CHFC 2017 Annual Report

The following table presents the notional amount and fair value of the Corporation’s derivative instruments held or issued in connection with customer-initiated and mortgage banking activities. December 31, 2017 2016 Fair Value Fair Value (Dollars in thousands) Notional Amount (1) Gross Derivative Assets (2) Gross Derivative Liabilities (2) Notional Amount (1) Gross Derivative Assets (2) Gross Derivative Liabilities (2) Risk management purposes: Derivatives designated as hedging instruments: Interest rate swaps $ 620,000 $ 5,899 $ — $ — $ — $ — Total risk management purposes 620,000 5,899 — — — — Customer-initiated and mortgage banking derivatives: Customer-initiated derivatives 1,365,119 9,376 10,139 600,598 4,406 4,141 Foreign exchange forwards (3) — — — — — — Forward contracts related to mortgage loans to be delivered for sale 115,996 — 34 140,155 635 — Interest rate lock commitments 71,003 1,222 — 76,034 956 — Power Equity CD 38,807 2,184 2,184 36,807 2,218 2,218 Total customer-initiated and mortgage banking derivatives 1,590,925 12,782 12,357 853,594 8,215 6,359 Total gross derivatives $ 2,210,925 $ 18,681 $ 12,357 $ 853,594 $ 8,215 $ 6,359 (1) Notional or contract amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Statements of Financial Position. (2) Derivative assets are included within "Interest receivable and other assets" and derivative liabilities are included within "Interest Payable and other liabilities" on the Consolidated Statements of Financial Position. Included in the fair value of the derivative assets are credit valuation adjustments for counterparty credit risk totaling $809 thousand at December 31, 2017 and $99 thousand at December 31, 2016. (3) The foreign exchange forwards that were entered into during the year ended December 31, 2017 had matured as of December 31, 2017. In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in "Net gain (loss) on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income and is considered a cost of executing a forward contract. The following table presents the net gains (losses) related to derivative instruments reflecting the changes in fair value. the years ended December 31, (Dollars in thousands) Location of Gain (Loss) 2017 2016 2015 Forward contracts related to mortgage loans to be delivered for sale Net gain (loss) on sale of loans and other mortgage banking revenue $ (669) $ 692 $ 193 Interest rate lock commitments Net gain (loss) on sale of loans and other mortgage banking revenue 266 (1,356) (132) Customer-initiated derivatives Other noninterest income (1,028) 581 — Total gain (loss) recognized in income $ (1,431) $ (83) $ 61 Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 132