16. Branch Sale

On May 23, 2012 we executed a definitive agreement to sell 21 branches to Chemical Bank, headquartered in Midland, Michigan (the "Branch Sale"). The branches to be sold include 6 branch locations in the Battle Creek, Michigan market area and 15 branch locations in Northeast Michigan.

We expect that the Branch Sale will result in the transfer of approximately $408.6 million of deposits to Chemical Bank in exchange for the payment of a deposit premium of approximately $11.8 million. This represents a deposit premium of approximately 3.0% on identified core deposits. Certain non-core deposits will be transferred at no premium. Chemical Bank will also have the right to purchase certain loans associated with the branches being sold, at a discount of 1.75%. Currently, we estimate that approximately $53.2 million of loans will be sold to Chemical Bank. These loans are classified as held for sale in the September 30, 2012 Condensed Consolidated Statement of Financial Condition and are carried at the lower of cost or fair value. Certain fixed assets with a fair value at September 30, 2012 of approximately $8.4 million (cost, net of accumulated depreciation of approximately $10.9 million) are expected to be sold and are also classified as held for sale in the September 30, 2012 Condensed Consolidated Statement of Financial Condition. In addition, approximately $2.6 million of remaining unamortized intangible assets at September 30, 2012 relate to customers and deposits associated with the pending Branch Sale. The Branch Sale is expected to be completed by the end of the fourth quarter of 2012, subject to the satisfaction of terms and conditions of sale. Based on the deposit premium outlined above, we expect to record a net gain on the Branch Sale of approximately $5.8 million. This estimated gain is net of an allocation of $2.6 million of existing core deposit intangibles, a $2.5 million loss on the sale of fixed assets, a $0.3 million loss on the sale of loans and $0.6 million in transaction related costs.

The following summarizes estimated loans and deposits related to the Branch Sale:

	September 30,
	2012
	(In thousands)
Loans:
Commercial	$	31,060
Mortgage		8,569
Installment		13,582
Total loans		53,211
Allowance for loan losses		(610	)
Adjustment to lower of cost or fair value		(321	)
Net loans	$	52,280

Deposits
Non-interest bearing	$	66,392
Savings and interest bearing-checking		225,062
Retail time		117,180
Total deposits		408,634
Net adjustments		(2,784	)
Net deposits	$	405,850