ACQUISITIONS

Acquisition of 21 Branches

On December 7, 2012, Chemical Bank acquired 21 branches from Independent Bank, a subsidiary of Independent Bank Corporation. In addition to the branch offices, which are located in the Northeast and Battle Creek regions of Michigan, the acquisition included $404 million in deposits and $44 million in loans. 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 acquisition of the branches, the Corporation recorded $6.8 million of goodwill and $5.6 million of other intangible assets attributable to customer core deposits.

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

On April 30, 2010, the Corporation acquired OAK for total consideration of $83.7 million. The total consideration consisted of the issuance of 3,529,772 shares of the Corporation's common stock with a total value of $83.7 million based upon a price per share of the Corporation's common stock of $23.70 at the acquisition date, the exchange of 26,425 vested stock options for the outstanding vested stock options of OAK with a value of approximately $41,000 and approximately $8,000 of cash in lieu of fractional shares. The issuance of 3,529,772 shares of the Corporation's common stock was based on an exchange rate of 1.306 times the 2,703,009 outstanding shares of OAK at the acquisition date. There were no contingencies resulting from the acquisition. OAK, a bank holding company, owned Byron Bank, which provided traditional commercial banking services and products through 14 banking offices serving communities in Ottawa, Allegan and Kent counties in west Michigan. Byron Bank was consolidated with and into Chemical Bank on July 23, 2010. 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 and interest payments receivable of $683 million and $97 million, respectively, expected principal and interest cash flows of $636 million and $88 million, respectively, and a fair value of $627 million. The difference between the contractually required payments receivable and the expected cash flows represents the nonaccretable difference, which totaled $56 million at the acquisition date, with $47 million attributable to expected credit losses. The difference between the expected cash flows and fair value represents the accretable yield, which totaled $97 million at the acquisition date. The outstanding contractual principal balance and the carrying amount of the acquired loan portfolio were $419 million and $393 million, respectively, at December 31, 2012, compared to $530 million and $493 million, respectively, at December 31, 2011.

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:



	Years Ended December 31,
	2012			2011
	2012			(As Revised)
	(In thousands)
Balance at beginning of period	$	68,305		$	83,605
Additions, net of reductions*	5,057			14,254
Accretion recognized in interest income	(23,972		)	(29,804		)
Reclassification from nonaccretable difference	—			250
Balance at end of period	$	49,390		$	68,305


*	Represents an increase in estimated additional contractual interest expected to be collected as a result of maturing acquired loans that have been renewed or extended, net of a reduction in contractual interest resulting from the early payoff of acquired loans.

During 2011, the Corporation reported beginning of period and end of period accretable yield balances, excluding the impact of acquired loans that had matured and were renewed or extended since the acquisition date. The Corporation has corrected an error in the 2011 beginning of period and end of period balances and additions during the year to include an estimate for the amount of additional contractual interest expected to be collected on these renewed or extended acquired loans. The Corporation determined that the error correction was immaterial, in part, as the amounts reported had no impact on the Corporation's consolidated financial statements.