CHFC 2018 Annual Report

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion describes our results of operations for the years ended December 31, 2018, 2017 and 2016 and also analyzes our financial condition as of December 31, 2018, as compared to December 31, 2017. This discussion should be read in conjunction with the " Selected Financial Data " and our audited Consolidated Financial Statements and accompanying footnotes thereto included elsewhere in thisAnnual Report. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods. We have made, and will continue tomake, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties.Actual resultsmay differmaterially fromthose contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see " Forward-Looking Statements " of this Annual Report. 39 Business Overview Chemical Financial Corporation is a financial holding company headquartered in Detroit, Michigan, Our common stock is listed on the NASDAQ under the symbol "CHFC." At December 31, 2018, we had consolidated total assets of $21.50 billion, total loans of $15.27 billion, total deposits of $15.59 billion and total shareholders' equity of $2.84 billion. Our business is concentrated in a single industry segment, commercial banking, which is conducted through our single commercial bank subsidiary, Chemical Bank. We offer a full range of traditional banking and fiduciary products and services to residents and business customers in our geographical areas. These products and services include 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 and investment products, corporate and personal wealth management services, mortgage banking and other banking services. The principal markets for our products and services are communities in Michigan, Northeast Ohio and Northern Indiana where our bank branches are located and the areas surrounding these communities. As of December 31, 2018, we served these markets through 186 banking offices located in Michigan, 24 branches located in Northeast Ohio and two branches located in Northern Indiana. In addition to our banking offices, we operated eight loan production offices and 237 automated teller machines, both on and off bank premises. In addition, we own, directly or indirectly, various non-bank operating and non-operating subsidiaries. Our principal source of revenue is interest and fees on loans, which accounted for 86.6% of total revenue in 2018, 81.7% of total revenue in 2017 and 76.2% of total revenue in 2016. Interest on investment securities, service charges and fees on deposit accounts, wealth management revenue and mortgage banking revenue are also significant sources of revenue, which combined, accounted for 23.7% of total revenue in 2018, 20.8% of total revenue in 2017 and 19.6% of total revenue in 2016. Revenue is influenced by overall economic factors including market interest rates, business and consumer spending, consumer confidence and competitive conditions in the marketplace. Proposed Merger with TCF Financial Corporation Chemical andTCF Financial Corporation ("TCF") have entered into anAgreement and Plan of Merger, dated as of January 27, 2019. Under the merger agreement, Chemical and TCF have agreed to combine their respective companies in a merger of equals, pursuant to which TCF will merge with and into Chemical, with Chemical continuing as the surviving entity. Immediately following the merger or at such later time as the parties may mutually agree, Chemical Bank will merge with and into TCF National Bank, with TCF National Bank as the surviving bank. The merger agreement was approved by the boards of directors of Chemical andTCF, and is subject to shareholder and regulatory approval andother customary closing conditions. The transaction is anticipated to close in the second half of 2019. The transaction is discussed in more detail in Note 26 to our Consolidated Financial Statements under Item 8 of this Annual Report. 2017 Restructuring Efforts During the third quarter of 2017, we launched a project to identify strategies that could be deployed to drive revenue growth and steps to be taken to further improve operating efficiency as part of an effort to refine and clarify our overall strategic plan of how we allocate our capital across the organization and better position ourselves for growth. The project resulted in