CHFC 2017 Annual Report

Activity for the accretable yield is as follows: (Dollars in thousands) Talmer Lake Michigan Monarch North- western OAK Total Year Ended December 31, 2017 Balance at beginning of period $ 798,210 $ 121,416 $ 27,182 $ 69,847 $ 23,316 $1,039,971 Accretion recognized in interest income (175,678) (29,077) (4,533) (20,318) (12,563) (242,169) Net reclassification (to) from nonaccretable difference (1) 108,821 2,785 (153) 11,285 6,357 129,095 Balance at end of period $ 731,353 $ 95,124 $ 22,496 $ 60,814 $ 17,110 $ 926,897 Year Ended December 31, 2016 Balance at beginning of period $ — $ 152,999 $ 34,558 $ 82,623 $ 28,077 $ 298,257 Addition attributable to acquisitions 862,127 — — — — 862,127 Additions (reductions) (1) — (3,552) (1,908) (6,985) 1,091 (11,354) Accretion recognized in interest income (63,917) (33,031) (5,468) (15,791) (13,352) (131,559) Net reclassification (to) from nonaccretable difference (1) — 5,000 — 10,000 7,500 22,500 Balance at end of period $ 798,210 $ 121,416 $ 27,182 $ 69,847 $ 23,316 $1,039,971 Year Ended December 31, 2015 Balance at beginning of period $ — $ — $ — $ 104,675 $ 33,286 $ 137,961 Addition attributable to acquisitions — 190,246 37,914 — — 228,160 Additions (reductions) (1) — (12,991) 1,336 (3,396) 6,601 (8,450) Accretion recognized in interest income — (24,256) (4,692) (18,656) (11,810) (59,414) Net reclassification (to) from nonaccretable difference (1) — — — — — — Balance at end of period $ — $ 152,999 $ 34,558 $ 82,623 $ 28,077 $ 298,257 (1) The net reclassification results from changes in expected cash flows of the acquired loans which may include increases in the amount of contractual principal and interest expected to be collected due to improvement in credit quality, increases in balances outstanding from advances, renewals, extensions and interest rates; as well as reductions in contractual principal and interest expected to be collected due to credit deterioration, payoffs, and decreases in interest rates. Chemical Bank has extended loans to its directors, executive officers and their affiliates. These loans were made in the ordinary course of business upon normal terms, including collateralization and interest rates prevailing at the time, and did not involve more than the normal risk of repayment by the borrower. The aggregate loans outstanding to the directors, executive officers and their affiliates totaled $3.8 million at December 31, 2017 and $23.9 million at December 31, 2016. During 2017 and 2016, there were $44.1 million and $33.8 million, respectively, of new loans and other additions, while repayments and other reductions totaled $64.2 million and $31.6 million, respectively. Loans held-for-sale, comprised of fixed-rate residential mortgage loans, were $52.1 million at December 31, 2017 and $81.8 million at December 31, 2016. The Corporation sold loans totaling $806.8 million in 2017, $707.8 million in 2016 and $222.6 million in 2015. Credit Quality Monitoring The Corporation maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally only within the Corporation's market areas. The Corporation's lending markets generally consist of communities throughout Michigan and additional communities located within northwest Ohio and northern Indiana. The Corporation, through Chemical Bank, has a commercial loan portfolio approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Corporation's commercial loan portfolio are risk rated at origination based on the grading system set forth below. The approval authority of relationship managers is established based on experience levels, with credit decisions greater than $1.25 million requiring credit officer approval and credit decisions greater than $3.0 million requiring group loan authority approval, except for Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 114