CHFC 2017 Annual Report

Other intangible assets: Other intangible assets consist of core deposit intangible assets and non-compete intangible assets. These items are recorded at fair value when initially recorded. Subsequently, core deposit intangible assets and non-compete intangible assets are amortized primarily on an accelerated basis over periods ranging from ten to fifteen years for core deposit intangible assets and 1 year for non-compete intangible assets and are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount exceeds the fair value of the asset. If core deposit intangible asset or non- compete intangible asset impairment is identified, the Corporation classifies impaired core deposit intangible assets and impaired non-compete intangible assets subject to nonrecurring fair value measurements as Level 3 valuations. At December 31, 2017 and 2016, there was no impairment identified for core deposit intangible assets or non-compete intangible assets. Loan servicing rights: Prior to January 1, 2017, LSRs originated by the Corporation and those acquired in acquisitions of other institutions prior to the merger with Talmer were accounted for under the amortization method. The fair value of these LSRs were initially estimated using a model that calculates the net present value of estimated future cash flows using various assumptions, including prepayment speeds, the discount rate and servicing costs. If the valuation model reflects a value less than the carrying value, LSRs are adjusted to fair value, as determined by the model, through a valuation allowance. The Corporation classifies the LSRs subject to nonrecurring fair value measurements as Level 3 valuations. At December 31, 2016, the Corporation recognized a valuation allowance of $8 thousand related to impairment within certain pools attributable to the Corporation's servicing portfolios. As a result, the LSRs related to these servicing portfolios were considered to be recorded at fair value on a nonrecurring basis as of December 31, 2016. Other real estate owned and repossessed assets: The carrying amounts for other real estate and repossessed assets are reported in the Consolidated Statements of Financial Position under "Interest receivable and other assets." Other real estate and repossessed assets include real estate and other types of assets repossessed by the Corporation. Other real estate and repossessed assets are recorded at the lower of cost or fair value upon the transfer of a loan to other real estate and repossessed assets and, subsequently, continue to be measured and carried at the lower of cost or fair value. Fair value is based upon independent market prices, appraised values of the property or management's estimation of the value of the property. The Corporation records other real estate and repossessed assets as Level 3 valuations as management generally determines that the fair value of the property is impaired below the appraised value.Whenmanagement determines the fair value of the property is further impaired belowappraised value, discounts ranging between 20% and 30% of the appraised value are used depending on the nature of the property and the age of the most recent appraisal. Disclosure of Nonrecurring Basis Fair Value Measurements For assets measured at fair value on a nonrecurring basis, quantitative disclosures about fair value measurements for each major category of assets follow: (Dollars in thousands) Significant Unobservable Inputs (Level 3) Total December 31, 2017 Impaired loans $ 70,619 $ 70,619 Other real estate and repossessed assets 2,899 2,899 Total $ 73,518 $ 73,518 December 31, 2016 Impaired loans $ 62,184 $ 62,184 Other real estate and repossessed assets 1,386 1,386 Loan servicing rights 2 2 Total $ 63,572 $ 63,572 There were no liabilities recorded at fair value on a nonrecurring basis at December 31, 2017 and 2016. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 106