CHFC 2018 Annual Report

A summary of the reserve for representations and warranties of the Corporation is as follows: For the years ended December 31, (Dollars in thousands) 2018 2017 2016 Reserve balance at beginning of period $ 5,349 $ 6,459 $ 4,048 Addition of fair value of representations and warranties due to mergers and acquisitions — — 3,100 Reserve reduction (1,217) (1,095) (580) Charge-offs (48) (15) (109) Ending reserve balance $ 4,084 $ 5,349 $ 6,459 Reserve balance: Liability for specific claims $ 398 $ 531 $ 730 General allowance 3,686 4,818 5,729 Total reserve balance $ 4,084 $ 5,349 $ 6,459 Operating Leases and Other Noncancelable Contractual Obligations The Corporation has operating leases and other noncancelable contractual obligations on buildings, equipment, computer software and other expenses that will require annual payments through 2034, including renewal option periods for those building leases that the Corporation expects to renew. Future minimum lease payments for operating leases and other noncancelable contractual obligations are as follows: (Dollars in thousands) Future Minimum Lease Payments (1) Other Noncancelable Contracts Total Years ending December 31, 2019 $ 7,251 $ 46,225 $ 53,476 2020 6,239 37,566 43,805 2021 5,135 31,330 36,465 2022 4,775 30,124 34,899 2023 4,375 27,849 32,224 Thereafter 12,107 46,771 58,878 Total $ 39,882 $ 219,865 $ 259,747 (1) Future minimum lease payments are reduced by $632 thousand related to sublease income to be received within the next five years. Minimum payments include estimates, where applicable, of estimated usage and annual Consumer Price Index increases of approximately 1.9%. Total expense recorded under operating leases and other noncancelable contractual obligations was $55.2 million in 2018, compared to $30.8 million in 2017 and $20.4 million in 2016. Legal Proceedings The Corporation and Chemical Bank are subject to various pending or threatened legal proceedings arising out of the normal course of business and related to our merger and acquisition history. The Corporation assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, the Corporation records a liability in the Consolidated Financial Statements. While the ultimate liability with respect to these litigation matters and claims cannot be determined at this time, in the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position or results of operations of the Corporation. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 142