CHFC 2018 Annual Report

require payment of a fee. Since many commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on an individual basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's 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, 2018 and 2017, the Corporation had $3.55 billion and $3.03 billion, respectively, of commitments to extend credit. The Corporation had undisbursed loan commitments of $493.3 million and $571.0 million at December 31, 2018 and 2017, 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 $1.7 million and $1.2 million at December 31, 2018 and 2017, 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 merged or acquired entities, 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 $11.6 million and $13.3 million at December 31, 2018 and 2017, 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 $11.4 million and $12.8 million at December 31, 2018 and 2017, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At December 31, 2018 and 2017, the Corporation had recorded a liability of $0.1 million and $0.2 million, respectively, in connection with the recourse agreements, recorded in "Interest payable and other liabilities" in the Consolidated Statements of Financial Position. In addition, the Corporation acquired certain SBA guaranteed notes in which the guaranteed portion had been sold to a third party investor prior to the Corporation's acquisition. In the event these loans default and the SBA guaranty is no longer intact (i.e. an issue found to have occurred during the origination or the liquidation of the loans) the Corporation would be liable to make the loan whole to the third party investor. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of default by the borrower totaled $19.1 million and $20.6 million at December 31, 2018 and 2017, respectively. In the event of default, the Corporation has rights to the underlying collateral securing the loans. At both December 31, 2018 and 2017, the Corporation had recorded a liability of $1.2 million. 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, 2018 and 2017, respectively, the liability recorded in connection with these representations and warranties totaled $4.1 million and $5.3 million, respectively. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 141