UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(989) 839-5350
(Registrant's Telephone Number, Including Area Code)

Indicate by check mark 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    X      No       

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the registrant's Common Stock, $1 par value, as of October 22, 2010, was 27,440,006 shares.

INDEX

Chemical Financial Corporation
Form 10-Q

Index to Form 10-Q

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 Chemical Financial Corporation (Chemical). Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "plans," "predicts," "projects," "should," "will," and variations of such words and similar expressions are intended to identify such forward-looking statements. 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, statements related to real estate valuation, future levels of nonperforming loans, the rate of asset dispositions, future capital levels, future dividends, future growth and funding sources, future liquidity levels, future profitability levels, the effects on earnings of future changes in interest rates and the future level of other revenue sources. Management's determination of the provision and allowance for loan losses, the carrying value of goodwill and mortgage servicing rights 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) and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and on Chemical, 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. Chemical undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

Risk factors include, but are not limited to, the risk factors described in Item 1A in Chemical Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 2009; the risk factors described in Part II, Item 1A of this report; the timing and level of asset growth; changes in market interest rates; changes in FDIC assessment rates; changes in banking laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; opportunities for acquisitions and the effective completion of acquisitions and integration of acquired entities; the possibility that anticipated cost savings and revenue enhancements from acquisitions, restructurings, reorganizations and bank consolidations may not be realized fully or at all or within expected time frames; the local and global effects of current and future military actions, and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about capital levels and credit availability and concerns about the Michigan economy in particular. 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.

This report also contains forward-looking statements regarding Chemical's outlook or expectations with respect to the acquisition of OAK, the expected costs to be incurred in connection with the acquisition, the consequences of OAK's integration into Chemical and the impact of the transaction on Chemical's future performance. The transaction was completed on April 30, 2010.

Risk factors also include, but are not limited to, risks and uncertainties related both to the acquisition of OAK and to the full integration of the acquired business into Chemical after closing, including:

The transaction may be more expensive to complete and the anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events.

Chemical's ability to achieve anticipated results from the transaction is dependent on the state of the economic and financial markets going forward, which have been under significant stress recently. Specifically, Chemical may incur more credit losses from OAK's loan portfolio than expected and deposit attrition may be greater than expected.

The full integration of OAK's business and operations into Chemical, which includes conversion of OAK's operating systems and procedures, may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to OAK's or Chemical's existing businesses.

Chemical Financial Corporation
Consolidated Statements of Financial Position

See accompanying notes to consolidated financial statements.

Chemical Financial Corporation
Consolidated Statements of Income (Unaudited)

See accompanying notes to consolidated financial statements.

Chemical Financial Corporation
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

See accompanying notes to consolidated financial statements.

Chemical Financial Corporation
Consolidated Statements of Cash Flows (Unaudited)

See accompanying notes to consolidated financial statements.

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Note 1:  Significant Accounting Policies

Nature of Operations

Chemical Financial Corporation (Chemical or Corporation) operates in a single operating segment - commercial banking. The Corporation is a financial holding company, headquartered in Michigan that operated through one commercial bank, Chemical Bank, as of September 30, 2010. Byron Bank was acquired in the acquisition of O.A.K. Financial Corporation (OAK) on April 30, 2010 and was consolidated with and into Chemical Bank on July 23, 2010. Chemical Bank operates primarily within the State of Michigan as a state-chartered commercial bank. Chemical Bank operates through an internal organizational structure of four regional banking units, offering a full range of commercial banking and fiduciary products and services to the residents and business customers in the bank's geographical market areas. The products and services offered by the regional banking units, through branch banking offices, as well as the pricing of these products and services, are generally consistent throughout the Corporation. The marketing of products and services throughout the Corporation's regional banking units is generally uniform, as many of the markets served by the regional banking units overlap. The distribution of products and services is uniform throughout the Corporation's regional banking units and is achieved primarily through retail branch banking offices, automated teller machines and electronically accessed banking products. Byron Bank operated as a state-chartered commercial bank and offered generally the same commercial banking products and services as Chemical Bank until July 23, 2010.

The Corporation's primary sources of revenue are from its loan products and investment securities.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Corporation and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments believed necessary to present fairly the financial condition and results of operations of the Corporation for the periods presented. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2009.

Accounting Standards Codification

The Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, the ASC became FASB's officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to GAAP in financial statements and accounting policies.

Use of Estimates

Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, fair value amounts related to the acquisition of OAK on April 30, 2010, pension expense, income taxes, goodwill and other assets that require fair value measurement. Actual results could differ from these estimates. The Corporation utilized estimates and assumptions in recording the assets and liabilities associated with OAK at fair value as of the acquisition date. These estimates and assumptions could be revised as additional information that existed as of the acquisition date is obtained.

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Business Combinations

On April 30, 2010, the Corporation acquired 100% of OAK for total consideration of $83.7 million. The total consideration of $83.7 million exchanged to purchase the 100% interest of OAK consisted of the issuance of 3,529,772 shares of Chemical common stock with a total value of $83.7 million based upon a market price per share of Chemical 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 the exchange at the acquisition date of approximately $41,000, and approximately $8,000 of cash in lieu of fractional shares. The issuance of 3,529,772 shares of Chemical common stock was based on an exchange rate of 1.306 times the 2,703,009 outstanding shares of OAK at the acquisition date.

Pursuant to the guidance of ASC 805, Business Combinations (formerly SFAS 141(R)) effective for all acquisitions with closing dates after January 1, 2009, the Corporation recognized the assets acquired and the liabilities assumed in the OAK acquisition at their fair values as of the acquisition date with the related acquisition and restructuring costs expensed in the current period. The Corporation recorded $40.4 million of goodwill in conjunction with the acquisition which represented the purchase price over the fair values of the identifiable net assets acquired. Additionally, the Corporation recorded $10.3 million of other intangible assets as a result of the OAK acquisition attributable to core deposits, mortgage servicing rights and non-compete agreements acquired.

ASC 805 affords a measurement period beyond the acquisition date which allows the Corporation the opportunity to finalize the acquisition accounting in the event that new information is identified that existed as of the acquisition date but was not known by the Corporation at that time. The Corporation anticipates that measurement period adjustments could arise from adjustments to the fair values of assets and liabilities recognized at the acquisition date as additional information is obtained such as appraisals of collateral securing loans and fixed assets, contracts, legal documentation and selected key borrower data. In the event that a measurement period adjustment is identified, the Corporation will recognize the adjustment as part of its acquisition accounting, which may result in an adjustment to goodwill recorded. During the three months ended September 30, 2010, additional appraisal information was obtained about the fair value of premises and equipment which resulted in adjustments to the initial purchase price allocation. These adjustments resulted in an increase to goodwill acquired of $1.1 million.

See Note 2 for further information regarding the OAK acquisition.

Trading Securities Acquired in a Business Combination

The Corporation acquired $2.5 million of preferred securities in the acquisition of OAK. These preferred securities were classified by the Corporation as trading securities on April 30, 2010 and were recorded at fair value at September 30, 2010. Trading securities are intended to be sold in the near-term and are reported at fair value with realized and unrealized gains and losses included in earnings. At September 30, 2010, the Corporation held $1.5 million of these preferred securities. The Corporation's earnings included $0.1 million of unrealized gains from preferred securities during the three and nine months ended September 30, 2010.

Originated Loans

Originated loans include all of the Corporation's portfolio loans, excluding loans acquired in the OAK transaction.

Originated loans are stated at their principal amount outstanding, net of unearned income, charge-offs and unamortized deferred fees and costs. Interest income on loans is reported based on the level-yield method and includes amortization of deferred loan fees and costs over the loan term. Net loan commitment fees for commitment periods greater than one year are deferred and amortized into fee income on a straight-line basis over the commitment period.

Loan interest income is recognized on the accrual basis. The past due status of a loan is based on the loan's contractual terms. A loan is placed in the nonaccrual category when principal or interest is past due 90 days or more (120 days or more on real estate residential loans), unless the loan is both well-secured and in the process of collection, or earlier when, in the opinion of management, there is sufficient reason to doubt the collectibility of principal or interest. Interest previously accrued, but not collected, is reversed and charged against interest income at the time the loan is placed in nonaccrual status. The subsequent recognition of interest income on a nonaccrual loan is then recognized only to the

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

extent cash is received and where future collection of principal is probable. Loans are returned to accrual status when principal and interest payments are brought current, payments have been received consistently for a period of time and collectibility is no longer in doubt.

Nonperforming loans of the originated portfolio are comprised of those loans accounted for on a nonaccrual basis, accruing loans contractually past due 90 days or more as to interest or principal payments and loans modified under troubled debt restructurings (nonperforming originated loans).

Loans Acquired in a Business Combination

Loans with an outstanding principal balance of $683 million were acquired in the acquisition of OAK which resulted in recognition of a discount attributable, in part, to credit quality, which was recorded as a reduction of the loans' outstanding principal balances in the consolidated statement of financial position (acquired loans). The Corporation understands, as outlined in the AICPA's open letter to the Office of the Chief Accountant of the Securities and Exchange Commission dated December 18, 2009, that pending further standard setting, a company may elect to account for such acquired loans pursuant to the provisions of either ASC 310-20 (formerly FASB Statement No. 91) or ASC 310-30 (formerly Statement of Position 03-3). The Corporation has elected to account for these loans pursuant to ASC 310-30 and will follow the accounting and disclosure guidance of ASC 310-30. None of the acquired loans are classified as debt securities.

Acquired loans were recorded at fair value without a carryover of OAK's allowance for loan losses. The calculation of the fair value of the acquired loans entails estimating the amount and timing of both principal and interest cash flows expected to be collected on such loans and then discounting those cash flows at market interest rates. The excess of a loan's expected cash flows at the acquisition date over its estimated fair value is referred to as the "accretable yield," which is recognized into interest income over the remaining life of the loan on a level-yield basis. The difference between a loan's contractually required principal and interest payments at the acquisition date and the cash flows expected to be collected at the acquisition date is referred to as the "nonaccretable difference," which includes an estimate of future credit losses expected to be incurred over the life of the loan. Decreases to the expected cash flows in subsequent periods will require the Corporation to record a provision for loan losses. Improvements in expected cash flows in future periods will result in reversing a portion of the nonaccretable difference, which is then classified as part of the accretable yield and subsequently recognized into interest income over the remaining life of the loan.

Under the provisions of ASC 310-30, the Corporation aggregated acquired loans into 14 pools based upon common risk characteristics. A pool is considered as a single unit of accounting for the purposes of applying the guidance as described above. A loan will be removed from a pool of acquired loans only if the loan is sold, foreclosed, paid-off or written off, and will be removed from the pool at the carrying value. If an individual loan is removed from a pool of loans, the difference between its relative carrying amount and the cash, fair value of the collateral, or other assets received will be recognized in earnings immediately and would not affect the effective yield used to recognize the accretable difference on the remaining pool. The Corporation will estimate the cash flows expected to be collected over the life of the pools of loans at acquisition, and quarterly thereafter, based on a set of assumptions including expectations as to default rates, prepayment rates and loss severities. In the event that the updated expected cash flows increase in a pool from those originally projected at acquisition date, the Corporation will adjust the accretable yield amount with a resulting change in the amount recognized in income in subsequent periods. In the event that the updated expected cash flows in a pool decrease from those originally projected at the acquisition date, the Corporation will consider that loan pool impaired which results in the Corporation accruing a provision for loan losses with a corresponding adjustment to the accretable yield and the nonaccretable difference balances.

Upon acquisition, the OAK loan portfolio had contractually required principal and interest payments receivable of $729 million, expected cash flows of $686 million and a fair value of $631 million. The difference between the contractually required principal and interest payments receivable and the expected cash flows represents the nonaccretable difference, which totaled $43 million. The difference between the expected cash flows and fair value represents the accretable yield, which totaled $55 million. Both contractually required payments receivable and expected cash flows reflect

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

anticipated prepayments, determined based on historical portfolio experience. At September 30, 2010, the outstanding principal balance and the carrying amount of the acquired loan portfolio were $646 million and $595 million, respectively, and there was no related allowance for loan losses at that date.

Activity for the accretable yield, which includes contractually due interest, of acquired loans since the acquisition date follows:

Impaired Loans

A loan is defined to be impaired when it is probable that payment of principal and interest will not be made in accordance with the contractual terms of the loan agreement. All nonaccrual commercial, real estate commercial and real estate construction originated and acquired loans and originated and acquired loans modified under troubled debt restructurings have been determined by the Corporation to meet the definition of an impaired loan. Other commercial, real estate commercial and real estate construction originated and acquired loans may also be considered an impaired loan. Loans acquired in a business combination that meet the definition of an impaired loan are included even though the amortization of the accretable yield results in interest income recognition on these loans. Impaired loans are carried at the present value of expected cash flows discounted at the loan's effective interest rate or at the estimated fair value of the collateral, if the loan is collateral dependent. A portion of the allowance for loan losses may be allocated to impaired loans. All impaired loans are evaluated individually to determine whether or not a valuation allowance is required.

Fair Value Measurements

Fair value for assets and liabilities measured at fair value on a recurring or nonrecurring basis refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity's own data.

The Corporation may choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value measurement option is elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, allowing the Corporation to record identical financial assets and liabilities at fair value or by another measurement basis permitted under GAAP, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. At September 30, 2010, December 31, 2009 and September 30, 2009, the Corporation had not elected the fair value option for any financial assets or liabilities.

Share-Based Compensation

The Corporation has granted stock options, stock awards and restricted stock performance units to certain executive and senior management employees. The Corporation accounts for share-based compensation expense for stock options using the modified-prospective transition method. Under that method, compensation expense is recognized for all of the

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Corporation's stock option awards granted after December 31, 2005, based on the estimated grant date fair value as computed using the Black-Scholes option pricing model. The fair value of stock options is recognized as compensation expense on a straight-line basis over the requisite service period. Compensation expense for restricted stock performance units is recognized based on the grant date fair value of the awards over the expected requisite performance period.

Taxes

The difference between the federal statutory income tax rate and the Corporation's effective federal income tax rate is primarily a function of the proportion of the Corporation's interest income exempt from federal taxation, nondeductible interest expense and other nondeductible expenses, including certain acquisition-related transaction expenses, relative to pretax income and tax credits.

Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases at the enacted tax rates expected to be applied to taxable income in the years in which those differences are expected to be recovered or settled. Income tax positions are evaluated to determine whether it is more-likely-than-not that a tax position will be sustained upon examination based on the technical merits of the tax position. If a tax position is more-likely-than-not to be sustained, a tax benefit is recognized for the amount that is greater than 50% likely to be realized. Reserves for contingent tax liabilities attributable to unrecognized tax benefits associated with uncertain tax positions are reviewed quarterly for adequacy based upon developments in tax law and the status of audit examinations. The Corporation had no reserve for contingent income tax liabilities recorded at September 30, 2010.

The tax periods open to examination by the Internal Revenue Service include the calendar years ended December 31, 2009, 2008 and 2007. The same calendar years are open to examination for the Michigan Business Tax/Michigan Single Business Tax with the addition of the calendar years ended December 31, 2006 and 2005.

Earnings Per Common Share

Basic earnings per common share for the Corporation is computed by dividing net income by the weighted average number of common shares outstanding. Basic earnings per common share excludes any dilutive effect of common stock equivalents.

Diluted earnings per common share for the Corporation is computed by dividing net income by the sum of the weighted average number of common shares outstanding and the dilutive effect of common stock equivalents. Average shares of common stock for diluted net income per share include shares to be issued upon exercise of stock options granted under the Corporation's stock option plans, stock to be issued for the deferred compensation plan for non-employee directors, and stock to be issued for the stock purchase plan for non-employee advisors. For any period in which a loss is recorded, the assumed exercise of stock options and stock to be issued for the deferred compensation plan and the stock purchase plan would have an anti-dilutive impact on the loss per common share and thus are excluded in the diluted earnings per common share calculation.

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

The following table summarizes the number of shares used in the numerator and denominator of the basic and diluted earnings per common share computations:

The average number of exercisable employee stock option awards outstanding that were "out-of-the-money," whereby the option exercise price per share exceeded the market price per share and therefore were not included in the computation of diluted earnings per common share were as follows: 638,717 and 564,502 for the three months ended September 30, 2010 and 2009, respectively, and 586,668 and 515,172 for the nine months ended September 30, 2010 and 2009, respectively.

Equity

In January 2008, the board of directors of the Corporation authorized management to repurchase up to 500,000 shares of the Corporation's common stock. Since the January 2008 authorization, the Corporation has not repurchased any shares.

On April 20, 2009, the shareholders of the Corporation authorized the board of directors of the Corporation to issue up to 200,000 shares of preferred stock in connection with either an acquisition by the Corporation of an entity that has shares of preferred stock issued and outstanding pursuant to any program established by the United States government or participation by the Corporation in any program established by the United States government. As of September 30, 2010, no shares of preferred stock were issued and outstanding.

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of related tax benefits (expense), at September 30, 2010, December 31, 2009 and September 30, 2009 were as follows:

Legal Matters

The Corporation and Chemical Bank are subject to certain legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition or results of operations of the Corporation.

Pending Accounting Pronouncements

Fair Value Measurements and Disclosures: In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires reporting entities to make new disclosures about recurring and nonrecurring fair value measurements, including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements, on a gross basis, in the reconciliation of Level 3 fair value measurements. ASU 2010-06 also requires disclosure of fair value measurements by "class" instead of by "major category" as well as any changes in valuation techniques used during the reporting period. For disclosures of Level 1 and Level 2 activity, fair value measurements by "class" and changes in valuation techniques, ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with disclosures for previous comparative periods prior to adoption not required. The adoption of this portion of ASU 2010-06 on January 1, 2010 did not have a material impact on the Corporation's consolidated financial condition or results of operations. For the reconciliation of Level 3 fair value measurements, ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2010. The adoption of this portion of ASU 2010-06 is not expected to have a material impact on the Corporation's consolidated financial condition or results of operations.

Disclosures About Credit Quality: In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under ASU 2010-20, allowance for credit losses and period-end financing receivables are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and delinquency/nonaccrual status are to be presented by class of financing receivable.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the loan portfolio's risk and performance. ASU 2010-20 is effective for interim and annual reporting periods after December 15, 2010.  As ASU 2010-20 only amends disclosure requirements, adoption of ASU 2010-20 for the

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Corporation's reporting period ending December 31, 2010 will not have an impact on the Corporation's consolidated financial condition or results of operations.

Note 2: Acquisitions

O.A.K. Financial Corporation

On April 30, 2010, the Corporation acquired 100% of OAK for total consideration of $83.7 million. The total consideration of $83.7 million exchanged to purchase the 100% interest of OAK consisted of the issuance of 3,529,772 shares of Chemical common stock with a total value of $83.7 million based upon a price per share of Chemical 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 the exchange at the acquisition date of approximately $41,000 and approximately $8,000 of cash in lieu of fractional shares. The issuance of 3,529,772 shares of Chemical 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 are 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 owned two operating subsidiaries, Byron Investment Services, which offered mutual fund products, securities, brokerage services, retirement planning services and investment management and advisory services, and O.A.K. Title Insurance Agency, which offered title insurance to buyers and sellers of residential and commercial properties. As a result of the consolidation of Byron Bank with and into Chemical Bank on July 23, 2010, these two subsidiaries became subsidiaries of Chemical Bank. O.A.K. Title Insurance Agency was legally dissolved on August 31, 2010 and Byron Investment Services is expected to be dissolved in 2011, as these products and services are currently being offered through existing subsidiaries of Chemical Bank. At the acquisition date, OAK had total assets of $820 million, which included $631 million of loans, and $693 million of total deposits.

In connection with the acquisition of OAK, the Corporation recorded $40.4 million of goodwill. Goodwill recorded is primarily attributable to the synergies and economies of scale expected from combining the operations of Chemical and OAK. In addition, the Corporation recorded $10.3 million of other intangible assets in conjunction with the acquisition. The other intangible assets represent the value attributable to core deposits, mortgage servicing rights and non-compete agreements acquired.

As of the acquisition date, Byron Bank became a wholly owned subsidiary of Chemical. Byron Bank was consolidated with and into Chemical Bank on July 23, 2010. The $40.4 million of goodwill recognized in the acquisition of OAK was allocated at the acquisition date to Byron Bank and, therefore, upon the consolidation of Byron Bank with and into Chemical Bank, the goodwill of $40.4 million and other intangible assets of $10.3 million became intangible assets of Chemical Bank.

The results of the merged OAK operations are presented within Chemical's consolidated financial statements from the acquisition date. The disclosure of OAK's post-acquisition revenue and net income is not practical due to the combining of Byron Bank's operations with and into Chemical Bank on July 23, 2010. Acquisition-related transaction expenses associated with the OAK acquisition totaled $1.1 million and $4.1 million for the three and nine months ended September 30, 2010.

The summary computation of the purchase price, including preliminary adjustments to reflect OAK assets acquired and liabilities assumed at fair value, and the allocation of the purchase price to the net assets of OAK are presented below. The acquisition accounting presented below may be adjusted during a measurement period beyond the acquisition date that provides the Corporation with the opportunity to finalize the acquisition accounting in the event that new information is identified that existed as of the acquisition date but was not known by the Corporation at that time. The Corporation anticipates that measurement period adjustments could arise from adjustments to the fair values of assets and liabilities recognized at the acquisition date as additional information is obtained such as appraisals of collateral securing loans and fixed assets, contracts, legal documentation and selected key borrower data. In the event

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

that a measurement period adjustment is identified, the Corporation will recognize the adjustment as part of its acquisition accounting, which may result in an adjustment to goodwill recorded. During the three months ended September 30, 2010, additional appraisal information was obtained about the fair value of premises and equipment which resulted in adjustments to the initial purchase price allocation. These adjustments resulted in an increase to goodwill acquired of $1.1 million.

A summary of adjustments to the initial purchase price allocation was as follows (in thousands):

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Allocation of Purchase Price

The preliminary acquisition date estimated fair values of the assets acquired and liabilities assumed from OAK were as follows (in thousands):

Other intangible assets acquired in the OAK acquisition at April 30, 2010, consisted of the following (in thousands):

The following unaudited pro forma combined results of operations of Chemical and OAK presents results as if the acquisition had been completed as of the beginning of each period indicated. The unaudited pro forma combined results of operations are presented solely for information purposes and are not intended to represent or be indicative of the consolidated results of operations that Chemical would have reported had this transaction been completed as of the dates and for the periods presented, nor are they necessarily indicative of future results. In particular, no adjustments have been made to eliminate the amount of OAK's provision for loan losses incurred prior to the acquisition date that would not have been necessary had the acquired loans been recorded at fair value as of the beginning of each period indicated. In accordance with SEC Regulation S-X, Article 11, transaction costs directly attributable to the acquisition have been excluded.

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010

Unaudited Pro Forma Combined Results of Operations

Note 3:  Investment Securities

Investment securities-trading of $1.5 million held by the Corporation at September 30, 2010 were acquired as part of the OAK acquisition and comprised preferred stock securities of two large banks. The Corporation utilized the observable market price of these preferred securities at September 30, 2010 to estimate the fair value of these securities at that date.

The following is a summary of the amortized cost and fair value of investment securities-available-for-sale and investment securities-held-to-maturity at September 30, 2010, December 31, 2009 and September 30, 2009:

Chemical Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010