CHFC 2018 Annual Report

Proposed Merger with TCF Financial Corporation Chemical and TCF have entered into an Agreement and Plan of Merger, dated as of January 27, 2019, which we refer to as the "merger agreement". 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, in a transaction we refer to as "the merger." 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 and TCF, and is subject to shareholder and regulatory approval and other 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. Our Market Area Our principal market concentrations are in Michigan, Ohio and Northern Indiana where Chemical Bank's branches are located and the areas surrounding these communities. As of December 31, 2018, we served these markets through 212 banking offices. In addition to the banking offices, Chemical Bank operated eight loan production offices and over 237 automated teller machines, both on and off bank premises, as of December 31, 2018. Lending Activities We offer a range of lending services including both commercial and consumer loans. Our commercial loan portfolio is comprised of commercial, commercial real estate (which includes owner-occupied, non-owner occupied and vacant land) and real estate construction and land development loans. Our consumer loan portfolio is comprised of residential mortgage, consumer installment and home equity loans. Our customers are generally commercial businesses, professional service firms and retail consumers within our market areas. At December 31, 2018, total loans, net of allowance for loan losses, were $15.16 billion, representing 70.5% of our total assets. A summary of the composition of our loan portfolio at December 31, 2018, 2017 and 2016 follows: December 31, 2018 2017 2016 Amount Percent of Total Amount Percent of Total Amount Percent of Total (Dollars in thousands) Composition of Loans: Commercial $ 4,002,568 27% $ 3,385,642 24% $ 3,217,300 25% Commercial real estate: Owner-occupied 2,059,557 13 1,813,562 13 1,697,238 13 Non-owner occupied 2,785,020 18 2,606,761 18 2,217,594 17 Vacant land 67,510 — 80,347 1 58,308 — Total commercial real estate 4,912,087 31 4,500,670 32 3,973,140 30 Real estate construction and land development 597,212 4 574,215 4 403,772 3 Residential mortgage 3,458,666 23 3,252,487 23 3,086,474 24 Consumer installment 1,521,074 10 1,613,008 11 1,433,884 11 Home equity 778,172 5 829,245 6 876,209 7 Total composition of loans $ 15,269,779 100% $ 14,155,267 100% $ 12,990,779 100% Commercial Loan Portfolio Commercial loans We offer commercial loans and lines of credit to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital and operational needs and term financing of equipment. Our commercial loan portfolio is well diversified across business lines and has no concentration in any one industry. 5