CHFC 2018 Annual Report

The following table is a summary of the loss attributes, Section 382 limitations, and tax expiration periods as of December 31, 2018. From the Acquisition of: Talmer Bancorp and Talmer Bank Prior Ownership Changes (Dollars in thousands) Monarch First Place Holdings/ First Place Bank Talmer West Bank First of Huron Corp./ Signature Bank From 2009 Ownership change Not Limited by Section 382 Total Tax Loss and Credit Carryforwards as of 12/31/18: Years Expiring (except AMT Credits) 2026-2034 2027-2031 2028-2032 2029-2032 2027-2029 Annual Section 382 limitation-base (1) $ 673 $ 6,650 $ 3,028 $ 365 $ 145 $ — $ N/A Gross Federal Net Operating Losses 12,350 — 41,039 247 1,595 — 55,231 Gross Capital Losses — — — — — 6,987 6,987 Realized Built-in Losses — 61,317 8,936 — — — 70,253 Business Tax Credits 1,651 781 — — — — 2,432 Less amounts not recorded due to Sec 382 Limitation (1,738) (140) — — (145) — (2,023) Alternative Minimum Tax Credits - no expiration 106 2,115 — 303 — — 2,524 Valuation Allowance — — — — — (1,467) (1,467) (1) In respect to the Monarch acquisition, in addition to the statutory "base" Section 382 limitation, recognized built in gain increases the Section 382 limitation during the five year period beginning on the acquisition date. The Corporation estimates that the recognized built in gain will total $1.6 million. At December 31, 2018, the Corporation had approximately $36.0 million of bad debt reserve in equity for which no provision for federal income taxes was recorded. This amount represents Talmer's qualifying thrift bad debt reserve at December 31, 1987 through its acquisition of First Place Bank, which is only required to be recaptured into taxable income if certain events occur. At December 31, 2018, the potential tax on the above amount was approximately $7.5 million. The Corporation concluded its audit for Talmer Bancorp's Financial Institutions tax for the years ended December 31, 2013, 2014 and 2015, with no changes. The Corporation's federal tax returns for the years ended December 31, 2015 to present are open to potential examination. Talmer amended its four federal tax returns for the years 2011, 2012, 2013 and 2014 to reflect the impact of changes to First Place Bank due to an IRS settlement in January of 2016. These four amendments were selected for audit which concluded with no changes and all expected refunds were received in 2017.The Corporation's most significant states of operation, Michigan and Ohio, do not impose income-based taxes on financial institutions. The Corporation and/or its subsidiaries are subject to immaterial amounts of income tax in various other states, with varying years open to potential examination. The Corporation concluded its audit for Talmer Bancorp's Ohio Financial Institutions tax for the years ended December 31, 2013, 2014, and 2015, with no changes. The Corporation had no unrecognized tax benefits at December 31, 2018 or 2017 and does not expect to record unrecognized tax benefits of any significance during the next twelve months. The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense, when applicable. There were no liabilities accrued for interest and/or penalties at December 31, 2018 or 2017. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 149 Note 18: Share-Based Compensation The Corporation maintains share-based compensation plans under which it periodically grants share-based awards for a fixed number of shares to certain officers of the Corporation. The fair value of share-based awards is recognized as compensation expense over the requisite service or performance period. During the years ended December 31, 2018, 2017 and 2016, share-based compensation expense related to share-based awards totaled $8.6 million, $17.3 million and $14.7 million, respectively. The excess tax benefit realized from shared-based compensation transactions during the years ended December 31, 2018, 2017 and 2016 was $1.8 million, $6.1 million and $2.2 million, respectively. During the year ended December 31, 2018, the Corporation granted 321,043 restricted stock units to certain officers of the Corporation.