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 nonrecurring transaction-related expenses, to be immediately accretive to earnings per share. Regulatory approval for the transaction was received on September 30, 2014 and the transaction is expected to close on October 31, 2014, subject to customary closing conditions. The Corporation recognized $1.3 million and $2.2 million of pre-tax nonrecurring transaction-related expenses during the three and nine months ended September 30, 2014, respectively.

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 $286 million and $263 million, respectively, at September 30, 2014, compared to $320 million and $295 million, respectively, at December 31, 2013 and $334 million and $309 million, respectively, at September 30, 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:



	Nine Months Ended
	September 30,
	2014			2013
	(In thousands)
Balance at beginning of period	$	32,610		$	49,390
Additions (reductions)*	4,493			(997		)
Accretion recognized in interest income	(11,262		)	(13,235		)
Reclassification from nonaccretable difference	10,000			125
Balance at end of period	$	35,841		$	35,283


*	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 first quarter of 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.