CHFC 2018 Annual Report

Bank during 2018 and 2017 were $57.0million and $71.7million, respectively. During 2018, Chemical Bank satisfied its regulatory reserve requirements by maintaining a combination of vault cash balances and cash held with the FRB in excess of regulatory reserve requirements. Chemical Bank was not required to maintain compensating balances with correspondent banks during 2018 or 2017. TheCorporation andChemical Bank are subject to various regulatory capital requirements administered by federal banking agencies. Under these capital requirements, Chemical Bankmust meet specific capital guidelines that involve quantitativemeasures of assets and certain off-balance sheet items as calculated under regulatory accounting practices. In addition, capital amounts and classifications are subject to qualitative judgments by regulators. 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 Consolidated Financial Statements. Management believes as of December 31, 2018, the Corporation and Chemical Bank met all capital adequacy requirements to which they are subject. Quantitative measures established by regulation to ensure capital adequacy require minimum ratios of Tier 1 capital to average assets (Leverage Ratio) andCommon EquityTier 1, Tier 1 andTotal capital to risk-weighted 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 the perceived risk of various asset categories and certain off-balance sheet instruments. Risk-weighted assets for the Corporation and Chemical Bank totaled $16.10 billion and $16.07 billion, respectively, at December 31, 2018, compared to $14.74 billion and $14.70 billion at December 31, 2017, respectively. Effective January 1, 2015, the Corporation adopted the Basel III regulatory capital framework as approved by federal banking agencies, which is subject to a multi-year phase-in period. The adoption of this new framework modified the calculation of the various capital ratios, added a new ratio, common equity tier 1, and revised the adequately and well capitalized thresholds. In addition, Basel III establishes a new capital conservation buffer of 2.5% of risk-weighted assets, which is phased-in over a four- year period beginning January 1, 2016. The capital conservation buffer for 2018 is 1.875%andwas 1.25%for 2017. TheCorporation has elected to opt-out of including accumulated other comprehensive income in common equity tier 1 capital. At December 31, 2018 and 2017, Chemical Bank's capital ratios exceeded the quantitative capital ratios required for an institution to be considered "well-capitalized." Significant factors that may affect capital adequacy include, but are not limited to, a disproportionate growth in assets versus capital and a change in mix or credit quality of assets. There are no conditions or events since that notification that management believes have changed the institutions' category. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 160