Acquisitions

Pending Acquisition of Northwestern Bancorp, Inc.

On March 10, 2014, the Corporation and Northwestern Bancorp, Inc. (Northwestern), the parent company of Northwestern Bank, a community bank based in Traverse City, Michigan, entered into a definitive agreement whereby the Corporation will acquire Northwestern in an all cash transaction valued at $120 million, subject to adjustment under limited circumstances. The Corporation anticipates the transaction, with cost savings fully phased in and excluding the impact of acquisition-related transaction costs, to be immediately accretive to earnings. Closing of the merger, which is expected to occur in the third quarter of 2014, is subject to certain conditions, including approval by the shareholders of Northwestern and regulatory approval. The Corporation recognized $0.3 million of pre-tax acquisition-related costs during the three months ended March 31, 2014.

Acquisition of 21 Branches

On December 7, 2012, Chemical Bank acquired 21 branches located in the Northeast and Battle Creek regions of Michigan, including $404 million in deposits and $44 million in loans (branch acquisition transaction). The purchase price of the branch offices, including equipment, was $8.1 million and the Corporation paid a premium on deposits of $11.5 million, or approximately 2.85% of total deposits. The loans were purchased at a discount of 1.75%. In connection with the branch acquisition transaction, the Corporation recorded goodwill of $6.8 million and other intangible assets attributable to customer core deposits of $5.6 million.

Acquisition of O.A.K. Financial Corporation (OAK)

On April 30, 2010, the Corporation acquired OAK and OAK's wholly-owned bank subsidiary, Byron Bank, for total consideration of $83.7 million. Byron Bank, which was subsequently consolidated with and into Chemical Bank, provided traditional banking services and products through 14 banking offices serving communities in Ottawa, Allegan and Kent counties in west Michigan. At the acquisition date, OAK had total assets of $820 million, including total loans of $627 million, and total deposits of $693 million, including brokered deposits of $193 million.

Upon acquisition, the OAK loan portfolio had contractually required principal payments receivable of $683 million and a fair value of $627 million.The outstanding contractual principal balance and the carrying amount of the acquired loan portfolio were $313 million and $289 million, respectively, at March 31, 2014, compared to $320 million and $295 million, respectively, at December 31, 2013 and $400 million and $374 million, respectively, at March 31, 2013.

Activity for the accretable yield, which includes contractually due interest for acquired loans that have been renewed or extended since the date of acquisition and continue to be accounted for in loan pools in accordance with ASC 310-30, follows:



	Three Months Ended
	March 31,
	2014			2013
	(In thousands)
Balance at beginning of period	$	32,610		$	49,390
Additions (reductions)*	821			(491		)
Accretion recognized in interest income	(3,843		)	(4,940		)
Reclassification from nonaccretable difference	10,000			125
Balance at end of period	$	39,588		$	44,084


*	Represents additions of estimated contractual interest expected to be collected from acquired loans being renewed or extended, less reductions in contractual interest resulting from the early payoff of acquired loans.

As part of its ongoing assessment of the acquired loan portfolio, management has determined that the overall credit quality of the acquired loan portfolio has improved, which has resulted in an improvement in expected cash flows of loan pools in the acquired commercial loan portfolio. Accordingly, management reclassified $10.0 million during the three months ended March 31, 2014 from the nonaccretable difference to the accretable yield for these acquired commercial loan pools, which will increase amounts recognized into interest income over the estimated remaining lives of these loan pools.