CHFC 2018 Annual Report

The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income relating to interest rate swaps designated as cash flow hedges for the years ended December 31, 2018 and 2017. The Corporation first began entering into interest rate swaps designated as cash flow hedges during the year ended December 31, 2017. (Dollars in thousands) Amount of gain recognized in other comprehensive income Amount of gain (loss) reclassified from other comprehensive income to interest income or expense Year Ended December 31, 2018 Interest rate swaps designated as cash flow hedges $ 2,841 $ 1,871 Year Ended December 31, 2017 Interest rate swaps designated as cash flow hedges $ 4,263 $ (1,633) At December 31, 2018, the Corporation expected $4.5 million of unrealized gains to be reclassified as a decrease to interest expense during the following twelve months. Methods and assumptions used by the Corporation in estimating the fair value of its forward contracts, interest rate lock commitments and customer-initiated derivatives are discussed in Note 3: Fair Value Measurements. Balance Sheet Offsetting Certain financial instruments, including customer-initiated derivatives and interest rate swaps, may be eligible for offset in the Consolidated Statements of Financial Position and/or subject to master netting arrangements or similar agreements. The Corporation is party to master netting arrangements with its financial institution counterparties; however, the Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes based on an accounting policy election. The tables below present information about the Corporation’s financial instruments that are eligible for offset. Gross amounts not offset in the statements of financial position (Dollars in thousands) Gross amounts recognized Gross amounts offset in the statements of financial condition Net amounts presented in the statements of financial position Financial instruments Collateral (received)/ posted Net Amount December 31, 2018 Offsetting derivative assets Derivative assets (1) $ 36,791 $ — $ 36,791 $ — $ (16,120) $ 20,671 Offsetting derivative liabilities Derivative liabilities (1) 30,822 — 30,822 — 430 30,392 December 31, 2017 Offsetting derivative assets Derivative assets (1) $ 15,228 $ — $ 15,228 $ — $ — $ 15,228 Offsetting derivative liabilities Derivative liabilities 10,139 — 10,139 — 1,081 9,058 (1) Amount does not include participated interest rate swaps, forward contracts, interest rate lock commitments and power equity CDs as these instruments are not subject to master netting or similar arrangements. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 139 Note 12: Investments in Qualified Affordable Housing Projects, Federal Historic Projects and New Market Tax Credits The Corporation invests in qualified affordable housing projects, federal historic projects, and new market projects for the purpose of community reinvestment and obtaining tax credits. Return on the Corporation's investment in these projects comes in the form of the tax credits and tax losses that pass through to the Corporation. The carrying value of the investments is reflected in "Interest receivable and other assets" on the Consolidated Statements of Financial Position. The Corporation utilizes the proportional amortization method to account for investments in qualified affordable housing projects and the equity method to account for investments in other tax credit projects.