter of 2017 compared to 3.08% for the second quarter of 2016.  An increase of $35.2 million in average securities between periods and an increase of $48.5 million in average loans were the primary drivers of the increase.  Yield on commercial loans increased from 3.86% for the second quarter of 2016 to 4.02% for the second quarter of 2017.  Yield on residential mortgage loans decreased from 3.49% for the second quarter of 2016 to 3.47% for the second quarter of 2017, while yields on consumer loans increased from 3.99% for the second quarter of 2016 to 4.17% for the second quarter of 2017.  The December 2016 and March 2017 increases in the federal funds rate had a net positive impact on our net interest margin position as more loans repriced at the higher rate than our funding sources.

Average interest earning assets increased to $1.59 billion for the first six months of 2017, compared to $1.54 billion for the first six months of 2016.  Our average yield on earning assets increased 17 basis points for the first half of 2017 in comparison to the same period in 2016.  Our net interest margin was 3.25% for the first six months of 2017 compared to 3.09% for the same period in 2016.  Net interest margin for the first six months of 2017 benefitted from the December 2016 and March 2017 increases in the federal funds rate.  The commercial loan yield in the first six months of 2017 was also positively impacted by the complete payoff of a loan that had been on nonaccrual, resulting in the realization of $267,000 in interest income that had been deferred.

The cost of funds increased to 0.49% and 0.48% in the three and six month periods of 2017 from 0.47% in the same periods of 2016. Increases in the rates paid on our savings and money market accounts in response to the December 2016 and March 2017 federal funds rate increases caused the slight increase in our cost of funds.

- 39 -

The following table shows an analysis of net interest margin for the three month periods ended June 30, 2017 and 2016 (dollars in thousands):

	For the three months ended June 30,
	2017								2016
	Average Balance			Interest Earned or Paid		Average Yield or Cost			Average Balance			Interest Earned or Paid		Average Yield or Cost
Assets
Taxable securities	$	145,596		$	646		1.77	%	$	132,431		$	565		1.71	%
Tax-exempt securities (1)		106,495			545		3.21			84,468			441		3.37
Commercial loans (2)		956,815			9,730		4.02			899,336			8,768		3.86
Residential mortgage loans		214,857			1,863		3.47			219,301			1,917		3.49
Consumer loans		91,157			948		4.17			95,722			949		3.99
Federal Home Loan Bank stock		11,558			121		4.15			11,558			122		4.18
Federal funds sold and other short-term investments		68,371			189		1.09			88,719			111		0.49
Total interest earning assets (1)		1,594,849			14,042		3.58			1,531,535			12,873		3.41
Noninterest earning assets:
Cash and due from banks		30,499								26,537
Other		98,227								96,253
Total assets	$	1,723,575							$	1,654,325
Liabilities
Deposits:
Interest bearing demand	$	325,429		$	68		0.08	%	$	325,432		$	77		0.10	%
Savings and money market accounts		557,075			350		0.25			509,098			231		0.18
Time deposits		79,085			139		0.70			85,585			131		0.62
Borrowings:
Other borrowed funds		87,894			358		1.61			102,642			458		1.77
Long-term debt		41,238			422		4.05			41,238			368		3.53
Total interest bearing liabilities		1,090,721			1,337		0.49			1,063,995			1,265		0.47
Noninterest bearing liabilities:
Noninterest bearing demand accounts		458,186								426,588
Other noninterest bearing liabilities		6,427								7,078
Shareholders' equity		168,241								156,664
Total liabilities and shareholders' equity	$	1,723,575							$	1,654,325
Net interest income				$	12,705							$	11,608
Net interest spread (1)							3.09	%							2.94	%
Net interest margin (1)							3.24	%							3.08	%
Ratio of average interest earning assets to average interest bearing liabilities		146.22	%							143.94	%

(1) Yields are presented on a tax equivalent basis using a 35% tax rate.

(2) Includes loan fees of $157,000 and $114,000 for the three months ended June 30, 2017 and 2016.  Includes average nonaccrual loans of approximately $592,000 and $367,000 for the three months ended June 30, 2017 and 2016.

- 40 -

The following table shows an analysis of net interest margin for the six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	For the six months ended June 30,
	2017								2016
	Average Balance			Interest Earned or Paid		Average Yield or Cost			Average Balance			Interest Earned or Paid		Average Yield or Cost
Assets
Taxable securities	$	146,612		$	1,285		1.75	%	$	130,986		$	1,115		1.70	%
Tax-exempt securities (1)		107,546			1,084		3.18			84,551			874		3.28
Commercial loans (2)		956,484			19,387		4.03			895,287			17,660		3.90
Residential mortgage loans		216,050			3,743		3.47			216,182			3,801		3.51
Consumer loans		92,263			1,865		4.08			97,695			1,929		3.97
Federal Home Loan Bank stock		11,558			245		4.21			11,558			246		4.21
Federal funds sold and other short-term investments		56,832			281		0.98			99,092			256		0.51
Total interest earning assets (1)		1,587,345			27,890		3.58			1,535,351			25,881		3.41
Noninterest earning assets:
Cash and due from banks		28,387								25,784
Other		99,424								97,823
Total assets	$	1,715,156							$	1,658,958
Liabilities
Deposits:
Interest bearing demand	$	323,231		$	138		0.08	%	$	330,079		$	162		0.10	%
Savings and money market accounts		553,404			641		0.23			511,171			469		0.19
Time deposits		78,529			259		0.67			87,931			271		0.62
Borrowings:
Other borrowed funds		93,427			740		1.57			99,282			900		1.79
Long-term debt		41,238			824		3.98			41,238			733		3.52
Total interest bearing liabilities		1,089,829			2,602		0.48			1,069,701			2,535		0.47
Noninterest bearing liabilities:
Noninterest bearing demand accounts		453,583								427,111
Other noninterest bearing liabilities		5,454								6,692
Shareholders' equity		166,290								155,454
Total liabilities and shareholders' equity	$	1,715,156							$	1,658,958
Net interest income				$	25,288							$	23,346
Net interest spread (1)							3.10	%							2.94	%
Net interest margin							3.25	%							3.09	%
Ratio of average interest earning assets to average interest bearing liabilities		145.65	%							143.53	%

(1) Yields are presented on a tax equivalent basis using a 35% tax rate.

(2) Includes loan fees of $366,000 and $358,000 for the six months ended June 30, 2017 and 2016.  Includes average nonaccrual loans of approximately $488,000 and $476,000 for the six months ended June 30, 2017 and 2016.

- 41 -

Provision for Loan Losses: The provision for loan losses for the second quarter of 2017 was a negative $500,000 compared to a negative $750,000 for the second quarter of 2016.  The negative provisions for loan losses for each period were the result of continued stabilization of real estate values on problem credits, continued improvement in asset quality metrics and net loan recoveries of $374,000 in the second quarter of 2017 and $580,000 in the second quarter of 2016.  At June 30, 2017, we had experienced net loan recoveries in twelve of the past thirteen quarters, and in each of the past ten quarters.  The provision for loan losses for the first half of 2017 was a negative $1.0 million compared to a negative $850,000 for the same period in 2016.

Gross loan recoveries were $513,000 for the second quarter of 2017 and $616,000 for the same period in 2016.  In the second quarter of 2017, we had $139,000 in charge-offs, compared to $36,000 in the second quarter of 2016.  For the six months ended June 30, 2017, we experienced gross loan recoveries of $773,000 compared to $840,000 for the same period in 2016.  Loan charge-offs were $165,000 for the six months ended June 30, 2017 compared to $112,000 for the same period in 2016.  We continue to experience positive results from our collection efforts as evidenced by our net loan recoveries.  While we expect our collection efforts to produce further recoveries, they may not continue at the same level we have experienced the past several quarters.

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

Noninterest Income: Noninterest income for the three and six month periods ended June 30, 2017 were $4.5 million and $8.7 million compared to $4.5 million and $9.1 million for the same periods in 2016.   The components of noninterest income are shown in the table below (in thousands):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Service charges and fees on deposit accounts	$	1,110	$	1,112	$	2,170	$	2,159
Net gains on mortgage loans		476		572		904		1,060
Trust fees		833		788		1,611		1,496
Gain as sales of securities		---		10		3		99
ATM and debit card fees		1,338		1,257		2,539		2,443
Bank owned life insurance (“BOLI”) income		243		158		481		602
Investment services fees		250		270		466		573
Other income		228		369		535		712
Total noninterest income	$	4,478	$	4,536	$	8,709	$	9,144

Net gains on mortgage loans were down $96,000 in the second quarter of 2017 compared to the second quarter of 2016 as a result of an overall lower level of volume.  Mortgage loans originated for sale in the second quarter of 2017 were $16.7 million, compared to $19.0 million in the second quarter of 2016.  Mortgage loans originated for portfolio in the second quarter of 2017 were $12.1 million, compared to $23.1 million in the second quarter of 2016.  ATM and debit card fees were up in the three and six months ended June 30, 2017 due to higher volume of usage by our customers.  Mortgage loans originated for sale for the first six months of 2017 were $33.7 million, down from $37.9 million in the first six months of 2016.  BOLI income in the first six months of 2016 included $290,000 in net benefits from the distribution of a death claim on a covered former employee.  Trust fees were up in the first six months of 2017 due to investment market value changes and growth in trust assets.

- 42 -

Noninterest Expense: Noninterest expense decreased to $10.8 million for the three month period ended June 30, 2017, from $11.5 million for the same period in 2016.  Noninterest expense decreased to $21.7 million for the six month period ended June 30, 2017 compared to $23.0 million for the same period in 2016.  The components of noninterest expense are shown in the table below (in thousands):

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016		Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Salaries and benefits	$	6,153		$	6,168	$	12,152		$	12,355
Occupancy of premises		991			901		2,017			1,883
Furniture and equipment		750			839		1,482			1,704
Legal and professional		197			188		422			347
Marketing and promotion		225			275		453			550
Data processing		731			688		1,413			1,347
FDIC assessment		134			220		270			472
Interchange and other card expense		324			308		637			594
Bond and D&O insurance		118			131		234			263
Net (gains) losses on repossessed and foreclosed properties		(300	)		258		(385	)		294
Administration and disposition of problem assets		142			202		322			577
Outside services		408			389		857			758
Other noninterest expense		919			903		1,805			1,877
Total noninterest expense	$	10,792		$	11,470	$	21,679		$	23,021

Most categories of noninterest expense were relatively flat or had reductions compared to the second quarter of 2016 due to our ongoing efforts to manage expenses and scale our operations. Our largest component of noninterest expense, salaries and benefits, decreased by $15,000 in the second quarter of 2017 from the second quarter of 2016. This decrease is largely due to a lower level of costs associated with employee benefits, particularly medical insurance, which were down $28,000 compared to the second quarter of 2017 due to a lower level of claims.  Variable based compensation was down $84,000 compared to the second quarter of 2016 and was down $159,000 for the first six months of 2017 compared to the same period in 2016 due to lower mortgage production and brokerage volume.  We had 344 full-time equivalent employees at June 30, 2017 compared to 343 at June 30, 2016.

Occupancy expenses were up $90,000 in the second quarter of 2017 and were up $134,000 for the first six months of 2017 compared to the same periods in 2016 due to higher maintenance costs incurred associated with certain branch facilities.

Our FDIC assessment costs decreased by $86,000 in the second quarter of 2017 compared to the same period in 2016 and by $202,000 for the first six months of 2017 due primarily to positive changes in our assessment rates.   These costs have been trending down for the past few years and we believe the rate has stabilized and future expense fluctuations will likely be dependent on changes in our asset size.

Costs associated with administration and disposition of problem assets have decreased significantly over the past several years.  These expenses include legal costs, repossessed and foreclosed property administration expense and losses on repossessed and foreclosed properties. Repossessed and foreclosed property administration expense includes survey and appraisal, property maintenance and management and other disposition and carrying costs. Losses on repossessed and foreclosed properties include both net gains and losses on the sale of properties and unrealized losses from value declines for outstanding properties.  We experienced decreases in each of these three expense categories in the second quarter of 2017 and the first six month of 2017 compared to the same periods in the prior year.

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016		Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Legal and professional – nonperforming assets	$	18		$	29	$	35		$	99
Repossessed and foreclosed property administration		124			173		287			478
Net (gains) losses on repossessed and foreclosed properties		(300	)		258		(385	)		294
Total	$	(158	)	$	460	$	(63	)	$	871

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As problem loans move through the collection process, the costs associated with nonperforming assets remained elevated, but have decreased significantly over the past several years.  Other real estate owned decreased from $14.1 million at June 30, 2016 to $7.1 million at June 30, 2017.  During the second quarter of 2017, we sold our largest individual other real estate owned property (carry value of $3.4 million) for a net gain of $68,000.   This property was responsible for a significant portion of our nonperforming asset expense, including maintenance, property taxes and utility costs.  With the reductions in other real estate owned properties, we believe we will experience more reductions in these costs going forward.

Losses on repossessed assets and foreclosed properties for the three month period ended June 30, 2017 decreased $558,000 from the same period in 2016.  For the first six months of 2017, these expenses decreased $679,000 from the same period in 2016.  These decreases were primarily due to a lower level of writedowns of other real estate properties in these periods.  In the second quarter of 2016, valuation writedowns totaled $426,000, due primarily to a writedown on our largest other real estate owned property.  As discussed above, this property was sold in the second quarter of 2017.  Also contributing to the decrease was an increase of $153,000 in net gains on sales of other real estate owned.  In the first six months of 2017, we recognized net gains totaling $470,000 on such sales, compared to $260,000 for the same period in 2016.

Federal Income Tax Expense: Werecorded $2.1 million and $4.1 million in federal income tax expense for the three and six month periods ended June 30, 2017 compared to $1.7 million and $3.1 million, respectively, in the same periods in 2016.  Our effective tax rate for the three and six month periods ended June 30, 2017 was 30.90% and 30.75%, compared to 30.96% and 29.83%, respectively, for the same periods in 2016.

FINANCIAL CONDITION

Total assets were $1.76 billion at June 30, 2017, an increase of $18.1 million from $1.74 billion at December 31, 2016. This change reflected increases of $55.5 million in cash and cash equivalents offset by decreases of $29.5 million in our loan portfolio and $3.1 million in other assets.  Total deposits increased by $11.3 million and other borrowed funds decreased by $1.4 million at June 30, 2017 compared to December 31, 2016.

Cash and Cash Equivalents: Our cash and cash equivalents, which include federal funds sold and short-term investments, were $145.3 million at June 30, 2017 compared to $89.8 million at December 31, 2016.  The increase in these balances related primarily to the decrease in our total loans and increase in total deposits in the same period.

Securities: Securities available for sale were $184.8 million at June 30, 2017 compared to $184.4 million at December 31, 2016. The balance at June 30, 2017 primarily consisted of U.S. agency securities, agency mortgage backed securities and various municipal investments. Our held to maturity portfolio decreased from $69.4 million at December 31, 2016 to $68.8 million at June 30, 2017.  Our held to maturity portfolio is comprised of state and municipal bonds.

Portfolio Loans and Asset Quality: Total portfolio loans decreased by $29.5 million in the first six months of 2017 and were $1.25 billion at June 30, 2017 compared to $1.28 billion at December 31, 2016. During the first six months of 2017, our commercial portfolio decreased by $17.6 million, while our consumer portfolio decreased by $7.0 million and our residential mortgage portfolio decreased by $4.9 million.  The decrease in the commercial portfolio is seasonal and we expect balances to increase throughout the remainder of 2017.  In addition, we have been focusing efforts to increase our consumer and residential mortgage portfolio segments to further diversify our credit risk.

The volume of residential mortgage loans originated for sale in the first six months of 2017 decreased $4.2 million compared to the same period in 2016 due to a higher interest rate environment. Residential mortgage loans originated for sale were $33.7 million in the first six months of 2017 compared to $37.9 million in the first six months of 2016.  Mortgage loans originated for portfolio in the first six months of 2017 were $12.1 million, compared to $37.2 million in the first six months of 2016.  Mortgage loans originated for portfolio are typically loans that conform to secondary market requirements and have a term of fifteen years or less.

Overall, the commercial loan portfolio decreased $17.6 million in the first six months of 2017.  Our commercial and industrial portfolio decreased by $14.1 million and our commercial real estate loans decreased by $3.5 million.  Considering our pipeline of commercial credits at June 30, 2017, we expect to achieve measured, high quality loan portfolio growth throughout the remainder of 2017.

Commercial and commercial real estate loans remained our largest loan segment and accounted for approximately 76% of the total loan portfolio at June 30, 2017 and December 31, 2016. Residential mortgage and consumer loans comprised approximately 24% of total loans at June 30, 2017 and December 31, 2016.

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

	June 30, 2017					December 31, 2016
	Balance		Percent of Total Loans			Balance		Percent of Total Loans
Commercial real estate: (1)
Residential developed	$	8,701		0.7	%	$	11,970		0.9	%
Unsecured to residential developers		4,734		0.4			4,734		0.4
Vacant and unimproved		38,357		3.1			40,286		3.1
Commercial development		492		---			378		---
Residential improved		77,047		6.2			75,348		5.9
Commercial improved		282,884		22.6			289,478		22.6
Manufacturing and industrial		102,325		8.2			95,787		7.5
Total commercial real estate		514,540		41.2			517,981		40.4
Commercial and industrial		435,218		34.8			449,342		35.1
Total commercial		949,758		76.0			967,323		75.5
Consumer
Residential mortgage		212,745		17.0			217,614		17.0
Unsecured		280		---			396		---
Home equity		81,779		6.5			88,113		6.9
Other secured		6,793		0.5			7,366		0.6
Total consumer		301,597		24.0			313,489		24.5
Total loans	$	1,251,355		100.0	%	$	1,280,812		100.0	%

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

Commercial real estate loans accounted for approximately 41% of the total loan portfolio at June 30, 2017 and consisted primarily of loans to business owners and developers of owner and non-owner occupied commercial properties and loans to developers of single and multi-family residential properties. In the table above, we show our commercial real estate portfolio by loans secured by residential and commercial real estate, and by stage of development. Improved loans are generally secured by properties that are under construction or completed and placed in use. Development loans are secured by properties that are in the process of development or fully developed. Vacant and unimproved loans are secured by raw land for which development has not yet begun and agricultural land.

Our consumer residential mortgage loan portfolio, which also includes residential construction loans made to individual homeowners, comprised approximately 17% of portfolio loans at both June 30, 2017 and December 31, 2016.  We expect to continue to retain in our loan portfolio certain types of residential mortgage loans (primarily high quality, low loan-to-value loans) in an effort to continue to diversify our credit risk and deploy our excess liquidity. A large portion of our residential mortgage loan production continues to be sold on the secondary market with servicing released.

The volume of residential mortgage loans originated for sale during the first six months of 2017 decreased from the first six months of 2016 as a result of interest rate conditions.  We are also experiencing a shift in production to financing new home purchases versus refinancings.

Our portfolio of other consumer loans includes loans secured by personal property and home equity fixed term and line of credit loans. Consumer loans decreased by $7.0 million to $88.9 million at June 30, 2017 from $95.9 million at December 31, 2016, due primarily to a decrease in home equity loans.  Consumer loans comprised approximately 7% of our portfolio loans at June 30, 2017 and December 31, 2016.

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The following table shows our loan origination activity for portfolio loans during the first six months of 2017 and 2016, broken out by loan type and also shows average originated loan size (dollars in thousands):

	Six months ended June 30, 2017							Six months ended June 30, 2016
	Portfolio Originations		Percent of Total Originations			Average Loan Size		Portfolio Originations		Percent of Total Originations			Average Loan Size
Commercial real estate:
Residential developed	$	1,494		1.1	%	$	498	$	5,227		3.4	%	$	871
Unsecured to residential developers		---		---			---		---		---			---
Vacant and unimproved		1,663		1.2			238		221		0.2			110
Commercial development		125		0.1			125		2,200		1.5			2,200
Residential improved		22,673		16.5			246		37,174		24.4			409
Commercial improved		15,144		11.0			891		21,382		14.0			1,018
Manufacturing and industrial		5,700		4.1			814		10,956		7.2			996
Total commercial real estate		46,799		34.0			368		77,160		50.7			584
Commercial and industrial		46,992		34.2			712		18,088		11.9			266
Total commercial		93,791		68.2			486		95,248		62.6			476
Consumer
Residential mortgage		21,274		15.5			239		37,201		24.4			201
Unsecured		---		---			---		12		---			12
Home equity		21,177		15.4			84		18,496		12.1			80
Other secured		1,235		0.9			16		1,316		0.9			20
Total consumer		43,686		31.8			104		57,025		37.4			118
Total loans	$	137,477		100.0	%		224	$	152,273		100.0	%		223

The following table shows a breakout of our commercial loan activity during the first six months of 2017 and 2016 (dollars in thousands):

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Commercial loans originated	$	93,791		$	95,248
Repayments of commercial loans		(88,690	)		(79,989	)
Change in undistributed - available credit		(22,666	)		(6,796	)
Net increase/(decrease) in total commercial loans	$	(17,565	)	$	8,463

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

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

Nonperforming assets are comprised of nonperforming loans, foreclosed assets and repossessed assets. At June 30, 2017, nonperforming assets totaled $7.8 million compared to $12.6 million at December 31, 2016. Additions to other real estate owned in the first six months of 2017 were $60,000, compared to $102,000 in the first six months of 2016.  At June 30, 2017, there were no loans in redemption, so we expect there to be few additions to other real estate owned in 2017.  Proceeds from sales of foreclosed properties were $5.6 million in the first six months of 2017, resulting in a net realized gain on sale of $470,000.  We sold our largest individual foreclosed property in the second quarter of 2017.  Proceeds from sales of foreclosed properties were $3.3 million in the first six months of 2016 resulting in a net realized gain on sale of $260,000.    Based upon purchase agreements in place at June 30, 2017 and the sale of our largest individual property in the second quarter of 2017, we expect the level of sales of foreclosed properties to be lower in the second half of 2017 than experienced in the first half of 2017.

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Nonperforming loans include loans on nonaccrual status and loans delinquent more than 90 days but still accruing. As of June 30, 2017, nonperforming loans totaled $670,000, or 0.05% of total portfolio loans, compared to $300,000, or 0.02% of total portfolio loans, at December 31, 2016.

Nonperforming loans at June 30, 2017 consisted of $436,000 of commercial real estate loans, $6,000 of commercial and industrial loans, and $228,000 of consumer and residential mortgage loans.

Foreclosed and repossessed assets include assets acquired in settlement of loans. Foreclosed assets totaled $7.1 million at June 30, 2017 and $12.3 million at December 31, 2016. Of this balance at June 30, 2017, there were 25 commercial real estate properties totaling approximately $6.9 million. The remaining balance was comprised of 5 residential properties totaling approximately $166,000.  All properties acquired through or in lieu of foreclosure are initially transferred at their fair value less estimated costs to sell and then evaluated monthly for impairment after transfer using a lower of cost or market approach. Updated property valuations are obtained at least annually on all foreclosed assets.

At June 30, 2017, our foreclosed asset portfolio had a weighted average age held in portfolio of 5.44 years. Below is a breakout of our foreclosed asset portfolio at June 30, 2017 and December 31, 2016 by property type and the percentages the property has been written down since taken into our possession and the combined writedown percentage, including losses taken when the property was loan collateral (dollars in thousands):

	June 30, 2017								December 31, 2016
Foreclosed Asset Property Type	Carrying Value		Foreclosed Asset Writedown			Combined Writedown (Loan and Foreclosed Asset)			Carrying Value at Carrying Value		Foreclosed Asset Writedown			Combined Writedown (Loan and Foreclosed Asset)
Single Family	$	56		---	%		---	%	$	136		---	%		20.3	%
Residential Lot		120		54.0			74.9			438		30.1			48.0
Multi-Family		---		---			---			---		---			---
Vacant Land		2,487		44.3			51.1			3,096		47.2			58.3
Residential Development		2,260		35.7			75.7			2,570		36.2			74.2
Commercial Office		128		64.7			66.3			240		49.3			51.1
Commercial Industrial		---		---			---			---		---			---
Commercial Improved		2,046		9.4			29.2			5,773		48.7			51.2
	$	7,097		35.0			60.9		$	12,253		45.2			60.1

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

	June 30, 2017			December 31, 2016
Nonaccrual loans	$	466		$	300
Loans 90 days or more delinquent and still accruing		204			---
Total nonperforming loans (NPLs)		670			300
Foreclosed assets		7,097			12,253
Repossessed assets		---			---
Total nonperforming assets (NPAs)	$	7,767		$	12,553
NPLs to total loans		0.05	%		0.02	%
NPAs to total assets		0.44	%		0.72	%

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The following table shows the composition and amount of our troubled debt restructurings (TDRs) at June 30, 2017 and December 31, 2016 (dollars in thousands):

	June 30, 2017						December 31, 2016
	Commercial		Consumer		Total		Commercial		Consumer		Total
Performing TDRs	$	13,920	$	9,179	$	23,099	$	17,786	$	12,051	$	29,837
Nonperforming TDRs (1)		319		---		319		141		8		149
Total TDRs	$	14,239	$	9,179	$	23,418	$	17,927	$	12,059	$	29,986

(1) Included in nonperforming asset table above

We had a total of $23.4 million and $30.0 million of loans whose terms have been modified in TDRs as of June 30, 2017 and December 31, 2016, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.  In situations where there is a subsequent modification or renewal and the loan is brought to market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, the TDR and impaired designations may be removed.  Total TDRs decreased by $6.6 million from December 31, 2016 to June 30, 2017.  Of this decrease, $2.4 million related to a consumer property that was sold during the period and the remainder of the decrease was primarily due to paydowns on commercial TDRs.

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

Allowance for loan losses: The allowance for loan losses at June 30, 2017 was $16.6 million, a decrease of $392,000 from $17.0 million at December 31, 2016.  The balance of the allowance for loan losses represented 1.32% of total portfolio loans at both June 30, 2017 and December 31, 2016.  The allowance for loan losses to nonperforming loan coverage ratio decreased from 5,654% at December 31, 2016 to 2,473% at June 30, 2017.

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

(Dollars in millions)	Quarter Ended June 30, 2017			Quarter Ended March 31, 2017			Quarter Ended December 31, 2016			Quarter Ended September 30, 2016			Quarter Ended June 30, 2016
Commercial loans	$	949.8		$	962.1		$	967.3		$	923.2		$	894.4
Nonperforming loans		0.7			0.4			0.3			0.2			0.3
Other real estate owned and repo assets		7.1			12.1			12.3			13.1			14.1
Total nonperforming assets		7.8			12.5			12.6			13.3			14.4
Net charge-offs (recoveries)		(0.4	)		(0.2	)		(1.2	)		(0.1	)		(0.6	)
Total delinquencies		0.8			0.9			1.4			0.3			1.0

As discussed earlier, we have had net loan recoveries in twelve of the last thirteen quarters and in each of the last ten quarters.  Our total delinquencies have continued to be negligible and were $815,000 at June 30, 2017 and $1.4 million at December 31, 2016.  Our delinquency percentage at June 30, 2017 was just 0.07%, well below the Bank’s peers.

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These factors all impact our necessary level of allowance for loan losses and our provision for loan losses. The allowance for loan losses decreased $392,000 in the first six months of 2017.  We recorded a negative provision for loan losses of $1.0 million for the six months ended June 30, 2017 compared to a negative $850,000 for the same period of 2016.  Net loan recoveries were $608,000 for the six months ended June 30, 2017, compared to net recoveries of $728,000 for the same period in 2016. The ratio of net charge-offs to average loans was (0.10)% on an annualized basis for the first six months of 2017, compared to (0.12)% for the first six months of 2016.

We are encouraged by the reduced level of charge-offs over recent quarters. We do, however, recognize that future charge-offs and resulting provisions for loan losses are expected to be impacted by the timing and extent of changes in the overall economy and the real estate markets. We believe we have seen some stabilization in economic conditions and real estate markets.  However, we expect it to take additional time for sustained improvement in the economy and real estate markets in order to further reduce our impaired loans.

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

Overall, impaired loans declined by $6.2 million to $23.4 million at June 30, 2017 compared to $29.7 million at December 31, 2016.  The specific allowance for impaired loans decreased $170,000 to $1.5 million at June 30, 2017, compared to $1.7 million at December 31, 2016.  The specific allowance for impaired loans represented 6.5% of total impaired loans at June 30, 2017 and 5.7% at December 31, 2016.  The overall balance of impaired loans remained elevated partially due to an accounting rule (ASU 2011-02) adopted in 2011 that requires us to identify classified loans that renew at existing contractual rates as TDRs if the contractual rate is less than market rates for similar loans at the time of renewal.

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

The determination of our loss factors is based upon our actual loss history by loan grade and adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date.  We use a rolling 18 month actual net chargeoff history as the base for our computation.  Over the past few years, the 18 month period computations have reflected sizeable decreases in net chargeoff experience.  We addressed this volatility in the qualitative factor considerations applied in our allowance for loan losses computation. Adjustments to the qualitative factors also involved consideration of different loss periods for the Bank, including 12, 24, 36, 48 and 60 month periods. We also considered the extended period of improved asset quality in assessing the overall qualitative component.  Considering the change in our qualitative factors and our commercial loan portfolio balances, the general allowance allocated to commercial loans was $12.0 million at June 30, 2017 and $12.1 million at December 31, 2016.  This resulted in a general reserve percentage allocated at June 30, 2017 of 1.28% of commercial loans, an increase from 1.27% at December 31, 2016.  The qualitative component of our allowance allocated to commercial loans was $11.9 million at June 30, 2017 (down from $12.4 million at December 31, 2016).

Groups of homogeneous loans, such as residential real estate and open- and closed-end consumer loans, receive allowance allocations based on loan type.  A rolling 12 month (four quarter) historical loss experience period was applied to residential mortgage and consumer loan portfolios.  As with commercial loans that are not considered impaired, the determination of the allowance allocation percentage is based principally on our historical loss experience.  These allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools of loans.  The homogeneous loan allowance was $3.1 million at both June 30, 2017 and December 31, 2016.

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

Premises and Equipment:  Premises and equipment totaled $48.6 million at June 30, 2017, down $1.4 million from $50.0 million at December 31, 2016.  During the second quarter of 2017 we sold a property in Grand Rapids that had been held for future branch expansion for $590,000, recognizing a net loss on sale of $69,000.

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Deposits and Other Borrowings: Total deposits increased $11.3 million to $1.46 billion at June 30, 2017, as compared to $1.45 billion at December 31, 2016.  Non-interest checking account balances decreased $19.7 million during the six months of 2017.  Interest bearing demand account balances increased $1.8 million and savings and money market account balances increased $25.1 million in the first six months of 2017.  Certificates of deposits increased by $4.0 million in the first six months of 2017.  We believe our success in maintaining the balances of personal and business checking and savings accounts was primarily attributable to our focus on quality customer service, the desire of customers to deal with a local bank, the convenience of our branch network and the breadth and depth of our sophisticated product line.

Noninterest bearing demand accounts comprised 33% of total deposits at June 30, 2017 and 35% at December 31, 2016.  These balances typically increase at year end for many of our commercial customers, then decline in the first quarter.  Because of the generally low rates paid on interest bearing account alternatives, many of our business customers chose to keep their balances in these more liquid noninterest bearing demand account types.  Interest bearing demand, including money market and savings accounts, comprised 62% of total deposits at June 30, 2017 and 60% at December 31, 2016. Time accounts as a percentage of total deposits were 5% at both June 30, 2017 and December 31, 2016.

Borrowed funds totaled $124.0 million at June 30, 2017, including $82.8 million of Federal Home Loan Bank (“FHLB”) advances and $41.2 million in long-term debt associated with trust preferred securities.  Borrowed funds totaled $125.4 million at December 31, 2016, including $84.2 million of FHLB advances and $41.2 million in long-term debt associated with trust preferred securities.  Borrowed funds decreased by $1.4 million in the first six months of 2017 due to an annual payment on an amortizing FHLB advance.

CAPITAL RESOURCES

Total shareholders' equity of $170.2 million at June 30, 2017 increased $7.9 million from $162.2 million at December 31, 2016. The increase was primarily a result of net income of $9.2 million earned in the first six months of 2017 and an increase of $1.2 million in accumulated other comprehensive income, partially offset by the payment of $2.7 million in cash dividends to shareholders.  The Bank was categorized as “well capitalized” at June 30, 2017.

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

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

Macatawa Bank Corporation	June 30, 2017			March 31, 2017			Dec 31, 2016			Sept 30, 2016			June 30, 2016
Total capital to risk weighted assets		15.5	%		15.1	%		14.9	%		15.2	%		15.2	%
Common Equity Tier 1 to risk weighted assets		11.6			11.3			11.0			11.3			11.1
Tier 1 capital to risk weighted assets		14.3			14.0			13.7			14.1			14.0
Tier 1 capital to average assets		12.2			12.1			12.0			12.0			11.9

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2017 qualified as Tier 1 capital.

LIQUIDITY

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

- 50 -

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

We have actively pursued initiatives to maintain a strong liquidity position.  The Bank has reduced its reliance on non-core funding sources, including brokered deposits, and focused on achieving a non-core funding dependency ratio below its peer group average.  We have had no brokered deposits on our balance sheet since December 2011.  We continue to maintain significant on-balance sheet liquidity.  At June 30, 2017, the Bank held $114.1 million of federal funds sold and other short-term investments.  In addition, the Bank had available borrowing capacity from correspondent banks of approximately $292.8 million as of June 30, 2017.

In the normal course of business, we enter into certain contractual obligations, including obligations which are considered in our overall liquidity management.  The table below summarizes our significant contractual obligations at June 30, 2017 (dollars in thousands):

	Less than 1 year		1-3 years		3-5 years		More than 5 years
Long term debt	$	---	$	---	$	---	$	41,238
Time deposit maturities		40,411		35,418		1,919		---
Other borrowed funds		32,118		40,667		10,000		---
Operating lease obligations		247		399		32		---
Total	$	72,776	$	76,484	$	11,951	$	41,238

In addition to normal loan funding, we also maintain liquidity to meet customer financing needs through unused lines of credit, unfunded loan commitments and standby letters of credit.  The level and fluctuation of these commitments is also considered in our overall liquidity management.  At June 30, 2017, we had a total of $465.6 million in unused lines of credit, $129.9 million in unfunded loan commitments and $12.5 million in standby letters of credit.

Liquidity of Holding Company: The primary sources of liquidity for the Company are dividends from the Bank, existing cash resources and the capital markets if the need to raise additional capital arises.  Banking regulations and the laws of the State of Michigan in which our Bank is chartered limit the amount of dividends the Bank may declare and pay to the Company in any calendar year.  Under the state law limitations, the Bank is restricted from paying dividends to the Company in excess of retained earnings.  In 2016, the Bank paid dividends to the Company totaling $6.2 million.  In the same period, the Company paid dividends to its shareholders totaling $4.0 million.  On February 27, 2017, the Bank paid a dividend totaling $1.8 million to the Company in anticipation of the common share cash dividend of $0.04 per share paid on February 28, 2017 to shareholders of record on February 13, 2017.  The cash distributed for this cash dividend payment totaled $1.4 million.  On May 30, 2017, the Bank paid a dividend totaling $1.9 million to the Company in anticipation of the common share cash dividend of $0.04 per share paid on May 30, 2017 to shareholders of record on May 15, 2017. The cash distributed for this cash dividend payment totaled $1.4 million.  The Company retained the remaining balance in each period for general corporate purposes.  At June 30, 2017, the Bank had a retained earnings balance of $43.4 million.

During 2016, the Company received payments from the Bank totaling $7.1 million, representing the Bank’s intercompany tax liability for the 2016 tax year, in accordance with the Company’s tax allocation agreement.  During the first six months of 2017, the Company received payments from the Bank totaling $1.0 million, representing the Bank’s intercompany tax liability for the first six months of 2017.

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

The Company’s cash balance at June 30, 2017 was $5.6 million.  The Company believes that it has sufficient liquidity to meet its cash flow obligations.

- 51 -

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

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

Our methodology for determining the allowance for loan losses and the related provision for loan losses is described above in the "Allowance for Loan Losses" discussion.  This area of accounting requires significant judgment due to the number of factors which can influence the collectability of a loan.  Unanticipated changes in these factors could significantly change the level of the allowance for loan losses and the related provision for loan losses.  Although, based upon our internal analysis, and in our judgment, we believe that we have provided an adequate allowance for loan losses, there can be no assurance that our analysis has properly identified all of the probable losses in our loan portfolio.  As a result, we could record future provisions for loan losses that may be significantly different than the levels that we recorded in the first six months of 2017.

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

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

Our accounting for income taxes involves the valuation of deferred tax assets and liabilities primarily associated with differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes.  At June 30, 2017, we had gross deferred tax assets of $8.3 million, gross deferred tax liabilities of $2.4 million resulting in a net deferred tax asset of $5.9 million.  Accounting standards require that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard.  Each reporting period we consider all reasonably available positive and negative evidence and determine whether it is “more likely than not” that we would be able to realize our deferred tax assets.  With the positive results in the first six months of 2017, we concluded at June 30, 2017 that no valuation allowance on our net deferred tax asset was required.  Changes in tax laws, changes in tax rates, changes in ownership and our future level of earnings can impact the ultimate realization of our net deferred tax asset.

- 52 -

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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

The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of June 30, 2017 (dollars in thousands):

Interest Rate Scenario	Economic Value of Equity		Percent Change			Net Interest Income		Percent Change
Interest rates up 200 basis points	$	224,375		(0.68	)%	$	55,191		4.86	%
Interest rates up 100 basis points		226,145		0.10			53,891		2.39
No change		225,917		---			52,633		---
Interest rates down 100 basis points		206,632		(8.54	)		50,468		(4.11	)
Interest rates down 200 basis points		199,903		(11.51	)		48,749		(7.38	)

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

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

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

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

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Item 4: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) as of June 30, 2017, the end of the period covered by this report.

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

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

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

- 54 -

PART II – OTHER INFORMATION

Item 6. EXHIBITS.

3.1	Restated Articles of Incorporation. Previously filed with the Commission on April 28, 2011 in Macatawa Bank Corporation’s Quarterly Report on Form 10-Q, Exhibit 3.1. Here incorporated by reference.
3.2	Bylaws. Previously filed with the Commission on February 19, 2015 in Macatawa Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2014, Exhibit 3.1. Here incorporated by reference.
4.1	Restated Articles of Incorporation. Exhibit 3.1 is here incorporated by reference.
4.2	Bylaws. Exhibit 3.2 is here incorporated by reference.
4.3	Long-Term Debt. The registrant has outstanding long-term debt which at the time of this report does not exceed 10% of the registrant's total consolidated assets. The registrant agrees to furnish copies of the agreements defining the rights of holders of such long-term debt to the SEC upon request.
10.1	Change in control agreements between Macatawa Bank Corporation and its Chief Operating Officer.  Previously filed with the Commission on Form 8-K on February 1, 2017, Exhibit 10.1.  Here incorporated by reference.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

- 55 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MACATAWA BANK CORPORATION
	/s/ Ronald L. Haan
	Ronald L. Haan
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Jon W. Swets
	Jon W. Swets
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Dated: July 27, 2017

- 56 -

EX-31.1

EXHIBIT 31.1

I, Ronald L. Haan, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2017 of Macatawa Bank Corporation;

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

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

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

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

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

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

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

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

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

Dated:  July 27, 2017

/s/ Ronald L. Haan

Ronald L. Haan

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

I, Jon W. Swets, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2017 of Macatawa Bank Corporation;

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

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

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

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

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

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

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

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

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

Dated: July 27, 2017

/s/ Jon W. Swets

Jon W. Swets

Senior Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of Macatawa Bank Corporation (the "Company") that the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2017 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

	/s/ Ronald L. Haan
	Ronald L. Haan
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Jon W. Swets
	Jon W. Swets
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Dated: July 27, 2017

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 27, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	MACATAWA BANK CORP
Entity Central Index Key	0001053584
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		33,938,486
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017

XML

CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
ASSETS
Cash and due from banks	$ 31,165	$ 27,690
Federal funds sold and other short -term investments	114,104	62,129
Cash and cash equivalents	145,269	89,819
Securities available for sale, at fair value	184,761	184,433
Securities held to maturity (fair value 2017 - $69,816 and 2016 - $69,849)	68,818	69,378
Federal Home Loan Bank (FHLB) stock	11,558	11,558
Loans held for sale, at fair value	3,184	2,181
Total loans	1,251,355	1,280,812
Allowance for loan losses	(16,570)	(16,962)
Net loans	1,234,785	1,263,850
Premises and equipment - net	48,626	50,026
Accrued interest receivable	4,084	4,092
Bank-owned life insurance	39,781	39,274
Other real estate owned - net	7,097	12,253
Net deferred tax asset	5,869	8,863
Other assets	5,231	5,286
Total assets	1,759,063	1,741,013
Deposits
Noninterest-bearing	481,769	501,478
Interest-bearing	978,221	947,246
Total deposits	1,459,990	1,448,724
Other borrowed funds	82,785	84,173
Long-term debt	41,238	41,238
Accrued expenses and other liabilities	4,875	4,639
Total liabilities	1,588,888	1,578,774
Commitments and contingent liabilities
Shareholders' equity
Common stock, no par value, 200,000,000 shares authorized; 33,938,486 and 33,940,788 shares issued and outstanding at June 30, 2017 and December 31, 2016	216,959	216,731
Retained deficit	(46,491)	(53,008)
Accumulated other comprehensive income (loss)	(293)	(1,484)
Total shareholders' equity	170,175	162,239
Total liabilities and shareholders' equity	$ 1,759,063	$ 1,741,013

XML

CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
ASSETS
Securities held to maturity, fair value	$ 69,816	$ 69,849
Shareholders' equity
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	33,938,486	33,940,788
Common stock, shares outstanding (in shares)	33,938,486	33,940,788

XML

CONSOLIDATED STATEMENTS OF INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Interest income
Loans, including fees	$ 12,540	$ 11,634	$ 24,996	$ 23,390
Securities
Taxable	646	565	1,285	1,115
Tax-exempt	546	441	1,084	874
FHLB Stock	121	122	244	246
Federal funds sold and other short-term investments	189	111	281	256
Total interest income	14,042	12,873	27,890	25,881
Interest expense
Deposits	557	439	1,038	902
Other borrowings	358	458	740	900
Long-term debt	422	368	824	733
Total interest expense	1,337	1,265	2,602	2,535
Net interest income	12,705	11,608	25,288	23,346
Provision for loan losses	(500)	(750)	(1,000)	(850)
Net interest income after provision for loan losses	13,205	12,358	26,288	24,196
Noninterest income
Service charges and fees	1,110	1,112	2,170	2,159
Net gains on mortgage loans	476	572	904	1,060
Trust fees	833	788	1,611	1,496
ATM and debit card fees	1,338	1,257	2,539	2,443
Gain on sales of securities	0	10	3	99
Bank owned life insurance ("BOLI") income	243	158	481	602
Other	478	639	1,001	1,285
Total noninterest income	4,478	4,536	8,709	9,144
Noninterest expense
Salaries and benefits	6,153	6,168	12,152	12,355
Occupancy of premises	991	901	2,017	1,883
Furniture and equipment	750	839	1,482	1,704
Legal and professional	197	188	422	347
Marketing and promotion	225	275	453	550
Data processing	731	688	1,413	1,347
FDIC assessment	134	220	270	472
Interchange and other card expense	324	308	637	594
Bond and D&O Insurance	118	131	234	263
Net losses (gains) on repossessed and foreclosed properties	(300)	258	(385)	294
Administration and disposition of problem assets	142	202	322	577
Other	1,327	1,292	2,662	2,635
Total noninterest expenses	10,792	11,470	21,679	23,021
Income before income tax	6,891	5,424	13,318	10,319
Income tax expense	2,129	1,679	4,095	3,079
Net income	$ 4,762	$ 3,745	$ 9,223	$ 7,240
Basic earnings per common share (in dollars per share)	$ 0.14	$ 0.11	$ 0.27	$ 0.21
Diluted earnings per common share (in dollars per share)	0.14	0.11	0.27	0.21
Cash dividends per common share (in dollars per share)	$ 0.04	$ 0.03	$ 0.08	$ 0.06

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) [Abstract]
Net income	$ 4,762	$ 3,745	$ 9,223	$ 7,240
Unrealized gains (losses):
Net change in unrealized gains (losses) on securities available for sale	772	590	1,835	1,654
Tax effect	(270)	(206)	(642)	(579)
Net change in unrealized gains (losses) on securities available for sale, net of tax	502	384	1,193	1,075
Less: reclassification adjustments:
Reclassification for gains included in net income	0	10	3	99
Tax effect	0	(3)	(1)	(35)
Reclassification for gains included in net income, net of tax	0	7	2	64
Other comprehensive income (loss), net of tax	502	377	1,191	1,011
Comprehensive income	$ 5,264	$ 4,122	$ 10,414	$ 8,251

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Retained Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2015	$ 216,540	$ (64,910)	$ 347	$ 151,977
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	7,240	0	7,240
Cash dividends	0	(2,025)	0	(2,025)
Repurchase of shares for taxes withheld on vested restricted stock	(19)	0	0	(19)
Net change in unrealized gain (loss) on securities available for sale, net of tax	0	0	1,011	1,011
Stock compensation expense	278	0	0	278
Balance at Jun. 30, 2016	216,799	(59,695)	1,358	158,462
Balance at Dec. 31, 2016	216,731	(53,008)	(1,484)	162,239
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	9,223	0	9,223
Cash dividends	0	(2,706)	0	(2,706)
Net change in unrealized gain (loss) on securities available for sale, net of tax	0	0	1,191	1,191
Stock compensation expense	228	0	0	228
Balance at Jun. 30, 2017	$ 216,959	$ (46,491)	$ (293)	$ 170,175

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) (Parenthetical)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividend per share (in dollars per share) | $ / shares	$ 0.06
Common Stock [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Number of shares repurchased for taxes withheld on vested restricted stock (in shares) | shares	2,824

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities
Net income	$ 9,223	$ 7,240
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	973	1,403
Stock compensation expense	228	278
Provision for loan losses	(1,000)	(850)
Origination of loans for sale	(33,707)	(37,891)
Proceeds from sales of loans originated for sale	33,608	40,589
Net gains on mortgage loans	(904)	(1,060)
Gain on sales of securities	(3)	(99)
Write-down of other real estate	85	555
Net gain on sales of other real estate	(470)	(260)
Net loss on sale of premises and equipment	69	0
Deferred income tax expense	2,353	(147)
Change in accrued interest receivable and other assets	63	(1,405)
Earnings in bank-owned life insurance	(481)	(602)
Change in accrued expenses and other liabilities	236	2,182
Net cash from operating activities	10,273	9,933
Cash flows from investing activities
Loan originations and payments, net	30,005	(13,286)
Change in interest-bearing deposits in other financial institutions	0	20,000
Purchases of securities available for sale	(14,683)	(43,570)
Purchases of securities held to maturity	(3,000)	(1,144)
Proceeds from:
Maturities and calls of securities	10,872	30,480
Sales of securities available for sale	5,807	9,648
Principal paydowns on securities	3,381	1,873
Sales of other real estate	5,601	3,313
Sales of premises and equipment	590	0
Death benefit from bank-owned life insurance	0	518
Additions to premises and equipment	(568)	(501)
Net cash from investing activities	38,005	7,331
Cash flows from financing activities
Change in deposits	11,266	(80,434)
Repayments and maturities of other borrowed funds	(21,388)	(1,329)
Proceeds from other borrowed funds	20,000	10,000
Cash dividends paid	(2,706)	(2,025)
Repurchase of shares for taxes withheld on vested restricted stock	0	(19)
Net cash from financing activities	7,172	(73,807)
Net change in cash and cash equivalents	55,450	(56,543)
Cash and cash equivalents at beginning of period	89,819	181,476
Cash and cash equivalents at end of period	145,269	124,933
Supplemental cash flow information
Interest paid	2,600	2,536
Income taxes paid	825	3,200
Supplemental noncash disclosures:
Transfers from loans to other real estate	60	102
Security settlement	$ 0	$ 0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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

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

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2017, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

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

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

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

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

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

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

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2017 and December 31, 2016, the total notional amount of such agreements was $43.1 million and $48.1 million and resulted in a derivative asset with a fair value of $395,000 and $494,000, respectively, which were included in other assets and a derivative liability of $395,000 and $494,000, respectively, which were included in other liabilities.

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

Adoption of New Accounting Standards:  The Financial Accounting Standards Board “FASB” issued Accounting Standards Update (“ASU”) ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.  This ASU simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the following: Accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes.  The amendments are effective for annual periods beginning after December 15, 2016, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company was not material as no stock awards vested or were exercised in the six months ended June 30, 2017, but could cause some volatility in income tax expense in future periods where stock awards vest.

FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities.  This ASU changes generally accepted accounting principles (“GAAP”) to require premiums on purchased callable debt securities to be amortized to the earliest call date.  Previous GAAP allowed entities to amortize to contractual maturity or to call date.  The amendments in this ASU are effective for annual periods beginning after December 15, 2018, with early adoption permitted.  As the Company has consistently amortized premiums on its purchased callable debt securities, the Company has elected to early adopt this ASU effective January 1, 2017.  There was no impact of adoption of this ASU by the Company.

Newly Issued Not Yet Effective Standards:  FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.  This ASU may require us to change how we recognize certain recurring revenue streams within trust and investment management fees, however, we do not expect these changes to have a significant effect on our financial statements.

FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  As the Company owns most of its branch locations, this ASU will apply primarily to operating leases and the impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance eliminates the probable initial recognition threshold and, instead, reflects an entity’s current estimate of all expected credit losses. The new guidance broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will now have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those years.  The Company is currently evaluating the impact of this new ASU on its consolidated financial statements.

FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force).  This ASU addresses concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.  The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company is not expected to be material.

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SECURITIES

6 Months Ended

Jun. 30, 2017

SECURITIES [Abstract]

SECURITIES

NOTE 2 – SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2017
Available for Sale:
U.S. Treasury and federal agency securities	$	85,385	$	47	$	(694	)	$	84,738
U.S. Agency MBS and CMOs		11,941		15		(113	)		11,843
Tax-exempt state and municipal bonds		39,097		696		(134	)		39,659
Taxable state and municipal bonds		35,306		78		(316	)		35,068
Corporate bonds and other debt securities		11,983		16		(25	)		11,974
Other equity securities		1,500		---		(21	)		1,479
	$	185,212	$	852	$	(1,303	)	$	184,761
Held to Maturity
Tax-exempt state and municipal bonds	$	68,818	$	1,003	$	(5	)	$	69,816

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2016
Available for Sale:
U.S. Treasury and federal agency securities	$	85,582	$	49	$	(1,281	)	$	84,350
U. S. Agency MBS and CMOs		12,037		11		(231	)		11,817
Tax-exempt state and municipal bonds		39,578		212		(603	)		39,187
Taxable state and municipal bonds		34,255		65		(437	)		33,883
Corporate bonds and other debt securities		13,765		16		(55	)		13,726
Other equity securities		1,500		---		(30	)		1,470
	$	186,717	$	353	$	(2,637	)	$	184,433
Held to Maturity:
Tax-exempt state and municipal bonds	$	69,378	$	573	$	(102	)	$	69,849

Proceeds from the sale of securities available for sale were $2.4 million in the three month period ended June 30, 2017 and $5.8 million in the six month period ended June 30, 2017 resulting in no gains or losses on sale for the three month period ended June 30, 2017 and net gains of $3,000 for the six month period ended June 30, 2017, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $3,000 ($2,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the six month period ended June 30, 2017.  Proceeds from the sale of securities available for sale were $230,000 in the three month period ended June 30, 2016 and $9.6 million in the six month period ended June 30, 2016 resulting in net gains on sale of $10,000 and $99,000, respectively, as reported in the Consolidated Statements of Income.  This resulted in reclassifications of $10,000 ($7,000 net of tax) and $99,000 ($64,000 net of tax) from accumulated other comprehensive income to gain on sale of securities in the Consolidated Statements of Income in the three and six month periods ended June 30, 2016.

Contractual maturities of debt securities at June 30, 2017 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	23,770	$	23,820	$	19,067	$	19,062
Due from one to five years		13,837		14,310		100,966		100,532
Due from five to ten years		10,342		10,659		49,141		49,266
Due after ten years		20,869		21,027		14,538		14,422
	$	68,818	$	69,816	$	183,712	$	183,282

Securities with unrealized losses at June 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2017	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	60,556	$	(684	)	$	3,025	$	(9	)	$	63,581	$	(693	)
U.S. Agency MBS and CMOs		10,874		(113	)		---		---			10,874		(113	)
Tax-exempt state and municipal bonds		8,560		(134	)		385		(5	)		8,945		(139	)
Taxable state and municipal bonds		20,420		(308	)		237		(9	)		20,657		(317	)
Corporate bonds and other debt securities		4,264		(21	)		1,000		(4	)		5,264		(25	)
Other equity securities		1,479		(21	)		---		---			1,479		(21	)
Total temporarily impaired	$	106,153	$	(1,281	)	$	4,647	$	(27	)	$	110,800	$	(1,308	)

	Less than 12 Months					12 Months or More					Total
December 31, 2016	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	59,129	$	(1,271	)	$	3,053	$	(10	)	$	62,182	$	(1,281	)
U.S. Agency MBS and CMOs		10,702		(231	)		---		---			10,702		(231	)
Tax-exempt state and municipal bonds		49,508		(698	)		1,672		(7	)		51,180		(705	)
Taxable state and municipal bonds		22,633		(437	)		---		---			22,633		(437	)
Corporate bonds and other debt securities		5,745		(50	)		500		(5	)		6,245		(55	)
Other equity securities		1,470		(30	)		---		---			1,470		(30	)
Total temporarily impaired	$	149,187	$	(2,717	)	$	5,225	$	(22	)	$	154,412	$	(2,739	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Management determined that the unrealized losses for each period were attributable to changes in interest rates and not due to credit quality.  As such, no OTTI charges were necessary during the three and six month periods ended June 30, 2017 and 2016.

Securities with a carrying value of approximately $2.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at June 30, 2017 and December 31, 2016.

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LOANS

6 Months Ended

Jun. 30, 2017

LOANS [Abstract]

LOANS

NOTE 3 – LOANS

Portfolio loans were as follows (dollars in thousands):

	June 30, 2017			December 31, 2016
Commercial and industrial	$	435,218		$	449,342
Commercial real estate:
Residential developed		8,701			11,970
Unsecured to residential developers		4,734			4,734
Vacant and unimproved		38,357			40,286
Commercial development		492			378
Residential improved		77,047			75,348
Commercial improved		282,884			289,478
Manufacturing and industrial		102,325			95,787
Total commercial real estate		514,540			517,981
Consumer
Residential mortgage		212,745			217,614
Unsecured		280			396
Home equity		81,779			88,113
Other secured		6,793			7,366
Total consumer		301,597			313,489
Total loans		1,251,355			1,280,812
Allowance for loan losses		(16,570	)		(16,962	)
	$	1,234,785		$	1,263,850

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

Three months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,469		$	6,598		$	3,591		$	38		$	16,696
Charge-offs		(108	)		---			(31	)		---			(139	)
Recoveries		41			456			16			---			513
Provision for loan losses		(66	)		(471	)		45			(8	)		(500	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Three months ended June 30, 2016	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,945		$	8,449		$	3,699		$	36	$	17,129
Charge-offs		---			---			(36	)		---		(36	)
Recoveries		23			557			36			---		616
Provision for loan losses		(8	)		(941	)		195			4		(750	)
Ending Balance	$	4,960		$	8,065		$	3,894		$	40	$	16,959

Six months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,345		$	6,703		$	3,871		$	43		$	16,962
Charge-offs		(108	)		---			(57	)		---			(165	)
Recoveries		64			618			91			---			773
Provision for loan losses		35			(738	)		(284	)		(13	)		(1,000	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Six months ended June 30, 2016	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,826	$	8,457		$	3,761		$	37	$	17,081
Charge-offs		---		---			(112	)		---		(112	)
Recoveries		72		678			90			---		840
Provision for loan losses		62		(1,070	)		155			3		(850	)
Ending Balance	$	4,960	$	8,065		$	3,894		$	40	$	16,959

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

June 30, 2017	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	686	$	274	$	566	$	---	$	1,526
Collectively evaluated for impairment		5,650		6,309		3,055		30		15,044
Total ending allowance balance	$	6,336	$	6,583	$	3,621	$	30	$	16,570
Loans:
Individually reviewed for impairment	$	4,343	$	9,896	$	9,179	$	---	$	23,418
Collectively evaluated for impairment		430,875		504,644		292,418		---		1,227,937
Total ending loans balance	$	435,218	$	514,540	$	301,597	$	---	$	1,251,355

December 31, 2016	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	605	$	368	$	723	$	---	$	1,696
Collectively evaluated for impairment		5,740		6,335		3,148		43		15,266
Total ending allowance balance	$	6,345	$	6,703	$	3,871	$	43	$	16,962
Loans:
Individually reviewed for impairment	$	5,994	$	11,934	$	11,726	$	---	$	29,654
Collectively evaluated for impairment		443,348		506,047		301,763		---		1,251,158
Total ending loans balance	$	449,342	$	517,981	$	313,489	$	---	$	1,280,812

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2017 (dollars in thousands):

June 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	1,024	$	1,024	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		5		5		---
Commercial improved		1,018		1,018		---
Manufacturing and industrial		---		---		---
		1,023		1,023		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,047	$	2,047	$	---
With an allowance recorded:
Commercial and industrial	$	3,319	$	3,319	$	686
Commercial real estate:
Residential developed		183		183		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		396		396		10
Commercial development		189		189		6
Residential improved		2,418		2,418		122
Commercial improved		5,499		5,499		129
Manufacturing and industrial		188		188		3
		8,873		8,873		274
Consumer:
Residential mortgage		7,364		7,364		454
Unsecured		---		---		---
Home equity		1,815		1,815		112
Other secured		---		---		---
		9,179		9,179		566
Total with an allowance recorded	$	21,371	$	21,371	$	1,526
Total	$	23,418	$	23,418	$	1,526

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016 (dollars in thousands):

December 31, 2016	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	2,298	$	2,298	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		27		27		---
Commercial improved		350		350		---
Manufacturing and industrial		---		---		---
		377		377		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,675	$	2,675	$	---
With an allowance recorded:
Commercial and industrial	$	3,696	$	3,696	$	605
Commercial real estate:
Residential developed		187		187		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		387		387		9
Commercial development		189		189		6
Residential improved		4,687		4,687		216
Commercial improved		5,879		5,879		128
Manufacturing and industrial		228		228		5
		11,557		11,557		368
Consumer:
Residential mortgage		7,523		7,523		464
Unsecured		---		---		---
Home equity		4,203		4,203		259
Other secured		---		---		---
		11,726		11,726		723
Total with an allowance recorded	$	26,979	$	26,979	$	1,696
Total	$	29,654	$	29,654	$	1,696

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Average of impaired loans during the period:
Commercial and industrial	$	5,342	$	6,110	$	6,093	$	7,187
Commercial real estate:
Residential developed		183		---		184		---
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		262		436		320		441
Commercial development		189		192		189		192
Residential improved		2,665		5,488		3,376		5,516
Commercial improved		5,995		6,817		6,077		8,177
Manufacturing and industrial		327		237		276		238
Consumer		10,812		12,842		11,153		12,991
Interest income recognized during impairment:
Commercial and industrial		239		239		517		537
Commercial real estate		125		143		252		344
Consumer		118		116		226		238
Cash-basis interest income recognized
Commercial and industrial		266		262		531		551
Commercial real estate		126		144		249		344
Consumer		120		113		227		235

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2017 and December 31, 2016:

June 30, 2017	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	6	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		221		---
Commercial improved		166		---
Manufacturing and industrial		---		---
		436		---
Consumer:
Residential mortgage		2		204
Unsecured		10		---
Home equity		---		---
Other secured		12		---
		24		204
Total	$	466	$	204

December 31, 2016	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	36	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		6		---
Commercial improved		128		---
Manufacturing and industrial		---		---
		183		---
Consumer:
Residential mortgage		58		---
Unsecured		16		---
Home equity		7		---
Other secured		---		---
		81		---
Total	$	300	$	---

The following table presents the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016 by class of loans (dollars in thousands):

June 30, 2017	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	---	$	---	$	---	$	435,218	$	435,218
Commercial real estate:
Residential developed		---		---		---		8,701		8,701
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		38,357		38,357
Commercial development		189		49		238		254		492
Residential improved		142		79		221		76,826		77,047
Commercial improved		29		---		29		282,855		282,884
Manufacturing and industrial		---		---		---		102,325		102,325
		360		128		488		514,052		514,540
Consumer:
Residential mortgage		75		204		279		212,466		212,745
Unsecured		11		---		11		269		280
Home equity		19		12		31		81,748		81,779
Other secured		6		---		6		6,787		6,793
		111		216		327		301,270		301,597
Total	$	471	$	344	$	815	$	1,250,540	$	1,251,355

December 31, 2016	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	425	$	28	$	453	$	448,889	$	449,342
Commercial real estate:
Residential developed		---		---		---		11,970		11,970
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		40,286		40,286
Commercial development		---		49		49		329		378
Residential improved		74		5		79		75,269		75,348
Commercial improved		478		---		478		289,000		289,478
Manufacturing and industrial		---		---		---		95,787		95,787
		552		54		606		517,375		517,981
Consumer:
Residential mortgage		64		56		120		217,494		217,614
Unsecured		---		---		---		396		396
Home equity		187		---		187		87,926		88,113
Other secured		81		---		81		7,285		7,366
		332		56		388		313,101		313,489
Total	$	1,309	$	138	$	1,447	$	1,279,365	$	1,280,812

The Company had allocated $1,526,000 and $1,696,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDRs”) as of June 30, 2017 and December 31, 2016, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  The Company has been active at utilizing these programs and working with its customers to reduce the risk of foreclosure.  For commercial loans, these modifications typically include an interest only period and, in some cases, a lowering of the interest rate on the loan.  In some cases, the modification will include separating the note into two notes with the first note structured to be supported by current cash flows and collateral, and the second note made for the remaining unsecured debt.  The second note is charged off immediately and collected only after the first note is paid in full.  This modification type is commonly referred to as an A-B note structure.  For consumer mortgage loans, the restructuring typically includes a lowering of the interest rate to provide payment and cash flow relief.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

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

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

The following table presents information regarding troubled debt restructurings as of June 30, 2017 and December 31, 2016 (dollars in thousands):

	June 30, 2017				December 31, 2016
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		21	$	4,343		25	$	5,994
Commercial real estate		40		9,896		49		11,933
Consumer		107		9,179		116		12,059
		168	$	23,418		190	$	29,986

The following table presents information related to accruing troubled debt restructurings as of June 30, 2017 and December 31, 2016.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2017		December 31, 2016
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		20,311		25,665
Accruing TDR - upgraded to accruing after six consecutive payments		2,787		4,172
	$	23,098	$	29,837

The following tables present information regarding troubled debt restructurings executed during the three month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017						Three Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		2		39		---
		3		1,192	$	---		2	$	39	$	---

The following tables present information regarding troubled debt restructurings executed during the six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Six Months Ended June 30, 2017						Six Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		6		277		---
		3		1,192	$	---		6	$	277	$	---

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

Payment defaults on TDRs have been minimal and during the three and six month periods ended June 30, 2017 and 2016, the balance of loans that became delinquent by more than 90 days past due or that were transferred to nonaccrual within 12 months of restructuring were not material.

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

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

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

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

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

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

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

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

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

As of June 30, 2017 and December 31, 2016, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2017		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	17,376	$	118,507	$	284,659	$	11,321	$	3,349	$	6	$	---	$	435,218
Commercial real estate:
Residential developed		---		---		1,252		6,614		835		---		---		---		8,701
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		15,826		19,012		3,519		---		---		---		38,357
Commercial development		---		---		116		138		---		189		49		---		492
Residential improved		---		---		6,180		67,695		1,628		1,323		221		---		77,047
Commercial improved		---		1,392		62,819		210,873		5,916		1,718		166		---		282,884
Manufacturing & industrial		---		1,386		44,673		53,468		2,249		549		---		---		102,325
	$	---	$	20,154	$	249,373	$	647,193	$	25,468	$	7,128	$	442	$	---	$	949,758

December 31, 2016		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	27,619	$	118,243	$	282,527	$	14,610	$	6,307	$	36	$	---	$	449,342
Commercial real estate:
Residential developed		---		---		2,328		8,786		856		---		---		---		11,970
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		17,672		19,028		3,586		---		---		---		40,286
Commercial development		---		---		---		140		---		189		49		---		378
Residential improved		---		---		7,100		63,957		2,628		1,657		6		---		75,348
Commercial improved		---		2,433		66,259		210,449		9,084		1,125		128		---		289,478
Manufacturing & industrial		---		1,665		38,719		51,718		3,076		609		---		---		95,787
	$	---	$	31,717	$	250,321	$	641,339	$	33,840	$	9,887	$	219	$	---	$	967,323

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

	June 30, 2017		December 31, 2016
Not classified as impaired	$	1,593	$	2,608
Classified as impaired		5,977		7,498
Total commercial loans classified substandard or worse	$	7,570	$	10,106

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

June 30, 2017	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	212,541	$	280	$	81,767	$	6,793
Nonperforming		204		---		12		---
Total	$	212,745	$	280	$	81,779	$	6,793

December 31, 2016	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	217,558	$	396	$	88,113	$	7,366
Nonperforming		56		---		---		---
Total	$	217,614	$	396	$	88,113	$	7,366

XML

OTHER REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2017

OTHER REAL ESTATE OWNED [Abstract]

OTHER REAL ESTATE OWNED

NOTE 4 – OTHER REAL ESTATE OWNED

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

	Six Months Ended June 30, 2017			Year Ended December 31, 2016			Six Months Ended June 30, 2016
Beginning balance	$	22,864		$	28,377		$	28,377
Additions, transfers from loans		60			339			102
Proceeds from sales of other real estate owned		(5,601	)		(5,339	)		(3,313	)
Valuation allowance reversal upon sale		(6,395	)		(1,158	)		(334	)
Gain on sales of other real estate owned		470			645			260
		11,398			22,864			25,092
Less: valuation allowance		(4,301	)		(10,611	)		(11,026	)
Ending balance	$	7,097		$	12,253		$	14,066

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

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Beginning balance	$	10,611		$	10,805
Additions charged to expense		85			555
Reversals upon sale		(6,395	)		(334	)
Ending balance	$	4,301		$	11,026

XML

FAIR VALUE

6 Months Ended

Jun. 30, 2017

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 5 – FAIR VALUE

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

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

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

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

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

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

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

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

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

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

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
U.S. Treasury and federal agency securities	$	84,738		$	---	$	84,738	$	---
U.S. Agency MBS and CMOs		11,843			---		11,843		---
Tax-exempt state and municipal bonds		39,659			---		39,659		---
Taxable state and municipal bonds		35,068			---		35,068		---
Corporate bonds and other debt securities		11,974			---		11,974		---
Other equity securities		1,479			---		1,479		---
Loans held for sale		3,184			---		3,184		---
Interest rate swaps		395			---		---		395
Interest rate swaps		(395	)		---		---		(395	)
December 31, 2016
U.S. Treasury and federal agency securities	$	84,350		$	---	$	84,350	$	---
U.S. Agency MBS and CMOs		11,817			---		11,817		---
Tax-exempt state and municipal bonds		39,187			---		39,187		---
Taxable state and municipal bonds		33,883			---		33,883		---
Corporate bonds and other debt securities		13,726			---		13,726		---
Other equity securities		1,470			---		1,470		---
Loans held for sale		2,181			---		2,181		---
Interest rate swaps		494			---		---		494
Interest rate swaps		(494	)		---		---		(494	)

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

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
Impaired loans	$	3,052	$	---	$	---	$	3,052
Other real estate owned		4,811		---		---		4,811
December 31, 2016
Impaired loans	$	3,436	$	---	$	---	$	3,436
Other real estate owned		9,542		---		---		9,542

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

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2017
Impaired Loans	$	3,052	Sales comparison approach	Adjustment for differences between comparable sales	5.0 to 15.0
			Income approach	Capitalization rate	9.5 to 11.0
Other real estate owned		4,811	Sales comparison approach	Adjustment for differences between comparable sales	3.0 to 23.0
			Income approach	Capitalization rate	9.5 to 11.0

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2016
Impaired Loans	$	3,436	Sales comparison approach	Adjustment for differences between comparable sales	1.0 to 35.0
			Income approach	Capitalization rate	9.5 to 11.5
Other real estate owned		9,542	Sales comparison approach	Adjustment for differences between comparable sales	2.0 to 32.5
			Income approach	Capitalization rate	9.5 to 11.5

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2017 and December 31, 2016 (dollars in thousands):

	Level in	June 30, 2017						December 31, 2016
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	31,165		$	31,165		$	27,690		$	27,690
Cash equivalents	Level 2		114,104			114,104			62,129			62,129
Securities held to maturity	Level 3		68,818			69,816			69,378			69,849
FHLB stock			11,558		NA				11,558		NA
Loans, net	Level 2		1,237,837			1,234,678			1,260,414			1,247,842
Bank owned life insurance	Level 3		39,781			39,781			39,274			39,274
Accrued interest receivable	Level 2		4,084			4,084			4,092			4,092
Financial liabilities
Deposits	Level 2		(1,459,990	)		(1,459,895	)		(1,448,724	)		(1,448,692	)
Other borrowed funds	Level 2		(82,785	)		(82,623	)		(84,173	)		(84,051	)
Long-term debt	Level 2		(41,238	)		(36,440	)		(41,238	)		(36,112	)
Accrued interest payable	Level 2		(283	)		(283	)		(282	)		(282	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

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

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

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DEPOSITS

6 Months Ended

Jun. 30, 2017

DEPOSITS [Abstract]

DEPOSITS

NOTE 6 – DEPOSITS

Deposits are summarized as follows (in thousands):

	June 30, 2017		December 31, 2016
Noninterest-bearing demand	$	481,769	$	501,478
Interest bearing demand		342,551		340,715
Savings and money market accounts		557,922		532,853
Certificates of deposit		77,748		73,678
	$	1,459,990	$	1,448,724

Time deposits that exceed the FDIC insurance limit of $250,000 were approximately $19.2 million at June 30, 2017 and $17.4 million at December 31, 2016.

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OTHER BORROWED FUNDS

6 Months Ended

Jun. 30, 2017

OTHER BORROWED FUNDS [Abstract]

OTHER BORROWED FUNDS

NOTE 7 - OTHER BORROWED FUNDS

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

Federal Home Loan Bank Advances

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

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2017
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		2,785	March 2018 to July 2018		3.75	%
	$	82,785

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2016
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		4,173	March 2018 to July 2018		3.78	%
	$	84,173

Each advance is subject to a prepayment fee if paid prior to its maturity date.  Fixed rate advances are payable at maturity.   Amortizable mortgage advances are fixed rate advances with scheduled repayments based upon amortization to maturity.  These advances were collateralized by residential and commercial real estate loans totaling $442.9 million and $425.0 million under a blanket lien arrangement at June 30, 2017 and December 31, 2016, respectively.

Scheduled repayments of FHLB advances as of June 30, 2017 were as follows (in thousands):

2017	$	667
2018		52,118
2019		10,000
2020		10,000
2021		10,000
Thereafter		---
	$	82,785

Federal Reserve Bank borrowings

The Company has a financing arrangement with the Federal Reserve Bank.  There were no borrowings outstanding at June 30, 2017 and December 31, 2016, and the Company had approximately $13.1 million and $18.1 million in unused borrowing capacity based on commercial and mortgage loans pledged to the Federal Reserve Bank totaling $15.7 million and $20.7 million at June 30, 2017 and December 31, 2016, respectively.

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EARNINGS PER COMMON SHARE

6 Months Ended

Jun. 30, 2017

EARNINGS PER COMMON SHARE [Abstract]

EARNINGS PER COMMON SHARE

NOTE 8 - EARNINGS PER COMMON SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2017 and 2016 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Net income available to common shares	$	4,762	$	3,745	$	9,223	$	7,240
Weighted average shares outstanding, including participating stock awards - Basic		33,942,318		33,922,506		33,941,668		33,923,810
Dilutive potential common shares:
Stock options		5,809		---		6,703		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,948,127		33,922,506		33,948,371		33,923,810
Basic earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21
Diluted earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21

Stock options for 100,896 shares of common stock for both the three and six month periods ended June 30, 2016, were not considered in computing diluted earnings per share because they were antidilutive. There were no antidilutive shares of common stock in the three and six month periods ended June 30, 2017.

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FEDERAL INCOME TAXES

6 Months Ended

Jun. 30, 2017

FEDERAL INCOME TAXES [Abstract]

FEDERAL INCOME TAXES

NOTE 9 - FEDERAL INCOME TAXES

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Current	$	(62	)	$	1,757		$	1,742	$	3,226
Deferred		2,191			(78	)		2,353		(147	)
	$	2,129		$	1,679		$	4,095	$	3,079

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	2,412		$	1,899		$	4,661		$	3,612
Deduct
Tax-exempt interest income		(186	)		(149	)		(369	)		(297	)
Bank-owned life insurance		(85	)		(56	)		(168	)		(211	)
Other, net		(12	)		(15	)		(29	)		(25	)
	$	2,129		$	1,679		$	4,095		$	3,079

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.  No valuation allowance was necessary at June 30, 2017 or December 31, 2016.

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

	June 30, 2017			December 31, 2016
Deferred tax assets
Allowance for loan losses	$	5,800		$	5,937
Nonaccrual loan interest		620			718
Valuation allowance on other real estate owned		1,505			3,714
Unrealized loss on securities available for sale		158			799
Other		255			176
Gross deferred tax assets		8,338			11,344
Valuation allowance		---			---
Total net deferred tax assets		8,338			11,344
Deferred tax liabilities
Depreciation		(1,669	)		(1,705	)
Prepaid expenses		(399	)		(399	)
Unrealized gain on securities available for sale		---			---
Other		(401	)		(377	)
Gross deferred tax liabilities		(2,469	)		(2,481	)
Net deferred tax asset	$	5,869		$	8,863

There were no unrecognized tax benefits at June 30, 2017 or December 31, 2016 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 2013.

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COMMITMENTS AND OFF BALANCE-SHEET RISK

6 Months Ended

Jun. 30, 2017

COMMITMENTS AND OFF BALANCE-SHEET RISK [Abstract]

COMMITMENTS AND OFF BALANCE-SHEET RISK

NOTE 10 – COMMITMENTS AND OFF BALANCE-SHEET RISK

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

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

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

	June 30, 2017		December 31, 2016
Commitments to make loans	$	129,918	$	90,293
Letters of credit		12,450		13,823
Unused lines of credit		465,621		437,435

The notional amount of commitments to fund mortgage loans to be sold into the secondary market was approximately $10.6 million and $19.8 million at June 30, 2017 and December 31, 2016, respectively.

At June 30, 2017, approximately 36.3% of the Bank’s commitments to make loans were at fixed rates, offered at current market rates.  The remainder of the commitments to make loans were at variable rates tied to prime or one month LIBOR and generally expire within 30 days.  The majority of the unused lines of credit were at variable rates tied to prime.

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CONTINGENCIES

6 Months Ended

Jun. 30, 2017

CONTINGENCIES [Abstract]

CONTINGENCIES

NOTE 11 – CONTINGENCIES

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business. As of June 30, 2017, there were no material pending legal proceedings to which the Company or any of its subsidiaries are a party or which any of its properties are the subject.

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SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2017

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 12 – SHAREHOLDERS' EQUITY

Regulatory Capital

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

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

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

At June 30, 2017 and December 31, 2016, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Capital Adequacy					Minimum Capital Adequacy With Capital Buffer					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2017
CET1 capital (to risk weighted assets)
Consolidated	$	170,426		11.6	%	$	66,101		4.5	%	$	84,463		5.8	%		N/A		N/A
Bank		204,469		13.9			66,228		4.5			84,626		5.8		$	95,664		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		210,426		14.3			88,135		6.0			106,497		7.3			N/A		N/A
Bank		204,469		13.9			88,304		6.0			106,702		7.3			117,740		8.0
Total capital (to risk weighted assets)
Consolidated		226,996		15.5			117,153		8.0			135,876		9.3			N/A		N/A
Bank		221,039		15.0			117,739		8.0			136,137		9.3			147,175		10.0
Tier 1 capital (to average assets)
Consolidated		210,426		12.2			68,961		4.0			N/A		N/A			N/A		N/A
Bank		204,469		11.9			68,898		4.0			N/A		N/A			86,122		5.0
December 31, 2016
CET1 capital (to risk weighted assets)
Consolidated	$	163,663		11.0	%	$	66,743		4.5	%	$	76,013		5.1	%		N/A		N/A
Bank		197,972		13.4			66,737		4.5			76,006		5.1		$	96,398		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		203,663		13.7			88,991		6.0			98,261		6.6			N/A		N/A
Bank		197,972		13.4			88,983		6.0			98,252		6.6			118,644		8.0
Total capital (to risk weighted assets)
Consolidated		220,625		14.9			118,655		8.0			127,925		8.6			N/A		N/A
Bank		214,934		14.5			118,644		8.0			127,913		8.6			148,305		10.0
Tier 1 capital (to average assets)
Consolidated		203,663		12.0			67,810		4.0			N/A		N/A			N/A		N/A
Bank		197,972		11.7			67,742		4.0			N/A		N/A			84,677		5.0

Approximately $40.0 million of trust preferred securities outstanding at June 30, 2017 and December 31, 2016, respectively, qualified as Tier 1 capital. Refer to our 2016 Form 10-K for more information on the trust preferred securities.

The Bank was categorized as "well capitalized" at June 30, 2017 and December 31, 2016.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation

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

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

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

Basis of Presentation

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

Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Use of Estimates

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

Allowance for Loan Losses

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

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At June 30, 2017, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.

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

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

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

Foreclosed Assets

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

Income Taxes

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

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

Derivatives

Derivatives:  Certain of our commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, both of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2017 and December 31, 2016, the total notional amount of such agreements was $43.1 million and $48.1 million and resulted in a derivative asset with a fair value of $395,000 and $494,000, respectively, which were included in other assets and a derivative liability of $395,000 and $494,000, respectively, which were included in other liabilities.

Reclassifications

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

Adoption of New Accounting Standards

Adoption of New Accounting Standards:  The Financial Accounting Standards Board “FASB” issued Accounting Standards Update (“ASU”) ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.  This ASU simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the following: Accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes.  The amendments are effective for annual periods beginning after December 15, 2016, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company was not material as no stock awards vested or were exercised in the six months ended June 30, 2017, but could cause some volatility in income tax expense in future periods where stock awards vest.

FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities.  This ASU changes generally accepted accounting principles (“GAAP”) to require premiums on purchased callable debt securities to be amortized to the earliest call date.  Previous GAAP allowed entities to amortize to contractual maturity or to call date.  The amendments in this ASU are effective for annual periods beginning after December 15, 2018, with early adoption permitted.  As the Company has consistently amortized premiums on its purchased callable debt securities, the Company has elected to early adopt this ASU effective January 1, 2017.  There was no impact of adoption of this ASU by the Company.

Newly Issued Not Yet Effective Standards

Newly Issued Not Yet Effective Standards:  FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update create a new topic in the Codification, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue.  In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.   The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.  This ASU may require us to change how we recognize certain recurring revenue streams within trust and investment management fees, however, we do not expect these changes to have a significant effect on our financial statements.

FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  As the Company owns most of its branch locations, this ASU will apply primarily to operating leases and the impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance eliminates the probable initial recognition threshold and, instead, reflects an entity’s current estimate of all expected credit losses. The new guidance broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will now have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those years.  The Company is currently evaluating the impact of this new ASU on its consolidated financial statements.

FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force).  This ASU addresses concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.  The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods.  The impact of adoption of this ASU by the Company is not expected to be material.

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SECURITIES (Tables)

6 Months Ended

Jun. 30, 2017

SECURITIES [Abstract]

Amortized Cost and Fair Value of Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2017
Available for Sale:
U.S. Treasury and federal agency securities	$	85,385	$	47	$	(694	)	$	84,738
U.S. Agency MBS and CMOs		11,941		15		(113	)		11,843
Tax-exempt state and municipal bonds		39,097		696		(134	)		39,659
Taxable state and municipal bonds		35,306		78		(316	)		35,068
Corporate bonds and other debt securities		11,983		16		(25	)		11,974
Other equity securities		1,500		---		(21	)		1,479
	$	185,212	$	852	$	(1,303	)	$	184,761
Held to Maturity
Tax-exempt state and municipal bonds	$	68,818	$	1,003	$	(5	)	$	69,816

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2016
Available for Sale:
U.S. Treasury and federal agency securities	$	85,582	$	49	$	(1,281	)	$	84,350
U. S. Agency MBS and CMOs		12,037		11		(231	)		11,817
Tax-exempt state and municipal bonds		39,578		212		(603	)		39,187
Taxable state and municipal bonds		34,255		65		(437	)		33,883
Corporate bonds and other debt securities		13,765		16		(55	)		13,726
Other equity securities		1,500		---		(30	)		1,470
	$	186,717	$	353	$	(2,637	)	$	184,433
Held to Maturity:
Tax-exempt state and municipal bonds	$	69,378	$	573	$	(102	)	$	69,849

Contractual Maturities of Debt Securities

Contractual maturities of debt securities at June 30, 2017 were as follows (dollars in thousands):

	Held–to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	23,770	$	23,820	$	19,067	$	19,062
Due from one to five years		13,837		14,310		100,966		100,532
Due from five to ten years		10,342		10,659		49,141		49,266
Due after ten years		20,869		21,027		14,538		14,422
	$	68,818	$	69,816	$	183,712	$	183,282

Securities in Continuous Unrealized Loss Position

Securities with unrealized losses at June 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
June 30, 2017	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	60,556	$	(684	)	$	3,025	$	(9	)	$	63,581	$	(693	)
U.S. Agency MBS and CMOs		10,874		(113	)		---		---			10,874		(113	)
Tax-exempt state and municipal bonds		8,560		(134	)		385		(5	)		8,945		(139	)
Taxable state and municipal bonds		20,420		(308	)		237		(9	)		20,657		(317	)
Corporate bonds and other debt securities		4,264		(21	)		1,000		(4	)		5,264		(25	)
Other equity securities		1,479		(21	)		---		---			1,479		(21	)
Total temporarily impaired	$	106,153	$	(1,281	)	$	4,647	$	(27	)	$	110,800	$	(1,308	)

	Less than 12 Months					12 Months or More					Total
December 31, 2016	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and federal agency securities	$	59,129	$	(1,271	)	$	3,053	$	(10	)	$	62,182	$	(1,281	)
U.S. Agency MBS and CMOs		10,702		(231	)		---		---			10,702		(231	)
Tax-exempt state and municipal bonds		49,508		(698	)		1,672		(7	)		51,180		(705	)
Taxable state and municipal bonds		22,633		(437	)		---		---			22,633		(437	)
Corporate bonds and other debt securities		5,745		(50	)		500		(5	)		6,245		(55	)
Other equity securities		1,470		(30	)		---		---			1,470		(30	)
Total temporarily impaired	$	149,187	$	(2,717	)	$	5,225	$	(22	)	$	154,412	$	(2,739	)

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LOANS (Tables)

6 Months Ended

Jun. 30, 2017

LOANS [Abstract]

Portfolio Loans

Portfolio loans were as follows (dollars in thousands):

	June 30, 2017			December 31, 2016
Commercial and industrial	$	435,218		$	449,342
Commercial real estate:
Residential developed		8,701			11,970
Unsecured to residential developers		4,734			4,734
Vacant and unimproved		38,357			40,286
Commercial development		492			378
Residential improved		77,047			75,348
Commercial improved		282,884			289,478
Manufacturing and industrial		102,325			95,787
Total commercial real estate		514,540			517,981
Consumer
Residential mortgage		212,745			217,614
Unsecured		280			396
Home equity		81,779			88,113
Other secured		6,793			7,366
Total consumer		301,597			313,489
Total loans		1,251,355			1,280,812
Allowance for loan losses		(16,570	)		(16,962	)
	$	1,234,785		$	1,263,850

Activity in Allowance for Loan Losses by Portfolio Segment

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

Three months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,469		$	6,598		$	3,591		$	38		$	16,696
Charge-offs		(108	)		---			(31	)		---			(139	)
Recoveries		41			456			16			---			513
Provision for loan losses		(66	)		(471	)		45			(8	)		(500	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Three months ended June 30, 2016	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,945		$	8,449		$	3,699		$	36	$	17,129
Charge-offs		---			---			(36	)		---		(36	)
Recoveries		23			557			36			---		616
Provision for loan losses		(8	)		(941	)		195			4		(750	)
Ending Balance	$	4,960		$	8,065		$	3,894		$	40	$	16,959

Six months ended June 30, 2017	Commercial and Industrial			Commercial Real Estate			Consumer			Unallocated			Total
Beginning balance	$	6,345		$	6,703		$	3,871		$	43		$	16,962
Charge-offs		(108	)		---			(57	)		---			(165	)
Recoveries		64			618			91			---			773
Provision for loan losses		35			(738	)		(284	)		(13	)		(1,000	)
Ending Balance	$	6,336		$	6,583		$	3,621		$	30		$	16,570

Six months ended June 30, 2016	Commercial and Industrial		Commercial Real Estate			Consumer			Unallocated		Total
Beginning balance	$	4,826	$	8,457		$	3,761		$	37	$	17,081
Charge-offs		---		---			(112	)		---		(112	)
Recoveries		72		678			90			---		840
Provision for loan losses		62		(1,070	)		155			3		(850	)
Ending Balance	$	4,960	$	8,065		$	3,894		$	40	$	16,959

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment Based on Impairment Method

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

June 30, 2017	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	686	$	274	$	566	$	---	$	1,526
Collectively evaluated for impairment		5,650		6,309		3,055		30		15,044
Total ending allowance balance	$	6,336	$	6,583	$	3,621	$	30	$	16,570
Loans:
Individually reviewed for impairment	$	4,343	$	9,896	$	9,179	$	---	$	23,418
Collectively evaluated for impairment		430,875		504,644		292,418		---		1,227,937
Total ending loans balance	$	435,218	$	514,540	$	301,597	$	---	$	1,251,355

December 31, 2016	Commercial and Industrial		Commercial Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance attributable to loans:
Individually reviewed for impairment	$	605	$	368	$	723	$	---	$	1,696
Collectively evaluated for impairment		5,740		6,335		3,148		43		15,266
Total ending allowance balance	$	6,345	$	6,703	$	3,871	$	43	$	16,962
Loans:
Individually reviewed for impairment	$	5,994	$	11,934	$	11,726	$	---	$	29,654
Collectively evaluated for impairment		443,348		506,047		301,763		---		1,251,158
Total ending loans balance	$	449,342	$	517,981	$	313,489	$	---	$	1,280,812

Loans Individually Evaluated for Impairment by Class of Loans

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2017 (dollars in thousands):

June 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	1,024	$	1,024	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		5		5		---
Commercial improved		1,018		1,018		---
Manufacturing and industrial		---		---		---
		1,023		1,023		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,047	$	2,047	$	---
With an allowance recorded:
Commercial and industrial	$	3,319	$	3,319	$	686
Commercial real estate:
Residential developed		183		183		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		396		396		10
Commercial development		189		189		6
Residential improved		2,418		2,418		122
Commercial improved		5,499		5,499		129
Manufacturing and industrial		188		188		3
		8,873		8,873		274
Consumer:
Residential mortgage		7,364		7,364		454
Unsecured		---		---		---
Home equity		1,815		1,815		112
Other secured		---		---		---
		9,179		9,179		566
Total with an allowance recorded	$	21,371	$	21,371	$	1,526
Total	$	23,418	$	23,418	$	1,526

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016 (dollars in thousands):

December 31, 2016	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial and industrial	$	2,298	$	2,298	$	---
Commercial real estate:
Residential developed		---		---		---
Unsecured to residential developers		---		---		---
Vacant and unimproved		---		---		---
Commercial development		---		---		---
Residential improved		27		27		---
Commercial improved		350		350		---
Manufacturing and industrial		---		---		---
		377		377		---
Consumer:
Residential mortgage		---		---		---
Unsecured		---		---		---
Home equity		---		---		---
Other secured		---		---		---
		---		---		---
Total with no related allowance recorded	$	2,675	$	2,675	$	---
With an allowance recorded:
Commercial and industrial	$	3,696	$	3,696	$	605
Commercial real estate:
Residential developed		187		187		4
Unsecured to residential developers		---		---		---
Vacant and unimproved		387		387		9
Commercial development		189		189		6
Residential improved		4,687		4,687		216
Commercial improved		5,879		5,879		128
Manufacturing and industrial		228		228		5
		11,557		11,557		368
Consumer:
Residential mortgage		7,523		7,523		464
Unsecured		---		---		---
Home equity		4,203		4,203		259
Other secured		---		---		---
		11,726		11,726		723
Total with an allowance recorded	$	26,979	$	26,979	$	1,696
Total	$	29,654	$	29,654	$	1,696

Average Balances of Impaired Loans and Interest Recognized on Impaired Loans

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three and six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Average of impaired loans during the period:
Commercial and industrial	$	5,342	$	6,110	$	6,093	$	7,187
Commercial real estate:
Residential developed		183		---		184		---
Unsecured to residential developers		---		---		---		---
Vacant and unimproved		262		436		320		441
Commercial development		189		192		189		192
Residential improved		2,665		5,488		3,376		5,516
Commercial improved		5,995		6,817		6,077		8,177
Manufacturing and industrial		327		237		276		238
Consumer		10,812		12,842		11,153		12,991
Interest income recognized during impairment:
Commercial and industrial		239		239		517		537
Commercial real estate		125		143		252		344
Consumer		118		116		226		238
Cash-basis interest income recognized
Commercial and industrial		266		262		531		551
Commercial real estate		126		144		249		344
Consumer		120		113		227		235

Recorded Investment in Nonaccrual and Loans Past Due Over 90 Days Still on Accrual by Class of Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2017 and December 31, 2016:

June 30, 2017	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	6	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		221		---
Commercial improved		166		---
Manufacturing and industrial		---		---
		436		---
Consumer:
Residential mortgage		2		204
Unsecured		10		---
Home equity		---		---
Other secured		12		---
		24		204
Total	$	466	$	204

December 31, 2016	Nonaccrual		Over 90 days Accruing
Commercial and industrial	$	36	$	---
Commercial real estate:
Residential developed		---		---
Unsecured to residential developers		---		---
Vacant and unimproved		---		---
Commercial development		49		---
Residential improved		6		---
Commercial improved		128		---
Manufacturing and industrial		---		---
		183		---
Consumer:
Residential mortgage		58		---
Unsecured		16		---
Home equity		7		---
Other secured		---		---
		81		---
Total	$	300	$	---

Aging of Recorded Investment in Past Due Loans by Class of Loans

The following table presents the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016 by class of loans (dollars in thousands):

June 30, 2017	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	---	$	---	$	---	$	435,218	$	435,218
Commercial real estate:
Residential developed		---		---		---		8,701		8,701
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		38,357		38,357
Commercial development		189		49		238		254		492
Residential improved		142		79		221		76,826		77,047
Commercial improved		29		---		29		282,855		282,884
Manufacturing and industrial		---		---		---		102,325		102,325
		360		128		488		514,052		514,540
Consumer:
Residential mortgage		75		204		279		212,466		212,745
Unsecured		11		---		11		269		280
Home equity		19		12		31		81,748		81,779
Other secured		6		---		6		6,787		6,793
		111		216		327		301,270		301,597
Total	$	471	$	344	$	815	$	1,250,540	$	1,251,355

December 31, 2016	30-90 Days		Greater Than 90 Days		Total Past Due		Loans Not Past Due		Total
Commercial and industrial	$	425	$	28	$	453	$	448,889	$	449,342
Commercial real estate:
Residential developed		---		---		---		11,970		11,970
Unsecured to residential developers		---		---		---		4,734		4,734
Vacant and unimproved		---		---		---		40,286		40,286
Commercial development		---		49		49		329		378
Residential improved		74		5		79		75,269		75,348
Commercial improved		478		---		478		289,000		289,478
Manufacturing and industrial		---		---		---		95,787		95,787
		552		54		606		517,375		517,981
Consumer:
Residential mortgage		64		56		120		217,494		217,614
Unsecured		---		---		---		396		396
Home equity		187		---		187		87,926		88,113
Other secured		81		---		81		7,285		7,366
		332		56		388		313,101		313,489
Total	$	1,309	$	138	$	1,447	$	1,279,365	$	1,280,812

Troubled Debt Restructurings

The following table presents information regarding troubled debt restructurings as of June 30, 2017 and December 31, 2016 (dollars in thousands):

	June 30, 2017				December 31, 2016
	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		21	$	4,343		25	$	5,994
Commercial real estate		40		9,896		49		11,933
Consumer		107		9,179		116		12,059
		168	$	23,418		190	$	29,986

The following table presents information related to accruing troubled debt restructurings as of June 30, 2017 and December 31, 2016.  The table presents the amount of accruing troubled debt restructurings that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of each period reported (dollars in thousands):

	June 30, 2017		December 31, 2016
Accruing TDR - nonaccrual at restructuring	$	---	$	---
Accruing TDR - accruing at restructuring		20,311		25,665
Accruing TDR - upgraded to accruing after six consecutive payments		2,787		4,172
	$	23,098	$	29,837

The following tables present information regarding troubled debt restructurings executed during the three month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Three Months Ended June 30, 2017						Three Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		2		39		---
		3		1,192	$	---		2	$	39	$	---

The following tables present information regarding troubled debt restructurings executed during the six month periods ended June 30, 2017 and 2016 (dollars in thousands):

	Six Months Ended June 30, 2017						Six Months Ended June 30, 2016
	# of Loans		Pre-TDR Balance		Writedown Upon TDR		# of Loans		Pre-TDR Balance		Writedown Upon TDR
Commercial and industrial		---	$	---	$	---		---	$	---	$	---
Commercial real estate		1		1,018		---		---		---		---
Consumer		2		174		---		6		277		---
		3		1,192	$	---		6	$	277	$	---

Risk Grade Category of Loans by Class of Loans

As of June 30, 2017 and December 31, 2016, the risk grade category of commercial loans by class of loans were as follows (dollars in thousands):

June 30, 2017		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	17,376	$	118,507	$	284,659	$	11,321	$	3,349	$	6	$	---	$	435,218
Commercial real estate:
Residential developed		---		---		1,252		6,614		835		---		---		---		8,701
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		15,826		19,012		3,519		---		---		---		38,357
Commercial development		---		---		116		138		---		189		49		---		492
Residential improved		---		---		6,180		67,695		1,628		1,323		221		---		77,047
Commercial improved		---		1,392		62,819		210,873		5,916		1,718		166		---		282,884
Manufacturing & industrial		---		1,386		44,673		53,468		2,249		549		---		---		102,325
	$	---	$	20,154	$	249,373	$	647,193	$	25,468	$	7,128	$	442	$	---	$	949,758

December 31, 2016		1		2		3		4		5		6		7		8	Total
Commercial and industrial	$	---	$	27,619	$	118,243	$	282,527	$	14,610	$	6,307	$	36	$	---	$	449,342
Commercial real estate:
Residential developed		---		---		2,328		8,786		856		---		---		---		11,970
Unsecured to residential developers		---		---		---		4,734		---		---		---		---		4,734
Vacant and unimproved		---		---		17,672		19,028		3,586		---		---		---		40,286
Commercial development		---		---		---		140		---		189		49		---		378
Residential improved		---		---		7,100		63,957		2,628		1,657		6		---		75,348
Commercial improved		---		2,433		66,259		210,449		9,084		1,125		128		---		289,478
Manufacturing & industrial		---		1,665		38,719		51,718		3,076		609		---		---		95,787
	$	---	$	31,717	$	250,321	$	641,339	$	33,840	$	9,887	$	219	$	---	$	967,323

Commercial Loans Classified as Substandard or Worse

Commercial loans classified as substandard or worse were as follows at period-end (dollars in thousands):

	June 30, 2017		December 31, 2016
Not classified as impaired	$	1,593	$	2,608
Classified as impaired		5,977		7,498
Total commercial loans classified substandard or worse	$	7,570	$	10,106

Recorded Investment in Consumer Loans Based on Payment Activity

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

June 30, 2017	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	212,541	$	280	$	81,767	$	6,793
Nonperforming		204		---		12		---
Total	$	212,745	$	280	$	81,779	$	6,793

December 31, 2016	Residential Mortgage		Consumer Unsecured		Home Equity		Consumer Other
Performing	$	217,558	$	396	$	88,113	$	7,366
Nonperforming		56		---		---		---
Total	$	217,614	$	396	$	88,113	$	7,366

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OTHER REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2017

OTHER REAL ESTATE OWNED [Abstract]

Period-End Other Real Estate Owned

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

	Six Months Ended June 30, 2017			Year Ended December 31, 2016			Six Months Ended June 30, 2016
Beginning balance	$	22,864		$	28,377		$	28,377
Additions, transfers from loans		60			339			102
Proceeds from sales of other real estate owned		(5,601	)		(5,339	)		(3,313	)
Valuation allowance reversal upon sale		(6,395	)		(1,158	)		(334	)
Gain on sales of other real estate owned		470			645			260
		11,398			22,864			25,092
Less: valuation allowance		(4,301	)		(10,611	)		(11,026	)
Ending balance	$	7,097		$	12,253		$	14,066

Activity in Valuation Allowance

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

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Beginning balance	$	10,611		$	10,805
Additions charged to expense		85			555
Reversals upon sale		(6,395	)		(334	)
Ending balance	$	4,301		$	11,026

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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2017

FAIR VALUE [Abstract]

Assets Measured at Fair Value on Recurring Basis

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

	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
U.S. Treasury and federal agency securities	$	84,738		$	---	$	84,738	$	---
U.S. Agency MBS and CMOs		11,843			---		11,843		---
Tax-exempt state and municipal bonds		39,659			---		39,659		---
Taxable state and municipal bonds		35,068			---		35,068		---
Corporate bonds and other debt securities		11,974			---		11,974		---
Other equity securities		1,479			---		1,479		---
Loans held for sale		3,184			---		3,184		---
Interest rate swaps		395			---		---		395
Interest rate swaps		(395	)		---		---		(395	)
December 31, 2016
U.S. Treasury and federal agency securities	$	84,350		$	---	$	84,350	$	---
U.S. Agency MBS and CMOs		11,817			---		11,817		---
Tax-exempt state and municipal bonds		39,187			---		39,187		---
Taxable state and municipal bonds		33,883			---		33,883		---
Corporate bonds and other debt securities		13,726			---		13,726		---
Other equity securities		1,470			---		1,470		---
Loans held for sale		2,181			---		2,181		---
Interest rate swaps		494			---		---		494
Interest rate swaps		(494	)		---		---		(494	)

Assets Measured at Fair Value on Non-Recurring Basis

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

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
Impaired loans	$	3,052	$	---	$	---	$	3,052
Other real estate owned		4,811		---		---		4,811
December 31, 2016
Impaired loans	$	3,436	$	---	$	---	$	3,436
Other real estate owned		9,542		---		---		9,542

Quantitative Information about Level 3 Fair Value Measurements Measured on Non-Recurring Basis

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

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
June 30, 2017
Impaired Loans	$	3,052	Sales comparison approach	Adjustment for differences between comparable sales	5.0 to 15.0
			Income approach	Capitalization rate	9.5 to 11.0
Other real estate owned		4,811	Sales comparison approach	Adjustment for differences between comparable sales	3.0 to 23.0
			Income approach	Capitalization rate	9.5 to 11.0

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Range (%)
December 31, 2016
Impaired Loans	$	3,436	Sales comparison approach	Adjustment for differences between comparable sales	1.0 to 35.0
			Income approach	Capitalization rate	9.5 to 11.5
Other real estate owned		9,542	Sales comparison approach	Adjustment for differences between comparable sales	2.0 to 32.5
			Income approach	Capitalization rate	9.5 to 11.5

Carrying Amounts and Estimated Fair Values of Financial Instruments, Not Previously Presented

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at June 30, 2017 and December 31, 2016 (dollars in thousands):

	Level in	June 30, 2017						December 31, 2016
	Fair Value Hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	Level 1	$	31,165		$	31,165		$	27,690		$	27,690
Cash equivalents	Level 2		114,104			114,104			62,129			62,129
Securities held to maturity	Level 3		68,818			69,816			69,378			69,849
FHLB stock			11,558		NA				11,558		NA
Loans, net	Level 2		1,237,837			1,234,678			1,260,414			1,247,842
Bank owned life insurance	Level 3		39,781			39,781			39,274			39,274
Accrued interest receivable	Level 2		4,084			4,084			4,092			4,092
Financial liabilities
Deposits	Level 2		(1,459,990	)		(1,459,895	)		(1,448,724	)		(1,448,692	)
Other borrowed funds	Level 2		(82,785	)		(82,623	)		(84,173	)		(84,051	)
Long-term debt	Level 2		(41,238	)		(36,440	)		(41,238	)		(36,112	)
Accrued interest payable	Level 2		(283	)		(283	)		(282	)		(282	)
Off-balance sheet credit-related items
Loan commitments			---			---			---			---

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DEPOSITS (Tables)

6 Months Ended

Jun. 30, 2017

DEPOSITS [Abstract]

Summary of Deposits

Deposits are summarized as follows (in thousands):

	June 30, 2017		December 31, 2016
Noninterest-bearing demand	$	481,769	$	501,478
Interest bearing demand		342,551		340,715
Savings and money market accounts		557,922		532,853
Certificates of deposit		77,748		73,678
	$	1,459,990	$	1,448,724

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OTHER BORROWED FUNDS (Tables)

6 Months Ended

Jun. 30, 2017

OTHER BORROWED FUNDS [Abstract]

Advances from Federal Home Loan Bank

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

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
June 30, 2017
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		2,785	March 2018 to July 2018		3.75	%
	$	82,785

Principal Terms	Advance Amount		Range of Maturities	Weighted Average Interest Rate
December 31, 2016
Single maturity fixed rate advances	$	80,000	February 2018 to April 2021		1.60	%
Amortizable mortgage advances		4,173	March 2018 to July 2018		3.78	%
	$	84,173

Scheduled Repayments of FHLB Advances

Scheduled repayments of FHLB advances as of June 30, 2017 were as follows (in thousands):

2017	$	667
2018		52,118
2019		10,000
2020		10,000
2021		10,000
Thereafter		---
	$	82,785

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EARNINGS PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2017

EARNINGS PER COMMON SHARE [Abstract]

Reconciliation of Numerators and Denominators of Basic and Diluted Earnings per Common Share

A reconciliation of the numerators and denominators of basic and diluted earnings per common share for the three and six month periods ended June 30, 2017 and 2016 are as follows (dollars in thousands, except per share data):

	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Net income available to common shares	$	4,762	$	3,745	$	9,223	$	7,240
Weighted average shares outstanding, including participating stock awards - Basic		33,942,318		33,922,506		33,941,668		33,923,810
Dilutive potential common shares:
Stock options		5,809		---		6,703		---
Stock warrants		---		---		---		---
Weighted average shares outstanding - Diluted		33,948,127		33,922,506		33,948,371		33,923,810
Basic earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21
Diluted earnings per common share	$	0.14	$	0.11	$	0.27	$	0.21

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FEDERAL INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2017

FEDERAL INCOME TAXES [Abstract]

Income Tax Expense

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Current	$	(62	)	$	1,757		$	1,742	$	3,226
Deferred		2,191			(78	)		2,353		(147	)
	$	2,129		$	1,679		$	4,095	$	3,079

Difference between Financial Statement Tax Expense and Amount Computed by Applying Statutory Federal Tax Rate to Pretax Income

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

	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Statutory rate		35	%		35	%		35	%		35	%
Statutory rate applied to income before taxes	$	2,412		$	1,899		$	4,661		$	3,612
Deduct
Tax-exempt interest income		(186	)		(149	)		(369	)		(297	)
Bank-owned life insurance		(85	)		(56	)		(168	)		(211	)
Other, net		(12	)		(15	)		(29	)		(25	)
	$	2,129		$	1,679		$	4,095		$	3,079

Deferred Tax Assets and Liabilities

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

	June 30, 2017			December 31, 2016
Deferred tax assets
Allowance for loan losses	$	5,800		$	5,937
Nonaccrual loan interest		620			718
Valuation allowance on other real estate owned		1,505			3,714
Unrealized loss on securities available for sale		158			799
Other		255			176
Gross deferred tax assets		8,338			11,344
Valuation allowance		---			---
Total net deferred tax assets		8,338			11,344
Deferred tax liabilities
Depreciation		(1,669	)		(1,705	)
Prepaid expenses		(399	)		(399	)
Unrealized gain on securities available for sale		---			---
Other		(401	)		(377	)
Gross deferred tax liabilities		(2,469	)		(2,481	)
Net deferred tax asset	$	5,869		$	8,863

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COMMITMENTS AND OFF BALANCE-SHEET RISK (Tables)

6 Months Ended

Jun. 30, 2017

COMMITMENTS AND OFF BALANCE-SHEET RISK [Abstract]

Summary of Contractual Amounts of Financial Instruments with Off-Balance-Sheet Risk

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

	June 30, 2017		December 31, 2016
Commitments to make loans	$	129,918	$	90,293
Letters of credit		12,450		13,823
Unused lines of credit		465,621		437,435

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SHAREHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2017

SHAREHOLDERS' EQUITY [Abstract]

Actual Capital Levels and Minimum Required Levels

At June 30, 2017 and December 31, 2016, actual capital levels and minimum required levels were (dollars in thousands):

	Actual					Minimum Capital Adequacy					Minimum Capital Adequacy With Capital Buffer					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2017
CET1 capital (to risk weighted assets)
Consolidated	$	170,426		11.6	%	$	66,101		4.5	%	$	84,463		5.8	%		N/A		N/A
Bank		204,469		13.9			66,228		4.5			84,626		5.8		$	95,664		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		210,426		14.3			88,135		6.0			106,497		7.3			N/A		N/A
Bank		204,469		13.9			88,304		6.0			106,702		7.3			117,740		8.0
Total capital (to risk weighted assets)
Consolidated		226,996		15.5			117,153		8.0			135,876		9.3			N/A		N/A
Bank		221,039		15.0			117,739		8.0			136,137		9.3			147,175		10.0
Tier 1 capital (to average assets)
Consolidated		210,426		12.2			68,961		4.0			N/A		N/A			N/A		N/A
Bank		204,469		11.9			68,898		4.0			N/A		N/A			86,122		5.0
December 31, 2016
CET1 capital (to risk weighted assets)
Consolidated	$	163,663		11.0	%	$	66,743		4.5	%	$	76,013		5.1	%		N/A		N/A
Bank		197,972		13.4			66,737		4.5			76,006		5.1		$	96,398		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		203,663		13.7			88,991		6.0			98,261		6.6			N/A		N/A
Bank		197,972		13.4			88,983		6.0			98,252		6.6			118,644		8.0
Total capital (to risk weighted assets)
Consolidated		220,625		14.9			118,655		8.0			127,925		8.6			N/A		N/A
Bank		214,934		14.5			118,644		8.0			127,913		8.6			148,305		10.0
Tier 1 capital (to average assets)
Consolidated		203,663		12.0			67,810		4.0			N/A		N/A			N/A		N/A
Bank		197,972		11.7			67,742		4.0			N/A		N/A			84,677		5.0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) Branch Grade InterestRateSwap shares	Dec. 31, 2016 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of full service branch offices | Branch	26
Residential Mortgage [Member]
Allowance for Loan Losses [Abstract]
Period of historical loss experience applied to loans for estimating allowance for general component of non-classified loans	12 months
Commercial [Member]
Allowance for Loan Losses [Abstract]
Period of historical loss experience applied to loans for estimating allowance for general component of non-classified loans	18 months
Threshold balance of loans evaluated for impairment	$ 500
Commercial [Member] | Minimum [Member]
Allowance for Loan Losses [Abstract]
Internal risk grading of loans evaluated for impairment | Grade	6
Commercial Real Estate [Member]
Allowance for Loan Losses [Abstract]
Threshold balance of loans evaluated for impairment	$ 500
Commercial Real Estate [Member] | Minimum [Member]
Allowance for Loan Losses [Abstract]
Internal risk grading of loans evaluated for impairment | Grade	6
Consumer [Member]
Allowance for Loan Losses [Abstract]
Period of historical loss experience applied to loans for estimating allowance for general component of non-classified loans	12 months
Swap [Member] | Interest Rate Swap [Member]
Derivatives [Abstract]
Number of derivative instruments held | InterestRateSwap	2
Notional amount of agreements	$ 43,100	$ 48,100
Derivative asset fair value	395	494
Derivative liability fair value	$ 395	$ 494
Accounting Standards Update 2016-09 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Stock awards vested (in shares) | shares	0
Stock awards exercised (in shares) | shares	0

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SECURITIES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Available for Sale [Abstract]
Amortized cost	$ 185,212		$ 185,212		$ 186,717
Gross unrealized gains	852		852		353
Gross unrealized losses	(1,303)		(1,303)		(2,637)
Fair value	184,761		184,761		184,433
Proceeds from sale of available-for-sale securities	2,400	$ 230	5,807	$ 9,648
Gain on sale of securities	0	10	3	99
Reclassification adjustment for securities gain recognized in earnings, net of tax	0	$ 7	2	$ 64
Held to Maturity [Abstract]
Amortized cost	68,818		68,818		69,378
Fair value	69,816		69,816		69,849
U.S. Treasury and Federal Agency Securities [Member]
Available for Sale [Abstract]
Amortized cost	85,385		85,385		85,582
Gross unrealized gains	47		47		49
Gross unrealized losses	(694)		(694)		(1,281)
Fair value	84,738		84,738		84,350
U.S. Agency MBS and CMOs [Member]
Available for Sale [Abstract]
Amortized cost	11,941		11,941		12,037
Gross unrealized gains	15		15		11
Gross unrealized losses	(113)		(113)		(231)
Fair value	11,843		11,843		11,817
Tax-Exempt State and Municipal Bonds [Member]
Available for Sale [Abstract]
Amortized cost	39,097		39,097		39,578
Gross unrealized gains	696		696		212
Gross unrealized losses	(134)		(134)		(603)
Fair value	39,659		39,659		39,187
Taxable State and Municipal Bonds [Member]
Available for Sale [Abstract]
Amortized cost	35,306		35,306		34,255
Gross unrealized gains	78		78		65
Gross unrealized losses	(316)		(316)		(437)
Fair value	35,068		35,068		33,883
Corporate Bonds and Other Debt Securities [Member]
Available for Sale [Abstract]
Amortized cost	11,983		11,983		13,765
Gross unrealized gains	16		16		16
Gross unrealized losses	(25)		(25)		(55)
Fair value	11,974		11,974		13,726
Other Equity Securities [Member]
Available for Sale [Abstract]
Amortized cost	1,500		1,500		1,500
Gross unrealized gains	0		0		0
Gross unrealized losses	(21)		(21)		(30)
Fair value	1,479		1,479		1,470
Tax-Exempt State and Municipal Bonds [Member]
Held to Maturity [Abstract]
Amortized cost	68,818		68,818		69,378
Gross unrealized gains	1,003		1,003		573
Gross unrealized losses	(5)		(5)		(102)
Fair value	$ 69,816		$ 69,816		$ 69,849

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SECURITIES, Contractual Maturities of Debt Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Held-to-Maturity Securities, Amortized Cost [Abstract]
Due in one year or less	$ 23,770
Due from one to five years	13,837
Due from five to ten years	10,342
Due after ten years	20,869
Amortized cost	68,818	$ 69,378
Held-to-Maturity Securities, Fair Value [Abstract]
Due in one year or less	23,820
Due from one to five years	14,310
Due from five to ten years	10,659
Due after ten years	21,027
Fair value	69,816	$ 69,849
Available-for-Sale Securities, Amortized Cost [Abstract]
Due in one year or less	19,067
Due from one to five years	100,966
Due from five to ten years	49,141
Due after ten years	14,538
Amortized cost	183,712
Available-for-Sale Securities, Fair Value [Abstract]
Due in one year or less	19,062
Due from one to five years	100,532
Due from five to ten years	49,266
Due after ten years	14,422
Fair value	$ 183,282

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SECURITIES, Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	$ 106,153	$ 149,187
12 months or more	4,647	5,225
Total	110,800	154,412
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(1,281)	(2,717)
12 months or more	(27)	(22)
Total	(1,308)	(2,739)
U.S. Treasury and Federal Agency Securities [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	60,556	59,129
12 months or more	3,025	3,053
Total	63,581	62,182
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(684)	(1,271)
12 months or more	(9)	(10)
Total	(693)	(1,281)
U.S. Agency MBS and CMOs [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	10,874	10,702
12 months or more	0	0
Total	10,874	10,702
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(113)	(231)
12 months or more	0	0
Total	(113)	(231)
Tax-Exempt State and Municipal Bonds [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	8,560	49,508
12 months or more	385	1,672
Total	8,945	51,180
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(134)	(698)
12 months or more	(5)	(7)
Total	(139)	(705)
Taxable State and Municipal Bonds [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	20,420	22,633
12 months or more	237	0
Total	20,657	22,633
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(308)	(437)
12 months or more	(9)	0
Total	(317)	(437)
Corporate Bonds and Other Debt Securities [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	4,264	5,745
12 months or more	1,000	500
Total	5,264	6,245
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(21)	(50)
12 months or more	(4)	(5)
Total	(25)	(55)
Other Equity Securities [Member]
Securities in continuous unrealized losses position, fair value [Abstract]
Less than 12 months	1,479	1,470
12 months or more	0	0
Total	1,479	1,470
Securities in continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	(21)	(30)
12 months or more	0	0
Total	$ (21)	$ (30)

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SECURITIES, Other-Than-Temporary-Impairment (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
SECURITIES [Abstract]
OTTI charges	$ 0.0	$ 0.0	$ 0.0	$ 0.0
Securities pledged as security for public deposits, letters of credit and for other purposes required or permitted by law	$ 2.0		$ 2.0		$ 2.0

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LOANS (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015
Portfolio loans [Abstract]
Total loans	$ 1,251,355		$ 1,280,812
Allowance for loan losses	(16,570)	$ (16,696)	(16,962)	$ (16,959)	$ (17,129)	$ (17,081)
Net loans	1,234,785		1,263,850
Commercial and Industrial [Member]
Portfolio loans [Abstract]
Total loans	435,218		449,342
Allowance for loan losses	(6,336)	(6,469)	(6,345)	(4,960)	(4,945)	(4,826)
Commercial Real Estate [Member]
Portfolio loans [Abstract]
Total loans	514,540		517,981
Allowance for loan losses	(6,583)	(6,598)	(6,703)	(8,065)	(8,449)	(8,457)
Commercial Real Estate [Member] | Residential Developed [Member]
Portfolio loans [Abstract]
Total loans	8,701		11,970
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Portfolio loans [Abstract]
Total loans	4,734		4,734
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Portfolio loans [Abstract]
Total loans	38,357		40,286
Commercial Real Estate [Member] | Commercial Development [Member]
Portfolio loans [Abstract]
Total loans	492		378
Commercial Real Estate [Member] | Residential Improved [Member]
Portfolio loans [Abstract]
Total loans	77,047		75,348
Commercial Real Estate [Member] | Commercial Improved [Member]
Portfolio loans [Abstract]
Total loans	282,884		289,478
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
Portfolio loans [Abstract]
Total loans	102,325		95,787
Consumer [Member]
Portfolio loans [Abstract]
Total loans	301,597		313,489
Allowance for loan losses	(3,621)	$ (3,591)	(3,871)	$ (3,894)	$ (3,699)	$ (3,761)
Consumer [Member] | Residential Mortgage [Member]
Portfolio loans [Abstract]
Total loans	212,745		217,614
Consumer [Member] | Unsecured [Member]
Portfolio loans [Abstract]
Total loans	280		396
Consumer [Member] | Home Equity [Member]
Portfolio loans [Abstract]
Total loans	81,779		88,113
Consumer [Member] | Other Secured [Member]
Portfolio loans [Abstract]
Total loans	$ 6,793		$ 7,366

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LOANS, Allowance for Loans Losses by Portfolio (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	$ 16,696	$ 17,129	$ 16,962	$ 17,081
Charge-offs	(139)	(36)	(165)	(112)
Recoveries	513	616	773	840
Provision for loan losses	(500)	(750)	(1,000)	(850)
Ending balance	16,570	16,959	16,570	16,959
Commercial and Industrial [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	6,469	4,945	6,345	4,826
Charge-offs	(108)	0	(108)	0
Recoveries	41	23	64	72
Provision for loan losses	(66)	(8)	35	62
Ending balance	6,336	4,960	6,336	4,960
Commercial Real Estate [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	6,598	8,449	6,703	8,457
Charge-offs	0	0	0	0
Recoveries	456	557	618	678
Provision for loan losses	(471)	(941)	(738)	(1,070)
Ending balance	6,583	8,065	6,583	8,065
Consumer [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	3,591	3,699	3,871	3,761
Charge-offs	(31)	(36)	(57)	(112)
Recoveries	16	36	91	90
Provision for loan losses	45	195	(284)	155
Ending balance	3,621	3,894	3,621	3,894
Unallocated [Member]
Allowance for loan losses by portfolio [Roll Forward]
Beginning balance	38	36	43	37
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	(8)	4	(13)	3
Ending balance	$ 30	$ 40	$ 30	$ 40

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LOANS, Allowance for Loans Losses and Recorded Investment in Loans by Portfolio Segment Based on Impairment Method (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	$ 1,526		$ 1,696
Collectively evaluated for impairment	15,044		15,266
Total ending allowance balance	16,570	$ 16,696	16,962	$ 16,959	$ 17,129	$ 17,081
Loans [Abstract]
Individually reviewed for impairment	23,418		29,654
Collectively evaluated for impairment	1,227,937		1,251,158
Total ending loans balance	1,251,355		1,280,812
Commercial and Industrial [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	686		605
Collectively evaluated for impairment	5,650		5,740
Total ending allowance balance	6,336	6,469	6,345	4,960	4,945	4,826
Loans [Abstract]
Individually reviewed for impairment	4,343		5,994
Collectively evaluated for impairment	430,875		443,348
Total ending loans balance	435,218		449,342
Commercial Real Estate [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	274		368
Collectively evaluated for impairment	6,309		6,335
Total ending allowance balance	6,583	6,598	6,703	8,065	8,449	8,457
Loans [Abstract]
Individually reviewed for impairment	9,896		11,934
Collectively evaluated for impairment	504,644		506,047
Total ending loans balance	514,540		517,981
Consumer [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	566		723
Collectively evaluated for impairment	3,055		3,148
Total ending allowance balance	3,621	3,591	3,871	3,894	3,699	3,761
Loans [Abstract]
Individually reviewed for impairment	9,179		11,726
Collectively evaluated for impairment	292,418		301,763
Total ending loans balance	301,597		313,489
Unallocated [Member]
Ending allowance attributable to loans [Abstract]
Individually reviewed for impairment	0		0
Collectively evaluated for impairment	30		43
Total ending allowance balance	30	$ 38	43	$ 40	$ 36	$ 37
Loans [Abstract]
Individually reviewed for impairment	0		0
Collectively evaluated for impairment	0		0
Total ending loans balance	$ 0		$ 0

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LOANS, Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
With no related allowance recorded [Abstract]
Unpaid principal balance	$ 2,047		$ 2,047		$ 2,675
Recorded investment	2,047		2,047		2,675
With related allowance recorded [Abstract]
Unpaid principal balance	21,371		21,371		26,979
Recorded investment	21,371		21,371		26,979
Allowance allocated	1,526		1,526		1,696
Total [Abstract]
Unpaid principal balance	23,418		23,418		29,654
Recorded investment	23,418		23,418		29,654
Allowance allocated	1,526		1,526		1,696
Commercial and Industrial [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	1,024		1,024		2,298
Recorded investment	1,024		1,024		2,298
With related allowance recorded [Abstract]
Unpaid principal balance	3,319		3,319		3,696
Recorded investment	3,319		3,319		3,696
Allowance allocated	686		686		605
Total [Abstract]
Allowance allocated	686		686		605
Impaired loans [Abstract]
Average of impaired loans	5,342	$ 6,110	6,093	$ 7,187
Interest income recognized during impairment	239	239	517	537
Cash-basis interest income recognized	266	262	531	551
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	1,023		1,023		377
Recorded investment	1,023		1,023		377
With related allowance recorded [Abstract]
Unpaid principal balance	8,873		8,873		11,557
Recorded investment	8,873		8,873		11,557
Allowance allocated	274		274		368
Total [Abstract]
Allowance allocated	274		274		368
Impaired loans [Abstract]
Interest income recognized during impairment	125	143	252	344
Cash-basis interest income recognized	126	144	249	344
Commercial Real Estate [Member] | Residential Developed [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	183		183		187
Recorded investment	183		183		187
Allowance allocated	4		4		4
Total [Abstract]
Allowance allocated	4		4		4
Impaired loans [Abstract]
Average of impaired loans	183	0	184	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
Allowance allocated	0		0		0
Total [Abstract]
Allowance allocated	0		0		0
Impaired loans [Abstract]
Average of impaired loans	0	0	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	396		396		387
Recorded investment	396		396		387
Allowance allocated	10		10		9
Total [Abstract]
Allowance allocated	10		10		9
Impaired loans [Abstract]
Average of impaired loans	262	436	320	441
Commercial Real Estate [Member] | Commercial Development [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	189		189		189
Recorded investment	189		189		189
Allowance allocated	6		6		6
Total [Abstract]
Allowance allocated	6		6		6
Impaired loans [Abstract]
Average of impaired loans	189	192	189	192
Commercial Real Estate [Member] | Residential Improved [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	5		5		27
Recorded investment	5		5		27
With related allowance recorded [Abstract]
Unpaid principal balance	2,418		2,418		4,687
Recorded investment	2,418		2,418		4,687
Allowance allocated	122		122		216
Total [Abstract]
Allowance allocated	122		122		216
Impaired loans [Abstract]
Average of impaired loans	2,665	5,488	3,376	5,516
Commercial Real Estate [Member] | Commercial Improved [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	1,018		1,018		350
Recorded investment	1,018		1,018		350
With related allowance recorded [Abstract]
Unpaid principal balance	5,499		5,499		5,879
Recorded investment	5,499		5,499		5,879
Allowance allocated	129		129		128
Total [Abstract]
Allowance allocated	129		129		128
Impaired loans [Abstract]
Average of impaired loans	5,995	6,817	6,077	8,177
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	188		188		228
Recorded investment	188		188		228
Allowance allocated	3		3		5
Total [Abstract]
Allowance allocated	3		3		5
Impaired loans [Abstract]
Average of impaired loans	327	237	276	238
Consumer [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	9,179		9,179		11,726
Recorded investment	9,179		9,179		11,726
Allowance allocated	566		566		723
Total [Abstract]
Allowance allocated	566		566		723
Impaired loans [Abstract]
Average of impaired loans	10,812	12,842	11,153	12,991
Interest income recognized during impairment	118	116	226	238
Cash-basis interest income recognized	120	$ 113	227	$ 235
Consumer [Member] | Residential Mortgage [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	7,364		7,364		7,523
Recorded investment	7,364		7,364		7,523
Allowance allocated	454		454		464
Total [Abstract]
Allowance allocated	454		454		464
Consumer [Member] | Unsecured [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
Allowance allocated	0		0		0
Total [Abstract]
Allowance allocated	0		0		0
Consumer [Member] | Home Equity [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	1,815		1,815		4,203
Recorded investment	1,815		1,815		4,203
Allowance allocated	112		112		259
Total [Abstract]
Allowance allocated	112		112		259
Consumer [Member] | Other Secured [Member]
With no related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
With related allowance recorded [Abstract]
Unpaid principal balance	0		0		0
Recorded investment	0		0		0
Allowance allocated	0		0		0
Total [Abstract]
Allowance allocated	$ 0		$ 0		$ 0

XML

LOANS, Past Due Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	$ 466	$ 300
Over 90 days Accruing	204	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	815	1,447
Loans Not Past Due	1,250,540	1,279,365
Total ending loans balance	1,251,355	1,280,812
30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	471	1,309
Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	344	138
Commercial and Industrial [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	6	36
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	453
Loans Not Past Due	435,218	448,889
Total ending loans balance	435,218	449,342
Commercial and Industrial [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	425
Commercial and Industrial [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	28
Commercial Real Estate [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	436	183
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	488	606
Loans Not Past Due	514,052	517,375
Total ending loans balance	514,540	517,981
Commercial Real Estate [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	360	552
Commercial Real Estate [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	128	54
Commercial Real Estate [Member] | Residential Developed [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0	0
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Loans Not Past Due	8,701	11,970
Total ending loans balance	8,701	11,970
Commercial Real Estate [Member] | Residential Developed [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Residential Developed [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0	0
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Loans Not Past Due	4,734	4,734
Total ending loans balance	4,734	4,734
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0	0
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Loans Not Past Due	38,357	40,286
Total ending loans balance	38,357	40,286
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Commercial Development [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	49	49
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	238	49
Loans Not Past Due	254	329
Total ending loans balance	492	378
Commercial Real Estate [Member] | Commercial Development [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	189	0
Commercial Real Estate [Member] | Commercial Development [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	49	49
Commercial Real Estate [Member] | Residential Improved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	221	6
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	221	79
Loans Not Past Due	76,826	75,269
Total ending loans balance	77,047	75,348
Commercial Real Estate [Member] | Residential Improved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	142	74
Commercial Real Estate [Member] | Residential Improved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	79	5
Commercial Real Estate [Member] | Commercial Improved [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	166	128
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	29	478
Loans Not Past Due	282,855	289,000
Total ending loans balance	282,884	289,478
Commercial Real Estate [Member] | Commercial Improved [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	29	478
Commercial Real Estate [Member] | Commercial Improved [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Manufacturing and Industrial [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0	0
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Loans Not Past Due	102,325	95,787
Total ending loans balance	102,325	95,787
Commercial Real Estate [Member] | Manufacturing and Industrial [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Commercial Real Estate [Member] | Manufacturing and Industrial [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Consumer [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	24	81
Over 90 days Accruing	204	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	327	388
Loans Not Past Due	301,270	313,101
Total ending loans balance	301,597	313,489
Consumer [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	111	332
Consumer [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	216	56
Consumer [Member] | Residential Mortgage [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	2	58
Over 90 days Accruing	204	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	279	120
Loans Not Past Due	212,466	217,494
Total ending loans balance	212,745	217,614
Consumer [Member] | Residential Mortgage [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	75	64
Consumer [Member] | Residential Mortgage [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	204	56
Consumer [Member] | Unsecured [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	10	16
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	11	0
Loans Not Past Due	269	396
Total ending loans balance	280	396
Consumer [Member] | Unsecured [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	11	0
Consumer [Member] | Unsecured [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	0	0
Consumer [Member] | Home Equity [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	0	7
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	31	187
Loans Not Past Due	81,748	87,926
Total ending loans balance	81,779	88,113
Consumer [Member] | Home Equity [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	19	187
Consumer [Member] | Home Equity [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	12	0
Consumer [Member] | Other Secured [Member]
Recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans [Abstract]
Nonaccrual	12	0
Over 90 days Accruing	0	0
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	6	81
Loans Not Past Due	6,787	7,285
Total ending loans balance	6,793	7,366
Consumer [Member] | Other Secured [Member] | 30-90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	6	81
Consumer [Member] | Other Secured [Member] | Greater Than 90 Days [Member]
Aging of recorded investment in past due loans by class of loans [Abstract]
Total Past Due	$ 0	$ 0

XML

LOANS, Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) Payment Loan	Jun. 30, 2016 USD ($) Loan	Jun. 30, 2017 USD ($) Payment Note Loan	Jun. 30, 2016 USD ($) Loan	Dec. 31, 2016 USD ($) Loan
LOANS [Abstract]
Specific reserves allocated to customers with modified term loans in troubled debt restructurings	$ 1,526		$ 1,526		$ 1,696
Number of consecutive payment before nonaccrual restructured loan is upgraded | Payment	6		6
Number of months of performance before a loan is removed from TDR			6 months
Troubled debt restructurings [Abstract]
Number of Loans | Loan	168		168		190
Outstanding Recorded Balance	$ 23,418		$ 23,418		$ 29,986
Accruing troubled debt restructurings [Abstract]
Accruing TDR - nonaccrual at restructuring	0		0		0
Accruing TDR - accruing at restructuring	20,311		20,311		25,665
Accruing TDR - upgraded to accruing after six consecutive payments	2,787		2,787		4,172
Total	$ 23,098		$ 23,098		$ 29,837
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	3	2	3	6
Pre-TDR balance	$ 1,192	$ 39	$ 1,192	$ 277
Writedown upon TDR	$ 0	$ 0	$ 0	$ 0
Commercial Loans [Member] | A-B Note Structure [Member]
Financing Receivable, Modifications [Line Items]
Number of notes into which original note is separated in modification | Note			2
Commercial and Industrial [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	21		21		25
Outstanding Recorded Balance	$ 4,343		$ 4,343		$ 5,994
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	0	0	0	0
Pre-TDR balance	$ 0	$ 0	$ 0	$ 0
Writedown upon TDR	$ 0	$ 0	$ 0	$ 0
Commercial Real Estate [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	40		40		49
Outstanding Recorded Balance	$ 9,896		$ 9,896		$ 11,933
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	1	0	1	0
Pre-TDR balance	$ 1,018	$ 0	$ 1,018	$ 0
Writedown upon TDR	$ 0	$ 0	$ 0	$ 0
Consumer [Member]
Troubled debt restructurings [Abstract]
Number of Loans | Loan	107		107		116
Outstanding Recorded Balance	$ 9,179		$ 9,179		$ 12,059
Troubled debt restructurings executed during current period [Abstract]
Number of Loans | Loan	2	2	2	6
Pre-TDR balance	$ 174	$ 39	$ 174	$ 277
Writedown upon TDR	$ 0	$ 0	$ 0	$ 0

XML

LOANS, Credit Quality Indicators (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) Grade	Dec. 31, 2016 USD ($)
Risk grade category of commercial loans by class of loans [Abstract]
Number point grading system used for loan quality | Grade	8
Total loans	$ 1,251,355	$ 1,280,812
Commercial Loans [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	$ 949,758	967,323
Internal risk grade category of loans considered substandard, doubtful or loss | Grade	6
Commercial Loans [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	$ 0	0
Commercial Loans [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	20,154	31,717
Commercial Loans [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	249,373	250,321
Commercial Loans [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	647,193	641,339
Commercial Loans [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	25,468	33,840
Commercial Loans [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	7,128	9,887
Commercial Loans [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	442	219
Commercial Loans [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial and Industrial [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	435,218	449,342
Commercial and Industrial [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial and Industrial [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	17,376	27,619
Commercial and Industrial [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	118,507	118,243
Commercial and Industrial [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	284,659	282,527
Commercial and Industrial [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	11,321	14,610
Commercial and Industrial [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	3,349	6,307
Commercial and Industrial [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	6	36
Commercial and Industrial [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	514,540	517,981
Commercial Real Estate [Member] | Residential Developed [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	8,701	11,970
Commercial Real Estate [Member] | Residential Developed [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Developed [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Developed [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,252	2,328
Commercial Real Estate [Member] | Residential Developed [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	6,614	8,786
Commercial Real Estate [Member] | Residential Developed [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	835	856
Commercial Real Estate [Member] | Residential Developed [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Developed [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Developed [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	4,734	4,734
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	4,734	4,734
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Unsecured to Residential Developers [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	38,357	40,286
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	15,826	17,672
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	19,012	19,028
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	3,519	3,586
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Vacant and Unimproved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Development [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	492	378
Commercial Real Estate [Member] | Commercial Development [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Development [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Development [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	116	0
Commercial Real Estate [Member] | Commercial Development [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	138	140
Commercial Real Estate [Member] | Commercial Development [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Development [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	189	189
Commercial Real Estate [Member] | Commercial Development [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	49	49
Commercial Real Estate [Member] | Commercial Development [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	77,047	75,348
Commercial Real Estate [Member] | Residential Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Residential Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	6,180	7,100
Commercial Real Estate [Member] | Residential Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	67,695	63,957
Commercial Real Estate [Member] | Residential Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,628	2,628
Commercial Real Estate [Member] | Residential Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,323	1,657
Commercial Real Estate [Member] | Residential Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	221	6
Commercial Real Estate [Member] | Residential Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Improved [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	282,884	289,478
Commercial Real Estate [Member] | Commercial Improved [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Commercial Improved [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,392	2,433
Commercial Real Estate [Member] | Commercial Improved [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	62,819	66,259
Commercial Real Estate [Member] | Commercial Improved [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	210,873	210,449
Commercial Real Estate [Member] | Commercial Improved [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	5,916	9,084
Commercial Real Estate [Member] | Commercial Improved [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,718	1,125
Commercial Real Estate [Member] | Commercial Improved [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	166	128
Commercial Real Estate [Member] | Commercial Improved [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	102,325	95,787
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Excellent [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Above Average [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	1,386	1,665
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Good Quality [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	44,673	38,719
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Acceptable Risk [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	53,468	51,718
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Marginally Acceptable [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	2,249	3,076
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Substandard [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	549	609
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Doubtful [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	0	0
Commercial Real Estate [Member] | Manufacturing & Industrial [Member] | Loss [Member]
Risk grade category of commercial loans by class of loans [Abstract]
Total loans	$ 0	$ 0

XML

LOANS, Commercial Loans Classified as Substandard or Worse (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Classified as impaired	$ 23,418	$ 29,654
Total ending loans balance	1,251,355	1,280,812
Commercial Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total ending loans balance	949,758	967,323
Commercial Loans [Member] | Substandard or Worse [Member]
Financing Receivable, Recorded Investment [Line Items]
Not classified as impaired	1,593	2,608
Classified as impaired	5,977	7,498
Total ending loans balance	$ 7,570	$ 10,106

XML

LOANS, Recorded Investment in Consumer Loans Based on Payment Activity (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 1,251,355	$ 1,280,812
Consumer Loan [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	212,745	217,614
Consumer Loan [Member] | Residential Mortgage [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	212,541	217,558
Consumer Loan [Member] | Residential Mortgage [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	204	56
Consumer Loan [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	280	396
Consumer Loan [Member] | Consumer Unsecured [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	280	396
Consumer Loan [Member] | Consumer Unsecured [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Consumer Loan [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	81,779	88,113
Consumer Loan [Member] | Home Equity [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	81,767	88,113
Consumer Loan [Member] | Home Equity [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	12	0
Consumer Loan [Member] | Consumer Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	6,793	7,366
Consumer Loan [Member] | Consumer Other [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	6,793	7,366
Consumer Loan [Member] | Consumer Other [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 0	$ 0

XML

OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Other real estate owned [Roll Forward]
Beginning balance	$ 22,864	$ 28,377	$ 28,377
Additions, transfers from loans	60	102	339
Proceeds from sales of other real estate owned	(5,601)	(3,313)	(5,339)
Valuation allowance reversal upon sale	(6,395)	(334)	(1,158)
Gain on sales of other real estate owned	470	260	645
Ending balance, gross	11,398	25,092	22,864
Less: valuation allowance	(4,301)	(11,026)	(10,611)
Ending balance	7,097	14,066	12,253
Valuation Allowance, Real Estate Owned [Member]
Activity in valuation allowance [Roll Forward]
Beginning balance	10,611	10,805	10,805
Additions charged to expense	85	555
Reversals upon sale	(6,395)	(334)
Ending balance	$ 4,301	$ 11,026	$ 10,611

XML

FAIR VALUE, Assets Measured at Fair Value on Recurring and Nonrecurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	$ 184,761	$ 184,433
U.S. Treasury and Federal Agency Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	84,738	84,350
U.S. Agency MBS and CMOs [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,843	11,817
Tax-Exempt State and Municipal Bonds [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	39,659	39,187
Taxable State and Municipal Bonds [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	35,068	33,883
Corporate Bonds and Other Debt Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,974	13,726
Other Equity Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	1,479	1,470
Recurring Basis [Member]
Asset measured at fair value on recurring basis [Abstract]
Loans held for sale	3,184	2,181
Interest rate swaps	395	494
Interest rate swaps	(395)	(494)
Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Loans held for sale	0	0
Interest rate swaps	0	0
Interest rate swaps	0	0
Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Loans held for sale	3,184	2,181
Interest rate swaps	0	0
Interest rate swaps	0	0
Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Loans held for sale	0	0
Interest rate swaps	395	494
Interest rate swaps	(395)	(494)
Recurring Basis [Member] | U.S. Treasury and Federal Agency Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	84,738	84,350
Recurring Basis [Member] | U.S. Treasury and Federal Agency Securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | U.S. Treasury and Federal Agency Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	84,738	84,350
Recurring Basis [Member] | U.S. Treasury and Federal Agency Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | U.S. Agency MBS and CMOs [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,843	11,817
Recurring Basis [Member] | U.S. Agency MBS and CMOs [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | U.S. Agency MBS and CMOs [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,843	11,817
Recurring Basis [Member] | U.S. Agency MBS and CMOs [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Tax-Exempt State and Municipal Bonds [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	39,659	39,187
Recurring Basis [Member] | Tax-Exempt State and Municipal Bonds [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Tax-Exempt State and Municipal Bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	39,659	39,187
Recurring Basis [Member] | Tax-Exempt State and Municipal Bonds [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Taxable State and Municipal Bonds [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	35,068	33,883
Recurring Basis [Member] | Taxable State and Municipal Bonds [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Taxable State and Municipal Bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	35,068	33,883
Recurring Basis [Member] | Taxable State and Municipal Bonds [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Corporate Bonds and Other Debt Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,974	13,726
Recurring Basis [Member] | Corporate Bonds and Other Debt Securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Corporate Bonds and Other Debt Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	11,974	13,726
Recurring Basis [Member] | Corporate Bonds and Other Debt Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Other Equity Securities [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	1,479	1,470
Recurring Basis [Member] | Other Equity Securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Recurring Basis [Member] | Other Equity Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	1,479	1,470
Recurring Basis [Member] | Other Equity Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on recurring basis [Abstract]
Available-for-sale securities	0	0
Nonrecurring Basis [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	3,052	3,436
Other real estate owned	4,811	9,542
Nonrecurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	0	0
Other real estate owned	0	0
Nonrecurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	0	0
Other real estate owned	0	0
Nonrecurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Asset measured at fair value on non-recurring basis [Abstract]
Impaired loans	3,052	3,436
Other real estate owned	$ 4,811	$ 9,542

XML

FAIR VALUE, Quantitative Information about Level 3 Fair Value Measurements (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Impaired Loans [Member] | Sales Comparison Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 3,052	$ 3,436
Impaired Loans [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales	5.00%	1.00%
Impaired Loans [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales	15.00%	35.00%
Impaired Loans [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate	9.50%	9.50%
Impaired Loans [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate	11.00%	11.50%
Other Real Estate Owned [Member] | Sales Comparison Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 4,811	$ 9,542
Other Real Estate Owned [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales	3.00%	2.00%
Other Real Estate Owned [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Adjustment for differences between comparable sales	23.00%	32.50%
Other Real Estate Owned [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate	9.50%	9.50%
Other Real Estate Owned [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Capitalization rate	11.00%	11.50%

XML

FAIR VALUE, Carrying Amounts and Estimated Fair Values of Financial Instruments, Not Previously Presented (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Financial assets [Abstract]
Cash and due from banks	$ 31,165	$ 27,690
Securities held to maturity	69,816	69,849
Bank owned life insurance	39,781	39,274
Carrying Amount [Member]
Financial assets [Abstract]
FHLB stock	11,558	11,558
Loan Commitments [Member] | Carrying Amount [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet credit-related items	0	0
Loan Commitments [Member] | Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet credit-related items	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	31,165	27,690
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	31,165	27,690
Significant Other Observable Inputs (Level 2) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Cash equivalents	114,104	62,129
Loans, net	1,237,837	1,260,414
Accrued interest receivable	4,084	4,092
Financial liabilities [Abstract]
Deposits	(1,459,990)	(1,448,724)
Other borrowed funds	(82,785)	(84,173)
Long-term debt	(41,238)	(41,238)
Accrued interest payable	(283)	(282)
Significant Other Observable Inputs (Level 2) [Member] | Fair Value [Member]
Financial assets [Abstract]
Cash equivalents	114,104	62,129
Loans, net	1,234,678	1,247,842
Accrued interest receivable	4,084	4,092
Financial liabilities [Abstract]
Deposits	(1,459,895)	(1,448,692)
Other borrowed funds	(82,623)	(84,051)
Long-term debt	(36,440)	(36,112)
Accrued interest payable	(283)	(282)
Significant Unobservable Inputs (Level 3) [Member] | Carrying Amount [Member]
Financial assets [Abstract]
Securities held to maturity	68,818	69,378
Bank owned life insurance	39,781	39,274
Significant Unobservable Inputs (Level 3) [Member] | Fair Value [Member]
Financial assets [Abstract]
Securities held to maturity	69,816	69,849
Bank owned life insurance	$ 39,781	$ 39,274

XML

DEPOSITS (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Summary of deposit [Abstract]
Noninterest-bearing demand	$ 481,769	$ 501,478
Interest bearing demand	342,551	340,715
Savings and money market accounts	557,922	532,853
Certificates of deposit	77,748	73,678
Total deposits	1,459,990	1,448,724
FDIC insurance limit on deposit accounts	250	250
Time deposits that exceed FDIC insurance limit	$ 19,200	$ 17,400

XML

OTHER BORROWED FUNDS, Federal Home Loan Bank Advances (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 82,785	$ 84,173
Residential and commercial real estate loans pledged as collateral for Federal Home Loan Bank advances	442,900	425,000
Federal Home Loan Bank Advances [Member]
Advances from Federal Home Loan Bank [Abstract]
Advance amount	82,785	84,173
Federal Home Loan Bank Advances [Member] | Single Maturity Fixed Rate Advances [Member]
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 80,000	$ 80,000
Range of maturities, earliest	2018	2018
Range of maturities, last	2021	2021
Federal Home Loan Bank Advances [Member] | Single Maturity Fixed Rate Advances [Member] | Weighted Average [Member]
Advances from Federal Home Loan Bank [Abstract]
Interest rate	1.60%	1.60%
Federal Home Loan Bank Advances [Member] | Amortizable Mortgage Advances [Member]
Advances from Federal Home Loan Bank [Abstract]
Advance amount	$ 2,785	$ 4,173
Range of maturities, earliest	2018	2018
Range of maturities, last	2018	2018
Federal Home Loan Bank Advances [Member] | Amortizable Mortgage Advances [Member] | Weighted Average [Member]
Advances from Federal Home Loan Bank [Abstract]
Interest rate	3.75%	3.78%

XML

OTHER BORROWED FUNDS, Scheduled Repayments of FHLB Advances (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Scheduled repayments of FHLB advances [Abstract]
2017	$ 667
2018	52,118
2019	10,000
2020	10,000
2021	10,000
Thereafter	0
Total	$ 82,785	$ 84,173

XML

OTHER BORROWED FUNDS, Federal Reserve Bank Borrowings (Details) - Federal Reserve Bank Borrowings [Member] - USD ($) $ in Millions	Jun. 30, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Borrowings outstanding	$ 0.0	$ 0.0
Unused borrowing capacity	13.1	18.1
Commercial and mortgage loans pledged to the Federal Reserve Bank	$ 15.7	$ 20.7

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EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Reconciliation of numerators and denominators of basic and diluted earnings per common share [Abstract]
Net income available to common shares	$ 4,762	$ 3,745	$ 9,223	$ 7,240
Weighted average shares outstanding, including participating stock awards - Basic (in shares)	33,942,318	33,922,506	33,941,668	33,923,810
Dilutive potential common shares [Abstract]
Stock options (in shares)	5,809	0	6,703	0
Stock warrants (in shares)	0	0	0	0
Weighted average shares outstanding - Diluted (in shares)	33,948,127	33,922,506	33,948,371	33,923,810
Basic earnings per common share (in dollars per share)	$ 0.14	$ 0.11	$ 0.27	$ 0.21
Diluted earnings per common share (in dollars per share)	$ 0.14	$ 0.11	$ 0.27	$ 0.21
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	0	100,896	0	100,896

XML

FEDERAL INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Income tax expense [Abstract]
Current	$ (62)	$ 1,757	$ 1,742	$ 3,226
Deferred	2,191	(78)	2,353	(147)
Income tax expense	$ 2,129	$ 1,679	$ 4,095	$ 3,079
Difference between financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income [Abstract]
Statutory rate	35.00%	35.00%	35.00%	35.00%
Statutory rate applied to income before taxes	$ 2,412	$ 1,899	$ 4,661	$ 3,612
Deduct [Abstract]
Tax-exempt interest income	(186)	(149)	(369)	(297)
Bank-owned life insurance	(85)	(56)	(168)	(211)
Other, net	(12)	(15)	(29)	(25)
Income tax expense	2,129	$ 1,679	4,095	$ 3,079
Deferred tax assets [Abstract]
Allowance for loan losses	5,800		5,800		$ 5,937
Nonaccrual loan interest	620		620		718
Valuation allowance on other real estate owned	1,505		1,505		3,714
Unrealized loss on securities available for sale	158		158		799
Other	255		255		176
Gross deferred tax assets	8,338		8,338		11,344
Valuation allowance	0		0		0
Total net deferred tax assets	8,338		8,338		11,344
Deferred tax liabilities [Abstract]
Depreciation	(1,669)		(1,669)		(1,705)
Prepaid expenses	(399)		(399)		(399)
Unrealized gain on securities available for sale	0		0		0
Other	(401)		(401)		(377)
Gross deferred tax liabilities	(2,469)		(2,469)		(2,481)
Net deferred tax asset	5,869		5,869		8,863
Unrecognized tax benefits	$ 0		$ 0		$ 0
Period when unrecognized tax benefits is not expected to significantly increase or decrease			12 months

XML

COMMITMENTS AND OFF BALANCE-SHEET RISK (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Notional amount of commitments to fund mortgage loans to be sold into the secondary market	$ 10,600	$ 19,800
Commitments to make loans at fixed rates	36.30%
Expiration period of commitment to make variable rate loan	30 days
Commitments to Make Loans [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	$ 129,918	90,293
Letters of Credit [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	12,450	13,823
Unused Lines of Credit [Member]
Summary of the contractual amounts of financial instruments with off-balance-sheet risk [Abstract]
Contractual amounts of financial instruments with off-balance-sheet risk	$ 465,621	$ 437,435

XML

SHAREHOLDERS' EQUITY (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) Category	Dec. 31, 2016 USD ($)
SHAREHOLDERS' EQUITY [Abstract]
Number of classification of prompt corrective action regulations | Category	5
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
CET1 capital (to risk weighted assets), actual amount	$ 170,426	$ 163,663
CET1 capital (to risk weighted assets), actual ratio	11.60%	11.00%
Tier 1 capital (to risk weighted assets), actual amount	$ 210,426	$ 203,663
Tier 1 capital (to risk weighted assets), actual ratio	14.30%	13.70%
Total capital (to risk weighted assets), actual amount	$ 226,996	$ 220,625
Total capital (to risk weighted assets), actual ratio	15.50%	14.90%
Tier 1 capital (to average assets), actual amount	$ 210,426	$ 203,663
Tier 1 capital (to average assets), actual ratio	12.20%	12.00%
CET1 capital (to risk weighted assets), minimum capital adequacy, amount	$ 66,101	$ 66,743
CET1 capital (to risk weighted assets), minimum capital adequacy, ratio	4.50%	4.50%
Tier 1 capital (to risk weighted assets), minimum capital adequacy, amount	$ 88,135	$ 88,991
Tier 1 capital (to risk weighted assets), minimum capital adequacy, ratio	6.00%	6.00%
Total capital (to risk weighted assets), minimum capital adequacy, amount	$ 117,153	$ 118,655
Total capital (to risk weighted assets), minimum capital adequacy, ratio	8.00%	8.00%
Tier 1 capital (to average assets), minimum capital adequacy, amount	$ 68,961	$ 67,810
Tier 1 capital (to average assets), minimum capital adequacy, ratio	4.00%	4.00%
CET1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 84,463	$ 76,013
CET1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	5.80%	5.10%
Tier 1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 106,497	$ 98,261
Tier 1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	7.30%	6.60%
Total capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 135,876	$ 127,925
Total capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	9.30%	8.60%
Trust preferred securities that qualified as Tier one risk based capital	$ 40,000	$ 40,000
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
CET1 capital (to risk weighted assets), actual amount	$ 204,469	$ 197,972
CET1 capital (to risk weighted assets), actual ratio	13.90%	13.40%
Tier 1 capital (to risk weighted assets), actual amount	$ 204,469	$ 197,972
Tier 1 capital (to risk weighted assets), actual ratio	13.90%	13.40%
Total capital (to risk weighted assets), actual amount	$ 221,039	$ 214,934
Total capital (to risk weighted assets), actual ratio	15.00%	14.50%
Tier 1 capital (to average assets), actual amount	$ 204,469	$ 197,972
Tier 1 capital (to average assets), actual ratio	11.90%	11.70%
CET1 capital (to risk weighted assets), minimum capital adequacy, amount	$ 66,228	$ 66,737
CET1 capital (to risk weighted assets), minimum capital adequacy, ratio	4.50%	4.50%
Tier 1 capital (to risk weighted assets), minimum capital adequacy, amount	$ 88,304	$ 88,983
Tier 1 capital (to risk weighted assets), minimum capital adequacy, ratio	6.00%	6.00%
Total capital (to risk weighted assets), minimum capital adequacy, amount	$ 117,739	$ 118,644
Total capital (to risk weighted assets), minimum capital adequacy, ratio	8.00%	8.00%
Tier 1 capital (to average assets), minimum capital adequacy, amount	$ 68,898	$ 67,742
Tier 1 capital (to average assets), minimum capital adequacy, ratio	4.00%	4.00%
CET1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 84,626	$ 76,006
CET1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	5.80%	5.10%
Tier 1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 106,702	$ 98,252
Tier 1 capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	7.30%	6.60%
Total capital (to risk weighted assets), minimum capital adequacy with capital buffer, amount	$ 136,137	$ 127,913
Total capital (to risk weighted assets), minimum capital adequacy with capital buffer, ratio	9.30%	8.60%
CET1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount	$ 95,664	$ 96,398
CET1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio	6.50%	6.50%
Tier 1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount	$ 117,740	$ 118,644
Tier 1 capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio	8.00%	8.00%
Total capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, amount	$ 147,175	$ 148,305
Total capital (to risk weighted assets) to be well capitalized under prompt corrective action regulations, ratio	10.00%	10.00%
Tier 1 capital (to average assets) to be well capitalized under prompt corrective action regulations, amount	$ 86,122	$ 84,677
Tier 1 capital (to average assets) to be well capitalized under prompt corrective action regulations, ratio	5.00%	5.00%