CHFC 2018 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, 2018 2017 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 $ 820,000 $ 10,148 $ 3,278 $ 620,000 $ 5,899 $ — Total risk management purposes 820,000 10,148 3,278 620,000 5,899 — Customer-initiated and mortgage banking derivatives: Customer-initiated derivatives 2,477,640 26,680 27,664 1,365,119 9,376 10,139 Foreign exchange forwards (3) — — — — — — Forward contracts related to mortgage loans to be delivered for sale 127,159 — 719 115,996 — 34 Interest rate lock commitments 54,848 1,049 — 71,003 1,222 — Power Equity CD 36,771 718 718 38,807 2,184 2,184 Total customer-initiated and mortgage banking derivatives 2,696,418 28,447 29,101 1,590,925 12,782 12,357 Total gross derivatives $ 3,516,418 $ 38,595 $ 32,379 $ 2,210,925 $ 18,681 $ 12,357 (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 $0.9 million at December 31, 2018 and $0.8 million at December 31, 2017. (3) The foreign exchange forwards that were entered into during the years ended December 31, 2018 and 2017 matured prior to each respective year end. 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 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. For the years ended December 31, (Dollars in thousands) Location of Gain (Loss) 2018 2017 2016 Forward contracts related to mortgage loans to be delivered for sale Net gain on sale of loans and other mortgage banking revenue $ (685) $ (669) $ 692 Interest rate lock commitments Net gain on sale of loans and other mortgage banking revenue (173) 266 (1,356) Power Equity CD Other noninterest income — — — Foreign exchange forwards Other noninterest income — — — Customer-initiated derivatives Other noninterest income (221) (1,028) 581 Total gain (loss) recognized in income $ (1,079) $ (1,431) $ (83) Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 138