CHFC 2018 Annual Report

Income and expenses related to other real estate owned and repossessed assets, recorded as a component of "Other" operating expenses in the Consolidated Statements of Income, were as follows: (Dollars in thousands) Other real estate owned Repossessed assets For the year ended December 31, 2018 Net gain (loss) on sale $ 1,372 $ (309) Write-downs (1,266) — Net operating expenses (858) (5) Total $ (752) $ (314) For the year ended December 31, 2017 Net gain (loss) on sale $ 3,038 $ (381) Write-downs (1,640) — Net operating expenses (1,981) (41) Total $ (583) $ (422) For the year ended December 31, 2016 Net gain on sale $ 5,325 $ 523 Write-downs (636) — Net operating expenses (740) (60) Total $ 3,949 $ 463 Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 133 Note 8: Goodwill Goodwill was $1.13 billion at both December 31, 2018 and 2017. The difference between consideration paid for the business and the net fair value of assets and liabilities is recognized as goodwill. The Corporation recorded goodwill in the amount of $847.7 million related to the merger with Talmer completed on August 31, 2016. Goodwill is not amortized but is subject to impairment testing annually as of October 31 and on an interim basis if events or changes in circumstances indicate assets might be impaired. Impairment exists when the carrying value of goodwill exceeds its fair value. The Corporation’s most recent annual goodwill impairment review performed as of October 31, 2018 did not indicate that an impairment of goodwill existed. The Corporation also determined that no triggering events have occurred that indicated impairment from the most recent valuation date through December 31, 2018 and that the Corporation's goodwill was not impaired at December 31, 2018. Note 9: Loan Servicing Rights LSRs are created as a result of selling residential mortgage and commercial real estate loans in the secondary market while retaining the right to service these loans and receive servicing income over the life of the loan, and from acquisitions of other banks that had LSRs. Loans serviced for others are not reported as assets in the Consolidated Statements of Financial Position. The Corporation elected to account for LSRs acquired related to the merger with Talmer under the fair value measurement method. Prior to January 1, 2017, the Corporation accounted for all other LSRs at the lower of cost or fair value ("Amortized LSRs"). The Corporation elected as of January 1, 2017 to account for all previously amortized LSRs and all other LSRs under the fair value measurement method. This change in accounting policy resulted in a cumulative adjustment to retained earnings as of January 1, 2017 in the amount of $3.7 million. For further information on this election, refer to Note 1, Summary of Significant Accounting Policies.