CHFC 2017 Annual Report

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position. As of December 31, 2017, the Corporation's securities portfolio consisted of 2,329 securities, 1,518 of which were in an unrealized loss position. Less Than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2017 Government sponsored agencies $ 63,818 $ 510 $ 24,621 $ 438 $ 88,439 $ 948 State and political subdivisions 437,407 12,268 349,242 10,093 786,649 22,361 Residential mortgage-backed securities 93,508 383 56,576 1,243 150,084 1,626 Collateralized mortgage obligations 713,525 7,235 73,707 1,249 787,232 8,484 Corporate bonds 71,447 1,138 47,878 454 119,325 1,592 Preferred stock and trust preferred securities — — 11,164 172 11,164 172 Total $1,379,705 $ 21,534 $ 563,188 $ 13,649 $1,942,893 $ 35,183 December 31, 2016 Government sponsored agencies $ 105,702 $ 1,707 $ 15,023 $ 361 $ 120,725 $ 2,068 State and political subdivisions 758,063 28,158 26,810 975 784,873 29,133 Residential mortgage-backed securities 244,239 3,992 — — 244,239 3,992 Collateralized mortgage obligations 279,001 3,778 14,754 225 293,755 4,003 Corporate bonds 80,536 1,401 — — 80,536 1,401 Preferred stock and trust preferred securities 10,699 80 310 190 11,009 270 Total $1,478,240 $ 39,116 $ 56,897 $ 1,751 $1,535,137 $ 40,867 An assessment is performed quarterly by theCorporation to determinewhether unrealized losses in its investment securities portfolio are temporary or other-than-temporary by carefully considering all reasonably available information. The Corporation reviews factors such as financial statements, credit ratings, news releases and other pertinent information of the underlying issuer or company to make its determination. Management did not believe any individual unrealized loss on any investment security at December 31, 2017, represented an other-than-temporary impairment (OTTI) as the unrealized losses for these securities resulted primarily from changes in benchmark U.S. Treasury interest rates and not credit issues. Management believed that the unrealized losses on investment securities at December 31, 2017 were temporary in nature and due primarily to changes in interest rates and reduced market liquidity and not as a result of credit-related issues. At December 31, 2017, the Corporation did not have the intent to sell any of its impaired investment securities and believed that it was more-likely-than-not that the Corporation will not have to sell any such investment securities before a full recovery of amortized cost. Accordingly, at December 31, 2017, the Corporation believed the impairments in its investment securities portfolio were temporary in nature. However, there is no assurance that OTTI may not occur in the future. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 111 Note 5: Loans Loan portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its allowance. The Corporation has two loan portfolio segments (commercial loans and consumer loans) that it uses in determining the allowance. Both quantitative and qualitative factors are used by management at the loan portfolio segment level in determining the adequacy of the allowance for the Corporation. Classes of loans are a disaggregation of an entity's loan portfolio segments. Classes of loans are defined as a group of loans which share similar initial measurement attributes, risk characteristics and methods for monitoring and assessing credit risk. The Corporation has six classes of loans, which are set forth below.