CHFC 2018 Annual Report

noninterest income in the Consolidated Statements of Income. The Corporation's ownership of FHLB stock totaled $125.2 million at December 31, 2018 and $112.0 million at December 31, 2017. The Corporation's ownership of FRB stock totaled $68.1 million at both December 31, 2018 and December 31, 2017. Loans Held for Sale Mortgage and construction loans intended for sale in the secondary market are carried at fair value based on the Corporation's election of the fair value option, as prescribed by ASC Topic 820, Fair Value Measurements and Disclosures. The estimated fair value of loans held for sale are based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral. The fair value includes the servicing value of the loans as well as any accrued interest. These loans are sold both with servicing rights retained and with servicing rights released. Originated Loans Held for Investment Originated loans include the Corporation's entire portfolio loans held for investment, excluding loans acquired in business combinations, as further discussed below. Originated loans are stated at their principal amount outstanding, net of unearned income, charge-offs and unamortized deferred fees and costs. Loan interest income is recognized on the accrual basis. Deferred loan fees and costs are amortized over the loan term based on the level-yield method. Net loan commitment fees are deferred and amortized into fee income on a straight-line basis over the commitment period. If a loan is transferred from the loan held for investment portfolio to the held for sale portfolio, any write-down in the carrying amount of the loan at the date of transfer is recorded as a charge-off. The loans are transferred at fair value determined using the same methods described above for held for sale loans. When loans classified as held for investment are transferred to loans held for sale due to a change in intent, cash flows associated with the loans will be classified in the Consolidated Statements of Cash Flows as operating or investing, as appropriate, in accordance with the initial classification of the loans. The past due status of a loan is based on the loan's contractual terms. A loan is placed in nonaccrual status (accrual of interest is discontinued) when principal or interest is past due 90 days or when doubt exists as to the ultimate collection of principal or interest, unless the loan is both well-secured and in the process of collection, or earlier when, in the opinion of management, there is sufficient reason to doubt the collectibility of principal or interest. Interest previously accrued, but not collected, is reversed and charged against interest income at the time the loan is placed in nonaccrual status. Subsequent receipts of interest while a loan is in nonaccrual status are recorded as a reduction of principal. Loans are returned to accrual status when principal and interest payments are brought current and are anticipated to be fully collectible, payments have been received consistently for a period of time (generally six months) and collectibility is no longer in doubt. Loans Acquired in a Business Combination Loans acquired in a business combination ("acquired loans") consist of loans acquired on August 31, 2016 in the merger with Talmer, on May 31, 2015 in the acquisition of Lake Michigan Financial Corporation ("Lake Michigan"), on April 1, 2015 in the acquisition of Monarch Community Bancorp, Inc. ("Monarch"), on October 31, 2014 in the acquisition of Northwestern Bancorp, Inc. ("Northwestern"), and on April 30, 2010 in the acquisition of O.A.K. Financial Corporation ("OAK"). Acquired loans were recorded at fair value at the date of acquisition, without a carryover of the associated allowance for loan losses related to these loans. At each acquisition date, the Corporation elected to account for acquired loans, which are recorded at fair value at acquisition using an estimate of cash flows deemed to be collectible and an accretable yield, in accordance withASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), by analogy. ASC 310-30 allows investors to aggregate loans acquired into loan pools that have common risk characteristics and thereby use a composite interest rate and expectation of cash flows expected to be collected for the loan pools. Under the provisions of ASC 310-30, the Corporation aggregated acquired loans into pools within each merger or acquisition based upon common risk characteristics, including types of loans, commercial type loans with similar risk grades and whether loans were performing or nonperforming.Apool is considered a single unit of accounting for the purposes of applying the guidance prescribed in ASC 310-30. A loan will be removed from a pool of acquired loans only if the loan is sold, foreclosed, paid off or written off, and will be removed from the pool at the carrying value. The estimate of expected credit losses was determined based on due diligence performed by executive and senior officers of the Corporation, with assistance from third-party consultants. The Corporation estimated the cash flows expected to be collected Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 90