CHFC 2017 Annual Report

Consumer installment loans consist of relatively small loan amounts to consumers to finance personal items (primarily automobiles, recreational vehicles and marine vehicles) with the majority being indirect loans generated from dealerships. Consumer installment loans were $1.61 billion at December 31, 2017, an increase of $179.1 million, or 12.5%, from consumer installment loans of $1.43 billion at December 31, 2016. Consumer installment loans increased $556.4 million, or 63.4%, during 2016 from consumer installment loans of $877.5 million at December 31, 2015 with $158.8 million attributable to the merger with Talmer. At December 31, 2017, collateral securing consumer installment loans was comprised approximately as follows: automobiles - 59.4%; recreational vehicles - 18.1%; marine vehicles - 18.3%; other collateral - 3.4%; and unsecured - 0.8%. Consumer installment loans represented 11.4% of the loan portfolio at December 31, 2017, compared to 11.0% and 12.1% at December 31, 2016 and 2015, respectively. Home equity loans, including home equity lines of credit, are comprised of loans to consumers who utilize equity in their personal residence, including junior lien mortgages, as collateral to secure the loan or line of credit. Home equity loans were $829.2 million at December 31, 2017, a decrease of $47.0 million, or 5.4%, from home equity loans of $876.2 million at December 31, 2016. Home equity loans increased $162.3 million, or 22.7%, during 2016 from home equity loans of $713.9 million at December 31, 2015, including $212.5 million attributable to the merger with Talmer. At December 31, 2017, approximately 66.4% of our home equity loans were first lien mortgages and 33.6% were junior lien mortgages. Home equity loans represented 5.9% of the loan portfolio at December 31, 2017, compared to 6.7% and 9.8% at December 31, 2016 and 2015, respectively. Home equity lines of credit comprised $396.2 million, or 47.8%, of our home equity loans at December 31, 2017, compared to $426.5 million, or 48.7%, of home equity loans at December 31, 2016. The majority of our home equity lines of credit are comprised of loans with payments of interest only and original maturities of up to ten years. These home equity lines of credit include junior lien mortgages whereby the first lien mortgage is held by a nonaffiliated financial institution. Consumer installment and home equity loans generally have shorter terms than residential mortgage loans, but generally involve more credit risk than residential mortgage lending because of the type and nature of the collateral. We experienced net credit losses on consumer installment and home equity loans totaling 20 basis points during 2017, compared to 15 basis points during 2016. Consumer installment and home equity loans are spread across many individual borrowers, which minimizes the risk per loan transaction. We originate consumer installment and home equity loans utilizing a computer-based credit scoring analysis to supplement the underwriting process. Consumer installment and home equity lending collections are dependent on the borrowers' continuing financial stability and are more likely to be affected by adverse personal situations. Collateral values on properties securing consumer installment and home equity loans are negatively impacted by many factors, including the physical condition of the collateral and property values, although losses on consumer installment and home equity loans are often more significantly impacted by the unemployment rate and other economic conditions. The unemployment rates in Michigan, Ohio and Indiana were 4.7%, 4.7% and 3.4%, respectively, at December 31, 2017, compared to 5.0%, 4.9% and 4.0%, respectively, at December 31, 2016. The national average unemployment rate was 4.1% at December 31, 2017. 53 Asset Quality Summary of Impaired Assets and Past Due Loans A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans included nonperforming loans and all troubled debt restructurings ("TDRs"). Nonperforming assets consist of loans for which the accrual of interest has been discontinued, other real estate owned acquired through acquisitions or mergers, other real estate owned obtained through foreclosures and other repossessed assets. We do not consider accruing TDRs to be nonperforming assets. The level of nonaccrual is an important element in assessing asset quality. We transfer originated loans that are 90 days or more past due to nonaccrual status, unless we believe the loan is both well-secured and in the process of collection. For loans classified as nonaccrual, including those with modifications, we do not expect to receive all principal and interest payments, and therefore, any payments are recognized as principal reductions when received. Acquired loans, accounted for under ASC 310-30, that are not performing in accordance with contractual terms are not reported as nonperforming because these loans are recorded in pools at their net realizable value based on the principal and interest we expect to collect on these loans. Nonperforming assets were $71.9 million at December 31, 2017, an increase of $10.4 million, or 16.9%, from $61.5 million at December 31, 2016. The increase in nonperforming assets during 2017 was primarily attributable to two commercial loan credits, each greater than $5 million, added during the year, with significant collateral coverage, partially offset by a decrease in other real estate and repossessed assets. Nonperforming assets decreased $10.6 million, or 14.7%, during 2016 from $72.2 million at December 31, 2015. Nonperforming assets represented 0.37%, 0.35% and 0.79% of total assets at December 31, 2017, 2016 and 2015, respectively. Our nonperforming assets are not concentrated in any one industry or any one geographical area.