Proposal 4

Approval of the Chemical Financial Corporation Stock Incentive Plan of 2019

The purpose of the Chemical Financial Corporation Stock Incentive Plan of 2019 (the “2019 Stock Plan”) is to advance our long-term interests by aligning the interests of our officers, directors and key employees with those of our shareholders through equity-based awards. Our board of directors also believes that equity-based awards are necessary to attract, retain and motivate officers, directors and key employees of exceptional abilities, and to recognize the significant contributions these individuals have made to our long-term performance and growth.

Under the Chemical Financial Corporation Stock Incentive Plan of 2017 (the “2017 Stock Plan”), 1,301,285 shares remained available for issuance as of December 31, 2018. Because there are a limited number of shares available for issuance under the 2017 Stock Plan, our board of directors believes that it is advisable to implement the 2019 Stock Plan, which will make additional shares available for restricted stock units (including both performance-based restricted stock units and time-vesting restricted stock units), stock options and other equity-based awards. The 2019 Stock Plan, if approved, will replace the 2017 Stock Plan and no new awards will be granted under the 2017 Stock Plan. However, any awards outstanding under the 2017 Stock Plan, and any prior plan, will continue to be outstanding and governed by the provisions of the applicable plans.

If the 2019 Stock Plan is not approved by our shareholders, it will not be adopted and we will continue to operate under the 2017 Stock Plan until it expires. In the event the 2019 Stock Plan is not approved, our flexibility may be limited with respect to our ability to provide incentives and reward employees and directors, to attract and retain such persons on a competitive basis and to align the interests of such persons with ours.

On the approval and recommendation of our Compensation and Pension Committee (the “Compensation Committee”), the board of directors has adopted and approved the 2019 Stock Plan, subject to shareholder approval. The board of directors believes that the design of the 2019 Stock Plan and the number of shares to be authorized for issuance under the plan are consistent with the interests of shareholders and good corporate governance practices. In adopting and approving the 2019 Stock Plan, the board of directors was mindful of investor considerations relating to the plan, including the following:

Important Plan Features

The total number of shares available for issuance under the 2019 Stock Plan will be 2,400,000. The 2019 Stock Plan reflects current practices in equity incentive plans that we consider best practices, such as:

Grant Practices

 

Burn rate, which is a measure of share utilization rate in equity compensation plans, is an important factor for investors concerned about shareholder dilution. Burn rate is defined as the gross number of equity-based awards granted during a calendar year divided by the weighted average number of shares of common stock outstanding during the year. We have counted full-value awards, which do not include stock options, as 3.0 shares of common stock when calculating the burn rate. Our board of directors believes that our current three-year average burn rate for the period ended December 31, 2018 of 1.44% compares favorably to the Institutional Shareholder Services (ISS) recommended burn rate benchmark of 2.81% for Russell 3000 (excluding S&P 500)

banking institutions for meetings occurring on or after February 1, 2019, as set forth in the Appendix to the ISS report titled “U.S. Equity Compensation Plans Frequently Asked Questions” updated December 19, 2018.

Our board of directors does not anticipate a significant increase in our average burn rate and estimates that the additional 2,400,000 shares to be authorized for issuance under the 2019 Stock Plan will be sufficient for four to five years as a stand-alone company. However, assuming completion of our recently announced merger with TCF Financial Corporation, which we expect to close in the third or early fourth quarter of 2019 (subject to required shareholder and regulatory approvals), we expect the increase in our size and number of employees to cause the shares to be authorized for issuance under the 2019 Stock Plan to be sufficient for a substantially shorter period of time.

The performance-based restricted stock units granted in 2016, 2017, 2018 and 2019 are earned from 0% to 150% of the number of units originally granted depending on satisfaction of the established performance conditions, and vest upon satisfaction of the service requirement at the end of the restricted period. Time-vesting restricted stock units granted in 2016 and 2017 generally cliff vest five years after the grant date. Time-vesting restricted stock units granted in 2018 and 2019 generally vest in equal annual installments on each anniversary of the grant date over a five year period. Stock options granted in 2016 and 2017 vest in equal installments on each anniversary of the grant date over a five year period.

60% of the equity-based compensation awarded to our Chief Executive Officer in 2018 consisted of performance-based restricted stock units with a three-year performance period and 40% consisted of time-vesting restricted stock units, which vest in equal annual installments on each anniversary of the grant date over a five year period.

Overhang

Overhang is a commonly used measure to assess the dilutive impact of equity programs such as the 2019 Stock Plan. Overhang shows how much existing shareholder ownership would be diluted if all outstanding equity-based awards plus all remaining shares available for equity-based awards were introduced into the market. Overhang is equal to the number of equity-award shares currently outstanding plus the number of equity-award shares available to be granted, divided by the total diluted shares of common stock outstanding at the end of the year. Our board of directors believes that an overhang of less than 15% is generally considered by investors to not raise questions of excessive dilution. The 2,400,000 shares subject to the 2019 Stock Plan would bring our aggregate overhang to 5.80% . The table below provides updated overhang data as of March 12, 2019:

Purposes of 2019 Stock Plan

Our board of directors believes that our long-term interests are advanced by aligning the interests of our officers, directors and key employees with those of our shareholders through equity-based awards. Our board of directors also believes that equity-based awards are necessary to attract, retain and motivate officers, directors and key employees of exceptional abilities, and to recognize the significant contributions these individuals have made to our long-term performance and growth.

We intend to use the 2019 Stock Plan to grant equity-based awards that are predominantly performance-based restricted stock units and time-vesting restricted stock units. Restricted stock, stock options, stock awards and other awards based on or related to shares of our common stock may also be awarded under the 2019 Stock Plan. By combining in a single plan many types of incentives commonly used in long-term incentive compensation programs, the 2019 Stock Plan is intended to provide us with a great deal of flexibility in designing specific long-term incentives to best promote the objectives of the 2019 Stock Plan and in turn promote the interests of our shareholders.

  

If the 2019 Stock Plan is approved by the shareholders, then equity-based awards could be granted to eligible participants under the 2019 Stock Plan and no additional awards will be made under the 2017 Stock Plan. The 2019 Stock Plan is intended to supplement and continue the equity-based compensation policies and practices that we have used for many years. Our board of directors adopted and approved the 2019 Stock Plan on March 19, 2019. If the shareholders approve the 2019 Stock Plan on May 7, 2019, it will become effective on that date. Equity-based awards would be granted under the 2019 Stock Plan to participants for no cash consideration or for such minimum consideration as determined by the Compensation Committee. If the 2019 Stock Plan is approved, no equity-based awards would be granted under the plan on a date that is more than ten years after the plan’s effective date. The 2019 Stock Plan would not be qualified under Section 401(a) of the Internal Revenue Code and would not be subject to the Employee Retirement Income Security Act of 1974 (ERISA). If the 2019 Stock Plan is not approved by the shareholders, then no equity-based awards will be granted under the 2019 Stock Plan for any employee or director

The following is a summary of the material features of the 2019 Stock Plan; however, it is not complete and, therefore, you should not rely solely on it for a detailed description of every aspect of the 2019 Stock Plan. The summary is qualified in its entirety by reference to the terms of the 2019 Stock Plan, a copy of which is attached as Appendix A to this Proxy Statement. Included in the summary is information regarding the effect of U.S. federal tax laws upon participants and us. This information is not a complete summary of such tax laws and does not discuss the income tax laws of any state in which a participant may reside, and is subject to change. Participants in the 2019 Stock Plan should consult their own tax advisors regarding the specific tax consequences to them of participating in and receiving equity-based awards under the 2019 Stock Plan.

Authorized Shares

Subject to certain anti-dilution and other adjustments, 2,400,000 shares of our common stock, $1.00 par value per share, would be available for equity-based awards under the 2019 Stock Plan. Shares of common stock authorized under the 2019 Stock Plan could be either authorized but unissued shares, shares issued and repurchased by us (including shares purchased on the open market) or shares issued and otherwise reacquired by us. Shares subject to equity-based awards that are canceled, surrendered, modified, or exchanged for substitute equity-based awards, or that forfeit, expire or terminate prior to exercise or vesting in full, and shares that are surrendered to us in connection with the exercise or vesting of equity-based awards, whether previously owned or otherwise subject to such equity-based awards, may not be reissued as new equity-based awards under the 2019 Stock Plan. The 2019 Stock Plan would not allow any participant to receive, in any calendar year, equity-based awards issued under the 2019 Stock Plan with respect to more than 25% of the total number of shares available under the 2019 Stock Plan. Upon certain changes in the number of shares of our common stock outstanding (e.g., stock split, recapitalization) or the occurrence of certain corporate events (e.g., merger, stock dividend), the Compensation Committee could adjust the outstanding equity-based awards and the number of shares available for equity-based awards appropriately. If the shareholders approve the 2019 Stock Plan, unless the 2019 Stock Plan is terminated earlier by our board of directors, equity-based awards could be granted at any time before May 7, 2029, when the 2019 Stock Plan will terminate according to its terms.

Eligible Participants

Approximately 200 officers and key employees of Chemical and our subsidiaries may receive equity-based awards under the 2019 Stock Plan. Officers, directors, and key employees of Chemical and our subsidiaries may be considered to have an interest in the 2019 Stock Plan because they may in the future receive equity-based awards under it.

 

New Plan Benefits

No equity-based awards have been granted or received under the 2019 Stock Plan through the date of this Proxy Statement. Because benefits under the 2019 Stock Plan will depend on the Compensation Committee’s actions and the fair market value of our common stock at various future dates, the benefits payable under the 2019 Stock Plan and the benefits that would have been payable had the 2019 Stock Plan been in effect during the most recent fiscal year are not determinable.

Administration of the 2019 Stock Plan

The 2019 Stock Plan would be administered by the Compensation Committee. The Compensation Committee would be authorized and empowered to do all things that it determined to be necessary or appropriate in connection with the administration of the 2019 Stock Plan. The Compensation Committee would determine, subject to the terms of the 2019 Stock Plan, the persons to receive equity-based awards, the nature and amount of equity-based awards to be granted to each person (subject to the limits specified in the 2019 Stock Plan), the time of each grant, the terms and duration of each grant, and all other determinations necessary or advisable for administration of the 2019 Stock Plan.

Performance-Based Restricted Stock Units, Time-Vesting Restricted Stock Units, and Restricted Stock

The 2019 Stock Plan would also permit the Compensation Committee to award restricted stock units (including both performance-based restricted stock units and time-vesting restricted stock units) and restricted stock, subject to the terms and conditions set by the Compensation Committee that are consistent with the 2019 Stock Plan. Restricted stock units are equity-based awards denominated in units of our common stock under which the issuance of shares of our common stock is subject to such terms and conditions as the Compensation Committee deems appropriate (including achievement of performance goals established by the committee and/or continued employment or service as a director). For purposes of determining the number of shares available under the 2019 Stock Plan, each restricted stock unit would count as the maximum number of shares of our common stock subject to the restricted stock unit. Unless determined otherwise by the Compensation Committee, each earned restricted stock unit would be equal to one share of our common stock and would entitle a participant to either shares of our common stock or an amount of cash determined with reference to the value of shares of our common stock.

Shares of restricted stock are shares of our common stock, the retention, vesting and/or transferability of which is subject, for specified periods of time, to such terms and conditions as the Compensation Committee deems appropriate (including achievement of performance goals established by the committee and/or continued employment or service as a director).

The Compensation Committee would establish the terms of individual awards of restricted stock units and restricted stock in award agreements. Restricted stock units and restricted stock granted to a participant would “vest” (i.e., the restrictions on them would lapse) in the manner and at the times that the Compensation Committee determines. The Compensation Committee would be permitted to vary the terms, conditions and restrictions among participants and among grants to the same participant, including the terms and conditions described below.

If a director’s service ceases or a participant’s employment is terminated during the restricted period (i.e., the period of time during which restricted stock units or restricted stock are subject to vesting or performance restrictions) for any reason other than death, disability, termination without cause or retirement, each unvested restricted stock unit and restricted stock award of the participant would automatically be forfeited and, in the case of restricted stock, returned to us.

If a director’s service ceases or a participant’s employment is terminated during the restricted period because of death, disability or termination without cause, then, unless otherwise specified in an applicable award agreement or controlling agreement with respect to the participant, the restrictions remaining on any or all shares of restricted stock and restricted stock units would lapse and would vest on a prorated basis and be convertible into a number of shares of our common stock equal to (a) the number of the participant’s unvested restricted stock or restricted stock units as of the effective date of the termination, multiplied by (b) the quotient of (x) the number of full months that have elapsed since the later of the date of grant or the most recent annual vesting date and the effective date of participant’s termination or cessation of service and (y) the total number of full months remaining in the vesting period since the later of the date of grant or the most recent annual vesting date. We currently anticipate that award agreements for our executives will provide for full vesting upon a termination of employment or cessation of service because of death, disability or termination without cause. For restricted stock or restricted stock units that are subject to attainment of performance goals, the number of the participant’s unvested restricted stock or restricted stock units that are subject to proration, or full vesting (if applicable), as of the effective date of his or her termination shall be the target (100%) number of restricted stock or restricted stock units set forth in the applicable equity-based award agreement. All of the unvested restricted stock units and shares of restricted stock would be forfeited and, in the case of restricted stock, returned to us; however, the Compensation Committee could, either before or after a participant dies or becomes disabled, waive the vesting or performance restrictions remaining on any or all of his or her remaining restricted stock units and shares of restricted stock.

If a participant who is a director ceases providing services as a director due to retirement during the restricted period, then the restrictions remaining on any or all shares of restricted stock shall terminate automatically in full upon retirement. If a participant’s employment is terminated during the restricted period due to the participant’s retirement and the participant fails to provide at least one year’s notice of retirement to us, each unvested restricted stock unit and share of restricted stock of the participant would automatically be forfeited and, in the case of restricted stock, returned to us. If the participant’s employment is terminated during the restricted period due to the participant’s retirement upon not less than one year’s notice of retirement to us, then the restrictions remaining on any or all shares of restricted stock and restricted stock units would lapse and would vest on a prorated basis, or fully vest (if applicable), and be convertible into a number of shares of our common stock in the manner applicable to the termination of employment because of death, disability, or termination without cause. All of the remaining performance-based restricted stock units and shares of restricted stock would be forfeited and, in the case of restricted stock, returned to us; however, the Compensation Committee could, either before or after a participant retires, waive the vesting or performance restrictions remaining on any or all of his or her remaining restricted stock performance units or shares of restricted stock.

Federal Tax Consequences of Restricted Stock, Performance-Based Restricted Stock Units and Time-Vesting Restricted Stock Units

Generally, under current federal income tax laws, a participant would not recognize income upon the award of restricted stock, performance-based restricted stock units or time-vesting restricted stock units. However, a participant would be required to recognize compensation income at the time the award vests (when the restrictions lapse) equal to the difference between the fair market value of the stock at vesting and the amount paid for the stock (if any). At the time the participant recognizes compensation income, we would be entitled to a corresponding deduction for federal income tax purposes, except to the extent that the deduction limits of Section 162(m) of the Internal Revenue Code apply. If restricted stock, performance-based restricted stock units or time-vesting restricted stock units are forfeited by a participant, the participant would not recognize income with respect to the forfeited award and we would not receive a corresponding deduction for federal income tax purposes.

A participant could, within 30 days after the date of an award of restricted stock (but not an award of restricted stock units), elect to report compensation income for the tax year in which the restricted stock is awarded. If the participant makes this election, the amount of compensation income would be equal to the difference between the fair market value of the restricted stock at the time

of the award and the amount paid for the stock (if any). Any later appreciation in the value of the restricted stock would be treated as capital gain and recognized only upon the sale of the shares subject to the award of restricted stock. If, however, restricted stock is forfeited after the participant makes such an election, the participant would not be allowed any deduction for the amount that he or she earlier reported as income. Upon the sale of shares subject to the restricted stock award, a participant would recognize capital gain or loss in the amount of the difference between the sale price and the participant’s basis in the stock.

Stock Options

The 2019 Stock Plan would permit us to grant to participants options to purchase shares of our common stock at stated prices for specific periods of time. For purposes of determining the number of shares available under the 2019 Stock Plan, each stock option would count as the number of shares of common stock subject to the stock option. Stock options that could be granted under the 2019 Stock Plan may only be nonqualified stock options and may not qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code.

The Compensation Committee would establish the terms of individual stock option grants in stock option agreements. These documents would contain terms, conditions and restrictions that the committee determines to be appropriate. These restrictions could include vesting requirements to encourage long-term ownership of shares. The Compensation Committee would be permitted to vary the terms, conditions and restrictions among participants and among grants to the same participant.

The exercise price of a stock option would be determined by the Compensation Committee, but must be at least 100% of the market value of our common stock on the date of grant. No stock option could be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price of such stock options to the same participants.

When exercising all or a portion of a stock option, a participant may pay the exercise price with cash or, if permitted by the Compensation Committee, shares of our common stock. The Compensation Committee could also authorize payment of all or a portion of the exercise price in the form of a promissory note or installment payments, except as limited by the Sarbanes-Oxley Act of 2002 or other laws, rules or regulations. Any promissory note or installment payments must be with full recourse and at the market rate of interest. Our board of directors may restrict or suspend the power of the Compensation Committee to permit such loans, however, and could require that adequate security be provided. In addition, the Compensation Committee allows broker-assisted cashless exercises of stock options. 

Although the term of each stock option would be determined by the Compensation Committee, no stock option would be exercisable under the 2019 Stock Plan more than 10 years and one day after the date it was granted. Stock options generally would be exercisable for limited periods of time if an option holder dies, becomes disabled, retires, is terminated without cause, or voluntarily leaves his or her employment or service to the extent that such options were exercisable on the date of the option holder’s death, disability, or termination of employment. If an option holder is terminated for cause, the option holder would forfeit all rights to exercise any outstanding stock options.

Restrictions on Transfer

Without Compensation Committee consent or permission, a participant cannot sell, exchange, transfer, pledge, assign or otherwise dispose of an equity-based award granted under the 2019 Stock Plan other than by will or the laws of descent and distribution. All rights with respect to equity-based awards would only be exercisable during a participant’s lifetime by the participant or his or her guardian or legal representative. The Compensation Committee could impose additional restrictions on equity-based awards.

Federal Tax Consequences of Stock Options

The 2019 Stock Plan only provides for awards of nonqualified stock options – those options that do not meet the Internal Revenue Code’s definition of an incentive stock option. Under current federal income tax laws, an option holder would not recognize any income and we would not receive a deduction for federal income tax purposes when a nonqualified stock option is granted or vests. If a nonqualified stock option is exercised, the option holder would recognize compensation income equal to the difference between the exercise price paid and the market value of the stock acquired upon exercise (on the date of exercise). We would then receive a corresponding deduction for federal income tax purposes, except to the extent that the deduction limits of Section 162(m) of the Internal Revenue Code apply. The option holder’s tax basis in the shares acquired would be the exercise price paid plus the amount of compensation income recognized. Sale of the stock after exercise would result in recognition of short-term or long-term capital gain (or loss).

Other Stock-Based Awards

The 2019 Stock Plan would also permit the Compensation Committee to grant a participant one or more types of awards in the form of our common stock or based on, or related to, shares of our common stock, other than the types described above. The

Compensation Committee could make stock awards for any amount of consideration, or no consideration, as the Compensation Committee determines. Any such awards would be subject to terms and conditions as the Compensation Committee deems appropriate, as set forth in the respective award agreements and as permitted under the 2019 Stock Plan. Stock award recipients would generally have all voting, liquidation and other rights with respect to awarded shares of our common stock upon becoming the holder of record of the common stock granted pursuant to the award, subject to the restrictions regarding payment of dividends as set forth below. However, the Compensation Committee could impose restrictions on the assignment or transfer of common stock awarded under the 2019 Stock Plan.

Federal Tax Consequences of Other Stock-Based Awards

The recipient of a stock award generally would recognize compensation income equal to the difference between the fair market value of the stock when it is awarded and the amount paid for the stock (if any). The recipient’s tax basis in the stock would equal the amount of compensation income recognized on the award plus the amount paid by the recipient for the stock (if any). We would be entitled to a corresponding deduction for federal income tax purposes equal to the amount of compensation income recognized by the recipient, except to the extent that the deduction limits of Section 162(m) of the Internal Revenue Code apply. Upon a subsequent sale of the stock, the recipient would recognize capital gain or loss equal to the difference between the amount realized on the sale and his or her basis in the stock. Different rules may apply where the stock is transferred subject to a “substantial risk of forfeiture.”

Dividends

Holders of unvested equity-based awards will not be entitled to dividend rights with respect to the shares of our common stock constituting or subject to such unvested equity-based awards; provided, however, that dividends otherwise payable with respect to such shares of our common stock may, at the discretion of the Compensation Committee, accrue and become payable upon vesting of the equity-based awards.

Effects of a Change in Control of Chemical

Unless otherwise stated in any award agreement or separate agreement with the participant under the 2019 Stock Plan, upon the occurrence of a change in control of Chemical (as defined in the 2019 Stock Plan), the vesting of unvested equity awards would accelerate only upon a qualifying termination of employment and, in the case of performance-based equity awards, would be subject to vesting at the greater of (a) target performance and (b) actual performance, measured through the latest practicable date before the effective date of the change in control, subject to forfeiture based on the participant’s continued service through the restricted period. In addition, absent any qualifying termination of employment, unvested equity awards (including those that are cashed out in connection with the change in control) would remain subject to their original vesting schedules.

Tax Withholding

If equity-based awards are made under the 2019 Stock Plan, we could withhold from any cash otherwise payable to a participant or require a participant to remit to us amounts necessary to satisfy applicable withholding and employment-related taxes. Unless the Compensation Committee determines otherwise, tax withholding obligations could also be satisfied by withholding our common stock to be received upon exercise or vesting of an equity-based award or by delivering to us previously owned shares of our common stock. We may reasonably delay the issuance or delivery of shares of our common stock pursuant to an equity-based award as it determines appropriate to address tax withholding and other administrative matters.

Termination and Amendment of the 2019 Stock Plan or Awards

Our board of directors could terminate the 2019 Stock Plan at any time and could from time to time amend the 2019 Stock Plan, as it considers proper and in our best interests, provided that no such amendment could be made (except adjustments expressly permitted by the 2019 Stock Plan) without the approval of our shareholders if such amendment would (i) reduce the exercise price of a stock option below the market value of the underlying stock on the date of the grant, (ii) reduce the exercise price of outstanding stock options, (iii) increase the individual annual maximum award limit, or (iv) otherwise amend the 2019 Stock Plan in any manner requiring shareholder approval by law or under NASDAQ listing requirements or rules. In addition, no amendment to the 2019 Stock Plan or to a previously granted equity-based award could impair the rights of a holder of any outstanding equity-based award without the consent of the participant, except in certain circumstances in which such amendment is necessary to satisfy a law or regulation or to meet the requirements of or avoid adverse tax or financial accounting consequences under any tax or accounting standard, law or regulation.

Subject to certain limitations, the Compensation Committee could amend or modify the terms of any outstanding equity-based award in any manner not prohibited by the 2019 Stock Plan. However, equity-based awards issued under the 2019 Stock Plan could not be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect would be

to reduce the exercise price of such equity-based awards to the same participants. We could also suspend a participant’s rights under the 2019 Stock Plan for a period of up to 60 days while a participant’s termination for cause is considered.

Performance-based Awards

The 2019 Stock Plan is intended to provide for the ability to grant equity-based awards that are performance-based compensation. Performance-based compensation means the vesting or payment of such equity-based award must be contingent upon the achievement of one or more performance goals established by the Compensation Committee. The performance goals for equity-based awards must meet certain other criteria as well to qualify as performance-based compensation, including (i) the performance goals must be established in writing by the Compensation Committee during the first 90 days of the applicable performance period and before 25% of the performance period has elapsed, (ii) the satisfaction of the performance goals must be substantially uncertain when established by the committee for the performance period, and (iii) the performance goals must be based solely upon objective criteria from which an independent third party with knowledge of the facts could determine whether the performance goal or set of goals is satisfied and from that determination could calculate the performance-based compensation to be paid.

Under the 2019 Stock Plan, the performance goals that may be established by the Compensation Committee, with respect to performance-based compensation, include, without limitation, any one or more of the following measurements of performance, either individually or in any combination, applied to either Chemical as a whole or to one of our subsidiaries, either individually or in any combination, and measured against pre-determined levels, the performance of a pre-established peer group or a published or special index: net income; net income per share; return on equity; cash earnings; cash earnings per share, reflecting dilution of the common stock as the committee deems appropriate and, if the committee so determines, net of or including dividends; cash earnings return on equity; operating income; operating income per share; operating income return on equity; return on assets; cash flow; cash flow return on capital; return on capital; productivity ratios; share price (including, without limitation, growth measures or total shareholder return); expense or cost levels; margins; operating efficiency; efficiency ratio; customer satisfaction, satisfaction based on specified objective goals or a Chemical-sponsored customer survey; economic value added measurements; market share or market penetration with respect to specific designated products or services, product or service groups and/or specific geographic areas; reduction of losses, loss ratios, expense ratios or fixed costs; employee turnover; specified objective social goals; noninterest income; interest income; net interest income; deposit growth; and loan growth.

An equity-based award intended to be performance-based compensation could provide that any evaluation of performance could include or exclude certain specific events or their effects that occur during the performance period, including asset write-downs; litigation or claim judgments or settlements; changes in tax laws, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; extraordinary nonrecurring items as described in Financial Accounting Standards Board Accounting Standards Codification Topic 225-20 and/or in management’s discussion and analysis of financial condition and results of operations appearing in our annual report to shareholders for the applicable year; acquisitions, mergers or divestitures (including nonrecurring transaction-related expenses); securities offerings; accounting changes; amortization of goodwill or other intangible assets; discontinued operations; and other special charges or extraordinary items.

No participant in the 2019 Stock Plan may be granted, in any calendar year, awards representing more than 25% of the total number of shares of our common stock available for awards under the 2019 Stock Plan. Performance-based compensation would be paid only after written certification by the Compensation Committee that the applicable performance goals have been satisfied.

Clawback

Equity-based awards under the 2019 Plan would be subject to our clawback policy. For more information, see “Elements of Compensation-Clawback Policy” below.

Registration of Shares

We intend to register shares covered by the 2019 Stock Plan under the Securities Act of 1933 before any performance-based restricted stock units, time-vesting restricted stock units, restricted stock, stock awards or other stock-based or stock-related awards are granted and before any stock options could be exercised.

Required Vote

The 2019 Stock Plan will be approved if a majority of the shares that are voted on this proposal at the meeting are voted in favor of the proposal. Abstentions, broker non-votes and other shares that are not voted on this proposal in person or by proxy will not be included in the vote count.

 

Your Board of Directors and Compensation Committee

recommends that you vote FOR Proposal 4.

Board of Directors

General

Our bylaws provide for a board of directors consisting of not fewer than five nor more than 25 individuals with the exact number to be fixed by the board of directors. The board of directors has fixed the number of directors constituting the entire board at 13.

If elected, all nominees shall serve for a term commencing on the date of the annual meeting and continuing until the 2020 annual meeting of shareholders or until each person's successor is duly elected and qualified. Each director is currently a director of Chemical and Chemical Bank.

Nominees for Election as Directors

Except as otherwise indicated, each director and nominee has had the same principal occupation and employment during the past five years. The age of each director and nominee is as of December 31, 2018 .

James R. Fitterling, age 57, has served as a director of the Corporation since July 2010 and is Chair of the Corporate Governance and Nominating Committee and a member of the Audit, Compensation and Pension, Risk Management and Strategic Initiatives Committees. Mr. Fitterling is Chief Executive Officer of The Dow Chemical Company and Chief Operating Officer of the Materials Science Division of DowDuPont. Dow is a diversified science and technology company that manufactures chemical, plastic and agricultural products. Mr. Fitterling joined Dow in 1984. After serving in a variety of sales, marketing and supply chain positions in Liquid Separations, he was named Commercial Director for Liquid Separations, Dow Pacific in 1994. In 1998, he was appointed Global Business Director for Liquid Separations and President and CEO of FilmTec Corporation, a wholly-owned subsidiary of Dow. In 2000, he was named General Manager for Dow Thailand and Managing Director for SCC-Dow Group of joint venture companies. In 2002, he became Chief Executive Officer of The OPTIMAL Group, affiliate of Petroliam Nasional Berhad (PETRONAS), Malaysia’s state-owned oil corporation and Dow. He added responsibility for the Southeast Asia and Australia region in 2004. Mr. Fitterling was named Business Vice President for Polyethylene in 2005; President, Basic Plastics in 2007; Vice President of Corporate Development in 2009; Senior Vice President of Corporate Development in April 2010; Executive Vice President of Dow and President, Plastics and Hydrocarbons in August 2010; and Executive Vice President of Dow and President, Corporate Development and Hydrocarbons in March 2011. Mr. Fitterling assumed additional executive oversight of Dow’s Chemicals and Energy Division in August 2011, assumed executive oversight for Feedstocks, Performance Plastics, Asia and Latin America in September 2012, was named Vice Chairman, Business Operations in October 2014, Vice Chairman and Chief Operating Officer in October 2015 and was named to his current role in February 2016. Mr. Fitterling is a member of Dow’s Office of the Chairman and Chief Executive Officer. He also serves as a member of the board of directors of Sadara Chemical Company. In nominating Mr. Fitterling, the Corporate Governance and Nominating Committee considered as important factors his management experience, financial knowledge and leadership capabilities, including his experience as a leader in a large, geographically diverse publicly-held corporation, his experience and familiarity with financial statements of large business organizations, and his familiarity with an important market area in which we compete.

Ronald A. Klein, age 60, was appointed to the board of directors of the Corporation upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and is Chair of both the Asset and Liability Committee ("ALCO") and Strategic Initiatives Committees and a member of the Compensation and Pension, Trust and Wealth Management, Credit Administration & Risk and Technology Committees. Mr. Klein previously served as a director of Talmer Bancorp, Inc. and Talmer Bank and Trust beginning in April 2010. Since February 1999, Mr. Klein has served as a director and Chief Executive Officer of Origen Financial, Inc., a financial services company, that was formerly a publicly-traded Mortgage Real Estate Investment Trust (REIT) that originated and serviced manufactured home loans until 2008, after which it has managed its securitized loan portfolio and other assets. Mr. Klein is also a principal in JK Ventures, a real estate investment company. Mr. Klein has served on the board of directors of Sun Communities, Inc., a publicly traded REIT that owns and operates manufactured housing communities, since January 2015. In nominating Mr. Klein, the Corporate Governance and Nominating Committee considered as important factors his financial acumen and his professional experience, including his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, his experience serving as a director of publicly-held companies, his familiarity with an important market area in which we have expanded our operations, and his experience as a chief executive officer of a formerly publicly-held financial services company.

Richard M. Lievense , age 65, has served as a director of the Corporation since June 1, 2015 and is Chair of the Trust and Wealth Management and Technology Committees and is a member of the ALCO, Credit Administration & Risk and Bank Secrecy Act ("BSA") Committees. Mr. Lievense is founder and Chairman of InSite Capital, LLC, a wholly-owned subsidiary of the Corporation, a position he has held since 2016. Mr. Lievense formerly served as Chairman of the board of directors of Lake Michigan Financial Corporation until its merger with the Corporation on May 31, 2015. Mr. Lievense was the principal founder of Lake Michigan

Financial Corporation, which was established in April 1998, and also served as its President and Chief Executive Officer. Mr. Lievense served as Chief Executive Officer and President of The Bank of Holland, a wholly-owned subsidiary of Lake Michigan Financial Corporation. Mr. Lievense started his career at Ohio Citizens Bank. He was also employed by National City Bank and Old Kent Bank and served in various executive management positions. Mr. Lievense serves as a Director of Riverview Development Group and on the board of of Grand Angels, LLC. In nominating Mr. Lievense, the Corporate Governance and Nominating Committee considered as important factors his extensive experience in the banking industry, his experience in leading a business organization, and his familiarity with an important market area in which we have expanded and operate.

Barbara J. Mahone, age 72, was appointed to the board of directors of the Corporation upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and is a member of the Audit, Compensation and Pension, Corporate Governance and Nominating, Risk Management, ALCO and Strategic Initiatives Committees. Ms. Mahone previously served as a director of Talmer Bancorp, Inc. and Talmer Bank and Trust beginning in March 2013. Ms. Mahone retired from General Motors in 2008 as Executive Director, Human Resources, after 38 years of service. Ms. Mahone served on the board of directors for William Beaumont Health System from 1997 until 2015 and on the board of directors of Charter One Bank from 2002 until 2004. In nominating Ms. Mahone, the Corporate Governance and Nominating Committee considered as important factors her depth of knowledge and executive level experience in human resources, her experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, her experience serving as a director of a publicly-held company, and her familiarity with an important market area in which we have expanded and operate.

Barbara L. McQuade , age 54, has served as a director of the Corporation and Chemical Bank since April 25, 2018 and is a member of the Risk Management, Trust and Wealth Management, ALCO and BSA Committees. She has more than 19 years of experience in leadership positions and public service, including serving as the U.S. Attorney for the Eastern District of Michigan from 2010 until 2017, and serving as vice chair of the Attorney General’s Advisory Committee and co-chair of the Terrorism and National Security Subcommittee. She served as Assistant U.S. Attorney in Detroit for 12 years, serving as Deputy Chief of the national Security Unit. Ms. McQuade is currently a law professor at the University of Michigan, teaching criminal law, criminal procedure and national security law. She is also a contributor as a legal analyst for MSNBC. She serves on the Board of Directors for SafeHouse Center, Crime Stoppers of Michigan, the Community Foundation for Southeast Michigan and the Hudson-Webber Foundation. In nominating Ms. McQuade, the Corporate Governance and Nominating Committee considered as important factors her depth of knowledge, substantial executive leadership experience and public service, particularly in the State of Michigan.

John E. Pelizzari, age 63, has served as a director of the Corporation and Chemical Bank since November 1, 2014 and is Chair of the Credit Administration & Risk and BSA Committees and is a member of the Corporate Governance and Nominating, ALCO, Technology, Trust and Wealth Management and Strategic Initiatives Committees. Mr. Pelizzari is also a community advisory director. Mr. Pelizzari formerly served as Chairman of the board of directors of Northwestern Bancorp, Inc. from May 2013 until it was merged into the Corporation on October 31, 2014. Mr. Pelizzari has served as Chief Operating Officer of Burnette Foods, Inc., a family-owned company that operates fruit and vegetable processing plants in western Michigan, since 2009. Mr. Pelizzari served as President and Chief Executive Officer of Fifth Third Bank of Northern Michigan from 1997 through 2006 and President and Chief Executive Officer of Fifth Third Bank Central Indiana from 2006 through 2009. Mr. Pelizzari has served on the board of directors of Munson Health Care since 2009. Mr. Pelizzari has also served as a director of Crystal Enterprises, Inc. since 2012. In nominating Mr. Pelizzari, the Corporate Governance and Nominating Committee considered as important factors his experience in the banking industry, his experience in leading a business organization, his familiarity with an important market area in which we have expanded and operate, and his experience in running and managing the financial needs of a business that is typical of many of our customers.

David T. Provost, age 64, is Chief Executive Officer and President of the Corporation. Mr. Provost was appointed to our board of directors upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and served as our Vice Chairman until June 21, 2017, when he was named Chief Executive Officer and President. Mr. Provost previously served as Chief Executive Officer, President and a director of Talmer Bancorp, Inc., and as Chief Executive Officer of Talmer Bank and Trust beginning in 2008 and Chairman of Talmer Bank and Trust beginning in December 2009. Mr. Provost served as President of Talmer Bank and Trust from December 2009 until September 2014. Prior to joining Talmer Bancorp, Inc., Mr. Provost served as Chairman and Chief Executive Officer of The PrivateBank-Michigan, then a subsidiary of Chicago-based PrivateBancorp, Inc. Mr. Provost also served as President and Chief Executive Officer of Bloomfield Hills Bancorp, and as Chairman and Chief Executive Officer of The Private Bank. Mr. Provost also spent 13 years in various capacities at Manufacturers National Bank of Detroit and Manufacturers National Bank of Novi (now Comerica Bank). Mr. Provost has served as a member of the board of directors of Plastipak Holdings, Inc. and its subsidiaries and as Chairman of its Audit Committee. In nominating Mr. Provost, the Corporate Governance and Nominating Committee considered as important factors his experience in the banking industry, his extensive experience in leading a business organization, his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, his experience serving as a director of a publicly-held company, and his familiarity with an important market area in which we have expanded and operate.

Thomas C. Shafer , age 60, was appointed Vice Chairman and a director of the Corporation and President and Chief Executive Officer of Chemical Bank on June 21, 2017. Mr. Shafer was Executive Vice President and Director of Regional and Community Banking of Chemical Bank from November 2016 until June 21, 2017. Mr. Shafer served as Vice Chairman of Talmer Bancorp, Inc. from 2011 until September 2014, and subsequently served as Chief Operating Officer of Talmer Bancorp, Inc. and President of Talmer Bank from September of 2014 until November 2016. Mr. Shafer also served as Chief Executive Officer and President and as a director of First Place Bank, a wholly-owned subsidiary of Talmer Bancorp, Inc., from January 2013 until it was merged into Talmer Bank in February 2014. Before joining Talmer, Mr. Shafer served Citizens Republic Bancorp for a 16-year period in various executive-level positions, including as Executive Vice President-Regional Banking, Executive Vice President-Commercial Banking, Chief Credit Officer and Executive Vice President-Specialty Banking. In nominating Mr. Shafer, the Corporate Governance and Nominating Committee considered as important factors his experience in the banking industry, his extensive experience in leading a business organization, commercial and retail delivery and his familiarity with an important market area in which we have expanded and operate.

Larry D. Stauffer, age 73, has served as a director of the Corporation and Chemical Bank since January 2006 and is Chair of the Audit Committee and a member of the Risk Management and BSA Committees. Mr. Stauffer formerly served as a director of Chemical Bank West from May 2004 until it was merged into Chemical Bank on December 31, 2005. Mr. Stauffer served from 1984 until November 2007 as President of Auto Paint Inc. and Auto Wares Tool Company, both divisions of Auto Wares Inc., an automotive parts distribution company that serves the Midwest section of the United States, headquartered in Grand Rapids, Michigan. Mr. Stauffer served as a consultant to Auto Wares Inc. from November 2007 until his retirement in March 2013. In nominating Mr. Stauffer, the Corporate Governance and Nominating Committee considered as important factors his experience in leading a geographically diverse business organization, his familiarity with an important market area in which we operate and compete, his experience in the automotive industry, and his experience in running and managing the financial needs of a business that is typical of many of our customers.

Jeffrey L. Tate, age 49, was appointed to the board of directors of the Corporation on March 1, 2017, and is Chair of the Risk Management Committee and a member of the Audit Committee.  Mr. Tate is Vice President and Business Finance Director for the Packaging and Specialty Plastics segment of The Dow Chemical Company, a position he has held since August 2017.  He directs and oversees all finance activities to provide strategic and financial counsel for the businesses. Mr. Tate began his career with Dow in Louisiana in 1992 and held a variety of accounting and controller roles before relocating to Michigan for several finance leadership assignments in Dow Automotive, Investor Relations, Performance Materials and Performance Plastics. In his most recent role as corporate auditor, Mr. Tate held oversight for Dow’s Corporate Auditing department and was responsible for ensuring the adequacy and accuracy of all accounting, financial and operating controls of Dow’s global operations. In 2010, Mr. Tate was chosen as a recipient of the National Achievement in Industry Award by the National Association of Black Accountants (NABA).  In 2012, he was named to Savoy Magazine’s Top 100 Most Influential Blacks in Corporate America. He is a member of the Financial Executives International (FEI); the American Institute of Certified Public Accountants (AICPA); the Institute of Internal Auditors (IIA); National Black MBA Association; and Omega Psi Phi Fraternity, Incorporated.  Mr. Tate is a Certified Public Accountant and serves on the Public Company Accounting Oversight Board’s (PCAOB) Standing Advisory Group and the Corporate Advisory Boards of both Consortium and NABA. He also serves in his community on the board of directors of the Midland Community Center Operating Board. In nominating Mr. Tate, the Corporate Governance and Nominating Committee considered as important factors his experience as a leader in a large, geographically diverse publicly-held corporation, his experience and background as an auditor and certified public accountant, his familiarity with financial statements of large business organizations, and his familiarity with an important market area in which we operate and compete.

Gary Torgow, age 62, was appointed to the board of directors of the Corporation upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and has served as the Executive Chairman of the board of directors since August 2016. Mr. Torgow previously served as Chairman of the board of directors of Talmer Bancorp, Inc. beginning in December 2009 and also served Talmer Bank and Trust in an executive capacity beginning in January 2010. Before joining Talmer Bancorp, Inc., Mr. Torgow is the Founder and Chairman of the Sterling Group, a Michigan-based real estate, development and investment company. Mr. Torgow also served as a board member of the Bank of Bloomfield Hills, on the Michigan Board of The PrivateBank, on the board and audit committee of Jackson National Life Insurance of New York. Mr. Torgow serves on the Board of Blue Cross Blue Shield of Michigan. Mr. Torgow is an executive board member of Business Leaders of Michigan and is a Trustee and board member of the Community Foundation of Southeastern Michigan. He is on the Foundation Board of Wayne State University and is a member of the Beaumont Health trustees. Mr. Torgow is on the Executive Board of the Jewish Federation of Metropolitan Detroit, and is the Board President of Yeshiva Beth Yehudah. In nominating Mr. Torgow, the Corporate Governance and Nominating Committee considered as important factors his experience leading a business organization, his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, his experience serving as a director of a publicly-held company, and his familiarity with an important market area in which we operate and compete.

  

Arthur A. Weiss, age 69, was appointed to the board of directors of the Corporation upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and is Chair of the Compensation and Pension Committee and a member of the Corporate Governance and Nominating, Trust and Wealth Management, Technology, Credit Administration & Risk and Strategic Initiatives Committees. Mr. Weiss previously served as a director of Talmer Bancorp, Inc. and Talmer Bank and Trust beginning in May 2007. Mr. Weiss is a shareholder and Chairman of the board of directors of the law firm of Jaffe, Raitt, Heuer & Weiss, P.C., where he has practiced law since 1976. Mr. Weiss has served on the board of directors of Sun Communities, Inc., a publicly traded Real Estate Investment Trust (REIT) that owns and operates manufactured housing communities, since 1996. In nominating Mr. Weiss, the Corporate Governance and Nominating Committee considered as important factors his years of legal experience, his experience leading a business organization, his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, his experience serving as a director of a publicly-held company and his familiarity with an important market area in which we have expanded and operate.

Franklin C. Wheatlake, age 71, has served as a director of the Corporation and Chemical Bank since January 2006 and is a member of the Audit, Corporate Governance and Nominating, Risk Management, Compensation and Pension and Strategic Initiatives Committees. Mr. Wheatlake serves as our Lead Independent Director, a position he has held since April 2014 and has served as the Chairman of the board of Chemical Bank since June of 2017. Mr. Wheatlake served as a director of Chemical Bank West from 2001 until it was merged into Chemical Bank on December 31, 2005. Mr. Wheatlake is Chairman of Utility Supply and Construction Company, a company that provides supply chain, material distribution, logistics support and construction services to the electric and gas utility industry located in Reed City, Michigan, a position he has held since 1990. In nominating Mr. Wheatlake, the Corporate Governance and Nominating Committee considered as important factors his experience in leading a diverse business organization, his familiarity with an important market area in which we operate and compete, and his experience in running and managing the financial needs of a business that is typical of many of our customers.

Board Committees

Among others, the board of directors has established the following standing committees:

The following table shows each person currently serving as a director and the committees each director served on during 2018:

Director Independence. NASDAQ listing rules require a majority of our directors and each member of our Audit, Compensation and Pension, and Corporate Governance and Nominating Committees to be independent. The Federal Reserve Board’s Enhanced Prudential Standards also require the chair of our Risk Management Committee to be independent. Our board of directors has adopted Categorical Director Independence Standards to help fulfill its obligations under NASDAQ rules to determine whether any director has a relationship that would interfere with the exercise of the director’s independent judgment in carrying out the responsibilities of a director, which we refer to as a “material relationship.” The categorical standards provide that the following relationships are not material relationships for such purposes:

Our board of directors, in coordination with our Corporate Governance and Nominating Committee, evaluated the relevant relationships between each director/director nominee (and his or her immediate family members and affiliates) and Chemical and our subsidiaries and affirmatively determined that all of our directors/director nominees are independent, except for Mr. Provost, Mr. Torgow and Mr. Shafer, due to their employment with Chemical, and Mr. Lievense, due to his previous employment with InSite Capital, LLC, one of our subsidiaries, from 2016 until 2018. Specifically, the following nine of our 13 directors/director nominees are independent under NASDAQ listing rules and our categorical standards: Mr. Fitterling, Mr. Klein, Ms. Mahone, Ms. McQuade, Mr. Pelizzari, Mr. Stauffer, Mr. Tate, Mr. Weiss and Mr. Wheatlake.

Audit Committee.     Our Audit Committee oversees the accounting and financial reporting processes and audits of our consolidated financial statements on behalf of the board of directors and reports the results of its activities to the board of directors. The Audit Committee is directly responsible for the appointment, compensation, retention, evaluation and oversight of the work of our independent registered public accounting firm. The Audit Committee also oversees and reviews the performance of our internal audit function. The Audit Committee has the full power and authority to perform the responsibilities of a public company audit committee under applicable law, regulations, NASDAQ listing rules and public company custom and practice. The Audit Committee may establish subcommittees with such powers and authority as specifically determined and delegated by the Audit Committee. The Audit Committee has a Pre-Approval Policy to pre-approve the audit and non-audit services performed by our independent registered public accounting firm. All services provided by the independent registered public accounting firm are either within general pre-approved limits or specifically approved by the Audit Committee. The general pre-approval limits are detailed as to each particular service and are limited by a specific dollar amount for each type of service per project. Subject to certain limitations, the authority to grant pre-approvals may be delegated to one or more members of the Audit Committee. The Pre-Approval Policy requires the Audit Committee to be informed of the services provided under the pre-approval guidelines at the next regularly scheduled Audit Committee meeting. The Audit Committee has the authority to engage consultants, advisors and legal counsel at the expense of the Corporation.

The Audit Committee operates pursuant to a written charter, a current copy of which is available on our corporate website at www.chemicalbank.com under “Investor Information.” The Audit Committee is comprised solely of “independent directors” as defined by NASDAQ listing rules. The Audit Committee met twelve times during 2018.

Compensation and Pension Committee.     Our Compensation and Pension Committee (the "Compensation Committee") determines and oversees our executive compensation philosophy, structure, policies and programs, assesses whether our compensation structure establishes appropriate incentives for management and employees, reviews salaries, bonuses and other compensation of all executive officers of the Corporation and our subsidiaries, administers our share-based compensation plans, makes recommendations to the board of directors regarding the grants of share-based compensation awards under these plans, and annually reviews our benefit programs, including the pension, supplemental pension, nonqualified deferred compensation and 401(k) savings plans. The Compensation Committee has full power and authority to perform the responsibilities of a public company compensation committee under applicable law, regulations, NASDAQ listing rules, and public company custom and practice. The Compensation Committee may establish subcommittees and delegate authority and responsibility to subcommittees or any individual member of the Compensation Committee. In addition, under its Charter, the Compensation Committee can delegate to the Chief Executive Officer authority to determine or recommend the amount or form of compensation paid to other executive officers and associates subordinate to the Chief Executive Officer. The Compensation Committee has also delegated to certain executive officers the authority to make grants of equity awards to employees that are not otherwise executive officers as defined by Rule 3b-7 of the Securities Exchange Act of 1934. The Compensation Committee has the authority to engage consultants, advisors and legal counsel at the expense of the Corporation.

The Compensation Committee operates pursuant to a written charter, a current copy of which is available on our corporate website at www.chemicalbank.com under “Investor Information.” The Compensation Committee is comprised solely of “independent directors” as defined by NASDAQ listing rules. The Compensation Committee met eight times during 2018.

Corporate Governance and Nominating Committee.     Our Corporate Governance and Nominating Committee oversees our corporate governance responsibilities on behalf of the board of directors and is responsible for the identification and recommendation of individuals qualified to become members of the board of directors for each vacancy that occurs and for each election of directors at an annual meeting of shareholders of the Corporation or our subsidiaries. The Corporate Governance and Nominating Committee has full power and authority to perform the responsibilities of a public company nominating and corporate governance committee under applicable law, regulations, NASDAQ listing rules, and public company custom and practice. The Corporate Governance and Nominating Committee may establish subcommittees and delegate authority and responsibility to subcommittees or any individual member of the committee. The Corporate Governance and Nominating Committee has the authority to engage consultants, advisors and legal counsel at the expense of the Corporation.

The Corporate Governance and Nominating Committee operates pursuant to a written charter, a current copy of which is available on our corporate website at www.chemicalbank.com under “Investor Information.” The Corporate Governance and Nominating Committee is comprised solely of “independent directors” as defined by NASDAQ listing rules. The Corporate Governance and Nominating Committee met four times during 2018.

Risk Management Committee.    Our Risk Management Committee oversees and assesses the adequacy of our management of key risks, including credit risk, asset/liability risk, liquidity risk and operational risk. The Risk Management Committee is also responsible for monitoring our risk management profile and obtaining reasonable assurance of adherence to our risk management policies. The committee may delegate responsibility for the assessment of certain risks to various committees of management or the board of directors, which must report and make recommendations to the committee concerning specific areas of risk. The Risk Management Committee is responsible for the coordination of the assessment of risks among the various committees to which it delegates any responsibility, and is responsible for ensuring that we have adequate procedures and processes for assessing risk across all of our operations. The Risk Management Committee reviews the fiduciary activities of the Corporation and Chemical Bank and has overall responsibility for evaluating and approving the fiduciary policies of the Corporation and Chemical Bank. The committee has the full power and authority to perform the responsibilities of a public company risk management committee under applicable law, regulations, NASDAQ listing rules, and public company custom and practice. In discharging its oversight role, the Risk Management Committee is empowered to investigate any matter brought to its attention, with full access to all books, records, facilities, and personnel of the Corporation. The Risk Management Committee has the authority to engage consultants, advisors and legal counsel at the expense of the Corporation.

The Risk Management Committee operates pursuant to a written charter, a current copy of which is available on our corporate website at www.chemicalbank.com under “Investor Information.” The Risk Management Committee met six times during 2018.

Corporate Governance

Board and Annual Meeting Attendance

During 2018 , our board of directors held twelve meetings. All of the directors attended at least 75% of the aggregate number of meetings of the board of directors and meetings of committees on which they served during the year (during the periods that they served). We have a policy that requires all directors and director nominees to attend our annual meeting of shareholders. All of our directors and director nominees attended our 2018 annual meeting of shareholders.

Director Nominations

The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders, directors, officers, third-party search firms and other sources. The Corporate Governance and Nominating Committee will ultimately determine whether a shareholder recommendation will result in a nomination under this process. In considering potential nominees, the committee will review all candidates in the same manner, regardless of the source of the recommendation, and will consider the current composition of the board in light of the diverse communities and geographies we serve and the interplay of the candidate’s experience with the experience of the other board members, as well as such other factors as the committee deems appropriate.

Under our bylaws, nominations by shareholders may only be made by sending a notice to our Corporate Secretary that sets forth:

You must send this notice to our Corporate Secretary not less than 120 days before the date of an annual meeting and not more than seven days following the date of notice of a special meeting called for the election of directors. The Corporate Governance and Nominating Committee will evaluate and consider every nominee so proposed by a shareholder and report each such nomination and the committee’s recommendation to the full board of directors. The Corporate Governance and Nominating Committee may also, in its discretion, consider shareholders’ informal recommendations of possible nominees.

In considering possible candidates for election as a director, the committee and the other directors will be guided by applicable rules and regulations, any specific criteria established by the committee and the following criteria:

Each candidate should have:

In addition, the Corporate Governance and Nominating Committee may consider factors such as business and industry experience, public company experience, education, independence, gender, race, national origin, and familiarity with our market areas. The board of directors believes that the Corporation and our shareholders are best served by having a board of directors that brings a diversity of education, experience, skills, and perspective to board meetings. The board of directors welcomes opportunities to include diverse perspectives, talents, ideas and contributions. Consistent with this philosophy, the board of directors may consider factors and characteristics that are pertinent to diversity, such as race and gender, when evaluating nominees to stand for election or re-election to the board.

Shareholder Communication with the Board

Shareholders and interested parties may communicate with members of our board of directors by sending correspondence addressed to the board as a whole, a specific committee, or a specific board member c/o William C. Collins, General Counsel and Corporate Secretary, Chemical Financial Corporation, 235 E. Main Street, Midland, Michigan 48640. All correspondence will be forwarded directly to the applicable members of the board of directors.

Board Leadership Structure

The board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chair of the board because the board believes it is in our best interests to make that determination based on the membership of the board. The board believes that presently it is in our best interest that the positions of Chair and Chief Executive Officer are separate. The board believes that this separation is presently appropriate as it allows Mr. Provost, as Chief Executive Officer, to focus primarily on leading our day-to-day operations, while Mr. Torgow, the Chair, can focus on leading the board in its consideration of strategic issues and monitoring corporate governance, community relations and shareholder issues. The board has also determined that having Mr. Torgow, who also serves as our Executive Chairman, serve as Chair of the board is in the best interest of our shareholders at this time because this structure makes the best use of Mr. Torgow's extensive experience in board and community relations, particularly in our market areas.

In order to provide for a greater role for the independent directors in our oversight, we have also appointed a Lead Independent Director, Mr. Wheatlake. We also have an independent director serving as the Chair of each of the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, and the Risk Management Committee.

The duties and responsibilities of the Lead Independent Director include:

Common Stock Ownership Guidelines

In January 2008, the board of directors established stock ownership guidelines for its directors. Directors, as of April 30, 2008, are required to retain ownership equal to five times the paid annual equity retainer, with a five year timeframe to attain the designated ownership level. Directors appointed to the board after April 2008 are required to retain ownership equal to five times the paid annual retainer (sum of equity and cash retainers) with a five year timeframe to attain the designated ownership level.

In December 2008, the Compensation Committee implemented stock ownership guidelines that set forth the expected investment in shares of our common stock for the named executive officers and other executive and senior officers of the Corporation and Chemical Bank. Expected ownership is expressed as a percentage of base salary, as determined from time to time. The expected ownership for the named executive officers is as follows: Mr. Provost - 500%; Mr. Klaeser - 300%; Mr. Torgow - 300%; Mr. Shafer – 300%; and Mr. Ryan – 300%. Each named executive officer, as well as each other executive officer of the Corporation, is allowed five years from the date the guidelines first become applicable to him or her to achieve the expected stock ownership.

Individuals who acquire shares of common stock under our equity-based incentive plans must hold at least 50% of all net after-tax acquired shares until the earlier of the time such stock ownership guidelines are satisfied or 36 months following acquisition.

Anti-Hedging Policy

Our anti-hedging policy aligns the interests of our directors and executive officers with our shareholders. The policy prohibits our directors and executive officers from engaging in any transaction which could hedge or offset decreases in the market value of our common stock, including short-selling, put or call options, forward sale or purchase contracts, equity swaps, and exchange funds.

Board ’ s Role in Risk Oversight

We have appointed a Risk Management Committee of the board of directors. The Risk Management Committee is discussed under the subheading “Board Committees–Risk Management Committee” of this proxy statement.

Board Tenure Limits

The policies of the board of directors require that directors retire from the board at the next annual meeting of our shareholders which occurs after the director’s 72nd birthday. Mr. Stauffer, a member of our board and Chair of our Audit Committee, turned 72 in 2017, and Ms. Mahone, a member of our board, turned 72 in 2018. However, given our pending merger with TCF Financial Corporation, each of their breadth of knowledge with respect to our operations, and, with respect to Mr. Stauffer, his role as Chair of our Audit Committee, and, with respect to Ms. Mahone, her executive level experience in human resources, the board of directors determined that it was in our best interests to waive the mandatory retirement policy with respect to Mr. Stauffer and Ms. Mahone in 2019, and re-nominate each to serve an additional one-year term. In addition, directors are required to submit a resignation in the event of a significant change in the director’s personal or professional circumstances that would reasonably cause a re-examination of the director’s continued membership on the board. The decision whether to accept the resignation is determined by the full board.

The board of directors has adopted a policy limiting the tenure of any director to a maximum period of 12 years. Under the policy, members of the board of directors who were serving as of the date of adoption of the policy may serve for up to an additional period of 12 years from that date, subject to our policy requiring mandatory retirement for directors at age 72. Prospectively, newly elected directors may serve for a period of 12 years, or until mandatory retirement at age 72, whichever occurs first. The policy provides that the 12 year service limitation may be modified by the board of directors in individual cases, if the particular expertise of a director and the needs of the Corporation make it desirable to grant such an extension.

Uncontested Election Director Resignation Policy

In an uncontested election of directors (i.e., an election where the only nominees are those recommended by the board of directors), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election must promptly tender his or her resignation to the board of directors. The Corporate Governance and Nominating Committee must promptly consider the resignation and recommend to the board of directors whether to accept or reject the resignation. The board of directors must then act on the committee’s recommendation and determine whether to accept or reject the recommendation. Following the board’s decision, we will promptly disclose the board of directors’ decision and process (including, if applicable, the reasons for rejecting the resignation) in a periodic or current report filed with the SEC. Any director who tenders his or her resignation is not permitted to participate in the committee’s recommendation or the board’s decision.

Assessment of Board Performance

The Corporate Governance and Nominating Committee is responsible for coordinating the annual evaluation of the board of directors’ performance. The committee will receive comments from all directors relative to the board’s performance and such comments will be discussed with the full board. The purpose of the evaluation is to increase the effectiveness of the board as a whole and not to focus on the performance of individual directors. The Corporate Governance and Nominating committee will also utilize the results of this evaluation process when determining the characteristics and assessing critical skills required of prospective candidates for nomination or appointment to the board and making recommendations to the board with respect to assignments of directors to the various board committees.

The board of directors and each committee of the board of directors conducts an annual self-assessment survey. The survey utilizes questionnaires completed by each board and committee member. The responses are compiled and shared with the board, and provide a useful tool for evaluation of the effectiveness of our governance and management.

Audit Committee Report

The Audit Committee oversees our financial reporting process and our internal control over financial reporting and related disclosure controls and procedures on behalf of the board of directors. Management has the primary responsibility for the financial statements and the reporting process, including the application of accounting and financial principles, the preparation, presentation and integrity of the financial statements, the systems of internal controls and other procedures designed to ensure compliance with accounting standards and applicable laws and regulations.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements and related disclosures that are included in our 2018 Annual Report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and estimates, the clarity of disclosures in and concerning the financial statements, and the internal controls and disclosure controls and procedures that support management’s accounting and disclosure judgments and the certifications of the Chief Executive Officer and the Chief Financial Officer that our financial statements fairly present, in all material respects, our financial condition, results of operations, and cash flows. The Audit Committee also reviewed management’s report on its assessment of the effectiveness of our internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting.

All audit and non-audit services provided to us by our independent registered public accounting firm, KPMG LLP ("KPMG"), and the associated fees are pre-approved by the Audit Committee or by the Chair of the Audit Committee pursuant to delegated authority, and the Committee considers the compatibility of such non-audit services with the registered public accounting firms' independence. The Audit Committee evaluated the performance of KPMG, including the senior audit engagement team, and determined to retain KPMG to serve as our independent registered public accounting firm for the year ended December 31, 2019. In doing so, the Audit Committee considered the quality and efficiency of the services provided by KPMG and its technical expertise, tenure as our independent registered public accounting firm, and knowledge of our operations and industry. Although the Audit Committee has the sole authority to appoint the independent registered public accounting firm, the Audit Committee continued its long-standing practice of recommending that the board of directors ask shareholders to ratify the appointment of our independent registered public accounting firm at the 2019 Annual Meeting (see Proposal 2 – Ratification of Appointment of KPMG). KPMG has served as the Corporation's independent registered public accounting firm for thirteen years. The Audit Engagement Partner rotates every five years, and the Audit Committee is involved in the selection of the Audit Engagement Partner.

The Audit Committee’s meetings included executive sessions with KPMG and with our director of internal audit. The Audit Committee meets with our internal audit staff and KPMG, with and without management present, to discuss the overall scope and plans for their respective audits, results of their examinations, their evaluations of internal controls, including internal controls over financial reporting, and the overall quality of our financial reporting. The Audit Committee’s meetings also included reviewing our planned public disclosures of quarterly and annual financial results, including review with management and KPMG of our financial statements and management’s discussion and analysis of financial condition and results of operations disclosures in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q before filing with the SEC and of matters relating to our internal control over financial reporting and disclosure controls and procedures for such filings.

Numerous other informal meetings and communications among the Audit Committee Chair, various Audit Committee members, KPMG, the director of internal audit, the chief financial officer and the director of risk management also occurred. The agenda for each of the Audit Committee’s meetings is established by the Audit Committee Chair and the director of internal audit.

In its meetings with representatives of KPMG, the Audit Committee asked them to address, and discuss their responses to, questions relevant to the Audit Committee’s oversight. These discussions included significant accounting judgments or estimates made by management in preparing our financial statements, fair presentation to investors in the financial statements of our financial position and performance in accordance with generally accepted accounting principles and SEC disclosure requirements, and implementation of internal controls and internal audit procedures that are appropriate for the Corporation.

KPMG is responsible for expressing an opinion as to whether our consolidated financial statements are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. The Audit Committee has also discussed with KPMG the firm's assessment of our internal controls and the matters required to be disclosed by Public Company Accounting Oversight Board’s Auditing Standard No. 1301, " Communications with Audit Committees ." The Audit Committee has also received and discussed the written disclosures and the letter from KPMG required by Public Company Accounting Oversight Board Rule 3526, "Communication with Audit Committees Concerning Independence" , and has conducted a discussion with KPMG regarding its independence. In addition, the Audit Committee has received written materials addressing KPMG’s internal quality control procedures.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the board of directors (and the board approved) that the audited consolidated financial statements and management’s assessment of the effectiveness of our internal control over financial reporting be included in our Annual Report on Form 10-K for the year ended December 31, 2018 to be filed with the SEC. A copy of our Annual Report on Form 10-K is part of the Annual Report to Shareholders included with these proxy materials.

Respectfully Submitted,

 

Independent Registered Public Accounting Firm

Appointment of Independent Registered Public Accounting Firm

KPMG served as our independent registered public accounting firm for the years ended December 31, 2018 and 2017 . The Audit Committee has reappointed KPMG for the year ending December 31, 2019 . In accordance with prior practice, representatives of KPMG are expected to be present at the annual meeting of shareholders on May 7, 2019 , will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.

Fees

A summary of the fees paid and payable to KPMG for each of the two calendar years ended December 31, 2018 are as follows:

All services provided by KPMG in 2018 and 2017 were either within general pre-approved limits established by the Audit Committee or specifically approved by the Audit Committee. For additional information about the Audit Committee’s pre-approval policy, see “Board Committees–Audit Committee.”

 

Ownership of Chemical Financial Common Stock by Directors and Executive Officers

The following table sets forth information concerning the number of shares of our common stock held as of March 12, 2019 by each of our directors, each named executive officer, and all of our directors and executive officers as a group.

*Denotes less than 1% ownership.

Executive Officers

Our executive officers are appointed annually by, and serve at the pleasure of, the board of directors. Biographical information for Mr. Provost, Mr. Shafer and Mr. Torgow is included in the “Board of Directors” section of this proxy statement. The following sets forth biographical information concerning our executive officers who are not directors. Except as otherwise indicated, each executive officer has had the same principal occupation and employment during the past five years. The age of each executive officer is as of December 31, 2018 .

Gregory R. Bixby , age 53, is Executive Vice President, Chief Technology and Operations Officer, a position he was named to in January 2019. Before that, Mr. Bixby served as Executive Vice President, Chief Delivery Officer from September 2017 until December 2018. With over 30 years of experience in technology and operations, he is responsible for Information Technology, Deposit Operations, Loan Operations, Electronic Banking, Business Intelligence and the Project Management Office. Prior to joining Chemical Bank, Mr. Bixby was an executive of Sunflower Bank leading a transformational merger. From 2011 to 2016, Mr. Bixby was Executive Managing Director, Chief Information Officer for Talmer Bank and Trust. He also served as Chief Operating Officer of First Place Bank from May 2013 until February 2014, when First Place Bank was merged with and into Talmer Bank. Mr. Bixby’s previous roles included Chief Information Officer for Capitol Bancorp Ltd. from 2007 through 2011, Senior Vice President and Chief Information Officer for Republic Bancorp Inc. from 1997 through 2007, and Vice President of Information Technology for Republic Bancorp Mortgage Inc. from 1993 through 1996. Mr. Bixby is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

William C. Collins , age 66, is Executive Vice President, General Counsel and Secretary of the Corporation and Chemical Bank, a position he has held since May 16, 2011. Mr. Collins served as a partner of the law firm of Currie Kendall PLC from 1983 until 2005 and as its managing partner from 2005 until May 15, 2011. Mr. Collins is a member of the Senior Leadership Team of Chemical Bank.

Dennis L. Klaeser, age 61, is Executive Vice President and Chief Financial Officer of the Corporation and Chemical Bank and Treasurer of the Corporation, a position he has held since August 2016. Before that, Mr. Klaeser served as Chief Financial Officer and an Executive Managing Director of Talmer Bancorp, Inc. from May 2010 until Talmer Bancorp's merger with the Corporation on August 31, 2016. Mr. Klaeser also served as Chief Financial Officer and a director of First Place Bank following its acquisition by Talmer Bancorp, Inc. from January 2013 until it was merged into Talmer Bank and Trust in February 2014. Mr. Klaeser is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank. Mr. Klaeser has also served on the board of managers of InSite Capital, LLC, a wholly-owned subsidiary of the Corporation, since December 2016. Mr. Klaeser was a senior Midwest bank analyst with Raymond James from April 2009 to May 2010. From 2003 until 2009, Mr. Klaeser was Chief Financial Officer of PrivateBancorp, Inc., where he was responsible for financial and accounting functions as well as strategic planning, capital markets, SEC, regulatory and board reporting, Sarbanes-Oxley, and investor relations. From 2000 through 2002, Mr. Klaeser was Managing Director and Head of the Financial Institutions Group for Anderson Corporate Finance, a division of Arthur Andersen, where he was responsible for advising financial institutions on complex merger and acquisition transactions, restructuring, and divestures. Mr. Klaeser also spent seven years as an investment banker and was head of the Financial Institutions Group at EVEREN Securities, which was acquired by First Union Securities. Mr. Klaeser has served as Treasurer of the Chemical Bank Foundation’s Board of Trustees since May 2017. Mr. Klaeser also has served as a member of the Board of Trustees for Lawrence University of Wisconsin since November 2018.

Sandra D. Kuohn , age 54, is Executive Vice President and Chief Human Resource Officer for the Corporation and Chemical Bank. Ms. Kuohn was appointed to this position upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016. Ms. Kuohn previously served as the Chief Human Resource Officer for Talmer Bank beginning in July 2011. Prior to Talmer Bank, Ms. Kuohn spent 11 years as the Global Vice President of Human Resources for Urban Science, Inc. headquartered in Detroit, Michigan. In that capacity, she was responsible for recruiting, compensation and benefits, career development, and performance management across ten different countries around the world. Before, Ms. Kuohn owned her own consulting business for five years and started her career with Anderson Consulting in Detroit. Ms. Kuohn is a member of the Executive Board of Trustees for the CATCH charity and chairs their annual Detroit News/CATCH Outstanding Graduates program. Ms. Kuohn is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

Christopher McComish , age 54, is Executive Vice President and Chief Banking Officer of Chemical Financial and Chemical Bank, a position he has held since June 18, 2018. Mr. McComish previously served as President and Chief Executive Officer of Scottrade Bank from September 2015 to June 2018. He also served as Chief Operating Officer at BMO Harris Bank from 2008 to 2015 and served as Community Banking Executive Director with Wachovia Bank from 1987 to 2008. Mr. McComish is a member of the Executive Leadership Team and the Senior Leadership team of Chemical Bank.

Robert S. Rathbun, age 55, is Executive Vice President and Regional President of the East Region of Chemical Bank. Mr. Rathbun joined Chemical Bank in 1987, working in Corporate Loan Review and Corporate Compliance before transferring to commercial lending in 1997. In 2003, he was promoted to Senior Vice President, Commercial Lending and in 2007 was named Community President of the Midland Community Bank and Senior Lender for the Owosso, Clare and Midland Community Banks. Mr. Rathbun served as Regional President of the East Region of Chemical Bank from May 2012 to April 19, 2015 and was re-appointed to that position on November 13, 2017. Mr. Rathbun served as Executive Vice President and Chief Operating Officer - Customer Experience from April 20, 2015, until November 13, 2017. Mr. Rathbun was appointed to the board of managers of InSite Capital, LLC, a wholly-owned subsidiary of the Corporation, on May 31, 2015. Mr. Rathbun is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank. Mr. Rathbun served as a Vice President of the Chemical Bank Foundation’s Board of Trustees from January 2013 until August 2017.

Timothy D. Regan , age 57, is Executive Vice President and Chief Risk Officer of the Corporation and Chemical Bank, a position he has held since August 2017. Mr. Regan previously served as the Director of Business Risk for the Corporation upon completion of our merger with Talmer Bancorp, Inc. on August 31, 2016, and served as the Chief Risk Officer of Talmer Bank and Trust from May 2015 until August 2016. Before that, Mr. Regan served as the Director of Enterprise Risk from April 2013 until May 2015 and as Director of Internal Audit and Enterprise Risk from 2010 until April 2013 of Talmer Bank and Trust. He has over 35 years of financial institution experience, including as Corporate Secretary, Director, Controller, Chief Financial Officer, General Auditor and Enterprise Risk Officer. Mr. Regan previously served as a member of Trustees of Port Huron Hospital and is currently a member of the McLaren - Port Huron Hospital’s Audit Committee. Mr. Regan is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

J. Brennan Ryan , age 49, is Executive Vice President and Chief Operating Officer of the Corporation and Chemical Bank, a position he has held since July 9, 2018. Mr. Ryan previously served as a partner at Nelson Mullins Riley & Scarborough LLP, a 600+ attorney law firm with offices across the United States, where he helped lead the firm’s services in financial institution activities, mergers and acquisitions, public and private capital financings, and multi-company acquisition strategies for large corporate entities. Mr. Ryan is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

Daniel W. Terpsma , age 64, is Executive Vice President of Commercial Lending of Chemical Bank, a position he has held since September 14, 2015. Mr. Terpsma previously served Chemical Bank as Managing Director - Strategic Growth from November 1, 2014 until September 13, 2015. Before that, Mr. Terpsma served as President and Chief Executive Officer of Northwestern Bank from 2013 until it was acquired by the Corporation on October 31, 2014. Mr. Terpsma previously held management positions with Old Kent Financial Corporation, LaSalle Bank/ABN Amro Corporation, Bank of America Corporation and Westwater Group. Mr. Terpsma is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

James E. Tomczyk , age 67, is Executive Vice President and Chief Credit Officer of Chemical Bank, a position he has held since January 2006. Mr. Tomczyk joined Shoreline Bank in February 1999 as Executive Vice President of its Private Banking, Trust and Investment divisions and became Senior Executive Vice President of these divisions in October 2000. He served as President, Chief Executive Officer and a director of Chemical Bank Shoreline (consolidated into Chemical Bank) from January 2002 until December 31, 2005. Mr. Tomczyk was appointed to the board of managers of InSite Capital, LLC, a wholly-owned subsidiary of the Corporation, on May 31, 2015. Mr. Tomczyk is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

Kathleen S. Wendt , age 45, is Executive Vice President and Deputy Chief Financial Officer of the Corporation and Chemical Bank, a position she has held since July 2018. Ms. Wendt previously served as Executive Vice President and Chief Accounting Officer, a position she held since October 2017. On February 27, 2018, our board appointed Ms. Wendt to serve as our principal accounting officer. Ms. Wendt served as Chief Accounting Officer and an Executive Managing Director of Talmer Bancorp, Inc. from June 2011 until its merger with the Corporation on August 31, 2016. She served as First Senior Vice President and Chief Accounting Officer of Chemical Bank following the merger with Talmer Bancorp, Inc. until March 2017. Ms. Wendt is a certified public accountant with experience in financial reporting, accounting policy and the management of controls over financial reporting.  Ms. Wendt served in a number of positions with Comerica Incorporated, a financial institution with more than $60 billion in total assets, from May 2003 until June 2011, including Senior Vice President, Director of External Reporting and Senior Vice President, Director of Accounting Policy and Financial Procedures and Controls. Before that, Ms. Wendt served as an Assurance Manager at PricewaterhouseCoopers located in Chicago, Illinois and Zurich, Switzerland. Ms. Wendt is a member of the Executive Leadership Team and the Senior Leadership Team of Chemical Bank.

Compensation and Pension Committee Report

In fulfilling its oversight responsibilities, the Compensation and Pension Committee (“Compensation Committee”) reviewed and discussed with management the Compensation Discussion and Analysis required by SEC Regulation S-K Item 402(b). Based on this review and discussion, the Compensation Committee recommended to the board of directors (and the board approved) that the Compensation Discussion and Analysis be included in this proxy statement for our 2019 Annual Meeting of Shareholders and Annual Report on Form 10-K for the year ended December 31, 2018 .

Respectfully Submitted,

Compensation and Pension Committee Interlocks and Insider Participation

During 2018, the Compensation Committee was composed of Mr. Weiss (Chair), Mr. Fitterling, Mr. Klein, Ms. Mahone and Mr. Wheatlake. None of these members were, during the last fiscal year, an officer or employee of the Corporation or formerly an officer of the Corporation. None of our executive officers served as a member of a compensation committee (or board committee performing a similar function) of another entity, or served as a director of another entity, for which any executive officer of these entities served as a member of the Compensation Committee or as a director of the Corporation.

Executive Compensation

In this section, we sometimes refer to the Compensation and Pension Committee as the “Committee.”

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes our compensation programs, our underlying compensation philosophy and the fundamental elements of the compensation paid to our named executive officers, whose 2018 compensation information is provided in the tables following this discussion. In this proxy statement, our “named executive officers” are the individuals who served as our principal executive officer, our principal financial officer and our three other most highly compensated executive officers in 2018, as set forth in the following table.

2018 Financial Highlights

In 2018, we emphasized our “Big Four Initiative,” which represented our top four initiatives for 2018:

We implemented these initiatives by:

We produced solid earnings and balance sheet growth in 2018, and reinvested a portion of our cost savings from our 2017 restructuring efforts into enhancements in our core operating systems and the hiring of commercial lenders and other key operational staff, all while maintaining a strong efficiency ratio.

Key performance highlights during the year included:

Continued Net Income Growth

Our net income was $284.0 million in 2018, representing an increase of 90.0% over 2017 and 162.9% over 2016. Our 2018 annual incentive plan included a corporate performance metric based on our adjusted core net income, which was earned at 142.9% of target based on our 2018 adjusted core net income of $276.9 million. See the “Elements of Compensation - Annual Cash Incentive Plan ” section of this CD&A for additional information about our adjusted core net income.

Efficiency Ratio

Our efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. Our efficiency ratio was 54.3% for 2018, 60.1% for 2017 and 67.2% for 2016. Our 2018 annual incentive plan included a corporate performance metric based on our adjusted efficiency ratio, which was achieved at 100% of target based on an adjusted efficiency ratio of 52%. See the “Elements of Compensation - Annual Cash Incentive Plan ” section of this CD&A for additional information about our adjusted efficiency ratio.

Strong Loan and Deposit Growth

We experienced organic loan growth of $2.10 billion for 2018, compared to 2017, partially offset by run-off in our acquired loan portfolio of $982.8 million. Our total loans were $15.3 billion at December 31, 2018, an increase of $1.11 billion, or 7.9%, from total loans of $14.2 billion at December 31, 2017. When considering growth, we consider the highest quality loan growth for us to be in commercial and industrial loans and in owner-occupied commercial real estate, which contributed $616.9 million and $246.0 million, respectively, of our loan growth for 2018. Together, these two loan categories were responsible for 77.4% of our loan growth during 2018.

We grew our total deposits by $1.95 billion, or 14.3%, to $15.59 billion for 2018, compared to total deposits for 2017 of $13.64 billion. While competition for deposits remained strong throughout our markets during 2018 and 2017, our efforts to expand deposit relationships with existing and new customers, our financial strength and a general trend in customers holding more liquid assets have resulted in continuing increases in customer deposits.

Total Shareholder Return

We believe that our total shareholder return, as measured over the long-term, is a valuable and useful tool in gauging company performance and executive compensation alignment with that performance. We also recognize that proxy advisory firms use total shareholder return to assist in their determination of executive pay alignment over one- and three-year periods. We believe using metrics at specific points in time may result in misleading conclusions when taken out of context or without an understanding of the dynamics driving the results. Beginning in the fourth quarter of 2018, amid concerns over the health of the broader economy, bank stocks in addition to the S&P 500 index as a whole, including our company and many of our peer banks, experienced erosion in stock price and market capitalization. As a result of this recent market volatility, our one-year total shareholder return decreased from December 31, 2017 to December 31, 2018, although our total shareholder return over the one-year period continued to compare favorably to the KBW NASDAQ Regional Banking Index.

Source: S&P Global Market Intelligence

The relative total shareholder return on a $100 investment in our common stock compared to other indices on December, 31 2013 (assuming all dividends are reinvested) is shown below:

		December 31,
		2013				2014				2015				2016				2017				2018
Chemical Financial Corporation		$	100			$	99.92			$	115.31			$	186.87			$	188.56			$	132.21
KBW NASDAQ Regional Banking Index		100				102.42				108.48				150.80				153.45				126.59
S&P 500 Stock Index		100				113.69				115.26				129.05				157.22				150.33

Both of the indices in the table above are based upon total return (including reinvestment of dividends) and are market-capitalization-weighted indices. The S&P 500 Stock Index is a broad equity market index published by S&P. The KBW NASDAQ Regional Banking Index is published by Keefe, Bruyette & Woods, Inc. (KBW), an investment banking firm that specializes in the banking industry. The KBW NASDAQ Regional Banking Index is composed of 50 small and mid-cap U.S. regional banks or thrifts whose shares are publicly traded.

Note: Historical performance information is not a guarantee of future performance.

Overview of Key Events and Named Executive Officer Compensation for 2018

Below we have summarized key events and compensation decisions regarding our named executive officers that the Committee made regarding 2018 compensation.

Annual Incentive Plan and Metrics

Long-Term Equity Incentive Awards and Metrics

  

New Employment Agreements

Hiring of J. Brennan Ryan as Chief Operating Officer

Overview of Our Executive Compensation Program

Our executive compensation program is aligned with our growth-oriented business strategy and is designed to drive short- and medium-term performance results as well as long-term, shareholder value creation. We provide pay packages to our executives that are intended to compensate fairly, attract the best leaders in the banking industry, and engage and motivate them to deliver strong results.

The Compensation Committee considers peer group market data and the advice of its independent consultant when establishing compensation packages for executives or making decisions related to incentive plan design. We seek to create and annually calibrate an appropriate mix of cash and non-cash compensation, short and long-term incentives, and fixed and at-risk compensation to balance internal priorities with shareholder expectations, short-term results with long-term vision and stability with innovation. The Compensation Committee believes that performance expectations should be clearly articulated and directly tied to compensation outcomes. Our executive pay program consists of three major elements and a number of practices explicitly designed to promote good governance. Each component helps us attract and retain high-performing executives. In addition, these compensation elements have the objectives described below:

Objectives and Philosophy

Our philosophy on executive compensation is to align the interests of our executive management with the interests of our shareholders and to ensure that the total compensation paid to our executive officers is reasonable, motivating and competitive. We also recognize the need to differentiate compensation by individual, reflecting on his or her role, experience, performance, and expected contributions.

2018 Say-on-Pay Vote Results

At our 2018 annual meeting of shareholders, approximately 96% of the votes cast on the Say-on-Pay proposal were in favor of approving the resolution. The Compensation Committee considers the results of this advisory resolution when evaluating and establishing our executive compensation programs. The Compensation Committee believes that these voting results reflect strong confidence in our board to exercise good judgment in structuring a thoughtful executive compensation program that benefits our shareholders. The Compensation Committee intends to continuously improve our executive compensation arrangements and programs to meet evolving business conditions, address retention concerns and ensure consistent alignment with shareholder interests.

Compensation Decision-Making Process

Role of the Compensation and Pension Committee

The Compensation Committee assists the board of directors in discharging its responsibilities relating to executive compensation and in fulfilling its responsibilities relating to our compensation and benefit programs and policies. Under the Compensation and Pension Committee Charter, the Committee is responsible for reviewing and approving total compensation, including base salary, bonus, annual cash incentive awards, long-term incentive awards, benefits and other compensation of our Chief Executive Officer and all other executive officers of the Corporation. The Committee also is also responsible for, among other things:

The Committee currently consists of five directors, all of whom are independent under NASDAQ listing rules.

Role of Leadership

The Committee, along with the entire board of directors, believes that an empowered leadership team is critical to our ability to respond efficiently and successfully to important business issues. As such, the Committee has delegated limited reasonable authority for certain decisions and activities, as permitted by the Compensation Committee Charter, to the Chief Executive Officer, the Vice Chair, President and Chief Executive Officer of Chemical Bank, and other members of our executive leadership team. In that regard, the Committee has delegated to certain executive officers, by means of our Equity Grant Delegation Policy, the authority to award a limited number of TRSUs to employees who are not executive officers as defined by Rule 3b-7 under the Securities Exchange Act of 1934.

The Committee calls upon our executive leadership team from time to time to support the Committee in the fulfillment of its duties. Executive leadership provides recommendations related to a number of matters that are subject to the Committee’s review and approval, including the compensation of executive officers other than the Chief Executive Officer, the design of our incentive plans and the financial goals on which these incentive plans are based. The Committee retains absolute discretion in determining whether to approve recommendations made by our executive leadership.

Role of Compensation Consultants

From 2011 until September 2018, the Committee engaged Aon Hewitt, which we refer to as Aon, to serve as independent compensation consultant to advise the Committee on matters related to executive and director compensation. Specifically, Aon assisted the Committee in the design of the Chemical Financial Corporation Executive Annual Incentive Plan adopted in February 2018. Aon also helped the Committee select performance objectives under the plan and gave the Committee an analysis of compensation practices of peer companies so the Committee could analyze how our programs fit within industry standards.

In September 2018, the Committee concluded its relationship with Aon and engaged Pay Governance LLC to serve as independent compensation consultant. In its role, Pay Governance has consulted with the Committee and has provided information on peer group selection, market analysis for executive compensation, and has reviewed our incentive plans.

The Committee conducted a review of its relationships with Aon and Pay Governance in 2018 and determined that their work did not create any conflicts of interest. The Compensation Committee also determined that both Aon and Pay Governance are independent under the criteria included in NASDAQ listing standards.

Compensation Risk Assessment

The Committee annually evaluates our compensation programs to assess whether our programs, by design or administrative process, would facilitate or encourage excessive risk-taking by executives or other employees. In 2018, the Committee reviewed our compensation programs, including an internal risk assessment, and concluded that our compensation programs are not reasonably likely to have a material adverse effect on the Corporation. With respect to our executive compensation programs specifically, the Committee based its conclusion, in part, on the fact that our programs contain the following design elements:

Additional best practices we employ to mitigate executive compensation risk include: an anti-hedging policy, multi-year vesting of equity awards, a formal clawback policy and double-trigger change of control arrangements.

Competitive Market Analysis

Our Committee compares our executive compensation levels and programs to a group of like peer companies with whom we compete for talent. The Committee reviews peer group market data and practices at least annually, and evaluates it as one important reference point when making decisions. The Committee meets at least once annually in executive session to review market assessments provided by its independent consultant for Mr. Torgow, Mr. Provost and Mr. Shafer. The Committee also reviews

market assessments for our other executive officers, and in conjunction with Mr. Shafer’s recommendations, makes appropriate adjustments to their compensation, as needed.

As we evolve, we continue to revisit and refine our peer group, as needed. To select peers for 2018, we worked with Aon to consider regional banks or chartered thrifts that generally fit within the following criteria:

    

Elements of Compensation

The compensation of our named executive officers primarily consists of base salary, annual incentive awards and annual grants of equity awards. The amount and mix of these elements are individually calibrated to each executive based on his or her level of responsibility and expected effect on our results. Executives also participate in our retirement plans, and may receive discretionary awards to recognize extraordinary performance as approved by the Committee. Each component of compensation is intended to accomplish one or more of the compensation objectives discussed earlier.

Base Salary

Annual base salaries are established to provide fair and competitive levels of compensation and to attract and retain executives with exceptional abilities and talent. In 2018, we entered into new employment agreements with each of our named executive officers. Each of these employment agreements set the officer’s base salary, subject to annual review by the Committee. When determining the base salaries under each executive’s new employment agreement, the Committee considered a variety of factors for each executive, including:

The Committee also considered current competitive practices of companies in our peer group, the Committee’s philosophy of paying salaries that are competitive with organizations of comparable size and complexity, and the recommendations of our Chief Executive Officer and the Vice Chairman, President and Chief Executive Officer of Chemical Bank (for executives other than themselves). After considering all of these factors, the Committee determined that the employment agreement with each of Mr. Provost, Mr. Torgow, Mr. Klaeser, Mr. Shafer and Mr. Ryan provided an annual base salary at a level that the Committee considered reasonable, appropriate and in the best interest of the Corporation and our shareholders.

The following table details the base annual salary of our named executive officers under their employment agreements as in effect for the periods presented. See “ Summary Compensation Table and Grants of Plan-Based Awards Table - Summary Compensation Table ” below for the actual salary paid to each of our named executive officers for the 2017 and 2018 fiscal years.

Annual Cash Incentive Plan

We provide an annual cash-based incentive plan in which our executive officers participate because we believe it is a critical tool for:

On February 27, 2018, based on the recommendation of the Committee, our board of directors approved the Chemical Financial Corporation Executive Annual Incentive Plan, which we refer to as the annual incentive plan. Under the annual incentive plan, each year, the Committee selects eligible executives who will participate in the plan and sets the amount of each participant’s threshold, target and maximum award that can be awarded under the annual incentive plan, determined as a percentage of the participant’s base salary. The Committee also establishes one or more performance measures and a formula to determine the amount of the award that will be earned at different levels of achievement of the performance measures. For 2018, the Committee set the potential incentive payment, expressed as a percentage of base salary, as follows.

Mr. Ryan was hired in July 2018 and therefore did not participate in the annual incentive plan. Under his employment agreement, he was entitled to a guaranteed incentive payment of $520,000 in 2018.

2018 Performance Metrics

Under the annual incentive plan, the Committee is responsible for establishing the corporate and individual performance measures that, when compared to actual results, determine the amount of payout that is earned with respect to the plan. In setting these goals, the Committee considers a number of factors, including our annual budget, our short- and long-term business strategy, investor performance expectations, and guidance provided by our executive leadership team. In the first quarter of 2018, the Committee determined that the performance measures under the annual incentive plan for each named executive officer would consist of corporate financial metrics weighted at 80% and individual performance metrics weighted at 20%.

The 2018 corporate financial metrics, weighted at 80%, were (a) adjusted core net income, and (b) adjusted efficiency ratio. The Committee believes these metrics reflect the most reliable, comprehensive financial indicators of our performance relative to our key 2018 strategic priorities of increasing profitable loan growth and improving our operating efficiency.

The target corporate financial goals were set at challenging levels representing significant growth and improvement over 2017, and generally corresponded to or exceeded our budgeted financial plan. In 2018, adjusted core net income replaced earnings per share as the core financial metric underlying the annual incentive plan to avoid overlap with our PRSUs granted under our long-term incentive plan.

The Committee established threshold, target and maximum performance goals for each of the two corporate financial metrics for 2018, with threshold representing the minimum level of performance for which the executive officer will earn a payment. If performance is below the threshold level for one of the corporate financial metrics, the executive officer will not earn a payment for that metric; however, the executive officer will earn a payment for the other metric if the threshold performance level is achieved. Maximum represents the maximum level of performance required to achieve the maximum (150%) payment on each of the metrics. If performance exceeds the maximum level for any corporate or individual performance metric, the executive officer will not earn a further incentive above the maximum incentive for such metric. Payments for achievement of the threshold, target and maximum goals are 50%, 100% and 150% of the target payment, respectively. Actual performance between threshold, target and maximum performance levels is interpolated linearly to determine the exact level of achievement.

The individual performance metrics, weighted at 20%, that the Committee considered were based on non-formulaic objectives, such as the implementation of actions to achieve revenue growth and profitability by attracting new customers, improving practices related to risk management, identifying potential merger and acquisition targets, engaging in leadership development, and continuing to build the Chemical brand and culture.

In addition, the Committee determined that each executive achieved his individual performance metrics at 100% of target. These performance outcomes resulted in potential incentive payments equal to 127.5% of the target incentive payment, as set forth in

the table below. While adjusted core net income and the adjusted core efficiency ratio were the chosen corporate metrics used by the Committee in determining awards under the annual incentive plan, the Committee also determined, in its exercise of negative discretion, to consider our total shareholder return. Although our total shareholder return over the preceding 5-year period was higher than the KBW NASDAQ Regional Banking Index, the stock market decline in the fourth quarter of 2018 resulted in decline in our share value at year-end. Accordingly, the Committee exercised its discretion to decrease overall incentive payments as a result of its review of our total shareholder return for 2018. As a result, the Committee determined to fund Mr. Klaeser’s and Mr. Shafer’s incentive payments at 102% of target. In addition, with respect to Mr. Provost and Mr. Torgow, as noted above, the Committee re-evaluated their participation in the annual incentive plan and determined that to more closely align their interests with those of our shareholders and to increase the retention effect of their compensation packages, the Committee would exercise its discretion not to award Mr. Provost and Mr. Torgow any cash incentives under the annual incentive plan for 2018. Instead, the Committee determined to grant to each of Mr. Provost and Mr. Torgow a supplemental equity award in February 2019 with a grant date fair value equal to approximately $950,000, which approximates the target amount Mr. Provost and Mr. Torgow would have been eligible to receive under the annual incentive plan despite corporate and individual performance earned at 127.5% of target in 2018. This supplemental equity grant consists of time-vesting restricted stock units, or TRSUs, that vest in equal annual installments over a three-year period, in each case subject to continued service through the vesting date, subject to certain exceptions.

The following table reflects amounts earned and actually paid under the annual incentive plan to those named executive officers who participated in, and received payments under, the annual incentive plan in 2018.