CHFC 2017 Annual Report

its risk management interest rate swaps designated as cash flow hedges and customer-initiated derivatives valuations in Level 2 of the fair value hierarchy. Foreign exchange forward and option contracts are entered into primarily to accommodate the needs of the customer. These derivatives are not designated as hedging. Fair value of foreign exchange forward and option contracts are measured on a recurring basis using third partymodels that use primarilymarket observable inputs, such as yield curves and option volatilities. The Corporation classifies its foreign exchange forward and option contracts in Level 2 of the fair value hierarchy. Written and purchased option derivatives consist of instruments to facilitate an equity-linked time deposit product (the "Power Equity CD"). The Power Equity CD is a time deposit that provides the purchaser a guaranteed return of principal at maturity plus a potential equity return, while the Corporation receives a known stream of funds based on equity returns. The written and purchased options are mirror derivative instruments which are carried at fair value on the Consolidated Statements of Financial Position. Fair value measurements for the Power Equity CD are determined using quoted prices of underlying stocks, along with other terms and features of the derivative instrument. As a result, the Power Equity CD derivatives are classified as Level 2 valuations. Disclosure of Recurring Basis Fair Value Measurements For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements for each major category of assets and liabilities follow: (Dollars in thousands) Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total December 31, 2017 Investment securities — available-for-sale: Government sponsored agencies $ — $ 202,916 $ — $ 202,916 State and political subdivisions — 345,970 — 345,970 Mortgage-backed securities — 150,131 — 150,131 Collateralized mortgage obligations — 1,033,845 — 1,033,845 Corporate bonds — 192,794 — 192,794 Preferred stock and trust preferred securities — 37,890 — 37,890 Total investment securities — available-for-sale — 1,963,546 — 1,963,546 Loans held-for-sale — 52,133 — 52,133 Loan servicing rights — — 63,841 63,841 Derivative assets: Customer-initiated derivatives — 9,376 — 9,376 Interest rate lock commitments — 1,222 — 1,222 Power Equity CD — 2,184 — 2,184 Risk management derivatives — 5,899 — 5,899 Total derivatives — 18,681 — 18,681 Total assets at fair value $ — $ 2,034,360 $ 63,841 $ 2,098,201 Derivative liabilities: Customer-initiated derivatives $ — $ 10,139 $ — $ 10,139 Forward contracts related to mortgage loans to be delivered for sale — 34 — 34 Power Equity CD — 2,184 — 2,184 Total derivatives — 12,357 — 12,357 Total liabilities at fair value $ — $ 12,357 $ — $ 12,357 Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 103