CHFC 2017 Annual Report

credit evaluation of the counterparty. The collateral held varies, but may include securities, real estate, accounts receivable, inventory, plant or equipment. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are included in commitments to extend credit. These lines of credit are generally not collateralized, usually do not contain a specified maturity date and may be drawn upon only to the total extent to which the Corporation is committed. At December 31, 2017 and 2016, the Corporation had $3.03 billion and $2.70 billion, respectively, of commitments to extend credit. The Corporation had undisbursed loan commitments of $571.0 million and $578.2 million at December 31, 2017 and 2016, respectively. Undisbursed loan commitments are not included in loans on the Consolidated Statements of Financial Position. The majority of undisbursed loan commitments will be funded and convert to a portfolio loan within a one year period. The allowance for credit losses on lending-related commitments included $1.2 million and $1.3 million at December 31, 2017 and 2016, respectively, for probable credit losses inherent in the Corporation's unused commitments and was recorded in "Interest payable and other liabilities" in the Consolidated Statements of Financial Position. Contingencies and Guarantees The Corporation has originated and sold certain loans, and additionally acquired the potential liability for those historical originated and sold loans by Talmer, for which the buyer has limited recourse to us in the event the loans do not perform as specified in the agreements. These loans had an outstanding balance of $13.3 million and $16.9 million at December 31, 2017 and 2016, respectively. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of nonperformance by the borrower totaled $12.8 million and $16.1 million at December 31, 2017 and 2016, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At both December 31, 2017 and 2016, the Corporation had recorded a liability of $0.2 million, in connection with the recourse agreements, recorded in "Interest payable and other liabilities" in the Consolidated Statements of Financial Position. Representations and Warranties In connection with the Corporation's mortgage banking loan sales, and the historical sales of merged or acquired entities, the Corporation makes certain representations and warranties that the loans meet certain criteria, such as collateral type and underwriting standards. The Corporation may be required to repurchase individual loans and/or indemnify the purchaser against losses if the loan fails to meet established criteria.At December 31, 2017 and 2016, respectively, the liability recorded in connection with these representations and warranties totaled $5.3 million and $6.5 million, respectively. A summary of the reserve for representations and warranties of the Corporation is as follows: For the years ended December 31, (Dollars in thousands) 2017 2016 2015 Reserve balance at beginning of period $ 6,459 $ 4,048 $ 3,000 Addition of fair value of representations and warranties due to mergers and acquisitions — 3,100 1,712 Reserve reduction (1,095) (580) — Charge-offs (15) (109) (664) Ending reserve balance $ 5,349 $ 6,459 $ 4,048 Reserve balance: Liability for specific claims 531 730 — General allowance 4,818 5,729 4,048 Total reserve balance $ 5,349 $ 6,459 $ 4,048 Operating Leases and Other Noncancelable Contractual Obligations The Corporation has operating leases and other noncancelable contractual obligations on buildings, equipment, computer software and other expenses that will require annual payments through 2034, including renewal option periods for those building leases that the Corporation expects to renew. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2017 135