UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)



[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~June 30, 2016~~March 31, 2017

	or

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________.

Commission File Number 0-10967

______________________

(Exact name of registrant as specified in its charter)



Delaware		36-3161078
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

One Pierce Place, Suite 1500

Itasca, Illinois 60143-1254

(Address of principal executive offices) (zip code)

______________________

Registrant's telephone number, including area code: (630) ~~875-7450~~875-7463

______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," ~~and~~ "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer [X]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [ ]
(Do not check if a smaller reporting company)		Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].

As of ~~July 29, 2016,~~May 5, 2017, there were ~~81,316,401~~112,345,301 shares of common stock, $.01 par value, outstanding.

FIRST MIDWEST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition	3
	Condensed Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4144
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	71
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 6.	Exhibits	73

PART I. FINANCIAL INFORMATION (Unaudited)

ITEM 1. FINANCIAL STATEMENTS

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except per share data)


					June 30, 2016			December 31, 2015							March 31, 2017			December 31, 2016
Assets					(Unaudited)										(Unaudited)
Cash and due from banks	Cash and due from banks				$	149,957		$	114,587		Cash and due from banks				$	174,268		$	155,055
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks				105,432			266,615			Interest-bearing deposits in other banks				74,892			107,093
Trading securities, at fair value	Trading securities, at fair value				17,693			16,894			Trading securities, at fair value				19,130			17,920
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value				1,773,759			1,306,636			Securities available-for-sale, at fair value				1,937,124			1,919,450
Securities held-to-maturity, at amortized cost	Securities held-to-maturity, at amortized cost				20,672			23,152			Securities held-to-maturity, at amortized cost				17,742			22,291
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost	Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost				44,506			39,306			Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost				46,306			59,131
Loans	Loans				7,979,537			7,161,715			Loans				10,054,370			8,254,145
Allowance for loan losses	Allowance for loan losses				(80,105		)	(73,630		)	Allowance for loan losses				(88,163		)	(86,083		)
Net loans	Net loans				7,899,432			7,088,085			Net loans				9,966,207			8,168,062
Other real estate owned ("OREO")	Other real estate owned ("OREO")				29,990			27,782			Other real estate owned ("OREO")				29,140			26,083
Premises, furniture, and equipment, net	Premises, furniture, and equipment, net				140,554			122,278			Premises, furniture, and equipment, net				140,653			82,577
Investment in bank-owned life insurance ("BOLI")	Investment in bank-owned life insurance ("BOLI")				218,133			209,601			Investment in bank-owned life insurance ("BOLI")				276,960			219,746
Goodwill and other intangible assets	Goodwill and other intangible assets				369,962			339,277			Goodwill and other intangible assets				754,621			366,876
Accrued interest receivable and other assets	Accrued interest receivable and other assets				225,720			178,463			Accrued interest receivable and other assets				336,428			278,271
Total assets	Total assets				$	10,995,810		$	9,732,676		Total assets				$	13,773,471		$	11,422,555
Liabilities	Liabilities										Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits				$	2,683,495		$	2,414,454		Noninterest-bearing deposits				$	3,492,987		$	2,766,748
Interest-bearing deposits	Interest-bearing deposits				6,287,821			5,683,284			Interest-bearing deposits				7,463,554			6,061,855
Total deposits	Total deposits				8,971,316			8,097,738			Total deposits				10,956,541			8,828,603
Borrowed funds	Borrowed funds				449,744			165,096			Borrowed funds				547,923			879,008
Senior and subordinated debt	Senior and subordinated debt				162,876			201,208			Senior and subordinated debt				194,745			194,603
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities				160,985			122,366			Accrued interest payable and other liabilities				269,529			263,261
Total liabilities	Total liabilities				9,744,921			8,586,408			Total liabilities				11,968,738			10,165,475
Stockholders' Equity	Stockholders' Equity										Stockholders' Equity
Common stock	Common stock				913			882			Common stock				1,123			913
Additional paid-in capital	Additional paid-in capital				495,159			446,672			Additional paid-in capital				1,022,417			498,937
Retained earnings	Retained earnings				982,277			953,516			Retained earnings				1,030,403			1,016,674
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax				(8,803		)	(28,389		)	Accumulated other comprehensive loss, net of tax				(40,264		)	(40,910		)
Treasury stock, at cost	Treasury stock, at cost				(218,657		)	(226,413		)	Treasury stock, at cost				(208,946		)	(218,534		)
Total stockholders' equity	Total stockholders' equity				1,250,889			1,146,268			Total stockholders' equity				1,804,733			1,257,080
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity				$	10,995,810		$	9,732,676		Total liabilities and stockholders' equity				$	13,773,471		$	11,422,555

	June 30, 2016				December 31, 2015						March 31, 2017				December 31, 2016
	(Unaudited)										(Unaudited)
	Preferred		Common		Preferred			Common			Preferred		Common		Preferred			Common
	Shares		Shares		Shares			Shares			Shares		Shares		Shares			Shares

Par value	$	—	$	0.01	$	—		$	0.01		$	—	$	0.01	$	—		$	0.01
Shares authorized	1,000		150,000		1,000			150,000			1,000		150,000		1,000			150,000
Shares issued	—		91,277		—			88,228			—		112,343		—			91,284
Shares outstanding	—		81,312		—			77,952			—		102,757		—			81,325
Treasury shares	—		9,965		—			10,276			—		9,586		—			9,959

See accompanying unaudited notes to the condensed consolidated financial statements.

FIRST MIDWEST BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)


	Quarters Ended June 30,				Six Months Ended June 30,				Quarters Ended March 31,
	2016		2015		2016		2015		2017		2016
Interest Income
Loans	$	86,526	$	75,820	$	164,981	$	149,217	$	112,365	$	78,455
Investment securities	9,363		7,823		17,921		16,116		10,484		8,558
Other short-term investments	661		913		1,196		1,692		850		535
Total interest income	96,550		84,556		184,098		167,025		123,699		87,548
Interest Expense
Deposits	2,482		2,402		4,867		4,927		3,209		2,385
Borrowed funds	1,499		118		2,815		136		2,194		1,316
Senior and subordinated debt	2,588		3,134		5,721		6,278		3,099		3,133
Total interest expense	6,569		5,654		13,403		11,341		8,502		6,834
Net interest income	89,981		78,902		170,695		155,684		115,197		80,714
Provision for loan losses	8,085		6,000		15,678		12,552		4,918		7,593
Net interest income after provision for loan losses	81,896		72,902		155,017		143,132		110,279		73,121
Noninterest Income
Service charges on deposit accounts	10,169		9,886		19,642		19,157		11,365		9,473
Wealth management fees	8,642		7,433		16,201		14,447		9,660		7,559
Card-based fees	7,592		6,953		14,310		13,355		8,116		6,718
Mortgage banking income	1,863		1,439		3,231		2,562		1,888		1,368
Capital market products income									1,376		3,215
Other service charges, commissions, and fees	7,668		5,862		16,144		10,693		5,442		5,261
Net securities gains	23		515		910		1,027		—		887
Other income	1,865		1,900		3,310		3,848		2,104		1,445
Total noninterest income	37,822		33,988		73,748		65,089		39,951		35,926
Noninterest Expense
Salaries and employee benefits	46,267		40,294		90,861		81,010		55,772		44,594
Net occupancy and equipment expense	9,928		9,622		19,625		20,058		12,325		9,697
Professional services	5,292		5,322		11,212		10,431		8,463		5,920
Technology and related costs	3,669		3,527		7,370		7,214		4,433		3,701
Net OREO expense	1,122		1,861		1,786		3,065		1,700		664
Other expenses	14,458		12,825		27,451		24,330		15,384		12,993
Acquisition and integration related expenses	618		—		5,638		—		18,565		5,020
Total noninterest expense	81,354		73,451		163,943		146,108		116,642		82,589
Income before income tax expense	38,364		33,439		64,822		62,113		33,588		26,458
Income tax expense	13,097		10,865		21,593		19,657		10,733		8,496
Net income	$	25,267	$	22,574	$	43,229	$	42,456	$	22,855	$	17,962
Per Common Share Data
Basic earnings per common share	$	0.31	$	0.29	$	0.54	$	0.55	$	0.23	$	0.23
Diluted earnings per common share	$	0.31	$	0.29	$	0.54	$	0.55	$	0.23	$	0.23
Dividends declared per common share	$	0.09	$	0.09	$	0.18	$	0.18	$	0.09	$	0.09
Weighted-average common shares outstanding	80,383		77,089		79,182		77,004		100,411		77,980
Weighted-average diluted common shares outstanding	80,396		77,101		79,194		77,016		100,432		77,992

See accompanying unaudited notes to the condensed consolidated financial statements.

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)


		Quarters Ended June 30,						Six Months Ended June 30,							Quarters Ended March 31,
		2016			2015			2016			2015				2017			2016
Net income		$	25,267		$	22,574		$	43,229		$	42,456			$	22,855		$	17,962
Securities Available-for-Sale
Unrealized holding gains (losses):
Unrealized holding gains:
Before tax		9,493			(11,690		)	28,366			(5,378		)		3,298			18,873
Tax effect		(3,795		)	4,670			(11,341		)	2,142				(1,321		)	(7,546		)
Net of tax		5,698			(7,020		)	17,025			(3,236		)		1,977			11,327
Reclassification of net gains included in net income:	Reclassification of net gains included in net income:													Reclassification of net gains included in net income:
Before tax		23			515			910			1,027				—			887
Tax effect		(9		)	(211		)	(364		)	(420		)		—			(355		)
Net of tax		14			304			546			607				—			532
Net unrealized holding gains (losses)		5,684			(7,324		)	16,479			(3,843		)
Net unrealized holding gains															1,977			10,795
Derivative Instruments
Unrealized holding gains (losses):
Unrealized holding gains:
Before tax		924			(1,831		)	5,199			(2,550		)		(2,220		)	4,275
Tax effect		(370		)	728			(2,092		)	1,016				889			(1,722		)
Net of tax		554			(1,103		)	3,107			(1,534		)		(1,331		)	2,553
Total other comprehensive income (loss)		6,238			(8,427		)	19,586			(5,377		)
Total other comprehensive income															646			13,348
Total comprehensive income		$	31,505		$	14,147		$	62,815		$	37,079			$	23,501		$	31,310

Accumulated
Unrealized
Gain (Loss) on
Securities
Available-
for-Sale
Accumulated Unrealized Gain (Loss) on Derivative Instruments
Unrecognized
Net Pension
Costs

Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2014 $ (2,950 ) $ (1,138 ) $ (11,767 ) $ (15,855 )
Other comprehensive loss (3,843 ) (1,534 ) —
(5,377 )
Balance at June 30, 2015 $ (6,793 ) $ (2,672 ) $ (11,767 ) $ (21,232 )
Balance at December 31, 2015 $ (10,271 ) $ (2,468 ) $ (15,650 ) $ (28,389 )
Other comprehensive income 16,479
3,107
—
19,586
Balance at June 30, 2016 $ 6,208
$ 639
$ (15,650 ) $ (8,803 )



	Accumulated Unrealized Gain (Loss) on Securities Available- for-Sale			Accumulated Unrealized Gain (Loss) on Derivative Instruments			Unrecognized Net Pension Costs			Total Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(10,271	)	$	(2,468	)	$	(15,650	)	$	(28,389	)
Other comprehensive income	10,795			2,553			—			13,348
Balance at March 31, 2016	$	524		$	85		$	(15,650	)	$	(15,041	)
Balance at December 31, 2016	$	(22,645	)	$	(1,176	)	$	(17,089	)	$	(40,910	)
Other comprehensive income	1,977			(1,331		)	—			646
Balance at March 31, 2017	$	(20,668	)	$	(2,507	)	$	(17,089	)	$	(40,264	)

See accompanying unaudited notes to the condensed consolidated financial statements.

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Amounts in thousands, except per share data)

(Unaudited)


	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total			Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 31, 2014	77,695		$	882	$	449,798		$	899,516		$	(15,855	)	$	(233,566	)	$	1,100,775
Net income	—		—		—			42,456			—			—			42,456
Other comprehensive income	—		—		—			—			(5,377		)	—			(5,377		)
Common dividends declared ($0.18 per common share)	—		—		—			(14,033		)	—			—			(14,033		)
Restricted stock activity	268		—		(9,663		)	—			—			7,207			(2,456		)
Treasury stock issued to benefit plans	(2	)	—		(64		)	—			—			169			105
Share-based compensation expense	—		—		3,487			—			—			—			3,487
Balance at June 30, 2015	77,961		$	882	$	443,558		$	927,939		$	(21,232	)	$	(226,190	)	$	1,124,957
Balance at December 31, 2015	77,952		$	882	$	446,672		$	953,516		$	(28,389	)	$	(226,413	)	$	1,146,268		77,952		$	882	$	446,672		$	953,516		$	(28,389	)	$	(226,413	)	$	1,146,268
Net income	—		—		—			43,229			—			—			43,229			—		—		—			17,962			—			—			17,962
Other comprehensive income	—		—		—			—			19,586			—			19,586			—		—		—			—			13,348			—			13,348
Common dividends declared ($0.18 per common share)	—		—		—			(14,468		)	—			—			(14,468		)
Common dividends declared ($0.09 per common share)																				—		—		—			(7,228		)	—			—			(7,228		)
Acquisition, net of issuance costs	3,042		31		54,865			—			—			—			54,896			3,042		31		54,865			—			—			—			54,896
Common stock issued	7		—		112			—			—			—			112			4		—		59			—			—			—			59
Restricted stock activity	316		—		(10,319		)	—			—			7,819			(2,500		)	303		—		(10,282		)	—			—			7,736			(2,546		)
Treasury stock issued to benefit plans	(5	)	—		(8		)	—			—			(63		)	(71		)	(3	)	—		—			—			—			(33		)	(33		)
Share-based compensation expense	—		—		3,837			—			—			—			3,837			—		—		1,839			—			—			—			1,839
Balance at June 30, 2016	81,312		$	913	$	495,159		$	982,277		$	(8,803	)	$	(218,657	)	$	1,250,889
Balance at March 31, 2016																				81,298		$	913	$	493,153		$	964,250		$	(15,041	)	$	(218,710	)	$	1,224,565
Balance at December 31, 2016																				81,325		$	913	$	498,937		$	1,016,674		$	(40,910	)	$	(218,534	)	$	1,257,080
Net income																				—		—		—			22,855			—			—			22,855
Other comprehensive income																				—		—		—			—			646			—			646
Common dividends declared ($0.09 per common share)																				—		—		—			(9,126		)	—			—			(9,126		)
Acquisitions, net of issuance costs																				21,078		210		533,322			—			—			558			534,090
Common stock issued																				2		—		53			—			—			—			53
Restricted stock activity																				355		—		(12,860		)	—			—			9,108			(3,752		)
Treasury stock issued to benefit plans																				(3	)	—		—			—			—			(78		)	(78		)
Share-based compensation expense																				—		—		2,965			—			—			—			2,965
Balance at March 31, 2017																				102,757		$	1,123	$	1,022,417		$	1,030,403		$	(40,264	)	$	(208,946	)	$	1,804,733

See accompanying unaudited notes to the condensed consolidated financial statements.

FIRST MIDWEST BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Net cash provided by operating activities	$	58,876		$	63,306		$	8,201		$	10,232
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	174,937			148,842			80,060			68,235
Proceeds from sales of securities available-for-sale	40,043			47,320			210,154			31,453
Purchases of securities available-for-sale	(532,934		)	(159,252		)	(94,766		)	(276,265		)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	4,360			3,447			4,549			3,973
Purchases of securities held-to-maturity	(16		)	(1,184		)	—			(8		)
Purchases of FHLB stock	(3,651		)	(1,190		)
Purchases (sales) of FHLB stock							16,072			(61		)
Net increase in loans	(432,283		)	(128,883		)	(43,771		)	(268,179		)
Proceeds from claims on BOLI, net of premiums paid	1,599			1,021			(24		)	(22		)
Proceeds from sales of OREO	3,852			10,584			5,364			1,640
Proceeds from sales of premises, furniture, and equipment	3,213			195			404			675
Purchases of premises, furniture, and equipment	(7,536		)	(4,386		)	(2,891		)	(2,921		)
Net cash received from acquisitions	57,347			—			41,717			57,347
Net cash used in investing activities	(691,069		)	(83,486		)
Net cash provided by (used in) investing activities							216,868			(384,133		)
Financing Activities
Net increase in deposit accounts	278,657			324,913			104,064			88,159
Net increase in borrowed funds	282,232			51,042
Payments for the maturity of subordinated debt	(38,500		)	—
Net (decrease) increase in borrowed funds							(331,085		)	219,899
Cash dividends paid	(14,123		)	(13,232		)	(7,206		)	(6,885		)
Restricted stock activity	(2,248		)	(2,766		)	(3,830		)	(2,113		)
Excess tax benefit related to share-based compensation	362			794
Net cash provided by financing activities	506,380			360,751
Net (decrease) increase in cash and cash equivalents	(125,813		)	340,571
Net cash (used in) provided by financing activities							(238,057		)	299,060
Net decrease in cash and cash equivalents							(12,988		)	(74,841		)
Cash and cash equivalents at beginning of period	381,202			606,262			262,148			381,202
Cash and cash equivalents at end of period	$	255,389		$	946,833		$	249,160		$	306,361

Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	7,427		$	7,953
Income taxes (refunded) paid							$	(1,259	)	$	2,421
Interest paid to depositors and creditors	13,269			11,476			9,354			3,563
Dividends declared, but unpaid	7,595			7,023			9,163			7,593
Common stock issued for acquisitions, net of issuance costs	54,896			—
Stock issued for acquisitions, net of issuance costs							534,090			54,896
Non-cash transfers of loans to OREO	3,675			4,657			683			942
Non-cash transfers of loans held-for-investment to loans held-for-sale	63,709			23,012			13,136			25,125

See accompanying unaudited notes to the condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter ~~and six months~~ ended ~~June 30, 2016~~March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2016.~~2017.

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's ~~2015~~2016 Annual Report on Form 10-K ("~~2015~~2016 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.

Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.

Principles of Consolidation – The accompanying consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements.

The accounting policies related to business combinations, loans, the allowance for credit losses, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company's ~~2015~~2016 10-K.

Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.

Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to ~~standby~~ letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. The Company's net investment in direct financing leases is included in loans and consists of future minimum lease payments and estimated residual values, net of unearned income. Interest income on loans is accrued based on principal amounts outstanding. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.

Acquired and Covered Loans – Covered loans consists of loans acquired by the Company in Federal Deposit Insurance Corporation ("FDIC")-assisted transactions, which are covered by loss share agreements with the FDIC (the "FDIC Agreements"), under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the coverage period. Acquired loans consist of all other loans that were acquired in business combinations that are not covered by the FDIC Agreements. During 2015, certain covered loans were no longer covered under the FDIC Agreements, and are included in acquired loans and no longer classified as covered loans. Covered loans and acquired loans are included within loans held-for-investment.

Acquired and covered loans are separated into (i) non-purchased credit impaired ("~~Non-PCI"~~non-PCI") and (ii) purchased credit impaired ("PCI") loans. Non-PCI loans include loans that did not have evidence of credit deterioration since origination at the acquisition date. PCI loans include loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments. Evidence of credit deterioration

was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCI loans and are accounted for as ~~Non-PCI~~non-PCI loans.

The acquisition adjustment related to ~~Non-PCI~~non-PCI loans is amortized into interest income over the contractual life of the related loans. If an acquired ~~Non-PCI~~non-PCI loan is renewed subsequent to the acquisition date, any remaining acquisition adjustment is accreted into interest income and the loan is considered a new loan that is no longer classified as an acquired loan.

PCI loans are accounted for based on estimates of expected future cash flows. To estimate the fair value, the Company generally aggregates purchased consumer loans and ~~certain smaller balance~~ commercial loans into pools of loans with common risk characteristics, such as delinquency status, credit score, and internal risk ratings. The fair values of larger balance commercial loans are estimated on an individual basis. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. The non-accretable yield represents the difference between contractually required payments and the expected future cash flows determined at acquisition. Subsequent increases in expected future cash flows are offset against the allowance for credit losses to the extent an allowance has been established or otherwise recognized as interest income prospectively. The present value of any decreases in expected future cash flows is recognized by recording a charge-off through the allowance for loan losses or providing an allowance for loan losses.

90-Days Past Due Loans –The Company's accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.

Non-accrual Loans – Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection, or (ii) when an individual analysis of a borrower's creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual status, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.

Commercial loans and loans secured by real estate are charged-off when deemed uncollectible. A loss is recorded if the net realizable value of the underlying collateral is less than the outstanding principal and interest. Consumer loans that are not secured by real estate are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual prior to being charged-off. Closed-end consumer loans, which include installment, automobile, and single payment loans, are usually charged-off no later than the end of the month in which the loan becomes 120 days past due.

PCI loans are generally considered accruing loans unless reasonable estimates of the timing and amount of expected future cash flows cannot be determined. Loans without reasonable future cash flow estimates are classified as non-accrual loans, and interest income is not recognized on those loans until the timing and amount of the expected future cash flows can be reasonably determined.

Troubled Debt Restructurings ("TDRs") – A restructuring is considered a TDR when (i) the borrower is experiencing financial difficulties, and (ii) the creditor grants a concession, such as forgiveness of principal, reduction of the interest rate, changes in payments, or extension of the maturity date. Loans are not classified as TDRs when the modification is short-term or results in an insignificant delay in payments. The Company's TDRs are determined on a case-by-case basis.

The Company does not accrue interest on a TDR unless it believes collection of all principal and interest under the modified terms is reasonably assured. For a TDR to begin accruing interest, the borrower must demonstrate some level of past performance and the future capacity to perform under the modified terms. Generally, six months of consecutive payment performance under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending on the individual facts and circumstances of the loan. An evaluation of the borrower's current creditworthiness is used to assess the borrower's capacity to repay the loan under the modified terms. This evaluation includes an estimate of expected future cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable. For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. If the loan was restructured at below market rates and terms, it continues to be separately reported as restructured until it is paid in full or charged-off.

Impaired Loans – Impaired loans consist of corporate non-accrual loans and TDRs. A loan is considered impaired when it is probable that the Company will not collect all contractual principal and interest. With the exception of accruing TDRs, impaired loans are classified as non-accrual and are exclusive of smaller homogeneous loans, such as home equity, 1-4 family mortgages, and installment loans. Impaired loans with balances under a specified threshold are not individually evaluated for impairment. For all other impaired loans, impairment is measured by comparing the estimated value of the loan to the recorded book value.

The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's initial effective interest rate.

Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments, and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, consideration of current economic trends, and other factors.

Loans deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan losses. Additions to the allowance for loan losses are charged to expense through the provision for loan losses. The amount of provision depends on a number of factors, including net charge-off levels, loan growth, changes in the composition of the loan portfolio, and the Company's assessment of the allowance for loan losses based on the methodology discussed below.

Allowance for Loan Losses – The allowance for loan losses consists of (i) specific reserves for individual loans where the recorded investment exceeds the value, (ii) an allowance based on a loss migration analysis that uses historical credit loss experience for each loan category, and (iii) an allowance based on other internal and external qualitative factors.

The specific reserves component of the allowance for loan losses is based on a periodic analysis of impaired loans exceeding a fixed dollar amount. If the value of an impaired loan is less than the recorded book value, the Company either establishes a valuation allowance (i.e., a specific reserve) equal to the excess of the book value over the collateral value of the loan as a component of the allowance for loan losses or charges off the amount if it is a confirmed loss.

The general reserve component is based on a loss migration analysis, which examines actual loss experience by loan category for a rolling 8-quarter period and the related internal risk rating for corporate loans. The loss migration analysis is updated quarterly primarily using actual loss experience. This component is then adjusted based on management's consideration of many internal and external qualitative factors, including:

Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.

Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.

Changes in the experience, ability, and depth of credit management and other relevant staff.

Changes in the quality of the Company's loan review system and Board of Directors oversight.

The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.

Changes in the value of the underlying collateral for collateral-dependent loans.

Changes in the national and local economy that affect the collectability of various segments of the portfolio.

The effect of other external factors, such as competition and legal and regulatory requirements, on the Company's loan portfolio.

The allowance for loan losses also consists of an allowance on acquired and covered ~~Non-PCI~~non-PCI and PCI loans. No allowance for loan losses is recorded on acquired loans at the acquisition date. Subsequent to the acquisition date, an allowance for credit losses is established as necessary to reflect credit deterioration. The acquired ~~Non-PCI~~non-PCI allowance is based on management's evaluation of the acquired ~~Non-PCI~~non-PCI loan portfolio giving consideration to the current portfolio balance including the remaining acquisition adjustments, maturity dates, and overall credit quality. The allowance for covered ~~Non-PCI~~non-PCI loans is calculated in the same manner as the general reserve component based on a loss migration analysis as discussed above. The acquired and covered PCI allowance reflects the difference between the carrying value and the discounted expected future cash flows of the acquired and covered PCI loans. On a periodic basis, the adequacy of this allowance is determined through a re-estimation of expected future cash flows on all of the outstanding acquired and covered PCI loans using either a probability of default/loss given default ("PD/LGD") methodology or a specific review methodology. The PD/LGD model is a loss model that estimates expected future cash flows using a probability of default curve and loss given default estimates. Acquired ~~Non-PCI~~non-PCI loans that have renewed subsequent to the respective acquisition dates are no longer classified as acquired loans. Instead, they are included in the general loan population and allocated an allowance based on a loss migration analysis.

Reserve for Unfunded Commitments – The Company also maintains a reserve for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserve for unfunded commitments is estimated using the loss migration analysis from the allowance for loan losses, adjusted for probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.

The establishment of the allowance for credit losses involves a high degree of judgment given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and

information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk classifications by regulatory authorities.

Derivative Financial Instruments – To provide derivative products to customers and in the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and expected future cash flows caused by interest rate volatility. All derivative instruments are recorded at fair value as either other assets or other liabilities in the Consolidated Statements of Financial Condition. Subsequent changes in a derivative's fair value are recognized in earnings unless specific hedge accounting criteria are met.

On the date the Company enters into a derivative contract, the derivative is designated as a fair value hedge, a cash flow hedge, or a non-hedge derivative instrument. Fair value hedges are designed to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk. Cash flow hedges are designed to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset, liability, or other type of forecasted transaction. The Company formally documents all relationships between hedging instruments and hedged items, including its risk management objective and strategy at inception.

At the hedge's inception and quarterly thereafter, a formal assessment is performed to determine the effectiveness of the derivative in offsetting changes in the fair values or expected future cash flows of the hedged items in the current period and prospectively. If a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively, and the gain or loss is amortized into earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. If the forecasted transaction is no longer probable, the gain or loss is included in earnings immediately.

For fair value hedges, changes in the fair value of the derivative instruments, as well as changes in the fair value of the hedged item, are recognized in earnings. For cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive loss and is reclassified to earnings when the hedged transaction is reflected in earnings.

Ineffectiveness is calculated based on the change in fair value of the hedged item compared with the change in fair value of the hedging instrument. For all types of hedges, any ineffectiveness in the hedging relationship is recognized in earnings during the period the ineffectiveness occurs.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

~~Amendments to Consolidation Analysis:~~Contingent Put and Call Options in Debt Instruments: In ~~February 2015,~~March of 2016, the Financial Accounting Standards Board ("FASB") issued final guidance clarifying the requirements for assessing whether contingent call (put) options that ~~updates current accounting for~~can accelerate the ~~consolidation~~payment of ~~certain legal entities. This~~principal on debt instruments are clearly and closely related to their debt hosts. Entities are required to apply the guidance ~~modifies~~to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the ~~evaluation~~period of ~~whether limited partnerships and similar legal entities are variable interest entities ("VIEs")~~adoption. The adoption of this guidance on January 1, 2017 did not impact the Company's financial condition, results of operations, or ~~voting interest entities,~~liquidity.

Equity Method Accounting: In March of 2016, the FASB issued final guidance to simplify the equity method of accounting. The guidance eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, and provides certain exceptions from consolidation guidance for certain reporting entities.requirement to retrospectively apply equity method accounting in previous periods when an investor initially obtains significant influence over an investee. This guidance is effective for annual and interim periods beginning after December 15, ~~2015.~~2016. The adoption of this guidance on January 1, ~~2016~~2017 did not ~~materially~~ impact the Company's financial condition, results of operations, or liquidity.

~~Simplifying the Presentation of Debt Issuance Costs:~~Accounting for Employee Share-based Payments: In ~~April~~March of ~~2015,~~2016, the FASB issued guidance to ~~clarify~~simplify the ~~presentation~~accounting for employee share-based payment transactions. The guidance requires entities to recognize the income tax effects of ~~debt issuance costs within~~awards in the ~~balance sheet. Additionally,~~income statement when the awards vest or are settled. In addition, the guidance ~~requires debt issuance costs related~~allows entities to ~~a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount~~repurchase more of ~~that debt liability, consistent with debt discounts. The recognition and measurement~~an employee's shares than it can under current guidance for ~~debt issuance costs are not affected by this amendment. The guidance is effective~~tax withholding purposes without triggering liability accounting and to make a policy election to account for ~~annual and interim periods beginning after December 15, 2015.~~forfeitures as they occur. The adoption of this guidance on January 1, ~~2016 did not materially impact~~2017 resulted in a $638,000 tax benefit recorded in the ~~Company's financial condition,~~Company's results of ~~operations, or liquidity.~~operations. The Company elected to estimate forfeitures, which is consistent with the Company's practice before the adoption of this guidance.

Accounting Pronouncements Pending Adoption

Revenue from Contracts with Customers: In May of 2014, the FASB issued guidance that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March of 2016, the FASB issued an amendment to this guidance to clarify the implementation of guidance on principal versus agent consideration. Additional amendments to clarify the implementation guidance on the identification of performance obligations and licensing were issued in April of 2016 and narrow-scope improvements and practical expedients were issued in May of 2016.

The guidance was initially effective for annual and interim reporting periods beginning on or after December 15, ~~2016. In August of 2015, the FASB issued guidance that defers the effective date by one year. The deferral causes the guidance~~2016 but was deferred to ~~be effective for annual and interim reporting periods beginning on or after~~ December 15, 2017, and must be applied either retrospectively or using the modified retrospective approach. Early adoption is permitted, but not before the original effective date. ~~Management~~The Company's revenue is ~~evaluating~~comprised of net interest income on financial assets and liabilities, which are excluded from the ~~new~~scope of this guidance, and ~~the impact to the Company's financial condition, results of operations, and liquidity.~~

~~Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern:~~ ~~In August of 2014, the FASB issued~~noninterest income. The Company expects that this guidance ~~that requires~~will change how revenue from certain revenue streams is recognized within wealth management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. Managementfees but does not expect ~~the adoption of this guidance will materially~~these changes to have a significant impact on the Company's financial condition, results of operations, or liquidity. The Company continues to evaluate the impact of this guidance on other components of noninterest income. The Company will adopt this guidance on January 1, 2018, with a cumulative effect adjustment to opening retained earnings, if an adjustment is deemed to be significant.

Amendments to Guidance on Classifying and Measuring Financial Instruments: In January of 2016, the FASB issued guidance that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value. Any changes in fair value will be recognized in net income unless the investments qualify for a new practicability exception. This guidance also requires entities to recognize changes in instrument-specific credit risk related to financial liabilities measured under the fair value option in other comprehensive income. No changes were made to the guidance for classifying and measuring investments in debt securities and loans. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Leases: In February of 2016, the FASB issued guidance to increase transparency and comparability across entities for leasing arrangements. This guidance requires lessees to recognize assets and liabilities for most leases. For lessors, this guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. In addition, this guidance clarifies criteria for the determination of whether a contract is or contains a lease. This guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. ~~Management is evaluating the new guidance and the impact to the Company's financial condition, results of operations, and liquidity.~~

~~Contingent Put and Call Options in Debt Instruments:~~ ~~In March of~~During 2016, the ~~FASB issued final guidance clarifying the requirements for assessing whether contingent call (put) options~~Company entered into a sale-leaseback transaction that ~~can accelerate the payment~~resulted in a deferred gain of principal on debt instruments are clearly and closely related to their debt hosts. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method$82.5 million, with $79.5 million remaining as of March 31, 2017. Upon adoption of this guidance, the ~~period~~remaining deferred gain will be recognized immediately as a cumulative-effect adjustment to equity. For additional discussion of ~~adoption. This guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted.~~the sale-leaseback transaction, see note 8

"Premises, Furniture, and Equipment." Management ~~does not expect~~is evaluating the ~~adoption of this~~new guidance ~~will materially~~and the additional impact to the Company's financial condition, results of operations, or liquidity.

~~Equity Method Accounting:~~ In March of 2016, the FASB issued final guidance to simplify the equity method of accounting. The guidance eliminates the requirement to retrospectively apply equity method accounting in previous periods when an investor initially obtains significant influence over an investee. This guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

~~Accounting for Employee Share-based Payments:~~ In March of 2016, the FASB issued guidance to simplify the accounting for employee share-based payment transactions. The guidance requires entities to recognize the income tax effects of awards in the income statement when the awards vest or are settled. In addition, the guidance allows entities to repurchase more of an employee's shares than it can under current guidance for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. This guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. Management is evaluating the new guidance, but does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASB issued guidance that will require entities to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. In addition, credit losses relating to available-for-sale debt securities will be required to be recorded through an allowance for credit losses, with changes in credit loss estimates recognized through current earnings. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, but not for periods beginning before December 15, 2018. Management is evaluating the new guidance and the impact to the Company's financial condition, results of operations, and liquidity.

Classification of Certain Cash Receipts and Cash Payments: In August of 2016, the FASB issued guidance clarifying certain cash flow presentation and classification issues to reduce diversity in practice. This guidance is effective for annual and interim reporting periods beginning on or after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's Consolidated Statement of Cash Flows.

Income Taxes: In October of 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Clarifying the Definition of a Business: In January of 2017, the FASB issued guidance that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Accounting for Goodwill Impairment: In January of 2017, the FASB issued guidance that simplifies the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill using the second step of the quantitative two-step goodwill impairment model prescribed under current accounting guidance. Under the new guidance, if a reporting unit's carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. This guidance is effective for annual and interim goodwill impairment testing dates beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Presentation of Defined Benefit Retirement Plan Costs: In March of 2017, the FASB issued guidance that changes how employers that sponsor defined pension and or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of net periodic benefit cost will be presented separately from the line item(s) that includes the service cost. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued guidance that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

3. ACQUISITIONS

~~Pending~~Completed Acquisitions

Standard Bancshares, Inc.

On ~~June 28, 2016,~~January 6, 2017, the Company ~~entered into a definitive agreement to acquire~~completed the acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. ~~With~~Pursuant to the terms of the merger agreement, on January 6, 2017, each outstanding share of Standard common stock was canceled and converted into the right to receive 0.4350 of a share of Company common stock. Based on the closing trading price of shares of Company common stock on the NASDAQ on that date of $25.34, the value of the merger consideration per share of Standard common stock was $11.02. Each outstanding Standard stock settled right was redeemed for cash, and each outstanding Standard stock option and each share of Standard phantom stock was cancelled and terminated in exchange for the right to receive cash, in each case, pursuant to the terms of the merger agreement. This resulted in an overall transaction value of approximately $580.7 million, which consisted of 21,057,085 shares of Company common stock and $47.1 million in cash. Goodwill of $339.3 million associated with the acquisition was recorded by the Company. All operating systems were converted during the first quarter of 2017. The fair value adjustments associated with these accounts and goodwill remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.

Premier Asset Management LLC

On February 28, 2017, the Company completed the acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company ~~would acquire 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest Indiana. Standard has total~~acquired approximately $550.0 million of trust assets of approximately $2.5 billion with $2.2 billion in deposits and $1.8 billion in loans. The merger agreement provides for a fixed exchange ratio of 0.4350 shares of First Midwest common stock for each share of Standard common stock. As of the date of announcement, the overall transaction is valued at approximately $365 million, including Standard's common stock, stock options, phantom stock, and stock settled rights. The acquisition is expected to close in late 2016 or early 2017, subject to customary regulatory approvals and closing conditions, as well as Company and Standard shareholder approval.

~~Completed Acquisitions~~under management.

NI Bancshares Corporation

On March 8, 2016, the Company completed the acquisition of NI Bancshares Corporation ("NI Bancshares"), the holding company for The National Bank & Trust Company of Sycamore. As part of the acquisition, the Company acquired all assets and assumed all liabilities of NI Bancshares, which included ten banking offices in northern Illinois and over $700.0 million in trust assets under management. The merger consideration was a combination of Company common stock and cash, at a purchase price of $70.1 million. Goodwill of ~~$20.8~~$22.2 million associated with the acquisition was recorded by the Company. ~~The~~

During the first quarter of 2017, the Company ~~is finalizing the fair values of the assets and liabilities acquired. As a result,~~finalized the fair value adjustments associated with ~~these accounts and goodwill are preliminary and may change.~~

~~Peoples Bancorp, Inc.~~

~~On December 3, 2015,~~ the ~~Company completed~~NI Bancshares transaction, which required a measurement period adjustment of $423,000 to increase goodwill. This adjustment was recognized in the acquisition of Peoples Bancorp, Inc. ("Peoples"), and its wholly-owned banking subsidiary, The Peoples' Bank of Arlington Heights. With the acquisition, the Company acquired all assets and assumed all liabilities of Peoples, which included two banking officescurrent period in ~~Arlington Heights, Illinois, at a purchase price of $16.8 million paid in cash. The Company recorded goodwill of $7.5 million associated~~accordance with the acquisition. The Company is finalizing the fair values of the assets and liabilities acquired. As a result, the fair value adjustments associated with these accounts and goodwill are preliminary and may change.accounting guidance applicable to business combinations.

1314

The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Standard and NI Bancshares ~~and Peoples~~ transactions as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.

Acquisition Activity

(Amounts in thousands, except share and per share data)


	NI Bancshares		Peoples		Standard		NI Bancshares
	March 8, 2016		December 3, 2015		January 6, 2017		March 8, 2016
Assets
Cash and due from banks and interest-bearing deposits in other banks	$	72,533	$	781	$	102,149	$	72,533
Securities available-for-sale	125,843		41,492		214,107		125,843
Securities held-to-maturity	1,864		—		—		1,864
FHLB and FRB stock	1,549		558		3,247		1,549
Loans	397,018		53,917		1,769,709		396,181
OREO	2,863		515		8,427		2,863
Investment in BOLI	8,384		—		55,629		8,384
Goodwill	20,762		7,544		339,298		22,174
Other intangible assets	10,925		580		31,072		10,408
Premises, furniture, and equipment	20,019		2,215		59,163		19,636
Accrued interest receivable and other assets	16,004		2,911		56,077		16,453
Total assets	$	677,764	$	110,513	$	2,638,878	$	677,888
Liabilities
Noninterest-bearing deposits	$	130,909	$	15,869	$	675,354	$	130,909
Interest-bearing deposits	464,012		75,944		1,348,520		464,012
Total deposits	594,921		91,813		2,023,874		594,921
Borrowed funds	2,416		1,200		—		2,416
Intangible liabilities	230		—		—		230
Accrued interest payable and other liabilities	10,115		672		34,289		10,239
Total liabilities	607,682		93,685		2,058,163		607,806
Consideration Paid
Common stock (2016 - 3,042,494 shares issued at $18.059 per share), net of $48,000 in issuance costs	54,896		—
Common stock (2017 - 21,057,085 shares issued at $25.34 per share, 2016 - 3,042,494 shares issued at $18.059 per share), net of issuance costs					533,590		54,896
Cash paid	15,186		16,828		47,125		15,186
Total consideration paid	70,082		16,828		580,715		70,082
	$	677,764	$	110,513	$	2,638,878	$	677,888

Expenses related to the acquisition and integration of the transactions above totaled $18.6 million and ~~pending transactions totaled $618,000 and $5.6~~$5.0 million during the ~~quarter~~quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. The ~~completed acquisitions were not~~acquisition of Standard was considered material to the Company's financial statements; therefore, pro forma financial data and related disclosures are ~~not included.~~included in the following tables.

1415

The unaudited pro forma combined results of operations for the quarters ended March 31, 2017 and 2016 are presented as if the Standard acquisition had occurred on January 1, 2016, the first day of the Company's 2016 fiscal year. The unaudited pro forma combined results of operations are presented for illustrative purposes only and do not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. Fair value adjustments included in the following table are preliminary and may be revised. The unaudited pro forma results of operations also does not consider any potential impacts of potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors. Acquisition and integration related expenses directly attributable to the Standard acquisition have been excluded from the following table and are estimated to total $27.0 million, of which $17.5 million was expensed during the quarter ended March 31, 2017.

Unaudited Pro Forma Combined Results of Operations

(Dollar amounts in thousands)



	Quarters Ended March 31,
	2017		2016
Total revenues ⁽¹⁾	$	156,757	$	143,345
Net income	32,734		22,950


⁽¹⁾	Includes net interest income and total noninterest income.

Acquired loans are recorded at fair value, which incorporates credit risk, at the date of acquisition. No allowance for credit losses is recorded on the acquisition date. Acquired loans are separated into (i) non-PCI and (ii) PCI loans. Non-PCI loans include loans that did not have evidence of credit deterioration since origination at the acquisition date. PCI loans include loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments. PCI loans are accounted for based on estimates of expected future cash flows. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. The non-accretable yield represents the difference between contractually required payments and the expected future cash flows determined at acquisition. For additional discussion regarding significant accounting policies on acquired loans see Note 1, "Summary of Significant Accounting Policies."

The following table presents additional detail for loans acquired in the Standard transaction at the acquisition date.

Standard Acquired Loans

(Dollar amounts in thousands)



	January 6, 2017
	PCI Loans		Non-PCI Loans
Fair value	$	123,643	$	1,646,066
Contractually required principal and interest payments	208,586		1,940,459
Best estimate of contractual cash flows not expected to be collected ⁽¹⁾	57,626		100,918
Best estimate of contractual cash flows expected to be collected	150,960		1,839,541


⁽¹⁾	Includes interest payments not expected to be collected due to loan prepayments as well as principal and interest payments not expected to be collected due to customer default.

4. SECURITIES

Securities are classified as held-to-maturity, trading, or available-for-sale at the time of purchase. Securities classified as held-to-maturity are securities for which management has the intent and abilityThe significant accounting policies related to ~~hold to maturity and are stated at cost.~~

The Company's trading securities consist of diversified investment securities reported at fair value that are held in a grantor trust under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company stock.

~~All other~~ securities are ~~classified as available-for-sale and are carried at fair value with unrealized gains and losses, net~~presented in Note 1, "Summary of ~~related deferred income taxes, recorded~~Significant Accounting Policies" to the Consolidated Financial Statements in ~~stockholders' equity as a separate component of accumulated other comprehensive loss.~~the Company's 2016 10-K.

A summary of the Company's securities portfolio by category and maturity is presented in the following tables.

Securities Portfolio

(Dollar amounts in thousands)


		As of June 30, 2016															As of December 31, 2015														As of March 31, 2017																As of December 31, 2016
		Amortized Cost				Gross Unrealized							Fair Value				Amortized Cost			Gross Unrealized							Fair Value				Amortized Cost				Gross Unrealized								Fair Value				Amortized Cost				Gross Unrealized								Fair Value
					Gains				Losses							Gains				Losses					Gains						Amortized Cost			Losses						Gains			Fair Value				Amortized Cost			Losses									Fair Value
Securities Available-for-Sale	Securities Available-for-Sale												Fair Value				Amortized Cost																Securities Available-for-Sale
U.S. treasury securities		Amortized Cost	$	38,548			$	341			$	—		$	38,889			$	17,000		$	15		$	(35	)	Fair Value		$	16,980			$	48,574			$	23			$	(81	)		$	48,516			$	48,581			$	26			$	(66	)		$	48,541
U.S. agency securities		196,735				2,580				(84		)	199,231				86,461			351			(169		)		86,643				180,894				518				(382		)		181,030				183,528				519				(410		)		183,637
Collateralized mortgage obligations ("CMOs")		908,550				13,239				(1,054		)	920,735				695,198			1,072			(9,085		)		687,185				1,066,439				1,039				(16,114		)		1,051,364				1,064,130				969				(17,653		)		1,047,446
Other mortgage-backed securities ("MBSs")		281,924				4,839				(106		)	286,657				152,481			1,920			(871		)		153,530				357,473				1,230				(5,737		)		352,966				337,139				1,395				(5,879		)		332,655
Municipal securities		286,547				8,046				(29		)	294,564				321,437			6,443			(310		)		327,570				263,606				2,092				(2,988		)		262,710				273,319				1,245				(3,718		)		270,846
Trust-preferred collateralized debt obligations ("CDOs")		48,219				32				(17,820		)	30,431				48,287			34			(16,792		)		31,529				47,728				260				(14,552		)		33,436				47,681				261				(14,682		)		33,260
Equity securities		3,290				83				(121		)	3,252				3,282			86			(169		)		3,199				7,246				148				(292		)		7,102				3,206				147				(288		)		3,065
Total securities available-for-sale		$	1,763,813			$	29,160			$	(19,214	)	$	1,773,759			$	1,324,146		$	9,921		$	(27,431	)		$	1,306,636			$	1,971,960			$	5,310			$	(40,146	)		$	1,937,124			$	1,957,584			$	4,562			$	(42,696	)		$	1,919,450
Securities Held-to-Maturity	Securities Held-to-Maturity																													Securities Held-to-Maturity
Municipal securities		$	20,672			$	—			$	(2,278	)	$	18,394			$	23,152		$	—		$	(3,098	)		$	20,054			$	17,742			$	—			$	(2,624	)		$	15,118			$	22,291			$	—			$	(4,079	)		$	18,212
Trading Securities													$	17,693													$	16,894															$	19,130															$	17,920

Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)


	As of June 30, 2016								As of March 31, 2017
	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	84,587	$	83,558	$	3,220	$	2,865	$	90,123	$	87,605	$	1,926	$	1,641
After one year to five years	430,910		425,669		7,840		6,976		399,483		388,321		6,834		5,823
After five years to ten years	6,333		6,256		2,111		1,878		3,470		3,373		2,975		2,535
After ten years	48,219		47,632		7,501		6,675		47,726		46,393		6,007		5,119
Securities that do not have a single contractual maturity date	1,193,764		1,210,644		—		—		1,431,158		1,411,432		—		—
Total	$	1,763,813	$	1,773,759	$	20,672	$	18,394	$	1,971,960	$	1,937,124	$	17,742	$	15,118

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $1.1 billion ~~at June 30, 2016~~for both March 31, 2017 and ~~$856.9 million at~~ December 31, ~~2015.~~2016. No securities held-to-maturity were pledged as of ~~June 30, 2016~~March 31, 2017 or December 31, ~~2015.~~2016.

1517

Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in net securities gains in the Condensed Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. During the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ there were no material gross trading ~~gains~~ gains/(losses). The following table presents net realized gains on securities available-for-sale for the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016.

Securities Available-for-Sale Gains

(Dollar amounts in thousands)


	Quarters Ended June 30,					Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015		2016			2015			2017		2016
Gains on sales of securities:
Gross realized gains	$	149		$	515	$	1,079		$	1,165		$	—	$	930
Gross realized losses	(126		)	—		(169		)	(138		)	—		(43		)
Net realized gains on sales of securities	23			515		910			1,027			—		887
Non-cash impairment charges:
Other-than-temporary securities impairment ("OTTI")	—			—		—			—			—		—
Net realized gains	$	23		$	515	$	910		$	1,027		$	—	$	887

There were no net securities gains recognized during the first quarter of 2017. Securities of $214.1 million were acquired in the Standard transaction during the first quarter of 2017, of which $210.2 million were sold shortly after the acquisition and resulted in no gains or losses as they were recorded at fair value upon acquisition.

Accounting guidance requires that the credit portion of an OTTI charge be recognized through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income.

The following table presents a rollforward of life-to-date OTTI recognized in earnings related to all securities available-for-sale held by the Company for the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016. The majority of the beginning and ending balance of OTTI relates to CDOs currently held by the Company.

Changes in OTTI Recognized in Earnings

(Dollar amounts in thousands)


	Quarters Ended June 30,				Six Months Ended June 30,					Quarters Ended March 31,
	2016		2015		2016		2015			2017		2016
Beginning balance	$	23,709	$	23,709	$	23,709	$	23,880		$	23,345	$	23,709
OTTI included in earnings ⁽¹⁾:
Reduction for sales of securities ⁽²⁾	—		—		—		(171		)	—		—
Ending balance	$	23,709	$	23,709	$	23,709	$	23,709		$	23,345	$	23,709


⁽¹⁾	Included in net securities gains in the Condensed Consolidated Statements of Income.


⁽²⁾	~~This reduction was driven by the sale of one CMO with a carrying value of $1.3 million during the six months ended June 30, 2015.~~

1618

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Securities in an Unrealized Loss Position

(Dollar amounts in thousands)


			Less Than 12 Months				12 Months or Longer				Total						Less Than 12 Months				12 Months or Longer				Total
		Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of June 30, 2016
Securities Available-for-Sale
U.S. agency securities		8	$	17,500	$	84	$	—	$	—	$	17,500	$	84
CMOs		31	24,763		113		89,507		941		114,270		1,054
MBSs		10	18,479		79		6,965		27		25,444		106
Municipal securities		10	3,171		18		1,012		11		4,183		29
CDOs		10	1,750		96		28,058		17,724		29,808		17,820
Equity securities		2	485		120		2,377		1		2,862		121
Total		71	$	66,148	$	510	$	127,919	$	18,704	$	194,067	$	19,214
Securities Held-To-Maturity
Municipal securities		16	$	18,394	$	2,278	$	—	$	—	$	18,394	$	2,278
As of December 31, 2015
As of March 31, 2017															As of March 31, 2017
Securities Available-for-Sale	Securities Available-for-Sale														Securities Available-for-Sale
U.S. treasury securities		4	$	7,946	$	35	$	—	$	—	$	7,946	$	35		17	$	35,481	$	75	$	3,995	$	6	$	39,476	$	81
U.S. agency securities		10	30,620		169		—		—		30,620		169			30	70,426		358		6,928		24		77,354		382
CMOs		133	309,787		3,110		257,362		5,975		567,149		9,085			196	781,003		12,259		128,464		3,855		909,467		16,114
MBSs		27	63,028		427		31,980		444		95,008		871			73	290,278		5,180		17,013		557		307,291		5,737
Municipal securities		68	8,135		65		24,227		245		32,362		310			272	94,694		2,371		21,520		617		116,214		2,988
CDOs		8	8,034		971		21,642		15,821		29,676		16,792			7	—		—		30,762		14,552		30,762		14,552
Equity securities		2	485		120		2,305		49		2,790		169			2	—		—		6,687		292		6,687		292
Total		252	$	428,035	$	4,897	$	337,516	$	22,534	$	765,551	$	27,431		597	$	1,271,882	$	20,243	$	215,369	$	19,903	$	1,487,251	$	40,146
Securities Held-To-Maturity
Securities Held-to-Maturity															Securities Held-to-Maturity
Municipal securities		19	$	20,054	$	3,098	$	—	$	—	$	20,054	$	3,098		13	$	—	$	—	$	15,118	$	2,624	$	15,118	$	2,624
As of December 31, 2016
Securities Available-for-Sale															Securities Available-for-Sale
U.S. treasury securities																16	$	33,505	$	61	$	3,995	$	5	$	37,500	$	66
U.S. agency securities																28	62,064		364		11,814		46		73,878		410
CMOs																194	523,233		10,309		411,758		7,344		934,991		17,653
MBSs																68	221,174		4,726		77,780		1,154		298,954		5,880
Municipal securities																380	133,957		3,059		29,280		659		163,237		3,718
CDOs																7	—		—		30,592		14,682		30,592		14,682
Equity securities																2	404		201		2,319		86		2,723		287
Total																695	$	974,337	$	18,720	$	567,538	$	23,976	$	1,541,875	$	42,696
Securities Held-to-Maturity															Securities Held-to-Maturity
Municipal securities																14	$	—	$	—	$	18,212	$	4,079	$	18,212	$	4,079

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of ~~June 30, 2016~~March 31, 2017 represent OTTI related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

The unrealized losses on CDOs as of ~~June 30, 2016~~March 31, 2017 reflect changes in market activity for these securities. Management does not believe these unrealized losses represent OTTI related to credit deterioration. In addition, the Company does not intend to sell the CDOs with unrealized losses and the Company does not believe it is more likely than not that it will be required to sell them before recovery of their amortized cost basis, which may be at maturity. Significant judgment is required to calculate the fair value of the ~~CDOs, all of which are pooled.~~CDOs. For a detailed discussion of the CDO valuation methodology, see Note ~~13,~~14, "Fair Value."

1719

5. LOANS

Loans Held-for-Investment

The following table presents the Company's loans held-for-investment by class.

Loan Portfolio

(Dollar amounts in thousands)


	As of				As of
	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Commercial and industrial	$	2,699,742	$	2,524,726	$	3,370,780	$	2,827,658
Agricultural	401,858		387,440		422,784		389,496
Commercial real estate:
Office, retail, and industrial	1,529,675		1,395,454		1,988,979		1,581,967
Multi-family	587,104		528,324		671,710		614,052
Construction	371,016		216,882		568,460		451,540
Other commercial real estate	1,000,655		931,190		1,357,781		979,528
Total commercial real estate	3,488,450		3,071,850		4,586,930		3,627,087
Total corporate loans	6,590,050		5,984,016		8,380,494		6,844,241
Home equity	722,881		653,468		880,667		747,983
1-4 family mortgages	415,581		355,854		540,148		423,922
Installment	223,845		137,602		253,061		237,999
Total consumer loans	1,362,307		1,146,924		1,673,876		1,409,904
Covered loans	27,180		30,775
Total loans	$	7,979,537	$	7,161,715	$	10,054,370	$	8,254,145
Deferred loan fees included in total loans	$	4,359	$	5,191	$	4,429	$	3,838
Overdrawn demand deposits included in total loans	4,480		2,810		6,303		7,836

The increase in total loans for the quarter ended March 31, 2017 includes loans acquired in the Standard acquisition. For additional disclosure related to the Standard transaction, see note 3, "Acquisitions."

The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.

It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's ~~2015~~2016 10-K.

1820

Loan Sales

The following table presents loan sales for the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016.

Loan Sales

(Dollar amounts in thousands)


	Quarters Ended June 30,				Six Months Ended June 30,				Quarters Ended March 31,
	2016		2015		2016		2015		2017		2016
Corporate loan sales
Proceeds from sales	$	14,271	$	4,138	$	23,859	$	9,423	$	15,368	$	9,588
Less book value of loans sold	13,760		3,864		22,890		9,009		15,117		9,130
Net gains on corporate loan sales ⁽¹⁾	511		274		969		414		$	251	$	458
1-4 family mortgage loan sales
Proceeds from sales	53,258		53,445		92,765		89,027		$	55,761	$	39,507
Less book value of loans sold	52,089		51,949		90,769		86,445		54,598		38,680
Net gains on 1-4 family mortgage loan sales ⁽²⁾	1,169		1,496		1,996		2,582		1,163		827
Total net gains on loan sales	$	1,680	$	1,770	$	2,965	$	2,996	$	1,414	$	1,285


⁽¹⁾	Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.


⁽²⁾	Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.

The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. The Company also retained limited recourse for credit losses on the sold 1-4 family mortgage loans. A description of the recourse obligation is presented in Note ~~12,~~13, "Commitments, Guarantees, and Contingent Liabilities."

6. ACQUIRED AND COVERED LOANS

The significant accounting policies related to acquired and covered loans, which are classified as PCI and ~~Non-PCI,~~non-PCI, are presented in Note 1, "Summary of Significant Accounting Policies."

The following table presents the carrying amount of acquired and covered PCI and ~~Non-PCI~~non-PCI loans as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Acquired and Covered Loans⁽¹⁾

(Dollar amounts in thousands)


	As of June 30, 2016						As of December 31, 2015						As of March 31, 2017						As of December 31, 2016
	PCI		Non-PCI		Total		PCI		Non-PCI		Total		PCI		Non-PCI		Total		PCI		Non-PCI		Total
Acquired loans	$	69,404	$	782,181	$	851,585	$	50,286	$	534,506	$	584,792	$	169,961	$	2,101,985	$	2,271,946	$	53,772	$	613,339	$	667,111
Covered loans	9,154		18,026		27,180		9,919		20,856		30,775		7,746		14,712		22,458		7,895		15,379		23,274
Total acquired and covered loans	$	78,558	$	800,207	$	878,765	$	60,205	$	555,362	$	615,567	$	177,707	$	2,116,697	$	2,294,404	$	61,667	$	628,718	$	690,385


⁽¹⁾	Included in loans in the Consolidated Statements of Condition.

The outstanding balance of PCI loans was $251.2 million and $84.8 million as of March 31, 2017 and December 31, 2016, respectively.

The increase in acquired loans for the quarter ended March 31, 2017 includes loans acquired in the Standard acquisition. For additional disclosure related to the Standard transaction, see note 3, "Acquisitions."

Acquired ~~Non-PCI~~non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled ~~$98.3~~$170.9 million and ~~$61.6~~$117.6 million as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

In connection with the FDIC Agreements, the Company recorded an indemnification asset. To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the FDIC Agreements. The Company was in compliance with those requirements as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Rollforwards of the carrying value of the FDIC indemnification asset for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ are presented in the following table.

Changes in the FDIC Indemnification Asset

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	5,680		$	8,540		$	3,903		$	8,452		$	4,522		$	3,903
Amortization	(302		)	(395		)	(582		)	(853		)	(302		)	(280		)
Change in expected reimbursements from the FDIC for changes in expected credit losses	(475		)	786			(259		)	1,720			(328		)	216
Net payments to (from) the FDIC	268			(1,596		)	2,109			(1,984		)
Net payments to the FDIC													328			1,841
Ending balance	$	5,171		$	7,335		$	5,171		$	7,335		$	4,220		$	5,680

Changes in the accretable yield for acquired and covered PCI loans were as follows.

Changes in Accretable Yield

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balances	$	27,258		$	26,420		$	24,912		$	28,244		$	19,385		$	24,912
Additions	—			—			3,981			—			27,316			3,981
Accretion	(2,303		)	(4,335		)	(3,849		)	(6,998		)	(3,955		)	(1,546		)
Other ⁽¹⁾	127			(1,427		)	38			(588		)	(1,497		)	(89		)
Ending balance	$	25,082		$	20,658		$	25,082		$	20,658		$	41,249		$	27,258


⁽¹⁾	~~Increases~~Decreases result from the resolution of certain loans occurring earlier than anticipated while increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying ~~portfolio while decreases result from the resolution of certain loans occurring earlier than anticipated.~~portfolio.

Total accretion on acquired and covered PCI and non-PCI loans for March 31, 2017 and 2016 was $11.3 million and $2.4 million, respectively.

2022

7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIRED LOANS, AND TDRS

Past Due and Non-accrual Loans

The following table presents an aging analysis of the Company's past due loans as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.

Aging Analysis of Past Due Loans and Non-performing Loans by Class

(Dollar amounts in thousands)


	Aging Analysis (Accruing and Non-accrual)										Non-performing Loans				Aging Analysis (Accruing and Non-accrual)										Non-performing Loans
	Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual		90 Days or More Past Due, Still Accruing Interest		Current ⁽¹⁾		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual ⁽²⁾		90 Days or More Past Due, Still Accruing Interest
As of June 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,684,411	$	10,162	$	5,169	$	15,331	$	2,699,742	$	6,303	$	1,050	$	3,359,919	$	7,165	$	3,696	$	10,861	$	3,370,780	$	21,514	$	1,251
Agricultural	401,242		383		233		616		401,858		475		—		420,692		1,434		658		2,092		422,784		1,283		—
Commercial real estate:
Office, retail, and industrial	1,516,265		4,677		8,733		13,410		1,529,675		16,815		34		1,971,050		1,281		16,648		17,929		1,988,979		19,505		52
Multi-family	584,040		2,566		498		3,064		587,104		321		354		666,914		4,782		14		4,796		671,710		163		14
Construction	370,596		47		373		420		371,016		360		20		565,710		2,556		194		2,750		568,460		198		—
Other commercial real estate	992,309		2,926		5,420		8,346		1,000,655		4,797		2,925		1,352,633		3,563		1,585		5,148		1,357,781		3,858		1
Total commercial real estate	3,463,210		10,216		15,024		25,240		3,488,450		22,293		3,333		4,556,307		12,182		18,441		30,623		4,586,930		23,724		67
Total corporate loans	6,548,863		20,761		20,426		41,187		6,590,050		29,071		4,383		8,336,918		20,781		22,795		43,576		8,380,494		46,521		1,318
Home equity	717,461		3,278		2,142		5,420		722,881		4,527		153		874,810		3,045		2,812		5,857		880,667		4,799		864
1-4 family mortgages	411,585		1,901		2,095		3,996		415,581		3,261		604		538,177		1,254		717		1,971		540,148		2,974		41
Installment	222,273		1,306		266		1,572		223,845		—		266		250,952		1,699		410		2,109		253,061		—		410
Total consumer loans	1,351,319		6,485		4,503		10,988		1,362,307		7,788		1,023		1,663,939		5,998		3,939		9,937		1,673,876		7,773		1,315
Covered loans	26,204		681		295		976		27,180		453		—
Total loans	$	7,926,386	$	27,927	$	25,224	$	53,151	$	7,979,537	$	37,312	$	5,406	$	10,000,857	$	26,779	$	26,734	$	53,513	$	10,054,370	$	54,294	$	2,633
As of December 31, 2015
As of December 31, 2016
Commercial and industrial	$	2,516,197	$	4,956	$	3,573	$	8,529	$	2,524,726	$	5,587	$	857	$	2,816,442	$	6,426	$	4,790	$	11,216	$	2,827,658	$	29,938	$	374
Agricultural	387,109		245		86		331		387,440		355		—		388,596		—		900		900		389,496		181		736
Commercial real estate:
Office, retail, and industrial	1,386,383		2,647		6,424		9,071		1,395,454		6,875		4		1,564,007		5,327		12,633		17,960		1,581,967		17,277		1,129
Multi-family	526,625		541		1,158		1,699		528,324		796		548		612,446		858		748		1,606		614,052		311		604
Construction	216,377		—		505		505		216,882		905		—		450,927		332		281		613		451,540		286		—
Other commercial real estate	922,531		3,575		5,084		8,659		931,190		5,611		661		974,575		1,307		3,646		4,953		979,528		2,892		1,526
Total commercial real estate	3,051,916		6,763		13,171		19,934		3,071,850		14,187		1,213		3,601,955		7,824		17,308		25,132		3,627,087		20,766		3,259
Total corporate loans	5,955,222		11,964		16,830		28,794		5,984,016		20,129		2,070		6,806,993		14,250		22,998		37,248		6,844,241		50,885		4,369
Home equity	647,175		3,247		3,046		6,293		653,468		5,310		216		740,919		4,545		2,519		7,064		747,983		5,465		109
1-4 family mortgages	350,980		2,680		2,194		4,874		355,854		3,416		528		420,264		2,652		1,006		3,658		423,922		2,939		272
Installment	136,780		753		69		822		137,602		20		69		236,264		1,476		259		1,735		237,999		—		259
Total consumer loans	1,134,935		6,680		5,309		11,989		1,146,924		8,746		813		1,397,447		8,673		3,784		12,457		1,409,904		8,404		640
Covered loans	29,808		405		562		967		30,775		555		174
Total loans	$	7,119,965	$	19,049	$	22,701	$	41,750	$	7,161,715	$	29,430	$	3,057	$	8,204,440	$	22,923	$	26,782	$	49,705	$	8,254,145	$	59,289	$	5,009


⁽¹⁾	PCI loans with an accretable yield are considered current.


⁽²⁾	Includes PCI loans of $387,000 and $682,000 as of March 31, 2017 and December 31, 2016, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition due to credit deterioration.

2123

Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses inherent in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the table below.

Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


	Commercial, Industrial, and Agricultural			Office, Retail, and Industrial			Multi- family			Construction			Other Commercial Real Estate			Consumer			Covered Loans			Reserve for Unfunded Commitments		Total Allowance for Credit Losses				Commercial, Industrial, and Agricultural			Office, Retail, and Industrial			Multi- family			Construction			Other Commercial Real Estate			Consumer			Reserve for Unfunded Commitments		Total Allowance for Credit Losses
Quarter ended June 30, 2016
Quarter ended March 31, 2017																											Quarter ended March 31, 2017
Beginning balance	$	37,736		$	14,412		$	2,540		$	2,433		$	6,567		$	11,894		$	1,568		$	1,225	$	78,375			$	40,709		$	17,595		$	3,261		$	3,444		$	7,739		$	13,335		$	1,000	$	87,083
Charge-offs	(2,026		)	(1,641		)	(84		)	(8		)	(879		)	(1,493		)	(2		)	—		(6,133		)		(4,074		)	(127		)	—			(5		)	(408		)	(1,664		)	—		(6,278		)
Recoveries	576			8			1			20			69			329			—			—		1,003				1,666			975			28			227			101			443			—		3,440
Net charge-offs	(1,450		)	(1,633		)	(83		)	12			(810		)	(1,164		)	(2		)	—		(5,130		)		(2,408		)	848			28			222			(307		)	(1,221		)	—		(2,838		)
Provision for loan losses and other	3,798			206			469			(206		)	1,717			2,273			(172		)	175		8,260				3,485			(742		)	(429		)	444			(510		)	2,670			—		4,918
Ending balance	$	40,084		$	12,985		$	2,926		$	2,239		$	7,474		$	13,003		$	1,394		$	1,400	$	81,505			$	41,786		$	17,701		$	2,860		$	4,110		$	6,922		$	14,784		$	1,000	$	89,163
Quarter ended June 30, 2015
Quarter ended March 31, 2016																											Quarter ended March 31, 2016
Beginning balance	$	32,096		$	10,831		$	2,355		$	2,076		$	6,298		$	11,655		$	5,679		$	1,816	$	72,806			$	37,074		$	13,124		$	2,469		$	1,440		$	6,109		$	13,414		$	1,225	$	74,855
Charge-offs	(4,127		)	(1,894		)	(469		)	(15		)	(527		)	(751		)	(323		)	—		(8,106		)		(1,898		)	(524		)	(204		)	(126		)	(1,445		)	(992		)	—		(5,189		)
Recoveries	854			32			3			203			1,130			319			38			—		2,579				502			103			25			15			151			320			—		1,116
Net charge-offs	(3,273		)	(1,862		)	(466		)	188			603			(432		)	(285		)	—		(5,527		)		(1,396		)	(421		)	(179		)	(111		)	(1,294		)	(672		)	—		(4,073		)
Provision for loan losses and other	4,906			2,376			562			(374		)	(534		)	(403		)	(533		)	—		6,000				2,058			1,717			257			1,104			1,773			684			—		7,593
Ending balance	$	33,729		$	11,345		$	2,451		$	1,890		$	6,367		$	10,820		$	4,861		$	1,816	$	73,279			$	37,736		$	14,420		$	2,547		$	2,433		$	6,588		$	13,426		$	1,225	$	78,375
Six months ended June 30, 2016
Beginning balance	$	37,074		$	13,116		$	2,462		$	1,440		$	6,088		$	11,812		$	1,638		$	1,225	$	74,855
Charge-offs	(3,924		)	(2,165		)	(288		)	(134		)	(2,324		)	(2,485		)	(2		)	—		(11,322		)
Recoveries	1,078			111			26			35			220			649			—			—		2,119
Net charge-offs	(2,846		)	(2,054		)	(262		)	(99		)	(2,104		)	(1,836		)	(2		)	—		(9,203		)
Provision for loan losses and other	5,856			1,923			726			898			3,490			3,027			(242		)	175		15,853
Ending balance	$	40,084		$	12,985		$	2,926		$	2,239		$	7,474		$	13,003		$	1,394		$	1,400	$	81,505
Six months ended June 30, 2015
Beginning balance	$	29,458		$	10,992		$	2,249		$	2,297		$	8,327		$	12,145		$	7,226		$	1,816	$	74,510
Charge-offs	(11,576		)	(2,050		)	(497		)	(15		)	(1,844		)	(1,551		)	(626		)	—		(18,159		)
Recoveries	1,646			354			7			220			1,396			640			113			—		4,376
Net charge-offs	(9,930		)	(1,696		)	(490		)	205			(448		)	(911		)	(513		)	—		(13,783		)
Provision for loan losses and other	14,201			2,049			692			(612		)	(1,512		)	(414		)	(1,852		)	—		12,552
Ending balance	$	33,729		$	11,345		$	2,451		$	1,890		$	6,367		$	10,820		$	4,861		$	1,816	$	73,279

2224

The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


	Loans								Allowance for Credit Losses								Loans								Allowance for Credit Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total
As of June 30, 2016
As of March 31, 2017
Commercial, industrial, and agricultural	$	3,755	$	3,087,338	$	10,507	$	3,101,600	$	198	$	39,220	$	666	$	40,084	$	18,167	$	3,745,009	$	30,388	$	3,793,564	$	109	$	41,133	$	544	$	41,786
Commercial real estate:
Office, retail, and industrial	15,742		1,500,762		13,171		1,529,675		2,086		9,517		1,382		12,985		13,442		1,956,042		19,495		1,988,979		31		16,200		1,470		17,701
Multi-family	399		574,031		12,674		587,104		—		2,724		202		2,926		396		656,769		14,545		671,710		—		2,784		76		2,860
Construction	34		366,057		4,925		371,016		—		2,088		151		2,239		—		548,280		20,180		568,460		—		3,946		164		4,110
Other commercial real estate	3,309		980,256		17,090		1,000,655		8		6,357		1,109		7,474		2,493		1,286,300		68,988		1,357,781		18		5,832		1,072		6,922
Total commercial real estate	19,484		3,421,106		47,860		3,488,450		2,094		20,686		2,844		25,624		16,331		4,447,391		123,208		4,586,930		49		28,762		2,782		31,593
Total corporate loans	23,239		6,508,444		58,367		6,590,050		2,292		59,906		3,510		65,708		34,498		8,192,400		153,596		8,380,494		158		69,895		3,326		73,379
Consumer	—		1,351,270		11,037		1,362,307		—		12,476		527		13,003		—		1,649,765		24,111		1,673,876		—		13,550		1,234		14,784
Covered loans	—		18,026		9,154		27,180		—		228		1,166		1,394
Reserve for unfunded commitments	—		—		—		—		—		1,400		—		1,400		—		—		—		—		—		1,000		—		1,000
Total loans	$	23,239	$	7,877,740	$	78,558	$	7,979,537	$	2,292	$	74,010	$	5,203	$	81,505	$	34,498	$	9,842,165	$	177,707	$	10,054,370	$	158	$	84,445	$	4,560	$	89,163
As of December 31, 2015
As of December 31, 2016
Commercial, industrial, and agricultural	$	2,871	$	2,902,361	$	6,934	$	2,912,166	$	883	$	35,378	$	813	$	37,074	$	24,645	$	3,189,327	$	3,182	$	3,217,154	$	507	$	39,554	$	648	$	40,709
Commercial real estate:
Office, retail, and industrial	6,162		1,376,789		12,503		1,395,454		715		10,833		1,568		13,116		16,287		1,553,234		12,446		1,581,967		—		16,148		1,448		17,596
Multi-family	800		526,037		1,487		528,324		—		2,367		95		2,462		398		601,429		12,225		614,052		—		3,059		202		3,261
Construction	178		212,671		4,033		216,882		—		1,160		280		1,440		34		447,058		4,448		451,540		—		3,280		164		3,444
Other commercial real estate	3,665		913,161		14,364		931,190		—		5,367		721		6,088		1,286		965,900		12,342		979,528		18		6,613		1,108		7,739
Total commercial real estate	10,805		3,028,658		32,387		3,071,850		715		19,727		2,664		23,106		18,005		3,567,621		41,461		3,627,087		18		29,100		2,922		32,040
Total corporate loans	13,676		5,931,019		39,321		5,984,016		1,598		55,105		3,477		60,180		42,650		6,756,948		44,643		6,844,241		525		68,654		3,569		72,748
Consumer	—		1,135,959		10,965		1,146,924		—		11,425		387		11,812		—		1,392,880		17,024		1,409,904		—		12,210		1,125		13,335
Covered loans	—		20,856		9,919		30,775		—		248		1,390		1,638
Reserve for unfunded commitments	—		—		—		—		—		1,225		—		1,225		—		—		—		—		—		1,000		—		1,000
Total loans	$	13,676	$	7,087,834	$	60,205	$	7,161,715	$	1,598	$	68,003	$	5,254	$	74,855	$	42,650	$	8,149,828	$	61,667	$	8,254,145	$	525	$	81,864	$	4,694	$	87,083

2325

Loans Individually Evaluated for Impairment

The following table presents loans individually evaluated for impairment by class of loan as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. PCI loans are excluded from this disclosure.

Impaired Loans Individually Evaluated by Class

(Dollar amounts in thousands)

As of June 30, 2016 As of December 31, 2015
Recorded Investment In Recorded Investment In

Loans with
No Specific
Reserve

Loans with
a Specific
Reserve

Unpaid
Principal
Balance

Specific
Reserve

Loans with
No Specific
Reserve

Loans with
a Specific
Reserve

Unpaid
Principal
Balance

Specific
Reserve
Commercial and industrial $ 1,909
$ 1,846
$ 5,873
$ 198
$ 1,673
$ 1,198
$ 4,592
$ 883
Agricultural —
—
—
—
—
—
—
—
Commercial real estate:
Office, retail, and industrial 8,900
6,842
21,121
2,086
4,654
1,508
12,083
715
Multi-family 399
—
399
—
800
—
941
—
Construction 34
—
34
—
178
—
299
—
Other commercial real estate 3,039
270
4,740
8
3,665
—
4,403
—
Total commercial real estate 12,372
7,112
26,294
2,094
9,297
1,508
17,726
715
Total impaired loans
individually evaluated
for impairment
$ 14,281
$ 8,958
$ 32,167
$ 2,292
$ 10,970
$ 2,706
$ 22,318
$ 1,598



	As of March 31, 2017								As of December 31, 2016
	Recorded Investment In								Recorded Investment In
	Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve		Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve
Commercial and industrial	$	16,781	$	272	$	25,299	$	109	$	11,579	$	13,066	$	29,514	$	507
Agricultural	1,114		—		1,817		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	12,732		710		17,723		31		16,287		—		21,057		—
Multi-family	396		—		596		—		398		—		398		—
Construction	—		—		315		—		34		—		34		—
Other commercial real estate	2,258		235		4,550		18		1,016		270		2,141		18
Total commercial real estate	16,500		945		25,001		49		17,735		270		23,630		18
Total impaired loans individually evaluated for impairment	$	33,281	$	1,217	$	50,300	$	158	$	29,314	$	13,336	$	53,144	$	525

The following table presents the average recorded investment and interest income recognized on impaired loans by class for the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016. PCI loans are excluded from this disclosure.

Average Recorded Investment and Interest Income Recognized on Impaired Loans by Class

(Dollar amounts in thousands)


	Quarters Ended June 30,								Quarters Ended March 31,
	2016				2015				2017				2016
	Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾
Commercial and industrial	$	3,236	$	12	$	9,277	$	6	$	20,849	$	214	$	2,794	$	38
Agricultural	—		—		—		—		557		—		—		—
Commercial real estate:
Office, retail, and industrial	12,713		29		11,188		4		14,865		93		7,923		48
Multi-family	401		—		866		1		397		28		601		1
Construction	34		—		5,395		—		17		136		106		—
Other commercial real estate	3,641		53		2,822		8		1,890		12		3,819		19
Total commercial real estate	16,788		82		20,271		13		17,169		269		12,449		68
Total impaired loans	$	20,024	$	94	$	29,548	$	19	$	38,575	$	483	$	15,243	$	106

	Six Months Ended June 30,
	2016				2015
	Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾
Commercial and industrial	$	3,114	$	50	$	12,783	$	76
Agricultural	—		—		—		—
Commercial real estate:
Office, retail, and industrial	10,529		77		11,570		33
Multi-family	534		1		890		1
Construction	82		—		5,820		—
Other commercial real estate	3,649		72		2,970		19
Total commercial real estate	14,794		150		21,250		53
Total impaired loans	$	17,908	$	200	$	34,033	$	129


⁽¹⁾	Recorded using the cash basis of accounting.

2526

Credit Quality Indicators

Corporate loans and commitments are assessed for credit risk and assigned ratings based on various characteristics, such as the borrower's cash flow, leverage, and collateral. Ratings for commercial credits are reviewed periodically. The following tables present credit quality indicators by class for corporate and consumer loans, ~~excluding covered loans,~~ as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Corporate Credit Quality Indicators by Class ~~Excluding Covered Loans~~

(Dollar amounts in thousands)


	Pass		Special Mention ^{(1) (4)}		Substandard ^{(2) (4)}		Non-accrual ⁽³⁾		Total		Pass		Special Mention ^{(1) (4)}		Substandard ^{(2) (4)}		Non-accrual ⁽³⁾		Total
As of June 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,511,957	$	130,476	$	51,006	$	6,303	$	2,699,742	$	3,134,827	$	113,944	$	100,495	$	21,514	$	3,370,780
Agricultural	366,283		17,130		17,970		475		401,858		405,354		9,873		6,274		1,283		422,784
Commercial real estate:
Office, retail, and industrial	1,441,594		38,902		32,364		16,815		1,529,675		1,887,699		39,545		42,230		19,505		1,988,979
Multi-family	577,991		4,821		3,971		321		587,104		665,313		4,336		1,898		163		671,710
Construction	357,969		4,250		8,437		360		371,016		542,862		8,927		16,473		198		568,460
Other commercial real estate	966,607		12,123		17,128		4,797		1,000,655		1,312,347		21,599		19,977		3,858		1,357,781
Total commercial real estate	3,344,161		60,096		61,900		22,293		3,488,450		4,408,221		74,407		80,578		23,724		4,586,930
Total corporate loans	$	6,222,401	$	207,702	$	130,876	$	29,071	$	6,590,050	$	7,948,402	$	198,224	$	187,347	$	46,521	$	8,380,494
As of December 31, 2015
As of December 31, 2016
Commercial and industrial	$	2,379,992	$	86,263	$	52,884	$	5,587	$	2,524,726	$	2,638,833	$	92,340	$	66,547	$	29,938	$	2,827,658
Agricultural	381,523		—		5,562		355		387,440		366,382		17,039		5,894		181		389,496
Commercial real estate:
Office, retail, and industrial	1,320,164		32,627		35,788		6,875		1,395,454		1,491,030		34,007		39,513		17,277		1,581,827
Multi-family	517,412		6,146		3,970		796		528,324		607,324		4,370		2,029		311		614,034
Construction	201,496		4,678		9,803		905		216,882		438,946		111		12,197		286		451,540
Other commercial real estate	898,746		13,179		13,654		5,611		931,190		951,115		11,808		13,544		2,892		979,359
Total commercial real estate	2,937,818		56,630		63,215		14,187		3,071,850		3,488,415		50,296		67,283		20,766		3,626,760
Total corporate loans	$	5,699,333	$	142,893	$	121,661	$	20,129	$	5,984,016	$	6,493,630	$	159,675	$	139,724	$	50,885	$	6,843,914


⁽¹⁾	Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.


⁽²⁾	Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are ~~well secured~~well-secured and collection of principal and interest is expected within a reasonable time.


⁽³⁾	Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.


⁽⁴⁾	Total special mention and substandard loans includes accruing TDRs of ~~$847,000~~$674,000 as of ~~June 30, 2016~~March 31, 2017 and ~~$862,000~~$834,000 as of December 31, ~~2015.~~2016.

Consumer Credit Quality Indicators by Class ~~Excluding Covered Loans~~

(Dollar amounts in thousands)


	Performing		Non-accrual		Total		Performing		Non-accrual		Total
As of June 30, 2016
As of March 31, 2017
Home equity	$	718,354	$	4,527	$	722,881	$	875,868	$	4,799	$	880,667
1-4 family mortgages	412,320		3,261		415,581		537,174		2,974		540,148
Installment	223,845		—		223,845		253,061		—		253,061
Total consumer loans	$	1,354,519	$	7,788	$	1,362,307	$	1,666,103	$	7,773	$	1,673,876
As of December 31, 2015
As of December 31, 2016
Home equity	$	648,158	$	5,310	$	653,468	$	727,618	$	4,986	$	732,604
1-4 family mortgages	352,438		3,416		355,854		413,415		2,939		416,354
Installment	137,582		20		137,602		237,999		—		237,999
Total consumer loans	$	1,138,178	$	8,746	$	1,146,924	$	1,379,032	$	7,925	$	1,386,957

2627

TDRs

TDRs are generally performed at the request of the individual borrower and may include forgiveness of principal, reduction in interest rates, changes in payments, and maturity date extensions. The table below presents TDRs by class as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.

TDRs by Class

(Dollar amounts in thousands)


	As of June 30, 2016						As of December 31, 2015						As of March 31, 2017						As of December 31, 2016
	Accruing		Non-accrual ⁽¹⁾		Total		Accruing		Non-accrual ⁽¹⁾		Total		Accruing		Non-accrual ⁽¹⁾		Total		Accruing		Non-accrual ⁽¹⁾		Total
Commercial and industrial	$	289	$	286	$	575	$	294	$	1,050	$	1,344	$	278	$	922	$	1,200	$	281	$	150	$	431
Agricultural													—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	159		—		159		164		—		164		—		864		864		155		4,733		4,888
Multi-family	591		177		768		598		186		784		582		163		745		586		168		754
Construction													—		—		—		—		—		—
Other commercial real estate	329		—		329		340		—		340		263		—		263		268		48		316
Total commercial real estate	1,079		177		1,256		1,102		186		1,288		845		1,027		1,872		1,009		4,949		5,958
Total corporate loans	1,368		463		1,831		1,396		1,236		2,632		1,123		1,949		3,072		1,290		5,099		6,389
Home equity	286		826		1,112		494		667		1,161		172		795		967		177		820		997
1-4 family mortgages	837		401		1,238		853		421		1,274		817		368		1,185		824		378		1,202
Installment													—		—		—		—		—		—
Total consumer loans	1,123		1,227		2,350		1,347		1,088		2,435		989		1,163		2,152		1,001		1,198		2,199
Total loans	$	2,491	$	1,690	$	4,181	$	2,743	$	2,324	$	5,067	$	2,112	$	3,112	$	5,224	$	2,291	$	6,297	$	8,588


⁽¹⁾	These TDRs are included in non-accrual loans in the preceding tables.

TDRs are included in the calculation of the allowance for credit losses in the same manner as impaired loans. There were no$32,000 in specific reserves related to TDRs as of ~~June 30, 2016~~March 31, 2017 and there were ~~$758,000 in~~no specific reserves related to TDRs as of December 31, ~~2015.~~

~~No TDRs were restructured during the quarters and six months ended June 30, 2016 and 2015.~~2016.

Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016.

2728

A rollforward of the carrying value of TDRs for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

TDR Rollforward

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Accruing
Beginning balance	$	2,702		$	3,581		$	2,743		$	3,704		$	2,291		$	2,743
Additions													922			—
Net payments received	(28		)	(349		)	(69		)	(391		)	(24		)	(41		)
Net transfers to non-accrual	(183		)	(165		)	(183		)	(246		)	(1,077		)	—
Ending balance	2,491			3,067			2,491			3,067			2,112			2,702
Non-accrual
Beginning balance	2,268			1,996			2,324			19,904			6,297			2,324
Net payments received	(522		)	(55		)	(578		)	(15,454		)	(4,150		)	(56		)
Charge-offs	(239		)	(36		)	(239		)	(2,626		)	(112		)	—
Net transfers from accruing	183			165			183			246			1,077			—
Ending balance	1,690			2,070			1,690			2,070			3,112			2,268
Total TDRs	$	4,181		$	5,137		$	4,181		$	5,137		$	5,224		$	4,970

For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. Loans that were not restructured at market rates and terms, that are not in compliance with the modified terms, or for which there is a concern about the future ability of the borrower to meet its obligations under the modified terms, continue to be separately reported as restructured until paid in full or charged-off.

There were no material commitments to lend additional funds to borrowers with TDRs as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

8. ~~BORROWED FUNDS~~PREMISES, FURNITURE, AND EQUIPMENT

The following table summarizes the Company's ~~borrowed funds~~premises, furniture, and equipment by ~~funding source.~~category.

~~Summary of Borrowed Funds~~Premises, Furniture, and Equipment

(Dollar amounts in thousands)

As of
June 30,
2016 December 31,
2015
Securities sold under agreements to repurchase $ 124,744
$ 155,196
FHLB advances 325,000
9,900
Total borrowed funds $ 449,744
$ 165,096

Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase securities sold are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities. The securities underlying the agreements remain in the respective asset accounts.

The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and municipal and mortgage-backed securities. As of June 30, 2016, the Company held various 3-month FHLB advances with fixed interest rates that range from 0.46% to 0.58% and maturity dates that range from August 1, 2016 to September 1, 2016.

The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. See Note 11 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.



	As of
	March 31, 2017			December 31, 2016
Land	$	29,942		$	18,304
Premises	138,748			94,369
Furniture and equipment	133,618			105,859
Total cost	302,308			218,532
Accumulated depreciation	(178,801		)	(140,030		)
Net book value of premises, furniture, and equipment	123,507			78,502
Assets held-for-sale	17,146			4,075
Total premises, furniture, and equipment	$	140,653		$	82,577

2829

~~9. SENIOR AND SUBORDINATED DEBT~~During 2016, First Midwest Bank (the "Bank") completed a sale-leaseback transaction, whereby the Bank sold to a third party for an aggregate cash purchase price of $150.3 million, 55 properties with book values totaling $58.8 million, owned and operated by the Bank as branches. Upon the sale of the branches the Bank concurrently entered into triple net lease agreements with certain affiliates of the third party for each of the branches sold. Subject to the right of the Bank to terminate certain of the lease agreements at the end of the eleventh year, the lease agreements have initial terms of 14 years. Each lease agreement provides the Bank with five consecutive renewal options of five years each. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, with $79.5 million of deferred pre-tax gains remaining as of March 31, 2017.

As of March 31, 2017 and December 31, 2016 assets held-for-sale consisted of former branches that are no longer in operation and parcels of land previously purchased for expansion.

Depreciation on premises, furniture, and equipment totaled $3.5 million and $3.2 million for the quarters ended March 31, 2017 and 2016, respectively.

Operating Leases

As of March 31, 2017, the Company was obligated to utilize certain premises and equipment under certain non-cancelable operating leases, which expire at various dates through the year ending December 31, 2033. Many of these leases contain renewal options and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. The following ~~table presents~~summary reflects the ~~Company's senior and subordinated debt~~future minimum payments by ~~issuance.~~year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2017.

~~Senior and Subordinated Debt~~Future Minimum Operating Lease Payments

(Dollar amounts in thousands)

As of
Issuance Date Maturity Date Interest Rate June 30, 2016
December 31,
2015
Senior notes November 2011 November 2016 5.875% $ 114,952
$ 114,891
Subordinated notes March 2006 April 2016 5.850% —
38,499
Junior subordinated debentures:
First Midwest Capital Trust I ("FMCT") November 2003 December 2033 6.950% 37,799
37,799
Great Lakes Statutory Trust II ("GLST II") ⁽¹⁾
December 2005 December 2035
L+1.400% ⁽²⁾
4,344
4,296
Great Lakes Statutory Trust III ("GLST III")⁽¹⁾
June 2007 September 2037
L+1.700% ⁽²⁾
5,781
5,723
Total junior subordinated debentures 47,924
47,818
Total senior and subordinated debt $ 162,876
$ 201,208



	Total
One year or less	$	18,809
After one year to two years	16,591
After two years to three years	16,800
After three years to four years	16,276
After four years to five years	16,190
After five years	124,340
Total minimum lease payments	$	209,006

As of March 31, 2017, deferred pre-tax gains of $79.5 million related to the sale-lease back transaction will be accreted as a reduction to lease expense in other expenses on the Condensed Consolidated Statements of Income on a straight-line basis over the initial terms of the leases.

The Company assumed certain operating leases related to various branches in previous acquisitions. An intangible liability is recorded when the cash flows of a lease exceeds its fair market value. This intangible liability will be accreted into income as a reduction to net occupancy and equipment expense using the straight-line method over the initial term of each lease, which expire between 2018 and 2030. The intangible liability is included in accrued interest and other liabilities in the Consolidated Statements of Financial Condition.

The following table presents the remaining scheduled accretion of the intangible liability by year.

Scheduled Accretion of Operating Lease Intangible

(Dollar amounts in thousands)



	Total
One year or less	$	1,180
After one year to two years	829
After two years to three years	658
After three years to four years	648
After four years to five years	648
After five years	3,835
Total accretion	$	7,798

The following table presents net operating lease expense for the quarters ended March 31, 2017 and 2016.

Net Operating Lease Expense

(Dollar amounts in thousands)



	Quarters Ended March 31,
	2017			2016
Lease expense charged to operations	$	4,559		$	1,727
Accretion of operating lease intangible ⁽¹⁾	(295		)	(286		)
Accretion of deferred gain on sale-leaseback transaction ⁽¹⁾	(1,473		)	—
Rental income from premises leased to others ⁽¹⁾	(181		)	(158		)
Net operating lease expense	$	2,610		$	1,283

⁽¹⁾

~~The junior subordinated debentures related~~Included as reductions to ~~GLST II~~net occupancy and ~~GLST III were assumed by~~equipment expense in the ~~Company during 2014 through the acquisition~~Condensed Consolidated Statements of Great Lakes Financial Resources, Inc., the holding company for Great Lakes Bank. These amounts include acquisition adjustments which resulted in a discount of $1.8 million to GLST II and $2.5 million to GLST III as of June 30, 2016 and $1.9 million to GLST II and $2.5 million to GLST III as of December 31, 2015.


⁽²⁾	~~The interest rates are a variable rate based on the three-month LIBOR plus 1.400% and 1.700% for GLST II and GLST III, respectively.~~Income.

~~On April~~

9. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company's annual goodwill impairment test was performed as of October 1, 2016. It was determined that no impairment existed as of that date or as of March 31, 2017. For a discussion of the accounting policies for goodwill and other intangible assets, see Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2016 ~~$38.5 million~~10-K.

The following table presents changes in the carrying amount of ~~5.850% subordinated notes matured and were repaid by the Company. On November 22, 2016, $115.0 million of 5.875% senior notes will mature. Management is currently evaluating repayment strategies~~goodwill for the ~~senior notes.~~quarters ended March 31, 2017 and 2016.

~~Junior Subordinated Debentures~~Changes in the Carrying Amount of Goodwill

~~FMCT, GLST II, and GLST III are Delaware statutory business trusts. These trusts were established~~(Dollar amounts in thousands)



	Quarters Ended March 31,
	2017		2016
Beginning balance	$	340,879	$	319,007
Acquisitions	350,693		20,761
Ending balance	$	691,572	$	339,768

The increase in goodwill for the ~~purpose of issuing trust-preferred securities~~quarter ended March 31, 2017 resulted from the Standard and ~~lending~~Premier acquisitions and measurement period adjustments related to finalizing the ~~proceeds to the Company in return for junior subordinated debentures~~fair values of the ~~Company.~~ assets acquired and liabilities assumed in the NI Bancshares acquisition. During the quarter ended March 31, 2016, the increase in goodwill resulted from the NI Bancshares acquisition.

The ~~junior subordinated debentures~~Company's other intangible assets are ~~the sole~~core deposit intangibles and trust department customer relationship intangibles, which are being amortized over their estimated useful lives. Other intangible assets of each trust. Therefore, each trust's ability to pay amounts due on the trust-preferred securities is solely dependent on the Company making payments on the related junior subordinated debentures. The trust-preferred securities are subject to ~~mandatory redemption,~~impairment testing when events or circumstances indicate that its carrying amount may not be recoverable. The increase in ~~whole~~other intangible assets for the quarter ended March 31, 2017 resulted from the Standard and Premier acquisitions. The increase in other intangible assets for the quarter ended March 31, 2016 resulted from the NI Bancshares acquisition. During the quarters ended March 31, 2017 and March 31, 2016 there were no events or circumstances to indicate impairment.

Other Intangible Assets

(Dollar amounts in ~~part, on repayment~~thousands)



	Three Months Ended March 31,
	2017							2016
	Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net
Beginning balance	$	58,959	$	32,962	$	25,997		$	48,550	$	28,280	$	20,270
Additions	39,017		—		39,017			10,925		—		10,925
Amortization expense	—		1,965		(1,965		)	—		985		(985		)
Ending balance	$	97,976	$	34,927	$	63,049		$	59,475	$	29,265	$	30,210

Scheduled Amortization of Other Intangible Assets

(Dollar amounts in thousands)



	Total
Year Ending March 31, 2017
2018	$	7,702
2019	7,108
2020	7,064
2021	7,009
2022	6,922
2023 and thereafter	27,244
Total	$	63,049

10. DEPOSITS

The following table presents the ~~junior subordinated debentures at~~Company's deposits by type.

Summary of Deposits

(Dollar amounts in thousands)



	As of
	March 31, 2017		December 31, 2016
Demand deposits	$	3,492,987	$	2,766,748
Savings deposits	2,073,518		1,615,833
NOW accounts	1,876,215		1,675,421
Money market deposits	1,972,566		1,577,316
Time deposits less than $100,000	918,092		755,558
Time deposits greater than $100,000	623,163		437,727
Total deposits	$	10,956,541	$	8,828,603

The increase in total deposits for the ~~stated maturity date or on redemption. The Company guarantees payments of distributions and redemptions on the trust-preferred securities on a limited basis.~~

Trust-preferred securities are included in Tier 1 capital of the Company for regulatory capital purposes. The statutory trusts qualify as VIEs for which the Company is not the primary beneficiary. Consequently, the accounts of those entities are not consolidatedquarter ended March 31, 2017 includes deposits assumed in the ~~Company's financial statements.~~Standard acquisition. For additional disclosure related to the Standard transaction, see note 3, "Acquisitions."

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~~10.~~11. EARNINGS PER COMMON SHARE

The table below displays the calculation of basic and diluted earnings per common share ("EPS").

Basic and Diluted EPS

(Amounts in thousands, except per share data)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Net income	$	25,267		$	22,574		$	43,229		$	42,456		$	22,855		$	17,962
Net income applicable to non-vested restricted shares	(290		)	(249		)	(502		)	(477		)	(234		)	(212		)
Net income applicable to common shares	$	24,977		$	22,325		$	42,727		$	41,979		$	22,621		$	17,750
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	80,383			77,089			79,182			77,004			100,411			77,980
Dilutive effect of common stock equivalents	13			12			12			12			21			12
Weighted-average diluted common shares outstanding	80,396			77,101			79,194			77,016			100,432			77,992
Basic EPS	$	0.31		$	0.29		$	0.54		$	0.55		$	0.23		$	0.23
Diluted EPS	$	0.31		$	0.29		$	0.54		$	0.55		$	0.23		$	0.23
Anti-dilutive shares not included in the computation of diluted EPS ⁽¹⁾	469			768			539			857			343			608


⁽¹⁾	This amount represents outstanding stock options for which the exercise price is greater than the average market price of the Company's common stock.

~~11.~~12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."

Fair Value Hedges

The Company hedges the fair value of fixed rate commercial real estate loans using interest rate swaps through which the Company pays fixed amounts and receives variable amounts. These derivative contracts are designated as fair value hedges.

Fair Value Hedges

(Dollar amounts in thousands)


	As of						As of
	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Gross notional amount outstanding	$	11,016		$	11,620		$	5,833		$	5,958
Derivative liability fair value	(528		)	(643		)	(226		)	(282		)
Weighted-average interest rate received	2.37		%	2.25		%	2.83		%	2.63		%
Weighted-average interest rate paid	6.35		%	6.36		%	5.96		%	5.96		%
Weighted-average maturity (in years)	1.49			1.97			1.60			1.84
Fair value of derivative ⁽¹⁾	$	547		$	665		$	240		$	296


⁽¹⁾	This amount represents the fair value if credit risk related contingent features were triggered.

Hedge ineffectiveness is recognized in other noninterest income in the Condensed Consolidated Statements of Income. For the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016, ~~and 2015,~~ gains or losses related to fair value hedge ineffectiveness were not material.

Cash Flow Hedges

As of ~~June 30, 2016,~~March 31, 2017, the Company hedged ~~$710.0~~$980.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged ~~$710.0~~$980.0 million of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate ~~movements.~~

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movements. Forward starting interest rate swaps totaling ~~$325.0~~$415.0 million began on various dates between June of 2015 and ~~June~~February of ~~2016,~~2017, and mature between June of 2019 and ~~August~~February of ~~2019.~~2020. The remaining forward starting interest rate swaps begin at various dates between February of ~~2017~~2018 and ~~May~~February of ~~2018~~2020 and mature between February of 2020 and ~~May~~April of ~~2020.~~2022. These derivative contracts are designated as cash flow hedges.

Cash Flow Hedges

(Dollar amounts in thousands)


	As of						As of
	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Gross notional amount outstanding	$	1,420,000		$	1,220,000		$	1,960,000		$	1,470,000
Derivative asset fair value	20,683			4,787			4,078			5,402
Derivative liability fair value	(19,647		)	(8,950		)	(8,286		)	(7,390		)
Weighted-average interest rate received	1.28		%	1.24		%	1.42		%	1.37		%
Weighted-average interest rate paid	1.01		%	0.75		%	1.23		%	1.11		%
Weighted-average maturity (in years)	3.29			3.91			3.00			2.83

The effective portion of gains or losses on cash flow hedges is recorded in accumulated other comprehensive loss on an after-tax basis and is subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. Hedge effectiveness is determined using a regression analysis at the inception of the hedge relationship and on an ongoing basis. For the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016, ~~and 2015,~~ there were no material gains or losses related to cash flow hedge ineffectiveness. As of ~~June 30, 2016,~~March 31, 2017, the Company estimates that ~~$3.8~~$7.6 million will be reclassified from accumulated other comprehensive loss as an increase to interest income over the next twelve months.

Other Derivative Instruments

The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative ~~transactions~~transaction with ~~third parties.~~third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third parties, therefore, no CVA was recorded. ~~Transaction fees~~Capital market products income related to commercial customer derivative instruments of ~~$2.1~~$1.4 million and ~~$5.3~~$3.2 million were recorded in noninterest income for the ~~quarter~~quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016, ~~respectively. There were $818,000 and $1.5 million of transaction fees recorded for the quarter and six months ended June 30, 2015,~~ respectively.

Other Derivative Instruments

(Dollar amounts in thousands)


	As of						As of
	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Gross notional amount outstanding	$	1,242,040		$	853,385		$	2,100,325		$	1,656,612
Derivative asset fair value	31,868			11,446			15,722			13,478
Derivative liability fair value	(31,868		)	(11,446		)	(15,722		)	(13,478		)
Fair value of derivative ⁽¹⁾	32,426			11,939			16,340			13,753


⁽¹⁾	This amount represents the fair value if credit risk related contingent features were triggered.

The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. The Company does not enter into derivative transactions for purely speculative purposes.

Credit Risk

Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable

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securities or cash to collateralize either party's net losses above a stated minimum threshold. As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, these collateral agreements covered 100% of the fair value of the Company's outstanding fair value hedges. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.

Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)


	As of June 30, 2016						As of December 31, 2015						As of March 31, 2017						As of December 31, 2016
	Assets			Liabilities			Assets			Liabilities			Assets			Liabilities			Assets			Liabilities
Gross amounts recognized	$	52,551		$	52,043		$	16,233		$	21,039		$	19,800		$	24,234		$	18,880		$	21,150
Less: amounts offset in the Consolidated Statements of Financial Condition	—			—			—			—			—			—			—			—
Net amount presented in the Consolidated Statements of Financial Condition ⁽¹⁾	52,551			52,043			16,233			21,039			19,800			24,234			18,880			21,150
Gross amounts not offset in the Consolidated Statements of Financial Condition:
Offsetting derivative positions	(20,830		)	(20,830		)	(4,791		)	(4,791		)	(11,293		)	(11,293		)	(10,889		)	(10,889		)
Cash collateral pledged	—			(31,213		)	—			(16,248		)	—			(12,941		)	—			(10,261		)
Net credit exposure	$	31,721		$	—		$	11,442		$	—		$	8,507		$	—		$	7,991		$	—


⁽¹⁾	Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.

As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 the Company was in compliance with these provisions.

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~~12.~~13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit and standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)


	As of				As of
	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Commitments to extend credit:
Commercial, industrial, and agricultural	$	1,393,434	$	1,303,056	$	1,737,410	$	1,522,152
Commercial real estate	361,156		366,250		427,425		397,423
Home equity	381,022		352,114		486,880		426,384
Other commitments ⁽¹⁾	213,437		203,121		250,123		214,943
Total commitments to extend credit	$	2,349,049	$	2,224,541	$	2,901,838	$	2,560,902

Letters of credit	$	104,933	$	100,610	$	146,632	$	100,430
Recourse on assets sold:
Unpaid principal balance of loans sold	$	190,294	$	196,389	$	185,101	$	187,158
Carrying value of recourse obligation ⁽²⁾	179		87		150		142


⁽¹⁾	Other commitments includes installment and overdraft protection program commitments.


⁽²⁾	Included in other liabilities in the Consolidated Statements of Financial Condition.

Commitments to extend credit are agreements to lend funds to a customer, subject to contractual terms and covenants. Commitments generally have fixed expiration dates or other termination clauses, variable interest rates, and fee requirements, when applicable. Since many of the commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash flow requirements.

In the event of a customer's non-performance, the Company's credit loss exposure is equal to the contractual amount of the commitments. The credit risk is essentially the same as extending loans to customers. The Company uses the same credit policies for credit commitments as its loans and minimizes exposure to credit loss through various collateral requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Letters of credit generally are contingent on the failure of the customer to perform according to the terms of the contract with the ~~third party~~third-party and are often issued in favor of a municipality where construction is taking place to ensure the borrower adequately completes the construction. Commercial letters of credit are issued to facilitate transactions between a customer and a third party based on agreed upon terms.

The maximum potential future payments guaranteed by the Company under letters of credit arrangements are equal to the contractual amount of the commitment. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral, including real estate, production plants and property, marketable securities, or receipt of cash.

As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase any non-performing loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters ended March 31, 2017 and ~~six months ended June 30, 2016 and 2015.~~2016.

Legal Proceedings

In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at ~~June 30, 2016.~~March 31, 2017. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's financial position, results of operations, or cash flows.

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~~13.~~14. FAIR VALUE

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Statements of Financial Condition. Those assets and liabilities are presented below in the sections titled "Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis" and "Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis."

Other assets and liabilities are not required to be measured at fair value in the Consolidated Statements of Financial Condition, but must be disclosed at fair value. See the "Fair Value Measurements of Other Financial Instruments" section of this note. Any aggregation of the estimated fair values presented in this note does not represent the value of the Company.

Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. GAAP provides a three-tiered fair value hierarchy based on the inputs used to measure fair value. The hierarchy is defined as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs require significant management judgment or estimation, some of which use model-based techniques and may be internally developed.

Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.

3437

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Recurring Fair Value Measurements

(Dollar amounts in thousands)


	As of June 30, 2016						As of December 31, 2015						As of March 31, 2017						As of December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Trading securities:
Money market funds	$	1,517	$	—	$	—	$	2,530	$	—	$	—	$	1,768	$	—	$	—	$	1,645	$	—	$	—
Mutual funds	16,176		—		—		14,364		—		—		17,362		—		—		16,275		—		—
Total trading securities	17,693		—		—		16,894		—		—		19,130		—		—		17,920		—		—
Securities available-for-sale:
U.S. treasury securities	38,889		—		—		16,980		—		—		48,516		—		—		48,541		—		—
U.S. agency securities	—		199,231		—		—		86,643		—		—		181,030		—		—		183,637		—
CMOs	—		920,735		—		—		687,185		—		—		1,051,364		—		—		1,047,446		—
MBSs	—		286,657		—		—		153,530		—		—		352,966		—		—		332,655		—
Municipal securities	—		294,564		—		—		327,570		—		—		262,710		—		—		270,846		—
CDOs	—		—		30,431		—		—		31,529		—		—		33,436		—		—		33,260
Equity securities	—		3,252		—		—		3,199		—		—		7,102		—		—		3,065		—
Total securities available-for-sale	38,889		1,704,439		30,431		16,980		1,258,127		31,529		48,516		1,855,172		33,436		48,541		1,837,649		33,260
Mortgage servicing rights ("MSRs") ⁽¹⁾	—		—		4,938		—		—		1,853		—		—		6,245						6,120
Derivative assets ⁽¹⁾	—		52,551		—		—		16,233		—		—		19,800		—		—		18,880		—
Liabilities:
Derivative liabilities ⁽²⁾	$	—	$	52,043	$	—	$	—	$	21,039	$	—	$	—	$	24,234	$	—	$	—	$	21,150	$	—


⁽¹⁾	Included in other assets in the Consolidated Statements of Financial Condition.


⁽²⁾	Included in other liabilities in the Consolidated Statements of Financial Condition.

The following sections describe the specific valuation techniques and inputs used to measure financial assets and liabilities at fair value.

Trading Securities

The Company's trading securities consist of diversified investment securities held in a grantor trust and are invested in money market and mutual funds. The fair value of these money market and mutual funds is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy.

Securities Available-for-Sale

The Company's securities available-for-sale are primarily fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair values for these securities are based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and are classified in level 2 of the fair value hierarchy. The fair value of U.S. treasury securities is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy. Quarterly, the Company evaluates the methodologies used by its external pricing services to estimate the fair value of these securities to determine whether the valuations represent an exit price in the Company's principal markets.

CDOs are classified in level 3 of the fair value hierarchy. The Company estimates the fair values for each CDO using discounted cash flow analyses with the assistance of a structured credit valuation firm. This methodology is based on credit analysis and historical financial data for each of the issuers underlying the CDOs (the "Issuers"). These estimates are highly subjective and sensitive to several significant, unobservable inputs. The cash flows for each Issuer are then discounted to present values using LIBOR plus an adjustment to reflect the impact of market factors. Finally, the discounted cash flows for each Issuer are aggregated to derive the estimated fair value for the specific CDO.

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The following table presents the ranges of significant, unobservable inputs calculated using the ~~weighted average~~weighted-average of the Issuers used by the Company as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Significant Unobservable Inputs Used in the Valuation of CDOs


	As of								As of
	June 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
Probability of prepayment	1.8	%	-	15.1%	1.8	%	-	15.1%	0.0	%	-	10.9%	0.0	%	-	10.9%
Probability of default	18.7	%	-	49.7%	19.1	%	-	32.6%	16.6	%	-	44.1%	16.7	%	-	46.8%
Loss given default	92.8	%	-	98.4%	93.8	%	-	97.1%	93.3	%	-	99.1%	93.3	%	-	98.9%
Probability of deferral cure	20.6	%	-	100.0%	15.2	%	-	63.1%	0.0	%	-	100.0%	7.6	%	-	100.0%

Most Issuers have the right to prepay the securities on the fifth anniversary of issuance and under other limited circumstances. To estimate prepayments, a credit analysis of each Issuer is performed to estimate its ability and likelihood to fund a prepayment. If a prepayment occurs, the Company receives cash equal to the par value for the portion of the CDO associated with that Issuer.

The likelihood that an Issuer who is currently deferring payment on the securities will pay all deferred amounts and remain current thereafter is based on an analysis of the Issuer's asset quality, leverage ratios, and other measures of financial viability.

The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for each CDO. The timing of the default, the magnitude of the default, and the timing and magnitude of the cure probability are directly interrelated. Defaults that occur sooner and/or are greater than anticipated have a negative impact on the valuation. In addition, a high cure probability assumption has a positive effect on the fair value, and, if a cure event takes place sooner than anticipated, the impact on the valuation is also favorable.

Management monitors the valuation results of each CDO on a semi-annual basis, which includes an analysis of historical pricing trends for these types of securities, overall economic conditions (such as tracking LIBOR curves), and the performance of the Issuers' industries. Annually, management validates significant assumptions by reviewing detailed back-testing performed by the structured credit valuation firm.

A rollforward of the carrying value of CDOs for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Carrying Value of CDOs

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017		2016
Beginning balance	$	30,757		$	33,928		$	31,529		$	33,774		$	33,260	$	31,529
Change in other comprehensive income ⁽¹⁾	(244		)	(1,798		)	(1,030		)	(1,498		)	129		(786		)
Paydowns	(82		)	(126		)	(68		)	(272		)
Other													47		14
Ending balance	$	30,431		$	32,004		$	30,431		$	32,004		$	33,436	$	30,757


⁽¹⁾	Included in unrealized holding gains in the Consolidated Statements of Comprehensive Income.

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MSRs

The Company services loans for others totaling ~~$603.0~~$632.7 million as of ~~June 30, 2016~~March 31, 2017 and ~~$242.9~~$640.5 million as of December 31, 2015. As of June 30, 2016, loans serviced for others includes approximately $339.1 million of loans, the servicing of which transitioned from NI Bancshares to the Company as a result of the acquisition.2016. These loans are owned by third parties and are not included in the Consolidated Statements of Financial Condition. ~~Additional information regarding the NI Bancshares transaction is presented in Note 3, "Acquisitions."~~

The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of ~~June 30, 2016.~~March 31, 2017.

Significant Unobservable Inputs Used in the Valuation of MSRs


	As of								As of
	June 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
Prepayment speed	9.1	%	-	28.0%	10.1	%	-	20.9%	7.7	%	-	25.5%	7.7	%	-	22.8%
Maturity (months)	2		-	85	6		-	86	10		-	102	12		-	103
Discount rate	9.5	%	-	13.0%	9.5	%	-	13.0%	9.5	%	-	13.0%	9.5	%	-	13.0%

The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.

A rollforward of the carrying value of MSRs for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	5,022		$	1,773		$	1,853		$	1,728		$	6,120		$	1,853
Additions from acquisition	—			—			3,092			—			—			3,092
New MSRs	162			98			347			243			156			185
(Losses) gains included in earnings ⁽¹⁾:
Total gains (losses) included in earnings ⁽¹⁾:
Changes in valuation inputs and assumptions	(132		)	12			(172		)	(39		)	172			(40		)
Other changes in fair value ⁽²⁾	(114		)	(63		)	(182		)	(112		)	(203		)	(68		)
Ending balance	$	4,938		$	1,820		$	4,938		$	1,820		$	6,245		$	5,022
Contractual servicing fees earned ⁽¹⁾	$	366		$	135		$	549		$	268		$	395		$	183


⁽¹⁾	Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of ~~June 30, 2016~~March 31, 2017 and ~~2015.~~2016.


⁽²⁾	Primarily represents changes in expected future cash flows due to payoffs and paydowns.

Derivative Assets and Derivative Liabilities

The Company enters into interest rate swaps and derivative transactions with commercial customers. These derivative transactions are executed in the dealer market, and pricing is based on market quotes obtained from the counterparties. The market quotes were developed using market observable inputs, which primarily include LIBOR. Therefore, derivatives are classified in level 2 of the fair value hierarchy. For its derivative assets and liabilities, the Company also considers non-performance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparty are representative of an exit price.

3740

Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis

The following table provides the fair value for each class of assets and liabilities required to be measured at fair value on a non-recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Non-Recurring Fair Value Measurements

(Dollar amounts in thousands)


	As of June 30, 2016						As of December 31, 2015						As of March 31, 2017						As of December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Collateral-dependent impaired loans ⁽¹⁾	$	—	$	—	$	11,260	$	—	$	—	$	10,519	$	—	$	—	$	11,528	$	—	$	—	$	22,019
OREO ⁽²⁾	—		—		2,160		—		—		8,581		—		—		780		—		—		8,624
Loans held-for-sale ⁽³⁾	—		—		18,144		—		—		14,444		—		—		9,144		—		—		10,484
Assets held-for-sale ⁽⁴⁾	—		—		4,851		—		—		7,428		—		—		17,146		—		—		4,075


⁽¹⁾	Includes impaired loans with charge-offs and impaired loans with a specific reserve during the periods presented.


⁽²⁾	Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.


⁽³⁾	Included in other assets in the Consolidated Statements of Financial Condition.


⁽⁴⁾	Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.

Collateral-Dependent Impaired Loans

Certain collateral-dependent impaired loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the value of the underlying collateral. The fair values of collateral-dependent impaired loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent impaired loans are classified in level 3 of the fair value hierarchy.

Collateral-dependent impaired loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.

OREO

The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.

Loans Held-for-Sale

As of ~~June 30, 2016,~~March 31, 2017, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to ~~sell.~~sell and three corporate loans. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy. As of December 31, ~~2015,~~2016, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell, and a ~~commercial real estate~~corporate loan.

Assets Held-for-Sale

Assets held-for-sale as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.

3841

Financial Instruments Not Required to be Measured at Fair Value

For certain financial instruments that are not required to be measured at fair value in the Consolidated Statements of Financial Condition, the Company must disclose the estimated fair values and the level within the fair value hierarchy as shown in the following table.

Fair Value Measurements of Other Financial Instruments

(Dollar amounts in thousands)


		As of									As of
		June 30, 2016				December 31, 2015					March 31, 2017				December 31, 2016
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Cash and due from banks	1	$	149,957	$	149,957	$	114,587	$	114,587	1	$	174,268	$	174,268	$	155,055	$	155,055
Interest-bearing deposits in other banks	2	105,432		105,432		266,615		266,615		2	74,892		74,892		107,093		107,093
Securities held-to-maturity	2	20,672		18,394		23,152		20,054		2	17,742		15,118		22,291		18,212
FHLB and FRB stock	2	44,506		44,506		39,306		39,306		2	46,306		46,306		59,131		59,131
Loans	3	7,905,390		7,846,563		7,091,988		6,959,024		3	9,970,427		9,712,763		8,172,584		7,973,845
Investment in BOLI	3	218,133		218,133		209,601		209,601		3	276,960		276,960		219,746		219,746
Accrued interest receivable	3	30,167		30,167		27,847		27,847		3	39,868		39,868		34,384		34,384
Other interest-earning assets	3	1,307		1,307		1,982		1,982		3	635		635		834		834
Liabilities:
Deposits	2	$	8,971,316	$	8,973,012	$	8,097,738	$	8,093,640	2	$	10,956,541	$	10,945,331	$	8,828,603	$	8,820,572
Borrowed funds	2	449,744		449,744		165,096		165,096		2	547,923		547,923		879,008		879,008
Senior and subordinated debt	1	162,876		164,753		201,208		205,726		2	194,745		202,522		194,603		197,888
Accrued interest payable	2	2,309		2,309		2,175		2,175		2	2,564		2,564		3,416		3,416

Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments.

Short-Term Financial Assets and Liabilities - For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments include cash and due from banks, interest-bearing deposits in other banks, accrued interest receivable, and accrued interest payable.

Securities Held-to-Maturity - The fair value of securities held-to-maturity is estimated using the present value of expected future cash flows of the remaining maturities of the securities.

FHLB and FRB Stock - The carrying amounts approximate fair value as the stock is non-marketable.

Loans - Loans includes the FDIC indemnification asset and net loans, which consists of loans held-for-investment, acquired loans, ~~covered loans,~~ and the allowance for loan losses. The fair value of loans is estimated using the present value of the expected future cash flows of the remaining maturities of the loans. Prepayment assumptions that consider the Company's historical experience and current economic and lending conditions were included. The discount rate was based on the LIBOR yield curve with adjustments for liquidity and credit risk inherent in the loans.

The fair value of the covered loan portfolio is determined by discounting the expected future cash flows at a market interest rate, which is derived from LIBOR swap rates over the life of those loans. The expected future cash flows are derived from the contractual terms of the covered loans, net of any projected credit losses. For valuation purposes, these loans are placed into groups with similar characteristics and risk factors, where appropriate. The timing and amount of credit losses for each group are estimated using historical default and loss experience, current collateral valuations, borrower credit scores, and internal risk ratings. For individually significant loans or credit relationships, the estimated fair value is determined by a specific loan level review utilizing appraised values for collateral and projections of the timing and amount of expected future cash flows.

Investment in BOLI - The fair value of BOLI approximates the carrying amount as both are based on each policy's respective cash surrender value ("CSV"), which is the amount the Company would receive from the liquidation of these investments. The CSV is derived from monthly reports provided by the managing brokers and is determined using the Company's initial insurance premium and earnings of the underlying assets, offset by management fees.

Other Interest-Earning Assets - The fair value of other interest-earning assets is estimated using the present value of the expected future cash flows of the remaining maturities of the assets.

Deposits - The fair values disclosed for demand deposits, savings deposits, NOW accounts, and money market deposits are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair value for fixed-rate time deposits

was estimated using the expected future cash flows discounted based on the LIBOR yield curve, plus or minus the spread associated with current pricing.

Borrowed Funds - The fair value of FHLB advances is estimated by discounting the agreements based on maturities using the rates currently offered for FHLB advances of similar remaining maturities adjusted for prepayment penalties that would be incurred if the borrowings were paid off on the measurement date. The carrying amounts of securities sold under agreements to repurchase approximate their fair value due to their short-term nature.

Senior and Subordinated Debt - The fair ~~value~~values of senior and subordinated ~~debt is determined using~~notes are estimated based on quoted market ~~prices.~~prices of similar instruments. The fair values of junior subordinated debentures are estimated based on quoted market prices of comparable securities when available, or by discounting the expected future cash flows at market interest rates.

Commitments to Extend Credit and Letters of Credit - The Company estimated the fair value of lending commitments outstanding to be immaterial based on (i) the limited interest rate exposure of the commitments outstanding due to their variable nature, (ii) the short-term nature of the commitment periods, (iii) termination clauses provided in the agreements, and (iv) the market rate of fees charged.

4043

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

First Midwest Bancorp, Inc. is a bank holding company headquartered in the Chicago suburb of Itasca, Illinois with operations throughout the Chicago metropolitan area as well as northwest Indiana, central and western Illinois, and eastern Iowa through over ~~110 banking~~130 locations. Our principal subsidiary is First Midwest Bank, which provides a broad range of ~~banking,~~commercial, retail, treasury, and wealth management products and services to commercial and industrial, commercial real estate, municipal, and consumer customers. We are committed to meeting the financial needs of the people and businesses in the communities where we live and work by providing customized banking solutions, quality products, and innovative services that fulfill those financial needs.

The following discussion and analysis is intended to address the significant factors affecting our Condensed Consolidated Statements of Income for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ and Consolidated Statements of Financial Condition as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. When we use the terms "First Midwest," the "Company," "we," "us," and "our," we mean First Midwest Bancorp, Inc. and its consolidated subsidiaries. When we use the term "Bank," we are referring to our wholly-owned banking subsidiary, First Midwest Bank. Management's discussion and analysis should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other information presented in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as in our ~~2015~~2016 Annual Report on Form 10-K ("~~2015~~2016 10-K"). The results of operations for the quarter ~~and six months~~ ended ~~June 30, 2016~~March 31, 2017 are not necessarily indicative of future results.

Our results of operations are affected by various factors, many of which are beyond our control, including interest rates, local and national economic conditions, business spending, consumer confidence, legislative and regulatory changes, certain seasonal factors, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:

Net Interest Income - Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.

Net Interest Margin - Net interest margin equals tax-equivalent net interest income divided by total average interest-earning assets.

Noninterest Income - Noninterest income is the income we earn from fee-based revenues, ~~investment in bank-owned life insurance ("BOLI"),~~ other income, and non-operating revenues.

Noninterest Expense - Noninterest expense is the expense we incur to operate the Company, which includes salaries and employee benefits, net occupancy and equipment, professional services, and other costs.

Asset Quality - Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.

Regulatory Capital - Our regulatory capital is classified in one of the following tiers: (i) Common Equity Tier 1 capital ("CET1"), which consists of common equity and retained earnings, less goodwill and other intangible assets and a portion of disallowed deferred tax assets, (ii) Tier 1 capital, which consists of CET1 and qualifying trust-preferred securities and the remaining portion of disallowed deferred tax assets, and (iii) Tier 2 capital, which includes qualifying subordinated debt and the allowance for credit losses, subject to limitations.

~~In addition, some~~Some of these metrics may be presented on a non-U.S. generally accepted accounting principles ("non-GAAP") basis. For detail on our non-GAAP metrics, see the discussion in the ~~following~~ section titled "Non-GAAP Financial Information and Reconciliations." Unless otherwise stated, all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis.

As of March 31, 2016, both the Company and the Bank ~~each~~ first exceeded $10.0 billion in total assets. As of ~~June 30, 2016,~~March 31, 2017, the Company and the Bank each had total assets of approximately ~~$11.0~~$13.8 billion. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations impose various additional requirements on bank holding companies and banks with $10.0 billion or more in total consolidated assets. As a general matter, the Company and the Bank are not immediately subject to these additional requirements when they exceed $10 billion in assets; instead, the Company and the Bank will be subject to these various requirements over various dates. For a discussion of the impact that the Dodd-Frank Act and its implementing regulations will have on the Company and the Bank now that they have each exceeded $10.0 billion in total consolidated assets, see the "Supervision and Regulation" section in Item 1, "Business" and Item 1A, "Risk Factors" in the Company's ~~2015 10-K.~~2016 10-K, as well as our subsequent filings made with the Securities and Exchange Commission ("SEC").

4144

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This ~~Quarterly Report on~~ Form 10-Q may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "probable," "potential," "possible," "target," "continue," "look forward," or "assume," and words of similar import. Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and we caution you not to place undue reliance on these statements. Forward-looking statements are made only as of the date of this report, and we undertake no obligation to update any forward-looking statements contained in this report to reflect new information or events or conditions after the date hereof.

Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, anticipated trends in our business, regulatory developments, acquisition transactions, including estimated synergies, cost savings and financial benefits of pending or consummated transactions, ~~including First Midwest's proposed acquisition of Standard Bancshares, Inc.,~~ and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and assumptions. For a discussion of these risks, uncertainties, and assumptions, you should refer to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in our ~~2015~~2016 10-K, as well as our subsequent filings made with the ~~Securities and Exchange Commission ("SEC").~~SEC. However, these risks and uncertainties are not exhaustive. Other sections of this report describe additional factors that could adversely impact our business and financial performance.

~~NON-GAAP FINANCIAL INFORMATION AND RECONCILIATIONS~~CRITICAL ACCOUNTING ESTIMATES

~~The Company's accounting and reporting policies conform to~~Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and are consistent with general practice within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These include, but are not limited to, earnings per share, excluding acquisition and integration related expenses, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, the efficiency ratio, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive loss, to tangible assets, tangible common equity to risk-weighted assets, and return on average tangible common equity.

The Company presents earnings per share ("EPS") and earnings per share, excluding acquisition and integration related expenses, as well as the efficiency ratio which also excludes acquisition and integration related expenses. Management believes excluding these expenses from earnings per share and the efficiency ratio are useful in assessing our underlying operational performance since these transactions do not pertain to our core business operations and their exclusion facilitates better comparability between periods.

In management's view, tangible common equity measures are capital adequacy metrics meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. See the following reconciliations for details on the calculation of these measures to the extent presented herein.

~~Non-GAAP Reconciliations~~

~~(Amounts in thousands, except per share data)~~

Quarters Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Earnings Per Share
Net income $ 25,267
$ 22,574
$ 43,229
$ 42,456
Net income applicable to non-vested restricted shares (290 ) (249 ) (502 ) (477 )
Net income applicable to common shares 24,977
22,325
42,727
41,979
Acquisition and integration related expenses 618
—
5,638
—
Tax effect of acquisition and integration
related expenses (247 ) —
(2,255 ) —
Net income applicable to common shares, excluding
acquisition and integration related expenses $ 25,348
$ 22,325
$ 46,110
$ 41,979
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic) 80,383
77,089
79,182
77,004
Dilutive effect of common stock equivalents 13
12
12
12
Weighted-average diluted common shares
outstanding
80,396
77,101
79,194
77,016
Basic EPS $ 0.31
$ 0.29
$ 0.54
$ 0.55
Diluted EPS $ 0.31
$ 0.29
$ 0.54
$ 0.55
Diluted EPS, excluding acquisition and integration
related expenses
$ 0.32
$ 0.29
$ 0.58
$ 0.55
Tax-Equivalent Net Interest Income
Net interest income $ 89,981
$ 78,902
$ 170,695
$ 155,684
Tax-equivalent adjustment 2,193
2,693
4,500
5,576
Tax-equivalent net interest income ⁽¹⁾
$ 92,174
$ 81,595
$ 175,195
$ 161,260
Efficiency Ratio Calculation
Noninterest expense $ 81,354
$ 73,451
$ 163,943
$ 146,108
Less:
Net other real estate owned ("OREO") expense (1,122 ) (1,861 ) (1,786 ) (3,065 )
Acquisition and integration related expenses (618 ) —
(5,638 ) —
Total $ 79,614
$ 71,590
$ 156,519
$ 143,043
Tax-equivalent net interest income ⁽¹⁾
$ 92,174
$ 81,595
$ 175,195
$ 161,260
Fee-based revenues 35,934
31,573
69,528
60,214
Add:
Other income, excluding BOLI income 984
446
1,563
1,511
BOLI income 881
1,454
1,747
2,337
Tax-equivalent adjustment of BOLI income 587
969
1,165
1,558
Total $ 130,560
$ 116,037
$ 249,198
$ 226,880
Efficiency ratio 60.98 % 61.70 % 62.81 % 63.05 %

Quarters Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Return on Average Common and Tangible Common Equity
Net income applicable to common shares $ 24,977
$ 22,325
$ 42,727
$ 41,979
Intangibles amortization 1,245
978
2,230
1,976
Tax effect of intangibles amortization (498 ) (391 ) (892 ) (790 )
Net income applicable to common shares, excluding
  intangibles amortization
25,724
22,912
44,065
43,165
Acquisition and integration related expenses 618
—
5,638
—
Tax effect of acquisition and integration
  related expenses
(247 ) —
(2,255 ) —
Net income applicable to common shares, excluding
  intangibles amortization and acquisition and
  integration related expenses
$ 26,095
$ 22,912
$ 47,448
$ 43,165
Average stockholders' equity $ 1,235,497
$ 1,123,530
1,207,043
$ 1,119,170
Less: average intangible assets (369,177 ) (332,694 ) (357,863 ) (333,186 )
Average tangible common equity $ 866,320
$ 790,836
$ 849,180
$ 785,984
Return on average common equity ⁽²⁾
8.13 % 7.97 % 7.12 % 7.56 %
Return on average tangible common equity ⁽²⁾
11.94 % 11.62 % 10.44 % 11.07 %
Return on average tangible common equity, excluding
  acquisition and integration related expenses ⁽²⁾
12.11 % 11.62 % 11.24 % 11.07 %

As of
June 30,
2016 December 31,
2015
Tangible Common Equity
Stockholders' equity $ 1,250,889
$ 1,146,268
Less: goodwill and other intangible assets (369,962 ) (339,277 )
Tangible common equity 880,927
806,991
Less: accumulated other comprehensive income ("AOCI") 8,803
28,389
Tangible common equity, excluding AOCI $ 889,730
$ 835,380
Total assets $ 10,995,810
$ 9,732,676
Less: goodwill and other intangible assets (369,962 ) (339,277 )
Tangible assets $ 10,625,848
$ 9,393,399
Risk-weighted assets $ 9,641,953
$ 8,687,864
Tangible common equity to tangible assets 8.29 % 8.59 %
Tangible common equity, excluding AOCI, to tangible assets 8.37 % 8.89 %
Tangible common equity to risk-weighted assets 9.14 % 9.29 %


⁽¹⁾	~~Presented on a tax equivalent basis, which reflects federal and state tax benefits.~~


⁽²⁾	~~Annualized based on the actual number of days for each period presented.~~

~~CRITICAL ACCOUNTING ESTIMATES~~

~~Our accounting and reporting policies conform to GAAP and general practices~~ within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on information available as of the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Critical accounting estimates are those estimates that management believes are the most important to our financial position and results of operations. Future changes in information may impact these estimates, assumptions, and judgments, which may have a material effect on the amounts reported in the financial statements.

For additional information regarding critical accounting estimates, see the "Summary of Significant Accounting Policies," presented in Note 1 to the Consolidated Financial Statements and the section titled "Critical Accounting Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's ~~2015~~2016 10-K. There have been no significant changes in the Company's application of critical accounting estimates related to the allowance for credit losses, valuation of securities, income taxes, and goodwill and other intangible assets since December 31, ~~2015.~~2016.

~~PERFORMANCE OVERVIEW~~SIGNIFICANT RECENT EVENTS

~~Pending Acquisition~~Acquisitions

Standard Bancshares, Inc.

On ~~June 28, 2016,~~January 6, 2017, the Company ~~entered into a definitive agreement to acquire~~completed its acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. With the acquisition, the Company ~~would acquire~~acquired 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest ~~Indiana. Standard has total assets of~~Indiana, and added approximately ~~$2.5~~$2.0 billion ~~with $2.2 billion~~ in ~~deposits, of which over 90% are core~~ deposits and $1.8 billion in ~~loans, of which 80% are commercial-related.~~loans. The merger ~~agreement provides for a fixed exchange ratio~~consideration totaled $580.7 million and consisted of ~~0.4350 shares of First Midwest~~$533.6 million in Company common stock ~~for each share~~and $47.1 million in cash. All operating systems were converted during the first quarter of Standard common stock. As of the date of announcement, the overall transaction is valued at approximately $365 million, including Standard's common stock, stock options, phantom stock, and stock settled rights. The acquisition is expected to close in late 2016 or early 2017, subject to customary regulatory approvals and closing conditions, as well as Company and Standard shareholder approval.2017.

~~Completed Acquisitions~~

~~NI Bancshares Corporation~~Premier Asset Management LLC

On ~~March 8, 2016,~~February 28, 2017, the Company completed its acquisition of ~~NI Bancshares Corporation~~Premier Asset Management LLC ("~~NI Bancshares"~~Premier"), a registered investment advisor based in Chicago, Illinois. At the ~~holding company for The National Bank & Trust Company~~close of Sycamore. With the acquisition, the Company obtained ten banking offices in northern Illinois, and added approximately $400 million in loans and $600 million in deposits. In addition, the Company acquired over $700 million in trust assets under management, which increased the Company's trust assets under management by approximately 10%. The merger consideration totaled $70.1 million and consisted of $54.9 million in Company common stock and $15.2 million in cash.

~~Peoples Bancorp, Inc.~~

~~On December 3, 2015, the Company completed its acquisition of Peoples Bancorp, Inc. ("Peoples") and its wholly-owned banking subsidiary, The Peoples' Bank of Arlington Heights. With~~ the acquisition, the Company acquired ~~two banking offices in Arlington Heights, Illinois, and~~ approximately ~~$92~~$550.0 million ~~in deposits and $54 million in loans. The merger consideration totaled $16.8 million and was paid in cash.~~of trust assets under management. With this acquisition, the assets the Company collectively manages on behalf of its clients increased to nearly $10.0 billion.

PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Operating Results
Interest income	$	96,550		$	84,556		$	184,098		$	167,025		$	123,699		$	87,548
Interest expense	6,569			5,654			13,403			11,341			8,502			6,834
Net interest income	89,981			78,902			170,695			155,684			115,197			80,714
Provision for loan losses	8,085			6,000			15,678			12,552			4,918			7,593
Noninterest income	37,822			33,988			73,748			65,089			39,951			35,926
Noninterest expense	81,354			73,451			163,943			146,108			116,642			82,589
Income before income tax expense	38,364			33,439			64,822			62,113			33,588			26,458
Income tax expense	13,097			10,865			21,593			19,657			10,733			8,496
Net income	$	25,267		$	22,574		$	43,229		$	42,456		$	22,855		$	17,962
Weighted-average diluted common shares outstanding	80,396			77,101			79,194			77,016			100,432			77,992
Diluted earnings per common share	$	0.31		$	0.29		$	0.54		$	0.55		$	0.23		$	0.23
Diluted earnings per common share, excluding acquisition and integration related expenses ⁽¹⁾⁽²⁾	$	0.32		$	0.29		$	0.58		$	0.55
Diluted earnings per common share, excluding certain significant transactions ⁽¹⁾⁽²⁾													$	0.34		$	0.27
Performance Ratios ⁽³⁾
Return on average common equity(3)	8.13		%	7.97		%	7.12		%	7.56		%	5.20		%	6.06		%
Return on average tangible common equity ⁽²⁾⁽³⁾	11.94		%	11.62		%	10.44		%	11.07		%	9.53		%	8.87		%
Return on average assets	0.93		%	0.94		%	0.83		%	0.90		%
Tax-equivalent net interest margin ⁽²⁾⁽⁴⁾	3.72		%	3.76		%	3.69		%	3.77		%
Return on average tangible common equity, excluding certain significant transactions ^{(1) (2) (3)}													13.99		%	10.32		%
Return on average assets ⁽³⁾													0.68		%	0.72		%
Return on average assets, excluding certain significant transactions ^{(1) (2) (3)}													1.01		%	0.84		%
Tax-equivalent net interest margin ^(2)(3)(4)													3.89		%	3.66		%
Efficiency ratio ⁽²⁾	60.98		%	61.70		%	62.81		%	63.05		%	60.98		%	64.82		%


⁽¹⁾	~~Excludes~~Certain significant transactions include acquisition and integration related ~~pre-tax~~ expenses ~~of $618,000~~associated with completed and ~~$5.6 million for the quarter and six months ended June 30, 2016, respectively.~~pending acquisitions.


⁽²⁾	~~These ratios are~~This item is a non-GAAP ~~metrics.~~financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."


⁽³⁾	~~All~~These ratios are presented on an annualized basis.


⁽⁴⁾	See the section of this Item 2 titled "Earnings Performance" below for additional discussion and calculation of this ~~metric.~~financial measure.


	As of									June 30, 2016 Change from						As of									March 31, 2017 Change From
	June 30, 2016			December 31, 2015			June 30, 2015			December 31, 2015			June 30, 2015			March 31, 2017			December 31, 2016			March 31, 2016			December 31, 2016			March 31, 2016
Balance Sheet Highlights
Total assets	$	10,995,810		$	9,732,676		$	9,863,027		$	1,263,134		$	1,132,783		$	13,773,471		$	11,422,555		$	10,728,922		$	2,350,916		$	3,044,549
Total loans	7,979,537			7,161,715			6,850,185			817,822			1,129,352			10,054,370			8,254,145			7,822,555			1,800,225			2,231,815
Total deposits	8,971,316			8,097,738			8,212,671			873,578			758,645			10,956,541			8,828,603			8,780,818			2,127,938			2,175,723
Core deposits	7,701,880			6,944,272			7,022,779			757,608			679,101			9,415,286			7,635,318			7,493,696			1,779,968			1,921,590
Loans to deposits	88.9		%	88.4		%	83.4		%							91.8		%	93.5		%	89.1		%
Core deposits to total deposits	85.9		%	85.8		%	85.5		%							85.9		%	86.5		%	85.3		%

Asset Quality Highlights ⁽¹⁾
Non-accrual loans	$	36,859		$	28,875		$	45,009		$	7,984		$	(8,150	)	$	54,294		$	59,289		$	31,890		$	(4,995	)	$	22,404
90 days or more past due loans, still accruing interest(1)	5,406			2,883			2,744			2,523			2,662			2,633			5,009			5,835			(2,376		)	(3,202		)
Total non-performing loans	42,265			31,758			47,753			10,507			(5,488		)	56,927			64,298			37,725			(7,371		)	19,202
Accruing troubled debt restructurings ("TDRs")	2,491			2,743			3,067			(252		)	(576		)	2,112			2,291			2,702			(179		)	(590		)
OREO	29,452			27,349			24,471			2,103			4,981
Other real estate owned ("OREO")																29,140			26,083			29,649			3,057			(509		)
Total non-performing assets	$	74,208		$	61,850		$	75,291		$	12,358		$	(1,083	)	$	88,179		$	92,672		$	70,076		$	(4,493	)	$	18,103
30-89 days past due loans(1)	$	22,770		$	16,329		$	28,625		$	6,441		$	(5,855	)	$	23,641		$	21,043		$	30,142		$	2,598		$	(6,501	)
Non-performing assets to loans plus OREO(2)	0.93		%	0.86		%	1.10		%							0.87		%	1.12		%	0.89		%
Allowance for Credit Losses
Allowance for credit losses	$	81,505		$	74,855		$	73,279		$	6,650		$	8,226		$	89,163		$	87,083		$	78,375		$	2,080		$	10,788
Allowance for credit losses to total loans ⁽²⁾⁽³⁾	1.02		%	1.05		%	1.07		%							0.89		%	1.06		%	1.00		%
Allowance for credit losses to non-accrual loans ⁽¹⁾	217.34		%	253.57		%	152.01		%
Allowance for credit losses to total loans, excluding acquired loans																1.11		%	1.11		%	1.11		%
Allowance for credit losses to non-accrual loans ⁽³⁾																164.22		%	146.88		%	245.77		%

⁽¹⁾

~~These amounts~~Purchased credit impaired ("PCI") loans with an accretable yield are considered current and ratios exclude loans and OREO acquired through the Company's Federal Deposit Insurance Corporation ("FDIC")-assisted transactions subject to loss sharing agreements ("covered loans" and "covered OREO"). For a discussion of covered loans, see Note 1 and Note 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q. Asset quality, including covered loans and covered OREO, isare not included in ~~the section of this Item 2 titled "Loan Portfolio and Credit Quality~~."

past due loan totals.


⁽²⁾	Excluding the impact of loans and OREO acquired in the Standard transaction, non-performing assets to total loans plus OREO was 0.95% at March 31, 2017.

⁽³⁾

This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. A discussion of the allowance for acquired loan losses and the related acquisition adjustment is presented in the section titled "Loan Portfolio and Credit Quality."

Net income for the ~~second~~first quarter ~~and first six months of 2016 were $25.3~~2017 was $22.9 million, or ~~$0.31~~$0.23 per share, ~~and $43.2~~compared to $18.0 million, or ~~$0.54~~$0.23 per share, ~~respectively.~~for the first quarter of 2016. Performance for ~~the second quarter and first six months of 2016 were~~both periods was impacted by certain significant transactions which include acquisition and integration related pre-tax expenses of ~~$618,000~~$18.6 million and ~~$5.6~~$5.0 million for the first quarters of 2017 and 2016, respectively. Excluding these ~~expenses,~~transactions, earnings per share was ~~$0.32 for the second quarter of 2016 compared to $0.29 for the second quarter of 2015 and $0.58~~$0.34 for the first ~~six months~~quarter of ~~2016~~2017 compared to ~~$0.55~~$0.27 for the same period in ~~2015.~~2016. The increase in net income and earnings per share, excluding ~~acquisition and integration related expenses,~~certain significant transactions, reflects the benefit of ~~acquisitions~~the Standard acquisition completed in the ~~fourth~~first quarter of ~~2015~~2017 and the NI Bancshares Corporation ("NI Bancshares") acquisition completed late in the first quarter of 2016, organic loan growth, ~~growth~~increases in fee-based revenues, and ~~controlled expenses.~~lower provision for loan losses, which were partially offset by higher noninterest expense. A discussion of net interest income, noninterest income, and noninterest expense is presented in the following section titled "Earnings Performance."

Total loans of ~~$8.0~~$10.1 billion grew by ~~$817.8 million,~~$1.8 billion, or ~~11.4%~~21.8%, from December 31, ~~2015.~~2016. This growth was driven primarily by the acquisition of ~~NI Bancshares,~~Standard, which represents ~~$363.2 million~~$1.7 billion of loans at ~~June 30, 2016, and strong sales production from the corporate and consumer lending teams.~~March 31, 2017.

Non-performing assets to loans plus OREO ~~excluding covered loans and covered OREO,~~ was ~~0.93%~~0.87% at ~~June 30, 2016, compared to 0.86%~~March 31, 2017, down from 1.12% at December 31, ~~2015, down from 1.10% at June 30, 2015.~~2016. See the following "Loan Portfolio and Credit Quality" section ~~below~~ for further discussion of our loan portfolio, non-accrual loans, 90 days or more past due loans, TDRs, and OREO.

EARNINGS PERFORMANCE

Net Interest Income

Net interest income is our primary source of revenue and is impacted by interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities. The accounting policies for the recognition of interest income on loans, securities, and other interest-earning assets are presented in Note 1 to the Consolidated Financial Statements ofincluded in our ~~2015~~2016 10-K.

Our accounting and reporting policies conform to GAAP and general practices within the banking industry. For purposes of this discussion, both net interest income and net interest margin have been adjusted to a fully tax-equivalent basis to more appropriately compare the returns on certain tax-exempt loans and securities to those on taxable interest-earning assets. The effect of this adjustment is shown at the bottom of ~~Tables 2 and 3.~~Table 2. Although we believe that these non-GAAP financial measures enhance investors' understanding of our business and performance, they should not be considered an alternative to GAAP. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended ~~June 30, 2016~~March 31, 2017 and ~~2015,~~2016, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations. ~~Table 3 presents this same information for the six months ended June 30, 2016 and 2015.~~

Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)


	Quarters Ended June 30,														Attribution of Change in Net Interest Income									Quarters Ended March 31,														Attribution of Change in Net Interest Income
	2016							2015							Attribution of Change in Net Interest Income									2017							2016							Attribution of Change in Net Interest Income
	Average Balance			Interest			Yield/ Rate (%)	Average Balance			Interest			Yield/ Rate (%)	Volume			Yield/ Rate			Total			Average Balance			Interest			Yield/ Rate (%)	Average Balance			Interest			Yield/ Rate (%)	Volume			Yield/ Rate			Total
Assets
Other interest-earning assets	$	300,945		$	426		0.57	$	669,556		$	516		0.31	$	(1,199	)	$	1,109		$	(90	)	$	215,915		$	441		0.83	$	241,645		$	342		0.57	$	(31	)	$	130		$	99
Securities ⁽¹⁾	1,721,781			10,636			2.47	1,177,516			9,792			3.33	2,552			(1,708		)	844			2,021,157			11,535			2.28	1,495,462			9,998			2.67	2,634			(1,097		)	1,537
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock	42,561			200			1.88	38,748			368			3.80	40			(208		)	(168		)	54,219			368			2.71	39,773			159			1.60	72			137			209
Loans ⁽³⁾⁽²⁾	7,883,806			87,481			4.46	6,815,781			76,573			4.51	11,870			(962		)	10,908			9,920,513			113,409			4.64	7,346,035			79,356			4.34	29,323			4,730			34,053
Total interest-earning assets ⁽¹⁾⁽²⁾	9,949,093			98,743			3.99	8,701,601			87,249			4.02	13,263			(1,769		)	11,494			12,211,804			125,753			4.17	9,122,915			89,855			3.96	31,998			3,900			35,898
Cash and due from banks	154,693							133,180																176,953							133,268
Allowance for loan losses	(80,561		)					(73,865		)														(89,065		)					(75,654		)
Other assets	945,291							881,613																1,373,433							876,316
Total assets	$	10,968,516						$	9,642,529															$	13,673,125						$	10,056,845
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity																							Liabilities and Stockholders' Equity
Savings deposits	$	1,655,566		292			0.07	$	1,470,441		262			0.07	30			—			30			$	2,029,631		400			0.08	$	1,575,174		283			0.07	85			32			117
NOW accounts	1,615,677			245			0.06	1,379,508			164			0.05	31			50			81			1,916,816			478			0.10	1,448,666			200			0.06	80			198			278
Money market deposits	1,670,536			454			0.11	1,557,219			470			0.12	31			(47		)	(16		)	1,890,703			619			0.13	1,583,898			465			0.12	96			58			154
Time deposits	1,277,694			1,491			0.47	1,216,371			1,506			0.50	104			(119		)	(15		)	1,515,597			1,712			0.46	1,183,463			1,437			0.49	403			(128		)	275
Borrowed funds	461,363			1,499			1.31	140,002			118			0.34	615			766			1,381			734,091			2,194			1.21	303,232			1,316			1.75	1,128			(250		)	878
Senior and subordinated debt	162,836			2,588			6.39	200,999			3,134			6.25	(608		)	62			(546		)	194,677			3,099			6.46	201,253			3,133			6.26	(112		)	78			(34		)
Total interest-bearing liabilities	6,843,672			6,569			0.39	5,964,540			5,654			0.38	203			712			915			8,281,515			8,502			0.42	6,295,686			6,834			0.44	1,680			(12		)	1,668
Demand deposits	2,771,813							2,437,742																3,355,674							2,463,017
Total funding sources	9,615,485							8,402,282																11,637,189							8,758,703
Other liabilities	117,534							116,717																272,398							119,554
Stockholders' equity - common	1,235,497							1,123,530																1,763,538							1,178,588
Total liabilities and stockholders' equity	$	10,968,516						$	9,642,529															$	13,673,125						$	10,056,845
Tax-equivalent net interest income/margin ⁽¹⁾				92,174			3.72				81,595			3.76	$	13,060		$	(2,481	)	$	10,579					117,251			3.89				83,021			3.66	$	30,318		$	3,912		$	34,230
Tax-equivalent adjustment				(2,193		)					(2,693		)														(2,054		)					(2,307		)
Net interest income (GAAP)				$	89,981						$	78,902															$	115,197						$	80,714
Impact of acquired loan accretion ⁽¹⁾																											$	11,345		0.38				$	2,423		0.11
Tax-equivalent net interest margin, excluding the impact of acquired loan accretion ⁽¹⁾																											105,906			3.51				80,598			3.55

⁽¹⁾

Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. For ~~a discussion~~further details on the calculation of ~~non-GAAP financial measures,~~tax-equivalent net interest income and margin, net interest income and margin (GAAP), and tax-equivalent net interest margin, excluding the impact of acquired loan accretion, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

⁽²⁾

Non-accrual loans, ~~including covered loans,~~ which totaled ~~$37.3~~$54.3 million as of ~~June 30, 2016~~March 31, 2017 and ~~$48.7~~$31.9 million as of ~~June 30, 2015,~~March 31, 2016, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."


⁽³⁾	This item includes covered loans and the related FDIC indemnification asset. For additional discussion, see Note 1 and Note 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

Net interest income increased by 42.7% compared to the first quarter of 2016. The rise in net interest income resulted primarily from the acquisition of interest-earning assets and acquired loan accretion from the Standard transaction early in the first quarter

~~Table 3~~

~~Net Interest Income and Margin Analysis~~

~~(Dollar amounts in thousands)~~

Six Months Ended June 30, Attribution of Change
in Net Interest Income
2016 2015
Average
Balance Interest Yield/
Rate (%) Average
Balance Interest Yield/
Rate (%) Volume Yield/
Rate Total
Assets
Other interest-earning assets $ 271,295
$ 768
0.57 $ 596,302
$ 914
0.31 $ (866 ) $ 720
$ (146 )
Securities ⁽¹⁾
1,608,621
20,634
2.57 1,197,704
20,203
3.37 10,175
(9,744 ) 431
FHLB and FRB stock 41,167
359
1.74 38,287
725
3.79 60
(426 ) (366 )
Loans ^(1)(2)(3)
7,614,920
166,837
4.41 6,778,298
150,759
4.49 18,232
(2,154 ) 16,078
Total interest-earning assets ⁽¹⁾⁽²⁾
9,536,003
188,598
3.97 8,610,591
172,601
4.04 27,601
(11,604 ) 15,997
Cash and due from banks 143,981
128,978

Allowance for loan losses (78,108 ) (73,676 )
Other assets 910,804
886,741

Total assets $ 10,512,680
$ 9,552,634

Liabilities and Stockholders' Equity
Savings deposits $ 1,615,370
575
0.07 $ 1,448,615
530
0.07 45
—
45
NOW accounts 1,532,172
445
0.06 1,372,540
334
0.05 42
69
111
Money market deposits 1,627,217
919
0.11 1,539,588
959
0.13 65
(105 ) (40 )
Time deposits 1,230,578
2,928
0.48 1,241,328
3,104
0.50 (27 ) (149 ) (176 )
Borrowed funds 382,298
2,815
1.48 133,821
136
0.20 615
2,064
2,679
Senior and subordinated debt 182,044
5,721
6.32 200,955
6,278
6.30 (594 ) 37
(557 )
Total interest-bearing
liabilities 6,569,679
13,403
0.41 5,936,847
11,341
0.39 146
1,916
2,062
Demand deposits 2,617,415
2,375,432

Total funding sources 9,187,094
8,312,279

Other liabilities 118,543
121,185

Stockholders' equity - common 1,207,043
1,119,170

Total liabilities and
stockholders' equity $ 10,512,680
$ 9,552,634

Tax-equivalent net interest
income/margin ⁽¹⁾
175,195
3.69 161,260
3.77 $ 27,455
$ (13,520 ) $ 13,935
Tax-equivalent adjustment (4,500 ) (5,576 )
Net interest income (GAAP) $ 170,695
$ 155,684


⁽¹⁾	~~Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate~~of 2017. Higher interest rates combined with increased levels of ~~35%. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."~~


⁽²⁾	Non-accrual loans, including covered loans, which totaled $37.3 million as of June 30, 2016 and $48.7 million as of June 30, 2015, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "~~Non-performing Assets and Corporate Performing Potential Problem Loans~~."


⁽³⁾	This item includes covered loans and the related FDIC indemnification asset. For additional discussion, see Note 1 and Note 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

~~Total~~ interest-earning assets from securities purchases and loan growth also contributed to the increase in net interest income.

Acquired loan accretion contributed $11.3 million and $2.4 million to net interest income for the ~~second~~first quarters of 2017 and 2016, respectively.

Tax-equivalent net interest margin for the current quarter ~~and~~was 3.89%, increasing by 23 basis points from the first ~~six months~~quarter of ~~2016 increased~~2016. The rise in tax-equivalent net interest margin was impacted by ~~$1.2 billion and $925.4 million, respectively, compared~~a 27 basis point increase in acquired loan accretion, due primarily to the ~~same periods~~Standard transaction. In addition, the impact of adding a greater mix of higher-yielding fixed-rate loans acquired from Standard contributed to the increase, which was more than offset by growth in ~~2015.~~the securities portfolio and the continued shift of loan originations and mix to lower-yielding floating rate loans.

For the first quarter of 2017, total average interest-earning assets rose $3.1 billion from the first quarter of 2016. The increase ~~compared to both prior periods presented~~resulted from interest-earning assets acquired in the Standard transaction early in the first quarter of 2017. In addition, the rise in average interest-earning assets was ~~driven primarily~~impacted by ~~$528.8 million of~~organic loan growth, security purchases, and interest-earning assets acquired in the NI Bancshares transaction late in the first quarter of ~~2016, $96.2 million of interest-earning assets acquired in the Peoples transaction late in the fourth quarter of 2015, as well as leveraging growth in deposits and FHLB advances.~~2016.

~~For the second quarter and first six months of 2016, total~~Average funding sources increased by ~~$1.2~~$2.9 billion ~~and $874.8 million, respectively, compared to~~from the ~~same periods~~first quarter of 2016. The increase was impacted by deposits acquired in ~~2015. Compared to both prior periods,~~ the ~~increase resulted primarily from deposits~~Standard transaction early in the first quarter of 2017. Deposits acquired in the NI Bancshares ~~and Peoples transactions~~transaction late in the first quarter of 2016 and the ~~impact of the~~ addition ~~of $325.0 million~~ of FHLB advances during the ~~first six months of 2016.~~

~~Tax-equivalent net interest margin for the~~ second ~~quarter and first six months~~half of 2016 was 3.72% and 3.69%, respectively, decreasing 4 basis points from the second quarter of 2015 and 8 basis points from the first six months of 2015. The decrease in tax-equivalent net interest margin compared to both prior periods was due primarilyalso contributed to the ~~addition of FHLB advances and lower covered loan income, partially offset by the maturity of subordinated notes and growth in demand deposits.~~

~~Net interest income increased by 14.0% and 9.6% from the second quarter and first six months of 2015, respectively, reflecting the increase~~rise in average ~~loans of 15.7% and 12.3% as well as the increase in average securities of 46.2% and 34.3% from the same periods.~~

Acquired loan accretion contributed $3.9 million and $5.3 million to net interest income for the second quarter and first six months of 2016, respectively, and $3.6 million and $5.9 million for the same periods in 2015.funding sources.

Noninterest Income

A summary of noninterest income for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Table 43

Noninterest Income Analysis

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016		2015		% Change		2016		2015		% Change		2017		2016		% Change
Service charges on deposit accounts	$	10,169	$	9,886	2.9		$	19,642	$	19,157	2.5		$	11,365	$	9,473	20.0
Wealth management fees	8,642		7,433		16.3		16,201		14,447		12.1		9,660		7,559		27.8
Card-based fees ⁽¹⁾	7,592		6,953		9.2		14,310		13,355		7.2		8,116		6,718		20.8
Merchant servicing fees ⁽²⁾	3,170		2,938		7.9		6,198		5,603		10.6		3,135		3,028		3.5
Mortgage banking income	1,863		1,439		29.5		3,231		2,562		26.1		1,888		1,368		38.0
Capital market products income													1,376		3,215		(57.2	)
Other service charges, commissions, and fees	4,498		2,924		53.8		9,946		5,090		95.4		2,307		2,233		3.3
Total fee-based revenues	35,934		31,573		13.8		69,528		60,214		15.5		37,847		33,594		12.7
Other income ⁽³⁾	1,865		1,900		(1.8	)	3,310		3,848		(14.0	)
Net securities gains ⁽⁴⁾⁽³⁾	23		515		(95.5	)	910		1,027		(11.4	)	—		887		(100.0	)
Other income ⁽⁴⁾													2,104		1,445		45.6
Total noninterest income	$	37,822	$	33,988	11.3		$	73,748	$	65,089	13.3		$	39,951	$	35,926	11.2


⁽¹⁾	Card-based fees consist of debit and credit card interchange fees for processing transactions as well as various fees on both customer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks.


⁽²⁾	Merchant servicing fees are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income. The related merchant card expense is included in noninterest expense for each period presented.


⁽³⁾	~~Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.~~


⁽⁴⁾	For a discussion of this item, see the section of this Item 2 titled "Investment Portfolio Management."


⁽⁴⁾	Other income consists of various items, including bank-owned life insurance ("BOLI") income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.

~~Total noninterest income increased by 11.3% and 13.3% from the second quarter and first six months of 2015, respectively.~~ Total fee-based revenues ~~for~~of $37.8 million grew by 12.7% compared to the ~~second~~first quarter ~~and first six months~~ of 2016 ~~grew by 13.8%~~resulting primarily from services provided to customers acquired in the Standard transaction and ~~15.5%, respectively, from~~ the ~~same periods in 2015, reflecting growth across all categories.~~

~~Compared to the second quarter and first six months~~full-quarter impact of ~~2015, approximately half and one third of the increases in fee-based revenues, respectively, were driven by~~ services provided to customers acquired in the NI Bancshares ~~and Peoples transactions. In addition, card-based fees increased as a result~~transaction late in the first quarter of higher transaction volumes and other service charges, commissions, and fees grew due to sales of capital market products to commercial clients and gains realized on the sale of equipment financing contracts originated by First Midwest Equipment Finance.2016.

Mortgage banking income resulted from sales of ~~$52.1 million and $90.8~~$54.6 million of 1-4 family mortgage loans in the secondary market during the ~~second~~first quarter ~~and first six months~~ of ~~2016 compared to $51.9 million and $86.4~~2017, up from sales of $38.7 million for the ~~same periods in 2015.~~

first quarter of 2016.

5150

The decline in capital market products income from the first quarter of 2016 was consistent with loan production during the first quarter of 2017.

Noninterest Expense

A summary of noninterest expense for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Table 54

Noninterest Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended June 30,								Six Months Ended June 30,								Quarters Ended March 31,
	2016			2015			% Change		2016			2015			% Change		2017		2016		% Change
Salaries and employee benefits:
Salaries and wages	$	37,916		$	33,096		14.6		$	74,212		$	65,890		12.6		$	44,890	$	36,296	23.7
Retirement and other employee benefits	8,351			7,198			16.0		16,649			15,120			10.1		10,882		8,298		31.1
Total salaries and employee benefits	46,267			40,294			14.8		90,861			81,010			12.2		55,772		44,594		25.1
Net occupancy and equipment expense	9,928			9,622			3.2		19,625			20,058			(2.2	)	12,325		9,697		27.1
Professional services	5,292			5,322			(0.6	)	11,212			10,431			7.5		8,463		5,920		43.0
Technology and related costs	3,669			3,527			4.0		7,370			7,214			2.2		4,433		3,701		19.8
Merchant card expense⁽²⁾⁽¹⁾	2,724			2,472			10.2		5,322			4,669			14.0		2,585		2,598		(0.5	)
Advertising and promotions ⁽¹⁾	1,927			2,344			(17.8	)	3,516			3,567			(1.4	)	1,066		1,589		(32.9	)
Cardholder expenses ⁽¹⁾	1,512			1,292			17.0		2,871			2,560			12.1		1,764		1,359		29.8
Net OREO expense	1,122			1,861			(39.7	)	1,786			3,065			(41.7	)	1,700		664		156.0
Other expenses ⁽¹⁾	8,295			6,717			23.5		15,742			13,534			16.3		9,969		7,447		33.9
Acquisition and integration related expenses	618			—			—		5,638			—			—		18,565		5,020		269.8
Total noninterest expense	$	81,354		$	73,451		10.8		$	163,943		$	146,108		12.2		$	116,642	$	82,589	41.2
Efficiency ratio ⁽³⁾	61.0		%	61.7		%			62.8		%	63.1		%


⁽¹⁾	~~These line items are included in other expense in the Condensed Consolidated Statements of Income.~~


⁽²⁾	The related merchant servicing fees are included in noninterest income for each period presented.


⁽³⁾	~~The efficiency ratio is a non-GAAP metric. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."~~

~~The efficiency ratio improved~~Total noninterest expense increased by 41.2% compared to ~~61.0% and 62.8% for~~ the ~~second~~first quarter ~~and first six months~~ of 2016, ~~respectively, from 61.7% and 63.1% for the same periods in 2015. Excluding~~which was impacted by certain significant transactions including acquisition and integration related expenses associated with completed and pending acquisitions. Excluding these certain significant transactions, total noninterest expense increased by ~~9.9% and 8.3% compared~~26.4% from the first quarter of 2016.

Compared to the ~~second~~first quarter ~~and first six months~~ of ~~2015, respectively. These increases were driven primarily by~~2016, approximately half of the increase in total noninterest expense, excluding certain significant transactions, resulted from operating costs associated with the Standard transaction and the full quarter impact of the NI Bancshares transaction. Compensation costs associated with merit increases, investments in additional talent to support growth, and ~~Peoples transactions, which mostly occurred within salaries and employee benefits expense, net occupancy and equipment expense, technology and related costs, cardholder~~higher loan remediation expenses ~~and other expenses. In addition,~~also contributed to the rise in salaries and employee benefits and professional services ~~costs rose~~compared to the first quarter of 2016.

The decrease in advertising and promotions expense compared to the first quarter of 2016 resulted from the timing of certain advertising costs.

Net OREO expense increased from the first quarter of 2016 due to ~~merit increases and organizational growth needs compared to both prior periods.~~

~~Compared to both prior periods presented, net OREO expense decreased due to reduced~~higher valuation adjustments and ~~lower operating expenses. These reductions were partially offset by net losses on sales~~a rise in expenses related to the resolution of ~~OREO properties realized~~certain properties.

Acquisition and integration related expenses resulted from the acquisition of Standard and Premier during the ~~second~~first quarter of 2017 and ~~first six months of 2016, compared to net gains on sales of OREO properties realized~~NI Bancshares during the ~~same periods in 2015.~~first quarter of 2016. These expenses fluctuate based on the size and timing of each transaction.

5251

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is detailed in the following table.

Table 65

Income Tax Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Income before income tax expense	$	38,364		$	33,439		$	64,822		$	62,113		$	33,588		$	26,458
Income tax expense:
Federal income tax expense	$	10,732		$	8,844		$	17,833		$	15,920		$	8,895		$	7,101
State income tax expense	2,365			2,021			3,760			3,737			1,838			1,395
Total income tax expense	$	13,097		$	10,865		$	21,593		$	19,657		$	10,733		$	8,496
Effective income tax rate	34.1		%	32.5		%	33.3		%	31.6		%	32.0		%	32.1		%

Federal income tax expense and the related effective income tax rate are influenced by the amount of tax-exempt income derived from investment securities and BOLI in relation to pre-tax income and state income taxes. State income tax expense and the related effective tax rate are driven by the amount of state tax-exempt income in relation to pre-tax income and state tax rules related to consolidated/combined reporting and sourcing of income and expense.

The increase in total income tax expense ~~and effective tax rate~~ for the quarter ~~and six months~~ ended ~~June 30, 2016~~March 31, 2017 compared to the same ~~periods~~period in ~~2015~~2016 resulted primarily from higher levels of income subject to tax at statutory rates, ~~and an increase~~offset in part by tax benefits of $638,000 related to the ~~state effective tax rate.~~implementation of Financial Accounting Standards Board ("FASB") guidance on employee share-based payments.

Our accounting policies for the recognition of income taxes in the Consolidated Statements of Financial Condition and Income are included in Notes 1 and 15 to the Consolidated Financial Statements of our ~~2015~~2016 10-K.

FINANCIAL CONDITION

Investment Portfolio Management

Securities that we have the intent and ability to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premiums and accretion of discounts. Trading securities are carried at fair value and consist of securities held in a grantor trust for our nonqualified deferred compensation plan and are not considered part of the traditional investment portfolio. All other securities are classified as securities available-for-sale and are carried at fair value with unrealized gains and losses, net of related deferred income taxes, recorded in stockholders' equity as a separate component of accumulated other comprehensive loss.

We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to mitigate the impact of changes in interest rates on net interest income.

From time to time, we adjust the size and composition of our securities portfolio based on a number of factors, including expected loan growth, anticipated changes in collateralized public funds on account, the interest rate environment, and the related value of various segments of the securities markets. The following table provides a valuation summary of our investment portfolio.

Table 76

Investment Portfolio

(Dollar amounts in thousands)


		As of June 30, 2016								As of December 31, 2015									As of March 31, 2017								As of December 31, 2016
		Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total		Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale
U.S. treasury securities		$	38,548	$	341		$	38,889	2.2	$	17,000	$	(20	)	$	16,980	1.3		$	48,574	$	(58	)	$	48,516	2.5	$	48,581	$	(40	)	$	48,541	2.5
U.S. agency securities		196,735		2,496			199,231		11.2	86,461		182			86,643		6.6		180,894		136			181,030		9.3	183,528		109			183,637		9.6
Collateralized mortgage obligations ("CMOs")		908,550		12,185			920,735		51.9	695,198		(8,013		)	687,185		52.6		1,066,439		(15,075		)	1,051,364		54.3	1,064,130		(16,684		)	1,047,446		54.6
Other mortgage-backed securities ("MBSs")		281,924		4,733			286,657		16.2	152,481		1,049			153,530		11.8		357,473		(4,507		)	352,966		18.2	337,139		(4,484		)	332,655		17.3
Municipal securities		286,547		8,017			294,564		16.6	321,437		6,133			327,570		25.1		263,606		(896		)	262,710		13.6	273,319		(2,473		)	270,846		14.1
Trust-preferred collateralized debt obligations ("CDOs")		48,219		(17,788		)	30,431		1.7	48,287		(16,758		)	31,529		2.4		47,728		(14,292		)	33,436		1.7	47,681		(14,421		)	33,260		1.7
Equity securities		3,290		(38		)	3,252		0.2	3,282		(83		)	3,199		0.2		7,246		(144		)	7,102		0.4	3,206		(141		)	3,065		0.2
Total securities available-for-sale		$	1,763,813	$	9,946		$	1,773,759	100.0	$	1,324,146	$	(17,510	)	$	1,306,636	100.0		$	1,971,960	$	(34,836	)	$	1,937,124	100.0	$	1,957,584	$	(38,134	)	$	1,919,450	100.0
Securities Held-to-Maturity	Securities Held-to-Maturity																	Securities Held-to-Maturity
Municipal securities		$	20,672	$	(2,278	)	$	18,394		$	23,152	$	(3,098	)	$	20,054			$	17,742	$	(2,624	)	$	15,118		$	22,291	$	(4,079	)	$	18,212

Portfolio Composition

As of ~~June 30, 2016,~~March 31, 2017, our securities available-for-sale portfolio totaled ~~$1.8~~$1.9 billion, rising ~~$467.1~~$17.7 million, or ~~35.8%~~0.9%, from December 31, 2015. The increase from December 31, 2015 reflects securities purchases of $532.9 million, consisting primarily of CMOs and MBSs, and $125.8 million in securities acquired in the NI Bancshares transaction, which were partially offset by sales of $39.1 million and maturities, calls, and prepayments of $174.9 million. For additional detail regarding sales of securities see the "Securities Gains and Losses" section below.2016.

Approximately 98% of our securities available-for-sale portfolio is comprised of U.S. treasury securities, U.S. agency securities, CMOs, MBSs, and municipal securities. The remainder consists of eleven CDOs with a fair value of ~~$30.4~~$33.4 million and miscellaneous other securities with a fair value of ~~$3.3~~$7.1 million.

Investments in municipal securities comprised ~~$294.6~~$262.7 million, or ~~16.6%~~13.6%, of the total securities available-for-sale portfolio at ~~June 30, 2016.~~March 31, 2017. The majority consists of general obligations of local municipalities in various states. Our municipal securities portfolio has historically experienced very low default rates and provides a predictable cash flow.

5452

Table 87

Securities Effective Duration Analysis


	As of June 30, 2016					As of December 31, 2015					As of March 31, 2017					As of December 31, 2016
	Effective		Average	Yield to		Effective		Average	Yield to		Effective		Average	Yield to		Effective		Average	Yield to
	Duration ⁽¹⁾		Life ⁽²⁾	Maturity ⁽³⁾		Duration ⁽¹⁾		Life ⁽²⁾	Maturity ⁽³⁾		Duration ⁽¹⁾		Life ⁽²⁾	Maturity ⁽³⁾		Duration ⁽¹⁾		Life ⁽²⁾	Maturity ⁽³⁾
Securities Available-for-Sale
U.S. treasury securities	1.93	%	1.97	1.07	%	2.30	%	2.38	1.16	%	1.15	%	1.17	1.00	%	1.39	%	1.42	0.99	%
U.S. agency securities	2.91	%	4.12	1.55	%	2.78	%	3.79	1.78	%	2.50	%	3.79	1.65	%	2.65	%	3.89	1.55	%
CMOs	2.71	%	3.62	1.99	%	3.61	%	3.99	1.94	%	3.69	%	4.43	1.94	%	3.76	%	4.49	1.88	%
MBSs	2.33	%	3.74	2.26	%	3.48	%	4.42	2.60	%	4.05	%	5.37	2.13	%	4.15	%	5.62	2.07	%
Municipal securities	3.75	%	2.16	4.12	%	3.08	%	3.02	4.80	%	4.10	%	2.34	3.76	%	4.17	%	2.51	3.85	%
CDOs	N/M		N/M	N/M		N/M		N/M	N/M		N/M		N/M	N/M		N/M		N/M	N/M
Equity securities	N/M		N/M	N/M		N/M		N/M	N/M		N/M		N/M	N/M		N/M		N/M	N/M
Total securities available-for-sale	2.83	%	3.42	2.32	%	3.39	%	3.76	2.72	%	3.63	%	4.17	2.17	%	3.72	%	4.27	2.14	%
Securities Held-to-Maturity
Municipal securities	5.74	%	7.61	3.80	%	5.66	%	7.86	4.44	%	5.96	%	8.14	4.38	%	6.47	%	9.08	3.98	%

N/M - Not meaningful.


⁽¹⁾	The effective duration represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point increase or decrease in interest rates. This measure is used to evaluate the portfolio's price volatility at a single point in time and is not intended to be a precise predictor of future fair values since those values will be influenced by a number of factors.


⁽²⁾	Average life is presented in years and represents the weighted-average time to receive half of all future cash flows using the dollar amount of principal paydowns, including estimated principal prepayments, as the weighting factor.


⁽³⁾	Yields on municipal securities are reflected on a tax-equivalent basis, assuming a federal income tax rate of 35%.

Effective Duration

The average life and effective duration of our securities available-for-sale portfolio ~~of 3.42~~was 4.17 years and ~~2.83%~~3.63%, respectively, as of ~~June 30, 2016 were both lower than~~March 31, 2017, consistent with 4.27 years and 3.72% as of December 31, ~~2015. These decreases were primarily impacted by lower market rates.~~2016.

Realized Gains and Losses

There were no net securities gains or impairment charges recognized during the first quarter of 2017. Of the $214.1 million of securities acquired in the Standard transaction during the first quarter of 2017, $210.2 million were sold shortly after the acquisition date and resulted in no gains or losses as they were recorded at fair value upon acquisition.

Net securities gains for the ~~second~~first quarter ~~and first six months~~ of 2016 were ~~$23,000 and $910,000, respectively,~~$887,000 on securities with carrying values of ~~$8.0 million and $38.6 million for the same periods.~~$30.6 million. No impairment charges were recognized during the ~~second~~first quarter ~~and first six months~~ of 2016.

Net securities gains for the second quarter and first six months of 2015 were $515,000 and $1.0 million, respectively, on securities with carrying values of $10.6 million and $46.3 million for the same periods. No impairment charges were recognized during the second quarter and first six months of 2015.

Unrealized Gains and Losses

Unrealized gains and losses on securities available-for-sale represent the difference between the aggregate cost and fair value of the portfolio. These amounts are presented in the Consolidated Statements of Comprehensive Income and reported as a separate component of stockholders' equity in accumulated other comprehensive loss on an after-tax basis. This balance sheet component will fluctuate as current market interest rates and conditions change and affect the aggregate fair value of the portfolio. ~~Lower market rates resulted in a shift from a $17.5 million~~As of March 31, 2017, net unrealized ~~loss position~~losses totaled $34.8 million compared to net unrealized losses of $38.1 million as of December 31, ~~2015 to a $9.9~~2016.

Net unrealized losses in the CMO portfolio totaled $15.1 million ~~net unrealized gain position~~ as of ~~June 30,~~March 31, 2017 compared to $16.7 million as of December 31, 2016. CMOs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. We do not believe any individual unrealized loss on these securities as of March 31, 2017 represents other-than-temporary securities impairment ("OTTI") related to credit deterioration. In addition, we do not intend to sell the CMOs with unrealized losses and we do not believe it is more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

Our investments in CDOs are supported by the credit of the underlying banks and insurance companies. The net unrealized losses on these securities were ~~$17.8~~$14.3 million as of ~~June 30, 2016~~March 31, 2017 and ~~$16.8~~$14.4 million as of December 31, ~~2015.~~2016. We do not believe the unrealized losses on the CDOs as of ~~June 30, 2016~~March 31, 2017 represent ~~other-than-temporary securities impairment~~OTTI related to credit deterioration. In addition, we do not intend to sell the CDOs with unrealized losses and we do not believe it is more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity. Our estimation of fair values for the CDOs is described in Note 1314 of "Notes to the Condensed Consolidated Financial Statements," in Part I, Item 1 of this Form 10-Q.

LOAN PORTFOLIO AND CREDIT QUALITY

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans with corporate loans representing ~~82.6%~~83.3% of total loans at ~~June 30, 2016.~~March 31, 2017. Consistent with our emphasis on relationship banking, the majority of our corporate loans are made to our core, multi-relationship customers. The customers usually maintain deposit relationships and utilize our other banking services, such as treasury or wealth management services.

To maximize loan income within an acceptable level of risk, we have certain lending policies and procedures that management reviews on a regular basis. In addition, management receives periodic reporting related to loan production, loan quality, credit concentrations, loan delinquencies, and non-performing and corporate performing potential problem loans to monitor and mitigate ~~current~~potential and ~~potential~~current risks in the portfolio.

Table 98

Loan Portfolio

(Dollar amounts in thousands)


	As of June 30, 2016												As of March 31, 2017
	Legacy		Acquired ⁽¹⁾		Total		% of Total Loans	As of December 31, 2015		% of Total Loans	% Change		Legacy		Acquired ⁽¹⁾		Total		% of Total Loans	As of December 31, 2016		% of Total Loans	% Change
Commercial and industrial	$	2,650,615	$	49,127	$	2,699,742	33.8	$	2,524,726	35.3	6.9		$	2,855,259	$	515,521	$	3,370,780	33.5	$	2,827,658	34.3	19.2
Agricultural	376,003		25,855		401,858		5.0	387,440		5.4	3.7		394,855		27,929		422,784		4.2	389,496		4.7	8.5
Commercial real estate:
Office, retail, and industrial	1,433,305		96,370		1,529,675		19.2	1,395,454		19.5	9.6		1,542,831		446,148		1,988,979		19.8	1,581,967		19.2	25.7
Multi-family	550,608		36,496		587,104		7.4	528,324		7.4	11.1		634,500		37,210		671,710		6.7	614,052		7.4	9.4
Construction	367,692		3,324		371,016		4.6	216,882		3.0	71.1		453,001		115,459		568,460		5.6	451,540		5.4	25.9
Other commercial real estate	923,807		76,848		1,000,655		12.6	931,190		13.0	7.5		967,763		390,018		1,357,781		13.5	979,528		11.9	38.6
Total commercial real estate	3,275,412		213,038		3,488,450		43.8	3,071,850		42.9	13.6		3,598,095		988,835		4,586,930		45.6	3,627,087		43.9	26.5
Total corporate loans	6,302,030		288,020		6,590,050		82.6	5,984,016		83.6	10.1		6,848,209		1,532,285		8,380,494		83.3	6,844,241		82.9	22.4
Home equity	708,781		14,100		722,881		9.1	653,468		9.1	10.6		783,910		96,757		880,667		8.8	747,983		9.1	17.7
1-4 family mortgages	394,907		20,674		415,581		5.2	355,854		5.0	16.8		451,488		88,660		540,148		5.4	423,922		5.1	27.4
Installment	183,417		40,428		223,845		2.8	137,602		1.9	62.7		251,406		1,655		253,061		2.5	237,999		2.9	6.3
Total consumer loans	1,287,105		75,202		1,362,307		17.1	1,146,924		16.0	18.8		1,486,804		187,072		1,673,876		16.7	1,409,904		17.1	18.7
Covered loans	27,180		—		27,180		0.3	30,775		0.4	(11.7	)
Total loans	$	7,616,315	$	363,222	$	7,979,537	100.0	$	7,161,715	100.0	11.4		$	8,335,013	$	1,719,357	$	10,054,370	100.0	$	8,254,145	100.0	21.8


⁽¹⁾	Amounts represent loans acquired in the ~~NI Bancshares~~Standard transaction, which was completed ~~late~~ in the first quarter of ~~2016.~~2017.

Total loans ~~increased~~of $10.1 billion grew by ~~11.4%~~21.8% from December 31, ~~2015.~~2016. Excluding loans acquired in the ~~NI Bancshares~~Standard transaction ~~of $363.2 million,~~that totaled $1.7 billion, total loans grew ~~by 6.3%~~modestly from December 31, ~~2015, driven primarily by strong sales production of the corporate and consumer lending teams. Overall, the mix of loans remained consistent with the prior period presented.~~

Growth in corporate loans reflects the strong sales performance across diversified commercial real estate categories, as well as continued expansion into select sector-based lending areas such as structured finance, asset-based lending, and equipment financing.2016. The rise in construction loans compared to December 31, 2015 was driven mainly by select commercial projects for which permanent financing is expected upon their completion. The rise in consumer loans reflects the continued expansion of mortgage and installment loans, as well as the addition of shorter-duration, floating rate home equity ~~loans.~~loans and the expansion of mortgage and installment loans drove the increase compared to December 31, 2016.

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represent ~~38.8%~~37.7% of total loans, and totaled ~~$3.1~~$3.8 billion at ~~June 30, 2016,~~March 31, 2017, an increase of ~~$189.4~~$576.4 million, or ~~6.5%~~17.9%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$75.0~~$543.5 million to the increase. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that range from supporting seasonal working capital needs to term financing of equipment. Our commercial and industrial portfolio does not have significant direct exposure to the oil and gas industry. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or

inventory. The underlying collateral securing commercial and industrial loans may fluctuate in value due to the success of the business or economic conditions. For loans secured by accounts receivable, the availability of funds for repayment and economic conditions may impact the cash flow of the borrower. Accordingly, the underwriting for these loans is based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and may incorporate a personal guarantee.

Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming operation. Risks uniquely inherent in agricultural loans relate to weather conditions, agricultural product pricing, and loss of crops or livestock due to disease or other factors. Therefore, as part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.

Commercial Real Estate Loans

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. The repayment of commercial real estate loans depends on the successful operation of the property securing the loan or the business conducted on the property securing the loan. This category of loans may be more adversely affected by conditions in the real estate market. In addition, many commercial real estate loans do not fully amortize over the term of the loan, but have balloon payments due at maturity. The borrower's ability to make a balloon payment may depend on the availability of long-term financing or their ability to complete a timely sale of the underlying property. Management monitors and evaluates commercial real estate loans based on cash flow, collateral, geography, and risk rating criteria. The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and are diverse in terms of type and geographic location, generally within the Company's markets.

Construction loans are generally based on estimates of costs and values associated with the completed projects and are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Sources of repayment may be permanent financing from long-term lenders, sales of developed property, or an interim loan commitment until permanent financing is obtained. Generally, construction loans have a higher risk profile than other real estate loans since repayment is impacted by real estate values, interest rate changes, governmental regulation of real property, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions.

5755

The following table presents commercial real estate loan detail as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Table 109

Commercial Real Estate Loans

(Dollar amounts in thousands)


	As of June 30, 2016		% of Total	As of December 31, 2015		% of Total	As of March 31, 2017		% of Total	As of December 31, 2016		% of Total
Office, retail, and industrial:
Office	$	523,524	15.0	$	479,374	15.6	$	863,810	18.8	$	599,572	16.5
Retail	455,966		13.1	434,241		14.1	463,837		10.1	412,614		11.4
Industrial	550,185		15.8	481,839		15.7	661,332		14.4	569,781		15.7
Total office, retail, and industrial	1,529,675		43.9	1,395,454		45.4	1,988,979		43.3	1,581,967		43.6
Multi-family	587,104		16.8	528,324		17.2	671,710		14.6	614,052		16.9
Construction	371,016		10.6	216,882		7.1	568,460		12.4	451,540		12.4
Other commercial real estate:
Multi-use properties	211,190		6.0	202,225		6.6	304,269		6.6	236,430		6.5
Rental properties	168,106		4.8	131,374		4.3	215,776		4.7	159,134		4.4
Warehouses and storage	138,342		4.0	137,223		4.5	160,994		3.5	136,853		3.8
Restaurants	69,903		2.0	78,017		2.5	116,765		2.5	63,067		1.7
Service stations and truck stops	69,103		2.0	78,459		2.6
Hotels							89,891		2.0	41,780		1.2
Automobile dealers	56,992		1.6	50,580		1.6	86,108		1.9	53,671		1.5
Recreational	56,429		1.6	57,967		1.9	86,099		1.9	58,390		1.6
Hotels	44,310		1.3	46,889		1.5
Service stations and truck stops							67,099		1.6	51,403		1.4
Religious	37,841		1.1	38,307		1.2	37,617		0.8	38,319		1.1
Other	148,439		4.3	110,149		3.6	193,163		4.2	140,481		3.9
Total other commercial real estate	1,000,655		28.7	931,190		30.3	1,357,781		29.7	979,528		27.1
Total commercial real estate	$	3,488,450	100.0	$	3,071,850	100.0	$	4,586,930	100.0	$	3,627,087	100.0

Commercial real estate loans represent ~~43.8%~~45.6% of total loans, and totaled ~~$3.5~~$4.6 billion at ~~June 30, 2016,~~March 31, 2017, increasing by ~~$416.6~~$959.8 million, or ~~13.6%~~26.5%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$213.0~~$988.8 million to the ~~increase. Owner-occupied~~increase, which more than offset lower loan production that was impacted by seasonality.

The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and is diverse in terms of type and geographic location, generally within the Company's markets. Approximately 44% of the commercial real estate portfolio is owner-occupied as of March 31, 2017. Using outstanding loan balances, non-owner occupied commercial real estate loans ~~represent approximately 40%~~to total capital was 221% and construction loans to total capital was 37% as of ~~total~~March 31, 2017. Non-owner-occupied (investor) commercial real estate ~~loans, excluding~~is calculated in accordance with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and ~~construction loans, at June 30, 2016 and December 31, 2015.~~commercial real estate not secured by real estate loans.

Consumer Loans

Consumer loans represent ~~17.1%~~16.7% of total loans, and totaled ~~$1.4~~$1.7 billion at ~~June 30, 2016,~~March 31, 2017, an increase of ~~$215.4~~$264.0 million, or ~~18.8%~~18.7%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$75.2~~$187.1 million to the increase. Consumer loans are centrally underwritten using a credit scoring model developed by the Fair Isaac Corporation ("FICO"), which employs a risk-based system to determine the probability a borrower may default. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements. The home equity category consists mainly of revolving lines of credit secured by junior liens on owner-occupied real estate. Loan-to-value ratios on home equity loans and 1-4 family mortgages are based on the current appraised value of the collateral. Repayment for these loans is dependent on the borrower's continued financial stability, and is more likely to be impacted by adverse personal circumstances.

5856

Non-performing Assets and Corporate Performing Potential Problem Loans

The following table presents our loan portfolio by performing and non-performing status. A discussion of our accounting policies for non-accrual loans, TDRs, and loans 90 days or more past due can be found in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

Table 1110

Loan Portfolio by Performing/Non-Performing Status

(Dollar amounts in thousands)


					Accruing								Accruing
	Total Loans		Current		30-89 Days Past Due		90 Days Past Due		TDRs		Non-accrual		PCI ⁽¹⁾		Current		30-89 Days Past Due		90 Days Past Due		Non-accrual ⁽²⁾		Total Loans
As of June 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,699,742	$	2,682,007	$	10,093	$	1,050	$	289	$	6,303	$	20,841	$	3,320,057	$	7,117	$	1,251	$	21,514	$	3,370,780
Agricultural	401,858		401,000		383		—		—		475		9,282		411,395		824		—		1,283		422,784
Commercial real estate:
Office, retail, and industrial	1,529,675		1,509,543		3,124		34		159		16,815		19,495		1,949,084		843		52		19,505		1,988,979
Multi-family	587,104		583,272		2,566		354		591		321		14,545		652,206		4,782		14		163		671,710
Construction	371,016		370,589		47		20		—		360		20,176		545,530		2,556		—		198		568,460
Other commercial real estate	1,000,655		991,210		1,394		2,925		329		4,797		68,869		1,283,117		1,936		1		3,858		1,357,781
Total commercial real estate	3,488,450		3,454,614		7,131		3,333		1,079		22,293		123,085		4,429,937		10,117		67		23,724		4,586,930
Total corporate loans	6,590,050		6,537,621		17,607		4,383		1,368		29,071		153,208		8,161,389		18,058		1,318		46,521		8,380,494
Home equity	722,881		715,649		2,266		153		286		4,527		3,018		869,265		2,721		864		4,799		880,667
1-4 family mortgages	415,581		409,288		1,591		604		837		3,261		19,759		516,211		1,163		41		2,974		540,148
Installment	223,845		222,273		1,306		266		—		—		1,334		249,618		1,699		410		—		253,061
Total consumer loans	1,362,307		1,347,210		5,163		1,023		1,123		7,788		24,111		1,635,094		5,583		1,315		7,773		1,673,876
Covered loans	27,180		26,117		610		—		—		453
Total loans	$	7,979,537	$	7,910,948	$	23,380	$	5,406	$	2,491	$	37,312	$	177,319	$	9,796,483	$	23,641	$	2,633	$	54,294	$	10,054,370
As of December 31, 2015
As of December 31, 2016
Commercial and industrial	$	2,524,726	$	2,513,648	$	4,340	$	857	$	294	$	5,587	$	2,167	$	2,788,891	$	6,288	$	374	$	29,938	$	2,827,658
Agricultural	387,440		387,085		—		—		—		355		512		388,067		—		736		181		389,496
Commercial real estate:
Office, retail, and industrial	1,395,454		1,385,764		2,647		4		164		6,875		12,398		1,546,078		5,085		1,129		17,277		1,581,967
Multi-family	528,324		525,841		541		548		598		796		12,225		600,054		858		604		311		614,052
Construction	216,882		215,977		—		—		—		905		4,442		446,480		332		—		286		451,540
Other commercial real estate	931,190		921,235		3,343		661		340		5,611		12,219		961,709		1,182		1,526		2,892		979,528
Total commercial real estate	3,071,850		3,048,817		6,531		1,213		1,102		14,187		41,284		3,554,321		7,457		3,259		20,766		3,627,087
Total corporate loans	5,984,016		5,949,550		10,871		2,070		1,396		20,129		43,963		6,731,279		13,745		4,369		50,885		6,844,241
Home equity	653,468		644,996		2,452		216		494		5,310		615		738,213		3,581		109		5,465		747,983
1-4 family mortgages	355,854		348,784		2,273		528		853		3,416		14,949		403,521		2,241		272		2,939		423,922
Installment	137,602		136,780		733		69		—		20		1,459		234,805		1,476		259		—		237,999
Total consumer loans	1,146,924		1,130,560		5,458		813		1,347		8,746		17,023		1,376,539		7,298		640		8,404		1,409,904
Covered loans	30,775		29,670		376		174		—		555
Total loans	$	7,161,715	$	7,109,780	$	16,705	$	3,057	$	2,743	$	29,430	$	60,986	$	8,107,818	$	21,043	$	5,009	$	59,289	$	8,254,145


⁽¹⁾	PCI loans with an accretable yield are considered current.


⁽²⁾	Includes PCI loans of $387,000 and $682,000 as of March 31, 2017 and December 31, 2016, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition due to credit deterioration.

5957

The following table provides a comparison of our non-performing assets and past due loans to prior periods.

Table 1211

Non-Performing Assets and Past Due Loans

(Dollar amounts in thousands)


	As of															As of
	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Non-performing assets, excluding covered loans and covered OREO
Non-accrual loans	$	36,859		$	31,383		$	28,875		$	32,308		$	45,009		$	54,294		$	59,289		$	44,289		$	37,312		$	31,890
90 days or more past due loans, still accruing interest	5,406			5,483			2,883			4,559			2,744
90 days or more past due loans, still accruing interest ⁽¹⁾																2,633			5,009			4,318			5,406			5,835
Total non-performing loans	42,265			36,866			31,758			36,867			47,753			56,927			64,298			48,607			42,718			37,725
Accruing TDRs	2,491			2,702			2,743			2,771			3,067			2,112			2,291			2,368			2,491			2,702
OREO	29,452			29,238			27,349			31,129			24,471			29,140			26,083			28,049			29,990			29,649
Total non-performing assets	$	74,208		$	68,806		$	61,850		$	70,767		$	75,291		$	88,179		$	92,672		$	79,024		$	75,199		$	70,076
30-89 days past due loans	$	22,770		$	29,826		$	16,329		$	28,629		$	28,625
Non-accrual loans to total loans	0.46		%	0.40		%	0.40		%	0.47		%	0.66		%
Non-performing loans to total loans	0.53		%	0.47		%	0.45		%	0.54		%	0.70		%
Non-performing assets to total loans plus OREO	0.93		%	0.88		%	0.86		%	1.02		%	1.10		%
Non-performing covered loans and covered OREO ⁽¹⁾
Non-accrual loans	$	453		$	507		$	555		$	1,303		$	3,712
90 days or more past due loans, still accruing interest	—			352			174			1,372			1,233
Total non-performing loans	453			859			729			2,675			4,945
OREO	538			411			433			906			3,759
Total non-performing assets	$	991		$	1,270		$	1,162		$	3,581		$	8,704
30-89 days past due loans	$	610		$	316		$	376		$	221		$	232
Total non-performing assets
Non-accrual loans	$	37,312		$	31,890		$	29,430		$	33,611		$	48,721
90 days or more past due loans, still accruing interest	5,406			5,835			3,057			5,931			3,977
Total non-performing loans	42,718			37,725			32,487			39,542			52,698
Accruing TDRs	2,491			2,702			2,743			2,771			3,067
OREO	29,990			29,649			27,782			32,035			28,230
Total non-performing assets	$	75,199		$	70,076		$	63,012		$	74,348		$	83,995
30-89 days past due loans	$	23,380		$	30,142		$	16,705		$	28,850		$	28,857
Non-accrual loans to total loans	0.47		%	0.41		%	0.41		%	0.49		%	0.71		%
Non-performing loans to total loans	0.54		%	0.48		%	0.45		%	0.57		%	0.77		%
Non-performing assets to total loans plus OREO	0.94		%	0.89		%	0.88		%	1.07		%	1.22		%
30-89 days past due loans ⁽¹⁾																$	23,641		$	21,043		$	26,140		$	23,380		$	30,142
Non-accrual loans to total loans ⁽²⁾																0.54		%	0.72		%	0.54		%	0.47		%	0.41		%
Non-performing loans to total loans ⁽²⁾																0.57		%	0.78		%	0.59		%	0.54		%	0.48		%
Non-performing assets to total loans plus OREO ⁽²⁾																0.87		%	1.12		%	0.96		%	0.94		%	0.89		%


⁽¹⁾	~~Due to~~PCI loans with an accretable yield are considered current and not included in past due loan totals.

⁽²⁾

Excluding the impact of ~~protection provided by the loss share agreements with the FDIC that substantially mitigate the risk of loss, covered~~ loans and ~~covered~~ OREO ~~are separated in this table. Past due covered loans~~acquired in the ~~table above are determined by borrower performance compared~~Standard transaction, non-accrual loans to ~~contractual terms, but are considered accruing~~total loans, ~~since they continue~~non-performing loans to ~~perform in accordance with our expectations of cash flows. For a discussion of covered~~total loans, ~~see Note 1~~ and ~~Note 6 of "Notes~~non-performing assets to ~~the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.~~total loans plus OREO were 0.65%, 0.68%, and 0.95%, respectively, at March 31, 2017.

~~Excluding covered loans and OREO, total~~Total non-performing assets represented ~~0.93%~~0.87% of total loans and OREO at ~~June 30, 2016, compared to 0.86%~~March 31, 2017, down from 1.12% at December 31, ~~2015 and down from 1.10% at June 30, 2015.~~2016. Included in non-performing assets as of March 31, 2017 was $8.4 million of OREO acquired in the Standard transaction.

6058

TDRs

Loan modifications may be performed at the request of an individual borrower and may include reductions in interest rates, changes in payments, and extensions of maturity dates. We occasionally restructure loans at other than market rates or terms to enable the borrower to work through financial difficulties for a period of time, and these ~~restructures~~restructured loans remain classified as TDRs for the remaining term of ~~the~~these loans.

Table 1312

TDRs by Type

(Dollar amounts in thousands)


	As of									As of
	June 30, 2016			December 31, 2015			June 30, 2015			March 31, 2017			December 31, 2016			March 31, 2016
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	4	$	575	5	$	1,344	5	$	1,376	4	$	1,200	3	$	431	5	$	1,309
Commercial real estate:
Office, retail, and industrial	1	159		1	164		2	558		2	864		3	4,888		1	162
Multi-family	3	768		3	784		3	800		3	745		3	754		3	774
Other commercial real estate	3	329		3	340		3	350		2	263		3	316		3	334
Total commercial real estate	7	1,256		7	1,288		8	1,708		7	1,872		9	5,958		7	1,270
Total corporate loans	11	1,831		12	2,632		13	3,084		11	3,072		12	6,389		12	2,579
Home equity	16	1,112		17	1,161		16	1,082		16	967		16	997		16	1,135
1-4 family mortgages	11	1,238		11	1,274		9	971		11	1,185		11	1,202		11	1,256
Total consumer loans	27	2,350		28	2,435		25	2,053		27	2,152		27	2,199		27	2,391
Total TDRs	38	$	4,181	40	$	5,067	38	$	5,137	38	$	5,224	39	$	8,588	39	$	4,970
Accruing TDRs	20	$	2,491	23	$	2,743	23	$	3,067	17	$	2,112	18	$	2,291	22	$	2,702
Non-accrual TDRs	18	1,690		17	2,324		15	2,070		21	3,112		21	6,297		17	2,268
Total TDRs	38	$	4,181	40	$	5,067	38	$	5,137	38	$	5,224	39	$	8,588	39	$	4,970
Year-to-date charge-offs on TDRs		$	239		$	2,687		$	2,626		$	112		$	1,492		$	—
Specific reserves related to TDRs		—			758			781			32			—			729

As of March 31, 2017, TDRs totaled ~~$4.2~~$5.2 million, ~~at June 30, 2016, compared to $5.1~~decreasing by $3.4 million, ator 39.2%, from December 31, ~~2015. Accruing TDRs were $2.5 million at June 30, 2016 compared to $2.7 million at December 31, 2015. TDRs are reported as~~2016. This decrease resulted primarily from the final resolution of a non-accrual ~~if they are not performing in accordance with their modified terms or they have not yet exhibited sufficient performance under their modified terms.~~commercial loan relationship during the first quarter of 2017.

6159

Corporate Performing Potential Problem Loans

Corporate performing potential problem loans consist of special mention loans and substandard loans, excluding accruing TDRs. These loans are performing in accordance with their contractual terms, but we have concerns about the ability of the borrower to continue to comply with loan terms due to the borrower's operating or financial difficulties.

Table 1413

Corporate Performing Potential Problem Loans

(Dollar amounts in thousands)


	As of June 30, 2016									As of December 31, 2015									As of March 31, 2017										As of December 31, 2016
	Special Mention ⁽¹⁾			Substandard ⁽²⁾			Total ⁽³⁾			Special Mention ⁽¹⁾			Substandard ⁽²⁾			Total ⁽³⁾			Special Mention ⁽¹⁾			Substandard ⁽²⁾				Total ⁽³⁾			Special Mention ⁽¹⁾			Substandard ⁽²⁾			Total ⁽³⁾
Commercial and industrial	$	130,476		$	50,717		$	181,193		$	86,263		$	52,590		$	138,853		$	113,944		$	100,217			$	214,161		$	92,340		$	66,266		$	158,606
Agricultural	17,130			17,970			35,100			—			5,562			5,562			9,873			6,274				16,147			17,039			5,894			22,933
Commercial real estate:
Office, retail, and industrial	38,743			32,364			71,107			32,463			35,788			68,251			39,545			42,230			��	81,775			33,852			39,513			73,365
Multi-family	4,422			3,971			8,393			5,742			3,970			9,712			3,940			1,898				5,838			3,972			2,029			6,001
Construction	4,250			8,437			12,687			4,678			9,803			14,481			8,927			16,473				25,400			111			12,197			12,308
Other commercial real estate	12,123			17,128			29,251			13,179			13,654			26,833			21,599			19,977				41,576			11,808			13,544			25,352
Total commercial real estate	59,538			61,900			121,438			56,062			63,215			119,277			74,011			80,578				154,589			49,743			67,283			117,026
Total corporate performing potential problem loans(4)	$	207,144		$	130,587		$	337,731		$	142,325		$	121,367		$	263,692		$	197,828		$	187,069			$	384,897		$	159,122		$	139,443		$	298,565
Corporate performing potential problem loans to corporate loans	3.14		%	1.98		%	5.12		%	2.38		%	2.03		%	4.41		%	2.36		%	2.23		%		4.59		%	2.33		%	2.04		%	4.36		%
Corporate PCI performing potential problem loans included in the totals above																			$	15,754		$	39,885			$	55,639		$	1,868		$	13,598		$	15,466


⁽¹⁾	Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.


⁽²⁾	Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured and collection of principal and interest is expected within a reasonable time.


⁽³⁾	Total corporate performing potential problem loans excludes accruing TDRs of ~~$847,000~~$674,000 as of ~~June 30, 2016~~March 31, 2017 and ~~$862,000~~$834,000 as of December 31, ~~2015.~~2016.


⁽⁴⁾	Includes corporate PCI performing potential problem loans.

Corporate performing potential problem loans were ~~5.1%~~4.6% of corporate loans at ~~June 30, 2016,~~March 31, 2017, higher than 4.4% at December 31, ~~2015, resulting from higher commercial and industrial and agricultural~~2016. This increase was impacted by the Standard acquisition, which added $43.6 million of corporate performing potential problem loans classified as special mention. The rise in commercial and industrial loans classified as special mention was due primarily to operating pressures as a result of lower sales unique to certain borrowers. Within the agricultural portfolio, cash flows that were ~~weakened due to lower grain commodity prices drove the increase in loans classified~~designated as ~~special mention. Management has specific monitoring and remediation plans associated with these loans.~~PCI.

6260

OREO

OREO consists of properties acquired as the result of borrower defaults on loans. OREO was ~~$30.0~~$29.1 million at ~~June 30, 2016,~~March 31, 2017, increasing ~~$2.2~~by $3.1 million, or ~~7.9%~~11.7%, from December 31, ~~2015.~~2016. As of March 31, 2017, total OREO includes $8.4 million acquired in the Standard transaction.

Table 1514

OREO by Type

(Dollar amounts in thousands)


	As of						As of
	June 30, 2016		December 31, 2015		June 30, 2015		March 31, 2017		December 31, 2016		March 31, 2016
Single-family homes	$	4,200	$	3,965	$	4,260	$	1,768	$	2,595	$	3,597
Land parcels:
Raw land	1,464		1,464		2,248		1,025		1,464		1,689
Commercial lots	9,059		9,207		9,132		10,638		8,176		9,163
Single-family lots	1,110		1,719		1,154		2,232		947		1,289
Total land parcels	11,633		12,390		12,534		13,895		10,587		12,141
Multi-family units	164		426		1,428		272		48		116
Commercial properties	13,993		11,001		10,008		13,205		12,853		13,795
Total OREO	$	29,990	$	27,782	$	28,230	$	29,140	$	26,083	$	29,649

OREO Activity

A rollforward of OREO balances for the quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Table 1615

OREO Rollforward

(Dollar amounts in thousands)


	Quarters Ended June 30,						Six Months Ended June 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	29,649		$	33,351		$	27,782		$	34,966		$	26,083		$	27,782
Transfers from loans	2,733			3,619			3,675			4,657			683			942
Acquisitions	—			—			2,863			—			8,427			2,863
Proceeds from sales	(2,212		)	(7,876		)	(3,852		)	(10,584		)	(5,364		)	(1,640		)
Gains (losses) on sales of OREO	28			448			(133		)	1,241
Losses on sales of OREO													(156		)	(161		)
OREO valuation adjustments	(208		)	(1,312		)	(345		)	(2,050		)	(533		)	(137		)
Ending balance	$	29,990		$	28,230		$	29,990		$	28,230		$	29,140		$	29,649

Allowance for Credit Losses

Methodology for the Allowance for Credit Losses

The allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, and consideration of current economic trends.

Acquired loans are recorded at fair value, which incorporates credit risk, at the date of acquisition. No allowance for credit losses is recorded on the acquisition date. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. In addition, certain acquired loans that have renewed subsequent to their respective acquisition dates are no longer classified as acquired loans. Instead, they are included with our loan population that is allocated an allowance in accordance with our allowance for loan losses methodology.

6361

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk ratings by regulatory authorities. Management believes that the allowance for credit losses is an appropriate estimate of credit losses inherent in the loan portfolio as of ~~June 30, 2016.~~March 31, 2017.

The accounting policy for the allowance for credit losses is discussed in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

An allowance for credit losses is established on loans originated by the Bank, acquired loans, and covered loans. Additional discussion regarding acquired and covered loans can be found in Note 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q. The following table provides additional details related to acquired loans, the allowance for credit losses as related to acquired loans, and the remaining acquisition adjustment associated with acquired loans as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Table 1716

Allowance for Credit Losses and Acquisition Adjustment

(Dollar amounts in thousands)


	Loans, Excluding Acquired Loans			Acquired Loans ⁽¹⁾			Total			Loans, Excluding Acquired Loans			Acquired Loans ⁽¹⁾			Total
Six months ended June 30, 2016
Quarter ended March 31, 2017
Beginning balance	$	73,268		$	1,587		$	74,855		$	84,217		$	2,866		$	87,083
Net charge-offs	(9,071		)	(132		)	(9,203		)	(2,725		)	(113		)	(2,838		)
Provision for loan losses and other expense	15,073			780			15,853			4,957			(39		)	4,918
Ending balance	$	79,270		$	2,235		$	81,505		$	86,449		$	2,714		$	89,163
As of June 30, 2016
As of March 31, 2017
Total loans	$	7,167,443		$	812,094		$	7,979,537		$	7,813,950		$	2,240,420		$	10,054,370
Remaining acquisition adjustment ⁽²⁾	N/A			27,990			27,990			N/A			98,882			98,882
Allowance for credit losses to total loans	1.11		%	0.28		%	1.02		%	1.11		%	0.12		%	0.89		%
Remaining acquisition adjustment to acquired loans	N/A			3.45		%	N/A			N/A			4.41		%	N/A
As of December 31, 2015
As of December 31, 2016
Total loans	$	6,619,539		$	542,176		$	7,161,715		$	7,620,100		$	634,045		$	8,254,145
Remaining acquisition adjustment ⁽²⁾	N/A			17,676			17,676			N/A			22,574			22,574
Allowance for credit losses to total loans	1.11		%	0.29		%	1.05		%	1.11		%	0.45		%	1.06		%
Remaining acquisition adjustment to acquired loans	N/A			3.26		%	N/A			N/A			3.56		%	N/A

N/A - Not applicable.


⁽¹⁾	These amounts and ratios relate to the loans acquired in completed acquisitions.


⁽²⁾	The remaining acquisition adjustment consists of ~~$12.6~~$55.2 million and ~~$15.4~~$43.7 million relating to ~~purchased credit impaired ("PCI")~~PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of ~~June 30, 2016,~~March 31, 2017, and ~~$8.5~~$10.8 million and ~~$9.2~~$11.8 million relating to PCI and Non-PCI loans, respectively, as of December 31, ~~2015.~~2016.

Excluding acquired loans, the allowance for credit losses to total loans was 1.11% as of ~~June 30, 2016.~~March 31, 2017. The acquisition adjustment increased by ~~$10.3~~$76.3 million during the first ~~six months~~quarter of ~~2016,~~2017, driven primarily by the ~~NI Bancshares~~Standard transaction. This was partially offset by acquired loan accretion which is included in interest income, resulting in a remaining acquisition adjustment as a percent of acquired loans of ~~3.45%~~4.41%. Acquired loans that are renewed ~~at market terms~~ are no longer classified as acquired loans. These loans totaled ~~$98.3~~$170.9 million and $117.6 million as of ~~June 30,~~March 31, 2017 and December 31, 2016, respectively, and are included in loans, excluding acquired loans, in the table above and allocated an allowance in accordance with our allowance for loan losses methodology. In addition, there is an allowance for credit losses of ~~$2.2~~$2.7 million on acquired loans.

6462

Table 1817

Allowance for Credit Losses

and Summary of Credit Loss Experience

(Dollar amounts in thousands)


	Quarters Ended												Quarters Ended
	June 30, 2016		March 31, 2016		December 31, 2015			September 30, 2015			June 30, 2015		March 31, 2017		December 31, 2016		September 30, 2016			June 30, 2016		March 31, 2016
Change in allowance for credit losses
Beginning balance	$	78,375	$	74,855	$	73,725		$	73,279		$	72,806	$	87,083	$	86,308	$	81,505		$	78,375	$	74,855
Loan charge-offs:
Commercial, industrial, and agricultural	2,026		1,898		2,361			1,948			4,127		4,074		4,298		1,760			2,026		1,898
Office, retail, and industrial	1,641		524		274			563			1,894		127		349		2,193			1,641		524
Multi-family	84		204		(20		)	68			469		—		19		—			84		204
Construction	8		126		121			—			15		5		—		—			8		126
Other commercial real estate	879		1,445		201			598			527		408		99		509			879		1,445
Consumer	1,493		992		1,464			1,172			751		1,664		1,256		1,488			1,495		992
Covered	2		—		—			8			323
Total loan charge-offs	6,133		5,189		4,401			4,357			8,106		6,278		6,021		5,950			6,133		5,189
Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	576		502		580			347			854		1,666		758		615			576		502
Office, retail, and industrial	8		103		7			106			32		975		184		42			8		103
Multi-family	1		25		7			1			3		28		2		69			1		25
Construction	20		15		16			114			203		227		12		9			20		15
Other commercial real estate	69		151		91			506			1,130		101		210		94			69		151
Consumer	329		320		330			213			319		443		323		326			329		320
Covered	—		—		—			7			38
Total recoveries of loan charge-offs	1,003		1,116		1,031			1,294			2,579		3,440		1,489		1,155			1,003		1,116
Net loan charge-offs	5,130		4,073		3,370			3,063			5,527		2,838		4,532		4,795			5,130		4,073
Provision for loan losses	8,085		7,593		4,500			4,100			6,000		4,918		5,307		9,998			8,085		7,593
Increase (decrease) in reserve for unfunded commitments ⁽¹⁾	175		—		—			(591		)	—
(Decrease) increase in reserve for unfunded commitments ⁽¹⁾													—		—		(400		)	175		—
Total provision for loan losses and other expense	8,260		7,593		4,500			3,509			6,000		4,918		5,307		9,598			8,260		7,593
Ending balance	$	81,505	$	78,375	$	74,855		$	73,725		$	73,279	$	89,163	$	87,083	$	86,308		$	81,505	$	78,375


⁽¹⁾	Included in other noninterest income in the Condensed Consolidated Statements of Income.

6563


	Quarters Ended															Quarters Ended
	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Allowance for credit losses
Allowance for loan losses	$	78,711		$	75,582		$	71,992		$	68,384		$	66,602		$	88,163		$	86,083		$	85,308		$	80,105		$	77,150
Allowance for covered loan losses	1,394			1,568			1,638			4,116			4,861
Total allowance for loan losses	80,105			77,150			73,630			72,500			71,463
Reserve for unfunded commitments	1,400			1,225			1,225			1,225			1,816			1,000			1,000			1,000			1,400			1,225
Total allowance for credit losses	$	81,505		$	78,375		$	74,855		$	73,725		$	73,279		$	89,163		$	87,083		$	86,308		$	81,505		$	78,375
Allowance for credit losses to loans ⁽¹⁾	1.02		%	1.00		%	1.05		%	1.06		%	1.07		%	0.89		%	1.06		%	1.06		%	1.02		%	1.00		%
Allowance for credit losses to non-accrual loans ⁽²⁾	217.34		%	244.74		%	253.57		%	215.45		%	152.01		%
Allowance for credit losses to non-performing loans ⁽²⁾	189.54		%	208.34		%	230.55		%	188.81		%	143.27		%
Allowance for credit losses to loans, excluding acquired loans																1.11		%	1.11		%	1.13		%	1.11		%	1.11		%
Allowance for credit losses to non-accrual loans																164.22		%	146.88		%	194.87		%	218.44		%	245.77		%
Allowance for credit losses to non-performing loans																156.63		%	135.44		%	177.56		%	190.80		%	207.75		%
Average loans	$	7,878,544		$	7,341,331		$	7,008,197		$	6,881,128		$	6,808,219		$	9,916,281		$	8,171,953		$	8,062,035		$	7,878,544		$	7,341,331
Net loan charge-offs to average loans, annualized	0.26		%	0.22		%	0.19		%	0.18		%	0.33		%
Net loan charge-offs to average loans, annualized ⁽²⁾																0.12		%	0.22		%	0.24		%	0.26		%	0.22		%

⁽¹⁾

This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. See the Allowance for Credit Losses and Acquisition Adjustment table above for further discussion of the allowance for acquired loan losses and the related acquisition adjustment.


⁽²⁾	~~These amounts and ratios exclude covered~~Excluding the impact of loans ~~and covered OREO. For a discussion of covered~~acquired in the Standard transaction, net loan charge-offs to average loans, ~~see Note 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.~~annualized, was 0.14% at March 31, 2017.

Activity in the Allowance for Credit Losses

The allowance for credit losses was ~~$81.5~~$89.2 million as of ~~June 30, 2016,~~March 31, 2017, an increase of ~~$6.7~~$2.1 million from December 31, ~~2015,~~2016, and represents ~~1.02%~~0.89% of total loans compared to ~~1.05%~~1.06% at December 31, ~~2015.~~2016.

The provision for loan losses was ~~$8.1~~$4.9 million for the quarter ended ~~June 30, 2016, increasing~~March 31, 2017, decreasing from ~~$4.5~~$5.3 million and ~~$6.0~~$7.6 million for the quarters ended December 31, ~~2015~~2016 and ~~June 30, 2015,~~March 31, 2016, respectively. The ~~increase~~decrease compared to both prior periods resulted primarily from ~~growth~~lower levels of charge-offs. In addition, greater loan production resulted in ~~the loan portfolio during~~higher provision for the first ~~six months~~quarter of 2016.

Total net loan charge-offs to average loans for the ~~second~~first quarter of ~~2016~~2017 was 2612 basis points, or ~~$5.1~~$2.8 million, ~~increasing~~decreasing from 1922 basis points for the fourth quarter of ~~2015~~2016 and ~~decreasing from 33 basis points~~first quarter of 2016, respectively. Net loan charge-offs for the ~~second~~first quarter of ~~2015.~~2017 include $3.4 million in recoveries, which relate primarily to three corporate loan relationships that were charged-off in prior periods.

FUNDING AND LIQUIDITY MANAGEMENT

The following table provides a comparison of average funding sources. We believe that average balances, rather than period-end balances, are more meaningful in analyzing funding sources because of the normal fluctuations that may occur on a daily or monthly basis within funding categories.

Table 1918

Funding Sources - Average Balances

(Dollar amounts in thousands)


	Quarters Ended									June 30, 2016 % Change From				Quarters Ended									March 31, 2017 % Change From
	June 30, 2016			December 31, 2015			June 30, 2015			December 31, 2015		June 30, 2015		March 31, 2017			December 31, 2016			March 31, 2016			December 31, 2016		March 31, 2016
Demand deposits	$	2,771,813		$	2,560,604		$	2,437,742		8.2	%	13.7	%	$	3,355,674		$	2,803,016		$	2,463,017		19.7	%	36.2	%
Savings deposits	1,655,566			1,483,962			1,470,441			11.6	%	12.6	%	2,029,631			1,633,010			1,575,174			24.3	%	28.9	%
NOW accounts	1,615,677			1,411,425			1,379,508			14.5	%	17.1	%	1,916,816			1,715,228			1,448,666			11.8	%	32.3	%
Money market accounts	1,670,536			1,576,258			1,557,219			6.0	%	7.3	%	1,890,703			1,623,392			1,583,898			16.5	%	19.4	%
Core deposits	7,713,592			7,032,249			6,844,910			9.7	%	12.7	%	9,192,824			7,774,646			7,070,755			18.2	%	30.0	%
Time deposits	1,254,218			1,136,766			1,200,257			10.3	%	4.5	%	1,473,882			1,196,243			1,165,434			23.2	%	26.5	%
Brokered deposits	23,476			16,129			16,114			45.6	%	45.7	%	41,715			16,805			18,029			148.2	%	131.4	%
Total time deposits	1,277,694			1,152,895			1,216,371			10.8	%	5.0	%	1,515,597			1,213,048			1,183,463			24.9	%	28.1	%
Total deposits	8,991,286			8,185,144			8,061,281			9.8	%	11.5	%	10,708,421			8,987,694			8,254,218			19.1	%	29.7	%
Securities sold under agreements to repurchase	118,232			122,273			119,398			(3.3	)%	(1.0	)%	126,202			122,866			142,939			2.7	%	(11.7	)%
Federal funds purchased	—			71			—			N/M		N/M
FHLB advances	342,445			44,776			20,604			N/M		N/M		607,889			495,109			159,687			22.8	%	280.7	%
Other borrowings	686			—			—			N/M		N/M		—			—			606			N/M		(100.0	)%
Total borrowed funds	461,363			167,120			140,002			176.1	%	229.5	%	734,091			617,975			303,232			18.8	%	142.1	%
Senior and subordinated debt	162,836			201,168			200,999			(19.1	)%	(19.0	)%	194,677			259,531			201,253			(25.0	)%	(3.3	)%
Total funding sources	$	9,615,485		$	8,553,432		$	8,402,282		12.4	%	14.4	%	$	11,637,189		$	9,865,200		$	8,758,703		18.0	%	32.9	%
Average interest rate paid on borrowed funds	1.31		%	2.97		%	0.34		%					1.21		%	1.10		%	1.75		%
Weighted-average maturity of FHLB advances	1.5 months			2.0 months			2.1 months							1.3 months			0.9 months			1.3 months
Weighted-average interest rate of FHLB advances	0.51		%	0.40		%	0.21		%					0.74		%	0.60		%	0.50		%

N/M - Not meaningful.

Total average funding sources for the ~~second~~first quarter of ~~2016~~2017 increased by ~~12.4%~~$1.8 billion, or 18.0%, compared to the fourth quarter of ~~2015~~2016 and ~~14.4%~~$2.9 billion, or 32.9%, compared to the ~~second~~first quarter of ~~2015.~~2016. The rise in average core deposits compared to both prior periods resulted from $1.7 billion in core deposits assumed in the ~~fourth~~Standard transaction, which contributed $1.5 billion to average core deposits in the first quarter of ~~2015 resulted primarily from~~2017. In addition, compared to the first quarter of 2016, the rise in average core deposits was impacted by organic growth and $443.1 million in core deposits assumed in the NI Bancshares transaction ~~which was~~ completed late in the first quarter of ~~2016, and organic growth. Compared to~~2016. The addition of FHLB advances during the second ~~quarter~~half of ~~2015,~~2016 also contributed to the rise in average core deposits was driven by organic growth, the NI Bancshares transaction, and the impact of deposits assumed in the December of 2015 Peoples acquisition. The addition of $325.0 million of FHLB advances during 2016 contributedfunding sources compared to the ~~increase in average borrowed funds compared to both prior periods presented.~~

~~On April 1, 2016, $38.5 million in 5.850% subordinated notes matured and were repaid by the Company. On November 22, 2016, $115.0 million~~first quarter of ~~5.875% senior notes will mature. Management is currently evaluating repayment strategies for the senior notes.~~2016.

6764

Table 2019

Borrowed Funds

(Dollar amounts in thousands)


	As of June 30, 2016			As of June 30, 2015			As of March 31, 2017			As of March 31, 2016
	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)
At period-end:
Securities sold under agreements to repurchase	$	124,744	0.06	$	126,536	0.06	$	132,923	0.06	$	122,511	0.06
FHLB advances	325,000		0.51	62,500		0.32	415,000		0.74	262,500		0.50
Other borrowings	—		—	—		—	—		—	2,400		3.50
Total borrowed funds	$	449,744	0.39	$	189,036	0.15	$	547,923	0.58	$	387,411	0.38
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	130,586	0.10	$	123,462	0.06	$	126,202	0.05	$	142,939	0.14
FHLB advances	251,066		2.19	10,359		1.95	607,889		1.45	159,687		3.17
Other borrowings	646		3.74	—		—	—		—	606		3.98
Total borrowed funds	$	382,298	1.48	$	133,821	0.20	$	734,091	1.21	$	303,232	1.75
Maximum amount outstanding at the end of any day during the period:	Maximum amount outstanding at the end of any day during the period:						Maximum amount outstanding at the end of any day during the period:
Securities sold under agreements to repurchase	$	174,266		$	142,545		$	140,764		$	174,266
FHLB advances	425,000			62,500			940,000			262,500
Other borrowings	2,400			—			—			2,400

Average borrowed funds totaled ~~$382.3~~$734.1 million for the first ~~six months~~quarter of ~~2016~~2017, increasing by ~~$248.5~~$430.9 million compared to the ~~same period in 2015.~~first quarter of 2016. This increase was due primarily to ~~the addition of $325.0 million~~higher levels of FHLB advances during the first ~~six months~~quarter of ~~2016.~~2017. The weighted-average rate on FHLB advances for ~~the second quarter of 2016~~both periods presented was impacted by the hedging of ~~borrowed funds~~$415.0 million and $262.5 million in FHLB advances as of March 31, 2017 and 2016, respectively, using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. ~~These~~The weighted-average interest rate paid on these interest rate swaps ~~have a weighted-average interest rate~~was 2.17% and 2.13% for the first quarters of ~~2.19% as of June 30, 2016.~~2017 and 2016, respectively. For a detailed discussion of interest rate swaps, see Note 1112 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.

MANAGEMENT OF CAPITAL

Capital Measurements

A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. On January 1, 2015, the Company and the Bank became subject to the Basel III Capital rules, a new comprehensive capital framework for U.S. banking organizations published by the Federal Reserve. These rules are discussed in the "Supervision and Regulation" section in Item 1, "Business" in the Company's ~~2015~~2016 10-K. In addition, financial institutions, such as the Company and the Bank, with average total consolidated assets greater than $10 billion are required by the Dodd-Frank Act to conduct an annual company-run stress test of capital. The Company and the Bank will be subject to these stress test requirements starting with the July 31, 2017 and 2018 reporting dates, respectively.

The following table presents our consolidated measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve for the Bank to be categorized as "well-capitalized." We manage our capital levels for both the Company and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels to be considered "well-capitalized," which is the highest capital category established. All regulatory mandated ratios for characterization as "well-capitalized" were exceeded as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

The tangible common equity ratios presented in the table below are capital adequacy metrics used and relied on by investors and industry analysts; however, they are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Table 2120

Capital Measurements

(Dollar amounts in thousands)


					As of June 30, 2016													As of March 31, 2017
	As of				Regulatory Minimum For Well- Capitalized								As of					Regulatory Minimum For Well- Capitalized
	June 30, 2016		December 31, 2015				Excess Over Required Minimums					March 31, 2017			December 31, 2016			Regulatory Minimum For Well- Capitalized		Excess Over Required Minimums
Bank regulatory capital ratios					Regulatory Minimum For Well- Capitalized
Total capital to risk-weighted assets	10.65	%	11.02	%	10.00	%		7	%	$	61,296		10.63	%		10.73	%	10.00	%		6	%	$	74,727
Tier 1 capital to risk-weighted assets	9.78	%	10.13	%	8.00	%		22	%	$	167,491		9.88	%		9.83	%	8.00	%		23	%	$	221,134
Common equity Tier 1 to risk-weighted assets	9.78	%	10.13	%	6.50	%		51	%	$	308,258		9.88	%		9.83	%	6.50	%		52	%	$	397,811
Tier 1 capital to average assets	8.74	%	9.09	%	5.00	%		75	%	$	393,023		9.72	%		8.76	%	5.00	%		94	%	$	564,686
Company regulatory capital ratios
Total capital to risk-weighted assets	10.68	%	11.15	%	N/A			N/A		N/A			11.48	%		12.23	%	N/A			N/A		N/A
Tier 1 capital to risk-weighted assets	9.83	%	10.28	%	N/A			N/A		N/A			9.53	%		9.90	%	N/A			N/A		N/A
Common equity Tier 1 to risk-weighted assets	9.32	%	9.73	%	N/A			N/A		N/A			9.11	%		9.39	%	N/A			N/A		N/A
Tier 1 capital to average assets	8.94	%	9.40	%	N/A			N/A		N/A			8.89	%		8.99	%	N/A			N/A		N/A
Company tangible common equity ratios ⁽¹⁾⁽²⁾
Tangible common equity to tangible assets	8.29	%	8.59	%	N/A			N/A		N/A			8.07	%		8.05	%	N/A			N/A		N/A
Tangible common equity, excluding accumulated other comprehensive loss, to tangible assets	8.37	%	8.89	%	N/A			N/A		N/A			8.38	%		8.42	%	N/A			N/A		N/A
Tangible common equity to risk-weighted assets	9.14	%	9.29	%	N/A			N/A		N/A			8.68	%		8.88	%	N/A			N/A		N/A

N/A - Not applicable.


⁽¹⁾	Ratios are not subject to formal Federal Reserve regulatory guidance.


⁽²⁾	Tangible common equity ratios are non-GAAP ~~metrics.~~financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

~~The decrease in~~Overall, the Company's regulatory capital ratios ~~from~~decreased compared to December 31, ~~2015 resulted from the addition of risk-weighted and average assets, including goodwill and other intangible assets, related~~2016 due primarily to the ~~NI Bancshares acquisition. These declines were partially offset by earnings~~Standard and ~~the $54.9 million of common stock issued as consideration for the NI Bancshares acquisition.~~Premier acquisitions.

The Board of Directors reviews the Company's capital plan each quarter, considering the current and expected operating environment as well as an evaluation of various capital alternatives.

Dividends

The Board of Directors approved a quarterly cash dividend of $0.09 per common share during the ~~second quarter of 2016. The dividend increased from $0.08 to $0.09 per common share during the~~ first quarter of ~~2015.~~2017, which is consistent with the fourth quarter of 2016.

NON-GAAP FINANCIAL INFORMATION AND RECONCILIATIONS

The Company's accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These non-GAAP financial measures include earnings per share ("EPS"), excluding certain significant transactions, the efficiency ratio, return on average assets, excluding certain significant transactions, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, tax-equivalent net interest margin, excluding the impact of acquired loan accretion, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive loss, to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, and return on average tangible common equity, excluding certain significant transactions.

The Company presents EPS, the efficiency ratio, return on average assets, and return on average tangible common equity, all excluding certain significant transactions. Certain significant transactions include acquisition and integration expenses for all periods presented. Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, and return on average tangible common equity are useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion facilitates better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics is useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics enhances comparability for peer comparison purposes.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it enhances comparability for peer comparison purposes. In addition, management believes that the tax-equivalent net interest margin, excluding the impact of acquired loan accretion, enhances comparability for peer comparison purposes and is useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate significantly based on the size of each acquisition.

Non-GAAP Reconciliations

(Amounts in thousands, except per share data)



	Quarters Ended March 31,
	2017			2016
Earnings Per Share
Net income	$	22,855		$	17,962
Net income applicable to non-vested restricted shares	(234		)	(212		)
Net income applicable to common shares	22,621			17,750
Acquisition and integration related expenses	18,565			5,020
Tax effect of acquisition and integration related expenses	(7,426		)	(2,008		)
Net income applicable to common shares, excluding certain significant transactions ⁽¹⁾	$	33,760		$	20,762
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	100,411			77,980
Dilutive effect of common stock equivalents	21			12
Weighted-average diluted common shares outstanding	100,432			77,992
Basic EPS	$	0.23		$	0.23
Diluted EPS	$	0.23		$	0.23
Diluted EPS, excluding certain significant transactions ⁽¹⁾	$	0.34		$	0.27
Tax-Equivalent Net Interest Income
Net interest income	$	115,197		$	80,714
Tax-equivalent adjustment	2,054			2,307
Tax-equivalent net interest income ⁽²⁾	117,251			83,021
Less: acquired loan accretion	(11,345		)	(2,423		)
Tax-equivalent net interest income, excluding the impact of acquired loan accretion	$	105,906		$	80,598
Average interest-earning assets	12,211,804			9,122,915
Net interest margin (GAAP)	3.83		%	3.56		%
Tax-equivalent net interest margin	3.89		%	3.66		%
Tax-equivalent net interest margin, excluding the impact of acquired loan accretion	3.51		%	3.55		%
Efficiency Ratio Calculation
Noninterest expense	$	116,642		$	82,589
Less:
Net OREO expense	(1,700		)	(664		)
Acquisition and integration related expenses	(18,565		)	(5,020		)
Total	$	96,377		$	76,905
Tax-equivalent net interest income ⁽²⁾	$	117,251		$	83,021
Fee-based revenues	37,847			33,594
Add:
Other income, excluding BOLI income	844			579
BOLI income	1,260			866
Tax-equivalent adjustment of BOLI income	840			577
Total	$	158,042		$	118,637
Efficiency ratio	60.98		%	64.82		%



	Quarters Ended March 31,
	2017			2016
Return on Average Common and Tangible Common Equity
Net income applicable to common shares	$	22,621		$	17,750
Intangibles amortization	1,965			985
Tax effect of intangibles amortization	(786		)	(394		)
Net income applicable to common shares, excluding intangibles amortization	23,800			18,341
Acquisition and integration related expenses	18,565			5,020
Tax effect of acquisition and integration related expenses	(7,426		)	(2,008		)
Net income applicable to common shares, excluding intangibles amortization and certain significant transactions ⁽¹⁾	$	34,939		$	21,353
Average stockholders' common equity	$	1,763,538		$	1,178,588
Less: average intangible assets	(750,589		)	(346,549		)
Average tangible common equity	$	1,012,949		$	832,039
Return on average common equity ⁽³⁾	5.20		%	6.06		%
Return on average tangible common equity ⁽³⁾	9.53		%	8.87		%
Return on average tangible common equity, excluding certain significant transactions ⁽¹⁾ ⁽³⁾	13.99		%	10.32		%
Return on Average Assets
Net income	$	22,855		$	17,962
Acquisition and integration related expenses	18,565			5,020
Tax effect of acquisition and integration related expenses	(7,426		)	(2,008		)
Net income, excluding certain significant transactions ⁽¹⁾	$	33,994		$	20,974
Average assets	$	13,673,125		$	10,056,845
Return on average assets ⁽³⁾	0.68		%	0.72		%
Return on average assets, excluding certain significant transactions ^{(1) (3)}	1.01		%	0.84		%



	As of
	March 31, 2017			December 31, 2016
Tangible Common Equity
Stockholders' equity	$	1,804,733		$	1,257,080
Less: goodwill and other intangible assets	(754,621		)	(366,876		)
Tangible common equity	1,050,112			890,204
Less: accumulated other comprehensive income ("AOCI")	40,264			40,910
Tangible common equity, excluding AOCI	$	1,090,376		$	931,114
Total assets	$	13,773,471		$	11,422,555
Less: goodwill and other intangible assets	(754,621		)	(366,876		)
Tangible assets	$	13,018,850		$	11,055,679
Risk-weighted assets	$	12,095,592		$	10,019,434
Tangible common equity to tangible assets	8.07		%	8.05		%
Tangible common equity, excluding AOCI, to tangible assets	8.38		%	8.42		%
Tangible common equity to risk-weighted assets	8.68		%	8.88		%


⁽¹⁾	Certain significant transactions include acquisition and integration related expenses associated with completed and pending acquisitions.


⁽²⁾	Presented on a tax-equivalent basis, which reflects federal and state tax benefits.


⁽³⁾	Annualized based on the actual number of days for each period presented.

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. Interest rate risk is our primary market risk and is the result of repricing, basis, and option risk. A description and analysis of our interest rate risk management policies is included in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," in our ~~2015~~2016 10-K.

We seek to achieve consistent growth in net interest income and net income while managing volatility that arises from shifts in interest rates. The Bank's Asset Liability Committee ("ALCO") oversees financial risk management by developing programs to measure and manage interest rate risks within authorized limits set by the Bank's Board of Directors. ALCO also approves the Bank's asset and liability management policies, oversees the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviews the Bank's interest rate sensitivity position. Management uses net interest income simulation modeling to analyze and capture exposure of earnings to changes in interest rates.

Net Interest Income Sensitivity

The analysis of net interest income sensitivity assesses the magnitude of changes in net interest income over a twelve-month measurement period resulting from immediate changes in interest rates using multiple rate scenarios. These scenarios include, but are not limited to, a flat or unchanged rate environment, immediate increases of 100, 200, and 300 basis points, and an immediate decrease of 100 basis points. Due to the low interest rate environment as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, management determined that an immediate decrease in interest rates greater than 100 basis points was not meaningful for this analysis.

This simulation analysis is based on expected future cash flows and repricing characteristics for balance sheet and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. In addition, this sensitivity analysis examines assets and liabilities at the beginning of the measurement period and does not assume any changes from growth or business plans over the next twelve months. Interest-earning assets and interest-bearing liabilities are assumed to re-price based on contractual terms over the twelve-month measurement period assuming an instantaneous parallel shift in interest rates in effect at the beginning of the measurement period. The simulation analysis also incorporates assumptions based on the historical behavior of deposit rates in relation to interest rates. Because these assumptions are inherently uncertain, the simulation analysis cannot definitively measure net interest income or predict the impact of the fluctuation in interest rates on net interest income, but does provide an indication of the Company's sensitivity to changes in interest rates. Actual results may differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

Our balance sheet is asset sensitive based on repricing and maturity characteristics and simulation analysis assumptions. The Bank's current simulation analysis indicates we would benefit from rising interest rates. Interest-earning assets consist of short and long-term products. Excluding non-accrual loans, and including the impact of hedging certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts, 51% of the loan portfolio consisted of fixed rate loans and 49% were floating rate loans as of ~~June 30, 2016,~~March 31, 2017, compared to ~~54%~~48% and ~~46%~~52%, respectively, as of December 31, ~~2015.~~2016.

As of ~~June 30, 2016,~~March 31, 2017, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at ~~94%~~96% of the total compared to 6%4% for floating rate interest-bearing deposits in other banks. This compares to investments comprising ~~84%~~95% of fixed rate securities and ~~16%~~5% of floating rate interest-bearing deposits in other banks as of December 31, ~~2015.~~2016. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the Bank limits its loans with maturities that extend beyond 5 years. The majority of floating rate loans are indexed to the short-term Prime or LIBOR rates. The amount of floating rate loans with active interest rate floors was ~~$420.8~~$156.9 million, or 9%3%, of the floating rate loan portfolio as of ~~June 30, 2016,~~March 31, 2017, compared to ~~$374.5~~$271.5 million, or ~~10%~~5%, of the floating rate loan portfolio as of December 31, ~~2015.~~2016. On the liability side of the balance sheet, 86% of deposits as of both ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 are demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to rise at a slower pace than short-term interest rates.

Analysis of Net Interest Income Sensitivity

(Dollar amounts in thousands)


	Immediate Change in Rates												Immediate Change in Rates
	+300			+200			+100			-100			+300			+200			+100			-100
As of June 30, 2016
As of March 31, 2017
Dollar change	$	48,196		$	29,404		$	21,219		$	(22,390	)	$	61,936		$	36,938		$	19,311		$	(40,624	)
Percent change	13.9		%	8.5		%	6.1		%	(6.5		)%	14.0		%	8.3		%	4.4		%	(9.2		)%
As of December 31, 2015
As of December 31, 2016
Dollar change	$	46,556		$	28,038		$	19,420		$	(18,421	)	$	44,092		$	25,412		$	12,763		$	(26,013	)
Percent change	14.8		%	8.9		%	6.2		%	(5.9		)%	12.3		%	7.1		%	3.6		%	(7.2		)%

The sensitivity of estimated net interest income to an instantaneous parallel shift in interest rates is reflected as both dollar and percentage changes. This table illustrates that an instantaneous 200 basis point rise in interest rates as of ~~June 30, 2016~~March 31, 2017 would increase net interest income by ~~$29.4~~$36.9 million, or ~~8.5%~~8.3%, over the next twelve months compared to no change in interest rates. This same measure was ~~$28.0~~$25.4 million, or ~~8.9%~~7.1%, as of December 31, ~~2015.~~2016.

Overall, positive interest rate risk volatility as of ~~June 30, 2016 decreased slightly~~March 31, 2017 increased compared to December 31, ~~2015,~~2016. This increase was driven primarily by ~~the NI Bancshares acquisition which added term securities and fixed rate loans. In addition, organic growth~~a reduction in ~~floating rate loans and term securities were funded by~~ short-term FHLB advances, ~~and organic growth~~resulting from the sale of securities acquired in ~~core deposits, which are less rate sensitive. While net interest income is projected to decline in a decreasing interest rate environment, we believe~~ the ~~risk of a significant and sustained decrease in interest rates is minimal.~~Standard transaction.

ITEM 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report, (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

The Company provided a discussion of certain risks and uncertainties faced by the Company in its ~~Annual Report on~~2016 Form ~~10-K for 2015.~~10-K. However, these factors may not be the only risks or uncertainties the Company faces.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the Company's monthly Common Stock purchases during the ~~second~~first quarter of ~~2016.~~2017. The Board approved a stock repurchase program on November 27, 2007. Up to 2.5 million shares of the Company's Common Stock may be repurchased, and the total remaining authorization under the program was 2,487,947 shares as of ~~June 30, 2016.~~March 31, 2017. The repurchase program has no set expiration or termination date.

Issuer Purchases of Equity Securities

Total
Number of
Shares
Purchased ⁽¹⁾

Average
Price
Paid per
Share

Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plan or
Program
April 1 – April 30, 2016 1,178
$ 18.47
—
2,487,947
May 1 – May 31, 2016 —
—
—
2,487,947
June 1 – June 30, 2016 793
17.95
—
2,487,947
Total 1,971
$ 18.26
—



	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Program
January 1 - January 31, 2017	—	$	—	—	2,487,947
February 1 - February 28, 2017	119,740	24.54		—	2,487,947
March 1 - March 31, 2017	131	23.12		—	2,487,947
Total	119,871	$	24.54	—

⁽¹⁾

Consists of shares acquired pursuant to the Company's share-based compensation plans and not the Company's Board-approved stock repurchase program. Under the terms of the Company's share-based compensation plans, the Company accepts previously owned shares of Common Stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted shares or by option holders upon exercise to cover the exercise price of the stock options.

ITEM 6. EXHIBITS



Exhibit Number		Description of Documents

~~2.1~~ ⁽¹⁾		Agreement and Plan of Merger, dated as of June 28, 2016, by and among First Midwest Bancorp, Inc., Standard Bancshares, Inc. and Benjamin Acquisition Corporation is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2016.
~~3.1~~		Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009.
~~3.2~~		Certificate of Amendment of Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2014.
~~3.3~~		Amended and Restated By-Laws of the Company is incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2016.
11		Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per common share is included in Note 1011 of the Company's Notes to the Condensed Consolidated Financial Statements included in "ITEM 1. FINANCIAL STATEMENTS" of this document.
15		Acknowledgement of Independent Registered Public Accounting Firm.
31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 ⁽²⁾⁽¹⁾		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 ⁽²⁾⁽¹⁾		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99		Review Report of Independent Registered Public Accounting Firm.
101		Interactive Data File.


⁽¹⁾	Certain schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K and First Midwest agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.


⁽²⁾	Furnished, not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

First Midwest Bancorp, Inc.

/s/ ~~PAUL F. CLEMENS~~PATRICK S. BARRETT

~~Paul F. Clemens~~Patrick S. Barrett

Executive Vice President and Chief Financial Officer*

Date: ~~August 3, 2016~~May 10, 2017

* Duly authorized to sign on behalf of the registrant.



				As of
	Issuance Date	Maturity Date	Interest Rate	June 30, 2016		December 31, 2015
Senior notes	November 2011	November 2016	5.875%	$	114,952	$	114,891
Subordinated notes	March 2006	April 2016	5.850%	—		38,499
Junior subordinated debentures:
First Midwest Capital Trust I ("FMCT")	November 2003	December 2033	6.950%	37,799		37,799
Great Lakes Statutory Trust II ("GLST II") ⁽¹⁾	December 2005	December 2035	L+1.400% ⁽²⁾	4,344		4,296
Great Lakes Statutory Trust III ("GLST III")⁽¹⁾	June 2007	September 2037	L+1.700% ⁽²⁾	5,781		5,723
Total junior subordinated debentures				47,924		47,818
Total senior and subordinated debt				$	162,876	$	201,208