CHFC 2018 Annual Report

Acquisition of Northwestern Bancorp, Inc. On October 31, 2014, we acquired all of the outstanding stock of Northwestern for total cash consideration of $121.0 million. Northwestern, a bank holding company, owned Northwestern Bank, provided traditional banking services and products through 25 banking offices serving communities in the northwestern lower peninsula of Michigan. At the acquisition date, Northwestern added total assets of $815.0 million, including total loans of $475.3 million, and total deposits of $794.4 million, to our operations. Northwestern Bank was consolidated with and into Chemical Bank as of the acquisition date. In connection with the acquisition of Northwestern, we recorded $60.3 million of goodwill, which was primarily attributable to the synergies and economies of scale expected from combining our operations with those of Northwestern. In addition, we recorded $12.9 million of core deposit intangible assets in conjunction with the acquisition. Acquisition expenses associated with the acquisition of Northwestern totaled $5.8 million during 2014, which reduced net income per common share by $0.14 in 2014. Branch Closings and Consolidation On April 15, 2016, we closed eleven branch locations which were identified as having a small core deposit base and/or being in close proximity to other Chemical Bank branch locations. In conjunction with the consolidation of Talmer Bank and Trust with and into Chemical Bank during the fourth quarter of 2016, we closed seven branches in communities where Talmer Bank and Trust and Chemical Bank had overlapping branches. Expenses associatedwith the closing of the aforementioned branch office locations were not significant, with the exception of $1.0 million of fair value write-downs recognized in the second quarter of 2016 related to the eleven branch locations that were closed, as the majority of the employees of these closed branch offices were transferred to other nearby Chemical Bank branch locations or other open positions within Chemical Bank. During the third quarter of 2017 we initiated restructuring efforts that included the consolidation of 25 branches in the fourth quarter of 2017. These branch consolidations were in addition to the 13 branches consolidated during the third quarter 2017. The expense related to branch closings was approximately $5.1 million during the year ended December 31, 2017, included in "restructuring expenses" on our Consolidated Statements of Income. At December 31, 2018, we operated a total of 212 branches. 41 Critical Accounting Policies Our Consolidated Financial Statements are prepared in accordance with United States generally accepted accounting principles ("GAAP"), Securities and Exchange Commission ("SEC") rules and interpretive releases and general practices within the industry inwhichwe operate.Application of these principles requires management tomake estimates, assumptions and complex judgments that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, our Consolidated Financial Statements could reflect different estimates, assumptions and judgments. Actual results could differ significantly from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.We utilize third-party sources to assist with developing estimates, assumptions and judgments regarding certain amounts reported in our Consolidated Financial Statements and accompanying notes. When third-party sources are utilized, our management remains responsible for complying with GAAP. To execute management's responsibilities, we have processes in place to develop an understanding of the third-party methodologies and to design and implement specific internal controls over valuation. The significant accounting policies we follow are presented in Note 1 to our Consolidated Financial Statements included in Item 8 of thisAnnual Report. These policies, along with the disclosures presented in the other notes to our Consolidated Financial Statements and in "Management's Discussion andAnalysis of Financial Condition and Results of Operations," provide information on how significant assets and liabilities are measured in our Consolidated Financial Statements and how those measurements are determined. Based on the techniques used and the sensitivity of financial statement amounts to the methods, estimates and assumptions underlying those amounts, management has identified the determination of the allowance for loan losses, accounting for acquired loans, income and other taxes and the valuation of loan servicing rights to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Management reviews the following critical accounting policies with the Audit Committee of the board of directors at least annually.