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 ~~September 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) 875-7463

______________________

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 ~~October 31, 2016,~~May 5, 2017, there were ~~81,325,864~~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	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7370
Item 4.	Controls and Procedures	7471
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	7471
Item 1A.	Risk Factors	7471
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7572
Item 6.	Exhibits	7673

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)


					September 30, 2016			December 31, 2015							March 31, 2017			December 31, 2016
Assets					(Unaudited)										(Unaudited)
Cash and due from banks	Cash and due from banks				$	139,538		$	114,587		Cash and due from banks				$	174,268		$	155,055
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks				362,153			266,615			Interest-bearing deposits in other banks				74,892			107,093
Trading securities, at fair value	Trading securities, at fair value				18,351			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				1,964,030			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				20,337			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				53,506			39,306			Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost				46,306			59,131
Loans	Loans				8,171,782			7,161,715			Loans				10,054,370			8,254,145
Allowance for loan losses	Allowance for loan losses				(85,308		)	(73,630		)	Allowance for loan losses				(88,163		)	(86,083		)
Net loans	Net loans				8,086,474			7,088,085			Net loans				9,966,207			8,168,062
Other real estate owned ("OREO")	Other real estate owned ("OREO")				28,049			27,782			Other real estate owned ("OREO")				29,140			26,083
Premises, furniture, and equipment, net	Premises, furniture, and equipment, net				82,443			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")				219,064			209,601			Investment in bank-owned life insurance ("BOLI")				276,960			219,746
Goodwill and other intangible assets	Goodwill and other intangible assets				367,961			339,277			Goodwill and other intangible assets				754,621			366,876
Accrued interest receivable and other assets	Accrued interest receivable and other assets				236,291			178,463			Accrued interest receivable and other assets				336,428			278,271
Total assets	Total assets				$	11,578,197		$	9,732,676		Total assets				$	13,773,471		$	11,422,555
Liabilities	Liabilities										Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits				$	2,766,265		$	2,414,454		Noninterest-bearing deposits				$	3,492,987		$	2,766,748
Interest-bearing deposits	Interest-bearing deposits				6,339,839			5,683,284			Interest-bearing deposits				7,463,554			6,061,855
Total deposits	Total deposits				9,106,104			8,097,738			Total deposits				10,956,541			8,828,603
Borrowed funds	Borrowed funds				639,539			165,096			Borrowed funds				547,923			879,008
Senior and subordinated debt	Senior and subordinated debt				309,444			201,208			Senior and subordinated debt				194,745			194,603
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities				253,846			122,366			Accrued interest payable and other liabilities				269,529			263,261
Total liabilities	Total liabilities				10,308,933			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				496,918			446,672			Additional paid-in capital				1,022,417			498,937
Retained earnings	Retained earnings				1,003,271			953,516			Retained earnings				1,030,403			1,016,674
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax				(13,402		)	(28,389		)	Accumulated other comprehensive loss, net of tax				(40,264		)	(40,910		)
Treasury stock, at cost	Treasury stock, at cost				(218,436		)	(226,413		)	Treasury stock, at cost				(208,946		)	(218,534		)
Total stockholders' equity	Total stockholders' equity				1,269,264			1,146,268			Total stockholders' equity				1,804,733			1,257,080
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity				$	11,578,197		$	9,732,676		Total liabilities and stockholders' equity				$	13,773,471		$	11,422,555

	September 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	—		91,281		—			88,228			—		112,343		—			91,284
Shares outstanding	—		81,324		—			77,952			—		102,757		—			81,325
Treasury shares	—		9,957		—			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 September 30,				Nine Months Ended September 30,				Quarters Ended March 31,
	2016		2015		2016		2015		2017		2016
Interest Income
Loans	$	87,505	$	75,522	$	252,486	$	224,739	$	112,365	$	78,455
Investment securities	9,629		7,723		27,550		23,839		10,484		8,558
Other short-term investments	772		1,047		1,968		2,739		850		535
Total interest income	97,906		84,292		282,004		251,317		123,699		87,548
Interest Expense
Deposits	2,520		2,329		7,387		7,256		3,209		2,385
Borrowed funds	1,782		928		4,597		1,064		2,194		1,316
Senior and subordinated debt	2,632		3,133		8,353		9,411		3,099		3,133
Total interest expense	6,934		6,390		20,337		17,731		8,502		6,834
Net interest income	90,972		77,902		261,667		233,586		115,197		80,714
Provision for loan losses	9,998		4,100		25,676		16,652		4,918		7,593
Net interest income after provision for loan losses	80,974		73,802		235,991		216,934		110,279		73,121
Noninterest Income
Service charges on deposit accounts	10,708		10,519		30,350		29,676		11,365		9,473
Wealth management fees	8,495		7,222		24,696		21,669		9,660		7,559
Card-based fees	7,332		6,868		21,642		20,223		8,116		6,718
Mortgage banking income	3,394		1,402		6,625		3,964		1,888		1,368
Capital market products income									1,376		3,215
Other service charges, commissions, and fees	8,537		7,107		24,681		17,800		5,442		5,261
Net gain on sale-leaseback transaction	5,509		—		5,509		—
Net securities gains	187		524		1,097		1,551		—		887
Other income	1,691		1,372		5,001		5,220		2,104		1,445
Total noninterest income	45,853		35,014		119,601		100,103		39,951		35,926
Noninterest Expense
Salaries and employee benefits	46,372		41,361		137,233		122,371		55,772		44,594
Net occupancy and equipment expense	10,755		9,406		30,380		29,464		12,325		9,697
Professional services	6,772		6,172		17,984		16,603		8,463		5,920
Technology and related costs	3,881		3,673		11,251		10,887		4,433		3,701
Net OREO expense	313		1,290		2,099		4,355		1,700		664
Other expenses	13,623		12,463		41,074		36,793		15,384		12,993
Acquisition and integration related expenses	1,172		—		6,810		—		18,565		5,020
Total noninterest expense	82,888		74,365		246,831		220,473		116,642		82,589
Income before income tax expense	43,939		34,451		108,761		96,564		33,588		26,458
Income tax expense	15,537		11,167		37,130		30,824		10,733		8,496
Net income	$	28,402	$	23,284	$	71,631	$	65,740	$	22,855	$	17,962
Per Common Share Data
Basic earnings per common share	$	0.35	$	0.30	$	0.89	$	0.84	$	0.23	$	0.23
Diluted earnings per common share	$	0.35	$	0.30	$	0.89	$	0.84	$	0.23	$	0.23
Dividends declared per common share	$	0.09	$	0.09	$	0.27	$	0.27	$	0.09	$	0.09
Weighted-average common shares outstanding	80,396		77,106		79,589		77,038		100,411		77,980
Weighted-average diluted common shares outstanding	80,409		77,119		79,602		77,051		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 September 30,						Nine Months Ended September 30,							Quarters Ended March 31,
		2016			2015			2016			2015				2017			2016
Net income		$	28,402		$	23,284		$	71,631		$	65,740			$	22,855		$	17,962
Securities Available-for-Sale
Unrealized holding (losses) gains:
Unrealized holding gains:
Before tax		(6,695		)	6,126			21,671			748				3,298			18,873
Tax effect		2,676			(2,454		)	(8,665		)	(312		)		(1,321		)	(7,546		)
Net of tax		(4,019		)	3,672			13,006			436				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		187			524			1,097			1,551				—			887
Tax effect		(75		)	(214		)	(439		)	(634		)		—			(355		)
Net of tax		112			310			658			917				—			532
Net unrealized holding (losses) gains		(4,131		)	3,362			12,348			(481		)
Net unrealized holding gains															1,977			10,795
Derivative Instruments
Unrealized holding (losses) gains:
Unrealized holding gains:
Before tax		(779		)	3,420			4,420			870				(2,220		)	4,275
Tax effect		311			(1,368		)	(1,781		)	(352		)		889			(1,722		)
Net of tax		(468		)	2,052			2,639			518				(1,331		)	2,553
Total other comprehensive (loss) income		(4,599		)	5,414			14,987			37
Total other comprehensive income															646			13,348
Total comprehensive income		$	23,803		$	28,698		$	86,618		$	65,777			$	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			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 income	(481		)	518			—			37
Balance at September 30, 2015	$	(3,431	)	$	(620	)	$	(11,767	)	$	(15,818	)
Balance at December 31, 2015	$	(10,271	)	$	(2,468	)	$	(15,650	)	$	(28,389	)	$	(10,271	)	$	(2,468	)	$	(15,650	)	$	(28,389	)
Other comprehensive income	12,348			2,639			—			14,987			10,795			2,553			—			13,348
Balance at September 30, 2016	$	2,077		$	171		$	(15,650	)	$	(13,402	)
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	—		—		—			65,740			—			—			65,740
Other comprehensive income	—		—		—			—			37			—			37
Common dividends declared ($0.27 per common share)	—		—		—			(21,047		)	—			—			(21,047		)
Purchase of treasury stock	(7	)	—		—			—			—			(120		)	(120		)
Restricted stock activity	255		—		(10,108		)	—			—			—			(10,108		)
Treasury stock issued to benefit plans	(1	)	—		(112		)	—			—			281			169
Share-based compensation expense	—		—		5,459			—			—			6,764			12,223
Balance at September 30, 2015	77,942		$	882	$	445,037		$	944,209		$	(15,818	)	$	(226,641	)	$	1,147,669
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	—		—		—			71,631			—			—			71,631			—		—		—			17,962			—			—			17,962
Other comprehensive income	—		—		—			—			14,987			—			14,987			—		—		—			—			13,348			—			13,348
Common dividends declared ($0.27 per common share)	—		—		—			(21,876		)	—			—			(21,876		)
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	10		—		169			—			—			—			169			4		—		59			—			—			—			59
Restricted stock activity	326		—		(10,610		)	—			—			8,062			(2,548		)	303		—		(10,282		)	—			—			7,736			(2,546		)
Treasury stock issued to benefit plans	(6	)	—		(21		)	—			—			(85		)	(106		)	(3	)	—		—			—			—			(33		)	(33		)
Share-based compensation expense	—		—		5,843			—			—			—			5,843			—		—		1,839			—			—			—			1,839
Balance at September 30, 2016	81,324		$	913	$	496,918		$	1,003,271		$	(13,402	)	$	(218,436	)	$	1,269,264
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)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Net cash provided by operating activities	$	104,235		$	93,423		$	8,201		$	10,232
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	263,243			216,900			80,060			68,235
Proceeds from sales of securities available-for-sale	42,794			57,255			210,154			31,453
Purchases of securities available-for-sale	(824,883		)	(241,300		)	(94,766		)	(276,265		)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	4,695			4,016			4,549			3,973
Purchases of securities held-to-maturity	(16		)	(1,184		)	—			(8		)
Purchases of FHLB stock	(12,651		)	(1,190		)
Purchases (sales) of FHLB stock							16,072			(61		)
Net increase in loans	(630,012		)	(213,488		)	(43,771		)	(268,179		)
Proceeds from claims on BOLI, net of premiums paid	1,597			1,095			(24		)	(22		)
Proceeds from sales of OREO	6,069			13,820			5,364			1,640
Proceeds from sales of premises, furniture, and equipment	150,747			195			404			675
Purchases of premises, furniture, and equipment	(12,320		)	(6,591		)	(2,891		)	(2,921		)
Net cash received from acquisitions	57,347			—			41,717			57,347
Net cash used in investing activities	(953,390		)	(170,472		)
Net cash provided by (used in) investing activities							216,868			(384,133		)
Financing Activities
Net increase in deposit accounts	413,445			408,692			104,064			88,159
Net increase in borrowed funds	472,027			31,949
Purchase of treasury stock	—			(120		)
Net proceeds from the issuance of subordinated notes	146,484			—
Payments for the maturity of subordinated debt	(38,500		)	—
Net (decrease) increase in borrowed funds							(331,085		)	219,899
Cash dividends paid	(21,885		)	(20,132		)	(7,206		)	(6,885		)
Restricted stock activity	(2,318		)	(2,853		)	(3,830		)	(2,113		)
Excess tax benefit related to share-based compensation	391			794
Net cash provided by financing activities	969,644			418,330
Net increase in cash and cash equivalents	120,489			341,281
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	$	501,691		$	947,543		$	249,160		$	306,361

Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	14,645		$	12,787
Income taxes (refunded) paid							$	(1,259	)	$	2,421
Interest paid to depositors and creditors	17,656			14,931			9,354			3,563
Dividends declared, but unpaid	7,241			7,137			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	3,894			11,956			683			942
Non-cash transfers of loans held-for-investment to loans held-for-sale	77,030			32,902			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 nine months~~ ended ~~September 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 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,~~ 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.

During ~~the third quarter of~~ 2016, the Company entered into a sale-leaseback transaction that resulted in a deferred gain of $82.5 ~~million.~~million, with $79.5 million remaining as of March 31, 2017. Upon adoption of this guidance, the remaining deferred gain will be recognized immediately as a cumulative-effect adjustment to equity. For additional discussion of the sale-leaseback transaction, see note 8 ~~"Premises,~~

"Premises, Furniture, and Equipment." Management is evaluating the new guidance and the additional impact to the Company's financial condition, results of operations, or liquidity.

~~Contingent Put and Call Options in Debt Instruments:~~ In March of 2016, the FASB issued final guidance clarifying the requirements for assessing whether contingent call (put) options that can accelerate the payment 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 as of the period of adoption. 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.

~~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. As~~acquired approximately $550.0 million of ~~June 30, 2016, Standard had total~~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 was 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 the approval of the Company's and Standard's shareholders.

~~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.~~the NI Bancshares transaction, which required a measurement period adjustment of $423,000 to increase goodwill. This adjustment was recognized in the current period in accordance with accounting guidance applicable to business combinations.

1314

~~Peoples Bancorp, Inc.~~

On December 3, 2015, the Company completed 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 offices in Arlington Heights, Illinois, at a purchase price of $16.8 million paid in cash. The Company recorded goodwill of $7.5 million associated 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.

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 ~~and pending transactions~~ totaled ~~$1.2~~$18.6 million and ~~$6.8~~$5.0 million during the ~~quarter~~quarters ended March 31, 2017 and ~~nine months ended September 30,~~ 2016, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. ~~There were no~~The acquisition ~~and integration related expenses for the quarter and nine months ended September 30, 2015. The completed acquisitions were not~~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 September 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	$	43,593			$	212			$	(8	)		$	43,797			$	17,000		$	15		$	(35	)	Fair Value		$	16,980			$	48,574			$	23			$	(81	)		$	48,516			$	48,581			$	26			$	(66	)		$	48,541
U.S. agency securities		190,821				2,159				(49		)		192,931				86,461			351			(169		)		86,643				180,894				518				(382		)		181,030				183,528				519				(410		)		183,637
Collateralized mortgage obligations ("CMOs")		1,074,736				8,759				(2,236		)		1,081,259				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")		319,964				4,641				(121		)		324,484				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		280,884				5,959				(130		)		286,713				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")		47,893				73				(16,067		)		31,899				48,287			34			(16,792		)		31,529				47,728				260				(14,552		)		33,436				47,681				261				(14,682		)		33,260
Equity securities		3,075				110				(238		)		2,947				3,282			86			(169		)		3,199				7,246				148				(292		)		7,102				3,206				147				(288		)		3,065
Total securities available-for-sale		$	1,960,966			$	21,913			$	(18,849	)		$	1,964,030			$	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		$	20,337			$	—			$	(2,227	)		$	18,110			$	23,152		$	—		$	(3,098	)		$	20,054			$	17,742			$	—			$	(2,624	)		$	15,118			$	22,291			$	—			$	(4,079	)		$	18,212
Trading Securities														$	18,351													$	16,894															$	19,130															$	17,920

Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)


	As of September 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	$	75,444	$	74,392	$	3,218	$	2,866	$	90,123	$	87,605	$	1,926	$	1,641
After one year to five years	433,027		426,991		7,560		6,732		399,483		388,321		6,834		5,823
After five years to ten years	6,827		6,732		2,340		2,084		3,470		3,373		2,975		2,535
After ten years	47,893		47,225		7,219		6,428		47,726		46,393		6,007		5,119
Securities that do not have a single contractual maturity date	1,397,775		1,408,690		—		—		1,431,158		1,411,432		—		—
Total	$	1,960,966	$	1,964,030	$	20,337	$	18,110	$	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 ~~$1.3~~$1.1 billion ~~at September 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 ~~September 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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ there were no material gross trading ~~gains or losses.~~gains/(losses). The following table presents net realized gains on securities available-for-sale for the quarters ended March 31, 2017 and ~~nine months ended September 30, 2016 and 2015.~~2016.

Securities Available-for-Sale Gains

(Dollar amounts in thousands)


	Quarters Ended September 30,				Nine Months Ended September 30,						Quarters Ended March 31,
	2016		2015		2016			2015			2017		2016
Gains on sales of securities:
Gross realized gains	$	187	$	524	$	1,266		$	1,689		$	—	$	930
Gross realized losses	—		—		(169		)	(138		)	—		(43		)
Net realized gains on sales of securities	187		524		1,097			1,551			—		887
Non-cash impairment charges:
Other-than-temporary securities impairment ("OTTI")	—		—		—			—			—		—
Net realized gains	$	187	$	524	$	1,097		$	1,551		$	—	$	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 ~~nine months ended September 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 September 30,				Nine Months Ended September 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 nine months ended September 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 ~~September 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 September 30, 2016
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		5	$	10,049	$	7	$	1,999	$	1	$	12,048	$	8		17	$	35,481	$	75	$	3,995	$	6	$	39,476	$	81
U.S. agency securities		12	23,394		49		—		—		23,394		49			30	70,426		358		6,928		24		77,354		382
CMOs		64	180,572		717		119,934		1,519		300,506		2,236			196	781,003		12,259		128,464		3,855		909,467		16,114
MBSs		15	45,686		89		6,573		32		52,259		121			73	290,278		5,180		17,013		557		307,291		5,737
Municipal securities		49	18,615		112		2,307		18		20,922		130			272	94,694		2,371		21,520		617		116,214		2,988
CDOs		9	1,218		9		29,398		16,058		30,616		16,067			7	—		—		30,762		14,552		30,762		14,552
Equity securities		2	379		226		2,379		12		2,758		238			2	—		—		6,687		292		6,687		292
Total		156	$	279,913	$	1,209	$	162,590	$	17,640	$	442,503	$	18,849		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		16	$	18,110	$	2,227	$	—	$	—	$	18,110	$	2,227		13	$	—	$	—	$	15,118	$	2,624	$	15,118	$	2,624
As of December 31, 2015
As of December 31, 2016
Securities Available-for-Sale	Securities Available-for-Sale														Securities Available-for-Sale
U.S. treasury securities		4	$	7,946	$	35	$	—	$	—	$	7,946	$	35		16	$	33,505	$	61	$	3,995	$	5	$	37,500	$	66
U.S. agency securities		10	30,620		169		—		—		30,620		169			28	62,064		364		11,814		46		73,878		410
CMOs		133	309,787		3,110		257,362		5,975		567,149		9,085			194	523,233		10,309		411,758		7,344		934,991		17,653
MBSs		27	63,028		427		31,980		444		95,008		871			68	221,174		4,726		77,780		1,154		298,954		5,880
Municipal securities		68	8,135		65		24,227		245		32,362		310			380	133,957		3,059		29,280		659		163,237		3,718
CDOs		8	8,034		971		21,642		15,821		29,676		16,792			7	—		—		30,592		14,682		30,592		14,682
Equity securities		2	485		120		2,305		49		2,790		169			2	404		201		2,319		86		2,723		287
Total		252	$	428,035	$	4,897	$	337,516	$	22,534	$	765,551	$	27,431		695	$	974,337	$	18,720	$	567,538	$	23,976	$	1,541,875	$	42,696
Securities Held-to-Maturity	Securities Held-to-Maturity														Securities Held-to-Maturity
Municipal securities		19	$	20,054	$	3,098	$	—	$	—	$	20,054	$	3,098		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 ~~September 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 ~~September 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. For a detailed discussion of the CDO valuation methodology, see Note 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
	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Commercial and industrial	$	2,849,399	$	2,524,726	$	3,370,780	$	2,827,658
Agricultural	409,571		387,440		422,784		389,496
Commercial real estate:
Office, retail, and industrial	1,537,038		1,395,454		1,988,979		1,581,967
Multi-family	625,305		528,324		671,710		614,052
Construction	401,857		216,882		568,460		451,540
Other commercial real estate	970,855		931,190		1,357,781		979,528
Total commercial real estate	3,535,055		3,071,850		4,586,930		3,627,087
Total corporate loans	6,794,025		5,984,016		8,380,494		6,844,241
Home equity	733,260		653,468		880,667		747,983
1-4 family mortgages	388,145		355,854		540,148		423,922
Installment	232,030		137,602		253,061		237,999
Total consumer loans	1,353,435		1,146,924		1,673,876		1,409,904
Covered loans	24,322		30,775
Total loans	$	8,171,782	$	7,161,715	$	10,054,370	$	8,254,145
Deferred loan fees included in total loans	$	4,034	$	5,191	$	4,429	$	3,838
Overdrawn demand deposits included in total loans	3,428		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 ~~nine months ended September 30, 2016 and 2015.~~2016.

Loan Sales

(Dollar amounts in thousands)


	Quarters Ended September 30,				Nine Months Ended September 30,				Quarters Ended March 31,
	2016		2015		2016		2015		2017		2016
Corporate loan sales
Proceeds from sales	$	12,223	$	10,226	$	36,082	$	19,649	$	15,368	$	9,588
Less book value of loans sold	11,828		9,771		34,718		18,780		15,117		9,130
Net gains on corporate loan sales ⁽¹⁾	395		455		1,364		869		$	251	$	458
1-4 family mortgage loan sales
Proceeds from sales	110,167		43,340		202,932		132,367		$	55,761	$	39,507
Less book value of loans sold	107,255		42,189		198,024		128,634		54,598		38,680
Net gains on 1-4 family mortgage loan sales ⁽²⁾	2,912		1,151		4,908		3,733		1,163		827
Total net gains on loan sales	$	3,307	$	1,606	$	6,272	$	4,602	$	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 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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Acquired and Covered Loans⁽¹⁾

(Dollar amounts in thousands)


	As of September 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	$	57,777	$	686,427	$	744,204	$	50,286	$	534,506	$	584,792	$	169,961	$	2,101,985	$	2,271,946	$	53,772	$	613,339	$	667,111
Covered loans	8,228		16,094		24,322		9,919		20,856		30,775		7,746		14,712		22,458		7,895		15,379		23,274
Total acquired and covered loans	$	66,005	$	702,521	$	768,526	$	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 ~~$101.5~~$170.9 million and ~~$61.6~~$117.6 million as of ~~September 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 ~~September 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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ are presented in the following table.

Changes in the FDIC Indemnification Asset

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	5,171		$	7,335		$	3,903		$	8,452		$	4,522		$	3,903
Amortization	(302		)	(321		)	(884		)	(1,174		)	(302		)	(280		)
Change in expected reimbursements from the FDIC for changes in expected credit losses	(228		)	487			(487		)	2,207			(328		)	216
Net payments to (from) the FDIC	191			(1,395		)	2,300			(3,379		)
Net payments to the FDIC													328			1,841
Ending balance	$	4,832		$	6,106		$	4,832		$	6,106		$	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 September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balances	$	25,082		$	20,658		$	24,912		$	28,244		$	19,385		$	24,912
Additions	—			—			3,981			—			27,316			3,981
Accretion	(2,763		)	(2,366		)	(6,612		)	(9,364		)	(3,955		)	(1,546		)
Other ⁽¹⁾	(1,012		)	336			(974		)	(252		)	(1,497		)	(89		)
Ending balance	$	21,307		$	18,628		$	21,307		$	18,628		$	41,249		$	27,258


⁽¹⁾	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.

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 ~~September 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 September 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,833,642	$	9,099	$	6,658	$	15,757	$	2,849,399	$	13,823	$	2,154	$	3,359,919	$	7,165	$	3,696	$	10,861	$	3,370,780	$	21,514	$	1,251
Agricultural	406,947		2,460		164		2,624		409,571		184		—		420,692		1,434		658		2,092		422,784		1,283		—
Commercial real estate:
Office, retail, and industrial	1,516,820		5,816		14,402		20,218		1,537,038		17,670		82		1,971,050		1,281		16,648		17,929		1,988,979		19,505		52
Multi-family	623,386		1,321		598		1,919		625,305		316		454		666,914		4,782		14		4,796		671,710		163		14
Construction	400,809		767		281		1,048		401,857		287		—		565,710		2,556		194		2,750		568,460		198		—
Other commercial real estate	964,135		3,254		3,466		6,720		970,855		3,361		932		1,352,633		3,563		1,585		5,148		1,357,781		3,858		1
Total commercial real estate	3,505,150		11,158		18,747		29,905		3,535,055		21,634		1,468		4,556,307		12,182		18,441		30,623		4,586,930		23,724		67
Total corporate loans	6,745,739		22,717		25,569		48,286		6,794,025		35,641		3,622		8,336,918		20,781		22,795		43,576		8,380,494		46,521		1,318
Home equity	727,433		3,591		2,236		5,827		733,260		4,916		165		874,810		3,045		2,812		5,857		880,667		4,799		864
1-4 family mortgages	385,024		1,869		1,252		3,121		388,145		3,240		235		538,177		1,254		717		1,971		540,148		2,974		41
Installment	229,881		1,853		296		2,149		232,030		—		296		250,952		1,699		410		2,109		253,061		—		410
Total consumer loans	1,342,338		7,313		3,784		11,097		1,353,435		8,156		696		1,663,939		5,998		3,939		9,937		1,673,876		7,773		1,315
Covered loans	23,905		319		98		417		24,322		492		—
Total loans	$	8,111,982	$	30,349	$	29,451	$	59,800	$	8,171,782	$	44,289	$	4,318	$	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 ~~nine months ended September 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 September 30, 2016
Quarter ended March 31, 2017																												Quarter ended March 31, 2017
Beginning balance	$	40,084		$	12,985		$	2,926		$	2,239		$	7,474		$	13,003		$	1,394		$	1,400		$	81,505			$	40,709		$	17,595		$	3,261		$	3,444		$	7,739		$	13,335		$	1,000	$	87,083
Charge-offs	(1,760		)	(2,193		)	—			—			(509		)	(1,488		)	—			—			(5,950		)		(4,074		)	(127		)	—			(5		)	(408		)	(1,664		)	—		(6,278		)
Recoveries	615			42			69			9			94			326			—			—			1,155				1,666			975			28			227			101			443			—		3,440
Net charge-offs	(1,145		)	(2,151		)	69			9			(415		)	(1,162		)	—			—			(4,795		)		(2,408		)	848			28			222			(307		)	(1,221		)	—		(2,838		)
Provision for loan losses and other	3,579			3,019			1,048			916			1,488			50			(102		)	(400		)	9,598				3,485			(742		)	(429		)	444			(510		)	2,670			—		4,918
Ending balance	$	42,518		$	13,853		$	4,043		$	3,164		$	8,547		$	11,891		$	1,292		$	1,000		$	86,308			$	41,786		$	17,701		$	2,860		$	4,110		$	6,922		$	14,784		$	1,000	$	89,163
Quarter ended September 30, 2015
Quarter ended March 31, 2016																												Quarter ended March 31, 2016
Beginning balance	$	33,729		$	11,345		$	2,451		$	1,890		$	6,367		$	10,820		$	4,861		$	1,816		$	73,279			$	37,074		$	13,124		$	2,469		$	1,440		$	6,109		$	13,414		$	1,225	$	74,855
Charge-offs	(1,948		)	(563		)	(68		)	—			(598		)	(1,172		)	(8		)	—			(4,357		)		(1,898		)	(524		)	(204		)	(126		)	(1,445		)	(992		)	—		(5,189		)
Recoveries	347			106			1			114			506			213			7			—			1,294				502			103			25			15			151			320			—		1,116
Net charge-offs	(1,601		)	(457		)	(67		)	114			(92		)	(959		)	(1		)	—			(3,063		)		(1,396		)	(421		)	(179		)	(111		)	(1,294		)	(672		)	—		(4,073		)
Provision for loan losses and other	3,247			967			226			(559		)	(181		)	1,144			(744		)	(591		)	3,509				2,058			1,717			257			1,104			1,773			684			—		7,593
Ending balance	$	35,375		$	11,855		$	2,610		$	1,445		$	6,094		$	11,005		$	4,116		$	1,225		$	73,725			$	37,736		$	14,420		$	2,547		$	2,433		$	6,588		$	13,426		$	1,225	$	78,375
Nine months ended September 30, 2016
Beginning balance	$	37,074		$	13,116		$	2,462		$	1,440		$	6,088		$	11,812		$	1,638		$	1,225		$	74,855
Charge-offs	(5,684		)	(4,358		)	(288		)	(134		)	(2,833		)	(3,973		)	(2		)	—			(17,272		)
Recoveries	1,693			153			95			44			314			975			—			—			3,274
Net charge-offs	(3,991		)	(4,205		)	(193		)	(90		)	(2,519		)	(2,998		)	(2		)	—			(13,998		)
Provision for loan losses and other	9,435			4,942			1,774			1,814			4,978			3,077			(344		)	(225		)	25,451
Ending balance	$	42,518		$	13,853		$	4,043		$	3,164		$	8,547		$	11,891		$	1,292		$	1,000		$	86,308
Nine months ended September 30, 2015
Beginning balance	$	29,458		$	10,992		$	2,249		$	2,297		$	8,327		$	12,145		$	7,226		$	1,816		$	74,510
Charge-offs	(13,524		)	(2,613		)	(565		)	(15		)	(2,442		)	(2,723		)	(634		)	—			(22,516		)
Recoveries	1,993			460			8			334			1,902			853			120			—			5,670
Net charge-offs	(11,531		)	(2,153		)	(557		)	319			(540		)	(1,870		)	(514		)	—			(16,846		)
Provision for loan losses and other	17,448			3,016			918			(1,171		)	(1,693		)	730			(2,596		)	(591		)	16,061
Ending balance	$	35,375		$	11,855		$	2,610		$	1,445		$	6,094		$	11,005		$	4,116		$	1,225		$	73,725

2224

The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of ~~September 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 September 30, 2016
As of March 31, 2017
Commercial, industrial, and agricultural	$	11,903	$	3,242,734	$	4,333	$	3,258,970	$	—	$	41,880	$	638	$	42,518	$	18,167	$	3,745,009	$	30,388	$	3,793,564	$	109	$	41,133	$	544	$	41,786
Commercial real estate:
Office, retail, and industrial	16,459		1,507,622		12,957		1,537,038		20		12,459		1,374		13,853		13,442		1,956,042		19,495		1,988,979		31		16,200		1,470		17,701
Multi-family	398		612,554		12,353		625,305		—		3,840		203		4,043		396		656,769		14,545		671,710		—		2,784		76		2,860
Construction	34		397,206		4,617		401,857		—		3,014		150		3,164		—		548,280		20,180		568,460		—		3,946		164		4,110
Other commercial real estate	1,813		955,735		13,307		970,855		17		7,442		1,088		8,547		2,493		1,286,300		68,988		1,357,781		18		5,832		1,072		6,922
Total commercial real estate	18,704		3,473,117		43,234		3,535,055		37		26,755		2,815		29,607		16,331		4,447,391		123,208		4,586,930		49		28,762		2,782		31,593
Total corporate loans	30,607		6,715,851		47,567		6,794,025		37		68,635		3,453		72,125		34,498		8,192,400		153,596		8,380,494		158		69,895		3,326		73,379
Consumer	—		1,343,225		10,210		1,353,435		—		11,369		522		11,891		—		1,649,765		24,111		1,673,876		—		13,550		1,234		14,784
Covered loans	—		16,094		8,228		24,322		—		119		1,173		1,292
Reserve for unfunded commitments	—		—		—		—		—		1,000		—		1,000		—		—		—		—		—		1,000		—		1,000
Total loans	$	30,607	$	8,075,170	$	66,005	$	8,171,782	$	37	$	81,123	$	5,148	$	86,308	$	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 ~~September 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 September 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 $ 11,903
$ —
$ 13,984
$ —
$ 1,673
$ 1,198
$ 4,592
$ 883
Agricultural —
—
—
—
—
—
—
—
Commercial real estate:
Office, retail, and industrial 15,784
675
21,072
20
4,654
1,508
12,083
715
Multi-family 398
—
398
—
800
—
941
—
Construction 34
—
34
—
178
—
299
—
Other commercial real estate 1,543
270
2,599
17
3,665
—
4,403
—
Total commercial real estate 17,759
945
24,103
37
9,297
1,508
17,726
715
Total impaired loans
individually evaluated
for impairment
$ 29,662
$ 945
$ 38,087
$ 37
$ 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 ~~nine months ended September 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 September 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	$	7,829	$	57	$	5,968	$	37	$	20,849	$	214	$	2,794	$	38
Agricultural	—		—		—		—		557		—		—		—
Commercial real estate:
Office, retail, and industrial	16,101		3		8,814		4		14,865		93		7,923		48
Multi-family	399		11		925		12		397		28		601		1
Construction	34		—		2,995		118		17		136		106		—
Other commercial real estate	2,561		—		3,442		15		1,890		12		3,819		19
Total commercial real estate	19,095		14		16,176		149		17,169		269		12,449		68
Total impaired loans	$	26,924	$	71	$	22,144	$	186	$	38,575	$	483	$	15,243	$	106

	Nine Months Ended September 30,
	2016				2015
	Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾
Commercial and industrial	$	5,312	$	107	$	10,457	$	113
Agricultural	—		—		—		—
Commercial real estate:
Office, retail, and industrial	12,012		80		10,158		37
Multi-family	500		12		868		13
Construction	70		—		4,833		118
Other commercial real estate	3,190		72		3,222		34
Total commercial real estate	15,772		164		19,081		202
Total impaired loans	$	21,084	$	271	$	29,538	$	315


⁽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 ~~September 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 September 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,643,655	$	110,716	$	81,205	$	13,823	$	2,849,399	$	3,134,827	$	113,944	$	100,495	$	21,514	$	3,370,780
Agricultural	375,484		17,735		16,168		184		409,571		405,354		9,873		6,274		1,283		422,784
Commercial real estate:
Office, retail, and industrial	1,444,815		38,672		35,881		17,670		1,537,038		1,887,699		39,545		42,230		19,505		1,988,979
Multi-family	616,820		4,399		3,770		316		625,305		665,313		4,336		1,898		163		671,710
Construction	389,174		69		12,327		287		401,857		542,862		8,927		16,473		198		568,460
Other commercial real estate	941,072		12,427		13,995		3,361		970,855		1,312,347		21,599		19,977		3,858		1,357,781
Total commercial real estate	3,391,881		55,567		65,973		21,634		3,535,055		4,408,221		74,407		80,578		23,724		4,586,930
Total corporate loans	$	6,411,020	$	184,018	$	163,346	$	35,641	$	6,794,025	$	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 ~~$841,000~~$674,000 as of ~~September 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 September 30, 2016
As of March 31, 2017
Home equity	$	728,344	$	4,916	$	733,260	$	875,868	$	4,799	$	880,667
1-4 family mortgages	384,905		3,240		388,145		537,174		2,974		540,148
Installment	232,030		—		232,030		253,061		—		253,061
Total consumer loans	$	1,345,279	$	8,156	$	1,353,435	$	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 ~~September 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 September 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	$	286	$	150	$	436	$	294	$	1,050	$	1,344	$	278	$	922	$	1,200	$	281	$	150	$	431
Agricultural													—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	157		—		157		164		—		164		—		864		864		155		4,733		4,888
Multi-family	588		172		760		598		186		784		582		163		745		586		168		754
Construction													—		—		—		—		—		—
Other commercial real estate	324		—		324		340		—		340		263		—		263		268		48		316
Total commercial real estate	1,069		172		1,241		1,102		186		1,288		845		1,027		1,872		1,009		4,949		5,958
Total corporate loans	1,355		322		1,677		1,396		1,236		2,632		1,123		1,949		3,072		1,290		5,099		6,389
Home equity	181		879		1,060		494		667		1,161		172		795		967		177		820		997
1-4 family mortgages	832		389		1,221		853		421		1,274		817		368		1,185		824		378		1,202
Installment													—		—		—		—		—		—
Total consumer loans	1,013		1,268		2,281		1,347		1,088		2,435		989		1,163		2,152		1,001		1,198		2,199
Total loans	$	2,368	$	1,590	$	3,958	$	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 ~~September 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 nine months ended September 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 ~~nine months ended September 30, 2016 and 2015.~~2016.

2728

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

TDR Rollforward

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Accruing
Beginning balance	$	2,491		$	3,067		$	2,743		$	3,704		$	2,291		$	2,743
Additions	—			120			—			120			922			—
Net payments received	(22		)	(355		)	(91		)	(746		)	(24		)	(41		)
Returned to performing status	—			—			—			—
Net transfers to non-accrual	(101		)	(61		)	(284		)	(307		)	(1,077		)	—
Ending balance	2,368			2,771			2,368			2,771			2,112			2,702
Non-accrual
Beginning balance	1,690			2,070			2,324			19,904			6,297			2,324
Additions	—			325			—			325
Net payments received	(31		)	(29		)	(609		)	(15,483		)	(4,150		)	(56		)
Charge-offs	(170		)	(61		)	(409		)	(2,687		)	(112		)	—
Net transfers from accruing	101			61			284			307			1,077			—
Ending balance	1,590			2,366			1,590			2,366			3,112			2,268
Total TDRs	$	3,958		$	5,137		$	3,958		$	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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

8. PREMISES, FURNITURE, AND EQUIPMENT

The following table summarizes the Company's premises, furniture, and equipment by category.

Premises, Furniture, and Equipment

(Dollar amounts in thousands)


	As of						As of
	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Land	$	19,472		$	43,442		$	29,942		$	18,304
Premises	96,178			152,444			138,748			94,369
Furniture and equipment	103,326			90,672			133,618			105,859
Total cost	218,976			286,558			302,308			218,532
Accumulated depreciation	(141,500		)	(171,708		)	(178,801		)	(140,030		)
Net book value of premises, furniture, and equipment	77,476			114,850			123,507			78,502
Assets held-for-sale	4,967			7,428			17,146			4,075
Total premises, furniture, and equipment	$	82,443		$	122,278		$	140,653		$	82,577

~~On September 27,~~

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 ~~which $5.5 million was immediately recognized in earnings. The~~deferred pre-tax gains remaining pre-tax gain of $82.5 million will be deferred and accreted into income on a straight-line basis over the initial terms of the leases. Aggregate first year rent expense to be paid under the sale-leaseback transaction is approximately $10.5 million with a 1.50% annual rent escalation during the initial term and during the first and second five-year renewal periods.

~~Assets held-for-sale~~ as of ~~September 30, 2016~~March 31, 2017.

As of March 31, 2017 and December 31, ~~2015 consists~~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 ~~$3.4~~$3.5 million and ~~$10.1~~$3.2 million for the ~~quarter~~quarters ended March 31, 2017 and ~~nine months ended September 30,~~ 2016, respectively. ~~Depreciation on premises, furniture, and equipment totaled $3.4 million and $10.1 million for the same periods in 2015.~~

Operating Leases

As of ~~September 30, 2016,~~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, ~~2031.~~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 summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of ~~September 30, 2016.~~March 31, 2017.

Future Minimum Operating Lease Payments

(Dollar amounts in thousands)


	Total		Total
One year or less	$	21,332	$	18,809
After one year to two years	18,083		16,591
After two years to three years	16,762		16,800
After three years to four years	15,882		16,276
After four years to five years	14,476		16,190
After five years	109,752		124,340
Total minimum lease payments	$	196,287	$	209,006

~~Deferred~~As of March 31, 2017, deferred pre-tax gains of ~~$82.5~~$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.

~~As part of the acquisition of the Chicago area banking operations of Banco Popular North America completed in 2014, the~~

The Company assumed certain operating leases related to various ~~branches. On the date of acquisition, an~~branches in previous acquisitions. An intangible liability ~~of $10.6 million was~~is recorded aswhen the cash flows of ~~the leases exceeded the~~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 toand 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 1,011
After two years to three years 742
After three years to four years 648
After four years to five years 648
After five years 4,159
Total accretion $ 8,388



	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 ~~nine months ended September 30, 2016 and 2015.~~2016.

Net Operating Lease Expense

(Dollar amounts in thousands)


	Quarters Ended September 30,				Nine Months Ended September 30,				Quarters Ended March 31,
	2016		2015		2016		2015		2017			2016
Lease expense charged to operations ⁽¹⁾	$	1,950	$	1,438	$	4,902	$	4,282	$	4,559		$	1,727
Rental income from premises leased to others ⁽²⁾	118		167		404		454
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	$	1,832	$	1,271	$	4,498	$	3,828	$	2,610		$	1,283

⁽¹⁾

Includes amounts paid under short-term cancelable leases and is included in net occupancy and equipment expense in the Condensed Consolidated Statements of Income. For the quarter and nine months ended September 30, 2016, lease expense is net of accretion related to the intangible liability of $295,000 and $876,000, respectively. For the same periods in 2015, lease expense is net of accretion related to the intangible liability of $286,000 and $858,000.


⁽²⁾	Included as ~~a reduction~~reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.

9. ~~BORROWED FUNDS~~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 10-K.

The following table ~~summarizes~~presents changes in the ~~Company's borrowed funds by funding source.~~carrying amount of goodwill for the quarters ended March 31, 2017 and 2016.

~~Summary~~Changes in the Carrying Amount of ~~Borrowed Funds~~Goodwill

(Dollar amounts in thousands)

As of
September 30,
2016 December 31,
2015
Securities sold under agreements to repurchase $ 114,539
$ 155,196
FHLB advances 525,000
9,900
Total borrowed funds $ 639,539
$ 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 September 30, 2016, the Company held various short-term FHLB advances with fixed interest rates that range from 0.40% to 0.48% and maturity dates that range from October 3, 2016 to December 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 12 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.

On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. The line of credit will mature on September 26, 2017. Management expects to use this line of credit for general corporate purposes. As of September 30, 2016, no amount was outstanding under the facility.



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

~~10. SENIOR AND SUBORDINATED DEBT~~

The ~~following table presents~~increase in goodwill for the quarter ended March 31, 2017 resulted from the Standard and Premier acquisitions and measurement period adjustments related to finalizing the fair values of the 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 Company's ~~senior~~other intangible assets are core deposit intangibles and ~~subordinated debt by issuance.~~trust department customer relationship intangibles, which are being amortized over their estimated useful lives. Other intangible assets are subject to impairment testing when events or circumstances indicate that its carrying amount may not be recoverable. The increase in 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.

~~Senior and Subordinated Debt~~Other Intangible Assets

(Dollar amounts in thousands)

As of
Issuance Date Maturity Date Interest Rate September 30,
2016
December 31,
2015
Senior notes November 2011 November 2016 5.875% $ 114,983
$ 114,891
Subordinated notes:
Due in 2026 September 2016 September 2026 5.875% 146,484
—
Due in 2016 March 2006 April 2016 5.850% —
38,499
Junior subordinated debentures:
First Midwest Capital Trust I ("FMCT") November 2003 December 2033 6.950% 37,800
37,799
Great Lakes Statutory Trust II
("GLST II") ⁽¹⁾
December 2005 December 2035
L+1.400% ⁽²⁾
4,367
4,296
Great Lakes Statutory Trust III
("GLST III")⁽¹⁾
June 2007 September 2037
L+1.700% ⁽²⁾
5,810
5,723
Total junior subordinated debentures 47,977
47,818
Total senior and subordinated debt $ 309,444
$ 201,208



	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 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

⁽¹⁾

The junior subordinated debentures related to GLST II and GLST III were assumed by the Company during 2014 through the acquisition 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 $2.4 million to GLST III as of September 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.~~

~~On April 1, 2016, $38.5 million 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.~~

~~Issuance of Subordinated Notes~~

On September 29, 2016, the Company completed the issuance and sale of $150.0 million aggregate principal amount of its 5.875% subordinated notes due 2026. Interest on the notes is payable semi-annually on March 29 and September 29, beginning on March 29, 2017. The Company received proceeds of $146.5 million, net of underwriting discounts and commissions and issuance costs. The Company expects to use the net proceeds to repay at maturity the entire $115.0 million aggregate principal amount outstanding of its 5.875% senior notes due November 22, 2016, plus accrued interest, and for other general corporate purposes.

~~Junior Subordinated Debentures~~

~~FMCT, GLST II, and GLST III are Delaware statutory business trusts. These trusts were established~~increase in total deposits for the ~~purpose of issuing trust-preferred securities and lending~~quarter ended March 31, 2017 includes deposits assumed in the ~~proceeds~~Standard acquisition. For additional disclosure related to the Company in return for junior subordinated debentures of the Company. The junior subordinated debentures are the sole 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, in whole or in part, on repayment of the junior subordinated debentures at the stated maturity date or on redemption. The Company guarantees payments of distributions and redemptions on the trust-preferred securities on a limited basis.Standard transaction, see note 3, "Acquisitions."

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 consolidated in the Company's financial statements.

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 September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Net income	$	28,402		$	23,284		$	71,631		$	65,740		$	22,855		$	17,962
Net income applicable to non-vested restricted shares	(324		)	(226		)	(826		)	(703		)	(234		)	(212		)
Net income applicable to common shares	$	28,078		$	23,058		$	70,805		$	65,037		$	22,621		$	17,750
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	80,396			77,106			79,589			77,038			100,411			77,980
Dilutive effect of common stock equivalents	13			13			13			13			21			12
Weighted-average diluted common shares outstanding	80,409			77,119			79,602			77,051			100,432			77,992
Basic EPS	$	0.35		$	0.30		$	0.89		$	0.84		$	0.23		$	0.23
Diluted EPS	$	0.35		$	0.30		$	0.89		$	0.84		$	0.23		$	0.23
Anti-dilutive shares not included in the computation of diluted EPS ⁽¹⁾	454			751			510			822			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.

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
	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Gross notional amount outstanding	$	10,710		$	11,620		$	5,833		$	5,958
Derivative liability fair value	(399		)	(643		)	(226		)	(282		)
Weighted-average interest rate received	2.44		%	2.25		%	2.83		%	2.63		%
Weighted-average interest rate paid	6.35		%	6.36		%	5.96		%	5.96		%
Weighted-average maturity (in years)	1.24			1.97			1.60			1.84
Fair value of derivative ⁽¹⁾	$	418		$	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 ~~nine months ended September 30,~~ 2016, ~~and 2015,~~ gains or losses related to fair value hedge ineffectiveness were not material.

Cash Flow Hedges

As of ~~September 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. 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
	September 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	15,093			4,787			4,078			5,402
Derivative liability fair value	(14,836		)	(8,950		)	(8,286		)	(7,390		)
Weighted-average interest rate received	1.32		%	1.24		%	1.42		%	1.37		%
Weighted-average interest rate paid	1.04		%	0.75		%	1.23		%	1.11		%
Weighted-average maturity (in years)	3.04			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 ~~nine months ended September 30,~~ 2016, ~~and 2015,~~ there were no material gains or losses related to cash flow hedge ineffectiveness. As of ~~September 30, 2016,~~March 31, 2017, the Company estimates that ~~$3.7~~$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 ~~September 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 ~~$2.9~~$1.4 million and ~~$8.2~~$3.2 million were recorded in noninterest income for the ~~quarter~~quarters ended March 31, 2017 and ~~nine months ended September 30,~~ 2016, ~~respectively. There were $1.2 million and $2.7 million of transaction fees recorded for the quarter and nine months ended September 30, 2015,~~ respectively.

Other Derivative Instruments

(Dollar amounts in thousands)


	As of						As of
	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Gross notional amount outstanding	$	1,462,702		$	853,385		$	2,100,325		$	1,656,612
Derivative asset fair value	29,835			11,446			15,722			13,478
Derivative liability fair value	(29,835		)	(11,446		)	(15,722		)	(13,478		)
Fair value of derivative ⁽¹⁾	30,451			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 ~~September 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

securities or cash to collateralize either party's net losses above a stated minimum threshold. As of ~~September 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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)


	As of September 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	$	44,928		$	45,070		$	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⁾	44,928			45,070			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	(15,245		)	(15,245		)	(4,791		)	(4,791		)	(11,293		)	(11,293		)	(10,889		)	(10,889		)
Cash collateral pledged	—			(29,825		)	—			(16,248		)	—			(12,941		)	—			(10,261		)
Net credit exposure	$	29,683		$	—		$	11,442		$	—		$	8,507		$	—		$	7,991		$	—


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

As of ~~September 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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 the Company was in compliance with these provisions.

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
	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Commitments to extend credit:
Commercial, industrial, and agricultural	$	1,462,813	$	1,303,056	$	1,737,410	$	1,522,152
Commercial real estate	439,518		366,250		427,425		397,423
Home equity	387,194		352,114		486,880		426,384
Other commitments ⁽¹⁾	215,226		203,121		250,123		214,943
Total commitments to extend credit	$	2,504,751	$	2,224,541	$	2,901,838	$	2,560,902

Letters of credit	$	107,461	$	100,610	$	146,632	$	100,430
Recourse on assets sold:
Unpaid principal balance of loans sold	$	187,891	$	196,389	$	185,101	$	187,158
Carrying value of recourse obligation ⁽²⁾	125		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 ~~nine months ended September 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 ~~September 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.

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.

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 September 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	$	1,707	$	—	$	—	$	2,530	$	—	$	—	$	1,768	$	—	$	—	$	1,645	$	—	$	—
Mutual funds	16,644		—		—		14,364		—		—		17,362		—		—		16,275		—		—
Total trading securities	18,351		—		—		16,894		—		—		19,130		—		—		17,920		—		—
Securities available-for-sale:
U.S. treasury securities	43,797		—		—		16,980		—		—		48,516		—		—		48,541		—		—
U.S. agency securities	—		192,931		—		—		86,643		—		—		181,030		—		—		183,637		—
CMOs	—		1,081,259		—		—		687,185		—		—		1,051,364		—		—		1,047,446		—
MBSs	—		324,484		—		—		153,530		—		—		352,966		—		—		332,655		—
Municipal securities	—		286,713		—		—		327,570		—		—		262,710		—		—		270,846		—
CDOs	—		—		31,899		—		—		31,529		—		—		33,436		—		—		33,260
Equity securities	—		2,947		—		—		3,199		—		—		7,102		—		—		3,065		—
Total securities available-for-sale	43,797		1,888,334		31,899		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⁾	—		—		5,076		—		—		1,853		—		—		6,245						6,120
Derivative assets ⁽¹⁾	—		44,928		—		—		16,233		—		—		19,800		—		—		18,880		—
Liabilities:
Derivative liabilities ⁽²⁾	$	—	$	45,070	$	—	$	—	$	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.

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

Significant Unobservable Inputs Used in the Valuation of CDOs


	As of								As of
	September 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
Probability of prepayment	1.8	%	-	15.0%	1.8	%	-	15.1%	0.0	%	-	10.9%	0.0	%	-	10.9%
Probability of default	17.4	%	-	49.0%	19.1	%	-	32.6%	16.6	%	-	44.1%	16.7	%	-	46.8%
Loss given default	93.1	%	-	98.5%	93.8	%	-	97.1%	93.3	%	-	99.1%	93.3	%	-	98.9%
Probability of deferral cure	17.3	%	-	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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Carrying Value of CDOs

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017		2016
Beginning balance	$	30,431		$	32,004		$	31,529		$	33,774		$	33,260	$	31,529
Change in other comprehensive income ⁽¹⁾	1,794			(62		)	764			(1,560		)	129		(786		)
Paydowns	(326		)	(72		)	(394		)	(344		)
Other													47		14
Ending balance	$	31,899		$	31,870		$	31,899		$	31,870		$	33,436	$	30,757


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

MSRs

The Company services loans for others totaling ~~$630.7~~$632.7 million as of ~~September 30, 2016~~March 31, 2017 and ~~$242.9~~$640.5 million as of December 31, 2015. As of September 30, 2016, loans serviced for others includes approximately $318.5 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 ~~September 30, 2016.~~March 31, 2017.

Significant Unobservable Inputs Used in the Valuation of MSRs


	As of								As of
	September 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
Prepayment speed	10.2	%	-	29.2%	10.1	%	-	20.9%	7.7	%	-	25.5%	7.7	%	-	22.8%
Maturity (months)	12		-	80	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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	4,938		$	1,820		$	1,853		$	1,728		$	6,120		$	1,853
Additions from acquisition	—			—			3,092			—			—			3,092
New MSRs	581			60			928			303			156			185
(Losses) gains included in earnings ⁽¹⁾:
Total gains (losses) included in earnings ⁽¹⁾:
Changes in valuation inputs and assumptions	(205		)	(12		)	(377		)	(51		)	172			(40		)
Other changes in fair value ⁽²⁾	(238		)	(70		)	(420		)	(182		)	(203		)	(68		)
Ending balance	$	5,076		$	1,798		$	5,076		$	1,798		$	6,245		$	5,022
Contractual servicing fees earned ⁽¹⁾	$	373		$	136		$	922		$	404		$	395		$	183


⁽¹⁾	Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of ~~September 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.

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 September 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⁾	$	—	$	—	$	10,156	$	—	$	—	$	10,519	$	—	$	—	$	11,528	$	—	$	—	$	22,019
OREO ⁽²⁾	—		—		4,090		—		—		8,581		—		—		780		—		—		8,624
Loans held-for-sale ⁽³⁾	—		—		29,645		—		—		14,444		—		—		9,144		—		—		10,484
Assets held-for-sale ⁽⁴⁾	—		—		4,967		—		—		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 ~~September 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 ~~September 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.

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
		September 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	$	139,538	$	139,538	$	114,587	$	114,587	1	$	174,268	$	174,268	$	155,055	$	155,055
Interest-bearing deposits in other banks	2	362,153		362,153		266,615		266,615		2	74,892		74,892		107,093		107,093
Securities held-to-maturity	2	20,337		18,110		23,152		20,054		2	17,742		15,118		22,291		18,212
FHLB and FRB stock	2	53,506		53,506		39,306		39,306		2	46,306		46,306		59,131		59,131
Loans	3	8,091,306		7,997,227		7,091,988		6,959,024		3	9,970,427		9,712,763		8,172,584		7,973,845
Investment in BOLI	3	219,064		219,064		209,601		209,601		3	276,960		276,960		219,746		219,746
Accrued interest receivable	3	33,931		33,931		27,847		27,847		3	39,868		39,868		34,384		34,384
Other interest-earning assets	3	1,056		1,056		1,982		1,982		3	635		635		834		834
Liabilities:
Deposits	2	$	9,106,104	$	9,104,564	$	8,097,738	$	8,093,640	2	$	10,956,541	$	10,945,331	$	8,828,603	$	8,820,572
Borrowed funds	2	639,539		639,539		165,096		165,096		2	547,923		547,923		879,008		879,008
Senior and subordinated debt	1	309,444		317,948		201,208		205,726		2	194,745		202,522		194,603		197,888
Accrued interest payable	2	4,856		4,856		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.

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 ~~110 banking~~over 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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ and Consolidated Statements of Financial Condition as of ~~September 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 nine months~~ ended ~~September 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 first exceeded $10.0 billion in total assets. As of ~~September 30, 2016,~~March 31, 2017, the Company and the Bank each had total assets of approximately ~~$11.6~~$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").

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 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") and the efficiency ratio, excluding certain significant transactions, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, 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 earnings per share, excluding certain significant transactions, and the efficiency ratio, both of which exclude acquisition and integration related expenses and the net gain on the sale-leaseback transaction. Management believes excluding these significant transactions from earnings per share and the efficiency ratio 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.

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
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Earnings Per Share
Net income $ 28,402
$ 23,284
$ 71,631
$ 65,740
Net income applicable to non-vested restricted shares (324 ) (226 ) (826 ) (703 )
Net income applicable to common shares 28,078
23,058
70,805
65,037
Net gain on sale-leaseback transaction (5,509 ) —
(5,509 ) —
Tax effect of gain on sale-leaseback transaction 2,204
—
2,204
—
Acquisition and integration related expenses 1,172
—
6,810
—
Tax effect of acquisition and integration related expenses (469 ) —
(2,724 ) —
Net income applicable to common shares, excluding
certain significant transactions ⁽¹⁾
$ 25,476
$ 23,058
$ 71,586
$ 65,037
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic) 80,396
77,106
79,589
77,038
Dilutive effect of common stock equivalents 13
13
13
13
Weighted-average diluted common shares
outstanding 80,409
77,119
79,602
77,051
Basic EPS $ 0.35
$ 0.30
$ 0.89
$ 0.84
Diluted EPS $ 0.35
$ 0.30
$ 0.89
$ 0.84
Diluted EPS, excluding certain significant transactions ⁽¹⁾
$ 0.32
$ 0.30
$ 0.90
$ 0.84
Tax-Equivalent Net Interest Income
Net interest income $ 90,972
$ 77,902
$ 261,667
$ 233,586
Tax-equivalent adjustment 2,079
2,609
6,579
8,185
Tax-equivalent net interest income ⁽²⁾
$ 93,051
$ 80,511
$ 268,246
$ 241,771
Efficiency Ratio Calculation
Noninterest expense $ 82,888
$ 74,365
$ 246,831
$ 220,473
Less:
Net other real estate owned ("OREO") expense (313 ) (1,290 ) (2,099 ) (4,355 )
Acquisition and integration related expenses (1,172 ) —
(6,810 ) —
Total $ 81,403
$ 73,075
$ 237,922
$ 216,118
Tax-equivalent net interest income ⁽²⁾
$ 93,051
$ 80,511
$ 268,246
$ 241,771
Fee-based revenues 38,466
33,118
107,994
93,332
Add:
Other income, excluding BOLI income 762
446
2,325
1,957
BOLI income 929
926
2,676
3,263
Tax-equivalent adjustment of BOLI income 619
617
1,784
2,175
Total $ 133,827
$ 115,618
$ 383,025
$ 342,498
Efficiency ratio 60.83 % 63.20 % 62.12 % 63.10 %

Quarters Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Return on Average Common and Tangible Common Equity
Net income applicable to common shares $ 28,078
$ 23,058
$ 70,805
$ 65,037
Intangibles amortization 1,245
973
3,475
2,949
Tax effect of intangibles amortization (498 ) (389 ) (1,390 ) (1,180 )
Net income applicable to common shares, excluding
intangibles amortization 28,825
23,642
72,890
66,806
Net gain on sale-leaseback transaction (5,509 ) —
(5,509 ) —
Tax effect of gain on sale-leaseback transaction 2,204
—
2,204
—
Acquisition and integration related expenses 1,172
—
6,810
—
Tax effect of acquisition and integration related expenses (469 ) —
(2,724 ) —
Net income applicable to common shares, excluding
intangibles amortization and certain significant
transactions ⁽¹⁾
$ 26,223
$ 23,642
$ 73,671
$ 66,806
Average stockholders' common equity $ 1,261,702
$ 1,134,967
1,225,396
$ 1,124,493
Less: average intangible assets (369,281 ) (331,720 ) (361,697 ) (332,692 )
Average tangible common equity $ 892,421
$ 803,247
$ 863,699
$ 791,801
Return on average common equity ⁽³⁾
8.85 % 8.06 % 7.72 % 7.73 %
Return on average tangible common equity ⁽³⁾
12.85 % 11.68 % 11.27 % 11.28 %
Return on average tangible common equity, excluding
certain significant transactions ⁽¹⁾ ⁽³⁾
11.69 % 11.68 % 11.39 % 11.28 %
Return on Average Assets
Net income $ 28,402
$ 23,284
$ 71,631
$ 65,740
Net gain on sale-leaseback transaction (5,509 ) —
(5,509 ) —
Tax effect of gain on sale-leaseback transaction 2,204
—
2,204
—
Acquisition and integration related expenses 1,172
—
6,810
—
Tax effect of acquisition and integration related expenses (469 ) —
(2,724 ) —
Net income, excluding certain significant transactions ⁽¹⁾
$ 25,800
$ 23,284
$ 72,412
$ 65,740
Average assets $ 11,322,325
$ 9,875,632
$ 10,784,532
$ 9,661,483
Return on average assets ⁽³⁾
1.00 % 0.94 % 0.89 % 0.91 %
Return on average assets, excluding certain significant
transactions ^{(1) (3)}
0.91 % 0.94 % 0.90 % 0.91 %

As of
September 30, 2016 December 31, 2015
Tangible Common Equity
Stockholders' equity $ 1,269,264
$ 1,146,268
Less: goodwill and other intangible assets (367,961 ) (339,277 )
Tangible common equity 901,303
806,991
Less: accumulated other comprehensive income ("AOCI") 13,402
28,389
Tangible common equity, excluding AOCI $ 914,705
$ 835,380
Total assets $ 11,578,197
$ 9,732,676
Less: goodwill and other intangible assets (367,961 ) (339,277 )
Tangible assets $ 11,210,236
$ 9,393,399
Risk-weighted assets $ 9,867,406
$ 8,687,864
Tangible common equity to tangible assets 8.04 % 8.59 %
Tangible common equity, excluding AOCI, to tangible assets 8.16 % 8.89 %
Tangible common equity to risk-weighted assets 9.13 % 9.29 %


⁽¹⁾	~~Certain significant transactions include the net gain on sale-leaseback transaction and 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.~~

~~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

~~Sale-Leaseback Transaction~~

On September 27, 2016, the Bank completed a sale-leaseback transaction, whereby the Bank sold to Oak Street Real Estate Capital, LLC ("Oak Street") for an aggregate cash purchase price of $150.3 million, 55 properties owned and operated by the Bank as branches. Upon the sale of the branches to Oak Street, the Bank concurrently entered into triple net lease agreements with certain affiliates of Oak Street 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, of which $5.5 million was immediately recognized in earnings with the remaining $82.5 million to be accreted into income on a straight-line basis over the initial terms of the leases. The Company expects the investment of proceeds and the gain from the sale of the branches, net of occupancy expenses associated with the branches, will be modestly accretive to the Company's earnings over the initial term of the lease agreements.

~~Issuance of Subordinated Notes~~

On September 29, 2016, the Company completed the issuance and sale of $150.0 million aggregate principal amount of its 5.875% subordinated notes due 2026. Interest on the notes is payable semiannually on March 29 and September 29, beginning on March 29, 2017. The Company received proceeds of $146.5 million, net of underwriting discounts and commissions and issuance costs. The Company expects to use the net proceeds to repay at maturity the entire $115.0 million aggregate principal amount outstanding of its 5.875% senior notes due November 22, 2016, plus accrued interest, and for other general corporate purposes.

~~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. As of June 30, 2016, Standard had total assets of~~Indiana, and added approximately ~~$2.5~~$2.0 billion ~~with $2.2 billion~~ in ~~deposits, of which over 90% were core~~ deposits and $1.8 billion in ~~loans, of which 80% were 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 was 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 the approval of the Company's and Standard's shareholders.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~~acquired approximately ~~$400~~$550.0 million ~~in loans and $600 million in deposits. In addition, the Company acquired over $700 million in~~of trust assets under ~~management, which~~management. With this acquisition, the assets the Company collectively manages on behalf of its clients 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.~~to nearly $10.0 billion.

4845

~~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 million in deposits and $54 million in loans. The merger consideration totaled $16.8 million and was paid in cash.

PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Operating Results
Interest income	$	97,906		$	84,292		$	282,004		$	251,317		$	123,699		$	87,548
Interest expense	6,934			6,390			20,337			17,731			8,502			6,834
Net interest income	90,972			77,902			261,667			233,586			115,197			80,714
Provision for loan losses	9,998			4,100			25,676			16,652			4,918			7,593
Noninterest income	45,853			35,014			119,601			100,103			39,951			35,926
Noninterest expense	82,888			74,365			246,831			220,473			116,642			82,589
Income before income tax expense	43,939			34,451			108,761			96,564			33,588			26,458
Income tax expense	15,537			11,167			37,130			30,824			10,733			8,496
Net income	$	28,402		$	23,284		$	71,631		$	65,740		$	22,855		$	17,962
Weighted-average diluted common shares outstanding	80,409			77,119			79,602			77,051			100,432			77,992
Diluted earnings per common share	$	0.35		$	0.30		$	0.89		$	0.84		$	0.23		$	0.23
Diluted earnings per common share, excluding certain significant transactions ⁽¹⁾⁽²⁾	$	0.32		$	0.30		$	0.90		$	0.84		$	0.34		$	0.27
Performance Ratios
Return on average common equity ⁽³⁾	8.85		%	8.06		%	7.72		%	7.73		%	5.20		%	6.06		%
Return on average tangible common equity ^{(2) (3)}	12.85		%	11.68		%	11.27		%	11.28		%
Return on average tangible common equity ⁽³⁾													9.53		%	8.87		%
Return on average tangible common equity, excluding certain significant transactions ^{(1) (2) (3)}	11.69		%	11.68		%	11.39		%	11.28		%	13.99		%	10.32		%
Return on average assets ^{(2) (3)}	1.00		%	0.94		%	0.89		%	0.91		%
Return on average assets ⁽³⁾													0.68		%	0.72		%
Return on average assets, excluding certain significant transactions ^{(1) (2) (3)}	0.91		%	0.93		%	0.90		%	0.90		%	1.01		%	0.84		%
Tax-equivalent net interest margin ^(2)(3)(4)	3.60		%	3.58		%	3.66		%	3.70		%	3.89		%	3.66		%
Efficiency ratio ⁽²⁾	60.83		%	63.20		%	62.12		%	63.10		%	60.98		%	64.82		%


⁽¹⁾	Certain significant transactions include ~~the net gain on sale-leaseback transaction and~~ acquisition and integration related expenses associated with completed and 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.

4946


	As of									September 30, 2016 Change From						As of									March 31, 2017 Change From
	September 30, 2016			December 31, 2015			September 30, 2015			December 31, 2015			September 30, 2015			March 31, 2017			December 31, 2016			March 31, 2016			December 31, 2016			March 31, 2016
Balance Sheet Highlights
Total assets	$	11,578,197		$	9,732,676		$	9,935,046		$	1,845,521		$	1,643,151		$	13,773,471		$	11,422,555		$	10,728,922		$	2,350,916		$	3,044,549
Total loans	8,171,782			7,161,715			6,925,699			1,010,067			1,246,083			10,054,370			8,254,145			7,822,555			1,800,225			2,231,815
Total deposits	9,106,104			8,097,738			8,296,450			1,008,366			809,654			10,956,541			8,828,603			8,780,818			2,127,938			2,175,723
Core deposits	7,872,364			6,944,272			7,137,064			928,092			735,300			9,415,286			7,635,318			7,493,696			1,779,968			1,921,590
Loans to deposits	89.7		%	88.4		%	83.5		%							91.8		%	93.5		%	89.1		%
Core deposits to total deposits	86.5		%	85.8		%	86.0		%							85.9		%	86.5		%	85.3		%

Asset Quality Highlights ⁽¹⁾
Non-accrual loans	$	43,797		$	28,875		$	32,308		$	14,922		$	11,489		$	54,294		$	59,289		$	31,890		$	(4,995	)	$	22,404
90 days or more past due loans, still accruing interest(1)	4,318			2,883			4,559			1,435			(241		)	2,633			5,009			5,835			(2,376		)	(3,202		)
Total non-performing loans	48,115			31,758			36,867			16,357			11,248			56,927			64,298			37,725			(7,371		)	19,202
Accruing troubled debt restructurings ("TDRs")	2,368			2,743			2,771			(375		)	(403		)	2,112			2,291			2,702			(179		)	(590		)
OREO	27,986			27,349			31,129			637			(3,143		)
Other real estate owned ("OREO")																29,140			26,083			29,649			3,057			(509		)
Total non-performing assets	$	78,469		$	61,850		$	70,767		$	16,619		$	7,702		$	88,179		$	92,672		$	70,076		$	(4,493	)	$	18,103
30-89 days past due loans(1)	$	25,849		$	16,329		$	28,629		$	9,520		$	(2,780	)	$	23,641		$	21,043		$	30,142		$	2,598		$	(6,501	)
Non-performing assets to loans plus OREO(2)	0.96		%	0.86		%	1.02		%							0.87		%	1.12		%	0.89		%
Allowance for Credit Losses
Allowance for credit losses	$	86,308		$	74,855		$	73,725		$	11,453		$	12,583		$	89,163		$	87,083		$	78,375		$	2,080		$	10,788
Allowance for credit losses to total loans ⁽²⁾⁽³⁾	1.06		%	1.05		%	1.06		%							0.89		%	1.06		%	1.00		%
Allowance for credit losses to non-accrual loans ⁽¹⁾	194.11		%	253.57		%	215.45		%
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 ~~third~~first quarter ~~and first nine months of 2016 were $28.4~~2017 was $22.9 million, or ~~$0.35~~$0.23 per share, ~~and $71.6~~compared to $18.0 million, or ~~$0.89~~$0.23 per share, ~~respectively.~~for the first quarter of 2016. Performance for ~~the third quarter and first nine months of 2016 were~~both periods was impacted by certain significant transactions which include acquisition and integration related pre-tax expenses of ~~$1.2~~$18.6 million and ~~$6.8~~$5.0 million ~~respectively,~~for the first quarters of 2017 and ~~the pre-tax net gain of $5.5 million on the sale-leaseback transaction, which was realized during the third quarter of 2016.~~2016, respectively. Excluding these transactions, earnings per share was ~~$0.32 for the third quarter of 2016 compared to $0.30 for the third quarter of 2015 and $0.90~~$0.34 for the first ~~nine months~~quarter of ~~2016~~2017 compared to ~~$0.84~~$0.27 for the same period in ~~2015.~~2016. The increase in net income and earnings per share, excluding 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 ~~$8.2~~$10.1 billion grew by ~~$1.0~~$1.8 billion, or ~~14.1%~~21.8%, from December 31, ~~2015.~~2016. This growth was driven primarily by ~~strong sales production from the corporate and consumer lending teams and~~ the acquisition of ~~NI Bancshares,~~Standard, which represents ~~$299.7 million~~$1.7 billion of loans at ~~September 30, 2016.~~March 31, 2017.

Non-performing assets to loans plus OREO ~~excluding covered loans and covered OREO,~~ was ~~0.96%~~0.87% at ~~September 30, 2016, compared to 0.86%~~March 31, 2017, down from 1.12% at December 31, ~~2015 and down from 1.02% at September 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.

5047

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 ~~September 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 nine months ended September 30, 2016 and 2015.~~

5148

Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)


	Quarters Ended September 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	$	282,101		$	472		0.67	$	820,318		$	645		0.31	$	(900	)	$	727		$	(173	)	$	215,915		$	441		0.83	$	241,645		$	342		0.57	$	(31	)	$	130		$	99
Securities ⁽¹⁾	1,896,195			10,752			2.27	1,194,711			9,559			3.20	1,444			(251		)	1,193			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	51,451			261			2.03	38,748			369			3.81	256			(364		)	(108		)	54,219			368			2.71	39,773			159			1.60	72			137			209
Loans ⁽³⁾⁽²⁾	8,067,900			88,500			4.36	6,887,611			76,328			4.40	12,261			(89		)	12,172			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⁾	10,297,647			99,985			3.87	8,941,388			86,901			3.86	13,061			23			13,084			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	150,467							132,504																176,953							133,268
Allowance for loan losses	(84,088		)					(73,928		)														(89,065		)					(75,654		)
Other assets	958,299							875,668																1,373,433							876,316
Total assets	$	11,322,325						$	9,875,632															$	13,673,125						$	10,056,845
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity																							Liabilities and Stockholders' Equity
Savings deposits	$	1,655,604		298			0.07	$	1,471,003		269			0.07	29			—			29			$	2,029,631		400			0.08	$	1,575,174		283			0.07	85			32			117
NOW accounts	1,754,330			338			0.08	1,405,371			172			0.05	50			116			166			1,916,816			478			0.10	1,448,666			200			0.06	80			198			278
Money market deposits	1,680,886			450			0.11	1,589,582			490			0.12	31			(71		)	(40		)	1,890,703			619			0.13	1,583,898			465			0.12	96			58			154
Time deposits	1,248,425			1,434			0.46	1,173,127			1,398			0.47	81			(45		)	36			1,515,597			1,712			0.46	1,183,463			1,437			0.49	403			(128		)	275
Borrowed funds	605,177			1,782			1.17	168,807			928			2.18	1,041			(187		)	854			734,091			2,194			1.21	303,232			1,316			1.75	1,128			(250		)	878
Senior and subordinated debt	166,101			2,632			6.30	201,083			3,133			6.18	(555		)	54			(501		)	194,677			3,099			6.46	201,253			3,133			6.26	(112		)	78			(34		)
Total interest-bearing liabilities	7,110,523			6,934			0.39	6,008,973			6,390			0.42	677			(133		)	544			8,281,515			8,502			0.42	6,295,686			6,834			0.44	1,680			(12		)	1,668
Demand deposits	2,806,851							2,601,442																3,355,674							2,463,017
Total funding sources	9,917,374							8,610,415																11,637,189							8,758,703
Other liabilities	143,249							130,250																272,398							119,554
Stockholders' equity - common	1,261,702							1,134,967																1,763,538							1,178,588
Total liabilities and stockholders' equity	$	11,322,325						$	9,875,632															$	13,673,125						$	10,056,845
Tax-equivalent net interest income/margin ⁽¹⁾				93,051			3.60				80,511			3.58	$	12,384		$	156		$	12,540					117,251			3.89				83,021			3.66	$	30,318		$	3,912		$	34,230
Tax-equivalent adjustment				(2,079		)					(2,609		)														(2,054		)					(2,307		)
Net interest income (GAAP)				$	90,972						$	77,902															$	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 ~~$44.3~~$54.3 million as of ~~September 30, 2016~~March 31, 2017 and ~~$33.6~~$31.9 million as of ~~September 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

5249

~~Table 3~~of 2017. Higher interest rates combined with increased levels of interest-earning assets from securities purchases and loan growth also contributed to the increase in net interest income.

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

~~(Dollar amounts~~Tax-equivalent net interest margin for the current quarter was 3.89%, increasing by 23 basis points from the first quarter of 2016. The rise in ~~thousands)~~

tax-equivalent net interest margin was impacted by a 27 basis point increase in acquired loan accretion, due primarily to the 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 the securities portfolio and the continued shift of loan originations and mix to lower-yielding floating rate loans.

Nine Months Ended September 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 $ 274,923
$ 1,240
0.60 $ 671,794
$ 1,559
0.31 $ (1,790 ) $ 1,471
$ (319 )
Securities ⁽¹⁾
1,705,180
31,386
2.45 1,196,695
29,762
3.32 4,116
(2,492 ) 1,624
FHLB and FRB stock 44,620
620
1.85 38,442
1,094
3.79 217
(691 ) (474 )
Loans ^(1)(2)(3)
7,767,015
255,337
4.39 6,815,136
227,087
4.46 31,304
(3,054 ) 28,250
Total interest-earning assets ⁽¹⁾⁽²⁾
9,791,738
288,583
3.94 8,722,067
259,502
3.98 33,847
(4,766 ) 29,081
Cash and due from banks 146,158
130,166

Allowance for loan losses (80,116 ) (73,761 )
Other assets 926,752
883,011

Total assets $ 10,784,532
$ 9,661,483

Liabilities and Stockholders' Equity
Savings deposits $ 1,628,879
873
0.07 $ 1,456,160
799
0.07 74
—
74
NOW accounts 1,606,765
783
0.07 1,383,604
506
0.05 158
119
277
Money market deposits 1,645,237
1,369
0.11 1,556,436
1,449
0.12 156
(236 ) (80 )
Time deposits 1,236,571
4,362
0.47 1,218,344
4,502
0.49 142
(282 ) (140 )
Borrowed funds 457,133
4,597
1.34 145,611
1,064
0.98 3,193
340
3,533
Senior and subordinated debt 176,691
8,353
6.32 200,998
9,411
6.26 (1,117 ) 59
(1,058 )
Total interest-bearing
liabilities 6,751,276
20,337
0.40 5,961,153
17,731
0.40 2,606
—
2,606
Demand deposits 2,681,021
2,451,597

Total funding sources 9,432,297
8,412,750

Other liabilities 126,839
124,240

Stockholders' equity - common 1,225,396
1,124,493

Total liabilities and
stockholders' equity $ 10,784,532
$ 9,661,483

Tax-equivalent net interest
income/margin ⁽¹⁾
268,246
3.66 241,771
3.70 $ 31,241
$ (4,766 ) $ 26,475
Tax-equivalent adjustment (6,579 ) (8,185 )
Net interest income (GAAP) $ 261,667
$ 233,586


⁽¹⁾	Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate 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 $44.3 million as of September 30, 2016 and $33.6 million as of September 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~~For the first quarter of 2017, total average interest-earning assets ~~for~~rose $3.1 billion from the ~~third~~first quarter ~~and first nine months~~ of ~~2016 increased by $1.4 billion and $1.1 billion, respectively, compared to the same periods in 2015.~~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 organic loan growth, ~~and~~ security purchases, ~~as well as $528.8 million of~~and interest-earning assets acquired in the NI Bancshares transaction late in the first quarter of ~~2016, and $96.2 million of interest-earning assets acquired in the Peoples transaction late in the fourth quarter of 2015.~~2016.

~~For the third quarter and first nine months of 2016, total average~~Average funding sources increased by ~~$1.3~~$2.9 billion ~~and $1.0 billion, 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 addition ~~of $515.1 million~~ of FHLB advances during the ~~first nine months of 2016.~~

~~Tax-equivalent net interest margin for the third quarter and first nine months~~second half of 2016 ~~was 3.60% and 3.66%, respectively, increasing 2 basis points from the third quarter of 2015 and decreasing 4 basis points from the first nine months of 2015. Compared~~also contributed to the ~~third quarter of 2015, the increase~~rise in tax-equivalent net interest margin was driven by higher accretion on acquired loans and the maturity of $38.5 million of subordinated notes early in the second quarter of 2016, which were partially offset by the continued shift in the loan mix to floating rate loans. The decrease in net interest margin compared to the first nine months of 2015 was due primarily to the continued shift in the loan mix to floating rate loans and lower covered loan income, partially offset by the reinvestment of other interest-earning assets into higher yielding securities and loans.

Net interest income increased by 16.8% and 12.0% from the third quarter and first nine months of 2015, respectively. Compared to both prior periods, the increase in net interest income was driven primarily by organic loan growth and the acquisition of interest-earning assets from the NI Bancshares and Peoples transactions.

Acquired loan accretion contributed $3.8 million and $9.1 million to net interest income for the third quarter and first nine months of 2016, respectively, and $1.8 million and $7.7 million for the same periods in 2015.average funding sources.

Noninterest Income

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

Table 43

Noninterest Income Analysis

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016		2015		% Change		2016		2015		% Change		2017		2016		% Change
Service charges on deposit accounts	$	10,708	$	10,519	1.8		$	30,350	$	29,676	2.3		$	11,365	$	9,473	20.0
Wealth management fees	8,495		7,222		17.6		24,696		21,669		14.0		9,660		7,559		27.8
Card-based fees ⁽¹⁾	7,332		6,868		6.8		21,642		20,223		7.0		8,116		6,718		20.8
Merchant servicing fees ⁽²⁾	3,319		3,207		3.5		9,517		8,810		8.0		3,135		3,028		3.5
Mortgage banking income	3,394		1,402		142.1		6,625		3,964		67.1		1,888		1,368		38.0
Capital market products income													1,376		3,215		(57.2	)
Other service charges, commissions, and fees	5,218		3,900		33.8		15,164		8,990		68.7		2,307		2,233		3.3
Total fee-based revenues	38,466		33,118		16.1		107,994		93,332		15.7		37,847		33,594		12.7
Net gain on sale-leaseback transaction	5,509		—		100.0		5,509		—		100.0
Net securities gains ⁽³⁾	187		524		(64.3	)	1,097		1,551		(29.3	)	—		887		(100.0	)
Other income ⁽⁴⁾	1,691		1,372		23.3		5,001		5,220		(4.2	)	2,104		1,445		45.6
Total noninterest income	$	45,853	$	35,014	31.0		$	119,601	$	100,103	19.5		$	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⁾	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 ~~BOLI~~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 31.0% and 19.5% from the third quarter and first nine months of 2015, respectively. Total~~ fee-based revenues ~~for~~of $37.8 million grew by 12.7% compared to the ~~third~~first quarter ~~and first nine months~~ of 2016 ~~grew by 16.1%~~resulting primarily from services provided to customers acquired in the Standard transaction and ~~15.7%, respectively, from~~ the ~~same periods in 2015, reflecting growth across all categories.~~

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

2016.

Mortgage banking income resulted from sales of ~~$107.3 million and $198.0~~$54.6 million of 1-4 family mortgage loans in the secondary market during the ~~third~~first quarter ~~and first nine months~~ of ~~2016 compared to $42.2 million and $128.6~~2017, up from sales of $38.7 million for the ~~same periods~~first quarter of 2016.

The decline in ~~2015.~~

~~During~~capital market products income from the ~~third~~first quarter of 2016 was consistent with loan production during the ~~Company completed a sale-leaseback transaction~~first quarter of 55 branches that resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, of which $5.5 million was immediately recognized and the remaining $82.5 million was deferred and will be accreted against lease expense over the initial terms of the leases.2017.

Noninterest Expense

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

Table 54

Noninterest Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended September 30,								Nine Months Ended September 30,								Quarters Ended March 31,
	2016			2015			% Change		2016			2015			% Change		2017		2016		% Change
Salaries and employee benefits:
Salaries and wages	$	37,872		$	33,554		12.9		$	112,084		$	99,444		12.7		$	44,890	$	36,296	23.7
Retirement and other employee benefits	8,500			7,807			8.9		25,149			22,927			9.7		10,882		8,298		31.1
Total salaries and employee benefits	46,372			41,361			12.1		137,233			122,371			12.1		55,772		44,594		25.1
Net occupancy and equipment expense	10,755			9,406			14.3		30,380			29,464			3.1		12,325		9,697		27.1
Professional services	6,772			6,172			9.7		17,984			16,603			8.3		8,463		5,920		43.0
Technology and related costs	3,881			3,673			5.7		11,251			10,887			3.3		4,433		3,701		19.8
Merchant card expense⁽²⁾⁽¹⁾	2,857			2,722			5.0		8,179			7,391			10.7		2,585		2,598		(0.5	)
Advertising and promotions ⁽¹⁾	1,941			1,828			6.2		5,457			5,395			1.1		1,066		1,589		(32.9	)
Cardholder expenses ⁽¹⁾	1,515			1,354			11.9		4,386			3,914			12.1		1,764		1,359		29.8
Net OREO expense	313			1,290			(75.7	)	2,099			4,355			(51.8	)	1,700		664		156.0
Other expenses ⁽¹⁾	7,310			6,559			11.4		23,052			20,093			14.7		9,969		7,447		33.9
Acquisition and integration related expenses	1,172			—			100.0		6,810			—			100.0		18,565		5,020		269.8
Total noninterest expense	$	82,888		$	74,365		11.5		$	246,831		$	220,473		12.0		$	116,642	$	82,589	41.2
Efficiency ratio ⁽³⁾	61		%	63		%			62		%	63		%


⁽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% and 62% for~~ the ~~third~~first quarter ~~and first nine months~~ of 2016, ~~respectively, from 63% for both of 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 8.9% compared~~26.4% from the first quarter of 2016.

Compared to the ~~third~~first quarter ~~and first nine months~~ of ~~2015, respectively. Operating~~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 ~~and Peoples transactions accounted for slightly more than half of the increase from both periods. In addition, compensation~~transaction. Compensation costs associated with merit increases, ~~and~~ investments in additional talent ~~and systems~~ to support ~~organizational~~ growth, and higher loan remediation expenses also contributed to the rise in salaries and employee benefits and professional services compared to ~~both prior periods.~~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 ~~decreased compared to both prior periods~~increased from the first quarter of 2016 due to ~~reduced~~higher valuation adjustments and ~~lower operating expenses. Compared~~a rise in expenses related to the ~~first nine months~~resolution of ~~2015, these reductions were partially offset by net losses on sales~~certain properties.

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

5551

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 ~~nine months ended September 30,~~ 2016 ~~and 2015~~ is detailed in the following table.

Table 65

Income Tax Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Income before income tax expense	$	43,939		$	34,451		$	108,761		$	96,564		$	33,588		$	26,458
Income tax expense:
Federal income tax expense	$	12,665		$	9,036		$	30,498		$	24,956		$	8,895		$	7,101
State income tax expense	2,872			2,131			6,632			5,868			1,838			1,395
Total income tax expense	$	15,537		$	11,167		$	37,130		$	30,824		$	10,733		$	8,496
Effective income tax rate	35.4		%	32.4		%	34.1		%	31.9		%	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 nine months~~ ended ~~September 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 September 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		$	43,593	$	204		$	43,797	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		190,821		2,110			192,931		9.8	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")		1,074,736		6,523			1,081,259		55.1	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")		319,964		4,520			324,484		16.5	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		280,884		5,829			286,713		14.6	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")		47,893		(15,994		)	31,899		1.6	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		3,075		(128		)	2,947		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		$	1,960,966	$	3,064		$	1,964,030	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		$	20,337	$	(2,227	)	$	18,110		$	23,152	$	(3,098	)	$	20,054			$	17,742	$	(2,624	)	$	15,118		$	22,291	$	(4,079	)	$	18,212

Portfolio Composition

As of ~~September 30, 2016,~~March 31, 2017, our securities available-for-sale portfolio totaled ~~$2.0~~$1.9 billion, rising ~~$657.4~~$17.7 million, or ~~50.3%~~0.9%, from December 31, 2015. The increase from December 31, 2015 reflects securities purchases of $824.9 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 $41.7 million and maturities, calls, and prepayments of $263.2 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 ~~$31.9~~$33.4 million and miscellaneous other securities with a fair value of ~~$2.9~~$7.1 million.

Investments in municipal securities comprised ~~$286.7~~$262.7 million, or ~~14.6%~~13.6%, of the total securities available-for-sale portfolio at ~~September 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.

5752

Table 87

Securities Effective Duration Analysis


	As of September 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	1.69	%	1.72	1.02	%	2.30	%	2.38	1.16	%	1.15	%	1.17	1.00	%	1.39	%	1.42	0.99	%
U.S. agency securities	2.79	%	3.96	1.58	%	2.78	%	3.79	1.78	%	2.50	%	3.79	1.65	%	2.65	%	3.89	1.55	%
CMOs	3.23	%	4.27	1.93	%	3.61	%	3.99	1.94	%	3.69	%	4.43	1.94	%	3.76	%	4.49	1.88	%
MBSs	3.22	%	5.02	2.18	%	3.48	%	4.42	2.60	%	4.05	%	5.37	2.13	%	4.15	%	5.62	2.07	%
Municipal securities	3.85	%	2.21	3.97	%	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	3.24	%	4.00	2.22	%	3.39	%	3.76	2.72	%	3.63	%	4.17	2.17	%	3.72	%	4.27	2.14	%
Securities Held-to-Maturity
Municipal securities	5.56	%	7.41	4.02	%	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 ~~were 4.00~~was 4.17 years and ~~3.24%~~3.63%, respectively, as of ~~September 30, 2016 compared to 3.76~~March 31, 2017, consistent with 4.27 years and ~~3.39%~~3.72% as of December 31, ~~2015. The increase in average life resulted from purchases of $824.9 million in securities during the first nine months of~~ 2016. ~~The securities purchases were primarily in lower-duration CMOs and MBS relative to their average lives, which drove the decrease in effective duration.~~

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 ~~third~~first quarter ~~and first nine months~~ of 2016 were ~~$187,000 and $1.1 million, respectively,~~$887,000 on securities with carrying values of ~~$2.6 million and $41.7 million for the same periods.~~$30.6 million. No impairment charges were recognized during the ~~third~~first quarter ~~and first nine months~~ of 2016.

Net securities gains for the third quarter and first nine months of 2015 were $524,000 and $1.6 million, respectively, on securities with carrying values of $9.4 million and $55.7 million for the same periods. No impairment charges were recognized during the third quarter and first nine 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 $3.1 million net unrealized gain position as of September 30,~~ 2016.

5853

Net unrealized losses in the CMO portfolio totaled $15.1 million as of 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 ~~$16.0~~$14.3 million as of ~~September 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 ~~September 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 14 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 ~~83.2%~~83.3% of total loans at ~~September 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 September 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	$	2,810,547	$	38,852	$	2,849,399	34.9	$	2,524,726	35.3	12.9		$	2,855,259	$	515,521	$	3,370,780	33.5	$	2,827,658	34.3	19.2
Agricultural	387,173		22,398		409,571		5.0	387,440		5.4	5.7		394,855		27,929		422,784		4.2	389,496		4.7	8.5
Commercial real estate:
Office, retail, and industrial	1,466,847		70,191		1,537,038		18.8	1,395,454		19.5	10.1		1,542,831		446,148		1,988,979		19.8	1,581,967		19.2	25.7
Multi-family	594,729		30,576		625,305		7.7	528,324		7.4	18.4		634,500		37,210		671,710		6.7	614,052		7.4	9.4
Construction	398,383		3,474		401,857		4.9	216,882		3.0	85.3		453,001		115,459		568,460		5.6	451,540		5.4	25.9
Other commercial real estate	900,773		70,082		970,855		11.9	931,190		13.0	4.3		967,763		390,018		1,357,781		13.5	979,528		11.9	38.6
Total commercial real estate	3,360,732		174,323		3,535,055		43.3	3,071,850		42.9	15.1		3,598,095		988,835		4,586,930		45.6	3,627,087		43.9	26.5
Total corporate loans	6,558,452		235,573		6,794,025		83.2	5,984,016		83.6	13.5		6,848,209		1,532,285		8,380,494		83.3	6,844,241		82.9	22.4
Home equity	720,566		12,694		733,260		9.0	653,468		9.1	12.2		783,910		96,757		880,667		8.8	747,983		9.1	17.7
1-4 family mortgages	371,548		16,597		388,145		4.7	355,854		5.0	9.1		451,488		88,660		540,148		5.4	423,922		5.1	27.4
Installment	197,234		34,796		232,030		2.8	137,602		1.9	68.6		251,406		1,655		253,061		2.5	237,999		2.9	6.3
Total consumer loans	1,289,348		64,087		1,353,435		16.5	1,146,924		16.0	18.0		1,486,804		187,072		1,673,876		16.7	1,409,904		17.1	18.7
Covered loans	24,322		—		24,322		0.3	30,775		0.4	(21.0	)
Total loans	$	7,872,122	$	299,660	$	8,171,782	100.0	$	7,161,715	100.0	14.1		$	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 ~~14.1%~~21.8% from December 31, ~~2015.~~2016. Excluding loans acquired in the ~~NI Bancshares~~Standard transaction that totaled ~~$299.7 million as of September 30, 2016,~~$1.7 billion, total loans grew ~~by 9.9%~~modestly from December 31, ~~2015, driven primarily by strong sales production~~2016. The addition of ~~the corporate~~shorter-duration, floating rate home equity loans 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 broad-based increases within our middle market and sector-based lending business units. 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. Growth in consumer loans reflects the continued expansion of mortgage and installment loans ~~as well as~~drove the ~~addition~~increase compared to December 31, 2016.

5954

~~of shorter-duration, floating rate home equity loans. Sales of 1-4 family mortgages on the secondary market during the first nine months of 2016 offset organic growth.~~

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represent ~~39.9%~~37.7% of total loans, and totaled ~~$3.3~~$3.8 billion at ~~September 30, 2016,~~March 31, 2017, an increase of ~~$346.8~~$576.4 million, or ~~11.9%~~17.9%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$61.3~~$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.

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.

6055

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

Table 109

Commercial Real Estate Loans

(Dollar amounts in thousands)


	As of September 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	$	567,922	16.1	$	479,374	15.6	$	863,810	18.8	$	599,572	16.5
Retail	425,854		12.0	434,241		14.1	463,837		10.1	412,614		11.4
Industrial	543,262		15.5	481,839		15.7	661,332		14.4	569,781		15.7
Total office, retail, and industrial	1,537,038		43.6	1,395,454		45.4	1,988,979		43.3	1,581,967		43.6
Multi-family	625,305		17.7	528,324		17.2	671,710		14.6	614,052		16.9
Construction	401,857		11.4	216,882		7.1	568,460		12.4	451,540		12.4
Other commercial real estate:
Multi-use properties	216,527		6.1	202,225		6.6	304,269		6.6	236,430		6.5
Rental properties	163,756		4.6	131,374		4.3	215,776		4.7	159,134		4.4
Warehouses and storage	135,973		3.8	137,223		4.5	160,994		3.5	136,853		3.8
Restaurants	64,864		1.8	78,017		2.5	116,765		2.5	63,067		1.7
Hotels							89,891		2.0	41,780		1.2
Automobile dealers							86,108		1.9	53,671		1.5
Recreational	58,102		1.6	57,967		1.9	86,099		1.9	58,390		1.6
Service stations and truck stops	57,618		1.6	78,459		2.6	67,099		1.6	51,403		1.4
Automobile dealers	54,586		1.5	50,580		1.6
Hotels	40,997		1.2	46,889		1.5
Religious	38,577		1.1	38,307		1.2	37,617		0.8	38,319		1.1
Other	139,855		4.0	110,149		3.6	193,163		4.2	140,481		3.9
Total other commercial real estate	970,855		27.3	931,190		30.3	1,357,781		29.7	979,528		27.1
Total commercial real estate	$	3,535,055	100.0	$	3,071,850	100.0	$	4,586,930	100.0	$	3,627,087	100.0

Commercial real estate loans represent ~~43.3%~~45.6% of total loans, and totaled ~~$3.5~~$4.6 billion at ~~September 30, 2016,~~March 31, 2017, increasing by ~~$463.2~~$959.8 million, or ~~15.1%~~26.5%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$174.3~~$988.8 million to the ~~increase.~~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~~owner-occupied and investor categories and ~~are~~is diverse in terms of type and geographic location, generally within the Company's markets. Approximately ~~30%~~44% of the commercial real estate portfolio is ~~owner occupied~~owner-occupied as of ~~September 30, 2016.~~March 31, 2017. Using outstanding loan balances, non-owner occupied commercial real estate loans to total capital was ~~204%~~221% and construction loans to total capital was ~~28%~~37% as of ~~September 30, 2016. Non-owner occupied~~March 31, 2017. Non-owner-occupied (investor) commercial real estate is calculated in accordance with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and commercial real estate not secured by real estate loans.

Consumer Loans

Consumer loans represent ~~16.5%~~16.7% of total loans, and totaled ~~$1.4~~$1.7 billion at ~~September 30, 2016,~~March 31, 2017, an increase of ~~$206.5~~$264.0 million, or ~~18.0%~~18.7%, from December 31, ~~2015.~~2016. Loans acquired in the ~~NI Bancshares~~Standard transaction during the first quarter of ~~2016~~2017 contributed ~~$64.1~~$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.

6156

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 September 30, 2016
As of March 31, 2017
Commercial and industrial	$	2,849,399	$	2,824,346	$	8,790	$	2,154	$	286	$	13,823	$	20,841	$	3,320,057	$	7,117	$	1,251	$	21,514	$	3,370,780
Agricultural	409,571		406,947		2,440		—		—		184		9,282		411,395		824		—		1,283		422,784
Commercial real estate:
Office, retail, and industrial	1,537,038		1,515,353		3,776		82		157		17,670		19,495		1,949,084		843		52		19,505		1,988,979
Multi-family	625,305		622,626		1,321		454		588		316		14,545		652,206		4,782		14		163		671,710
Construction	401,857		400,803		767		—		—		287		20,176		545,530		2,556		—		198		568,460
Other commercial real estate	970,855		963,188		3,050		932		324		3,361		68,869		1,283,117		1,936		1		3,858		1,357,781
Total commercial real estate	3,535,055		3,501,970		8,914		1,468		1,069		21,634		123,085		4,429,937		10,117		67		23,724		4,586,930
Total corporate loans	6,794,025		6,733,263		20,144		3,622		1,355		35,641		153,208		8,161,389		18,058		1,318		46,521		8,380,494
Home equity	733,260		725,614		2,384		165		181		4,916		3,018		869,265		2,721		864		4,799		880,667
1-4 family mortgages	388,145		382,370		1,468		235		832		3,240		19,759		516,211		1,163		41		2,974		540,148
Installment	232,030		229,881		1,853		296		—		—		1,334		249,618		1,699		410		—		253,061
Total consumer loans	1,353,435		1,337,865		5,705		696		1,013		8,156		24,111		1,635,094		5,583		1,315		7,773		1,673,876
Covered loans	24,322		23,539		291		—		—		492
Total loans	$	8,171,782	$	8,094,667	$	26,140	$	4,318	$	2,368	$	44,289	$	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.

6257

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
	September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			September 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	$	43,797		$	36,859		$	31,383		$	28,875		$	32,308		$	54,294		$	59,289		$	44,289		$	37,312		$	31,890
90 days or more past due loans, still accruing interest	4,318			5,406			5,483			2,883			4,559
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	48,115			42,265			36,866			31,758			36,867			56,927			64,298			48,607			42,718			37,725
Accruing TDRs	2,368			2,491			2,702			2,743			2,771			2,112			2,291			2,368			2,491			2,702
OREO	27,986			29,452			29,238			27,349			31,129			29,140			26,083			28,049			29,990			29,649
Total non-performing assets	$	78,469		$	74,208		$	68,806		$	61,850		$	70,767		$	88,179		$	92,672		$	79,024		$	75,199		$	70,076
30-89 days past due loans	$	25,849		$	22,770		$	29,826		$	16,329		$	28,629
Non-accrual loans to total loans	0.54		%	0.46		%	0.40		%	0.40		%	0.47		%
Non-performing loans to total loans	0.59		%	0.53		%	0.47		%	0.45		%	0.54		%
Non-performing assets to total loans plus OREO	0.96		%	0.93		%	0.88		%	0.86		%	1.02		%
Non-performing covered loans and covered OREO ⁽¹⁾
Non-accrual loans	$	492		$	453		$	507		$	555		$	1,303
90 days or more past due loans, still accruing interest	—			—			352			174			1,372
Total non-performing loans	492			453			859			729			2,675
OREO	63			538			411			433			906
Total non-performing assets	$	555		$	991		$	1,270		$	1,162		$	3,581
30-89 days past due loans	$	291		$	610		$	316		$	376		$	221
Total non-performing assets
Non-accrual loans	$	44,289		$	37,312		$	31,890		$	29,430		$	33,611
90 days or more past due loans, still accruing interest	4,318			5,406			5,835			3,057			5,931
Total non-performing loans	48,607			42,718			37,725			32,487			39,542
Accruing TDRs	2,368			2,491			2,702			2,743			2,771
OREO	28,049			29,990			29,649			27,782			32,035
Total non-performing assets	$	79,024		$	75,199		$	70,076		$	63,012		$	74,348
30-89 days past due loans	$	26,140		$	23,380		$	30,142		$	16,705		$	28,850
Non-accrual loans to total loans	0.54		%	0.47		%	0.41		%	0.41		%	0.49		%
Non-performing loans to total loans	0.59		%	0.54		%	0.48		%	0.45		%	0.57		%
Non-performing assets to total loans plus OREO	0.96		%	0.94		%	0.89		%	0.88		%	1.07		%
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 ~~0.96%~~0.87% of total loans and OREO at ~~September 30, 2016, compared to 0.86%~~March 31, 2017, down from 1.12% at December 31, ~~2015 and 1.02% at September 30, 2015.~~

2016. Included in non-performing assets as of March 31, 2017 was $8.4 million of OREO acquired in the Standard transaction.

6358

Non-accrual loans increased by $14.9 million from December 31, 2015, due primarily to the downgrade of four corporate loan relationships to non-accrual status during the first nine months of 2016, for which management is adequately collateralized. These downgrades were partially offset by charge-offs, payments, and transfers to OREO.

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
	September 30, 2016			December 31, 2015			September 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	3	$	436	5	$	1,344	5	$	1,360	4	$	1,200	3	$	431	5	$	1,309
Commercial real estate:
Office, retail, and industrial	1	157		1	164		1	166		2	864		3	4,888		1	162
Multi-family	3	760		3	784		3	793		3	745		3	754		3	774
Other commercial real estate	3	324		3	340		3	346		2	263		3	316		3	334
Total commercial real estate	7	1,241		7	1,288		7	1,305		7	1,872		9	5,958		7	1,270
Total corporate loans	10	1,677		12	2,632		12	2,665		11	3,072		12	6,389		12	2,579
Home equity	16	1,060		17	1,161		17	1,182		16	967		16	997		16	1,135
1-4 family mortgages	11	1,221		11	1,274		11	1,290		11	1,185		11	1,202		11	1,256
Total consumer loans	27	2,281		28	2,435		28	2,472		27	2,152		27	2,199		27	2,391
Total TDRs	37	$	3,958	40	$	5,067	40	$	5,137	38	$	5,224	39	$	8,588	39	$	4,970
Accruing TDRs	19	$	2,368	23	$	2,743	23	$	2,771	17	$	2,112	18	$	2,291	22	$	2,702
Non-accrual TDRs	18	1,590		17	2,324		17	2,366		21	3,112		21	6,297		17	2,268
Total TDRs	37	$	3,958	40	$	5,067	40	$	5,137	38	$	5,224	39	$	8,588	39	$	4,970
Year-to-date charge-offs on TDRs		$	409		$	2,687		$	2,687		$	112		$	1,492		$	—
Specific reserves related to TDRs		—			758			769			32			—			729

As of March 31, 2017, TDRs totaled ~~$4.0~~$5.2 million, ~~at September 30, 2016, compared to $5.1~~decreasing by $3.4 million, ator 39.2%, from December 31, ~~2015. Accruing TDRs were $2.4 million at September 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.

6459

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 September 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	$	110,716		$	80,919		$	191,635		$	86,263		$	52,590		$	138,853		$	113,944		$	100,217			$	214,161		$	92,340		$	66,266		$	158,606
Agricultural	17,735			16,168			33,903			—			5,562			5,562			9,873			6,274				16,147			17,039			5,894			22,933
Commercial real estate:
Office, retail, and industrial	38,515			35,881			74,396			32,463			35,788			68,251			39,545			42,230			��	81,775			33,852			39,513			73,365
Multi-family	4,001			3,770			7,771			5,742			3,970			9,712			3,940			1,898				5,838			3,972			2,029			6,001
Construction	69			12,327			12,396			4,678			9,803			14,481			8,927			16,473				25,400			111			12,197			12,308
Other commercial real estate	12,427			13,995			26,422			13,179			13,654			26,833			21,599			19,977				41,576			11,808			13,544			25,352
Total commercial real estate	55,012			65,973			120,985			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)	$	183,463		$	163,060		$	346,523		$	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	2.70		%	2.40		%	5.10		%	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 ~~$841,000~~$674,000 as of ~~September 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 ~~September 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 and substandard. The rise in commercial and industrial loans classified as special mention and substandard was due primarily to operating pressures as a result of lower sales unique to certain unrelated borrowers within various industries. 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 and substandard. Management has specific monitoring and remediation plans associated with these loans.~~PCI.

6560

OREO

OREO consists of properties acquired as the result of borrower defaults on loans. OREO was ~~$28.0~~$29.1 million at ~~September 30, 2016,~~March 31, 2017, increasing ~~$267,000,~~by $3.1 million, or ~~1.0%~~11.7%, from December 31, ~~2015.~~2016. As of ~~September 30, 2016,~~March 31, 2017, total OREO includes ~~$2.9~~$8.4 million acquired in the ~~NI Bancshares~~Standard transaction.

Table 1514

OREO by Type

(Dollar amounts in thousands)


	As of						As of
	September 30, 2016		December 31, 2015		September 30, 2015		March 31, 2017		December 31, 2016		March 31, 2016
Single-family homes	$	2,828	$	3,965	$	3,679	$	1,768	$	2,595	$	3,597
Land parcels:
Raw land	1,464		1,464		2,572		1,025		1,464		1,689
Commercial lots	8,982		9,207		10,135		10,638		8,176		9,163
Single-family lots	1,110		1,719		1,100		2,232		947		1,289
Total land parcels	11,556		12,390		13,807		13,895		10,587		12,141
Multi-family units	48		426		574		272		48		116
Commercial properties	13,617		11,001		13,975		13,205		12,853		13,795
Total OREO	$	28,049	$	27,782	$	32,035	$	29,140	$	26,083	$	29,649

OREO Activity

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

Table 1615

OREO Rollforward

(Dollar amounts in thousands)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
	2016			2015			2016			2015			2017			2016
Beginning balance	$	29,990		$	28,230		$	27,782		$	34,966		$	26,083		$	27,782
Transfers from loans	219			7,299			3,894			11,956			683			942
Acquisitions	—			—			2,863			—			8,427			2,863
Proceeds from sales	(2,217		)	(3,236		)	(6,069		)	(13,820		)	(5,364		)	(1,640		)
(Losses) gains on sales of OREO	(21		)	(182		)	(154		)	1,059
Losses on sales of OREO													(156		)	(161		)
OREO valuation adjustments	78			(76		)	(267		)	(2,126		)	(533		)	(137		)
Ending balance	$	28,049		$	32,035		$	28,049		$	32,035		$	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.

6661

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 ~~September 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 ~~September 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
Nine months ended September 30, 2016
Quarter ended March 31, 2017
Beginning balance	$	73,268		$	1,587		$	74,855		$	84,217		$	2,866		$	87,083
Net charge-offs	(13,714		)	(284		)	(13,998		)	(2,725		)	(113		)	(2,838		)
Provision for loan losses and other expense	24,443			1,008			25,451			4,957			(39		)	4,918
Ending balance	$	83,997		$	2,311		$	86,308		$	86,449		$	2,714		$	89,163
As of September 30, 2016
As of March 31, 2017
Total loans	$	7,463,572		$	708,210		$	8,171,782		$	7,813,950		$	2,240,420		$	10,054,370
Remaining acquisition adjustment ⁽²⁾	N/A			24,651			24,651			N/A			98,882			98,882
Allowance for credit losses to total loans	1.13		%	0.33		%	1.06		%	1.11		%	0.12		%	0.89		%
Remaining acquisition adjustment to acquired loans	N/A			3.48		%	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 ~~$11.2~~$55.2 million and ~~$13.4~~$43.7 million relating to ~~purchased credit impaired ("PCI")~~PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of ~~September 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 ~~1.13%~~1.11% as of ~~September 30, 2016.~~March 31, 2017. The acquisition adjustment increased by ~~$7.0~~$76.3 million during the first ~~nine 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 ~~3.48%~~4.41%. Acquired loans that are renewed ~~at market terms~~ are no longer classified as acquired loans. These loans totaled ~~$101.5~~$170.9 million and $117.6 million as of ~~September 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 ~~$2.3~~$2.7 million on acquired loans.

6762

Table 1817

Allowance for Credit Losses

and Summary of Credit Loss Experience

(Dollar amounts in thousands)


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


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

6863


	Quarters Ended															Quarters Ended
	September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			September 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	$	84,016		$	78,711		$	75,582		$	71,992		$	68,384		$	88,163		$	86,083		$	85,308		$	80,105		$	77,150
Allowance for covered loan losses	1,292			1,394			1,568			1,638			4,116
Total allowance for loan losses	85,308			80,105			77,150			73,630			72,500
Reserve for unfunded commitments	1,000			1,400			1,225			1,225			1,225			1,000			1,000			1,000			1,400			1,225
Total allowance for credit losses	$	86,308		$	81,505		$	78,375		$	74,855		$	73,725		$	89,163		$	87,083		$	86,308		$	81,505		$	78,375
Allowance for credit losses to loans ⁽¹⁾	1.06		%	1.02		%	1.00		%	1.05		%	1.06		%	0.89		%	1.06		%	1.06		%	1.02		%	1.00		%
Allowance for credit losses to non-accrual loans ⁽²⁾	194.11		%	217.34		%	244.74		%	253.57		%	215.45		%
Allowance for credit losses to non-performing loans ⁽²⁾	176.69		%	189.54		%	208.34		%	230.55		%	188.81		%
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	$	8,062,035		$	7,878,544		$	7,341,331		$	7,008,197		$	6,881,128		$	9,916,281		$	8,171,953		$	8,062,035		$	7,878,544		$	7,341,331
Net loan charge-offs to average loans, annualized	0.24		%	0.26		%	0.22		%	0.19		%	0.18		%
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 ~~$86.3~~$89.2 million as of ~~September 30, 2016,~~March 31, 2017, an increase of ~~$11.5~~$2.1 million from December 31, ~~2015,~~2016, and represents ~~1.06%~~0.89% of total loans compared to ~~1.05%~~1.06% at December 31, ~~2015.~~2016.

The provision for loan losses was ~~$10.0~~$4.9 million for the quarter ended ~~September 30, 2016, increasing~~March 31, 2017, decreasing from ~~$4.5~~$5.3 million and ~~$4.1~~$7.6 million for the quarters ended December 31, ~~2015~~2016 and ~~September 30, 2015,~~March 31, 2016, respectively. The ~~increase~~decrease compared to both prior periods resulted primarily from ~~loan growth, higher~~lower levels of ~~charge-offs, and~~charge-offs. In addition, greater loan production resulted in higher provision for the ~~impact~~first quarter of ~~establishing an allowance on acquired loans.~~2016.

Total net loan charge-offs to average loans for the ~~third~~first quarter of ~~2016~~2017 was 2412 basis points, or ~~$4.8~~$2.8 million, ~~increasing~~decreasing from ~~19 basis points and 18~~22 basis points for the fourth quarter of ~~2015~~2016 and ~~third~~first quarter of ~~2015,~~2016, respectively. Net loan charge-offs for the first quarter of 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										September 30, 2016 % Change From				Quarters Ended									March 31, 2017 % Change From
	September 30, 2016			December 31, 2015			��	September 30, 2015			December 31, 2015		September 30, 2015		March 31, 2017			December 31, 2016			March 31, 2016			December 31, 2016		March 31, 2016
Demand deposits	$	2,806,851		$	2,560,604			$	2,601,442		9.6	%	7.9	%	$	3,355,674		$	2,803,016		$	2,463,017		19.7	%	36.2	%
Savings deposits	1,655,604			1,483,962				1,471,003			11.6	%	12.5	%	2,029,631			1,633,010			1,575,174			24.3	%	28.9	%
NOW accounts	1,754,330			1,411,425				1,405,371			24.3	%	24.8	%	1,916,816			1,715,228			1,448,666			11.8	%	32.3	%
Money market accounts	1,680,886			1,576,258				1,589,582			6.6	%	5.7	%	1,890,703			1,623,392			1,583,898			16.5	%	19.4	%
Core deposits	7,897,671			7,032,249				7,067,398			12.3	%	11.7	%	9,192,824			7,774,646			7,070,755			18.2	%	30.0	%
Time deposits	1,230,286			1,136,766				1,157,005			8.2	%	6.3	%	1,473,882			1,196,243			1,165,434			23.2	%	26.5	%
Brokered deposits	18,139			16,129				16,122			12.5	%	12.5	%	41,715			16,805			18,029			148.2	%	131.4	%
Total time deposits	1,248,425			1,152,895				1,173,127			8.3	%	6.4	%	1,515,597			1,213,048			1,183,463			24.9	%	28.1	%
Total deposits	9,146,096			8,185,144				8,240,525			11.7	%	11.0	%	10,708,421			8,987,694			8,254,218			19.1	%	29.7	%
Securities sold under agreements to repurchase	111,699			122,273				106,307			(8.6	)%	5.1	%	126,202			122,866			142,939			2.7	%	(11.7	)%
Federal funds purchased	—			71				—			N/M		N/M
FHLB advances	493,478			44,776				62,500			N/M		N/M		607,889			495,109			159,687			22.8	%	280.7	%
Other borrowings															—			—			606			N/M		(100.0	)%
Total borrowed funds	605,177			167,120				168,807			262.1	%	258.5	%	734,091			617,975			303,232			18.8	%	142.1	%
Senior and subordinated debt	166,101			201,168				201,083			(17.4	)%	(17.4	)%	194,677			259,531			201,253			(25.0	)%	(3.3	)%
Total funding sources	$	9,917,374		$	8,553,432			$	8,610,415		15.9	%	15.2	%	$	11,637,189		$	9,865,200		$	8,758,703		18.0	%	32.9	%
Average interest rate paid on borrowed funds	1.17		%	2.97		%		2.18		%					1.21		%	1.10		%	1.75		%
Weighted-average maturity of FHLB advances	0.9 months			2.0 months				2.1 months							1.3 months			0.9 months			1.3 months
Weighted-average interest rate of FHLB advances	0.44		%	0.40		%		0.32		%					0.74		%	0.60		%	0.50		%

N/M - Not meaningful.

Total average funding sources for the ~~third~~first quarter of ~~2016~~2017 increased by ~~15.9%~~$1.8 billion, or 18.0%, compared to the fourth quarter of ~~2015~~2016 and ~~15.2%~~$2.9 billion, or 32.9%, compared to the ~~third~~first quarter of ~~2015.~~2016. The rise in average core deposits compared to ~~the~~ both prior periods resulted ~~primarily~~ from ~~the full quarter impact of~~$1.7 billion in core deposits assumed in the ~~Peoples and NI Bancshares transactions and organic growth. Compared~~Standard transaction, which contributed $1.5 billion to average core deposits in the first quarter of 2017. In addition, compared to the ~~fourth~~first quarter of ~~2015,~~2016, the ~~increase~~rise in average core deposits was impacted by organic growth and $443.1 million in core deposits assumed in the ~~seasonal increase~~NI Bancshares transaction completed late in ~~average municipal deposits.~~the first quarter of 2016. The addition inof FHLB advances during the second half of ~~$515.1 million during~~ 2016 also contributed to the ~~increase~~rise in average ~~borrowed funds~~funding sources 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 September 29, 2016, the Company completed the issuance and sale~~first quarter of $150.0 million aggregate principal amount of its 5.875% subordinated notes due 2026. The Company received proceeds of $146.5 million, net of underwriting discounts and commissions and issuance costs. The Company expects to use the net proceeds to repay at maturity the entire $115.0 million aggregate principal amount outstanding of its 5.875% senior notes due November 22, 2016, plus accrued interest, and for other general corporate purposes.2016.

7064

Table 2019

Borrowed Funds

(Dollar amounts in thousands)


	As of September 30, 2016			As of September 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	$	114,539	0.06	$	107,443	0.07	$	132,923	0.06	$	122,511	0.06
FHLB advances	525,000		0.44	62,500		0.32	415,000		0.74	262,500		0.50
Other borrowings	—		—	—		—	—		—	2,400		3.50
Total borrowed funds	$	639,539	0.37	$	169,943	0.16	$	547,923	0.58	$	387,411	0.38
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	124,244	0.09	$	117,681	0.03	$	126,202	0.05	$	142,939	0.14
FHLB advances	332,460		1.81	27,930		4.84	607,889		1.45	159,687		3.17
Other borrowings	429		3.74	—		—	—		—	606		3.98
Total borrowed funds	$	457,133	1.34	$	145,611	0.98	$	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	625,000			62,500			940,000			262,500
Other borrowings	2,400			—			—			2,400

Average borrowed funds totaled ~~$457.1~~$734.1 million for the first ~~nine months~~quarter of ~~2016~~2017, increasing by ~~$311.5~~$430.9 million compared to the ~~same period in 2015.~~first quarter of 2016. This increase was due primarily to ~~the increase in~~higher levels of FHLB advances ~~of $515.1 million~~ during the first ~~nine months~~quarter of ~~2016.~~2017. The weighted-average rate on FHLB advances for ~~the third quarter of 2016~~both periods presented was impacted by the hedging of ~~$325.0~~$415.0 million ofand $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 September 30, 2016. The remaining $200.0 million of FHLB advances have a fixed interest rate of 0.40%.~~2017 and 2016, respectively. For a detailed discussion of interest rate swaps, see Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. As of September 30, 2016, no amount was outstanding under the facility.

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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

7165

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 September 30, 2016													As of March 31, 2017
	As of				Regulatory Minimum For Well- Capitalized								As of					Regulatory Minimum For Well- Capitalized
	September 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	10.67	%	11.02	%	10.00	%		7	%	$	64,658		10.63	%		10.73	%	10.00	%		6	%	$	74,727
Tier 1 capital to risk-weighted assets	9.77	%	10.13	%	8.00	%		22	%	$	170,409		9.88	%		9.83	%	8.00	%		23	%	$	221,134
Common equity Tier 1 to risk-weighted assets	9.77	%	10.13	%	6.50	%		50	%	$	314,469		9.88	%		9.83	%	6.50	%		52	%	$	397,811
Tier 1 capital to average assets	8.65	%	9.09	%	5.00	%		73	%	$	396,332		9.72	%		8.76	%	5.00	%		94	%	$	564,686
Company regulatory capital ratios
Total capital to risk-weighted assets	12.25	%	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	9.89	%	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	9.38	%	9.73	%	N/A			N/A		N/A			9.11	%		9.39	%	N/A			N/A		N/A
Tier 1 capital to average assets	8.90	%	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	8.04	%	8.59	%	N/A			N/A		N/A			8.07	%		8.05	%	N/A			N/A		N/A
Tangible common equity, excluding AOCI, to tangible assets	8.16	%	8.89	%	N/A			N/A		N/A
Tangible common equity, excluding accumulated other comprehensive loss, to tangible assets													8.38	%		8.42	%	N/A			N/A		N/A
Tangible common equity to risk-weighted assets	9.13	%	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~~Overall, the Company's ~~total~~regulatory capital ~~to risk-weighted assets was 12.25% as of September 30, 2016, increasing~~ratios decreased compared to December 31, 2016 due primarily to the issuance of $150.0 million of subordinated notes during the third quarter of 2016. The decrease in the Company's other regulatory capital ratios from December 31, 2015 resulted from the addition of risk-weightedStandard and average assets, including goodwill and other intangible assets, related to the NI Bancshares acquisition. These declines were partially offset by earnings 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 ~~third 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.

7266

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 ~~September 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, ~~49%~~51% of the loan portfolio consisted of fixed rate loans and ~~51%~~49% were floating rate loans as of ~~September 30, 2016,~~March 31, 2017, compared to ~~54%~~48% and ~~46%~~52%, respectively, as of December 31, ~~2015.~~2016.

As of ~~September 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 ~~85%~~96% of the total compared to ~~15%~~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 ~~$376.9~~$156.9 million, or 8%3%, of the floating rate loan portfolio as of ~~September 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 ~~September 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.

7370

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 September 30, 2016
As of March 31, 2017
Dollar change	$	56,698		$	35,168		$	24,156		$	(19,967	)	$	61,936		$	36,938		$	19,311		$	(40,624	)
Percent change	16.5		%	10.2		%	7.0		%	(5.8		)%	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 ~~September 30, 2016~~March 31, 2017 would increase net interest income by ~~$35.2~~$36.9 million, or ~~10.2%~~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 ~~September 30, 2016~~March 31, 2017 increased compared to December 31, ~~2015,~~2016. This increase was driven primarily by ~~organic growth~~a reduction in ~~floating rate loans and~~short-term FHLB advances, resulting from the ~~issuance~~sale of ~~fixed-rate subordinated notes. These increases were partially offset by~~securities acquired in the NI Bancshares acquisition which added term securities and fixed rate loans. 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.

7471

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

The following table summarizes the Company's monthly Common Stock purchases during the ~~third~~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 ~~September 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
July 1 – July 31, 2016 731
$ 18.56
—
2,487,947
August 1 – August 31, 2016 1,363
19.01
—
2,487,947
September 1 – September 30, 2016 1,971
19.68
—
2,487,947
Total 4,065
$ 19.25
—



	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.

7572

ITEM 6. EXHIBITS



Exhibit Number		Description of Documents

~~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.
~~4.1~~		Satisfaction and Discharge of Indenture, dated September 9, 2016, between First Midwest Bancorp, Inc. and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 9, 2016.
~~4.2~~		Subordinated Notes Indenture, dated September 29, 2016, between First Midwest Bancorp, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2016.
~~4.3~~		First Supplemental Indenture, dated September 29, 2016, to the Subordinated Notes Indenture, between First Midwest Bancorp, Inc. and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2016.
~~4.4~~		Form of 5.875% Subordinated Notes due 2026 is incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2016.
~~10.1~~		Agreement of Sale and Purchase, dated September 12, 2016, by First Midwest Bank and Oak Street Real Estate Capital, LLC, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 13, 2016.
~~10.2~~		Form of Absolute Lease Agreement is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 13, 2016.
~~10.3~~		Loan Agreement, dated as of September 27, 2016, between First Midwest Bancorp, Inc. and U.S. Bank National Association, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 3, 2016.
11		Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per common share is included in Note 11 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 ⁽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 ⁽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⁾	Furnished, not filed.

7673

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: ~~November 4, 2016~~May 10, 2017

* Duly authorized to sign on behalf of the registrant.

7774



				As of
	Issuance Date	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Senior notes	November 2011	November 2016	5.875%	$	114,983	$	114,891
Subordinated notes:
Due in 2026	September 2016	September 2026	5.875%	146,484		—
Due in 2016	March 2006	April 2016	5.850%	—		38,499
Junior subordinated debentures:
First Midwest Capital Trust I ("FMCT")	November 2003	December 2033	6.950%	37,800		37,799
Great Lakes Statutory Trust II ("GLST II") ⁽¹⁾	December 2005	December 2035	L+1.400% ⁽²⁾	4,367		4,296
Great Lakes Statutory Trust III ("GLST III")⁽¹⁾	June 2007	September 2037	L+1.700% ⁽²⁾	5,810		5,723
Total junior subordinated debentures				47,977		47,818
Total senior and subordinated debt				$	309,444	$	201,208