CHEMICAL FINANCIAL CORP, 10-K, 1997-03-25

CHEMICAL FINANCIAL CORP
10-K, 1997-03-25
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO __________

Commission File Number 0-8185

CHEMICAL FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Michigan 38-2022454
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

333 E. Main Street
Midland, Michigan 48640
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (517) 839-5350

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $10 Par Value
(Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information

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statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( )

State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.

Aggregate Market Value as of February 28, 1997: $302,328,016

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

Common Stock, $10 par value, outstanding at February 28, 1997:
10,226,714 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1996, are incorporated by reference in Parts I and II
(Items 1 and 5-8).
Portions of the registrant's definitive Proxy Statement for its April 21,
1997, annual shareholders' meeting are incorporated by reference in Part
III (Items 10-13).
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PART I

ITEM 1. BUSINESS.

Chemical Financial Corporation ("Chemical" or the "Corporation") is a
bank holding company. Chemical was organized under Michigan law in
August 1973, and is headquartered in Midland, Michigan. Chemical was
substantially inactive until June 30, 1974, when it acquired its lead
subsidiary bank, Chemical Bank and Trust Company ("CB&T"), pursuant to
a reorganization in which the former shareholders of CB&T became
shareholders of Chemical. As of December 31, 1996, Chemical owned all
of the outstanding stock of ten commercial banks and a data processing
company, all located in Michigan. The main offices of Chemical's ten
banking subsidiaries are in Midland, Bay City, Big Rapids, Cadillac,
Caro, Clare, Grayling, Marshall, Owosso and Stanton.

Chemical's business is concentrated in a single industry segment -
commercial banking. Chemical's subsidiaries offer a full range of
commercial banking and fiduciary services. These include accepting
deposits, business and personal checking accounts, savings and
individual retirement accounts, time deposit instruments,
electronically accessed banking products, residential and commercial
real estate financing, commercial lending, consumer financing, debit
cards, safe deposit services, automated teller machines, access to
insurance products, money transfer services, corporate and personal
trust services and other banking services.

The principal markets for these financial services are the communities
within Michigan in which Chemical's subsidiaries are located and the
areas immediately surrounding these communities. As of December 31,
1996, Chemical and its subsidiaries served these markets through 87
banking offices in 56 communities, located in 24 counties, generally
across the mid-section of Michigan. In addition to the full service
banking offices, the subsidiary banks operated 79 automated teller
machines, both on and off bank premises, as of December 31, 1996.

CB&T, which has its headquarters in Midland, is Chemical's lead
subsidiary bank and accounted for 31% of total deposits and 29% of
total loans of Chemical and its subsidiaries on a consolidated basis
as of December 31, 1996. Chemical's banking subsidiaries' primary
loan product, historically, has been residential real estate
mortgages. As of December 31, 1996, these loans totaled $402 million,
or 49.7%, of consolidated total loans. During the last three years,
it has been Chemical's subsidiaries' practice to generally hold
residential real estate mortgages with a fifteen year or less original
term in their own loan portfolios. Chemical originated $11.8 million
of residential mortgage loans during 1996 which were sold in the

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secondary mortgage market, compared to $15.6 million and $13.6 million
in residential mortgage loans originated and sold during 1995 and
1994, respectively.

The principal sources of revenues for Chemical are interest and fees
on loans, which accounted for 54% of total revenues in 1996, 53% in
1995 and 56% in 1994. Interest on investment securities is also a
significant source of revenue, accounting for 33% of total revenues in
both 1996 and 1995 and 32% in 1994. Chemical has no foreign loans,
assets or activities. No material part of the business of Chemical or
its subsidiaries is dependent upon a single customer or very few
customers, the loss of which would have a materially adverse effect on
Chemical.

The business of banking is highly competitive. In addition to
competition from other commercial banks, banks face significant
competition from nonbank financial institutions. Savings associations
and credit unions compete aggressively with commercial banks for
deposits and loans, and credit unions and finance companies are
particularly significant factors in the consumer loan market. Banks
compete for deposits with a broad range of other types of investments,
the most significant of which, over the past few years, have been
mutual funds and annuities. Insurance companies and investment firms
are significant competitors for customer deposits. In response to
this increased competition for customers' bank deposits, the
Corporation expanded its sales and marketing efforts of mutual fund
and annuity investment products during 1996. The Corporation's
subsidiary banks, through "CFC Investment Centers," began offering a
broader array of mutual funds, annuity products and market securities
through alliances with Security First Group and Corelink Financial
Services. The CFC Investment Centers offer customers a complete
spectrum of investment products and service capabilities. In addition,
the Trust Department of Chemical Bank and Trust Company offers
customers a number of investment products and services. The principal
methods of competition for financial services are price (interest
rates paid on deposits, interest rates charged on borrowings and fees
charged for services) and service (convenience and quality of services
rendered to customers).

Banks and bank holding companies are extensively regulated.
Chemical's subsidiary banks are all chartered by the State of Michigan
and supervised and regulated by the Financial Institutions Bureau of
the State of Michigan. Three of Chemical's banks are members of the
Federal Reserve System and are also supervised, examined and regulated
by the Federal Reserve System. The other seven state non-member banks
are also regulated by the Federal Deposit Insurance Corporation
("FDIC"). Deposits of all of Chemical's bank subsidiaries are insured
by the FDIC to the extent provided by law.

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State banks and bank holding companies are governed by both federal
and state laws which significantly limit their business activities in
a number of respects. Examples of such limitations include: (1)
prior approval of the Board of Governors of the Federal Reserve System
("Federal Reserve Board"), and in some cases various other governing
agencies, is required for bank holding companies to acquire control of
any additional banks or branches, (2) the business activities of bank
holding companies and their subsidiaries are limited to banking and to
other activities which are determined by the Federal Reserve Board to
be closely related to banking, and (3) transactions between bank
holding company subsidiary banks are significantly restricted by
banking laws and regulations.

Chemical is a legal entity separate and distinct from its subsidiary
banks and data processing subsidiary. Chemical's primary source of
revenues results from dividends paid to it by its subsidiaries.
Federal and state banking laws and regulations limit both the extent
to which Chemical's subsidiary banks can lend or otherwise supply
funds to Chemical or certain of its affiliates and also place certain
restrictions on the amount of dividends a subsidiary bank of Chemical
may pay to Chemical.

Banks are subject to a number of federal and state laws and
regulations which have a material impact on their business. These
include, among others, minimum capital requirements, state usury laws,
state laws relating to fiduciaries, the Truth In Lending Act, the
Truth in Savings Act, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Expedited Funds Availability Act, the
Community Reinvestment Act, electronic funds transfer laws, redlining
laws, antitrust laws, environmental laws and privacy laws. These
policies can have a significant effect on the operating results of
banks.

Under Federal law, the FDIC has the authority to impose special
assessments on insured depository institutions to repay FDIC
borrowings from the United States Treasury or other sources, and to
establish semiannual assessment rates on Bank Insurance Fund ("BIF")
member banks, so as to maintain the BIF at the designated reserve
ratio defined by law. On January 1, 1994, the FDIC implemented a
system of risk-based premiums for deposit insurance, pursuant to which
the premiums paid by a depository institution are based on the
probability that the BIF will incur a loss in respect of such
institution. The assessment rates under the new system originally
ranged from 23.0 cents to 31.0 cents per $100 of deposits, depending
upon the assessment category into which the insured depository
institution was placed. During the third quarter of 1995, the FDIC
adopted a new premium rate schedule for BIF insured deposits. The new
rate schedule, which continues to determine assessments based on a

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bank's risk-based capital levels, reduced the minimum assessment rate
to 4.0 cents per $100 of insured deposits, effective June 1, 1995.
Each of the Corporation's subsidiary banks' annual deposit insurance
premium decreased from 23.0 cents to 4.0 cents per $100 of insured
deposits, as of June 1, 1995.

During 1996, the FDIC's minimum assessment rate for BIF insured
deposits was reduced to $1500. Deposits held by well-capitalized
banks and insured by the Savings Association Insurance Fund (SAIF)
continued to be assessed at a rate of 23.0 cents per $100 of insured
deposits in 1996. In addition, during 1996, SAIF insured deposits,
held on March 31, 1995, were assessed a one-time charge of 65.7 cents
per $100 of deposits to recapitalize SAIF to its required reserve
ratio. The Corporation's liability for this special assessment was
approximately $30,000.

The recapitalization of the SAIF was accomplished through the
enactment of The Deposit Insurance Funds Act of 1996 (the "Funds Act")
on September 30, 1996. This legislation, in addition to requiring the
one-time special assessment to the FDIC to capitalize the SAIF to its
required reserve ratio, authorizes the Financing Corporation ("FICO")
to impose periodic assessments on depository institutions that are
members of the BIF, in addition to institutions that are members of
the SAIF. The purpose of these periodic assessments is to spread the
cost of the interest payments on the outstanding FICO bonds over a
larger number of institutions. Until the change in the law, only SAIF-
member institutions bore the cost of funding these interest payments.
In years 1997-1999, the FICO assessment on BIF insured deposits will
be 1.29 cents for every $100 of domestic deposits. For that same
period, the SAIF insured institutions' FICO assessment rate will be
6.44 cents for every $100 in domestic deposits. Beginning in the year
2000 until 2017, BIF and SAIF-insured institutions will pay 2.43 cents
for every $100 in domestic deposits.

Federal law also contains a "cross-guarantee" provision that could
result in insured depository institutions owned by Chemical being
assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other insured depository
institution owned by Chemical. Under Federal Reserve Board policy,
Chemical is expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each subsidiary
bank.

Banks are subject to the provisions of the Community Reinvestment Act
of 1977 ("CRA"). Under the terms of the CRA, the appropriate federal
bank regulatory agency is required, in connection with its examination
of a bank, to assess such bank's record in meeting the credit needs of
the community served by that bank, including low- and moderate-income

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neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is
required of any bank which has applied to: (1) obtain deposit
insurance coverage for a newly chartered institution, (2) establish a
new branch office that will accept deposits, (3) relocate an office,
or (4) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the
case of a bank holding company applying for approval to acquire a bank
or other bank holding company, the Federal Reserve Board will assess
the CRA compliance record of each subsidiary bank of the applicant
bank holding company, and such compliance records may be the basis for
denying the application.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") substantially changed the geographic
constraints applicable to the banking industry. Effective September
29, 1995, the Riegle-Neal Act allows bank holding companies to acquire
banks located in any state in the United States without regard to
geographic restrictions or reciprocity requirements imposed by state
law. Effective June 1, 1997 (or earlier if expressly authorized by
applicable state law), the Riegle-Neal Act also allows banks to
establish interstate branch networks through acquisitions of other
banks. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather
than the acquisition of an out-of-state bank in its entirety) is
allowed by the Riegle-Neal Act only if specifically authorized by
state law. The legislation allows individual states to "opt-out" of
certain provisions of the Riegle-Neal Act by enacting appropriate
legislation prior to June 1, 1997.

Michigan exercised its right to opt-in early to the Riegle-Neal Act,
and now permits both U.S. and non-U.S. banks to establish branch
offices in Michigan. Effective November 29, 1995, the Michigan
Banking Code permits, in appropriate circumstances and with the
approval of the Commissioner of the Financial Institutions Bureau, (1)
acquisition of Michigan banks by FDIC-insured banks, savings banks or
savings and loan associations located in other states, (2) sale by a
Michigan bank of branches to an FDIC-insured bank, savings bank or
savings and loan association located in a state in which a Michigan
bank could purchase branches of the purchasing entity, (3)
consolidation of Michigan banks and FDIC-insured banks, savings banks
or savings and loan associations located in other states having laws
permitting such consolidation, (4) establishment of branches in
Michigan by FDIC-insured banks located in other states, the District
of Columbia or U.S. territories or protectorates having laws
permitting a Michigan bank to establish a branch in such jurisdiction,
and (5) establishment by foreign banks of branches located in
Michigan.

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In March 1996, the Corporation consolidated its bank subsidiary
headquartered in Standish, Michigan (Chemical Bank Huron) with its
bank subsidiary headquartered in Bay City, Michigan (Chemical Bank Bay
Area).

On May 1, 1996, the Corporation merged with State Savings Bancorp,
Inc. ("SSBI") in Caro, Michigan. SSBI operated one bank, State
Savings Bank of Caro, with offices in Caro and Fairgrove, Michigan.
The Corporation issued 525,000 shares of the Corporation's common
stock in exchange for all of the common stock of SSBI. The merger was
accounted for as a "pooling of interests." As of May 1, 1996, SSBI
had assets of approximately $65 million.

On December 31, 1996, the Corporation through CB&T acquired Arbury &
Stephenson, Inc., an insurance agency headquartered in Midland,
Michigan. The merger was effected through an exchange of shares of
the Corporation's common stock.

The nature of the business of Chemical's subsidiaries is such that
they hold title to numerous parcels of real property. These
properties are primarily owned for branch offices; however, Chemical
and its subsidiaries may hold properties for other business purposes,
as well as on a temporary basis for properties taken in or in lieu of
foreclosure to satisfy loans in default. Under current state and
federal laws, present and past owners of real property may be exposed
to liability for the cost of clean up of contamination on or
originating from those properties, even if they are wholly innocent of
the actions that caused the contamination. These liabilities can be
material and can exceed the value of the contaminated property.

At December 31, 1996, Chemical was the seventh largest bank holding
company headquartered in Michigan, measured by total assets, and
together with its subsidiaries employed a total of 993 full-time
equivalent employees.

Chemical adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. The adoption
of this statement had no impact on the financial position or operating
results of Chemical in 1996. Chemical also adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights," in the first quarter of 1996. The adoption of this
statement did not have a material impact on the financial position or
operating results of Chemical in 1996.

The information under the following captions in the registrant's
Annual Report to Shareholders for the year ended December 31, 1996,
further describes the business of Chemical and is here incorporated by
reference:

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<TABLE>
<CAPTION>
CAPTION PAGES
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<S> <C>
Table 2. Average Balances, Tax Equivalent Interest and
Effective Yields and Rates 31
Table 3. Volume and Rate Variance Analysis 32
Note C - Investment Securities 19-20
Table 8. Maturities and Yields of Investment Securities
at December 31, 1996 38
Table 4. Summary of Loans and Loan Loss Experience 32
Table 5. Comparison of Loan Maturities and Interest Sensitivity 34
Table 6. Summary of Nonperforming Loans 35
Table 7. Allocation of the Allowance For Possible Loan Losses 36
Management's Discussion and Analysis of Financial Position and Results of
Operations, subheadings "Net Interest Income", "Loans", "Nonperforming
Loans" and "Provision For Possible Loan Losses" 30-36
Table 10. Maturity Distribution of Time Deposits of $100,000 or More 39
Financial Highlights 3
</TABLE>

ITEM 2. PROPERTIES.

The executive offices of Chemical, the main office of CB&T and
Chemical's data processing subsidiary are located in a three story,
approximately 74,000 square foot, office building in downtown Midland,
which is 100% owned by CB&T.

Chemical's subsidiary banks conduct business from a total of 87
banking offices, as of December 31, 1996. These offices are located
in or in the vicinity of the cities in which the banks have their main
offices. Of the banking offices, 84 are owned by the subsidiary banks
and 3 are leased from independent parties with remaining lease terms
of two years to thirteen years. This leased property is considered
insignificant.

ITEM 3. LEGAL PROCEEDINGS.

Chemical's subsidiaries are parties, as plaintiff or defendant, to a
number of legal proceedings, none of which is considered material, and
all of which arose in the ordinary course of their operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.

Biographical information concerning Chemical's executive officers who
are not directors or nominated for election to the Board of Directors
is presented below. Executive officer appointments are made or
reaffirmed annually at the organizational meeting of the Board of
Directors. At its regular meetings, the Board may also make other
executive officer appointments.

Lawrence E. Burks, age 63, is Vice Chairman of CB&T. He joined CB&T
as Vice President on April 1, 1973, was promoted to Senior Vice
President in February 1975, Executive Vice President in December 1975,
President and Director in April 1986 and Vice Chairman in September
1996. Mr. Burks has served on the Board of Directors of Chemical Bank
Montcalm since June 1984 and was named Chairman of the Board of
Chemical Bank Montcalm in December 1996. Mr. Burks was named Chairman
of the Board of Chemical Bank Bay Area in December 1996. Both banks
are wholly owned subsidiaries of Chemical. Mr. Burks is a member of
the Management Committee of Chemical.

Bruce M. Groom, age 55, is Senior Vice President and Trust Officer of
CB&T. He joined CB&T on April 29, 1985 as Senior Vice President and
was promoted to Senior Trust Officer in May 1986. Mr. Groom has
served on the Board of Chemical Bank Central, a wholly owned
subsidiary of Chemical, since February 1989. Mr. Groom is an attorney
and, prior to joining CB&T, was a member of the law firm of Francis,
Wetmore, and Groom, P.C. Mr. Groom is a member of the Management
Committee of Chemical.

Lori A. Gwizdala, age 38, is Senior Vice President, Chief Financial
Officer and Treasurer of Chemical. She joined Chemical as Controller
on January 2, 1985 and was named Chief Financial Officer in May 1987,
Senior Vice President in February 1991 and Treasurer in April 1994.
Ms. Gwizdala has served as Secretary to the Board of Directors of CFC
Data Corp since May 1986, a director of Chemical Bank Bay Area since
January 1993 and a director of Chemical Bank Thumb Area since July
1996, all of which are wholly owned subsidiaries of Chemical. Ms.
Gwizdala is a certified public accountant and was previously
associated with the accounting firm of Ernst & Young from 1980 to
1984. Ms. Gwizdala is a member of the Management Committee of
Chemical.

William C. Lauderbach, age 54, is Senior Vice President and Investment
Officer of CB&T. He joined CB&T as a Trust Officer on July 2, 1973,
was promoted to Vice President and Trust Officer in March 1980 and
Senior Vice President and Investment Officer in February 1991. Mr.
Lauderbach has served on the Board of Directors of Chemical Bank
South, a wholly owned subsidiary of Chemical, since 1989. Mr.
Lauderbach is a member of the Management Committee of Chemical.

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David B. Ramaker, age 41, is Chief Executive Officer and President of
CB&T and Executive Vice President and Secretary of Chemical. He
joined CB&T as Vice President on November 20, 1989. Mr. Ramaker
became President of Chemical Bank Key State, a wholly owned subsidiary
of Chemical in October 1993. Mr. Ramaker became President and member
of the Board of Directors of CB&T in September 1996 and Executive Vice
President and Secretary to the Board of Chemical and Chief Executive
Officer of CB&T on January 1, 1997. Mr. Ramaker has served as a
director of Chemical Bank Key State since October 1993. Mr. Ramaker
was appointed to the following Boards of Directors of wholly owned
subsidiaries of Chemical in December 1996: Chemical Bank Montcalm,
Chemical Bank Central (also Chairman), Chemical Bank North (also
Chairman), and Chemical Bank West (also Chairman). Mr. Ramaker is a
member of the Management Committee of Chemical.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The information under the heading "Stock Price Ranges and Cash
Dividends" on page 13 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, is here
incorporated by reference. On December 31, 1996, Chemical issued
8,792 shares of common stock, $10.00 par value, in exchange for the
acquisition by CB&T of all of the shares of common stock of Arbury &
Stephenson, Inc., an insurance agency. The shares were issued to an
accredited investor. The issuance of the shares was exempt from the
registration requirements of the federal securities laws pursuant to,
among others, Sections 3(a)(11), 4(2) and 4(6) of the Securities Act
of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA.

The information under the caption "Financial Highlights" on page 3 and
the sub-heading "Financial Highlights" of "Management's Discussion and
Analysis" on pages 28 through 30 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, is here
incorporated by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

The information under the heading "Management's Discussion and
Analysis" on pages 28 through 41 (inclusive) of the registrant's
Annual Report to Shareholders for the year ended December 31, 1996, is
here incorporated by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements, notes, and independent auditors' report on
pages 14 through 27 (inclusive) of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, is here
incorporated by reference.

The information under the caption "Selected Quarterly Financial
Information (Unaudited)" on page 13 of the registrant's Annual Report
to Shareholders for the year ended December 31, 1996, is here
incorporated by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

Not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information set forth under the captions "Nominees for Election to
Serve Until the Annual Meeting of Shareholders in 1998" on pages 2 and
3 and "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 17 in the registrant's definitive Proxy Statement for its
April 21, 1997 annual meeting of shareholders is here incorporated by
reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information set forth under the caption "Compensation of Executive
Officers and Directors" on pages 10 through 14 in the registrant's
definitive Proxy Statement for its April 21, 1997, annual meeting of
shareholders is here incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information set forth under the caption "Voting Securities" on
pages 7 and 8 in the registrant's definitive Proxy Statement for its
April 21, 1997, annual meeting of shareholders is here incorporated by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth under the caption "Certain Relationships and
Related Transactions" on page 17 in the registrant's definitive Proxy
Statement for its April 21, 1997, annual meeting of shareholders is
here incorporated by reference.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) FINANCIAL STATEMENTS. The following financial statements
and independent auditors' report of Chemical Financial Corporation and its
subsidiaries are filed as part of this report:

Consolidated Statements of Financial Position-December 31,
1996 and 1995
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1996.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996
Consolidated Statements of Changes in Shareholders' Equity
for each of the three years in the period ended
December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Auditors dated January 20, 1997

The financial statements, the notes to financial statements, and the
independent auditors' report listed above are incorporated by reference in
Item 8 of this report from the corresponding portions of the registrant's
Annual Report to Shareholders for the year ended December 31, 1996.

(2) FINANCIAL STATEMENT SCHEDULES. None

(3) EXHIBITS. The following exhibits are filed as part of
this report:

NUMBER EXHIBIT

3(a) RESTATED ARTICLES OF INCORPORATION. Previously filed as
Exhibit 3 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995. Here incorporated by
reference.

3(b) BYLAWS. Previously filed as Exhibit 4(b) to the
registrant's S-8 Registration Statement No. 33-47356 filed
with the Commission on April 28, 1992. Here incorporated by
reference.

4 LONG-TERM DEBT. The registrant has outstanding long-term
debt which at the time of this report does not exceed 10% of
the registrant's total consolidated assets. The registrant
agrees to furnish copies of the agreements defining the
rights of holders of such long-term debt to the Securities
and Exchange Commission upon request.

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NUMBER EXHIBIT

10(a) AMENDED AWARD AND STOCK OPTION PLAN OF 1987.* Previously
filed as Exhibit 10(a) to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, filed
with the Commission on March 24, 1994. Here incorporated by
reference.

10(b) AMENDED STOCK OPTION PLAN OF 1983.* Previously filed as
Exhibit 10(b) to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, filed with the
Commission on March 24, 1994. Here incorporated by
reference.

10(c) PLAN FOR DEFERRAL OF DIRECTORS' FEES.* Previously filed as
Exhibit 10(c) to the registrant's Form S-4 Registration
Statement No. 33-64944 filed with the Commission on June 24,
1993. Here incorporated by reference.

10(d) CHEMICAL FINANCIAL CORPORATION SUPPLEMENTAL PENSION PLAN.*
Previously filed as Exhibit 10(c) to the registrant's Annual
Report to Shareholders and Form 10-K for the fiscal year
ended December 31, 1992, filed with the Commission on March
12, 1993. Here incorporated by reference.

10(e) RETIREMENT AGREEMENT.*

11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS.

13 1996 ANNUAL REPORT TO SHAREHOLDERS.

21 SUBSIDIARIES OF THE REGISTRANT.

23 CONSENT OF INDEPENDENT AUDITORS.

27 FINANCIAL DATA SCHEDULE.

99(a) CHEMICAL FINANCIAL CORPORATION 401(K) SAVINGS PLAN FINANCIAL
STATEMENTS, NOTES AND SCHEDULES.

-15-
<PAGE>
NUMBER EXHIBIT

99(b) CHEMICAL FINANCIAL CORPORATION 1992 STOCK PURCHASE PLAN FOR
SUBSIDIARY DIRECTORS FINANCIAL STATEMENTS, NOTES AND
SCHEDULE.

____________________

* These agreements are management contracts or compensation plans or
arrangements required to be filed as Exhibits to this Form 10-K.

Chemical will furnish a copy of any exhibit listed above to any
shareholder of the registrant without charge upon written request to
Ms. Lori A. Gwizdala, Chief Financial Officer, Chemical Financial
Corporation, 333 East Main Street, Midland, Michigan 48640-0569.

(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1996:

None

-16-
<PAGE>
SIGNATURES

Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

CHEMICAL FINANCIAL CORPORATION

March 24, 1997 S/ ALOYSIUS J. OLIVER
Aloysius J. Oliver
President and
Chief Executive Officer

March 24, 1997 S/ LORI A. GWIZDALA
Lori A. Gwizdala
Senior Vice President,
Chief Financial Officer and
Treasurer

-17-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

March 24, 1997 S/ ALOYSIUS J. OLIVER
Aloysius J. Oliver
President and
Chief Executive Officer and
Director
(Principal Executive Officer)

March 24, 1997 S/ JAMES A. CURRIE
James A. Currie
Director

March 24, 1997 S/ MICHAEL L. DOW
Michael L. Dow
Director

March 24, 1997 S/ LORI A. GWIZDALA
Lori A. Gwizdala
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting
Officer)

March 24, 1997 S/ ALAN W. OTT
Chairman of the Board and Director

March 24, 1997 ________________________________________
Frank P. Popoff
Director

March 24, 1997 S/ LAWRENCE A. REED
Lawrence A. Reed
Director

March 24, 1997 S/ WILLIAM S. STAVROPOULOS
William S. Stavropoulos
Director

-18-
<PAGE>
EXHIBIT INDEX

NUMBER EXHIBIT

3(a) RESTATED ARTICLES OF INCORPORATION. Previously filed as
Exhibit 3 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995. Here incorporated by
reference.

3(b) BYLAWS. Previously filed as Exhibit 4(b) to the
registrant's S-8 Registration Statement No. 33-47356 filed
with the Commission on April 28, 1992. Here incorporated by
reference.

10(e) RETIREMENT AGREEMENT.*

11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS.

-19-
<PAGE>
NUMBER EXHIBIT

13 1996 ANNUAL REPORT TO SHAREHOLDERS.

21 SUBSIDIARIES OF THE REGISTRANT.

23 CONSENT OF INDEPENDENT AUDITORS.

27 FINANCIAL DATA SCHEDULE.

99(a) CHEMICAL FINANCIAL CORPORATION 401(K) SAVINGS PLAN FINANCIAL
STATEMENTS, NOTES AND SCHEDULES.

99(b) CHEMICAL FINANCIAL CORPORATION 1992 STOCK PURCHASE PLAN FOR
SUBSIDIARY DIRECTORS FINANCIAL STATEMENTS, NOTES AND
SCHEDULE.

-20-

<PAGE>
EXHIBIT 10(e)

RETIREMENT AGREEMENT

THIS AGREEMENT is made this 31st day of December, 1996, between ALAN
W. OTT ("Mr. Ott") and CHEMICAL FINANCIAL CORPORATION ("Chemical"), and joined
in by its subsidiaries, CHEMICAL BANK AND TRUST COMPANY ("Chemical Bank") and
CHEMICAL BANK THUMB AREA ("Thumb Area");

WHEREAS, Chemical is a bank holding company and a Michigan
corporation; and

WHEREAS, Chemical believes that its ability to conduct its business
successfully is dependent upon retaining key management employees until such
time as they retire; and

WHEREAS, Mr. Ott has been employed in an important management and
chief executive position with Chemical for over 30 years, and the parties
desire to continue to maintain a relationship upon the terms and conditions set
forth herein; and

WHEREAS, Mr. Ott has determined to retire from the active management
of Chemical, but has agreed to provide assistance and advice during the
transition to a new chief executive;

IT IS, THEREFORE, AGREED AS FOLLOWS:

1. RETIREMENT. Effective the close of business December 31, 1996,
Mr. Ott resigns and retires from his position as President and Chief Executive
Officer of Chemical Financial Corporation and Chief Executive Officer of
Chemical Bank. Mr. Ott shall continue to serve as a Director of Chemical,
Chemical Bank, and Thumb Area and Chairman of the Board of Directors of
Chemical and Chemical Bank, through December 31, 1997, without compensation for
Directors' meetings. Mr. Ott may thereafter continue his service to Chemical
for such time and in such role as Chemical and he deem appropriate.

2. COMPENSATION AND BENEFITS. Chemical agrees to pay to Mr. Ott
an annual salary of Fifty Thousand Dollars ($50,000.00), commencing on the
first day of January, 1997, for a period of one year or until his death, if
earlier. Payments to Mr. Ott will be made on the last business day of each
month during the term of this Agreement.

Mr. Ott shall be provided group health benefits in accordance with
the terms of Chemical's Retiree Medical and Dental Plan. If at any time
Chemical terminates any such insurance plan for its retirees, Chemical may also
terminate such plan for Mr. Ott; if Chemical substitutes medical and
hospitalization insurance plans for its retirees or provides additional medical

<PAGE>
or hospitalization insurance coverage for its retirees, then such substituted
and/or additional insurance coverage shall be made available to Mr. Ott.

3. COVENANT NOT TO COMPETE. Mr. Ott agrees that during the period
that payments are being made to him hereunder, he shall not enter into
employment or any form of equity ownership of any business which is competitive
with the businesses related to, affiliated with, or managed by Chemical;
provided, however, that the parties agree that this provision will be limited
to a geographic area consisting of a fifty (50) mile radius from each existing
business location of Chemical or any business related to, affiliated with, or
managed by Chemical. In the event the Board of Directors of Chemical
determines that Mr. Ott is in violation of this covenant not to compete, it
shall give written notice to him. Mr. Ott shall have a period of ninety (90)
days from the date of such notice to cease his competitive activity, and the
payments hereunder shall continue during such period. If the competitive
activity is not terminated within the ninety (90) day period, further payments
hereunder shall cease. In the event of a dispute hereunder, the parties agree
to submit their disagreement to arbitration. Nothing in this Section 3 shall
be construed to prevent Mr. Ott from acquiring or holding, directly or
indirectly, securities of any corporation or other entity the securities of
which are listed for trading on any national or regional securities exchange or
quoted on any automated quotation system sponsored by the National Association
of Securities Dealers, Inc. as long as Mr. Ott's total beneficial ownership in
any such corporation or entity does not exceed five percent (5%) of the total
securities outstanding of such corporation or entity.

4. NO ASSIGNMENT. This Agreement is personal to each party to
this Agreement and no party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of the others.

5. MODIFICATION. This Agreement supersedes all prior agreements
with respect to the matters covered hereby, and no modification of this
Agreement shall be valid unless it is in writing and signed by Chemical and by
Mr. Ott.

6. CONSTRUCTION. This Agreement shall be governed and construed
in accordance with the laws of the State of Michigan.

7. HEADINGS. The paragraph headings in this Agreement are for
convenient reference only, and shall not modify or amend the express terms
hereof.

8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and assigns.

-2-
<PAGE>
DATED: _________________, 1996 ________________________________________
Alan W. Ott

CHEMICAL FINANCIAL CORPORATION

DATED: _________________, 1996 By______________________________________

Its __________________________________

CHEMICAL BANK AND TRUST
COMPANY

DATED: _________________, 1996 By______________________________________

Its __________________________________

CHEMICAL BANK THUMB AREA

DATED: _________________, 1996 By______________________________________

Its __________________________________

-3-

<PAGE>
EXHIBIT NO. 11

<TABLE>
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>

YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
(Amounts in thousands,
except per share amounts)
<S> <C> <C> <C>
PRIMARY:

Average shares outstanding 10,200 10,150 10,104

Net effect of the assumed exercise of
stock options-based on the treasury stock
method using average market price 148 155 153
------- ------- -------
10,348 10,305 10,257
======= ======= =======

Net income $22,003 $20,489 $19,110
======= ======= =======

Net income per common share $ 2.13 $ 1.99 $ 1.86
======= ======= =======

FULLY DILUTED:

Average shares outstanding 10,200 10,150 10,104

Net effect of the assumed exercise of
stock options-based on the treasury
stock method using year-end market price 152 178 153
------- ------- -------
10,352 10,328 10,257
======= ======= =======

Net income $22,003 $20,489 $19,110
======= ======= =======

Net income per common share $ 2.13 $ 1.99 $ 1.86
======= ======= =======
</TABLE>

<PAGE>
EXHIBIT 13

[CHEMICAL LOGO]

CHEMICAL FINANCIAL CORPORATION

[PICTURE OF BUILDING CONSTRUCTION]

[PICTURE OF BAND PRACTICING]

[PICTURE OF LITTLE GIRL HOLDING A BUCKET IN A
FIELD WITH SHEEP]

1996
ANNUAL REPORT

<PAGE>
1996 HIGHLIGHTS

1996 MARKED THE 22ND CONSECUTIVE YEAR of both increased operating earnings
and cash dividends:

- 1996 Earnings were $22.003 million, up 7.4% over 1995 Earnings of
$20.489 million.

- 1996 Earnings per share were $2.13, up 7% over 1995 Earnings per
share of $1.99.

- Return on average assets was 1.30% in 1996, compared to 1.24% in
1995.

- 1996 Cash dividends per share were $.76, up 17.6% over 1995 Cash
dividends per share of $.65.

- The Corporation paid a 5% stock dividend on December 30, 1996.

The Corporation's financial position remained strong at December 31, 1996.
Highlights as of this date follow:

- Total assets were $1.7 billion.

- Shareholders' equity was $207.3 million and represented 12.2% of
total assets.

- The allowance for possible loan losses was $16.6 million, or
2.06% of total loans, compared to total nonperforming loans of
$1.9 million, or .23% of total loans.

On March 21, 1996, Chemical Bank Huron was merged into Chemical Bank Bay
Area.

On May 1, 1996, the Corporation acquired State Savings Bancorp, Inc. (SSBI)
in Caro, Michigan. SSBI operated one bank, State Savings Bank of Caro, with
offices in Caro and Fairgrove. The Corporation renamed the bank Chemical
Bank Thumb Area and through a corporate reorganization transferred seven
branches of Chemical Bank Bay Area, located in the thumb area of Michigan,
to Chemical Bank Thumb Area.

On December 31, 1996, the Corporation acquired an independent insurance
agency, Arbury & Stephenson, Inc. in Midland, Michigan, through a
subsidiary of Chemical Bank and Trust Company, the Corporation's lead
subsidiary bank.

- ---------------------------------------------------------------------------

<TABLE>
REFERENCE GUIDE
<CAPTION>
<S> <C>
1996 Highlights. . . . . . . . . . . . . 2 Consolidated Financial Statements . . . . . . . 14

Financial Highlights . . . . . . . . . . 3 Notes to Consolidated Financial Statements. . . 18

Message to Shareholders. . . . . . . . . 4 Report of Ernst & Young, LLP
Independent Auditors. . . . . . . . . . . . . 27
Community Involvement. . . . . . . . . . 6
Management's Discussion and Analysis. . . . . . 28
Mortgage Lending . . . . . . . . . . . . 8
Directors and Officers of Affiliates. . . . . . 42
Business Development . . . . . . . . . .10
Corporate Information
Retirement of Alan W. Ott. . . . . . . .12 and Board of Directors. . . . . . . . . . .46-47

Quarterly Financial Information. . . . .13
</TABLE>

<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Years Ended December 31

1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS (in thousands)
Net interest income. . . . . . . . . . . $ 67,090 $ 63,687 $ 63,278 $ 62,645 $ 62,320
Provision for possible
loan losses . . . . . . . . . . . . . . 1,128 1,065 1,099 1,104 1,463
Other income . . . . . . . . . . . . . . 12,198 12,359 11,330 11,876 10,635
Operating expenses . . . . . . . . . . . 45,124 44,629 45,613 46,746 45,807
Net operating income . . . . . . . . . . 22,003 20,489 19,110 18,165 17,484
Net income . . . . . . . . . . . . . . . 22,003 20,489 19,110 20,165 17,484

PER SHARE DATA
Net operating income . . . . . . . . . . $ 2.13 $ 1.99 $ 1.86 $ 1.77 $ 1.73
Net income . . . . . . . . . . . . . . . 2.13 1.99 1.86 1.97 1.73
Cash dividends . . . . . . . . . . . . . .76 .65 .53 .48 .44
Book value end-of-period . . . . . . . . 20.30 19.15 16.87 16.38 14.90
Market value end-of-period . . . . . . . 39.50 36.66 25.40 26.03 22.37

AT YEAR END (in thousands)
Total assets . . . . . . . . . . . . . . $1,698,774 $1,706,085 $1,658,023 $1,653,246 $1,635,055
Deposits . . . . . . . . . . . . . . . . 1,429,915 1,449,801 1,421,678 1,425,415 1,421,541
Long-term debt . . . . . . . . . . . . . 10,000 12,080 12,099 14,104 16,057
Shareholders' equity . . . . . . . . . . 207,269 194,902 170,680 165,037 149,401

FINANCIAL RATIOS
Return on average total assets . . . . . 1.30% 1.24% 1.15% 1.23% 1.10%
Return on average
shareholders' equity. . . . . . . . . . 10.9 11.0 11.1 12.8 12.2
Average shareholders' equity to
average total assets. . . . . . . . . . 11.9 11.3 10.4 9.6 9.0
Cash dividends paid per share
to net income per share . . . . . . . . 35.7 32.7 28.5 24.4 25.4
Allowance for possible loan
losses to total loans . . . . . . . . . 2.06 2.09 2.01 2.00 1.92
Tangible equity to assets. . . . . . . . 12.0 11.2 10.1 9.7 8.9
</TABLE>

[LOAN COMPOSITION GRAPH [BOOK VALUE PER SHARE GRAPH] [CASH DIVIDENDS PER
DECEMBER 31, 1996] SHARE GRAPH]

3
<PAGE>
MESSAGE TO OUR SHAREHOLDERS

1996 was another record year for Chemical Financial Corporation. Net
income was $22 million or $2.13 per common share. Net income was 7.4% more
than the earnings of $20.5 million ($1.99 per share) that we reported for
1995. Moreover, this was the twenty-second consecutive year in which we
experienced an increase in operating income.

[NET OPERATING INCOME PER SHARE GRAPH] [NET INCOME PER SHARE GRAPH]

[NET INCOME (THOUSANDS) GRAPH] [TOTAL ASSETS (THOUSANDS) GRAPH]

At the end of the year, our total assets were $1.7 billion, total
deposits were $1.4 billion, total loans were $807.7 million and
shareholders' equity was $207.3 million. Note I to the enclosed financial
statements shows how favorably our capital ratios compare to the minimums
required by banking regulators.

Other highlights in the financial statements include our improved net
interest income and the modest increase in total operating expenses. Net
interest income went up due to stronger loan demand and increases in some
operating expenses were offset by reduced FDIC insurance premiums.

We can report improvements in our earnings year after year because we
understand how to operate a successful "super community bank." We
specialize in providing a full array of financial services to a significant
number of smaller cities and towns where, in some markets, we operate the
only banking office.

[PICTURE OF ALAN W. OTT, CHAIRMAN]

We can operate successfully in these smaller markets because we have a
different cost structure and operating philosophy than the megabanks. We do
not have an extensive middle management structure nor do we have a large
support staff. Moreover, it is not necessary for us to incur the expense
and risks of research and development because we rely only on proven
technology. As a consequence, our fixed overhead is considerably lower than
the largest banks and we can earn a profit on volumes of business they find
unprofitable.

Because the majority of the markets we serve are small and growing
slowly, we seek performance improvements in modest steps. For the most
part, these steps involve careful control of non-interest expenses,

4
<PAGE>
active marketing of credit services (including newer ones such as home equity
loans and lines of credit) and the promotion of services that produce fee
income.

Increasing fee income holds the most promise of allowing us to improve
our performance in the years ahead. During 1996, we organized CFC Title
Services, Inc., a title insurance sales organization. Then, late in the
year, we acquired Arbury & Stephenson, Inc., a Midland property and
casualty insurance agency, and merged it into CFC Financial Services, Inc.
Both of these insurance sales activities were structured as subsidiaries of
Chemical Bank and Trust Company, our lead bank, because banks chartered in
Michigan may now engage in insurance agency activities while federally
supervised bank holding companies may not.

Chemical Bank and Trust Company and four other affiliate banks also
entered into agreements with Security First Group and Corelink Financial
Services to operate a network of CFC Investment Centers offering their
customers mutual funds, market securities and annuities. Over time, we
believe that these activities will make increasingly significant
contributions to net income. And, as laws and regulations permit, our banks
will remain alert for other activities that will produce fee income with
minimal capital investments.

We also seek opportunities to expand our operations into new markets.
In recent years, we have purchased a number of branch offices from other
institutions and we expect to have other opportunities to expand this way
as the largest banks continue to shift their efforts to major population
centers. In addition, we continue to be interested in further acquisitions
of independent banks that fit into our strategic plan.

Neither are we adverse to establishing de novo banks and branches in
new markets when promising situations arise. During 1996, we opened a new
office of Chemical Bank and Trust Company in Alma, a prosperous college
town where we already had a good number of customers who had been doing
business at our other Gratiot County locations.

We also believe that our organization as a group of community banks
helps us achieve our strategic goals. The directors of our affiliate banks
provide us with market intelligence that we could not get in any other way.
Four of these directors retired last year under our directors retirement
plan. Dr. Frank Martin had been a director of Chemical Bank Michigan since
1973. F. R. ("Pete") Lehman joined the board of Chemical Bank and Trust
Company in 1986. Dr. Leland Hickox was elected to the board of the First
National Bank of Big Rapids (now Chemical Bank Central) in 1969. Robert
Brundage had served as a director to Chemical Bank Montcalm since 1961. We
thank these gentlemen for their many contributions to the advancement of
our company and wish them well in the years ahead.

As you know, I retired as a full-time employee on December 31, 1996,
although I will continue to serve as a director and chairman of the board
of the company and our lead bank, Chemical Bank and Trust Company. I will
also remain on the board of Chemical Bank Thumb Area while this newest
affiliate and its able staff become thoroughly integrated into our company.

I would like to thank our corporate and bank directors, our officers,
our staff, and you, our shareholder, for the support and cooperation given
me over the past 25 years since I first was named president of Chemical
Bank and Trust Company. Working together, we have accomplished a great
deal. I am confident that those who succeed me will lead the company and
our affiliate banks to even greater success in the years ahead.

Sincerely,

/s/ Alan W. Ott

Alan W. Ott
Chairman of the Board

<PAGE>
COMMUNITY INVOLVEMENT

"SUPPORTING THE 4-H MOVEMENT PROVIDES OPPORTUNITIES FOR PEOPLE THROUGHOUT
THE CHEMICAL BANK ORGANIZATION TO BECOME PERSONALLY INVOLVED IN THE
COMMUNITIES WE SERVE."

- - ALAN W. OTT, CHAIRMAN OF THE BOARD

[4-H LOGO]

[PICTURE OF WESLEY GARRET, MIDLAND COUNTY FAIR 4-H PARTICIPANT, AND
LAWRENCE E. BURKS, VICE CHAIRMAN OF THE BOARD, CHEMICAL BANK AND TRUST CO.]

[PICTURE OF LITTLE GIRL HOLDING A BUCKET IN HER HANDS WITH TWO LARGE SHEEP
AND 2 BABY SHEEP]

<PAGE>
FOR MORE THAN 80 YEARS, local 4-H Clubs have contributed to the
positive development of young people by promoting the FOUR H'S: HEAD
(knowledge), HEART (traditional values), HAND (practical skills) and HEALTH
(good life styles). Consequently, Chemical Financial Corporation and its
affiliate banks are enthusiastic supporters of the 4-H movement.

[PICTURE OF RACHELL MANNING, MIDLAND COUNTY FAIR 4-H PARTICIPANT WITH HER
COW]

Our chairman, Alan W. Ott, has been a trustee of the Michigan 4-H
Foundation and has served as chairman of its finance committee since 1988.
In this role, he has helped to assure the foundation's stewardship of its
resources and its efforts to be financially sound. In recognition of his
personal involvement in 4-H activities and the support given by the
Chemical Financial organization, he was recently given the Michigan 4-H
Citation, the Michigan 4-H Youth Program's highest award.

At the local level, Chemical Banks purchase the animals raised by 4-H
members at annual auctions. Dozens of Chemical Bank employees volunteer to
work at 4-H fairs as auctioneers, billing clerks, photographers, ticket
sellers and cashiers. Others volunteer as leaders of local clubs. Some
Chemical Banks administer the payment and remittance process at 4-H
livestock auctions.

Our affiliate banks also play an active role in supporting many other
aspects of the 4-H program. We work with Michigan State University County
Extension 4-H Youth Agents and support 4-H organizations at every level to
publicize their activities and the accomplishments of their young members.
We provide support for awards and banquets that honor adult leaders and
livestock buyers. The Corporation and its affiliated banks are dedicated to
working with the 4-H organization in supporting activities that foster the
development of our youth as they mature into the leaders of tomorrow.

As a super community bank, we are committed to being a good corporate
citizen wherever we operate. Over the years, we have found few
opportunities to be of service that provide a greater return on our
financial contributions and the efforts of our staff members than support
of, and participation in, the 4-H movement.

<PAGE>
MORTGAGE LENDING

"THIS IS THE HOME WE'VE ALWAYS DREAMED OF OWNING, AND CHEMICAL BANK HELPED
US MAKE IT POSSIBLE. FROM THE MOMENT WE SHOWED THEM THE PLANS, WE KNEW THEY
WERE ON OUR SIDE."

- - DR. JOHN BASLER

[PICTURE OF SIX PEOPLE LOOKING AT A DRAWING PLAN]

[PICTURE OF A HOUSE BEING BUILT]

<PAGE>
THE IDEAL OF HOME OWNERSHIP is deeply imbedded in the American Way of
Life. This is a nation where people from all walks of life can
realistically aspire to own a home. Over the years, numerous programs have
been developed that make it easier for people to finance the purchase of a
place to live. For many people, buying a home has also proven to be the
best investment they ever made.

Chemical Financial Corporation affiliates have always shared a
commitment to do everything possible to help people finance a home and
achieve the dream of home ownership that has been so important throughout
our nation's history. That is why, today, we are one of the largest volume
residential mortgage lenders in mid-Michigan

[PICTURE OF MAN BUILDING HOUSE]

In the three-year period ending December, 31, 1996, the ten Chemical
Banks loaned a grand total of $359 million to 6,087 home owners. In 1996,
alone, they granted loans secured by residential real estate totaling $152
million to 2,363 families and individuals. This was a 37.3% increase in the
number of loans and a 53.25% increase in the total amount loaned over our
mortgage lending activity in 1995.

Over the years, we have sold millions of dollars of the mortgages made
by Chemical Banks in the secondary market. Still, at the end of 1996, we
had $402 million of residential mortgages in the loan portfolios of our
affiliates. They represented 49.7% of all of our outstanding loans.

Our strong commitment to helping home buyers in the markets where we
do business is an essential part of our strategy of being a super community
bank. This strategy requires us to be "THE BANK FOR EVERYBODY." The people
who live and work in the communities served by a Chemical Bank, like Dr.
and Mrs. John Basler who financed their new home at Chemical Bank Bay Area,
have come to count on us to help them achieve the American Dream of home
ownership. We believe that we would be violating one of the basic
obligations of a community banking organization if we ever let them down.
And we have no intention of doing so.

<PAGE>
BUSINESS DEVELOPMENT

"WHENEVER WE'VE NEEDED A FINANCIAL SERVICE OR A LOAN TO TAKE ADVANTAGE OF A
NEW OPPORTUNITY, CHEMICAL BANK HAS BEEN THERE. THEY'RE MORE THAN OUR BANK.
THEY'RE OUR PARTNER!"

- - RICHARD AND O. DAVID ROGERS

[PICTURE OF TWO WOMEN TALKING AND ONE MAN PUTTING A PLATFORM TOGETHER]

[PICTURE OF A BAND PRACTICING]

[PICTURE OF A BASKETBALL ARENA]

<PAGE>
AS A COMMUNITY BANKING ORGANIZATION, we believe that our company will
grow and prosper only if we are successful in helping the communities we
serve grow and prosper along with us. One of the principal ways we achieve
this dual goal is by assisting local business organizations as they develop
and expand.

StageRight Corporation of Clare, Michigan, has its origins in 1971
when brothers David and Richard Rogers expanded the family business of
repairing athletic equipment for local schools in central Michigan. In
1982, Chemical Bank Michigan helped the Rogers buy a commercial building to
house this venture. Within a few years, their business had grown into
Rogers Athletic Company, Inc., a leading designer and manufacturer of
football practice equipment sold nationally to public and private schools,
universities and professional teams.

[PICTURE OF RICHARD ROGERS, VICE PRESIDENT, AND O. DAVID ROGERS, PRESIDENT,
STAGERIGHT CORPORATION]

In 1984, the Rogers brothers developed a line of portable risers for
use by church and school choirs and organized the StageRight Corporation to
manufacture and market it. Soon thereafter, the company designed and
brought a new line of portable stages to market. Since then, StageRight
Corporation has continued to expand its product lines and has become an
international supplier of quality platform systems noted for their
innovative design and high quality. Today, the affiliated companies have
more than 200 employees and annual sales of nearly $20 million. Its
products are used everywhere, from the smallest schools to the largest
arenas and auditoriums.

The primary reason for the success of StageRight Corporation has been
the management skill and entrepreneurial vision of the company's founders.
The Chemical Financial organization is proud to have been able to support
and work with them and help them grow by providing a complete line of
banking services, including commercial mortgages, term loans, lines of
credit, cash management services and, most recently, our CHEMCONNECT
electronic banking service.

StageRight Corporation's story of continuously compounding success has
been good for the Rogers brothers, for the people who have found good,
secure jobs working for the company, for the residents and business
community in the Clare area and for Chemical Financial Corporation. We are
very pleased that we have had an opportunity to be a part of the story.

<PAGE>
RETIREMENT OF ALAN W. OTT

Alan Ott began his banking career just after World War II ended when
he went to work as a part-time bookkeeper at the First National Bank of
Manistique. He was still in high school at the time. Alan made such a good
impression that, soon after he graduated, he was offered a full-time job as
the bank's assistant cashier even though he was only 18 years old.

He served in the Army during the Korean War but, after being
discharged, returned to the bank in his home town. Then, in 1956, he moved
on to become the cashier at Citizens State Bank in Clare (now Chemical Bank
Michigan). In Clare, he impressed his superiors just as he had in
Manistique. He was only 29 years old when he was elected to the board of
Citizens State Bank in 1961.

Alan Ott's work at the bank in Clare soon brought him to the attention
of bankers in other mid-Michigan communities. They were not surprised when
he was offered the position of cashier at much larger Chemical State
Savings Bank in Midland in 1962. The bank's total assets at the time were
$36 million.

[PICTURE OF ALAN W. OTT, CHAIRMAN]

As in his previous jobs, he quickly convinced the people he worked
with that he was someone who could get things done. He was made a vice
president in 1964 and elected to the board of directors in 1969. When he
joined the board, it was already clear that Alan Ott would likely succeed
the bank's president, Richard Todd, upon his retirement. But Mr. Todd died
suddenly in 1972.

The board was faced with a difficult decision as a result of Mr.
Todd's death. They had expected Alan Ott to succeed him one day but he was
then only 40 years old, a very young age for a bank president in that era.
Still, the board named him the bank's president and chief executive
officer. The rest is history.

He spearheaded the organization of Chemical Financial Corporation in
1974 and became the company's first president and chief executive officer.
Over the next 22 years, he personally negotiated the acquisition of 17
banks. He might not have realized it, but he helped to invent the modern
super community bank. No one deserves more credit for the development and
success of the CFC organization than he does.

In almost 50 years as a banker, Alan Ott has witnessed incredible
changes in the banking industry. But he was never just an observer. He was
always an energetic leader who helped bring about some of the most
important developments in the history of banking.

<PAGE>
QUARTERLY FINANCIAL INFORMATION

<TABLE>
STOCK PRICE RANGES AND CASH DIVIDENDS
<CAPTION>
1996 1995
CASH CASH
HIGH LOW DIV. HIGH LOW DIV.
<S> <C> <C> <C> <C> <C> <C>
First quarter. . . . . . . . $37.86 $35.48 $.190 $26.19 $24.29 $.152
Second quarter . . . . . . . 37.86 34.29 .190 26.90 26.19 .152
Third quarter. . . . . . . . 34.29 31.43 .191 34.29 26.90 .172
Fourth quarter . . . . . . . 39.50 32.38 .191 37.14 34.29 .172
----- -----
$.762 $.648
===== =====
</TABLE>

Chemical Financial Corporation common stock is traded on the NASDAQ
Stock Market under the symbol CHFC. The above table sets forth the range of
bid prices for Chemical Financial Corporation common stock for the periods
indicated. These quotations reflect inter-dealer prices, without retail
markup, markdown, or commission, and may not necessarily represent the
actual transactions. As of December 31, 1996, there were 10,209,790 shares
of Chemical Financial Corporation common stock issued and outstanding held
by approximately 3,800 shareholders of record.

The earnings of the Corporation's subsidiary banks are the principal
source of funds to pay cash dividends. Consequently, cash dividends are
dependent upon the earnings, capital needs, regulatory constraints, and
other factors affecting each individual bank. See Note H to the
Consolidated Financial Statements for a discussion of such limitations.
Management expects the Corporation to declare and pay regular quarterly
cash dividends on its common shares in 1997.

<TABLE>
SELECTED QUARTERLY FINANCIAL INFORMATION (Unaudited)

(In thousands, except per share data)
<CAPTION>
1996 1995
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . . $27,915 $28,241 $28,431 $28,665 $26,583 $27,155 $27,384 $28,256
Interest expense . . . . . . . . . 11,827 11,524 11,382 11,429 10,791 11,336 11,550 12,014
Net interest income. . . . . . . . 16,088 16,717 17,049 17,236 15,792 15,819 15,834 16,242
Provision for possible
loan losses . . . . . . . . . . . 268 270 273 317 250 240 260 315
Investment securities gains. . . . 14 1
Income before income taxes . . . . 7,433 7,835 8,101 9,667 6,779 6,986 7,589 8,998
Net income . . . . . . . . . . . . 4,993 5,163 5,412 6,435 4,593 4,771 5,075 6,050
Net income per share . . . . . . . .48 .50 .52 .63 .44 .47 .49 .59
</TABLE>

<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Years Ended December 31
1996 1995 1994
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . $ 67,470 $ 64,305 $ 61,875
Interest on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . 38,882 37,675 33,870
Tax-exempt. . . . . . . . . . . . . . . . . . . . . . 2,189 2,394 2,454
-------- -------- --------
TOTAL INTEREST ON SECURITIES 41,071 40,069 36,324
Interest on federal funds sold . . . . . . . . . . . . 4,575 4,800 3,378
Interest on deposits with unaffiliated banks . . . . . 136 204 66
-------- -------- --------
TOTAL INTEREST INCOME 113,252 109,378 101,643

INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . 44,284 43,306 36,468
Interest on short-term borrowings. . . . . . . . . . . 1,163 1,552 1,159
Interest on long-term debt . . . . . . . . . . . . . . 715 833 738
-------- -------- --------
TOTAL INTEREST EXPENSE 46,162 45,691 38,365
-------- -------- --------
NET INTEREST INCOME 67,090 63,687 63,278
Provision for possible loan losses Note D. . . . . . 1,128 1,065 1,099
-------- -------- --------
NET INTEREST INCOME After Provision for
Possible Loan Losses. . . . . . . . . . . . . . . . . 65,962 62,622 62,179
OTHER INCOME
Trust department income. . . . . . . . . . . . . . . . 2,897 2,681 2,616
Service charges on deposit accounts. . . . . . . . . . 5,382 5,193 4,483
Other charges and fees for customer services . . . . . 2,707 2,635 2,378
Revenue from data processing services. . . . . . . . . 719 1,011 1,032
Gains on sales of loans. . . . . . . . . . . . . . . . 137 526 188
Investment securities gains. . . . . . . . . . . . . . 15 265
Other. . . . . . . . . . . . . . . . . . . . . . . . . 341 313 368
-------- -------- --------
TOTAL OTHER INCOME 12,198 12,359 11,330
OPERATING EXPENSES
Salaries, wages and employee benefits. . . . . . . . . 26,964 25,703 25,408
Occupancy expense premises . . . . . . . . . . . . . . 4,261 4,028 4,043
Equipment rentals, depreciation and maintenance. . . . 2,884 2,732 2,904
Other. . . . . . . . . . . . . . . . . . . . . . . . . 11,015 12,166 13,258
-------- -------- --------
TOTAL OPERATING EXPENSES 45,124 44,629 45,613
-------- -------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . 33,036 30,352 27,896
Federal income taxes . . . . . . . . . . . . . . . . . 11,033 9,863 8,786
-------- -------- --------
NET INCOME $ 22,003 $ 20,489 $ 19,110
======== ======== ========
PER COMMON SHARE NOTE A:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 2.13 $ 1.99 $ 1.86
======== ======== ========
Cash dividends . . . . . . . . . . . . . . . . . . . . $ .76 $ .65 $ .53
======== ======== ========
</TABLE>
See notes to consolidated financial statements.

<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<CAPTION>
December 31
1996 1995
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and demand deposits due from banks. . . . . . . . . . . . . . . . . . $ 89,517 $ 91,017
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,200 84,900
Interest bearing deposits with unaffiliated banks. . . . . . . . . . . . . 1,134 2,981
Investment securities Notes A and C:
Held to maturity (estimated market value
$215,494 in 1996 and $397,061 in 1995) . . . . . . . . . . . . . . . . 213,752 392,429
Available for sale (at estimated market value). . . . . . . . . . . . . . 441,787 341,670
---------- ----------
Total investment securities 655,539 734,099
Loans Note D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 807,653 760,578
Less: Allowance for possible loan losses. . . . . . . . . . . . . . . . . 16,607 15,886
---------- ----------
Net loans 791,046 744,692
Premises and equipment Note A. . . . . . . . . . . . . . . . . . . . . . 20,335 20,448
Accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,419 15,619
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,584 12,329
---------- ----------
TOTAL ASSETS $1,698,774 $1,706,085
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 226,965 $ 214,335
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202,950 1,235,466
---------- ----------
Total deposits 1,429,915 1,449,801
Short-term borrowings:
Treasury tax and loan notes payable to the U.S. Treasury. . . . . . . . . 9,458 7,084
Securities sold under agreements to repurchase. . . . . . . . . . . . . . 27,875 28,139
---------- ----------
37,333 35,223
Interest payable and other liabilities . . . . . . . . . . . . . . . . . . 14,257 14,079
Long-term debt Note G. . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 12,080
---------- ----------
Total liabilities 1,491,505 1,511,183
Shareholders' equity Notes H, I and J:
Common stock, $10 par value:
Authorized 15,000,000 shares
Issued and outstanding 10,209,790 shares
in 1996 and 9,694,376 shares in 1995. . . . . . . . . . . . . . . . . . 102,098 96,944
Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,616 56,918
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,737 39,665

Unrealized net gain (loss) on investment
securities available for sale. . . . . . . . . . . . . . . . . . . . . . . (182) 1,375
---------- ----------
Total shareholders' equity 207,269 194,902
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,698,774 $1,706,085
========== ==========
</TABLE>
See notes to consolidated financial statements.

<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Years Ended December 31
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,003 $ 20,489 $ 19,110
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for possible loan losses. . . . . . . . . . . . . . . . . 1,128 1,065 1,099
Provision for depreciation and amortization . . . . . . . . . . . . 2,793 2,801 2,952
Investment securities gains . . . . . . . . . . . . . . . . . . . . (15) (265)
Net amortization of investment securities . . . . . . . . . . . . . 2,546 2,450 3,412
Net (increase) decrease in accrued income and other assets. . . . . 2,259 (863) (338)
Net increase (decrease) in interest payable and other
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 1,544 (50)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,872 27,486 25,920

INVESTING ACTIVITIES
Cash and cash equivalents assumed in acquisition of branch
offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,661 8,273
Net (increase) decrease in interest bearing deposits with
unaffiliated banks. . . . . . . . . . . . . . . . . . . . . . . . . . 1,847 (14) (2,967)
Proceeds from maturities of investment securities held to
maturity Note C . . . . . . . . . . . . . . . . . . . . . . . . . . 200,557 27,694 26,401
Purchases of investment securities held to maturity Note C . . . . . (45,625) (102,448) (75,688)
Proceeds from maturities of investment securities available
for sale Note C . . . . . . . . . . . . . . . . . . . . . . . . . . 109,233 201,593 267,876
Proceeds from sales of investment securities available for
sale Note C . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522 58,972
Purchases of investment securities available for sale Note C . . . . (191,055) (148,454) (278,387)
Net increase in loans. . . . . . . . . . . . . . . . . . . . . . . . . (48,143) (689) (31,152)
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (2,349) (1,084) (1,652)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 24,987 (8,741) (28,324)

FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts and savings
accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,845) (13,689) (39,718)
Net increase in certificates of deposit and other time
deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,959 25,915 27,707
Net increase (decrease) in short-term borrowings . . . . . . . . . . . 2,110 (5,799) 4,906
Principal payments on long-term debt . . . . . . . . . . . . . . . . . (2,080) (19) (2,005)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . (7,771) (6,636) (5,611)
Proceeds from stock purchase plan. . . . . . . . . . . . . . . . . . . 264 236 243
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 339 453 229
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . (1,035)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (28,059) 461 (14,249)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,800 19,206 (16,653)
Cash and cash equivalents at beginning of year 175,917 156,711 173,364
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $203,717 $175,917 $156,711
======== ======== ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid on deposits, short-term borrowings and
long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,685 $ 44,757 $ 38,277
Federal income taxes paid. . . . . . . . . . . . . . . . . . . . . . . 11,106 9,576 9,440
</TABLE>
See notes to consolidated financial statements.

<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
UNREALIZED
NET GAIN (LOSS)
ON INVESTMENT
SECURITIES
COMMON RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994. . . . . . . . . . . . . . $ 62,739 $47,176 $55,122 $165,037
Stock dividend 5% . . . . . . . . . . . . . . . . . . 2,887 9,455 (12,342)
Net income for 1994. . . . . . . . . . . . . . . . . . 19,110 19,110
Cash dividends paid. . . . . . . . . . . . . . . . . . (5,611) (5,611)
Shares issued upon exercise of employee
stock options (including related tax benefit) . . . . 248 (10) 238
Shares issued from stock purchase plan . . . . . . . . 46 149 195
Adjustment for change in
accounting method, net of income taxes. . . . . . . . $ 4,138 4,138
Change in unrealized gains/(losses) on
investment securities available for sale. . . . . . . (12,427) (12,427)
-------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1994. . . . . . . . . . . . . 65,920 56,770 56,279 (8,289) 170,680
Stock split 3 for 2. . . . . . . . . . . . . . . . . 30,467 (30,467)
Net income for 1995. . . . . . . . . . . . . . . . . . 20,489 20,489
Cash dividends paid. . . . . . . . . . . . . . . . . . (6,636) (6,636)
Shares issued upon exercise of employee
stock options (including related tax benefit) . . . . 465 (6) 459
Shares issued from stock purchase plan . . . . . . . . 92 154 246
Change in unrealized gains/(losses) on
investment securities available for sale. . . . . . . 9,664 9,664
-------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1995. . . . . . . . . . . . . 96,944 56,918 39,665 1,375 194,902
Stock dividend 5%. . . . . . . . . . . . . . . . . . 4,859 13,301 (18,160)
Net income for 1996. . . . . . . . . . . . . . . . . . 22,003 22,003
Cash dividends paid. . . . . . . . . . . . . . . . . . (7,771) (7,771)
Shares issued upon exercise of employee
stock options (including related tax benefit) . . . . 436 (92) 344
Shares issued from stock purchase plan . . . . . . . . 74 165 239
Shares issued for acquisition of
insurance agency. . . . . . . . . . . . . . . . . . . 88 56 144
Repurchase of shares . . . . . . . . . . . . . . . . . (303) (732) (1,035)
Change in unrealized gains/(losses) on
investment securities available for sale. . . . . . . (1,557) (1,557)
-------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1996. . . . . . . . . . . . . $102,098 $69,616 $35,737 $ (182) $207,269
======== ======= ======= ======= ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Chemical Financial
Corporation and its subsidiaries conform to generally accepted
accounting principles and prevailing practices within the banking
industry. Management makes estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
footnotes. Actual results could differ from these estimates.
Significant accounting policies of Chemical Financial Corporation (the
Corporation) and its subsidiaries are described below:

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements of the Corporation include
the accounts of the parent company and its subsidiaries, all of which
are wholly-owned. All significant income and expenses are recorded on
the accrual basis. Intercompany accounts and transactions have been
eliminated in preparing the consolidated statements.

CASH AND CASH EQUIVALENTS:

For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from unaffiliated banks and federal
funds sold. Generally, federal funds are sold for one-day periods.

INVESTMENT SECURITIES AVAILABLE FOR SALE:

Investment securities available for sale include those securities
which might be sold as part of the Corporation's management of
interest rate and prepayment risk, in response to changes in interest
rates, or a desire to increase liquidity.

Investment securities available for sale are stated at estimated
market value, with the aggregate unrealized gains and losses, net of
income taxes, classified as a component of shareholders' equity.
Realized gains and losses from the sale of investment securities
available for sale are determined using the specific identification
method and are classified as other income in the consolidated
statements of income.

Premiums and discounts on securities available-for-sale, as well
as securities held-to-maturity, are amortized over the estimated lives
of the related securities.

INVESTMENT SECURITIES HELD TO MATURITY:

Designation as an investment security held to maturity is
generally made at the time of acquisition and is based on the
Corporation's intent and ability to hold the security to maturity.
Securities held to maturity are stated at cost adjusted for the
amortization of premium and accretion of discount to maturity.

LOANS:

Loans are stated at their principal amount outstanding, net of
unearned income. Loan performance is reviewed regularly by loan review
personnel, loan officers and senior management. Loan interest income
is recognized on the accrual basis. A loan is placed in the nonaccrual
category when principal or interest is past due 90 days or more,
unless the loan is both well secured and in the process of collection,
or when in the opinion of management, there is sufficient reason to
doubt the collectability of future 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
on the cash basis.

Payments received on nonaccrual loans are recorded as principal
reductions if principal repayment is doubtful. Loans are returned to
accrual status when principal and interest payments are brought
current and collectability is no longer in doubt. Interest income on
restructured loans is recognized according to the terms of the
restructure, subject to the above described nonaccrual policy.

ALLOWANCE FOR POSSIBLE LOAN LOSSES:

The allowance for possible loan losses is maintained at a level
that, in management's judgment, is considered to be adequate to
provide for potential loan losses. Management's evaluation is based on
a continuing review of the loan portfolio, including consideration of
actual loan loss experience, prospective financial condition of the
borrowers, balance of the loan portfolio, loan growth forecasts, and
current and prospective economic conditions.

PREMISES AND EQUIPMENT:

Premises and equipment are stated at cost less accumulated
depreciation. Premises and equipment are depreciated over the useful
lives of the assets. Depreciation is computed on the straight-line
method. The estimated useful lives are generally 25 to 35 years for
buildings and 3 to 7 years for equipment.

A summary of premises and equipment at December 31 follows:

<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Bank premises. . . . . . . . . . . . . . $28,956 $28,356
Equipment. . . . . . . . . . . . . . . . 10,497 10,608
------- -------
39,453 38,964
Less: Accumulated depreciation . . . . . 19,118 18,516
------- -------
Total $20,335 $20,448
======= =======
</TABLE>

INTANGIBLE ASSETS:

Goodwill, representing the cost of investments in subsidiaries in
excess of the fair value of identifiable net assets at acquisition, is
being amortized over twenty years. Other acquired intangible assets,
such as those associated with acquired core deposits, are being
amortized over periods between five and twenty years.

<PAGE>
INCOME TAXES:

The Corporation files a consolidated federal income tax return
and is responsible for the payment of any tax liability of the
consolidated organization. Income tax expense is based on income and
expenses, as reported in the financial statements. When income and
expenses are recognized in different periods for tax purposes,
applicable deferred taxes are provided for in the financial
statements.

PER SHARE AMOUNTS:

Primary net income per share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares consist of net shares issuable
under stock options outstanding. Fully diluted net income per share
has not been presented on the basis that the difference between
primary and fully diluted earnings per share is not material. The
weighted average number of common shares used to compute earnings per
share was 10,348,383 in 1996, 10,304,570 in 1995 and 10,257,154 in
1994.

NOTE B - ACQUISITIONS

On May 1, 1996, the Corporation merged with State Savings
Bancorp, Inc. ("SSBI") in Caro, Michigan. SSBI operated one bank,
State Savings Bank of Caro, with offices in Caro and Fairgrove. The
Corporation issued 525,000 shares of the Corporation's common stock in
exchange for all of the common stock of SSBI. The merger was accounted
for as a "pooling of interests." The accompanying financial statements
have been restated to include the financial position and results of
operations of SSBI prior to the merger. As of May 1, 1996, SSBI had
assets of approximately $65 million.

On December 31, 1996, the Corporation acquired Arbury &
Stephenson, Inc., an insurance agency headquartered in Midland,
Michigan. The merger was effected through an exchange of shares of the
Corporation's common stock.

On September 22, 1995, the Corporation acquired a branch banking
office in Belding, Michigan from First of America Bank-Michigan, N.A.
Total deposits of approximately $16 million were assumed and merged
into an existing affiliate, Chemical Bank Montcalm. The transaction
was accounted for by the purchase method of accounting. The amount of
the purchase price assigned to core deposit intangibles was $1.1
million.

On June 9, 1994, the Corporation acquired a branch banking office
in Edenville, Michigan from First of America Bank-Mid Michigan, N.A.
and on September 16, 1994 the Corporation assumed the deposit
liabilities of the Freeland, Michigan office of Standard Federal Bank.
Total deposits of approximately $8.3 million were assumed in these
transactions. All deposits were merged into an existing affiliate,
Chemical Bank and Trust Company, and accounted for by the purchase
method of accounting. Amounts assigned to core deposit intangibles in
conjunction with the recording of these acquisitions were not
material.

NOTE C - INVESTMENT SECURITIES

The following is a summary of the amortized cost and estimated
market value of investment securities available for sale and
investment securities held to maturity at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
AVAILABLE FOR SALE INVESTMENT SECURITIES
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury
and agency securities . . . . . . . . . $423,233 $1,057 $1,661 $422,629
Mortgage-backed securities . . . . . . . 2,820 35 5 2,850
Other debt securities. . . . . . . . . . 14,993 36 137 14,892
-------- ------ ------ --------
Total debt securities 441,046 1,128 1,803 440,371
Equity securities. . . . . . . . . . . . 1,021 395 1,416
-------- ------ ------ --------
Total $442,067 $1,523 $1,803 $441,787
======== ====== ====== ========

DECEMBER 31, 1995
U.S. Treasury
and agency securities . . . . . . . . . $324,743 $3,543 $ 214 $328,072
Mortgage-backed securities . . . . . . . 3,198 64 3,262
Other debt securities. . . . . . . . . . 9,020 82 15 9,087
-------- ------ ------ --------
Total debt securities 336,961 3,689 229 340,421
Equity securities. . . . . . . . . . . . 971 278 1,249
-------- ------ ------ --------
Total $337,932 $3,967 $ 229 $341,670
======== ====== ====== ========
</TABLE>

<TABLE>
<CAPTION>
HELD TO MATURITY INVESTMENT SECURITIES
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury
and agency securities . . . . . . . . . $168,958 $ 772 $ 4 $169,726
States of the U.S. and
political subdivisions. . . . . . . . . 42,096 1,032 84 43,044
Mortgage-backed securities . . . . . . . 679 13 5 687
Other debt securities. . . . . . . . . . 2,019 18 2,037
-------- ------ ------ --------
Total $213,752 $1,835 $ 93 $215,494
======== ====== ====== ========

DECEMBER 31, 1995
U.S. Treasury
and agency securities . . . . . . . . . $343,627 $4,332 $ 962 $346,997
States of the U.S. and
political subdivisions. . . . . . . . . 46,065 1,256 89 47,232
Mortgage-backed securities . . . . . . . 2,026 75 3 2,098
Other debt securities. . . . . . . . . . 711 23 734
-------- ------ ------ --------
Total $392,429 $5,686 $1,054 $397,061
======== ====== ====== ========
</TABLE>

CONTINUED ON PAGE 20

<PAGE>
NOTE C - CONTINUED

The amortized cost of U.S. Treasury and U.S. agencies, states
of the U.S. and political subdivisions and all other securities at
December 31, 1994 were $642,764,000, $49,259,000 and $16,179,000,
respectively, whereas the estimated market values of these three
categories of investments at December 31, 1994 were $623,785,000,
$48,693,000 and $16,000,000, respectively.

The amortized cost and estimated market value of debt and equity
securities at December 31, 1996, by contractual maturity for both
available for sale and held to maturity investment securities follows:

<TABLE>
<CAPTION>
AVAILABLE FOR SALE
ESTIMATED
AMORTIZED MARKET
COST VALUE
(In thousands)
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $116,067 $116,420
Due after one year through five years. . . . . . . 318,650 317,760
Due after five years through ten years . . . . . . 3,509 3,341
Mortgage-backed securities . . . . . . . . . . . . 2,820 2,850
Equity securities. . . . . . . . . . . . . . . . . 1,021 1,416
-------- --------
Total $442,067 $441,787
======== ========
</TABLE>

<TABLE>
<CAPTION>
HELD TO MATURITY
ESTIMATED
AMORTIZED MARKET
COST VALUE
(In thousands)
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $113,691 $114,138
Due after one year through five years. . . . . . . 84,421 85,294
Due after five years through ten years . . . . . . 12,925 13,321
Due after ten years. . . . . . . . . . . . . . . . 2,036 2,054
Mortgage-backed securities . . . . . . . . . . . . 679 687
-------- --------
Total $213,752 $215,494
======== ========
</TABLE>

Investment securities with a book value of $91.5 million at
December 31, 1996 were pledged to collateralize public fund deposits
and for other purposes as required by law; at December 31, 1995, the
corresponding amount was $98.6 million.

NOTE D - LOANS

The following summarizes loans as of December 31:

<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Commercial and agricultural. . . . . . . $114,154 $117,759
Real estate construction . . . . . . . . 24,791 16,195
Real estate mortgage . . . . . . . . . . 510,193 472,454
Installment. . . . . . . . . . . . . . . 158,515 154,170
-------- --------
Total $807,653 $760,578
======== ========
</TABLE>

The Corporation's subsidiary banks have extended loans to
directors and officers and their associates of the Corporation and of
the Corporation's significant subsidiaries. The loans were made in the
ordinary course of business at normal terms, including interest rates
and collateralization, prevailing at the time, and did not involve
more than the normal risk of collectability. The aggregate loans
outstanding to the directors and officers of the Corporation and its
significant subsidiaries totaled $16,831,000 at December 31, 1996 and
$21,062,000 at December 31, 1995. During 1996, there were $24,838,000
of new loans and other additions, while repayments and other
reductions totaled $29,069,000.

Changes in the Allowance for Possible Loan Losses were as follows
for the years ended December 31:

<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . $15,886 $15,295 $14,583
Provision charged to operations . . . . . . 1,128 1,065 1,099
Loan charge-offs. . . . . . . . . . . . . . (691) (666) (630)
Loan recoveries . . . . . . . . . . . . . . 284 192 243
------- ------- -------
Net loan charge-offs. . . . . . . . . . . (407) (474) (387)
------- ------- -------
Balance at end of year . . . . . . . . . . . $16,607 $15,886 $15,295
======= ======= =======
</TABLE>

Nonaccrual and renegotiated loans aggregated $1.3 million and
$1.7 million at December 31, 1996 and 1995, respectively. Interest
income totaling $89,000 was recorded on the nonaccrual and
renegotiated loans in 1996. Additional interest income of $211,000
would have been recorded during 1996 on these loans had they been
current in accordance with their original terms.

Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114), as amended by SFAS
No. 118, was adopted January 1, 1995. These statements consider a loan
impaired when it is probable that payment of interest and principal
will not be made in accordance with the contractual terms of the loan
agreement. The adoption of these accounting standards had no effect on
the financial position or results of operations of the Corporation.
The Corporation had no impaired loans as of December 31,1996 that
required an impairment allowance. Impaired loans of $471,000 as of
December 31, 1995 required an impairment allowance of $200,000 in
accordance with SFAS 114. The remaining impaired loan balances, as of
December 31, 1996 and December 31, 1995, represented loans for which
their fair value exceeded the recorded investment in the loan, based
on fair value of the related collateral.

<PAGE>
NOTE E - FEDERAL INCOME TAXES

The provision for federal income taxes is less than that computed
by applying the federal statutory income tax rate of 35% primarily due
to tax-exempt interest on investments and loans as shown in the
following analysis for the years ended December 31:

<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Tax at statutory rate. . . . . . . . $11,563 $10,623 $9,764
Changes resulting from:
Tax-exempt income . . . . . . . (884) (920) (1,017)
Other . . . . . . . . . . . . . 354 160 39
------- ------- ------
Total federal income tax expense $11,033 $ 9,863 $8,786
======= ======= ======
</TABLE>

The provision for federal income taxes consisted of the following for the
years ended December 31:

<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current. . . . . . . . . . . . . . . . $11,291 $10,075 $8,981
Deferred credit. . . . . . . . . . . . (258) (212) (195)
------- ------- ------
$11,033 $ 9,863 $8,786
======= ======= ======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant temporary differences which comprise the deferred tax assets
and liabilities of the Corporation were as follows as of December 31:

<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses. . . . . . . . . . . $4,441 $4,184
Investment securities available for sale. . . . . . . . 98
Employee benefit plans. . . . . . . . . . . . . . . . . 1,441 1,450
Expense accruals not yet tax deductible . . . . . . . . 1,052 955
Other . . . . . . . . . . . . . . . . . . . . . . . . . 398 437
------ ------
Total deferred tax assets . . . . . . . . . . . . . . 7,430 7,026
Deferred tax liabilities:
Investment securities available for sale. . . . . . . . 740

Tax over book depreciation. . . . . . . . . . . . . . . 615 728
Other . . . . . . . . . . . . . . . . . . . . . . . . . 602 441
------ ------
Total deferred tax liabilities. . . . . . . . . . . . 1,217 1,909
------ ------
Net deferred tax assets. . . . . . . . . . . . . . . . . $6,213 $5,117
====== ======
</TABLE>

Federal income taxes applicable to gains on securities transactions
amounted to $5,000 in 1996 and $93,000 in 1994 and are included in federal
income taxes on the consolidated statement of income.

NOTE F - PENSION AND POSTRETIREMENT BENEFITS

The Corporation has a noncontributory defined benefit pension plan
("Plan") covering all of its salaried employees. Normal retirement benefits
are based on years of service and the employee's average annual pay of the
five highest consecutive years during the ten years preceding retirement.
The Corporation's funding strategy has been to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.

The following table sets forth the Plan's funded status and amounts
recognized in the Corporation's statement of financial position at December
31:

<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . $16,553 $17,326
Nonvested . . . . . . . . . . . . . . . . . . . . . 1,937 1,892
------- -------
Accumulated benefit obligation . . . . . . . . . . . $18,490 $19,218
======= =======
Projected benefit obligation . . . . . . . . . . . . $25,648 $26,863
Plan assets at fair value. . . . . . . . . . . . . . 34,880 33,222
------- -------
Plan assets in excess of projected
benefit obligation. . . . . . . . . . . . . . . . . 9,232 6,359
Unrecognized amortization of
transition amount . . . . . . . . . . . . . . . . . (804) (1,490)
Unrecognized net gains . . . . . . . . . . . . . . . (5,989) (3,059)
------- -------
Prepaid pension expense . . . . . . . . . . . . . . $ 2,439 $ 1,810
======= =======
</TABLE>

Net periodic pension cost consisted of the following:

<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned
during the period . . . . . . . . . . . . . $1,405 $1,136 $1,346
Interest cost on projected
benefit obligation. . . . . . . . . . . . . 1,754 1,666 1,543
Actual return on plan assets. . . . . . . . . (3,963) (6,340) (100)
Net amortization and (deferral) . . . . . . . 1,485 3,799 (2,179)
------ ------ ------
Pension expense . . . . . . . . . . . . . . . $ 681 $ 261 $ 610
====== ====== ======
</TABLE>

Plan assets consist primarily of listed stocks, U.S. Government
securities and common stock of the Corporation (117,366 shares at December
31, 1996).

The weighted-average discount rates of 7.5% at December 31, 1996 and
7.0% at December 31, 1995 and the increase in future compensation levels of
6.0% at December 31, 1996 and December 31, 1995 were used in determining

the actuarial present value of the projected benefit obligation. The
expected long-term rate of return on plan assets was 8% in 1996, 1995 and
1994.

CONTINUED ON PAGE 22

<PAGE>
NOTE F - CONTINUED

In addition to the Corporation's defined benefit pension plan, the
Corporation provides postretirement medical and dental (to age 65) benefits
to salaried employees. Eligibility for such benefits is age 55 with at
least ten years of service with the Corporation or its subsidiaries.
Retirees are required to make contributions toward the cost of their
benefits based on their years of credited service and age at retirement.
Retiree contributions are adjusted annually. The accounting for these
postretirement benefits anticipates changes in future cost-sharing features
such as retiree contributions, deductibles, copayments and coinsurance. The
Corporation reserves the right to amend, modify or terminate these benefits
at any time.

The following table presents the Corporation's postretirement benefit
obligation reconciled with amounts recognized in the statement of financial
position at December 31:

<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . . . $1,080 $ 807
Fully eligible active plan participants . . . . . . . 619 453
Other active plan participants. . . . . . . . . . . . 1,523 1,310
------ ------
3,222 2,570
Unrecognized net gain. . . . . . . . . . . . . . . . . . 359 528
------ ------
Accrued postretirement benefit cost. . . . . . . . . . . $3,581 $3,098
====== ======
</TABLE>

The Corporation's postretirement benefit obligation is nonfunded.

Net periodic postretirement benefit cost includes the following components
for the years ended December 31:

<TABLE>
<CAPTION> 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned
during the period . . . . . . . . . . . . . . . . $139 $206 $140
Interest cost on accumulated
benefit obligation. . . . . . . . . . . . . . . . 216 199 186
Net amortization and deferral. . . . . . . . . . . (4) (18) (4)
---- ---- ----
Net periodic postretirement
benefit cost. . . . . . . . . . . . . . . . . . . $351 $387 $322
==== ==== ====
</TABLE>

At December 31, 1996, the weighted average annual assumed rates of
increase in the per capita cost of covered benefits (i.e., medical and
dental care cost trend rates) for 1997 were 9.00% for medical benefits and
6.91% for dental benefits and are both assumed to decrease uniformly to
5.50% in 2003 and remain at that level thereafter. At December 31, 1995,
the assumed 1996 medical and dental cost trend rates were 9.67% and 7.33%
respectively, and were both assumed to decrease uniformly to 5.0% in 2003
and remain at that level thereafter. The medical and dental care cost trend
rate assumptions have a significant effect on the amounts reported. For
example, increasing both the assumed medical and dental care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 and 1995 by
17.32% and 18.20%, respectively, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1996 by 20.75%.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.0% at December 31, 1996
and 1995, respectively.

NOTE G - LONG-TERM DEBT

Long-term debt consisted of the following obligations:

<TABLE>
<CAPTION>
December 31
1996 1995
(In thousands)
<S> <C> <C>
Chemical Financial Corporation:
Term note payable to unaffiliated bank
(6.125% at December 31, 1996) . . . . . . . . . . . . $10,000 $12,000
Subsidiaries: Other notes payable. . . . . . . . . . . . 80
------- -------
Total $10,000 $12,080
======= =======
</TABLE>

Principal payments on the term note payable are due as follows:
$5,000,000 in June 2002 and $5,000,000 in June 2003. The Corporation, at
its option, reduced this debt by $2,000,000 during 1996. Interest on the
term note payable is computed based upon one of three alternative interest
rate methods, which is elected by the Corporation at the beginning of each
interest period for 1, 3, 6 or 12 month intervals. The three alternative
interest rate methods are based upon the prime rate of the unaffiliated
bank, the Eurodollar rate or the domestic certificate of deposit rate of
the unaffiliated bank. The $10,000,000 loan agreement includes various
restrictions and covenants pertaining to capital, earnings and additional
indebtedness and is secured by the stock of two of the Corporation's
subsidiary banks.

NOTE H - RESTRICTED ASSETS AND DIVIDEND LIMITATIONS OF SUBSIDIARY BANKS

Banking regulations require that banks maintain cash reserve balances
in vault cash or with the Federal Reserve or certain other qualifying
banks. The aggregate average amount of such reserve balances maintained by
the Corporation's subsidiary banks was $16.4 million for the year ended
December 31, 1996.

Banking regulations also limit the transfer of assets in the form of
dividends, loans or advances from the bank subsidiaries to the Corporation.
At December 31, 1996, substantially all of the assets of the bank
subsidiaries were restricted from transfer to the Corporation in the form
of loans or advances. Consequently, subsidiary dividends are the principal
source of funds for the Corporation. The payment of dividends by member
banks of the Federal Reserve System, without federal regulatory approval,
is limited to the current year's retained net income plus retained net
income for the preceding two years, less any required transfers to surplus.
State chartered non-member banks have additional dividend restrictions,
including a requirement that surplus amount to at least 20% of capital
stock after payment of a dividend. At January 1, 1997, approximately $23.3
million was available for payment of dividends to the Corporation without
regulatory approval. In addition to the statutory limits, the Corporation

also considers the overall financial and capital position of each
subsidiary prior to making any cash dividend decisions.

<PAGE>
NOTE I - CAPITAL

The Corporation and its subsidiary banks are subject to various
regulatory capital requirements administered by the federal banking
agencies. Under these capital requirements, specific capital guidelines
that involve quantitative measures of assets, liabilities and certain off-
balance sheet items are calculated under regulatory accounting practices.
In addition, capital amounts and classification are subject to qualitative
judgments by the regulators.

Quantitative measures established by regulation to ensure capital
adequacy require minimum ratios of total and Tier I capital to risk-
weighted assets and of Tier I capital to average assets. These capital
guidelines assign risk weights to on- and off-balance sheet items in
arriving at total risk-weighted assets. Minimum capital levels are based
upon perceived risk of various asset categories and certain off-balance
sheet instruments.

The table below, "Capital Analysis," compares the Corporation's and
each of its significant subsidiaries' actual capital amounts and ratios
with the regulatory minimum capital guidelines at December 31, 1996.

It is management's opinion that the Corporation and each of its
significant subsidiaries meet all capital adequacy requirements to which
they are subject as of December 31, 1996. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements.

<TABLE>
<CAPTION>
CAPITAL ANALYSIS RISK-BASED CAPITAL
LEVERAGE TIER I TOTAL
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Corporation's capital. . . . . . . . . . . . . . . . . . $207 12% $203 29% $212 31%
Required capital - minimum . . . . . . . . . . . . . . . 50 3 28 4 55 8
Required capital - "well capitalized" definition . . . . 84 5 41 6 69 10

Chemical Bank and Trust Company's capital. . . . . . . . 74 14 74 36 76 38
Required capital - minimum . . . . . . . . . . . . . . . 16 3 8 4 16 8
Required capital - "well capitalized" definition . . . . 27 5 12 6 20 10

Chemical Bank Michigan's capital . . . . . . . . . . . . 26 11 26 31 27 33
Required capital - minimum . . . . . . . . . . . . . . . 7 3 3 4 7 8
Required capital - "well capitalized" definition . . . . 12 5 5 6 8 10

Chemical Bank Bay Area's capital . . . . . . . . . . . . 22 11 22 27 23 28
Required capital - minimum . . . . . . . . . . . . . . . 6 3 3 4 6 8
Required capital - "well capitalized" definition . . . . 10 5 5 6 8 10

Chemical Bank Thumb Area's capital . . . . . . . . . . . 19 11 19 31 20 32
Required capital - minimum . . . . . . . . . . . . . . . 5 3 2 4 5 8
Required capital - "well capitalized" definition . . . . 9 5 4 6 6 10
</TABLE>

NOTE J - STOCK OPTIONS

The Chemical Financial Corporation stock option plan provides for the
granting of options, incentive stock options, stock appreciation rights,
deferred stock or a combination thereof. At December 31, 1996, there were a
total of 1,058 shares available for the granting of future awards under the
Corporation's 1987 Plan. The plan provides that the option price shall not
be less than fair market value at the date of grant, options become
exercisable between one and five years from the date of grant as determined
by the Compensation Committee of the Board of Directors, all awards expire
no later than ten years and one day after the date of grant, and options
granted may be designated nonstatutory options or incentive stock options.

Options granted may include an appreciation right that entitles the
awardee to receive a number of shares of common stock without payment to
the Corporation, calculated by dividing the difference between the option
price and the market price of the total number of shares in the option at
the expiration date of the option, by the market price of a single share.
As of December 31, 1996, there were no outstanding options with stock
appreciation rights. During 1996, 101,798 options to purchase shares were
granted at a price of $34.52 per share, which first are exercisable at
various dates from November 18, 1997 through November 18, 2001. Options
were exercised for 68,027 shares in 1996 (at $10.79 - $28.04 per share),
73,891 shares in 1995 (at $10.79 - $28.04 per share) and 71,071 shares in
1994 (at $6.05 - $16.12 per share).

The Corporation adopted the disclosure-only option under Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," as of December 31, 1995. If the accounting provisions of the
new Statement had been adopted as of the beginning of 1996, the effect on
1996 net earnings would not have been material. Further, based on current
and anticipated use of stock options, it is estimated that the Statement's
accounting provisions will not be material in any future period.

CONTINUED ON PAGE 24
23

<PAGE>
NOTE J - CONTINUED

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE
AVERAGE EXERCISE AVERAGE
EXERCISE AVERAGE PRICE EXERCISE
OPTIONS PRICE LIFE <FA> RANGE OPTIONS PRICE
<S> <C> <C> <C> <C> <C> <C>
110,827 $12.93 2.38 $12.00 - $13.17 110,827 $12.93
64,401 $16.13 5.29 $16.13 49,418 $16.13
190,213 $31.33 8.59 $25.56 - $34.52 71,235 $27.83
------- -------
365,441 $23.07 6.13 231,480 $18.20
======= =======
<FN>
<FA> Average remaining contractual life in years.
</FN>
</TABLE>

At December 31, 1995, there were outstanding options to purchase
332,512 shares, exercisable at prices ranging from $10.79 - $29.29 per
share and expiring at various dates from 1996 to 2005.

NOTE K - COMMITMENTS AND OTHER MATTERS

Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Historically, the majority of the commitments have not been drawn
upon, and therefore do not necessarily represent future cash requirements.
The Corporation evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary, by the
Corporation upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and income
producing commercial properties. Standby letters of credit are conditional
commitments issued generally by the Corporation to guarantee the
performance of a customer to a third party. Both arrangements have credit
risk essentially the same as that involved in extending loans to customers
and are subject to the Corporation's normal credit policies. The
Corporation at any point in time also has approved but undisbursed loans.
The majority of these undisbursed loans will convert to a booked loan
within a three month period.

Loan commitments, standby letters of credit and undisbursed loans were
$90.1 million, $3.3 million and $33 million, respectively, at December 31,
1996 and $95 million, $3.1 million and $31 million, respectively, at
December 31, 1995. Most of the loan commitments and standby letters of
credit at December 31, 1996 expire one year from their contract date,
except for $12.6 million which extend for more than five years.

The Corporation's loan commitments, standby letters of credit and
undisbursed loans have been estimated to have no realizable fair value, as
historically the majority of the loan commitments have not been drawn upon
and generally the Corporation does not receive any fees in connection with
these agreements.

There are no material lease rental payments or noncancelable lease
commitments outstanding at December 31, 1996.

Expenses included in the category of "Other" operating expenses which
were in excess of 1% of interest and other income during the three year
period ended December 31, 1996, were as follows: Federal Deposit Insurance
Corporation (FDIC) premium expense of $1,561,000 in 1995 and $2,834,000 in
1994 and stationery and supplies expense of $1,428,380 in 1996 and
$1,193,000 in 1994.

NOTE L - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires disclosures
about the estimated fair values of the Corporation's financial instruments.
The Corporation utilized quoted market prices, where available, to compute
the fair value of its financial instruments. In cases where quoted market
prices were not available, the Corporation used present value methods to
estimate the fair values of its financial instruments. These estimates of
fair value are significantly affected by the assumptions made and,
accordingly, do not necessarily indicate amounts which could be realized in
a current market exchange. It is also the Corporation's general practice
and intent to hold the majority of its financial instruments until maturity
and, therefore, the Corporation does not expect to realize the estimated
amounts disclosed.

The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
consolidated statement of financial position for cash and federal funds
sold approximate those assets' fair values.

INTEREST-BEARING DEPOSITS WITH UNAFFILIATED BANKS: Fair values for
these assets are based on quoted market prices.

INVESTMENT SECURITIES: Fair values for investment securities are based
on quoted market prices.

LOANS RECEIVABLE: For variable rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for certain mortgage loans (e.g., one-to-
four family residential) are based on quoted market prices of similar loans
sold in secondary market source transactions. The fair values for other
loans (e.g., commercial real estate, rental property mortgage, commercial,
agricultural and installment) are estimated using discounted cash flow
analysis, using interest rates

<PAGE>
currently being offered for loans with similar terms to borrowers of
similar credit quality. The resulting amounts are adjusted to estimate
the effect of declines in the credit quality of borrowers since the
loans were originated.

DEPOSIT LIABILITIES: The fair values of accounts without defined
maturities, such as interest and noninterest checking, passbook savings and
money fund accounts are equal to the amounts payable on demand. The
carrying amounts for variable rate certificates of deposit and other time
deposits approximate their fair values at the reporting date. As of
December 31, 1996 and December 31, 1995, the Corporation had total
interest-bearing deposits of $686,223,000 and $735,125,000, respectively,
for which SFAS 107 defined their fair values to be equal to their carrying
values. Fair values for fixed rate certificates of deposit and other time
deposits are based on the discounted value of contractual cash flows, using
interest rates currently being offered for deposits of similar remaining
maturities.

SHORT-TERM BORROWINGS: The carrying amounts of borrowings under
repurchase agreements and other short-term borrowings approximate their
fair values.

LONG-TERM BORROWINGS: The carrying amounts of the Corporation's
variable rate long-term borrowing and the subsidiaries' fixed rate long-
term borrowings approximate fair value. The subsidiaries' fixed rate
borrowing rates have been estimated to approximate their current
incremental borrowing rates for similar types of borrowing arrangements.

COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND
UNDISBURSED LOANS: The Corporation's loan commitments, standby letters of
credit and undisbursed loans have no carrying value and have been estimated
to have no realizable fair value. Historically, the majority of the loan
commitments have not been drawn upon and generally the Corporation does not
receive any fees in connection with any of these commitments.

Estimates of fair value have not been made for items which are not
defined by SFAS 107 as financial instruments, including such items as the
Corporation's core deposit intangibles and the value of its trust and data
processing operations. The Corporation believes it is impractical to
estimate a representational fair value for these types of assets, even
though they add significant value to the Corporation.

The estimated fair value of the Corporation's financial instruments at
December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
December 31
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(In thousands)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . $ 203,717 $ 203,717 $ 175,917 $ 175,917
Interest-bearing deposits
with unaffiliated banks . . . . . . . 1,134 1,144 2,981 3,016
Investment securities. . . . . . . . . 655,839 657,281 734,099 738,731
Loans. . . . . . . . . . . . . . . . . 795,475 778,058 749,139 766,195

LIABILITIES:
Noninterest-bearing deposits . . . . . 226,965 226,965 214,335 214,335
Interest-bearing deposits. . . . . . . 1,205,506 1,195,866 1,237,811 1,234,850
Securities sold under
agreements to repurchase. . . . . . . 27,875 27,875 28,139 28,139
Long-term debt . . . . . . . . . . . . 10,000 10,000 12,080 12,080
</TABLE>

<PAGE>
NOTE M - PARENT COMPANY ONLY FINANCIAL INFORMATION

Condensed financial statements of Chemical Financial Corporation (parent
company) follow:

<TABLE>
CONDENSED STATEMENT OF FINANCIAL POSITION
<CAPTION>
December 31
1996 1995
(In thousands)
<S> <C> <C>
ASSETS
Cash on deposit at subsidiary bank . . . . . . . . . . . . . $ 15,960 $ 15,377
Investments in bank subsidiaries . . . . . . . . . . . . . . 203,221 193,264
Investment in non-bank subsidiary. . . . . . . . . . . . . . 1,565 1,465
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 2,619 2,925
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,855 1,439
-------- --------
Total Assets $225,220 $214,470
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ 12,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . 7,951 7,568
-------- --------
Total Liabilities 17,951 19,568
Shareholders' equity . . . . . . . . . . . . . . . . . . . . 207,269 194,902
-------- --------
Total Liabilities and Shareholders' Equity $225,220 $214,470
======== ========
</TABLE>

<TABLE>
CONDENSED STATEMENT OF INCOME
<CAPTION>
Years Ended December 31
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
INCOME
Cash dividends from bank subsidiaries. . . . . . . . . . . . . . $20,304 $ 7,613 $ 7,440
Cash dividends from non-bank subsidiary. . . . . . . . . . . . . 360 326 320
Interest received from subsidiary bank . . . . . . . . . . . . . 660 621 428
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 163 33 21
------- ------- -------
21,487 8,593 8,209

EXPENSES
Interest on long-term debt . . . . . . . . . . . . . . . . . . . 715 826 732
Other operating expenses . . . . . . . . . . . . . . . . . . . . 1,500 1,493 1,382
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . 305 305 305
------- ------- -------
2,520 2,624 2,419
------- ------- -------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED NET INCOME OF SUBSIDIARIES . . . . . . . . . . . 18,967 5,969 5,790
Federal income tax benefit . . . . . . . . . . . . . . . . . . . 470 609 680
------- ------- -------
19,437 6,578 6,470
Equity in undistributed net income of:
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . 2,465 13,718 12,479
Non-bank subsidiary . . . . . . . . . . . . . . . . . . . . . 101 193 161
------- ------- -------
NET INCOME $22,003 $20,489 $19,110
======= ======= =======
</TABLE>

<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<CAPTION>
Years Ended December 31
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,003 $20,489 $19,110
Equity in undistributed net income of subsidiaries . . . . . . . (2,566) (13,911) (12,640)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 1,578 860
------- ------- -------
Cash provided by operations. . . . . . . . . . . . . . . . . . . 19,786 8,156 7,330
FINANCING ACTIVITIES
Capital contribution to bank subsidiary. . . . . . . . . . . . . (9,000)
Decrease in long-term debt . . . . . . . . . . . . . . . . . . . (2,000) (2,000)
Purchases of Corporation stock . . . . . . . . . . . . . . . . . (1,035)
Proceeds from subsidiary directors stock purchase plan . . . . . 264 236 243
Proceeds from exercise of stock options. . . . . . . . . . . . . 339 453 229
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . (7,771) (6,636) (5,611)
------- ------- -------
Cash used in financing activities. . . . . . . . . . . . . . . . (19,203) (5,947) (7,139)
------- ------- -------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . 583 2,209 191
Cash at beginning of year. . . . . . . . . . . . . . . . . . . . 15,377 13,168 12,977
------- ------- -------
Cash at end of year. . . . . . . . . . . . . . . . . . . . . . . $15,960 $15,377 $13,168
======= ======= =======
</TABLE>

<PAGE>
REPORT OF ERNST & YOUNG, LLP
INDEPENDENT AUDITORS

To the Board of Directors

Chemical Financial Corporation

We have audited the accompanying consolidated statement of financial

position of Chemical Financial Corporation and subsidiaries as of December

31, 1996 and 1995, and the related consolidated statements of income,

changes in shareholders' equity, and cash flows for each of the three years

in the period ended December 31, 1996. These financial statements are the

responsibility of the Corporation's management. Our responsibility is to

express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing

standards. Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether the financial statements are free

of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used

and significant estimates made by management, as well as evaluating the

overall financial statement presentation. We believe that our audits

provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present

fairly, in all material respects, the consolidated financial position of

Chemical Financial Corporation and subsidiaries at December 31, 1996 and

1995, and the consolidated results of their operations and their cash flows

for each of the three years in the period ended December 31, 1996 in

conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Detroit, Michigan
January 20, 1997

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS

The following discussion and analysis is intended to cover the
significant factors affecting Chemical Financial Corporation's
("Corporation") consolidated statements of financial position and income,
included herein. It is designed to provide shareholders with a more
comprehensive review of the operating results and financial position of the
Corporation than could be obtained from an examination of the financial
statements alone. This discussion should be read in conjunction with the
financial highlights on page 3, Tables 1-11, beginning on page 29, and the
consolidated financial statements and notes thereto beginning on page 14.
Financial information for periods prior to 1996 have been restated to
include the financial condition and results of operations of State Savings
Bancorp, Inc., which was acquired in a pooling-of-interests transaction on
May 1, 1996.

MERGERS AND ACQUISITIONS

The primary method of expansion into new banking markets has been
through acquisitions of other financial institutions or bank branches. The
following is a summary of the Corporation's merger and acquisition activity
during the three year period ended December 31, 1996.

On May 1, 1996, the Corporation acquired State Savings Bancorp, Inc.
("SSBI"), headquartered in Caro, Michigan. SSBI operated one bank, State
Savings Bank of Caro, with offices in Caro and Fairgrove. The Corporation
issued 525,000 shares of the Corporation's common stock for all of the
outstanding stock of SSBI. As of May 1, 1996, SSBI had total assets of
approximately $65 million.

On December 31, 1996, the Corporation acquired Arbury & Stephenson,
Inc. ("A&S"), an insurance agency headquartered in Midland, Michigan. The
merger was effected through an exchange of shares of the Corporation's
common stock. A&S was merged into an insurance subsidiary of the
Corporation's lead bank and offers a variety of personal and corporate
insurance products.

On September 22, 1995, the Corporation acquired a branch banking
office in Belding, Michigan from First of America Bank-Michigan, N.A. The
branch had total deposit liabilities of approximately $16 million and was
merged into an existing affiliate.

On June 9, 1994, the Corporation acquired a branch banking office in
Edenville, Michigan from First of America Bank-Mid Michigan, N.A. and on
September 16, 1994 assumed the deposit liabilities of the Freeland,
Michigan office of Standard Federal Bank. Total deposits of approximately
$8.3 million were assumed in the 1994 transactions. These deposits were
also merged into an existing affiliate.

NET INCOME

Net income in 1996 was $22.003 million, or $2.13 per share, compared
to net income of $20.489 million, or $1.99 per share, in 1995. 1996 net
income represented a 7.4% increase over 1995 net income, while 1996
earnings per share represented a 7% increase over 1995 earnings per share.
Net income has increased at an average annual compound rate of 8.65% during
the five year period ended December 31, 1996, while earnings per share has
grown at an average annual compound rate of 7.85% over that same period.

The Corporation's return on average assets was 1.30% in 1996, 1.24% in
1995 and 1.15% in 1994. The Corporation's return on average shareholders'
equity was 10.9% in 1996, 11.0% in 1995 and 11.1% in 1994.

DEPOSITS

Total deposits as of December 31, 1996 were $1.430 billion, down
slightly from total deposits of $1.450 billion as of December 31, 1995.

The growth of the Corporation's deposits continues to be impacted by
competition for customer deposits from other investment products. Mutual
funds and various annuity products are clearly the two most significant
products in competition for customer deposits. These products are sold by a
wide spectrum of organizations, including both bank and nonbank financial
institutions and nonfinancial institutions, such as brokerage and insurance
companies. In response to this increased competition for customers' bank
deposits, the Corporation expanded its sales and marketing efforts of
mutual fund and annuity investment products during 1996. The Corporation's
subsidiary banks, through "CFC Investment Centers," began offering a
broader array of mutual funds, annuity products and market securities
through alliances with Security First Group and Corelink Financial
Services. The CFC Investment Centers offer customers a complete spectrum of
investment products and service capabilities, backed by strong technical
innovations. In addition, the Trust Department of Chemical Bank and Trust
Company offers customers a number of investment products and services. Two
of these products are "ChemVest Advantage," which provides customers with
professional assistance in spreading their funds among a variety of
institutional mutual funds and "ChemSelect-IRA," which allows customers to
choose their own asset allocation and risk tolerance among a variety of
mutual funds without any sales charges or transaction fees.

ASSETS

Total assets of the Corporation were $1.7 billion as of December 31,
1996 and December 31, 1995.

<PAGE>
<TABLE>
TABLE 1. FIVE-YEAR INCOME STATEMENT -
TAX EQUIVALENT BASIS<F*> - AS A PERCENTAGE OF AVERAGE TOTAL ASSETS
<CAPTION>
Years Ended December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . 4.01% 3.90% 3.75% 3.90% 4.43%
Interest on investment securities. . . . . . . 2.49 2.49 2.26 2.49 2.77
Interest on short-term investments . . . . . . .28 .30 .21 .14 .20
---------- ---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 6.78 6.69 6.22 6.53 7.40
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . 2.62 2.62 2.20 2.52 3.27
Interest on short-term borrowings. . . . . . . .07 .09 .07 .05 .06
Interest on long-term debt . . . . . . . . . . .04 .05 .04 .04 .07
---------- ---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 2.73 2.76 2.31 2.61 3.40
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME (FTE) 4.05 3.93 3.91 3.92 4.00

Provision for possible loan losses . . . . . . .07 .06 .07 .07 .09
OTHER INCOME
Trust department income. . . . . . . . . . . . .17 .16 .16 .14 .13
Service charges and fees . . . . . . . . . . . .48 .47 .41 .41 .40
Revenue from data processing . . . . . . . . . .04 .06 .06 .06 .07
Gains on sales of loans. . . . . . . . . . . . .01 .03 .01 .07 .02
Investment securities gains. . . . . . . . . . .02 .03 .03
Other. . . . . . . . . . . . . . . . . . . . . .02 .02 .02 .02 .02
---------- ---------- ---------- ---------- ----------
TOTAL OTHER INCOME .72 .74 .68 .73 .67
OPERATING EXPENSES
Salaries, wages and benefits . . . . . . . . . 1.60 1.55 1.53 1.57 1.58
Occupancy expense. . . . . . . . . . . . . . . .25 .24 .24 .24 .26
Equipment expense. . . . . . . . . . . . . . . .17 .17 .17 .17 .18
Other. . . . . . . . . . . . . . . . . . . . . .65 .74 .80 .87 .87
---------- ---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 2.67 2.70 2.74 2.85 2.89
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE INACCOUNTING
PRINCIPLES. . . . . . . . . . . . . . . . . . 2.03 1.91 1.78 1.73 1.69
Federal income taxes . . . . . . . . . . . . . .65 .59 .54 .53 .51
Tax equivalent adjustment. . . . . . . . . . . .08 .08 .09 .09 .08
---------- ---------- ---------- ---------- ----------

INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES . . . . . . . . . . . . 1.30 1.24 1.15 1.11 1.10
Cumulative effect on prior years of
change inaccounting principles. . . . . . . . .12
---------- ---------- ---------- ---------- ----------
NET INCOME 1.30% 1.24% 1.15% 1.23% 1.10%
========== ========== ========== ========== ==========
AVERAGE TOTAL ASSETS - In thousands. . . . . . $1,688,214 $1,654,640 $1,659,360 $1,638,101 $1,588,877
========== ========== ========== ========== ==========
<FN>
<F*>Taxable equivalent basis using a federal income tax rate
of 35% in 1993-1996 and 34% in 1992
</FN>
</TABLE>

CASH DIVIDENDS

The Corporation paid a cash dividend of $.19 per share in all four
quarters during 1996 resulting in total cash dividends of $.76 per share.
Total 1996 cash dividends per share represented a 17.6% increase over 1995
cash dividends per share of $.65.

The Corporation has paid regular cash dividends every quarter since it
was organized as a bank holding company in 1973. The Corporation's annual
cash dividends per share over the past five years, adjusted for all stock
dividends and stock splits, were as follows:

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Annual Dividend. . . . . . . $.76 $.65 $.53 $.48 $.44
</TABLE>

Cash dividends per share in 1995 represented a 21.4% increase over
cash dividends per share in 1994, while cash dividends per share in 1994
represented a 10.25% increase over cash dividends paid in 1993. The
compound annual growth rate of the Corporation's cash dividends per share
over the past five and ten year periods ended December 31, 1996, was 12.6%
and 11.3%, respectively.

The earnings of the Corporation's subsidiaries are the principal
source of funds to pay cash dividends to shareholders. Cash dividends are
dependent upon the earnings of the Corporation's subsidiaries, as well as
capital requirements, regulatory restraints and other factors affecting
each of the Corporation's subsidiary banks.

CONTINUED ON PAGE 30

29
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED

BUSINESS OF THE CORPORATION

The Corporation is a bank holding company with its business
concentrated in a single industry segment commercial banking. The
Corporation, through its ten banking subsidiaries, offers a full range of
commercial banking services. These banking services include accepting
deposits, business and personal checking accounts, savings and individual
retirement accounts, time deposit instruments, electronically accessed
banking products, residential and commercial real estate financing,
commercial lending, consumer financing, debit cards, safe deposit box
services, money transfer services, automated teller machines, access to
insurance products and corporate and personal trust services. The
Corporation also has a data processing subsidiary. This subsidiary provides
data processing services to the Corporation's ten subsidiary banks and to
outside customers. The data processing services provided to the
Corporation's subsidiaries represented 76% of total revenue of the data
processing subsidiary in 1996, 68% in 1995 and 66% in 1994.

The principal markets for the Corporation's commercial banking
services are communities within Michigan in which the Corporation's
subsidiaries are located and the areas immediately surrounding these
communities. As of December 31, 1996, the Corporation served 56 communities
through 87 banking offices in 24 counties, located generally across the
mid-section of Michigan's lower peninsula. In addition to the banking
offices, the Corporation operated 79 automated teller machines, both on and
off bank premises, as of December 31, 1996.

The principal sources of revenues for the Corporation are interest and
fees on loans, which accounted for 54% of total revenues in 1996, 53% in
1995 and 55% in 1994. Interest on investment securities is also a
significant source of revenue, accounting for 33% of revenues in both 1996
and 1995 and 32% in 1994. Chemical Bank and Trust Company ("CB&T"), the
Corporation's largest subsidiary and lead bank headquartered in Midland,
Michigan, represented 29% of total loans and 31% of total deposits, as of
December 31, 1996.

CB&T broadened the insurance products offered to its customers through
further entry into the insurance industry. On December 31, 1996, CB&T
acquired a small property and casualty agency in Midland, Michigan. In
January 1997, a title insurace company formed by CB&T in late 1996 began
operations.

On December 30, 1996, the Corporation paid a 5% stock dividend to
shareholders of record on December 17, 1996.

NET INTEREST INCOME

Interest income is the total amount earned on funds invested in loans,
investment securities and other money market instruments, such as federal
funds sold and interest-bearing deposits with other banks. Interest expense
is the amount of interest paid on interest-bearing checking accounts, such
as NOW accounts, savings and time deposits, as well as on short and long-
term debt. Net interest income, on a fully taxable equivalent (FTE) basis,
is the difference between interest income and interest expense and reflects
adjustments made to the yields on tax-exempt assets in order to analyze
tax-exempt income and fully taxable income on a comparable basis. The net
interest margin is net interest income (FTE) as a percentage of average
earning assets. Interest spread is the difference between the average yield
on earnings assets and the average cost of interest-bearing liabilities.

The single most important component in analyzing the results of the
Corporation's operations is net interest income. Net interest income is
influenced by a variety of factors including changes in the volume of
earning assets, changes in the mix of earning assets and interest-bearing
liabilities, the proportion of earning assets that are funded by
noninterest-bearing liabilities (demand deposits) and equity capital,
market rates of interest and variations in interest sensitivity in the
differing types of interest-bearing assets and liabilities. Some of these
factors are controlled to a certain extent by management policies and
actions. However, conditions beyond management's control can also have an
impact on changes in net interest income. These conditions include the
strength of credit demands by customers, competition from other financial
institutions, the growth of deposit accounts by non-bank financial
competitors and the continued growth in mutual fund investments. Over the
three year period ended December 31, 1996, the prime lending rate changed
substantially. The prime lending rate was 6.0% at the beginning of 1994.
The prime lending rate increased throughout 1994 and ended the year at
8.5%. Early in 1995, the prime lending rate increased to 9.0%, however it
was reduced twice later in the year to end 1995 at 8.5%. The rate was
reduced on February 1, 1996 to 8.25% and remained at this rate through
December 31, 1996.

Table 2, on page 31, presents for 1996, 1995 and 1994, average daily
balances of the Corporation's major assets and liabilities, interest income
and expense on a fully taxable equivalent (FTE) basis, average interest
rates earned and paid on the Corporation's assets and liabilities, net
interest income (FTE), interest spread (FTE) and net interest margin (FTE).
Net interest income (FTE) in 1996 was $68.447 million, up $3.34 million, or
5.1%, over 1995 net interest income (FTE) of $65.112 million. The increase
in net interest income during 1996 was primarily attributable to an
increase in average loans. During 1996, the Corporation's average loans
increased $48 million, or 6.4%. Average interest rates earned and paid on
the Corporation's assets and liabilities did not change significantly
during 1996. The average yield on interest earning assets increased 11
basis points in 1996 to 7.25% from 7.14% in 1995, while the average cost of
interest-bearing liabilities increased 3 basis points in 1996 to 3.66%,
from 3.63% in 1995. The Corporation's net interest spread increased 8 basis
points in 1996 to 3.59% from 3.51% in 1995. The increase in net interest
income and the net interest spread resulted in an increase during 1996 in

the net interest margin. Net interest margin increased to 4.33% from 4.20%
in 1995 and 4.18% in 1994. The consistency of this ratio over the last
three years is an indication of the Corporation's ability to manage its net
interest margin through a changing interest rate environment.

<PAGE>
<TABLE>
TABLE 2. AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND EFFECTIVE YIELDS AND RATES<F*> (Dollars in
Thousands)
<CAPTION>
Years Ended December 31
1996 1995 1994
TAX EFFECTIVE TAX EFFECTIVE TAX EFFECTIVE
AVERAGE EQUIVALENT YIELD/ AVERAGE EQUIVALENT YIELD/ AVERAGE EQUIVALENT YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans <F1> <F2> . . . . . . . . $ 792,209 $67,767 8.55% $ 744,207 $64,554 8.67% $ 756,070 $62,187 8.23%
Taxable investment securities . 661,401 38,882 5.88 680,235 37,675 5.54 667,678 33,870 5.07
Non-taxable investment
securities . . . . . . . . . . 39,542 3,249 8.22 41,896 3,570 8.52 41,548 3,676 8.85
Federal funds sold. . . . . . . 86,721 4,575 5.28 82,249 4,800 5.84 82,900 3,378 4.08
Interest-bearing deposits
with unaffiliated banks . . . 1,905 136 7.14 2,974 204 6.86 1,096 66 6.02
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest income/
Total earning assets 1,581,778 114,609 7.25 1,551,561 110,803 7.14 1,549,292 103,177 6.66
Less: Allowance for possible
loan losses . . . . . . . . . . (16,296) (15,718) (15,053)
Other assets:
Cash and due from banks . . . . 75,828 73,809 78,974
Premises and equipment. . . . . 20,303 21,296 22,346
Accrued income and other
assets. . . . . . . . . . . . 26,601 23,692 23,801
---------- ---------- ----------
Total Assets $1,688,214 $1,654,640 $1,659,360
========== ========== ==========

LIABILITIES AND EQUITY
Interest-Bearing Liabilities:
Interest-bearing demand
deposits. . . . . . . . . . . $ 234,900 $ 5,359 2.28% $ 225,331 $ 5,268 2.34% $ 240,928 $ 5,246 2.18%
Savings deposits. . . . . . . . 430,783 10,305 2.39 449,642 10,820 2.41 508,555 11,373 2.24
Time deposits . . . . . . . . . 553,993 28,620 5.17 534,017 27,218 5.10 487,805 19,849 4.07
Short-term borrowed funds . . . 31,455 1,163 3.70 36,698 1,552 4.23 37,743 1,159 3.07
Long-term debt. . . . . . . . . 10,976 715 6.51 12,094 833 6.89 13,954 738 5.29
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest expense/
Total interest-bearing liabilities 1,262,107 46,162 3.66 1,257,782 45,691 3.63 1,288,985 38,365 2.98
------- ---- ------- ---- ------- ----
Noninterest-bearing deposits. . . 209,500 197,746 185,461
---------- ---------- ----------
Total deposits and borrowed funds 1,471,607 1,455,528 1,474,446

Accrued expenses and other
liabilities . . . . . . . . . . 15,182 12,114 12,157
Shareholders' equity. . . . . . . 201,425 186,998 172,757
---------- ---------- ----------
Total Liabilities and Equity $1,688,214 $1,654,640 $1,659,360
========== ========== ==========

Interest Spread (Average yield
earned minus average rate
paid) . . . . . . . . . . . . . 3.59% 3.51% 3.68%
==== ==== ====
Net Interest Income (FTE) . . . . $68,447 $65,112 $64,812
======= ======= =======
Net Interest Margin (FTE)
(Net interest income/Total
average earning assets) 4.33% 4.20% 4.18%
==== ==== ====
<FN>
<F*>Taxable equivalent basis using a federal income tax rate of 35%.
<F1> Nonaccrual loans are included in average balances reported and are used
to calculate yields.
<F2> Interest includes loan fees of $1,721,000 in 1996, $1,414,000 in 1995
and $1,448,000 in 1994.
</FN>
</TABLE>

Net interest income increased $.3 million in 1995 to $65.1 million.
This increase was primarily attributable to increases in average
noninterest-bearing deposits and shareholders' equity. During 1995, the
Corporation's average noninterest-bearing deposits increased $12.3 million,
or 6.6%, while average shareholders' equity increased $14.2 million, or
8.2%. The average yield on interest earning assets increased 48 basis
points in 1995 to 7.14% from 6.66% in 1994. In contrast, the average cost
of interest-bearing liabilities increased 65 basis points in 1995 to 3.63%,
from 2.98% in 1994. The higher liability cost increase during 1995 resulted
in a 17 basis point decrease in interest spread. The interest spread was
3.51% in 1995, compared to 3.68% in 1994.

CONTINUED ON PAGE 32

<PAGE>
NET INTEREST INCOME - CONTINUED

<TABLE>
TABLE 3. VOLUME AND RATE VARIANCE ANALYSIS<F*> (In Thousands)
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN COMBINED DUE TO CHANGES IN COMBINED
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME YIELD/RATE (DECREASE) VOLUME YIELD/RATE (DECREASE)
<S> <C> <C> <C> <C> <C> <C>
Causes of increase (decrease) in net
interest income (FTE):
CHANGES IN INTEREST INCOME ON EARNING
ASSETS:
Loans . . . . . . . . . . . . . . . . . . $4,144 $(931) $3,213 $(1,101) $3,468 $2,367
Taxable investment securities . . . . . . (1,063) 2,270 1,207 647 3,158 3,805
Non-taxable investment securities . . . . (196) (125) (321) 31 (137) (106)
Federal funds sold. . . . . . . . . . . . 252 (477) (225) (27) 1,449 1,422
Interest-bearing deposits with
unaffiliated banks . . . . . . . . . . . (76) 8 (68) 128 10 138
------ ----- ------ ------- ------ ------
Total change in interest income on
earning assets . . . . . . . . . . . . 3,061 745 3,806 (322) 7,948 7,626
CHANGES IN INTEREST EXPENSE ON
INTEREST-BEARING LIABILITIES:
Deposits. . . . . . . . . . . . . . . . . 385 593 978 (851) 7,689 6,838
Short-term borrowed funds . . . . . . . . (207) (182) (389) (33) 426 393
Long-term debt. . . . . . . . . . . . . . (74) (44) (118) (107) 202 95
------ ----- ------ ------- ------ ------
Total change in interest expense on
interest-bearing liabilities. . . . . . 104 367 471 (991) 8,317 7,326
------ ----- ------ ------- ------ ------
TOTAL INCREASE (DECREASE) IN
NET INTEREST INCOME (FTE) . . . . . . . . . . $2,957 $ 378 $3,335 $ 669 $ (369) $ 300
====== ===== ====== ======= ====== ======
<FN>
The changes in net interest income due to both volume and rate have been
allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.

<F*>Taxable equivalent basis using a federal income tax rate of 35%.
</FN>
</TABLE>

<TABLE>
TABLE 4. SUMMARY OF LOANS AND LOAN LOSS EXPERIENCE (Dollars in Thousands)
<CAPTION>
Years Ended December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
DISTRIBUTION OF LOANS:
Commercial and agricultural loans. . . . . $114,154 $117,759 $121,175 $148,985 $157,367
Real estate construction loans . . . . . . 24,791 16,195 19,255 14,141 20,102
Real estate mortgage loans . . . . . . . . 510,193 472,454 465,721 451,481 453,536
Installment loans. . . . . . . . . . . . . 158,515 154,170 154,712 115,913 98,836
-------- -------- -------- -------- --------
Total loans outstanding at year
end . . . . . . . . . . . . . . . . . . $807,653 $760,578 $760,863 $730,520 $729,841
======== ======== ======== ======== ========

SUMMARY OF CHANGES IN THE ALLOWANCE
FOR POSSIBLE LOAN LOSSES:
Allowance for possible loan losses
at beginning of year. . . . . . . . . . . $ 15,886 $ 15,295 $ 14,583 $ 13,989 $ 12,995
Loans charged off:
Commercial and agricultural . . . . . . . (250) (433) (317) (607) (462)
Real estate mortgage. . . . . . . . . . . (55) (3) (76) (33) (71)
Installment . . . . . . . . . . . . . . . (386) (230) (237) (258) (301)
-------- -------- -------- -------- --------
Total loan charge-offs. . . . . . . . . (691) (666) (630) (898) (834)
Recoveries of loans previously
charged off:
Commercial and agricultural . . . . . . . 92 60 58 188 108
Real estate mortgage. . . . . . . . . . . 24 28 40 30 28
Installment . . . . . . . . . . . . . . . 168 104 145 170 229
-------- -------- -------- -------- --------
Total loan recoveries . . . . . . . . . 284 192 243 388 365
-------- -------- -------- -------- --------
Net loan charge-offs. . . . . . . . . . (407) (474) (387) (510) (469)
Provision for loan losses. . . . . . . . . 1,128 1,065 1,099 1,104 1,463
-------- -------- -------- -------- --------
Allowance for possible loan losses
at year end . . . . . . . . . . . . . . . $ 16,607 $ 15,886 $ 15,295 $ 14,583 $ 13,989
======== ======== ======== ======== ========
Ratio of net charge-offs during the
year to average loans outstanding . . . . .05% .06% .05% .07% .06%
======== ======== ======== ======== ========
Ratio of allowance for possible
loan losses at year end to total
loans outstanding at year end . . . . . . 2.06% 2.09% 2.01% 2.00% 1.92%
======== ======== ======== ======== ========
</TABLE>

<PAGE>
Table 3 on page 32 allocates the dollar change in net interest income
(FTE) between the portion attributable to changes in the average volume of
interest-bearing assets and liabilities, including changes in the mix of
assets and liabilities, and changes in average interest rates earned and
paid.

During 1996, through an increase in the volume and change in the mix
of interest-bearing assets and liabilities, the Corporation's net interest
income (FTE) increased $2.957 million while changes in average interest
rates earned and paid on the Corporation's assets and liabilities increased
net interest income $.378 million, resulting in a total increase in net
interest income of $3.335 million during 1996. The increase due to changes
in the volume and mix of interest-bearing assets and liabilities was
primarily attributable to a $48 million, or 6.4%, increase in average loans
during 1996.

Net interest income (FTE) increased $.3 million in 1995. The increase
due to changes in the volume and mix of interest-bearing assets and
liabilities was $.669 million. This increase was primarily attributable to
increases in average noninterest-bearing deposits of $12.3 million and
average shareholders' equity of $14.2 million. The overall change in
interest rates during 1995 resulted in a $.369 million decrease in net
interest income. This decrease was attributable to the average cost of
funds increasing greater than the yield on earning assets.

LOANS

The Corporation's ten banking subsidiaries are full service community
banks, therefore the acceptance and management of credit risk is an
integral part of the Corporation's business. The Corporation maintains a
conservative loan policy and strict credit underwriting standards. These
standards include the granting of loans only within the Corporation's
defined market areas. The Corporation has no foreign loans nor any loans to
finance highly leveraged transactions. The Corporation's conservative
lending philosophy is implemented through strong administrative and
reporting controls at the subsidiary bank level, with additional oversight
at the holding company level. The Corporation maintains a centralized
independent loan review function at the holding company level which
monitors asset quality at each of the Corporation's subsidiary banks. In
addition, the Corporation continues to maintain an aggressive loan charge-
off policy.

The Corporation's loan portfolio is well diversified geographically,
as well as along industry lines and, therefore, is reasonably sheltered
from adverse economic impact in any one industry or geographic area. An
additional strength of the Corporation's loan portfolio is that as of
December 31, 1996 approximately 55% of the portfolio was comprised of
credits granted to consumers in the form of residential mortgage, home
equity loans and lines of credit secured by first and second mortgages.

Total loans as of December 31, 1996 were $807.7 million, an increase
of $47.1 million, or 6.2%, over total loans of $760.6 million as of
December 31, 1995. The increase in total loans during 1996 was largely
attributable to a combined increase in real estate construction and real
estate mortgage loans of $46.3 million, or 9.5%. Commercial loans decreased
$3.6 million, or 3.1%, while installment loans increased $4.3 million, or
2.8%, during 1996.

The Corporation's geographical market area generally consists of small
cities across mid Michigan. The lack of substantive economic growth in the
Corporation's market areas and increased competition have impacted the
Corporation's loan growth over the past few years. The Corporation
continues to experience a significant level of competition from larger
regional banks, located outside the Corporation's market areas, in the
commercial loan area, and from large local credit unions in the installment
loan area. The competition for residential mortgage loans has also
intensified significantly over the last few years, as mortgage companies
expanded sales efforts nationwide.

Real estate mortgage loans, including real estate construction loans,
comprise the majority of the Corporation's loan portfolio. As of December
31, 1996, 1995 and 1994, total real estate mortgage loans, including real
estate construction loans, were $535.0 million, $488.7 million and $485.0
million, respectively. Real estate mortgage loans, including real estate
construction, increased $46.3 million, or 9.5% during 1996, $3.7 million,
or .8%, during 1995, and $19.3 million, or 4.2%, during 1994. Real estate
mortgage loans, including real estate construction, as a percentage of
total loans, were 66% as of December 31, 1996, compared to 64% as of both
December 31, 1995 and December 31, 1994. Approximately 80% of the real
estate mortgage portfolio, as of December 31, 1996, was secured by
residential real estate.

The Corporation originated $11.8 million of residential mortgage
loans during 1996, which were sold in the secondary mortgage market. This
compares with $15.6 million of residential mortgage loans originated during
1995 and $13.6 million of residential mortgage loans originated during
1994, which were sold in the secondary mortgage market. During the last
three years, it was the Corporation's general practice to keep residential
real estate mortgage loans, with original maturities of fifteen years or
less, in its own loan portfolio, and sell those loans with longer
maturities in the secondary mortgage market. As of December 31, 1996, the
Corporation was servicing $76 million of residential mortgage loans, which
had been originated by the Corporation in its market areas and subsequently
sold in the secondary mortgage market. Prior to 1992, the Corporation kept
all residential mortgage loans originated in its own loan portfolio.

The Corporation has been successful in managing the interest rate risk
on the residential real estate mortgage portfolio through the promotion of
its balloon mortgage products. As of December 31, 1996, approximately 40%
of the residential mortgage loan portfolio represented balloon mortgage
loans, repriceable three, five or eight years from the mortgage origination

date. The eight year balloon product was introduced during the middle of
1996.

CONTINUED ON PAGE 34

<PAGE>
LOANS - CONTINUED

Installment loans totaled $158.5 million as of December 31, 1996,
compared to $154.2 million as of December 31, 1995 and $154.7 million as of
December 31, 1994. Installment loans represented approximately 20% of total
loans outstanding as of December 31, 1996, 1995 and 1994. Installment loans
increased $4.3 million, or 2.8%, during 1996. The increase in 1996 was
partially attributable to an enhanced indirect automobile dealer loan
program and $13.6 million of loans originated in January from a special
promotion. Installment loans decreased $.5 million, or .4% during 1995.
During 1995, the Corporation sold its $2.9 million credit card portfolio.
The credit card portfolio was sold due to significant competition for this
product from other providers which offer credit cards at no annual fee and
co-branded credit cards. Late in 1995, the Corporation's affiliate banks
had a special installment loan promotion which was ongoing through the
beginning of 1996. The affiliate banks offered 7.83% consumer installment
loans with maturities up to forty-eight months to qualifying borrowers. In
1995, the affiliate banks generated $31.6 million of these promotion loans.
The 1995 installment loan promotion was the Corporation's affiliate banks'
sixth year of offering a special interest rate on consumer installment
loans during a promotion period.

Installment loans increased $38.8 million, or 33.5%, during 1994. This
increase was attributable to the 1994 installment loan promotion. A total
of $78.6 million of consumer installment loans, at an interest rate of
5.9%, and up to a forty-eight month amortization, were generated during the
1994 promotion period.

Historically, the average life of the Corporation's installment loan
portfolio has been approximately three years. This short average life and
the success of the installment loan promotions in recent years, results in
significant reductions each year in installment loan balances through loan
payments and payoffs. Consequently, during each of the last three years,
the installment loan portfolio did not increase by the amount of new loans
generated during the loan promotion periods in these years.

Commercial loans decreased $3.6 million, or 3.2%, during 1996 to
$114.2 million as of December 31, 1996. Commercial loans decreased $3.4
million, or 2.8%, during 1995 and $27.8 million, or 18.7% during 1994. The
expansion of commercial lending efforts by larger regional banks into
smaller communities has impacted the Corporation's commercial lending
growth rate. The combination of the efforts by these larger financial
institutions and the location of the majority of the Corporation's
subsidiary banks in smaller communities, where the demand for commercial
loans which meet the Corporation's credit standards has historically not
been particularly strong, contributed to the slight decline in the
Corporation's commercial loans during the last three years. Commercial
loans represented 14.1%, 15.5% and 15.9% of total loans as of December 31,
1996, December 31, 1995 and December 31, 1994, respectively.

Table 5 below presents the maturity distribution of commercial and
agricultural loans, real estate construction and nonresidential real estate
mortgage loans. These loans represented 29% and 31% of total loans as of
December 31, 1996 and December 31, 1995, respectively. The percentage of
these loans maturing within one year was 45% at December 31, 1996, compared
to 40% at December 31, 1995. The percentage of these type loans maturing
beyond five years remained low at 11% as of December 31, 1996, compared to
13% at December 31, 1995. Of those loans with maturities beyond one year,
the percentage of loans with variable interest rates was 37% at December
31, 1996, compared to 41% at December 31, 1995. The decline in the
percentage of variable rate loans with maturities beyond one year, has
continued over the past two years as a result of a strong customer demand
to convert loans to fixed interest rates. It is management's opinion that
these loan maturities and the mix between loans with fixed and variable
interest rates remain at acceptable levels to provide the Corporation
sufficient flexibility in maintaining a balance between interest rate-
sensitive assets and liabilities.

<TABLE>
TABLE 5. COMPARISON OF LOAN MATURITIES AND INTEREST SENSITIVITY (Dollars in Thousands)
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
DUE IN DUE IN
--------------------------------------------- -------------------------------------------
1 YEAR 1 TO 5 OVER 5 1 YEAR 1 TO 5 OVER 5
OR LESS YEARS YEARS TOTAL OR LESS YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOAN MATURITIES:
Commercial and agricultural . . $ 74,113 $ 33,545 $ 6,496 $114,154 $73,305 $ 37,590 $ 6,864 $117,759
Real estate construction. . . . 13,956 8,634 2,201 24,791 9,830 5,020 1,345 16,195
Non-residential real estate
mortgage. . . . . . . . . . . 18,230 61,840 18,043 98,113 12,711 67,853 21,792 102,356
-------- -------- ------- -------- ------- -------- ------- --------
Total $106,299 $104,019 $26,740 $237,058 $95,846 $110,463 $30,001 $236,310
======== ======== ======= ======== ======= ======== ======= ========
Percent of Total 45% 44% 11% 100% 40% 47% 13% 100%
======== ======== ======= ======== ======= ======== ======= ========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C> <C> <C>
INTEREST SENSITIVITY:
Above loans maturing after one year which have:
Fixed interest rates. . . . . . . . . . . . $ 82,630 63% $ 82,651 59%
Variable interest rates . . . . . . . . . . 48,129 37 57,813 41
-------- --- -------- ---
Total $130,759 100% $140,464 100%
======== === ======== ====
</TABLE>
34
<PAGE>
NONPERFORMING LOANS

Nonperforming loans include loans accounted for on a nonaccrual basis,
accruing loans contractually past due 90 days or more as to interest or
principal payments and other loans whose terms have been renegotiated to
provide for a reduction of interest or principal because of a deterioration
in the financial position of the borrower.

The Corporation maintains an aggressive loan charge-off policy. The
Corporation's practice is to immediately charge to the allowance for
possible loan losses specifically identified credit losses. This
determination is made for each loan at the time of transfer to
nonperforming status, after giving consideration to collateral value and
the borrower's ability to repay the loan principal.

Nonaccrual loans were $1.34 million as of December 31, 1996, compared
to $1.66 million as of December 31, 1995, and represented .17% and .22% of
total loans, as of December 31, 1996 and December 31, 1995, respectively.
Accruing loans past due 90 days or more were $.5 million as of December 31,
1996, compared to $1 million as of December 31, 1995. Total nonperforming
loans were $1.88 million, or .23% of total loans, as of December 31, 1996,
compared to $2.71 million, or .36% of total loans, as of December 31, 1995.

PROVISION FOR POSSIBLE LOAN LOSSES

The provision for possible loan losses ("provision") is the amount
added to the allowance for possible loan losses ("allowance") on a monthly
basis to absorb potential loan losses. The allowance is maintained at a
level considered by management to be adequate to absorb potential future
loan losses. This evaluation is based on a continuous review of the loan
portfolio, both individually and by category, and includes consideration of
changes in the type and volume of the loan portfolio, actual loan loss
experience, the present and prospective financial condition of borrowers,
industry and geographic exposures within the portfolio, general economic
conditions, prospective as well as current, and special factors affecting
specific business sectors. This evaluation process is reviewed by the
Corporation's centralized independent loan review personnel, who monitor
the credit quality of the Corporation's loan portfolio using uniform
procedures and reporting systems.

The provision in 1996 was $1.13 million, compared to $1.07 million in
1995 and $1.10 million in 1994. The Corporation experienced net loan losses
of $.41 million in 1996, $.47 million in 1995 and $.39 million in 1994. The
Corporation's provision exceeded actual net loan losses by $.72 million in
1996, $.59 million in 1995 and $.71 million in 1994. The Corporation's
allowance increased to $16.61 million as of December 31, 1996 and
represented 2.06% of total loans, compared to 2.09% at December 31, 1995
and 2.01% at December 31, 1994.

The Corporation adopted Statements of Financial Accounting Standards
Nos. 114 and 118, regarding the accounting for impaired loans, in the first
quarter of 1995, without impact to the consolidated financial statements.

<TABLE>
TABLE 6. SUMMARY OF NONPERFORMING LOANS (In Thousands)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis<F*>. . . . . . $1,341 $1,658 $2,682 $2,318 $3,049
Accruing loans contractually past due 90
days or more as to interest or principal
payments:
Commercial, agricultural and real estate
construction. . . . . . . . . . . . . . . . . . . . 7 118 95 101 505
Real estate mortgage. . . . . . . . . . . . . . . . . 271 747 182 441 415
Installment . . . . . . . . . . . . . . . . . . . . . 261 104 91 99 147
------ ------ ------ ------ ------
539 969 368 641 1,067
Renegotiated loans . . . . . . . . . . . . . . . . . . . 84 148 311 361
------ ------ ------ ------ ------
Total $1,880 $2,711 $3,198 $3,270 $4,477
====== ====== ====== ====== ======
<FN>
<F*>The Corporation's policy is to transfer a loan to nonaccrual status
whenever:
(1) it is determined that interest should be recorded on the cash basis
instead of the accrual basis because of a deterioration in the
financial position of the borrower,
(2) it is determined that payment in full of interest or principal
cannot be expected, or
(3) the loan has been in default for a period of 90 days or more unless
it is both well secured and in the process of collection (this
category excludes 1 to 4 family residential loans and consumer
installment loans).
</FN>
</TABLE>

The allocation of the allowance in Table 7, on page 36, is based upon
ranges of estimates and is not intended to imply either limitations on the
usage of the allowance or exactness of the specific amounts. The entire
allowance is available to absorb any future loan losses without regard to
the categories in which the loan losses are classified.

CONTINUED ON PAGE 36

<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES - CONTINUED

<TABLE>
TABLE 7. ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES (Dollars in Thousands)
<CAPTION>
DECEMBER 31
1996 1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TO TO TO TO
ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and agri-
cultural loans. . . . $ 5,351 14.1% $ 5,510 15.5% $ 4,959 15.9% $ 5,609 20.4% $ 5,535 21.6%
Real estate construc-
tion loans. . . . . . 496 3.1 324 2.1 385 2.5 300 1.9 300 2.8
Real estate mort-
gage loans. . . . . . 5,612 63.2 5,052 62.1 4,990 61.3 4,629 61.8 4,607 62.1
Installment loans. . . 3,487 19.6 3,381 20.3 3,401 20.3 2,557 15.9 2,186 13.5
Not allocated. . . . . 1,661 1,619 1,560 1,488 1,361
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total $16,607 100% $15,886 100% $15,295 100% $14,583 100% $13,989 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>

OTHER INCOME

Other income is derived primarily from trust services, deposit account
fees, fees for customer services, revenues from data processing services,
investment securities gains and gains on the sale of loans. Other income in
1996 totaled $12.20 million, compared to $12.36 million in 1995 and $11.33
million in 1994. The slight reduction in 1996 was due to decreases in
revenue from data processing services and gains on sales of loans. During
1996 data processing revenue declined $.29 million, or 29%. This decrease
was attributable to an anticipated loss of outside customers. Gains on the
sales of loans were $.39 million lower in 1996. During 1995, the
Corporation sold its credit card loan portfolio and recognized a gain of
$.32 million.

The three most significant categories of other income increased during
1996. Trust department income increased $.216 million, or 8%, to $2.897
million. Service charges on deposit accounts increased $.19 million, or
3.6%, to $5.382 million and other charges and fees increased $.1 million,
or 2.7%, to $2.71 million.

The increase in other income during 1995 was primarily attributable to
an increase in service charges on deposit accounts. Service charges on
deposit accounts were $5.193 million in 1995, up $.71 million, or 15.8%,
from 1994 service charge income of $4.483 million. This increase resulted
from the implementation of a new service fee schedule on large business
demand deposit accounts on January 1, 1995.

OPERATING EXPENSES

Total operating expenses were $45.12 million, $44.63 million and
$45.61 million in 1996, 1995 and 1994, respectively. Total operating
expenses as a percentage of total average assets were 2.67% in 1996, 2.70%
in 1995 and 2.74% in 1994 and can be reviewed in more detail and in
relation to the other components of net income
in Table 1, on page 29.

The reduction in operating expenses in both 1996 and 1995 was
attributable to the reduction in Federal Deposit Insurance Corporation
(FDIC) expense. FDIC expense is included in "other" operating expenses and
was $.1 million, $1.6 million and $3.0 million in 1996, 1995 and 1994,
respectively. The $1.5 million, or 94%, reduction in FDIC expense in 1996
was due to the FDIC adopting a new assessment rate schedule for Bank
Insurance Fund (BIF) members in the third quarter of 1995. The new rate
schedule, which continues to determine assessments based on a bank's risk-
based capital levels, virtually eliminated each subsidiary bank's BIF
annual deposit insurance premium as of January 1, 1996. Deposits held by
well-capitalized banks and insured by the Savings Association Insurance
Fund (SAIF), in 1996, continued to be assessed at a rate of 23.0 cents per
$100 of insured deposits. In addition, during 1996, SAIF insured deposits,
held on March 31, 1995, were assessed a one-time charge of 65.7 cents per
$100 of deposits to recapitalize SAIF to its required reserve ratio. The
Corporation's liability for this special assessment was approximately
$30,000. The reduction in FDIC expense in 1995 of $1.4 million, or 47%, was
also attributable to the new assessment rate schedule for BIF members
adopted in the third quarter of 1995.

Based upon current deposit levels and the current FDIC deposit
assessment rates, the Corporation estimates that its FDIC expense will
approximate $.25 million in 1997.

The largest component of operating expenses is the category of
salaries, wages and employee benefits. These expenses totaled $26.96
million, $25.70 million and $25.41 million in 1996, 1995 and 1994,
respectively. Salaries, wages and employee benefits expense increased $1.26
million, or 4.9%, in 1996. Full-time equivalent employees were 993 at
December 31, 1996, compared to 988 at December 31, 1995. Salaries, wages
and employee benefits expense increased $.3 million in 1995. The
Corporation was successful in maintaining 1995 personnel costs at
approximately 1994 levels by achieving a 3.3% reduction in employee
benefits cost. Personnel expenses accounted for 60% of operating expenses
during 1996, compared to 58% in 1995 and 56% in 1994.

36
<PAGE>
Occupancy and equipment expense totaled $7.15 million, $6.76 million
and $6.95 million in 1996, 1995 and 1994, respectively. Occupancy and
equipment expense increased $.385 million, or 5.7% in 1996, after
decreasing $.187 million, or 2.7%, in 1995.

Other operating expenses totaled $11.02 million, $12.17 million and
$13.26 million in 1996, 1995 and 1994, respectively. The reduction in other
operating expenses in 1996 and 1995 resulted from reductions in FDIC
expense.

The Corporation's efficiency ratio, defined as total operating
expenses divided by the sum of net interest income (FTE) and other income,
excluding net securities gains and the gains realized on the sale of the
credit card portfolio in 1995, was 57% in 1996, compared to 59% in 1995 and
61% in 1994. The Corporation has made a concerted effort over the years to
control operating expenses.

INCOME TAXES

The Corporation's effective federal income tax rate was 33.4% in 1996,
32.5% in 1995 and 31.5% in 1994, compared to the statutory rate of 35% in
each of these years. The small changes in the Corporation's effective
federal income tax rate reflect the changes each year in the proportion of
interest income exempt from federal taxation, non-deductible interest
expense and other non-deductible expenses relative to pretax income.

Tax-exempt income (FTE), net of related non-deductible interest
expense, amounted to $3.9 million in 1996, $4.0 million in 1995 and $4.5
million in 1994. Tax-exempt income (FTE) as a percentage of total interest
income was 3.6%, 3.9% and 4.5% in 1996, 1995 and 1994, respectively.

Income before income taxes on a fully taxable equivalent basis was
$34.39 million in 1996, $31.78 million in 1995 and $29.43 million in 1994,
which represented an 8.2% increase in 1996 and an 8.0% increase in 1995.

LIQUIDITY AND INTEREST SENSITIVITY

The Corporation manages its liquidity to ensure that it has the
ability to meet the cash withdrawal needs of its depositors, provide funds
for borrowers and at the same time ensure that the Corporation's own cash
requirements are met. The Corporation accomplishes these goals through the
management of liquidity at two levels - the parent company and the banking
subsidiaries.

The parent company's sources of funds have been dividends from
subsidiaries, borrowings from unaffiliated banks and proceeds from equity
issuances. During the three year period ended December 31, 1996, the parent
company's primary source of funds was subsidiary dividends. The parent
company manages its liquidity position to provide the cash necessary to pay
dividends to shareholders, service debt, invest in subsidiaries, enter new

banking markets, pursue investment opportunities and satisfy other
operating requirements.

Federal and state banking laws place certain restrictions on the
amount of dividends which a bank may pay to its parent company. Such
restrictions have not had, and are not expected to have, any material
effect on the Corporation's ability to meet its cash obligations or impede
its ability to manage its liquidity needs. Under current regulatory
restrictions, the Corporation's subsidiaries could upstream $23.3 million
to the parent company in 1996, without obtaining regulatory approval. In
addition to the funds available from subsidiaries, the parent company had
$16.0 million in cash on hand as of December 31, 1996.

The subsidiary banks manage liquidity to insure adequate funds are
available to meet the cash flow needs of depositors and borrowers. The
subsidiary banks' most readily available sources of liquidity are federal
funds sold, investment securities classified as available for sale and
investment securities classified as held to maturity maturing within one
year. These sources of liquidity are supplemented by new deposits and by
loan payments received from customers. As of December 31, 1996, the
Corporation held $114.2 million in federal funds sold, $441.8 million in
investment securities available for sale and $113.7 million in other
investment securities maturing within one year. These short term assets
represented 47% of total deposits as of December 31, 1996.

Historically, the Corporation's investment securities portfolio has
been very short-term in nature, with the average life of the portfolio
consistently being less than two years. As of December 31, 1996, the
Corporation's investment securities portfolio had an average life of 1.72
years, with $230.1 million in investment securities, or 35%, of the
investment securities portfolio maturing during 1997, and another $191.9
million, or 29%, of the investment securities portfolio maturing during
1998. The combination of the 1997 and 1998 scheduled maturities, results in
64% of the Corporation's investment securities portfolio maturing within
two years of December 31, 1996. As of December 31, 1995, 71% of the
securities portfolio was scheduled to mature within two years. The maturity
analysis of the investment securities portfolio is summarized in Tables 8
and 9, on page 38.

CONTINUED ON PAGE 38

<PAGE>
LIQUIDITY AND INTEREST SENSITIVITY - CONTINUED

<TABLE>
TABLE 8. MATURITIES AND YIELDS<F*> OF INVESTMENT SECURITIES AT DECEMBER 31, 1996 (Dollars in Thousands)
<CAPTION>
MATURING<F**>
AFTER ONE AFTER FIVE TOTAL
WITHIN BUT WITHIN BUT WITHIN AFTER CARRYING TOTAL
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS VALUE MARKET
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury and agencies . $110,539 6.15% $308,749 5.82% $ 3,341 5.15% $422,629 5.82% $422,629
Other securities . . . . . . 5,881 6.63 9,011 5.64 765 8.04 $3,501 6.71% 19,158 6.53 19,158
-------- ---- -------- ---- ------- ---- ------ ---- -------- ---- --------
Total Investment Securities
Available for Sale. . . . . 116,420 6.18 317,760 5.81 4,106 5.69 3,501 6.71 441,787 5.92 441,787

HELD TO MATURITY:
U.S. Treasury and agencies . 108,576 6.44 60,382 6.20 168,958 6.27 169,726
States of the U.S. and
political subdivisions. . . 5,115 7.65 22,020 7.81 12,925 8.18 2,036 8.68 42,096 7.95 43,044
Other securities . . . . . . 2,477 7.17 65 8.03 156 5.45 2,698 6.62 2,724
-------- ---- -------- ---- ------- ---- ------ ---- -------- ---- --------
Total Investment Securities
Held to Maturity. . . . . . 113,691 6.49 84,879 6.65 12,990 8.18 2,192 8.46 213,752 6.68 215,494
-------- ---- -------- ---- ------- ---- ------ ---- -------- ---- --------
Total Investment Securities $230,111 6.30% $402,639 5.99% $17,096 7.58% $5,693 7.38% $655,539 6.15% $657,281
======== ==== ======== ==== ======= ==== ====== ==== ======== ==== ========
<FN>
<F*>Taxable equivalent basis using a 35% federal income tax rate.
<F**>Based on final contractual maturity.
</FN>
</TABLE>

<TABLE>
TABLE 9. MATURITY ANALYSIS OF INVESTMENT SECURITIES (as a % of total portfolio)
<CAPTION>
December 31
1996 1995 1994
<S> <C> <C> <C> <C>
Under 1 year. . . . . . . . . 35.1% 41.9% 29.9%
1-5 years . . . . . . . . . . 61.4 56.1 66.6
5-10 years. . . . . . . . . . 2.6 1.4 1.9
Over 10 years . . . . . . . . .9 .6 1.6
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>

Table 10 on page 39 presents the maturity distribution of time
deposits of $100,000 or more at the end of each of the last three years.
The Corporation, historically, has not utilized time deposits of $100,000
or more as a source of liquidity. Time deposits of $100,000 or more and the
percentage of these deposits to total deposits increased slightly during
1996 to $111.4 million, or 7.8% of total deposits, as of December 31, 1996,
compared to $99.5 million, or 6.9% of total deposits, as of December 31,
1995 and $94.2 million, or 6.6% of total deposits, as of December 31, 1994.
The percentage of time deposits of $100,000 or more with a maturity of less
than three months was 78% at December 31, 1996 and 84% at December 31, 1995
and December 31, 1994. As the Corporation does not utilize these deposits
as a source of liquidity, it is able to invest the funds generated from
these deposits in investments of like or similar maturity. The Corporation
has, and expects to continue to have, more than sufficient funds to meet
the liquidity requirement of these deposits.

Interest rate sensitivity is determined by the amount of interest-
earning assets and interest-bearing liabilities repricing within a specific
time period and the magnitude by which interest rates change on the various
types of earning assets and interest-bearing liabilities. The management of
interest rate sensitivity includes monitoring the maturities and repricing
opportunities of interest-earning assets and interest-bearing liabilities.
Interest rate sensitivity management aims at achieving reasonable stability
in both net interest income and the net interest margin through periods of
changing interest rates. The Corporation's goal is to avoid a significant
decrease in net interest income and thus an adverse impact on the
profitability of the Corporation in periods of changing interest rates. It
is necessary to analyze projections of net interest income based upon the
repricing characteristics of the Corporation's earning assets and interest-
bearing deposits and the varying magnitude by which interest rates may
change on loans, investments and interest-bearing deposit accounts.

Interest rate sensitivity and liquidity management are managed by a
number of techniques, as no single interest rate risk measurement tool
satisfies both objectives. The primary techniques utilized by the
Corporation are asset and liability repricing schedules, commonly referred
to as static gap analysis, and simulation analysis. Static gap analysis is
used to monitor the Corporation's liquidity position and to assist in the
measurement of interest rate sensitivity.

<PAGE>
<TABLE>
TABLE 10. MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE (Dollars in Thousands)
<CAPTION>
December 31
1996 1995 1994
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Maturity:
Within 3 months . . . . . . . . . . . . $ 86,851 78% $83,386 84% $78,775 84%
Within 3 to 6 months. . . . . . . . . . 14,893 13 4,865 5 6,016 6
Within 6 to 12 months . . . . . . . . . 5,894 5 7,444 7 4,819 5
Over 12 months. . . . . . . . . . . . . 3,760 4 3,807 4 4,601 5
-------- --- ------- --- ------- ---
Total $111,398 100% $99,502 100% $94,211 100%
======== === ======= === ======= ===
</TABLE>

<TABLE>
TABLE 11. SCHEDULE OF RATE SENSITIVE ASSETS AND LIABILITIES BY REPRICING OR MATURITY DATE (Dollars in thousands)
<CAPTION>
1-180 181-365 OVER 1
DAYS DAYS YEAR TOTAL
<S> <C> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . . . . . . . $237,682 $ 80,218 $489,753 $ 807,653
Other interest-earning assets. . . . . . . . . . 276,642 68,058 426,173 770,873
-------- -------- -------- ----------
Total interest-earning assets. . . . . . . . . . 514,324 148,276 915,926 1,578,526
-------- -------- -------- ----------

Non-maturing deposits. . . . . . . . . . . . . . 75,330 572,437 647,767
Time deposits. . . . . . . . . . . . . . . . . . 326,712 137,455 91,016 555,183
-------- -------- -------- ----------
Total interest-bearing deposits. . . . . . . . . 402,042 137,455 663,453 1,202,950
Other interest-bearing liabilities . . . . . . . 36,006 13,313 49,319
-------- -------- -------- ----------
Total interest-bearing liabilities . . . . . . . $438,048 $ 37,455 $676,766 $1,252,269
-------- -------- -------- ----------

Asset gap. . . . . . . . . . . . . . . . . . . . $ 76,276 $ 10,821 $239,160 $ 326,257
Cumulative asset gap . . . . . . . . . . . . . . $ 76,276 $ 87,097 $326,257
Cumulative gap as a percentage
of total earning assets . . . . . . . . . . . . 4.8% 5.5% 20.7%
</TABLE>

Table 11 above summarizes the Corporation's interest rate repricing
gaps for selected maturity periods as of December 31, 1996.

Total interest-earning assets exceeded interest-bearing liabilities by
$326.3 million at December 31, 1996. This difference was funded primarily
through noninterest-bearing liabilities and shareholders' equity. Table 11
shows that total assets maturing or repricing within one year exceeded
liabilities maturing or repricing within one year by $87.1 million. It is
important to emphasize that the computation of static gap does not address
the fact that the repricing of certain categories of assets and liabilities
are subject to competitive and other influences that are beyond the control
of the Corporation. As a result, certain assets and liabilities mature or
reprice in periods other than in their contractual period. Municipal NOW
accounts have no contractual maturity, however they are repriceable daily
at the Corporation's discretion. The Corporation has determined that these
accounts are interest rate sensitive and have included them in the 0-180
day category. Money fund accounts, which are noncorporate limited
transaction savings accounts, also have no contractual maturity and can
reprice daily at the Corporation's discretion. Based on the Corporation's
statistical analysis, money fund accounts have been determined to be only
partially interest rate sensitive, and therefore 20% of these accounts were
included in the 0-180 day category, with the remainder of these accounts
included in the over 1 year category. Passbook savings, retail NOW and
"ChemCash" (cash management repurchase agreement) accounts, which totaled
$435 million as of December 31, 1996, have no contractual maturity date and
can reprice daily at the Corporation's discretion. These accounts are
believed by management to be predominately noninterest rate sensitive, and
therefore were included in the over 1 year category. The Corporation
recognizes the limitations of static gap analysis as a tool in managing
interest rate risk and, therefore utilizes other methods, including
simulation analysis.

Simulation analysis is used to project the potential effects of
various interest rate environments on the balance sheet mix and net
interest income. Simulation analysis involves the analysis of net interest
income and the corresponding quantification of interest rate risk,
attributable to changes in interest rate levels and relationships, asset
and liability mixes and loan prepayment characteristics. While many assets
and liabilities reprice either at maturity or in accordance with their
contractual terms, several balance sheet

CONTINUED ON PAGE 40

<PAGE>
LIQUIDITY AND INTEREST SENSITIVITY - CONTINUED

components demonstrate characteristics that require an evaluation to more
accurately reflect their pricing behavior. Assumptions based on historical
pricing relationships, experience and anticipated market reactions are made
to certain core deposit and loan categories to reflect changes in interest
rate costs and yields relative to changes in market interest rates. Net
interest income is additionally evaluated under various interest rate
scenarios, including gradually adjusting interest rates up and down by 200
basis points. The measurement of interest rate risk exposure on net
interest income at year-end 1996, projected over the succeeding twelve
months, indicated a nearly neutral interest rate sensitivity position. The
results of simulation analysis provide additional information needed to
assess the proper balance sheet structure and manage net interest income.

The management of net interest income must address two objectives. It
must consider the liquidity needs of the Corporation and be designed to
minimize the risk of a significant decline in net interest income in a
period of significantly rising or declining interest rates.

The following table illustrates that during 1996 and 1995 the
Corporation's quarterly average net interest margin was not significantly
impacted by changes in interest rates.

<TABLE>
<CAPTION>
1996
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
<S> <C> <C> <C> <C>
Average Prime Rate . . . . . . . 8.25% 8.25% 8.25% 8.33%
Average Fed Funds Rate . . . . . 5.18 5.13 5.18 5.17
Net Interest Margin. . . . . . . 4.43 4.38 4.32 4.17
</TABLE>

<TABLE>
<CAPTION>
1995
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
<S> <C> <C> <C> <C>
Average Prime Rate . . . . . . . 8.67% 8.75% 9.00% 8.83%
Average Fed Funds Rate . . . . . 5.64 5.71 5.93 5.75
Net Interest Margin. . . . . . . 4.20 4.14 4.21 4.24
</TABLE>

The Corporation expects to keep the average maturity of its investment
securities portfolio to under three years, while generally holding in its
own loan portfolio residential real estate loans with original maturities
of fifteen years of less. The Corporation has not used and does not intend
to use interest rate swaps or other derivatives in the management of
interest rate risk. As of December 31, 1996, the Corporation held

approximately $9 million in mortgage backed and other derivative securities
and had no investments in any instruments considered "junk bonds."

CAPITAL

Capital provides the foundation for future growth and expansion. The
major component of capital is shareholders' equity.

Shareholders' equity was $207.3 million as of December 31, 1996, an
increase of $12.4 million, or 6.3%, from total shareholders' equity as of
December 31, 1995. The 1996 increase was derived almost exclusively from
earnings retention of $14.2 million. This increase was slightly offset by
the repurchase of $1 million of the Corporation's common stock and a $1.6
million change in unrealized losses on available for sale securities.

The ratio of shareholders' equity to total assets was 12.2% at
December 31, 1996, compared to 11.4% at December 31, 1995 and 10.3% at
December 31, 1994. The Corporation's tangible equity ratio was 12.0%, 11.2%
and 10.1% as of December 31, 1996, December 31, 1995 and December 31, 1994,
respectively.

Under the regulatory "risk-based" capital guidelines in effect for
both banks and bank holding companies, minimum capital levels are based
upon perceived risk in the Corporation's various asset categories. These
guidelines assign risk weights to on-and-off balance sheet items in
arriving at total risk-adjusted assets. Regulatory capital is divided by
the computed total of risk-adjusted assets to arrive at the risk-based
capital ratios.

The Corporation's capital ratios exceeded the minimum levels
prescribed by the Federal Reserve Board, as of December 31, 1996, as shown
in the following table.

<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIOS
LEVERAGE TIER 1 TOTAL
<S> <C> <C> <C>
Chemical Financial
Corporation's capital ratios. . . . . . 12% 29% 31%
Regulatory capital ratios
"well capitalized" definition . . . . . 5 6 10
Regulatory capital ratios -
minimum requirements. . . . . . . . . . 3 4 8
</TABLE>

The Corporation's tier 1 and total regulatory capital ratios are
significantly above the regulatory minimum and "well capitalized" levels
due to the Corporation holding $601 million in investment securities and
other assets, which are assigned a 0% risk rating, and $431 million in
loans secured by first liens on residential real estate properties, which

are assigned a 50% risk rating. These two categories of assets represented
61% of the Corporation's total assets as of December 31, 1996.

At December 31, 1996, all of the Corporation's banking subsidiaries
exceeded the minimum ratios required of a "well-capitalized" institution as
defined in the final rule under the Federal Deposit Insurance Corporation
Improvement Act of 1991.

<PAGE>
OUTLOOK

The Corporation's philosophy is that it intends to be a "family" of
community banks, which operates under the direction of local Boards of
Directors, a holding company management team and a Corporate Board of
Directors. The Corporation strives to remain a quality sales and service
organization, and is dedicated to controlled growth and sustained
profitability, through the preservation of the community banking concept,
in an ever changing and increasingly competitive environment.

The Corporation has designed its policies regarding asset/liability
management, liquidity, lending, investment strategy and expense control to
provide for the safety and soundness of the organization, continued
earnings growth and the avoidance of wide fluctuations in earnings from one
year to the next. The Corporation continues to successfully manage its
operations, and thus offset its lower than peer net interest margin, which
results from its conservative lending and investment policies, with lower
than peer loan losses and operating expenses. This strategy resulted in an
increase in earnings per share of 7.0% and a return on assets of 1.30%,
during 1996.

The banking industry is affected by the overall level of inflation,
primarily by the impact inflation has on the overall level and trend of
interest rates and the growth of operating expenses. It is necessary for
the Corporation to position itself so that changes in the overall level and
trend of interest rates, both on a short term and long term basis, do not
significantly adversely impact net interest income. It is also necessary
for the Corporation to continually monitor the growth of operating expenses
and maintain an appropriate ratio of equity to assets.

There are currently no known trends, events or uncertainties that
management believes may be reasonably expected to have a material effect on
the Corporation's financial performance.

-41-

<PAGE>
DIRECTORS AND OFFICERS OF AFFILIATES

CHEMICAL BANK AND TRUST COMPANY

DIRECTORS
STUART J. BERGSTEIN
President
Community Drug Stores, Inc.

LAWRENCE E. BURKS
Vice Chairman

JAMES A. CURRIE
Educator

DALE T. DEAN
President
4-D Builders Supply, Inc.

MICHAEL L. DOW
Chairman
General Aviation, Inc.

DR. DAVID E. FRY
President
Northwood University

RICHARD A. HAZLETON
Chairman and
Chief Executive Officer
Dow Corning Corporation

JAMES R. JENKINS
Vice President,
Secretary and General Counsel
Dow Corning Corporation

JAMES A. KENDALL
Attorney at Law
Currie & Kendall, P.C.

TERENCE F. MOORE
President
MidMichigan Regional
Health System

MARY M. NEELY
Community Volunteer

ALOYSIUS J. OLIVER
CEO and President
Chemical Financial Corporation

ALAN W. OTT
Chairman

FRANK P. POPOFF
Chairman
The Dow Chemical Company

DAVID B. RAMAKER
CEO and President

LAWRENCE A. REED
Retired
Dow Corning Corporation

GARY S. SMITH, M.D.
Midland Family Physicians, P.C.

WILLIAM S. STAVROPOULOS
Chief Executive Officer
and President
The Dow Chemical Company

DIRK D. WALTZ
Dirk Waltz Buick-Olds-Jeep, Inc.

LAWRENCE J. WASHINGTON, JR.
Vice President
Human Resources
Chemicals and Plastics
The Dow Chemical Company

HONORARY DIRECTOR
DIRK B. WALTZ
Retired
Dirk Waltz Buick-Olds-Jeep, Inc.

ST. LOUIS OFFICE
ADVISORY BOARD
LAWRENCE E. BURKS
Vice Chairman

DANIEL L. DOEPKER
President
Mid-West Building
Distributors, Inc.

DOUGLAS F. McKIM
Chairman
Lodewyk, Nesen & McKim, Inc.

DUANE OXENDALE
Consultant
Michigan Livestock Exchange

WILLIAM C. THIEMKEY, D.O.
Physician

BRADLY E. VIBBER
Senior Vice President
and Manager

JAMES F. WAGAR
Vice Chairman
Playbuoy Pontoon
Manufacturing, Inc.

OFFICERS
ALAN W. OTT
Chairman

LAWRENCE E. BURKS
Vice Chairman

DAVID B. RAMAKER
CEO and President

THOMAS J. ALEXANDER
Executive Vice President and
Cashier

BRUCE M. GROOM
Senior Vice President
and Senior Trust Officer

CHARLES F. KINNEY
Senior Vice President

WILLIAM C. LAUDERBACH
Senior Vice President and
Investment Officer

LARRY M. NOBLE
Senior Vice President

JUDE T. PATNAUDE
Senior Vice President and
Trust Officer

GLENN W. PIETENPOL
Senior Vice President and
Trust Officer

BRADLY E. VIBBER
Senior Vice President

VICE PRESIDENTS
SHARON E. BOWEN
JOANN M. BURGESS
ROBERT W. BURNS
ALAN C. CHRISTENSEN
LAWRENCE LaGROW
JANET M. McGUIRE
W. ROGER MIKUSEK
ROGER D. NEMETH
DARLENE R. SLATER

VICE PRESIDENTS AND
TRUST OFFICERS
KIRK W. FISHER
RICHARD J. STRINGER
PATRICIA ZIMMERMAN

CONTROLLER
GRETCHEN L. RODAMMER

ASSISTANT VICE PRESIDENTS
CARL R. AHEARN
RUTH BOMAN
ROBERT O. BURGESS, JR.
KIMBERLEE R. BUTCHER
G. THOMAS CIMBALIK
MARY G. GREEN
SELENA NOBLE
MONICA A. SANGER
VICTOR L. SCHULTZ
RONALD D. SCHWEIGERT
BARBARA E. SLAGEL
TINA A. WALLACE
ROBERT J. WALTERS
CAROL WIERMAN
SHERYL K. WILLIG

ASSISTANT VICE PRESIDENTS
AND TRUST OFFICERS
HERBERT E. HARDY
NORMA KENDALL
GUY D. MERRIAM

TRUST OFFICERS
SHELLY L. CAUFIELD
WILLIAM HAIGH
RUDOLPH R. RADOSA, JR.
MARK SOVEREEN
PICCOLA SWEEBE

ASSISTANT TRUST OFFICERS
JANET BELTNICK
JAN E. GORDON

AUDITOR
AUDREY J. GRIFFIN

ASSISTANT CASHIERS
WAYNE A. BARBER
BETH E. BRICK
REGINA CURTIS
SHERON DEIBERT
STEPHEN HALLEAD
CHERYL K. MEYERS
NANCY MILTON
SHERRY A. MIZER
MARK J. STEINKE
TAMARA J. SWINSON
MARLENE TETU
PEGGY L. TUCKER
SANDRA TURK
KEITH A. WENZEL
BESSIE T. WILLIAMS
SHARON YODER

BUILDING AND MAINTENANCE OFFICER
CHESTER CANTRELL

CFC DATA CORP

DIRECTORS
THOMAS J. ALEXANDER
Executive Vice President and
Cashier
Chemical Bank and Trust Co.

STUART J. BERGSTEIN
President
Community Drug Stores, Inc.

JAMES R. JENKINS
Vice President,
Secretary and General Counsel
Dow Corning Corporation

DOMINIC MONASTIERE
CEO and President
Chemical Bank Bay Area

TERENCE F. MOORE
President
MidMichigan Regional
Health System

ALOYSIUS J. OLIVER
CEO and President
Chemical Financial Corporation

THOMAS H. PETERSEN
Executive Vice President and
General Manager

OFFICERS
ALOYSIUS J. OLIVER
President and Treasurer

THOMAS H. PETERSEN
Executive Vice President and
General Manager

LORI A. GWIZDALA
Secretary

<PAGE>
CHEMICAL BANK BAY AREA

DIRECTORS
GARY E. ANDERSON
President
Dow Corning Corporation

LAWRENCE E. BURKS
Vice Chairman
Chemical Bank and Trust Co.

JAMES E. DANEK
Executive Vice President

LORI A. GWIZDALA
Senior Vice President,
Chief Financial Officer
and Treasurer
Chemical Financial Corporation

THERON P. HOLLAND
Hollands IGA

DOMINIC MONASTIERE
CEO and President

DONALD L. PIETZ
President
PICO, Inc.

DAVID S. RAMSAY
Lee/Ramsay Funeral Home

ROBERT D. SAROW
Attorney at Law
Learman, Peters, Sarow &
McQuillan

GARY D. STEADMAN
President
Gary D. Steadman, Inc.

THOMAS H. TABOR
President
Herman Hiss & Co.

DONALD L. WILTSE
Wiltse Chevrolet,
Oldsmobile, Buick, Inc.

AU GRES ADVISORY BOARD
HOWARD M. BARRIGER
Teacher
Standish Sterling High School
President
Barriger Builders

RONALD E. CHRISTIE
Band Director
Au Gres Sims Schools

JAMES E. DANEK
Executive Vice President

KARL N. EDMONDS
AuGres Parts & Service

GERALD H. HEINRICH
Heinrich Lumber Company

THERON P. HOLLAND
Hollands IGA

OTIS L. McKINLEY, D.D.S.

DOMINIC MONASTIERE
CEO and President

DAVID S. RAMSAY
Lee/Ramsay Funeral Home

DONALD L. WILTSE
Wiltse Chevrolet,
Oldsmobile, Buick, Inc.

OFFICERS
LAWRENCE E. BURKS
Chairman

DOMINIC MONASTIERE
CEO and President

JAMES E. DANEK
Executive Vice President

RODNEY R. LOOMIS
Senior Vice President

RICHARD J. Van AKKER
Senior Vice President

VICE PRESIDENT AND CASHIER
JANIE L. WILLIAMSON

VICE PRESIDENTS
CRAIG A. BISHOP
TARI E. DETZLER
DUANA R. Mc CULLOCH
GALE L. MIELENS
MARY JO TOPORSKI
THOMAS R. WILCOX

ASSISTANT VICE PRESIDENTS
R. JAMES MERRILL
SANDRA A. METZGER
DEBORAH K. MORGAN

AUDITOR
DEBBIE L. DEWALD

ASSISTANT CASHIERS
RONALD D. ERNDT
LYNN M. HANSEN
JUDITH A. MARCINIAK
SUZANNE E. NEERING
JEAN M. SAXON
KAREN M. SCHAFFER
WILLIAM R. TILLEN

CHEMICAL BANK SOUTH

DIRECTORS
JUDITH A. BOROWITZ
CEO and President

RONALD J. DeGRAW
Attorney
Schroeder, DeGraw, Kendall,
Mayhall, DeGraw & Dickerson

ROBERT W. FRAHM
President
Bob Frahm Chevrolet-Buick-
Pontiac Company

EUGENE D. HAMAKER
Retired/Consultant
Metalab

DENNIS J. LaFLEUR
CEO and President
Chemical Bank Michigan

WILLIAM C. LAUDERBACH
Senior Vice President and
Investment Officer
Chemical Bank and Trust Co.

ARLIN E. NESS
President
Starr Commonwealth Schools

JOYCE J. SPICER
Administrative Assistant
Albion Division
Harvard Industries, Inc.

WILLIAM K. STOFFER
Chairman and
Chief Executive Officer
Albion Machine and Tool Co.

JEOFFREY A. THORREZ
President
Concord Manufacturing Co.

JACK H. TOWNSEND
Chairman and
Chief Executive Officer
Michigan Kitchen Distributors

DR. MELVIN L. VULGAMORE
President
Albion College

OFFICERS
EUGENE D. HAMAKER
Chairman

JUDITH A. BOROWITZ
CEO and President

CAROL R. HAYDEN
Vice President and Cashier

TERI E. FOGEL
Vice President

MARVIN N. ITTNER
Vice President

REBECCA L. VETTEL
Vice President

ASSISTANT VICE PRESIDENT
DIANE M. RAMIREZ

AUDITOR
ELIZABETH A. WONUS

ASSISTANT CASHIER
BARBARA A. KEITH

CHEMICAL BANK MONTCALM

DIRECTORS
LAWRENCE E. BURKS
Vice Chairman
Chemical Bank and Trust Co.

DONALD BURNS
President
Montcalm Community College

GARY COPP
Secretary/Manager
Carson City Lumber Co.

C. NORMAN CROOKS
Farmer

ALAN E. GRUNEWALD
Professor of Finance
Michigan State University

THOMAS W. KOHN
CEO and President

CHARLES E. MILLER, JR.
Insurance
Miller-Gamwell Agency

DAVID B. RAMAKER
CEO and President
Chemical Bank and Trust Co.

MELVIN SCHNEPP
Retired
Schnepp Funeral Homes, Inc.

OFFICERS
LAWRENCE E. BURKS
Chairman

THOMAS W. KOHN
CEO and President

GLENN L. WOOD
Senior Vice President

LLOYD D. SCOBY
Senior Vice President

DARLA BARTLETT
Cashier

VICE PRESIDENTS
DAVID BARKER
DIANE BEACH
BRUCE COLE
ROBERT HILL
JEAN SOUTHWARD

ASSISTANT VICE PRESIDENTS
KAY MEISTER
DONNA STRATTON

AUDITOR
KIMBERLY SIBURT

ASSISTANT CASHIERS
AMY S. ANDERSEN
CONNIE COLLAR
TAMALA HARRINGTON
DORIS RASMUSSEN
LINDA TUCKER
KAREN YAW

<PAGE>
CHEMICAL BANK CENTRAL

DIRECTORS
JACK R. BENEDICT
President
The Benedict Manufacturing Co.

BRUCE M. GROOM
Senior Vice President and
Senior Trust Officer
Chemical Bank and Trust Co.

KARL W. LINEBAUGH
CEO and President

RONALD MOHNKE
Rogers-Mohnke Funeral Home

LINDA L.H. MYERS
Assistant Superintendent
Mecosta-Osceola Intermediate
School District

WILLIAM R. PRUITT
Pruitt-Livingston Funeral Home

DAVID B. RAMAKER
CEO and President
Chemical Bank and Trust Co.

CARL M. SCHUBERG
Auctioneer-Farmer

FRANKLIN C. WHEATLAKE
Chairman
Wheatlake Enterprises

JOSEPH M. WOLSCHLEGER,
M.D.
Internal Medicine

OFFICERS
DAVID B. RAMAKER
Chairman

KARL W. LINEBAUGH
CEO and President

PHILIP R. KEATING
Executive Vice President

MARY L. WITHERS
Cashier

ASSISTANT VICE PRESIDENTS
JAMES GARRETT
DAVID J. LANGWORTHY
JEAN A. MISENAR

AUDITOR
ROBERT D. GAMMONS

ASSISTANT CASHIERS
KENDA DIESON
MARJORIE A. RICHARDS
JANET ROWLAND
KELLIE J. SHANKEL

COMPLIANCE AND CRA OFFICER
MARY K. SUCKOW

CHEMICAL BANK MICHIGAN

DIRECTORS
ROBERT H. BEACOM
Retired
Chemical Bank Michigan

JOHN M. BICKNELL
Retired Retailer

DONALD D. CLARKE
Crop Farmer

VINCENT L. DEMASI
Owner, Clare Hardware

RICHARD DEAN DOHERTY
A.J. Doherty Motor Inns, Inc.

WAYNE FRUCHEY
Retired
Fruchey Foods, Inc.

JOSEPH F. JOHNSTON
Retired
Johnston Elevator

CHARLES F. KINNEY
Senior Vice President
Chemical Bank and Trust Co.

DENNIS J. LaFLEUR
CEO and President

CLAY MAXWELL
Maxwell Seed Farms

RICHARD M. MOSER
Owner, Woods Household
Furniture & Appliances

BETTY M. MUSSELL
Community Volunteer

JOSEPH F. MYERS
Myers for Tires

WILLIAM C. ODYKIRK
Ody Enterprises

ALOYSIUS J. OLIVER
CEO and President
Chemical Financial Corporation

GUERDON E. SCHUMACHER
Retired

ALBERT F. WENTWORTH
Dairy Farmer

OFFICERS
ALOYSIUS J. OLIVER
Chairman

DENNIS J. LaFLEUR
CEO and President

JAMES A. ALLEN
Senior Vice President

RONNIE L. POWELL
Senior Vice President

MARK D. RUHLE
Senior Vice President

RODERICK F. BEAMISH
Vice President

JANET GILLARD
Vice President

DAVID P. VERMILYE
Vice President and Cashier

BRENDA J. HAVENS
Comptroller

ASSISTANT VICE PRESIDENTS
CHARLES AMBLE
DALLAS L. GEROW
ROBIN R. GROVE
LINDA C. HALL
STEVEN J. KINGSBURY
TAMMY L. MILLER
DAVID T. PRAWDZIK
SUSAN D. SPEARY
LORI STOUT
STANLEY L. WARNER

AUDITOR
HILDA E. FLETCHER

ASSISTANT CASHIERS
THEOLA CLEVELAND
STEPHANIE COOPER
ELAINE DUNKLE
JUDITH A. GROVE
CHRISTINE J. LAWSON
VERA MARSHALL
SUE E. WHITE

CHEMICAL BANK NORTH

DIRECTORS
THOMAS J. ALEXANDER
Executive Vice President and
Cashier
Chemical Bank and Trust Co.

WILLIAM L. CAREY
Attorney at Law

JERRY M. DeWITT
Owner
Fox Run Country Club

ROSE E. DULEY GLEASON
Retired
Crawford County Library

RONALD D. FRASER
Owner
Grayling Holiday Inn

SAMUEL P. MARRA
Retired
Hunt Drug Store, Inc.

DAVID B. RAMAKER
CEO and President
Chemical Bank and Trust Co.

G. JOE SWAIN
CEO and President

JERRY WALKER
Vice President
Jack Millikin, Inc.

OFFICERS
DAVID B. RAMAKER
Chairman

G. JOE SWAIN
CEO and President

MARK W. FURST
Vice President

RANDALL A. SEYMOUR
Vice President

J. ELAINE SWEENEY
Vice President and Cashier

ASSISTANT VICE PRESIDENTS
SHARON NIEBRZYDOWSKI
SHELBY J. NORMAN
JANE A. RANDALL
ANDREA M. WEISS

AUDITOR
CAROL D. WHITE

ASSISTANT CASHIERS
SANDRA L. EGBERS
TAMARA L. KENT
SHARON A. VARISCO

<PAGE>
CHEMICAL BANK WEST

DIRECTORS
THOMAS J. ALEXANDER
Executive Vice President
and Cashier
Chemical Bank and Trust Co.

RONALD L. BLACKMAN
President
Blackman Iron & Metal, Inc.

NANCY BOWMAN
C.P.A.

HAROLD CNOSSEN
Prosperous Farms

WAYNE EVERETT
Everett Office Plus

JAMES B. HINKAMP, II
Executive Vice President

DAVID B. RAMAKER
CEO and President
Chemical Bank and Trust Co.

JOHN A. REISNER
CEO and President

OFFICERS
DAVID B. RAMAKER
Chairman

JOHN A. REISNER
CEO and President

JAMES B. HINKAMP, II
Executive Vice President

KRISTINE E. BOWEN
Vice President

BARBARA HANCOCK
Assistant Vice President
and Cashier

ASSISTANT VICE PRESIDENTS
ROXANNE PRINCE
SUSAN SCHWAGER

AGRICULTURE REPRESENTATIVE
THOMAS WINKEL

AUDITOR
SUSAN PARSONS

ASSISTANT CASHIERS
DELLA BEDNARICK
DARYL HESSELINK
LORIE MORIARTY
JUDY MULDER
MARY JO SHIVLIE

CHEMICAL BANK KEY STATE

DIRECTORS
DAVID ELOW
Retired Industrialist

MARGARET S. GULICK
President and Chief Executive
Officer
Memorial Healthcare Center

JOHN F. HARRISON
CEO and President

WILLIAM P. HOWE
President
Mid-Michigan Construction

MICHAEL G. MAJZEL, JR.
Self-Employed Crop Farmer

ALOYSIUS J. OLIVER
CEO and President
Chemical Financial Corporation

HERBERT F. PENHORWOOD
Retired Industrialist

DAVID B. RAMAKER
CEO and President
Chemical Bank and Trust Co.

HOWARD S. SHAND
President
William E. Walter, Inc.

PHILIP R. WELCH
President
Michigan Lake Products, Inc.

OFFICERS
DAVID ELOW
Chairman

JOHN F. HARRISON
CEO and President

ROBERT L. HARDY
Senior Vice President

VICE PRESIDENTS
LORI L. EDINGTON
ARTHUR C. ELBRACHT
JOHN H. LARZELERE

ASSISTANT VICE PRESIDENTS
P. JOSEPH DALY
DONALD D. LEVI
DONNA S. McAVOY

ASSISTANT VICE PRESIDENT AND
CASHIER
NITA L. JONES

ASSISTANT VICE PRESIDENT
AND CONTROLLER
LAWRENCE V. BORZA

ASSISTANT CASHIERS
BARBARA M. BUCSI
JAMES R. FARHAT
MICHELLE M. HOLDEN
RANDY L. HORTON
JAMES D. JONES
SUSAN K. LYNDE
JANA L. MOORE
MARY M. PIPER
CAROL A. ROWELL
LINDA K. SOVIS

CHEMICAL BANK THUMB AREA

DIRECTORS
RICHARD C. BIDDINGER
Owner
Riverside Sales and Engineering
Corp.

GARY J. CREWS
Attorney
Ransford and Crews

LORI A. GWIZDALA
Senior Vice President,
Chief Financial Officer and
Treasurer
Chemical Financial Corporation

DOUGLAS H. HERRINGSHAW
President
Chemical Bank Thumb Area

CARL O. HOLMES
Chairman and CEO

MARVIN J. KOCIBA
Farm Owner and Operator

MICHAEL LAETHEM
President
Laethem Equipment Company
Laethem Farm Service Company

KENNETH G. McLAREN
Owner
Simonson/McLaren Agency

ALAN W. OTT
Chairman
Chemical Financial Corporation

GERALDINE F. PRIESKORN
Vice President
Prieskorn Variety Stores, Inc.

RICHARD B. RANSFORD
President
Ransford Funeral Home, Inc.

CASS CITY
ADVISORY BOARD
DUANE W. CHIPPI
President
Cass City Oil & Gas Company

RICHARD T. DONAHUE
Farm Owner and Operator

DOUGLAS H. HERRINGSHAW
President

CARL O. HOLMES
Chairman and CEO

WILLIAM L. KRITZMAN
President and Treasurer
Kritzman's, Inc.

GERALDINE F. PRIESKORN
Vice President
Prieskorn Variety Stores, Inc.

K. MICHAEL WEAVER
Owner
Coachlight Pharmacy

ROBERT V. WISCHMEYER
Plant Manager
Agri Sales, Inc. (Bad Axe)

HARBOR BEACH/BAD AXE
ADVISORY BOARD
DOUGLAS H. HERRINGSHAW
President

CARL O. HOLMES
Chairman and CEO

MARVIN J. KOCIBA
Farm Owner and Operator

PATRICIA J. ROGGENBUCK
Secretary
Helena Valley Farms

GLEN H. TOWNLEY
Owner
Harbor Beach Insurance Agency

OFFICERS
CARL O. HOLMES
Chairman and CEO

DOUGLAS H. HERRINGSHAW
President

MURRAY L. CAISTER
Executive Vice President

JAMES E. BOLTON
Senior Vice President

ROBERT M. WOLAK
Senior Vice President

VICE PRESIDENTS
MICHAEL F. BOICE
DENNIS P. GILKEY
BEVERLY J. PERRY

ASSISTANT VICE PRESIDENTS
FELICIA M. CARR
WILLIAM L. CHASE
LYNN C. PAVLICHEK
LINDA K. SMITH

CASHIER
CHARLES L. BROWN

AUDITOR
ROSE M. STRUNZ

ASSISTANT CASHIERS
BETTE M. BURTON
ROMALEE CAMPBELL
ANNE M. FOLEY
SUSAN M. MILLER
MARSHA K. MOORE
SHERRYL M. SEELEY
CHERYL D. WILDER
KAREN L. WOOD
CAROLYN M. WYMORE

EXECUTIVE SECRETARY
MONALEE McCREA

<PAGE>
CHEMICAL FINANCIAL CORPORATION

THE COMPANY

Chemical Financial Corporation is a registered bank holding company
headquartered in Midland, Michigan, that operates ten bank affiliates with
eighty-seven banking offices in twenty-four counties located generally
across the midsection of Michigan's lower peninsula. All of the
Corporation's subsidiary banks are state banks and offer the full range of
services normally associated with commercial banking. The Corporation's
lead bank is Chemical Bank and Trust Company, headquartered in Midland,
Michigan. Trust services are provided by the lead bank directly to
customers of the Corporation's other nine subsidiary banks through service
agreements with each bank.

The Corporation owns a bank-related company, CFC Data Corp, which
provides data processing services to both the Corporation's subsidiary
banks and non-affiliated business customers.

The Corporation also operates an insurance agency and a title services
company through subsidiaries of its lead bank.

Because the Corporation is a bank holding company, its principal
operations are conducted by its subsidiaries.

The Parent Company serves as controlling shareholder and maintains
systems of financial, operational and administrative controls that permit
centralized evaluation of subsidiary operations. The Parent Company also
provides substantive assistance to its subsidiaries in selected functional
areas including accounting, operations, marketing, investments, central
purchasing, financial planning, internal auditing, loan quality control,
training, compliance with regulatory requirements and personnel.

On January 1, 1997, Aloysius J. Oliver succeeded Alan W. Ott as Chief
Executive Officer and President of the Corporation and David B. Ramaker was
appointed Executive Vice President of the Corporation. Mr. Oliver, who has
been with the Corporation thirty-nine years, had been Executive Vice
President of the Corporation. Mr. Ramaker, who succeeded Mr. Ott as Chief
Executive Officer of Chemical Bank and Trust Company, had been President
and Chief Executive Officer of Chemical Bank Key State, a wholly owned
subsidiary of the Corporation, in Owosso, Michigan. Additionally, on
January 1, 1997, Mr. Oliver was appointed a director of the Corporation and
Mr. Ramaker was appointed Secretary of the Corporation.

ANNUAL MEETING

The annual meeting of the shareholders will be held at the Midland
Center for the Arts, Midland, Michigan, on Monday, April 21, 1997, at 2:00
P.M.

DIVIDEND REINVESTMENT

The Corporation offers a dividend reinvestment program through KeyCorp
Shareholder Services, Inc., Cleveland, Ohio, whereby shareholders may
reinvest their Chemical Financial Corporation dividends in additional
shares of the Corporation's stock. Information concerning this optional
program is available from the Chief Financial Officer, Chemical Financial
Corporation, P.O. Box 569, Midland, Michigan 48640. Telephone (517) 839-5350.

ADDITIONAL INFORMATION

Chemical Financial Corporation common stock is traded on the NASDAQ
Stock Market. It is quoted daily in leading financial publications under
the NASDAQ National Market Issues heading of the stock tables, NASDAQ
symbol: CHFC. As of December 31, 1996, there were six registered market
makers of Chemical Financial Corporation common stock: A.G. Edwards & Sons,
Inc., Stifel Nicolaus & Co., First of Michigan Corporation, Roney &
Company, Herzog, Heine, Geduld, Inc. and Sherwood Securities Corporation.
The approximate number of shareholders of record at December 31, 1996 was
3,800. Analysts, investors, and others seeking financial or general
information about the Corporation are invited to contact Aloysius J.
Oliver, Chief Executive Officer and President, or Lori A. Gwizdala, Senior
Vice President and Chief Financial Officer, Telephone (517) 839-5350.

EQUAL OPPORTUNITY EMPLOYERS

Chemical Financial Corporation and its subsidiaries are equal
opportunity employers.

REGISTRAR & TRANSFER AGENTS

KeyCorp Shareholder Services, Inc. (until March 31, 1997)
Investment Management and Trust Services Center
P.O. Box 6477
Cleveland, Ohio 44101

Harris Trust and Savings Bank (as of April 1, 1997)
Attention: Shareholder Services
311 West Monroe Street, 11th Floor
Chicago, Illinois 60606

Chemical Bank and Trust Company
Attention: Transfer Agent
333 East Main Street
Midland, Michigan 48640

<PAGE>
CORPORATE DIRECTORS AND OFFICERS

BOARD OF DIRECTORS---------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
JAMES A. CURRIE FRANK P. POPOFF
EDUCATOR CHAIRMAN
THE DOW CHEMICAL COMPANY
MICHAEL L. DOW
CHAIRMAN LAWRENCE A. REED
GENERAL AVIATION, INC. RETIRED
DOW CORNING CORPORATION
ALOYSIUS J. OLIVER
CHIEF EXECUTIVE OFFICER AND PRESIDENT<F*> WILLIAM S. STAVROPOULOS
CHIEF EXECUTIVE OFFICER AND PRESIDENT
ALAN W. OTT THE DOW CHEMICAL COMPANY
CHAIRMAN
</TABLE>

EXECUTIVE OFFICERS---------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
ALAN W. OTT DAVID B. RAMAKER
CHAIRMAN EXECUTIVE VICE PRESIDENT AND SECRETARY*

ALOYSIUS J. OLIVER LORI A. GWIZDALA
CHIEF EXECUTIVE OFFICER AND PRESIDENT* SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
</TABLE>

OFFICERS-------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
GLENN SWEENEY JOSEPH W. TORRENCE
VICE PRESIDENT AND CORPORATE AUDITOR ASSISTANT VICE PRESIDENT AND
CORPORATE HUMAN RESOURCES OFFICER
THOMAS R. GAPSKE
VICE PRESIDENT SANDRA BARGERON
ASSISTANT VICE PRESIDENT AND AUDITOR
THEODORE J. GROENING
ASSISTANT VICE PRESIDENT AND ROBERT E. SUTTON
ASSISTANT FINANCIAL OFFICER LOAN REVIEW OFFICER

ROBERT S. RATHBUN CHERYL HASSEN SWARTHOUT
ASSISTANT VICE PRESIDENT AND CORPORATE TRAINING OFFICER
LOAN REVIEW AND COMPLIANCE OFFICER
</TABLE>

CORPORATE OFFICES----------------------------------------------------------

333 East Main Street
P.O. Box 569
Midland, Michigan 48640
Telephone: (517) 839-5350
Fax Number: (517) 839-5255

<F*>EFFECTIVE JANUARY 1, 1997

<PAGE>

CHEMICAL FINANCIAL CORPORATION

333 EAST MAIN STREET
P.O. BOX 569
MIDLAND, MICHIGAN 48640-0569

<PAGE>
EXHIBIT NO. 21

<TABLE>
SUBSIDIARIES
<CAPTION>

STATE OR OTHER JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- -------------------------------------- ---------------------------
<S> <C>
Banking subsidiaries:

Chemical Bank & Trust Company Michigan
Chemical Bank Michigan Michigan
Chemical Bank South Michigan
Chemical Bank Thumb Area Michigan
Chemical Bank West Michigan
Chemical Bank Montcalm Michigan
Chemical Bank North Michigan
Chemical Bank Bay Area Michigan
Chemical Bank Central Michigan
Chemical Bank Key State Michigan

Non-banking subsidiaries:

CFC Data Corp Michigan
CFC Financial Services, Inc. (subsidiary of Chemical Bank & Trust Company)
- also operates under d/b/a Arbury & Stephenson, Inc Michigan
CFC Title Services, Inc. (subsidiary of Chemical Bank and Trust Company) Michigan
</TABLE>

<PAGE>
EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in (1) the Registration
Statement (Post-Effective Amendment Number 1, dated March 28, 1984, to Form
S-8, Number 2-84987) pertaining to the Chemical Financial Corporation 1983
Stock Option Plan, (2) the Registration Statement (Form S-8, Number
33-15064, dated June 17, 1987, pertaining to the Chemical Financial
Corporation 1987 Award and Stock Option Plan, (3) the Registration
Statement (Form S-8, Number 33-40792, dated May 21, 1991) pertaining to the
Chemical Financial Corporation 401(k) Savings Plan and in the related
Prospectus, and (4) the Registration Statement (Form S-8, Number 33-47356,
dated April 28, 1992) pertaining to the Chemical Financial Corporation 1992
Stock Purchase Plan for Subsidiary Directors and in the related Prospectus
of our report dated January 20, 1997 with respect to the consolidated
financial statements of Chemical Financial Corporation included in the
Annual Report (Form 10-K) for the year ended December 31, 1996.

We consent to the incorporation by reference in (1) the Registration
Statement (Form S-8, Number 33-40792, dated May 21, 1991) pertaining to the
Chemical Financial Corporation 401(k) Savings Plan and in the related
Prospectus of our report dated February 12, 1997, with respect to the
financial statements and schedules of the Chemical Financial Corporation
401(k) Savings Plan included in the Annual Report (Form 10-K) for the year
ended December 31, 1996 and incorporation by reference in (2) the
Registration Statement (Form S-8, Number 33-47356, dated April 28, 1992)
pertaining to the Chemical Financial Corporation 1992 Stock Purchase Plan
for Subsidiary Directors and in the related Prospectus of our report dated
January 14, 1997, with respect to the financial statements of the Chemical
Financial Corporation 1992 Stock Purchase Plan for Subsidiary Directors
included in the Annual Report (Form 10-K) for the year ended December 31,
1996.

/s/ ERNST & YOUNG LLP

Detroit, Michigan
March 21, 1997

<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CHEMICAL FINANCIAL
CORPORATION AND SUBSIDIARIES FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 89,517
<INT-BEARING-DEPOSITS> 1,134
<FED-FUNDS-SOLD> 114,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 441,787
<INVESTMENTS-CARRYING> 213,752
<INVESTMENTS-MARKET> 215,494
<LOANS> 807,653
<ALLOWANCE> 16,607
<TOTAL-ASSETS> 1,698,774
<DEPOSITS> 1,429,915
<SHORT-TERM> 37,333
<LIABILITIES-OTHER> 14,257
<LONG-TERM> 10,000
<COMMON> 102,098
0
0
<OTHER-SE> 105,171
<TOTAL-LIABILITIES-AND-EQUITY> 1,698,774
<INTEREST-LOAN> 64,470
<INTEREST-INVEST> 41,071
<INTEREST-OTHER> 4,711
<INTEREST-TOTAL> 113,252
<INTEREST-DEPOSIT> 44,284
<INTEREST-EXPENSE> 46,162
<INTEREST-INCOME-NET> 67,090
<LOAN-LOSSES> 1,128
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 45,124
<INCOME-PRETAX> 33,036
<INCOME-PRE-EXTRAORDINARY> 33,036
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,003
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 4.33
<LOANS-NON> 1,341
<LOANS-PAST> 539
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,886
<CHARGE-OFFS> 691
<RECOVERIES> 284
<ALLOWANCE-CLOSE> 16,607
<ALLOWANCE-DOMESTIC> 14,946
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,661

</TABLE>

<PAGE>
EXHIBIT 99(a)

FINANCIAL STATEMENTS AND SCHEDULES

CHEMICAL FINANCIAL CORPORATION
401 (K) SAVINGS PLAN

YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995 WITH
REPORT OF INDEPENDENT AUDITORS

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Administrative Committee of the
Chemical Financial Corporation 401 (k) Savings Plan

We have audited the accompanying statements of assets and
participants' equity of the Chemical Financial Corporation 401 (k) Savings
Plan as of December 31, 1996 and 1995 and the related statements of changes
in participants' equity for the years then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the assets and participants' equity of
the Plan at December 31, 1996 and 1995, and the changes in such
participants' equity for the years then ended in conformity with generally
accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental
schedules of assets held for investment and reportable transactions as of
and for the year ended December 31, 1996 are presented for purposes of
complying with the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974, and are not a required part of the financial statements. The
supplemental schedules have been subjected to the auditing procedures
applied in our audit of the 1996 financial statements and, in our opinion,
are fairly stated in all material respects in relation to the 1996
financial statements taken as a whole.

S/ ERNST & YOUNG LLP

February 12, 1997

2
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND PARTICIPANTS' EQUITY

CHEMICAL FINANCIAL CORPORATION 401 (K) SAVINGS PLAN

DECEMBER 31, 1996
<CAPTION>
CHEMICAL CASH
STOCK FINANCIAL AND
INTERMEDIATE AND CORPORATION MONEY PARTICIPANT
BOND INDEX BOND STOCK MARKET LOAN
FUND FUND FUND FUND FUND FUND TOTAL
------------ ------ -------- ------------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments at fair value:
Chemical Financial Corporation
Common Stock $1,400,236 $1,400,236

Federated Investors Mutual Funds:
Federated Short-Intermediate
Government Trust $123,197 123,197
Max-Cap Fund $703,917 703,917
Treasury Obligations Fund 153 136 $ 137 678 $240,835 $ 2,253 244,192
Fidelity Investments-Puritan Fund 294,387 294,387
Participation loans 22,401 22,401
-------- -------- -------- ---------- -------- ------- ----------
123,350 704,053 294,524 1,400,914 240,835 24,654 2,788,330

Employee contributions receivable 1,049 5,005 2,810 9,871 1,808 0 20,543
Cash and accrued income 562 15 5 67 1,071 9 1,729
-------- -------- -------- ---------- -------- ------- ----------

Total Assets (equal to participant's
equity) $124,961 $709,073 $297,339 $1,410,852 $243,714 $24,663 $2,810,602
======== ======== ======== ========== ======== ======= ==========
</TABLE>

See accompanying notes.

3
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND PARTICIPANTS' EQUITY

CHEMICAL FINANCIAL CORPORATION 401 (K) SAVINGS PLAN

DECEMBER 31, 1995
<CAPTION>
CHEMICAL CASH
STOCK FINANCIAL AND
INTERMEDIATE AND CORPORATION MONEY PARTICIPANT
BOND INDEX BOND STOCK MARKET LOAN
FUND FUND FUND FUND FUND FUND TOTAL
------------ ------ -------- ------------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments at fair value:
Chemical Financial Corporation
Common Stock $1,081,080 $1,081,080

Federated Investors Mutual Funds:
Federated Short-Intermediate
Government Trust $127,111 127,111
Max-Cap Fund $460,200 460,200
Treasury Obligations Fund 1,302 5,043 $ 3,018 10,145 $138,647 $ 1,183 159,338
Fidelity Investments-Puritan Fund 219,730 219,730
Participation loans 13,135 13,135
-------- -------- -------- ---------- -------- ------- ----------
128,413 465,243 222,748 1,091,225 138,647 14,318 2,060,594

Employee contributions receivable 1,262 3,671 3,053 8,298 1,504 17,788
Cash and accrued income 593 48 9 69 656 59 1,434
-------- -------- -------- ---------- -------- ------- ----------

Total Assets (equal to participant's
equity) $130,268 $468,962 $225,810 $1,099,592 $140,807 $14,377 $2,079,816
======== ======== ======== ========== ======== ======= ==========
</TABLE>

See accompanying notes.

4
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN PARTICIPANTS' EQUITY

CHEMICAL FINANCIAL CORPORATION 401(K) SAVINGS PLAN

YEAR ENDED DECEMBER 31, 1996
<CAPTION>
CHEMICAL CASH
STOCK FINANCIAL AND
INTERMEDIATE AND CORPORATION MONEY PARTICIPANT
BOND INDEX BOND STOCK MARKET LOAN
FUND FUND FUND FUND FUND FUND TOTAL
----------- -------- -------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Interest and dividend income $ 6,807 $ 22,751 $ 35,579 $ 25,293 $ 9,677 $ 1,822 $ 101,929
Employee contributions 28,389 111,616 82,127 224,957 40,591 487,680
-------- -------- -------- ---------- -------- ------- ----------
35,196 134,367 117,706 250,250 50,268 1,822 589,609
Deductions:
Participants' accounts distributed upon
withdrawal (6,783) (6,198) (1,453) (38,185) (3,745) (56,364)
Net transfers between funds (32,721) 14,862 (47,096) 107 56,384 8,464 0
Net realized and unrealized appreciation
(depreciation) in fair value of investments:
Realized (352) 1,374 2,527 15,970 19,519
Unrealized (647) 95,706 (155) 83,118 178,022
-------- -------- -------- ---------- -------- ------- ----------
Net increase (decrease) (5,307) 240,111 71,529 311,260 102,907 10,286 730,786

Participants' equity at beginning of year 130,268 468,962 225,810 1,099,592 140,807 14,377 2,079,816
-------- -------- -------- ---------- -------- ------- ----------
Participants' equity at end of year $124,961 $709,073 $297,339 $1,410,852 $243,714 $24,663 $2,810,602
======== ======== ======== ========== ======== ======= ==========
</TABLE>

See accompanying notes.

5
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN PARTICIPANTS' EQUITY

CHEMICAL FINANCIAL CORPORATION 401(K) SAVINGS PLAN

YEAR ENDED DECEMBER 31, 1996
<CAPTION>
CHEMICAL CASH
STOCK FINANCIAL AND
INTERMEDIATE AND CORPORATION MONEY PARTICIPANT
BOND INDEX BOND STOCK MARKET LOAN
FUND FUND FUND FUND FUND FUND TOTAL
---------- --------- -------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Interest and dividend income $ 6,902 $ 70,850 $ 11,177 $ 18,443 $ 7,253 $ 1,223 $ 115,848
Employee contributions 30,587 88,305 68,760 211,717 38,340 437,709
-------- -------- -------- ---------- -------- ------- ----------
37,489 159,155 79,937 230,160 45,593 1,223 553,557
Deductions:
Participants' accounts distributed upon
withdrawal (3,783) (13,846) (6,437) (23,290) (7,500) (54,856)
Net transfers between funds (23,196) (45,047) 52,580 12,215 (6,419) 9,867 - - -
Net realized and unrealized appreciation
(depreciation) in fair value of investments:
Realized (319) 1,360 (100) 4,664 5,605
Unrealized 3,683 41,459 21,588 286,849 353,579
-------- -------- -------- ---------- -------- ------- ----------
Net increase 13,874 143,081 147,568 510,598 31,674 11,090 857,885

Participants' equity at beginning of year 116,394 325,881 78,242 588,994 109,133 3,287 1,221,931
-------- -------- -------- ---------- -------- ------- ----------
Participants' equity at end of year $130,268 $468,962 $225,810 $1,099,592 $140,807 $14,377 $2,079,816
======== ======== ======== ========== ======== ======= ==========
</TABLE>

See accompanying notes.

6
<PAGE>
NOTES TO FINANCIAL STATEMENTS

CHEMICAL FINANCIAL CORPORATION 401 (K) SAVINGS PLAN

DECEMBER 31, 1996

NOTE A - - SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the accrual
basis of accounting in accordance with generally accepted accounting
principles. As a result, the financial statements include accrual
amounts for investment income and contributions which are not reported
on the Annual Return/Report of Employee Benefit Plan (Form 5500) filed
with the Department of Labor.

Investments are stated at aggregate fair value. Securities
traded on a national securities exchange are valued at the last
reported sales price on the last business day of the Plan year.
Investments traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at
the last reported bid price.

Unrealized appreciation (depreciation) in the aggregate fair
value of investments represents the change in the difference between
aggregate fair value and the cost of investments. The realized gain
or loss on sale of investments is the difference between the proceeds
received and the cost of the specific investments sold. Realized
gains and losses are different than the related amounts reported on
Form 5500 which are computed as the difference between the proceeds
received and the fair value at the beginning of the year as prescribed
by the Department of Labor regulations.

Expenses incurred in connection with the operation of the Plan
are borne by Chemical Financial Corporation.

NOTE B - - DESCRIPTION OF THE PLAN

The Plan is a voluntary, defined-contribution plan covering all
eligible employees of the Corporation and subsidiaries.

The Plan provides for the deferral of salaries, wages and bonuses
in accordance with Section 401 (k) of the Internal Revenue Code.
Employees of the Corporation or any of its subsidiaries are eligible
for participation upon attaining age 21 and completing one year of
service. At December 31, 1996 there were 460 participants in the
Plan. Participants may be eligible to contribute up to 10% of their
annual compensation, up to a maximum of $9,500 in 1996 and $9,240 in

7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1995. The employer made no contributions to the Plan during 1996 or
1995.

Participants may direct their contributions into an intermediate
bond fund, a stock index fund, a stock and bond fund, a money market
fund, a Chemical Financial Corporation common stock fund or a
combination of these funds, and may elect to change the percentage
directed to each fund quarterly. All participant contributions are
fully vested. Participant loans are permitted under the Plan. These
loans are subject to a strict set of rules established by laws and
regulations. As of December 31, 1996 the Plan had seven participant
loans outstanding at interest rates ranging from 9.50%-11.75%.

Information about the plan agreement and the vesting and benefit
provisions is contained in the Summary Plan Description contained in
the Chemical Financial Corporation Employee Handbook and is available
along with information regarding investment alternatives from the Plan
Administrator and Personnel Departments.

The Corporation, acting through its Board of Directors, has the
right to amend or terminate the Plan at any time.

8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE C - - INVESTMENTS

During the years ended December 31, 1996 and December 31, 1995
the Plan's net appreciation (depreciation) in the fair value of
investments (including investments bought, sold, as well as held
during the year) is summarized as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Chemical Financial Corporation Common Stock Fund $ 99,088 $291,513

Intermediate Bond Fund (999) 3,364
Index Fund 97,080 42,819
Stock and Bond Fund 2,372 21,488
-------- --------
$197,541 $359,184
======== ========
</TABLE>

The fair value of individual investments that represent 5% or more of
the Plan's net assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Chemical Financial Corporation Common Stock $1,400,236 $1,081,080

Federated Investors Mutual Funds:
Federated Short-Intermediate Government Trust 127,111
Max-Cap Fund 703,917 460,200
Treasury Obligations Fund 244,192 159,338
Fidelity Investments-Puritan Fund 294,387 219,730
</TABLE>

9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE D - - TRANSACTIONS WITH PARTIES-IN-INTEREST

THE FOLLOWING IS A SUMMARY OF TRANSACTIONS (AT COST) WITH PARTIES-IN-INTEREST:

<TABLE>
<CAPTION>
CHEMICAL
FINANCIAL
CORP. COMMON
STOCK FUND
------------
<S> <C> <C>
Balance at December 31, 1994 $533,388

Purchases in 1995 268,711

Sales in 1995 (25,115)

Distributions in 1995 (18,845)
--------

Balance at December 31, 1995 $758,139

Purchases in 1996 312,505

Sales in 1996 (42,724)

Distributions in 1996 (33,743)
--------

Balance at December 31, 1996 $994,177
========
</TABLE>

10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE E - - INCOME TAX STATUS

The Internal Revenue Service has ruled that the Plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and therefore,
is not subject to tax under present tax laws. Once qualified, the
Plan is required to operate in conformity with the IRC in order to
maintain its qualification. The Plan Sponsor is not aware of any
course of action or series of events that would adversely affect the
Plan's qualified status.

11
<PAGE>
<TABLE>
SCHEDULE OF ASSETS HELD FOR INVESTMENT

CHEMICAL FINANCIAL CORPORATION 401 (K) SAVINGS PLAN

DECEMBER 31, 1996 AND FOR THE YEAR THEN ENDED
<CAPTION>
DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, LESSOR OR MATURITY DATE, RATE OF INTEREST,
SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST FAIR VALUE
-------------------------------------- ----------------------------------- ---------- ----------
<S> <C> <C> <C>
Chemical Financial Corporation Common Stock - 35,449 shares
Common Stock at $39.50/share current value $ 994,177 $1,400,236

Federated Investors Mutual Funds:
Federated Short-Intermediate
Government Trust Intermediate Bond Fund - 11,903 units 124,249 123,197
Max-Cap Fund Index Fund - 44,077 units 570,479 703,917
Treasury Obligations Fund Money Market Fund - 244,192 units,
$1.00/unit current value 244,192 244,192
Fidelity Investments-Puritan Fund Stock and Bond Fund - 17,075 units 275,516 294,387
---------- ----------
Total Mutual Funds 1,214,436 1,365,693
---------- ----------

Participant Loans Seven loans at interest rates ranging
from 9.50%-11.75% and maturing
3/13/97 - 7/15/2001 22,401 22,401
---------- ----------
TOTAL INVESTMENTS $2,231,014 $2,788,330
========== ==========
</TABLE>

There were no investment assets reportable as acquired and disposed of
during the year.

12
<PAGE>
<TABLE>
SCHEDULE OF REPORTABLE TRANSACTIONS

CHEMICAL FINANCIAL CORPORATION
401(K) SAVINGS PLAN

YEAR ENDED DECEMBER 31, 1996
<CAPTION>
CURRENT
DESCRIPTION OF ASSET EXPENSE VALUE ON
IDENTITY OF PARTY INTEREST RATE AND MATURITY IN PURCHASE SELLING LEASE INCURRED WITH COST TRANSACTION NET GAIN
INVOLVED CASE OF A LOAN) PRICE PRICE RENTAL TRANSACTION OF ASSET DATE (LOSS)
- --------------------- ----------------------------- -------- ------- ------ ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Category iii) A series
of transactions
involving securities
of the same issue
which, when aggregated,
involve an amount in
excess of 5% of the
current value of
plan assets:

Chemical Financial
Corporation Common Stock:
41 purchases $312,505 $312,505
22 sales 42,724 58,694 $15,970

Federated Investors Index Fund:
28 purchases 158,251 158,251
7 sales 10,240 11,614 1,374

Money Market Fund:
210 purchases 700,600 700,600
157 sales 615,746 615,746 - - -

Fidelity Investments Stock and Bond Fund:
25 purchases 126,736 126,736
6 sales 51,924 54,451 2,527
</TABLE>

There were no category i), ii) or iv) reportable transactions.

<PAGE>
EXHIBIT 99(b)

AUDITED FINANCIAL STATEMENTS

CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

DECEMBER 31, 1996

<PAGE>
AUDITED FINANCIAL STATEMENTS

CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

DECEMBER 31, 1996

TABLE OF CONTENTS

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .2
Statement of Financial Condition . . . . . . . . . . . . . . . . . . . . .3
Statement of Income and Changes in Plan Equity . . . . . . . . . . . . . .4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . .5

All Schedules (Nos. I, II and III) for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
are inapplicable and therefore have been omitted.

1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Plan Administrator
Chemical Financial Corporation
1992 Stock Purchase Plan for
Subsidiary Directors

We have audited the accompanying statements of financial condition of
the Chemical Financial Corporation 1992 Stock Purchase Plan for Subsidiary
Directors as of December 31, 1996 and 1995 and the related statements of
income and changes in plan equity for the years then ended. These
financial statements are the responsibility of the Plan's administrator.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the administrator, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Chemical
Financial Corporation 1992 Stock Purchase Plan for Subsidiary Directors at
December 31, 1996 and 1995, and the results of its operation and changes in
its plan equity for the years then ended in conformity with generally
accepted accounting principles.

s/ ERNST & YOUNG LLP
January 14, 1997

2
<PAGE>
CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

<TABLE>
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>

DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash $ 1,913 $ 1,089
Common stock receivable of Chemical
Financial Corporation, at market value - (7,372
shares at a cost of $265,449 at December 31, 1996
and 7,744 shares at a cost of $239,025 at
December 31, 1995) - (Notes 1 and 2) 291,194 293,156
-------- --------
Total assets $293,107 $294,245
======== ========

LIABILITIES AND PLAN EQUITY
Plan equity (50 participants at December 31,
1996 and 49 participants at December 31, 1995) $293,107 $294,245
======== ========
</TABLE>

See accompanying notes.

3
<PAGE>
CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

<TABLE>
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
<CAPTION>

YEARS ENDED DECEMBER 31
1996 1995
-------- --------
<S> <C> <C>
ADDITIONS
Participant contributions (Note 3) $263,650 $235,800
Dividend equivalents 2,965 2,944
Other income 848
-------- --------
267,463 238,744

DEDUCTIONS
Plan distributions 294,346 243,867
-------- --------
(26,883) (5,123)
Net realized and unrealized appreciation
in fair value of investments (Note 1): 25,745 54,131
-------- --------
Net (decrease) increase (1,138) 49,008
Plan equity at beginning of year 294,245 245,237
-------- --------
Plan equity at end of year $293,107 $294,245
======== ========
</TABLE>

See accompanying notes.

4
<PAGE>
CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
VALUATION OF COMMON STOCK RECEIVABLE

Common stock receivable of Chemical Financial Corporation is recorded
at the fair market value of the number of shares receivable at the end of
the period. Market value is based on the closing bid price of the
Corporation's stock at year end ($39.50 per share at December 31, 1996 and
$37.86 per share at December 31, 1995).

Unrealized appreciation or depreciation in the fair value of the
underlying shares of common stock of Chemical Financial Corporation
represents the change in the difference between aggregate fair value and
the cost of the common stock receivable of Chemical Financial Corporation.
The realized gain or loss in the fair value of the underlying shares of
common stock of Chemical Financial Corporation is determined by computing
the difference between the average cost per share and the market value per
share on the distribution of the common stock of Chemical Financial
Corporation to the participants as of the distribution date.

INCOME

Dividend equivalents and fractional share interests are accrued on the
Corporation's dividend or other record date.

CONTRIBUTIONS

Contributions are accounted for on the accrual basis.

NOTE 2 - DESCRIPTION OF THE PLAN

The Chemical Financial Corporation 1992 Stock Purchase Plan for
Subsidiary Directors (the Plan) was implemented by Chemical Financial
Corporation (the Corporation) on April 30, 1992. The Plan is designed to
provide non-employee directors and advisory directors of the Corporation's
subsidiaries, who are neither directors or employees of the Corporation,
with a convenient method of acquiring Corporation stock.

5
<PAGE>
CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 2 - DESCRIPTION OF THE PLAN (continued)

Subsidiary directors and advisory directors, who elect to participate
in the Plan, may elect to contribute to the Plan fifty percent or one
hundred percent of their director board fees and/or fifty percent or one
hundred percent of their director committee fees, earned as directors or
advisory directors of the Corporation's subsidiaries. Participant
contributions to the Plan are made by the Corporation's subsidiaries on
behalf of each electing participant. Amounts remitted to the Plan are
credited to a separate cash account for each participant. As of the last
day of each month, each participant's cash account is debited for the
purchase of whole shares of the Corporation's stock and credited to a
separate participant stock account. The stock purchased under the Plan
during the calendar year is issued by the Corporation directly to the
participants in the following calendar year, in the month of January. The
Plan provides for dividend equivalents to be credited to each participant's
cash account, as of the dividend record date of the Corporation's common
stock. Dividend equivalents are calculated by multiplying the
Corporation's dividend rate by the number of shares of common stock in each
participant's stock account, as of the Corporation's dividend record date.
The Plan also provides for an appropriate credit to each participant's
stock account for stock dividends, stock splits or other distributions of
the Corporation's common stock by the Corporation. Fractional shares
calculated as a result of the above adjustments are converted to cash based
on the market price of the Corporation's common stock, and are credited to
each participant's cash account. Plan participants may terminate their
participation in the Plan, at any time, by written notice of withdrawal to
the Corporation. Participants will cease to be eligible to participate in
the Plan when they cease to serve as directors or advisory directors of
subsidiaries of the Corporation. Upon withdrawal from the Plan, each
participant will receive the shares of common stock of the Corporation in
their participant stock account and the cash in their participant cash
account.

The Corporation expects to maintain the Plan indefinitely, however it
reserves the right to terminate or amend the Plan at any time, provided,
however, that no termination or amendment shall affect or diminish any
participant's right to the benefit of contributions made by him/her prior
to the date of such amendment or termination.

6
<PAGE>
CHEMICAL FINANCIAL CORPORATION
1992 STOCK PURCHASE PLAN
FOR SUBSIDIARY DIRECTORS

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 2 - DESCRIPTION OF THE PLAN (continued)

The Plan provides that all expenses of the Plan and its administration
shall be paid by Chemical Financial Corporation.

The Plan is not qualified under Sections 401(a) or 501(a) of the
Internal Revenue Code of 1986, as amended. The Plan does not provide for
income taxes because any income is taxable to the participants.
Participants in the Plan must treat as taxable income the contributions
made to the Plan by the Corporation's subsidiaries on their behalf.
Dividend equivalents and any other cash credited to the participants' cash
accounts are taxable to the participants for Federal and state income tax
purposes in the year such dividend equivalent or cash is credited to the
participant cash account. Upon disposition of the common stock of Chemical
Financial Corporation purchased under the Plan, participants must treat any
gain or loss as long-term or short-term capital gain or loss depending upon
when such disposition occurs.

NOTE 3 - CONTRIBUTIONS

Contributions by participating companies are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
PARTICIPATING COMPANY 1996 1995
- --------------------- -------- --------
<S> <C> <C>
Chemical Bank & Trust $ 73,025 $ 66,600
Chemical Bank Bay Area 37,525 54,000
Chemical Bank Central 22,050 20,500
Chemical Bank Thumb Area 21,200 600
Chemical Bank Michigan 31,750 22,650
Chemical Bank Montcalm 19,500 17,100
Chemical Bank North 4,650 4,200
Chemical Bank South 19,425 16,600
Chemical Bank West 8,625 8,800

7
<PAGE>
Chemical Bank Key State 20,400 12,950
CFC Data Corp 5,500 11,800
-------- --------

Total Contributions $263,650 $235,800
======== ========

</TABLE>