CHFC 2018 Annual Report

The total minimum regulatory capital ratios and well-capitalized minimum ratios are reflected in the table below. The FRB has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the Basel III capital rules. For purposes of the FRB's Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as Chemical, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater. If the FRB were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to Chemical Bank, Chemical's capital ratios as of December 31, 2018would exceed such revisedwell-capitalized standard. The FRBmay require bank holding companies, including Chemical, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company's particular condition, risk profile, and growth plans. A summary of the actual and minimum Basel III regulatory capital ratios for Chemical and Chemical Bank as of December 31, 2018 follows: Leverage Ratio Common Equity Tier 1 Capital Ratio Tier 1 Risk- Based Capital Ratio Total Risk- Based Capital Ratio Actual Capital Ratios: Chemical Financial Corporation 8.7% 10.7% 10.7% 11.5% Chemical Bank 8.6% 10.6% 10.6% 11.4% Minimum for capital adequacy purposes 4.0% 4.5% 6.0% 8.0% Minimum to be well capitalized under prompt corrective action regulations 5.0% 6.5% 8.0% 10.0% Minimum for capital adequacy, including capital conservation buffer (1) 4.0% 7.0% 8.5% 10.5% (1) Reflects the now fully-phased in capital conservation buffer of 2.5%. At December 31, 2018, Chemical's and Chemical Bank's capital ratios were above the well-capitalized standards and met the then-applicable capital conservation buffer and the capital conservation buffer on a fully phased-in basis. Under certain circumstances, the appropriate banking agency may treat a well-capitalized, adequately capitalized or undercapitalized institution as if the institution were in the next lower capital category. Additional information on Chemical's and Chemical Bank's capital ratios may be found under Note 21 to our Consolidated Financial Statements under Item 8 of this Annual Report. FDIC Insurance The FDIC formed the Deposit Insurance Fund ("DIF") in accordance with the Federal Deposit Insurance ReformAct of 2005 ("Reform Act"). The FDIC implemented the Reform Act to create a stronger and more stable insurance system. The FDIC maintains the insurance reserves of the DIF by assessing depository institutions an insurance premium. The DIF insures deposit accounts of Chemical Bank up to a maximum amount of $250,000 per separately insured depositor, per institution. FDIC insured depository institutions are required to pay deposit insurance premiums based on an insured depository institution’s assessment base, calculated as its average consolidated total assets minus its average tangible equity. Chemical Bank’s current annualized premium assessments can range from $0.15 to $0.40 for each $100 of its assessment base. The rate charged depends on Chemical Bank’s performance on the FDIC’s "large and highly complex institution" risk-assessment scorecard, which includes factors such as Chemical Bank’s regulatory rating, its ability to withstand asset and funding-related stress, and the relative magnitude of potential losses to the FDIC in the event of Chemical Bank’s failure. Chemical's FDIC insurance premiums were $18.5 million in 2018, compared to $11.2 million in 2017 and $7.4 million in 2016. In addition to ordinary assessments, the FDIC has the ability to impose special assessments in certain circumstances. Under the Dodd-FrankAct, the minimum designated reserve ratio for the deposit insurance fund was increased to 1.35%. In March 2016, the FDIC adopted rules to impose a surcharge, as required by the Dodd-Frank Act, on the quarterly deposit insurance assessments of insured depository institutions that are deemed under the rules to be "large institutions," generally defined to include banks, like Chemical Bank, with total consolidated assets of $10 billion or more, with such surcharges to continue until the reserve ratio reached 1.35%. The large institution surcharge became effective on July 1, 2016, and on September 30, 2018, the deposit insurance fund reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35%. Accordingly, the last quarterly surcharge was reflected in large institutions' December 2018 assessment invoices, which covered the assessment period from July 1 through September 30. FDIC regulations provided for two changes to deposit insurance assessments upon reaching the minimum reserve ratio of 1.35%: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large institutions) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that contributed 13