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 March 31, 20172018
 
   
 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
______________________
 
a3282014fmbilogoa03a09.jpg
(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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "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 May 5, 2017,4, 2018, there were 112,345,301103,084,699 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
89
 
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
4438
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
7066
 
Item 4.
 
Controls and Procedures
7167
 
Part II.
 
OTHER INFORMATION
 
 
Item 1.
 
Legal Proceedings
7167
 
Item 1A.
 
Risk Factors
7167
 
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
7268
 
Item 6.
 
Exhibits
7369

2
Table of Contents



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)
    March 31,
2017		 December 31,
2016		    March 31,
2018		 December 31,
2017
Assets    (Unaudited)      (Unaudited)  
Cash and due from banksCash and due from banks $174,268
 $155,055
Cash and due from banks $150,138
 $192,800
Interest-bearing deposits in other banksInterest-bearing deposits in other banks 74,892
 107,093
Interest-bearing deposits in other banks 84,898
 153,770
Trading securities, at fair valueTrading securities, at fair value 19,130
 17,920
Trading securities, at fair value —
 20,447
Equity securities, at fair valueEquity securities, at fair value 28,513
 —
Securities available-for-sale, at fair valueSecurities available-for-sale, at fair value 1,937,124
 1,919,450
Securities available-for-sale, at fair value 2,040,950
 1,884,209
Securities held-to-maturity, at amortized costSecurities held-to-maturity, at amortized cost 17,742
 22,291
Securities held-to-maturity, at amortized cost 13,400
 13,760
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at costFederal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost 46,306
 59,131
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost 80,508
 69,708
LoansLoans 10,054,370
 8,254,145
Loans 10,676,774
 10,437,812
Allowance for loan lossesAllowance for loan losses (88,163) (86,083)Allowance for loan losses (94,854) (95,729)
Net loansNet loans 9,966,207
 8,168,062
Net loans 10,581,920
 10,342,083
Other real estate owned ("OREO")Other real estate owned ("OREO") 29,140
 26,083
Other real estate owned ("OREO") 17,472
 20,851
Premises, furniture, and equipment, netPremises, furniture, and equipment, net 140,653
 82,577
Premises, furniture, and equipment, net 126,348
 123,316
Investment in bank-owned life insurance ("BOLI")Investment in bank-owned life insurance ("BOLI") 276,960
 219,746
Investment in bank-owned life insurance ("BOLI") 281,285
 279,900
Goodwill and other intangible assetsGoodwill and other intangible assets 754,621
 366,876
Goodwill and other intangible assets 754,814
 754,757
Accrued interest receivable and other assetsAccrued interest receivable and other assets 336,428
 278,271
Accrued interest receivable and other assets 219,725
 221,451
Total assetsTotal assets $13,773,471
 $11,422,555
Total assets $14,379,971
 $14,077,052
LiabilitiesLiabilities    Liabilities    
Noninterest-bearing depositsNoninterest-bearing deposits $3,492,987
 $2,766,748
Noninterest-bearing deposits $3,527,081
 $3,576,190
Interest-bearing depositsInterest-bearing deposits 7,463,554
 6,061,855
Interest-bearing deposits 7,618,941
 7,477,135
Total depositsTotal deposits 10,956,541
 8,828,603
Total deposits 11,146,022
 11,053,325
Borrowed fundsBorrowed funds 547,923
 879,008
Borrowed funds 950,688
 714,884
Senior and subordinated debtSenior and subordinated debt 194,745
 194,603
Senior and subordinated debt 195,312
 195,170
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities 269,529
 263,261
Accrued interest payable and other liabilities 218,662
 248,799
Total liabilitiesTotal liabilities 11,968,738
 10,165,475
Total liabilities 12,510,684
 12,212,178
Stockholders' EquityStockholders' Equity    Stockholders' Equity    
Common stockCommon stock 1,123
 913
Common stock 1,123
 1,123
Additional paid-in capitalAdditional paid-in capital 1,022,417
 498,937
Additional paid-in capital 1,021,923
 1,031,870
Retained earningsRetained earnings 1,030,403
 1,016,674
Retained earnings 1,103,840
 1,074,990
Accumulated other comprehensive loss, net of taxAccumulated other comprehensive loss, net of tax (40,264) (40,910)Accumulated other comprehensive loss, net of tax (57,531) (33,036)
Treasury stock, at costTreasury stock, at cost (208,946) (218,534)Treasury stock, at cost (200,068) (210,073)
Total stockholders' equityTotal stockholders' equity 1,804,733
 1,257,080
Total stockholders' equity 1,869,287
 1,864,874
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity $13,773,471
 $11,422,555
Total liabilities and stockholders' equity $14,379,971
 $14,077,052
              
March 31, 2017 December 31, 2016March 31, 2018 December 31, 2017
(Unaudited)    (Unaudited)    
Preferred Common Preferred CommonPreferred Common Preferred Common
Shares Shares Shares SharesShares Shares Shares Shares
       
Par value$—
 $0.01
 $—
 $0.01
$—
 $0.01
 $—
 $0.01
Shares authorized1,000
 150,000
 1,000
 150,000
1,000
 250,000
 1,000
 250,000
Shares issued—
 112,343
 —
 91,284
—
 112,353
 —
 112,351
Shares outstanding—
 102,757
 —
 81,325
—
 103,092
 —
 102,717
Treasury shares—
 9,586
 —
 9,959
—
 9,261
 —
 9,634
 
See accompanying unaudited notes to the condensed consolidated financial statements.

3



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FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Interest Income        
Loans $112,365
 $78,455
 $118,686
 $112,365
Investment securities 10,484
 8,558
 11,756
 10,484
Other short-term investments 850
 535
 903
 850
Total interest income 123,699
 87,548
 131,345
 123,699
Interest Expense        
Deposits 3,209
 2,385
 6,179
 3,209
Borrowed funds 2,194
 1,316
 3,479
 2,194
Senior and subordinated debt 3,099
 3,133
 3,124
 3,099
Total interest expense 8,502
 6,834
 12,782
 8,502
Net interest income 115,197
 80,714
 118,563
 115,197
Provision for loan losses 4,918
 7,593
 15,181
 4,918
Net interest income after provision for loan losses 110,279
 73,121
 103,382
 110,279
Noninterest Income        
Service charges on deposit accounts 11,365
 9,473
 11,652
 11,365
Wealth management fees 9,660
 7,559
 10,958
 9,660
Card-based fees 8,116
 6,718
Card-based fees, net 3,933
 8,116
Mortgage banking income 1,888
 1,368
 2,397
 1,888
Capital market products income 1,376
 3,215
 1,558
 1,376
Other service charges, commissions, and fees 5,442
 5,261
 2,548
 5,442
Net securities gains —
 887
Other income 2,104
 1,445
 2,471
 2,104
Total noninterest income 39,951
 35,926
 35,517
 39,951
Noninterest Expense        
Salaries and employee benefits 55,772
 44,594
 56,787
 55,772
Net occupancy and equipment expense 12,325
 9,697
 13,773
 12,325
Professional services 8,463
 5,920
 7,580
 8,463
Technology and related costs 4,433
 3,701
 4,771
 4,433
Net OREO expense 1,700
 664
 1,068
 1,700
Other expenses 15,384
 12,993
 11,603
 15,384
Acquisition and integration related expenses 18,565
 5,020
 —
 18,565
Total noninterest expense 116,642
 82,589
 95,582
 116,642
Income before income tax expense 33,588
 26,458
 43,317
 33,588
Income tax expense 10,733
 8,496
 9,807
 10,733
Net income $22,855
 $17,962
 $33,510
 $22,855
Per Common Share Data        
Basic earnings per common share $0.23
 $0.23
 $0.33
 $0.23
Diluted earnings per common share $0.23
 $0.23
 $0.33
 $0.23
Dividends declared per common share $0.09
 $0.09
 $0.11
 $0.09
Weighted-average common shares outstanding 100,411
 77,980
 101,922
 100,411
Weighted-average diluted common shares outstanding 100,432
 77,992
 101,938
 100,432
 
See accompanying unaudited notes to the condensed consolidated financial statements.

4



Table of Contents



FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(Unaudited)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Net income $22,855
 $17,962
 $33,510
 $22,855
Securities Available-for-Sale        
Unrealized holding gains:    
Unrealized holding (losses) gains:    
Before tax 3,298
 18,873
 (25,153) 3,298
Tax effect (1,321) (7,546) 6,972
 (1,321)
Net of tax 1,977
 11,327
 (18,181) 1,977
Reclassification of net gains included in net income:  
Derivative Instruments    
Unrealized holding gains (losses):    
Before tax —
 887
 522
 (2,220)
Tax effect —
 (355) (147) 889
Net of tax —
 532
 375
 (1,331)
Net unrealized holding gains 1,977
 10,795
Derivative Instruments    
Unrealized holding gains:    
Before tax (2,220) 4,275
Tax effect 889
 (1,722)
Net of tax (1,331) 2,553
Total other comprehensive income 646
 13,348
Total other comprehensive (loss) income (17,806) 646
Total comprehensive income $23,501
 $31,310
 $15,704
 $23,501


 
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
Loss on
Securities
Available-
for-Sale
 
Accumulated Unrealized
Loss on Derivative Instruments
 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2015 $(10,271) $(2,468) $(15,650) $(28,389)
Other comprehensive income 10,795
 2,553
 —
 13,348
Balance at March 31, 2016 $524
 $85
 $(15,650) $(15,041)
Balance at December 31, 2016 $(22,645) $(1,176) $(17,089) $(40,910) $(22,645) $(1,176) $(17,089) $(40,910)
Other comprehensive income 1,977
 (1,331) —
 646
 1,977
 (1,331) —
 646
Balance at March 31, 2017 $(20,668) $(2,507) $(17,089) $(40,264) $(20,668) $(2,507) $(17,089) $(40,264)
Balance at December 31, 2017 $(13,976) $(3,763) $(15,297) $(33,036)
Adjustment to apply recent accounting pronouncements(1)
 (2,864) (784) (3,041) (6,689)
Other comprehensive loss (18,181) 375
 —
 (17,806)
Balance at March 31, 2018 $(35,021) $(4,172) $(18,338) $(57,531)
(1)
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
 
See accompanying unaudited notes to the condensed consolidated financial statements.


5



Table of Contents



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, 2015 77,952
 $882
 $446,672
 $953,516
 $(28,389) $(226,413) $1,146,268
Balance at December 31, 2016 81,325
 $913
 $498,937
 $1,016,674
 $(40,910) $(218,534) $1,257,080
Net income —
 —
 —
 17,962
 —
 —
 17,962
 —
 —
 —
 22,855
 —
 —
 22,855
Other comprehensive income —
 —
 —
 —
 13,348
 —
 13,348
 —
 —
 —
 —
 646
 —
 646
Common dividends declared
($0.09 per common share)
 —
 —
 —
 (7,228) —
 —
 (7,228) —
 —
 —
 (9,126) —
 —
 (9,126)
Acquisition, net of issuance costs 3,042
 31
 54,865
 —
 —
 —
 54,896
 21,078
 210
 533,322
 —
 —
 558
 534,090
Common stock issued 4
 —
 59
 —
 —
 —
 59
 2
 —
 53
 —
 —
 —
 53
Restricted stock activity 303
 —
 (10,282) —
 —
 7,736
 (2,546) 355
 —
 (12,860) —
 —
 9,108
 (3,752)
Treasury stock issued to
benefit plans		 (3) —
 —
 —
 —
 (33) (33) (3) —
 —
 —
 —
 (78) (78)
Share-based compensation expense —
 —
 1,839
 —
 —
 —
 1,839
 —
 —
 2,965
 —
 —
 —
 2,965
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
Balance at March 31, 2017 102,757
 $1,123
 $1,022,417
 $1,030,403
 $(40,264) $(208,946) $1,804,733
Balance at December 31, 2017 102,717
 $1,123
 $1,031,870
 $1,074,990
 $(33,036) $(210,073) $1,864,874
Adjustment to apply recent accounting
pronouncements(1)
 —
 —
 —
 6,689
 (6,689) —
 —
Net income —
 —
 —
 22,855
 —
 —
 22,855
 —
 —
 —
 33,510
 —
 —
 33,510
Other comprehensive income —
 —
 —
 —
 646
 —
 646
 —
 —
 —
 —
 (17,806) —
 (17,806)
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 dividends declared
($0.11 per common share)
 —
 —
 —
 (11,349) —
 —
 (11,349)
Common stock issued 2
 —
 53
 —
 —
 —
 53
 1
 —
 94
 —
 —
 667
 761
Restricted stock activity 355
 —
 (12,860) —
 —
 9,108
 (3,752) 377
 —
 (13,430) —
 —
 9,432
 (3,998)
Treasury stock issued to
benefit plans
 (3) —
 —
 —
 —
 (78) (78) (3) —
 22
 —
 —
 (94) (72)
Share-based compensation expense —
 —
 2,965
 —
 —
 —
 2,965
 —
 —
 3,367
 —
 —
 —
 3,367
Balance at March 31, 2017 102,757
 $1,123
 $1,022,417
 $1,030,403
 $(40,264) $(208,946) $1,804,733
Balance at March 31, 2018 103,092
 $1,123
 $1,021,923
 $1,103,840
 $(57,531) $(200,068) $1,869,287
(1)
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
 
See accompanying unaudited notes to the condensed consolidated financial statements.

6



Table of Contents



FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
 2017 2016 2018 2017
Operating Activities    
Net income $33,510
 $22,855
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 15,181
 4,918
Depreciation of premises, furniture, and equipment 3,606
 3,461
Net amortization of premium on securities 3,848
 4,284
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale (1,625) (1,414)
Net losses on sales and valuation adjustments of OREO 440
 689
Amortization of the FDIC indemnification asset 302
 302
Net losses on sales and valuation adjustments of premises, furniture, and equipment 60
 113
BOLI income (1,373) (1,260)
Share-based compensation expense 3,367
 2,965
Tax benefit related to share-based compensation 51
 29
Amortization of other intangible assets 1,802
 1,541
Originations of mortgage loans held-for-sale (49,535) (43,132)
Proceeds from sales of mortgage loans held-for-sale 65,185
 55,761
Net increase in equity securities (658) —
Net increase in trading securities —
 (1,210)
Net increase in accrued interest receivable and other assets (7,309) (6,767)
Net decrease in accrued interest payables and other liabilities (31,120) (34,934)
Net cash provided by operating activities $8,201
 $10,232
 35,732
 8,201
Investing Activities        
Proceeds from maturities, repayments, and calls of securities available-for-sale 80,060
 68,235
 70,236
 80,060
Proceeds from sales of securities available-for-sale 210,154
 31,453
 —
 210,154
Purchases of securities available-for-sale (94,766) (276,265) (263,386) (94,766)
Proceeds from maturities, repayments, and calls of securities held-to-maturity 4,549
 3,973
 360
 4,549
Purchases of securities held-to-maturity —
 (8)
Purchases (sales) of FHLB stock 16,072
 (61)
Net purchases of FHLB stock (10,800) 16,072
Net increase in loans (43,771) (268,179) (255,057) (43,771)
Proceeds from claims on BOLI, net of premiums paid (24) (22)
Premiums paid on BOLI, net of proceeds from claims (12) (24)
Proceeds from sales of OREO 5,364
 1,640
 3,876
 5,364
Proceeds from sales of premises, furniture, and equipment 404
 675
 146
 404
Purchases of premises, furniture, and equipment (2,891) (2,921) (6,844) (2,891)
Net cash received from acquisitions 41,717
 57,347
 —
 41,717
Net cash provided by (used in) investing activities 216,868
 (384,133)
Net cash (used in) provided by investing activities (461,481) 216,868
Financing Activities        
Net increase in deposit accounts 104,064
 88,159
 92,697
 104,064
Net (decrease) increase in borrowed funds (331,085) 219,899
Net increase (decrease) in borrowed funds 235,804
 (331,085)
Cash dividends paid (7,206) (6,885) (10,288) (7,206)
Restricted stock activity (3,830) (2,113) (3,998) (3,830)
Net cash (used in) provided by financing activities (238,057) 299,060
Net cash provided by (used in) financing activities 314,215
 (238,057)
Net decrease in cash and cash equivalents (12,988) (74,841) (111,534) (12,988)
Cash and cash equivalents at beginning of period 262,148
 381,202
 346,570
 262,148
Cash and cash equivalents at end of period $249,160
 $306,361
 $235,036
 $249,160
    
Supplemental Disclosures of Cash Flow Information:    
Income taxes (refunded) paid $(1,259) $2,421
Interest paid to depositors and creditors 9,354
 3,563
Dividends declared, but unpaid 9,163
 7,593
Stock issued for acquisitions, net of issuance costs 534,090
 54,896
Non-cash transfers of loans to OREO 683
 942
Non-cash transfers of loans held-for-investment to loans held-for-sale 13,136
 25,125

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollar amounts in thousands)
(Unaudited)
  Three Months Ended 
 March 31,
  2018 2017
Supplemental Disclosures of Cash Flow Information:    
Income taxes paid $116
 $(1,259)
Interest paid to depositors and creditors 13,379
 9,354
Dividends declared, but unpaid 11,246
 9,163
Stock issued for acquisitions, net of issuance costs —
 534,090
Non-cash transfers of loans to OREO 937
 683
Non-cash transfers of loans held-for-investment to loans held-for-sale 905
 13,136
Non-cash transfer of equity securities previously classified as trading securities and
  securities available-for-sale
 27,855
 —
 
See accompanying unaudited notes to the condensed consolidated financial statements.

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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 ended March 31, 20172018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2018.
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 20162017 Annual Report on Form 10-K ("20162017 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 20162017 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, certainCertain loans that were previously classified as covered loans wereare 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") 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

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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 loans.
The acquisition adjustment related to non-PCI loans is amortized into interest income over the contractual life of the related loans. If an acquired 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 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.

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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 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 allowance is based on management's evaluation of the acquired 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 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 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

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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.earnings in the same income statement line item as the earnings effect of the hedged item. 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.

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2. RECENT ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Pronouncements
Contingent Put and Call Options in Debt Instruments: In March of 2016, the Financial Accounting Standards Board ("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. The adoption of this guidance on January 1, 2017 did not 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. The adoption of this guidance on January 1, 2017 did not 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. The adoption of this guidance on January 1, 2017 resulted in a $638,000 tax benefit recorded in the Company's results of 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 FASBFinancial Accounting Standards Board ("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 initiallyis effective for annual and interim reporting periods beginning on or after December 15, 2016 but was deferred to 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.
The Company's revenue is comprised of net interest income on financial assets and liabilities, which areis excluded from the scope of this guidance, and noninterest income. The Company expects that this guidance will change howprimary sources of revenue from certain revenue streams is recognized within noninterest income are service charges on deposit accounts, wealth management fees, but does not expect these changes to have a significant impact on the Company's financial condition, resultscard-based fees, and merchant servicing fees. The adoption 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, withusing the modified retrospective approach, affected how the Company presents merchant servicing fees, merchant card expenses, card-based fees, and cardholder expenses, which are presented on a gross basis within noninterest income and noninterest expense for the prior period and are presented on a net basis within noninterest income for the current period. Total expenses of $3.7 million for the quarter ended March 31, 2018 were netted in noninterest income. The adoption of this guidance did not impact net income, therefore, a cumulative effect adjustment to opening retained earnings ifwas not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the reclassification of merchant card expenses and cardholder expenses.
A description of the Company's revenue streams accounted for under the scope of this guidance follows:
Service Charges on Deposit Accounts – Service charges on deposit accounts consist of account analysis fees (net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges

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on deposit accounts is primarily received as a direct charge to customers' accounts. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to service charges on deposit accounts for the quarter ended March 31, 2018.
Wealth management fees – Wealth management fees represents quarterly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each quarter, which is generally the time that payment is received. Also included are fees received from a third-party broker-dealer as part of a revenue-sharing agreement. These fees are paid to us by the third-party on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to wealth management fees for the quarter ended March 31, 2018.
Card-based fees, net – Card-based fees, net consists of debit and credit card interchange fees for processing transactions, as well as, various fees for automated teller machine ("ATM") and point-of-sale transactions processed through the related networks. Interchange, ATM, and point-of-sale fees from cardholder transactions represent a percentage of the underlying transaction value or a flat fee and are recognized daily, in connection with the transaction processing services provided to the cardholder. Card-based fees are presented net of certain contract costs associated with the debit, credit and ATM card interchange networks. As a result of the adoption of this guidance, $1.8 million of cardholder expenses are netted against card-based fees for the quarter ended March 31, 2018.
Merchant servicing fees, net – Merchant servicing fees, net is included in other service charges, commissions, and fees in the Consolidated Statements of Income. The Company acts in an adjustment is deemedagency capacity with respect to be significant.its merchants to process their debit and credit card transactions, deriving revenue from assisting another entity in transactions with our customers. Merchant servicing fees represent a percentage of the underlying net transaction volume or a flat fee and are recognized monthly. Merchant servicing fees are presented net of certain contract costs associated with the third-party merchant processing. As a result of the adoption of this guidance, $1.9 million of merchant card expenses are netted against merchant servicing fees for the quarter ended March 31, 2018.
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 subsequent changes in fair value will be recognized in net income unless the investments qualify for a new practicability exception. Equity securities totaling $27.9 million are no longer classified as trading securities or securities available-for-sale. This guidance also requires entities to recognize changes in instrument-specific credit risk related to financial liabilities measured underadjust the fair value option in other comprehensive income.disclosures for financial instruments carried at amortized cost from an entry price to an exit price. No changes were made to the guidance for classifying and measuring investments in debt securities and loans. Except as discussed above, the adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or 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. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
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. The adoption of this guidance on January 1, 2018 did not 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. The adoption of this guidance on January 1, 2018 did not 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 are required to 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 are required to be presented separately from the line item(s) that includes the service cost. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
Share-based Payment Award Modifications: In May of 2017, the FASB issued guidance to reduce diversity in practice by clarifying when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

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Derivatives and Hedging: In August of 2017, the FASB issued guidance to better align the financial reporting related to hedging activities with the economic objectives of those activities and to simplify the application of current hedge accounting guidance. Entities are required to apply the guidance using a modified retrospective method as of the period of adoption. This guidance is effective for annual and interim periods beginning after December 31, 2018. Early adoption is permitted, and the Company elected to do so on January 1, 2018, which did not materially impact the Company's financial condition, results of operations, or liquidity.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February of 2018, the FASB issued guidance that requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. Entities electing the reclassification are required to apply the guidance either at the beginning of the period of adoption or retrospectively for all periods impacted. This guidance is effective for annual and interim periods beginning after December 15, 2017.2018. Early adoption is permitted. Management does not expectpermitted and the adoptionCompany elected to do so on January 1, 2018, which resulted in the reclassification of this guidance will materially impact$6.8 million of stranded tax effects from accumulated other comprehensive loss to retained earnings as of the Company's financial condition, resultsbeginning of operations, or liquidity.the period of adoption.
Accounting Pronouncements Pending Adoption
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 2016, the CompanyFirst Midwest Bank (the "Bank") entered into a sale-leaseback transaction that resulted in a deferred gain of $82.5 million, with $79.5$73.1 million remaining as of March 31, 2017.2018. 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 noteNote 8

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"Premises, "Premises, Furniture, and Equipment."Equipment" to the Consolidated Financial Statements in the Company's 2017 10-K. Management is evaluating the new guidance and the additional impact to 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.

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3. ACQUISITIONS
Completed Acquisitions
Standard Bancshares, Inc.
On January 6, 2017, the Company completed theits acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. 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 NASDAQof $25.34 on that date, of $25.34,as reported by NASDAQ, 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 cancelledcanceled 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$345.3 million associated with the acquisition was recorded by the Company. All operating systems were converted during the first quarter of 2017. The
During 2017, the Company finalized 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.Standard transactions.
Premier Asset Management LLC
On February 28, 2017, the Company completed theits acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company acquired approximately $550.0 million of trust assets 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 $22.2 million associated with the acquisition was recorded by the Company.
During the first quarter of 2017,2018, the Company finalized the fair value adjustments associated with the NI BancsharesPremier transaction, which required a measurement period adjustment of $423,000$1.9 million to increase goodwill. This adjustment was recognized in the current period in accordance with accounting guidance applicable to business combinations.

14



The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Standard and NI Bancshares 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)
 Standard NI Bancshares
 January 6, 2017 March 8, 2016
Assets   
Cash and due from banks and interest-bearing deposits in other banks$102,149
 $72,533
Securities available-for-sale214,107
 125,843
Securities held-to-maturity—
 1,864
FHLB and FRB stock3,247
 1,549
Loans1,769,709
 396,181
OREO8,427
 2,863
Investment in BOLI55,629
 8,384
Goodwill339,298
 22,174
Other intangible assets31,072
 10,408
Premises, furniture, and equipment59,163
 19,636
Accrued interest receivable and other assets56,077
 16,453
Total assets$2,638,878
 $677,888
Liabilities   
Noninterest-bearing deposits$675,354
 $130,909
Interest-bearing deposits1,348,520
 464,012
Total deposits2,023,874
 594,921
Borrowed funds—
 2,416
Intangible liabilities—
 230
Accrued interest payable and other liabilities34,289
 10,239
Total liabilities2,058,163
 607,806
Consideration Paid   
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 paid47,125
 15,186
Total consideration paid580,715
 70,082
 $2,638,878
 $677,888
Expenses related to the acquisition and integration of the transactions above totaled $18.6 million and $5.0 million during the quarters ended March 31, 2017 and 2016, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. The acquisition of Standard was considered material to the Company's financial statements; therefore, pro forma financial data and related disclosures are included in the following tables.


15



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.


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4. SECURITIES
The significant accounting policies related to securities are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 20162017 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 March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 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 Losses Gains Losses 
Securities Available-for-SaleSecurities Available-for-Sale              Securities Available-for-Sale              
U.S. treasury securities $48,574
 $23
 $(81) $48,516
 $48,581
 $26
 $(66) $48,541
 $50,487
 $—
 $(296) $50,191
 $46,529
 $—
 $(184) $46,345
U.S. agency securities 180,894
 518
 (382) 181,030
 183,528
 519
 (410) 183,637
 160,936
 146
 (1,544) 159,538
 157,636
 197
 (986) 156,847
Collateralized mortgage
obligations ("CMOs")
 1,066,439
 1,039
 (16,114) 1,051,364
 1,064,130
 969
 (17,653) 1,047,446
 1,213,796
 147
 (32,208) 1,181,735
 1,113,019
 121
 (17,954) 1,095,186
Other mortgage-backed
securities ("MBSs")
 357,473
 1,230
 (5,737) 352,966
 337,139
 1,395
 (5,879) 332,655
 434,485
 191
 (11,314) 423,362
 373,676
 201
 (4,334) 369,543
Municipal securities 263,606
 2,092
 (2,988) 262,710
 273,319
 1,245
 (3,718) 270,846
 217,855
 170
 (4,041) 213,984
 209,558
 693
 (1,260) 208,991
Trust-preferred
collateralized debt
obligations ("CDOs")
 47,728
 260
 (14,552) 33,436
 47,681
 261
 (14,682) 33,260
Corporate debt securities 12,161
 —
 (21) 12,140
 —
 —
 —
 —
Equity securities(1) 7,246
 148
 (292) 7,102
 3,206
 147
 (288) 3,065
 —
 —
 —
 —
 7,408
 194
 (305) 7,297
Total securities
available-for-sale
 $1,971,960
 $5,310
 $(40,146) $1,937,124
 $1,957,584
 $4,562
 $(42,696) $1,919,450
 $2,089,720
 $654
 $(49,424) $2,040,950
 $1,907,826
 $1,406
 $(25,023) $1,884,209
Securities Held-to-MaturitySecurities Held-to-Maturity              Securities Held-to-Maturity              
Municipal securities $17,742
 $—
 $(2,624) $15,118
 $22,291
 $—
 $(4,079) $18,212
 $13,400
 $—
 $(2,113) $11,287
 $13,760
 $—
 $(1,747) $12,013
Trading Securities       $19,130
       $17,920
Equity Securities(1)
       $28,513
       $—
Trading Securities(1)
       $—
       $20,447

(1)
As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 As of March 31, 2017 As of March 31, 2018
 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 $90,123
 $87,605
 $1,926
 $1,641
 $130,003
 $128,358
 $1,611
 $1,357
After one year to five years 399,483
 388,321
 6,834
 5,823
 184,271
 181,940
 5,459
 4,598
After five years to ten years 3,470
 3,373
 2,975
 2,535
 127,155
 125,546
 2,195
 1,849
After ten years 47,726
 46,393
 6,007
 5,119
 10
 9
 4,135
 3,483
Securities that do not have a single contractual maturity date 1,431,158
 1,411,432
 —
 —
 1,648,281
 1,605,097
 —
 —
Total $1,971,960
 $1,937,124
 $17,742
 $15,118
 $2,089,720
 $2,040,950
 $13,400
 $11,287
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 $1.0 billion for March 31, 2018 and $1.1 billion for both March 31, 2017 and December 31, 2016.2017. No securities held-to-maturity were pledged as of March 31, 20172018 or December 31, 2016.2017.

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During the quarters ended March 31, 20172018 and 20162017 there were no material gross trading gains/gains (losses). The following table presents net and there were no realized gains (losses) on securities available-for-sale for the quarters ended March 31, 2017 and 2016.
Securities Available-for-Sale Gains
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2017 2016
Gains on sales of securities:    
Gross realized gains $—
 $930
Gross realized losses —
 (43)
Net realized gains on sales of securities —
 887
Non-cash impairment charges:    
Other-than-temporary securities impairment ("OTTI") —
 —
Net realized gains $—
 $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.available-for-sale.
Accounting guidance requires that the credit portion of an OTTIother-than-temporary impairment ("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 rollforwardThere was no outstanding balance of life-to-date OTTI previously recognized in earnings related to allon securities available-for-sale held by the Company foras of both March 31, 2018 and December 31, 2017. During the quarters ended March 31, 2018 and 2017 and 2016. The majority ofthere were no changes to the beginning and ending balance of OTTI relatesrelated to CDOs currently held by the Company.
Changes in OTTI Recognized in Earnings
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2017 2016
Beginning balance $23,345
 $23,709
OTTI included in earnings (1):
    
Reduction for sales of securities —
 —
Ending balance $23,345
 $23,709

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

18



securities available-for-sale.
The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of March 31, 20172018 and December 31, 2016.2017.
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 March 31, 2017            
As of March 31, 2018As of March 31, 2018            
Securities Available-for-SaleSecurities Available-for-Sale            Securities Available-for-Sale            
U.S. treasury securities 17
 $35,481
 $75
 $3,995
 $6
 $39,476
 $81
 22
 $32,744
 $222
 $60,664
 $74
 $93,408
 $296
U.S. agency securities 30
 70,426
 358
 6,928
 24
 77,354
 382
 77
 69,433
 519
 17,446
 1,025
 86,879
 1,544
CMOs 196
 781,003
 12,259
 128,464
 3,855
 909,467
 16,114
 238
 524,167
 9,432
 621,039
 22,776
 1,145,206
 32,208
MBSs 73
 290,278
 5,180
 17,013
 557
 307,291
 5,737
 98
 190,166
 3,677
 212,297
 7,637
 402,463
 11,314
Municipal securities 272
 94,694
 2,371
 21,520
 617
 116,214
 2,988
 447
 74,891
 1,210
 103,638
 2,831
 178,529
 4,041
CDOs 7
 —
 —
 30,762
 14,552
 30,762
 14,552
Equity securities 2
 —
 —
 6,687
 292
 6,687
 292
Corporate debt securities 3
 8,985
 21
 —
 —
 8,985
 21
Total 597
 $1,271,882
 $20,243
 $215,369
 $19,903
 $1,487,251
 $40,146
 885
 $900,386
 $15,081
 $1,015,084
 $34,343
 $1,915,470
 $49,424
Securities Held-to-MaturitySecurities Held-to-Maturity            Securities Held-to-Maturity            
Municipal securities 13
 $—
 $—
 $15,118
 $2,624
 $15,118
 $2,624
 8
 $—
 $—
 $11,287
 $2,113
 $11,287
 $2,113
As of December 31, 2016              
As of December 31, 2017              
Securities Available-for-SaleSecurities Available-for-Sale            Securities Available-for-Sale            
U.S. treasury securities 16
 $33,505
 $61
 $3,995
 $5
 $37,500
 $66
 20
 $19,918
 $87
 $26,427
 $97
 $46,345
 $184
U.S. agency securities 28
 62,064
 364
 11,814
 46
 73,878
 410
 72
 66,899
 300
 58,021
 686
 124,920
 986
CMOs 194
 523,233
 10,309
 411,758
 7,344
 934,991
 17,653
 211
 365,131
 3,265
 633,227
 14,689
 998,358
 17,954
MBSs 68
 221,174
 4,726
 77,780
 1,154
 298,954
 5,880
 86
 126,136
 902
 210,017
 3,432
 336,153
 4,334
Municipal securities 380
 133,957
 3,059
 29,280
 659
 163,237
 3,718
 265
 35,500
 479
 81,360
 781
 116,860
 1,260
CDOs 7
 —
 —
 30,592
 14,682
 30,592
 14,682
Equity securities 2
 404
 201
 2,319
 86
 2,723
 287
Equity securities(1)
 2
 391
 214
 6,386
 91
 6,777
 305
Total 695
 $974,337
 $18,720
 $567,538
 $23,976
 $1,541,875
 $42,696
 656
 $613,975
 $5,247
 $1,015,438
 $19,776
 $1,629,413
 $25,023
Securities Held-to-MaturitySecurities Held-to-Maturity    Securities Held-to-Maturity    
Municipal securities 14
 $—
 $—
 $18,212
 $4,079
 $18,212
 $4,079
 8
 $—
 $—
 $12,013
 $1,747
 $12,013
 $1,747
(1)
As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
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 partythird-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of March 31, 20172018 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

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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 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."

19



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
  March 31,
2017		 December 31,
2016
Commercial and industrial $3,370,780
 $2,827,658
Agricultural 422,784
 389,496
Commercial real estate:    
Office, retail, and industrial 1,988,979
 1,581,967
Multi-family 671,710
 614,052
Construction 568,460
 451,540
Other commercial real estate 1,357,781
 979,528
Total commercial real estate 4,586,930
 3,627,087
Total corporate loans 8,380,494
 6,844,241
Home equity 880,667
 747,983
1-4 family mortgages 540,148
 423,922
Installment 253,061
 237,999
Total consumer loans 1,673,876
 1,409,904
Total loans $10,054,370
 $8,254,145
Deferred loan fees included in total loans $4,429
 $3,838
Overdrawn demand deposits included in total loans 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."
  As of
  March 31,
2018		 December 31,
2017
Commercial and industrial $3,659,066
 $3,529,914
Agricultural 435,734
 430,886
Commercial real estate:    
Office, retail, and industrial 1,931,202
 1,979,820
Multi-family 695,830
 675,463
Construction 585,766
 539,820
Other commercial real estate 1,363,238
 1,358,515
Total commercial real estate 4,576,036
 4,553,618
Total corporate loans 8,670,836
 8,514,418
Home equity 881,534
 827,055
1-4 family mortgages 798,902
 774,357
Installment 325,502
 321,982
Total consumer loans 2,005,938
 1,923,394
Total loans $10,676,774
 $10,437,812
Deferred loan fees included in total loans $5,349
 $4,986
Overdrawn demand deposits included in total loans 6,302
 8,587
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 20162017 10-K.

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Loan Sales
The following table presents loan sales for the quarters ended March 31, 20172018 and 2016.2017.
Loan Sales
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Corporate loan sales        
Proceeds from sales $15,368
 $9,588
 $8,321
 $15,368
Less book value of loans sold 15,117
 9,130
 8,123
 15,117
Net gains on corporate loan sales (1)
 $251
 $458
 198
 251
1-4 family mortgage loan sales        
Proceeds from sales $55,761
 $39,507
 $65,185
 $55,761
Less book value of loans sold 54,598
 38,680
 63,758
 54,598
Net gains on 1-4 family mortgage loan sales (2)
 1,163
 827
 1,427
 1,163
Total net gains on loan sales $1,414
 $1,285
 $1,625
 $1,414
(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 onFor additional disclosure related to the soldCompany's obligations resulting from the sale of certain 1-4 family mortgage loans. A description of the recourse obligation is presented inloans, see Note 13,10, "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, 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 loans as of March 31, 20172018 and December 31, 2016.2017.
Acquired and Covered Loans(1) 
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 PCI Non-PCI Total PCI Non-PCI Total PCI Non-PCI Total PCI Non-PCI Total
Acquired loans $169,961
 $2,101,985
 $2,271,946
 $53,772
 $613,339
 $667,111
 $122,071
 $1,361,055
 $1,483,126
 $130,694
 $1,512,664
 $1,643,358
Covered loans 7,746
 14,712
 22,458
 7,895
 15,379
 23,274
 6,635
 9,863
 16,498
 6,759
 11,789
 18,548
Total acquired and covered loans $177,707
 $2,116,697
 $2,294,404
 $61,667
 $628,718
 $690,385
 $128,706
 $1,370,918
 $1,499,624
 $137,453
 $1,524,453
 $1,661,906
(1) 
Included in loans in the Consolidated Statements of Condition.
The outstanding balance of PCI loans was $251.2$188.1 million and $84.8$210.7 million as of March 31, 20172018 and December 31, 2016,2017, 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 loans that are renewed are no longer classified as acquired loans. These loans totaled $170.9$404.2 million and $117.6$366.0 million as of March 31, 20172018 and December 31, 2016,2017, respectively.

21



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 March 31, 20172018 and December 31, 2016.2017.

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Rollforwards of the carrying value of the FDIC indemnification asset for the quarters ended March 31, 20172018 and 20162017 are presented in the following table.
Changes in the FDIC Indemnification Asset
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Beginning balance $4,522
 $3,903
 $3,314
 $4,522
Amortization (302) (280) (302) (302)
Change in expected reimbursements from the FDIC for changes in expected credit losses (328) 216
 146
 (328)
Net payments to the FDIC 328
 1,841
Net payments (from) to the FDIC (146) 328
Ending balance $4,220
 $5,680
 $3,012
 $4,220
Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Beginning balances $19,385
 $24,912
 $32,957
 $19,385
Additions 27,316
 3,981
 —
 27,316
Accretion (3,955) (1,546) (3,618) (3,955)
Other (1)
 (1,497) (89) 7,204
 (1,497)
Ending balance $41,249
 $27,258
 $36,543
 $41,249
(1) 
Decreases result from the resolution of certain loans occurring earlier than anticipated while increasesIncreases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio.portfolio while decreases result from the resolution of certain loans occurring earlier than anticipated.
Total accretion on acquired and covered PCI and non-PCI loans for the quarters ended March 31, 2018 and 2017 and 2016 was $11.3$5.1 million and $2.4$11.3 million, respectively.

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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 March 31, 20172018 and December 31, 2016.2017. 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 (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 
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 March 31, 2017               
As of March 31, 2018               
Commercial and industrial $3,359,919
 $7,165
 $3,696
 $10,861
 $3,370,780
  $21,514
 $1,251
 $3,612,554
 $11,412
 $35,100
 $46,512
 $3,659,066
  $43,974
 $1,963
Agricultural 420,692
 1,434
 658
 2,092
 422,784
  1,283
 —
 430,903
 264
 4,567
 4,831
 435,734
  4,086
 489
Commercial real estate:                              
Office, retail, and industrial 1,971,050
 1,281
 16,648
 17,929
 1,988,979
  19,505
 52
 1,915,943
 5,926
 9,333
 15,259
 1,931,202
  12,342
 476
Multi-family 666,914
 4,782
 14
 4,796
 671,710
  163
 14
 680,557
 15,249
 24
 15,273
 695,830
  144
 24
Construction 565,710
 2,556
 194
 2,750
 568,460
  198
 —
 584,607
 35
 1,124
 1,159
 585,766
  208
 916
Other commercial real estate 1,352,633
 3,563
 1,585
 5,148
 1,357,781
  3,858
 1
 1,356,320
 4,083
 2,835
 6,918
 1,363,238
  4,088
 64
Total commercial real
estate
 4,556,307
 12,182
 18,441
 30,623
 4,586,930
  23,724
 67
 4,537,427
 25,293
 13,316
 38,609
 4,576,036
  16,782
 1,480
Total corporate loans 8,336,918
 20,781
 22,795
 43,576
 8,380,494
  46,521
 1,318
 8,580,884
 36,969
 52,983
 89,952
 8,670,836
  64,842
 3,932
Home equity 874,810
 3,045
 2,812
 5,857
 880,667
  4,799
 864
 875,789
 3,399
 2,346
 5,745
 881,534
  5,780
 44
1-4 family mortgages 538,177
 1,254
 717
 1,971
 540,148
  2,974
 41
 794,212
 2,608
 2,082
 4,690
 798,902
  4,393
 132
Installment 250,952
 1,699
 410
 2,109
 253,061
  —
 410
 322,797
 2,180
 525
 2,705
 325,502
  —
 525
Total consumer loans 1,663,939
 5,998
 3,939
 9,937
 1,673,876
  7,773
 1,315
 1,992,798
 8,187
 4,953
 13,140
 2,005,938
  10,173
 701
Total loans $10,000,857
 $26,779
 $26,734
 $53,513
 $10,054,370
  $54,294
 $2,633
 $10,573,682
 $45,156
 $57,936
 $103,092
 $10,676,774
  $75,015
 $4,633
As of December 31, 2016               
As of December 31, 2017               
Commercial and industrial $2,816,442
 $6,426
 $4,790
 $11,216
 $2,827,658
  $29,938
 $374
 $3,490,783
 $34,620
 $4,511
 $39,131
 $3,529,914
  $40,580
 $1,830
Agricultural 388,596
 —
 900
 900
 389,496
  181
 736
 430,221
 280
 385
 665
 430,886
  219
 177
Commercial real estate:                              
Office, retail, and industrial 1,564,007
 5,327
 12,633
 17,960
 1,581,967
  17,277
 1,129
 1,970,564
 3,156
 6,100
 9,256
 1,979,820
  11,560
 345
Multi-family 612,446
 858
 748
 1,606
 614,052
  311
 604
 672,098
 3,117
 248
 3,365
 675,463
  377
 20
Construction 450,927
 332
 281
 613
 451,540
  286
 —
 539,043
 198
 579
 777
 539,820
  209
 371
Other commercial real estate 974,575
 1,307
 3,646
 4,953
 979,528
  2,892
 1,526
 1,353,263
 2,545
 2,707
 5,252
 1,358,515
  3,621
 317
Total commercial real
estate
 3,601,955
 7,824
 17,308
 25,132
 3,627,087
  20,766
 3,259
 4,534,968
 9,016
 9,634
 18,650
 4,553,618
  15,767
 1,053
Total corporate loans 6,806,993
 14,250
 22,998
 37,248
 6,844,241
  50,885
 4,369
 8,455,972
 43,916
 14,530
 58,446
 8,514,418
  56,566
 3,060
Home equity 740,919
 4,545
 2,519
 7,064
 747,983
  5,465
 109
 820,099
 4,102
 2,854
 6,956
 827,055
  5,946
 98
1-4 family mortgages 420,264
 2,652
 1,006
 3,658
 423,922
  2,939
 272
 770,120
 2,145
 2,092
 4,237
 774,357
  4,412
 —
Installment 236,264
 1,476
 259
 1,735
 237,999
  —
 259
 319,178
 2,407
 397
 2,804
 321,982
  —
 397
Total consumer loans 1,397,447
 8,673
 3,784
 12,457
 1,409,904
  8,404
 640
 1,909,397
 8,654
 5,343
 13,997
 1,923,394
  10,358
 495
Total loans $8,204,440
 $22,923
 $26,782
 $49,705
 $8,254,145
  $59,289
 $5,009
 $10,365,369
 $52,570
 $19,873
 $72,443
 $10,437,812
  $66,924
 $3,555
(1) 
PCI loans with an accretable yield are considered current.
(2) 
Includes PCI loans of $387,000$760,000 and $682,000$763,000 as of March 31, 20172018 and December 31, 2016,2017, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition due to credit deterioration.



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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, 20172018 and 20162017 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 
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 March 31, 2018Quarter ended March 31, 2018              
Beginning balance $55,791
 $10,996
 $2,534
 $3,481
 $6,381
 $16,546
 $1,000
 $96,729
Charge-offs (14,670) (461) —
 —
 (69) (1,885) —
 (17,085)
Recoveries 538
 97
 —
 13
 39
 342
 —
 1,029
Net charge-offs (14,132) (364) —
 13
 (30) (1,543) —
 (16,056)
Provision for loan
losses and other
 15,541
 (25) 58
 (1,522) (1,060) 2,189
 —
 15,181
Ending balance $57,200
 $10,607
 $2,592
 $1,972
 $5,291
 $17,192
 $1,000
 $95,854
Quarter ended March 31, 2017Quarter ended March 31, 2017              Quarter ended March 31, 2017              
Beginning balance $40,709
 $17,595
 $3,261
 $3,444
 $7,739
 $13,335
 $1,000
 $87,083
 $40,709
 $17,595
 $3,261
 $3,444
 $7,739
 $13,335
 $1,000
 $87,083
Charge-offs (4,074) (127) —
 (5) (408) (1,664) —
 (6,278) (4,074) (127) —
 (5) (408) (1,664) —
 (6,278)
Recoveries 1,666
 975
 28
 227
 101
 443
 —
 3,440
 1,666
 975
 28
 227
 101
 443
 —
 3,440
Net charge-offs (2,408) 848
 28
 222
 (307) (1,221) —
 (2,838) (2,408) 848
 28
 222
 (307) (1,221) —
 (2,838)
Provision for loan
losses and other
 3,485
 (742) (429) 444
 (510) 2,670
 —
 4,918
 3,485
 (742) (429) 444
 (510) 2,670
 —
 4,918
Ending balance $41,786
 $17,701
 $2,860
 $4,110
 $6,922
 $14,784
 $1,000
 $89,163
 $41,786
 $17,701
 $2,860
 $4,110
 $6,922
 $14,784
 $1,000
 $89,163
Quarter ended March 31, 2016              
Beginning balance $37,074
 $13,124
 $2,469
 $1,440
 $6,109
 $13,414
 $1,225
 $74,855
Charge-offs (1,898) (524) (204) (126) (1,445) (992) —
 (5,189)
Recoveries 502
 103
 25
 15
 151
 320
 —
 1,116
Net charge-offs (1,396) (421) (179) (111) (1,294) (672) —
 (4,073)
Provision for loan
losses and other
 2,058
 1,717
 257
 1,104
 1,773
 684
 —
 7,593
Ending balance $37,736
 $14,420
 $2,547
 $2,433
 $6,588
 $13,426
 $1,225
 $78,375



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The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of March 31, 20172018 and December 31, 2016.2017.
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 March 31, 2017                
As of March 31, 2018                
Commercial, industrial, and
agricultural
 $18,167
 $3,745,009
 $30,388
 $3,793,564
 $109
 $41,133
 $544
 $41,786
 $46,748
 $4,037,396
 $10,656
 $4,094,800
 $8,111
 $48,400
 $689
 $57,200
Commercial real estate:                                
Office, retail, and industrial 13,442
 1,956,042
 19,495
 1,988,979
 31
 16,200
 1,470
 17,701
 11,375
 1,905,401
 14,426
 1,931,202
 481
 8,705
 1,421
 10,607
Multi-family 396
 656,769
 14,545
 671,710
 —
 2,784
 76
 2,860
 391
 682,238
 13,201
 695,830
 —
 2,418
 174
 2,592
Construction —
 548,280
 20,180
 568,460
 —
 3,946
 164
 4,110
 —
 577,297
 8,469
 585,766
 —
 1,815
 157
 1,972
Other commercial real estate 2,493
 1,286,300
 68,988
 1,357,781
 18
 5,832
 1,072
 6,922
 2,223
 1,300,548
 60,467
 1,363,238
 —
 4,320
 971
 5,291
Total commercial real estate 16,331
 4,447,391
 123,208
 4,586,930
 49
 28,762
 2,782
 31,593
 13,989
 4,465,484
 96,563
 4,576,036
 481
 17,258
 2,723
 20,462
Total corporate loans 34,498
 8,192,400
 153,596
 8,380,494
 158
 69,895
 3,326
 73,379
 60,737
 8,502,880
 107,219
 8,670,836
 8,592
 65,658
 3,412
 77,662
Consumer —
 1,649,765
 24,111
 1,673,876
 —
 13,550
 1,234
 14,784
 —
 1,984,451
 21,487
 2,005,938
 —
 15,926
 1,266
 17,192
Reserve for unfunded
commitments
 —
 —
 —
 —
 —
 1,000
 —
 1,000
 —
 —
 —
 —
 —
 1,000
 —
 1,000
Total loans $34,498
 $9,842,165
 $177,707
 $10,054,370
 $158
 $84,445
 $4,560
 $89,163
 $60,737
 $10,487,331
 $128,706
 $10,676,774
 $8,592
 $82,584
 $4,678
 $95,854
As of December 31, 2016                
As of December 31, 2017                
Commercial, industrial, and
agricultural
 $24,645
 $3,189,327
 $3,182
 $3,217,154
 $507
 $39,554
 $648
 $40,709
 $38,718
 $3,909,380
 $12,702
 $3,960,800
 $10,074
 $45,293
 $424
 $55,791
Commercial real estate:                                
Office, retail, and industrial 16,287
 1,553,234
 12,446
 1,581,967
 —
 16,148
 1,448
 17,596
 10,810
 1,954,435
 14,575
 1,979,820
 —
 9,333
 1,663
 10,996
Multi-family 398
 601,429
 12,225
 614,052
 —
 3,059
 202
 3,261
 621
 660,771
 14,071
 675,463
 —
 2,436
 98
 2,534
Construction 34
 447,058
 4,448
 451,540
 —
 3,280
 164
 3,444
 —
 530,977
 8,843
 539,820
 —
 3,331
 150
 3,481
Other commercial real estate 1,286
 965,900
 12,342
 979,528
 18
 6,613
 1,108
 7,739
 1,468
 1,291,723
 65,324
 1,358,515
 —
 5,415
 966
 6,381
Total commercial real estate 18,005
 3,567,621
 41,461
 3,627,087
 18
 29,100
 2,922
 32,040
 12,899
 4,437,906
 102,813
 4,553,618
 —
 20,515
 2,877
 23,392
Total corporate loans 42,650
 6,756,948
 44,643
 6,844,241
 525
 68,654
 3,569
 72,748
 51,617
 8,347,286
 115,515
 8,514,418
 10,074
 65,808
 3,301
 79,183
Consumer —
 1,392,880
 17,024
 1,409,904
 —
 12,210
 1,125
 13,335
 —
 1,901,456
 21,938
 1,923,394
 —
 15,533
 1,013
 16,546
Reserve for unfunded
commitments
 —
 —
 —
 —
 —
 1,000
 —
 1,000
 —
 —
 —
 —
 —
 1,000
 —
 1,000
Total loans $42,650
 $8,149,828
 $61,667
 $8,254,145
 $525
 $81,864
 $4,694
 $87,083
 $51,617
 $10,248,742
 $137,453
 $10,437,812
 $10,074
 $82,341
 $4,314
 $96,729

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Loans Individually Evaluated for Impairment
The following table presents loans individually evaluated for impairment by class of loan as of March 31, 20172018 and December 31, 2016.2017. PCI loans are excluded from this disclosure.
Impaired Loans Individually Evaluated by Class
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 Recorded Investment In    Recorded Investment In   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
 
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
 $7,147
 $35,731
 $68,806
 $7,310
  $4,234
 $34,484
 $53,192
 $10,074
Agricultural 1,114
 —
 1,817
 —
  —
 —
 —
 —
 —
 3,870
 4,672
 801
  —
 —
 —
 —
Commercial real estate:                                  
Office, retail, and industrial 12,732
 710
 17,723
 31
  16,287
 —
 21,057
 —
 7,538
 3,837
 12,333
 481
  7,154
 3,656
 14,246
 —
Multi-family 396
 —
 596
 —
  398
 —
 398
 —
 391
 —
 391
 —
  621
 —
 621
 —
Construction —
 —
 315
 —
  34
 —
 34
 —
 —
 —
 —
 —
  —
 —
 —
 —
Other commercial real estate 2,258
 235
 4,550
 18
  1,016
 270
 2,141
 18
 2,223
 —
 2,243
 —
  1,468
 —
 1,566
 —
Total commercial real estate 16,500
 945
 25,001
 49
  17,735
 270
 23,630
 18
 10,152
 3,837
 14,967
 481
  9,243
 3,656
 16,433
 —
Total impaired loans
individually evaluated
for impairment
 $33,281
 $1,217
 $50,300
 $158
  $29,314
 $13,336
 $53,144
 $525
 $17,299
 $43,438
 $88,445
 $8,592
  $13,477
 $38,140
 $69,625
 $10,074
The following table presents the average recorded investment and interest income recognized on impaired loans by class for the quarters ended March 31, 20172018 and 2016.2017. 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 March 31, Quarters Ended March 31,
 2017 2016 2018 2017
 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 $20,849
 $214
 $2,794
 $38
 $40,798
 $22
 $20,849
 $214
Agricultural 557
 —
 —
 —
 1,935
 —
 557
 —
Commercial real estate:        
        
Office, retail, and industrial 14,865
 93
 7,923
 48
 11,093
 112
 14,865
 93
Multi-family 397
 28
 601
 1
 506
 7
 397
 28
Construction 17
 136
 106
 —
 —
 —
 17
 136
Other commercial real estate 1,890
 12
 3,819
 19
 1,846
 52
 1,890
 12
Total commercial real estate 17,169
 269
 12,449
 68
 13,445
 171
 17,169
 269
Total impaired loans $38,575
 $483
 $15,243
 $106
 $56,178
 $193
 $38,575
 $483
(1) 
Recorded using the cash basis of accounting.

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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, as of March 31, 20172018 and December 31, 2016.2017.
Corporate Credit Quality Indicators by Class
(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 March 31, 2017          
As of March 31, 2018          
Commercial and industrial $3,134,827
 $113,944
 $100,495
 $21,514
 $3,370,780
 $3,505,129
 $95,259
 $14,704
 $43,974
 $3,659,066
Agricultural 405,354
 9,873
 6,274
 1,283
 422,784
 417,644
 7,756
 6,248
 4,086
 435,734
Commercial real estate:                    
Office, retail, and industrial 1,887,699
 39,545
 42,230
 19,505
 1,988,979
 1,856,832
 26,642
 35,386
 12,342
 1,931,202
Multi-family 665,313
 4,336
 1,898
 163
 671,710
 682,926
 10,961
 1,799
 144
 695,830
Construction 542,862
 8,927
 16,473
 198
 568,460
 568,148
 9,941
 7,469
 208
 585,766
Other commercial real estate 1,312,347
 21,599
 19,977
 3,858
 1,357,781
 1,310,712
 31,431
 17,007
 4,088
 1,363,238
Total commercial real estate 4,408,221
 74,407
 80,578
 23,724
 4,586,930
 4,418,618
 78,975
 61,661
 16,782
 4,576,036
Total corporate loans $7,948,402
 $198,224
 $187,347
 $46,521
 $8,380,494
 $8,341,391
 $181,990
 $82,613
 $64,842
 $8,670,836
As of December 31, 2016          
As of December 31, 2017          
Commercial and industrial $2,638,833
 $92,340
 $66,547
 $29,938
 $2,827,658
 $3,388,133
 $70,863
 $30,338
 $40,580
 $3,529,914
Agricultural 366,382
 17,039
 5,894
 181
 389,496
 413,946
 10,989
 5,732
 219
 430,886
Commercial real estate:                    
Office, retail, and industrial 1,491,030
 34,007
 39,513
 17,277
 1,581,827
 1,903,737
 25,546
 38,977
 11,560
 1,979,820
Multi-family 607,324
 4,370
 2,029
 311
 614,034
 665,496
 7,395
 2,195
 377
 675,463
Construction 438,946
 111
 12,197
 286
 451,540
 521,911
 10,184
 7,516
 209
 539,820
Other commercial real estate 951,115
 11,808
 13,544
 2,892
 979,359
 1,304,337
 29,624
 20,933
 3,621
 1,358,515
Total commercial real estate 3,488,415
 50,296
 67,283
 20,766
 3,626,760
 4,395,481
 72,749
 69,621
 15,767
 4,553,618
Total corporate loans $6,493,630
 $159,675
 $139,724
 $50,885
 $6,843,914
 $8,197,560
 $154,601
 $105,691
 $56,566
 $8,514,418
(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) 
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 $674,000$651,000 as of March 31, 20172018 and $834,000$657,000 as of December 31, 2016.2017.
Consumer Credit Quality Indicators by Class
(Dollar amounts in thousands)
 Performing Non-accrual Total Performing Non-accrual Total
As of March 31, 2017      
As of March 31, 2018      
Home equity $875,868
 $4,799
 $880,667
 $875,754
 $5,780
 $881,534
1-4 family mortgages 537,174
 2,974
 540,148
 794,509
 4,393
 798,902
Installment 253,061
 —
 253,061
 325,502
 —
 325,502
Total consumer loans $1,666,103
 $7,773
 $1,673,876
 $1,995,765
 $10,173
 $2,005,938
As of December 31, 2016      
As of December 31, 2017      
Home equity $727,618
 $4,986
 $732,604
 $821,109
 $5,946
 $827,055
1-4 family mortgages 413,415
 2,939
 416,354
 769,945
 4,412
 774,357
Installment 237,999
 —
 237,999
 321,982
 —
 321,982
Total consumer loans $1,379,032
 $7,925
 $1,386,957
 $1,913,036
 $10,358
 $1,923,394

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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 March 31, 20172018 and December 31, 2016.2017. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.
TDRs by Class
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 Accruing 
Non-accrual (1)
 Total Accruing 
Non-accrual (1)
 Total Accruing 
Non-accrual(1)
 Total Accruing 
Non-accrual(1)
 Total
Commercial and industrial $278
 $922
 $1,200
 $281
 $150
 $431
 $260
 $16,830
 $17,090
 $264
 $18,959
 $19,223
Agricultural —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Commercial real estate:                        
Office, retail, and industrial —
 864
 864
 155
 4,733
 4,888
 —
 2,336
 2,336
 —
 4,236
 4,236
Multi-family 582
 163
 745
 586
 168
 754
 570
 144
 714
 574
 149
 723
Construction —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Other commercial real estate 263
 —
 263
 268
 48
 316
 189
 —
 189
 192
 —
 192
Total commercial real estate 845
 1,027
 1,872
 1,009
 4,949
 5,958
 759
 2,480
 3,239
 766
 4,385
 5,151
Total corporate loans 1,123
 1,949
 3,072
 1,290
 5,099
 6,389
 1,019
 19,310
 20,329
 1,030
 23,344
 24,374
Home equity 172
 795
 967
 177
 820
 997
 85
 724
 809
 86
 738
 824
1-4 family mortgages 817
 368
 1,185
 824
 378
 1,202
 674
 432
 1,106
 680
 451
 1,131
Installment —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Total consumer loans 989
 1,163
 2,152
 1,001
 1,198
 2,199
 759
 1,156
 1,915
 766
 1,189
 1,955
Total loans $2,112
 $3,112
 $5,224
 $2,291
 $6,297
 $8,588
 $1,778
 $20,466
 $22,244
 $1,796
 $24,533
 $26,329
(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 $32,000 in$2.4 million and $2.0 million specific reserves related to TDRs as of March 31, 2018 and December 31, 2017, and thererespectively.
There were no specific reserves related to TDRs as of Decembermaterial restructures during the quarters ended March 31, 2016.2018 and 2017.
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, 20172018 and 2016.2017.

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A rollforward of the carrying value of TDRs for the quarters ended March 31, 20172018 and 20162017 is presented in the following table.
TDR Rollforward
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Accruing        
Beginning balance $2,291
 $2,743
 $1,796
 $2,291
Additions 922
 —
 —
 922
Net payments received (24) (41)
Net transfers to non-accrual (1,077) —
Net payments (18) (24)
Net transfers from (to) non-accrual —
 (1,077)
Ending balance 2,112
 2,702
 1,778
 2,112
Non-accrual        
Beginning balance 6,297
 2,324
 24,533
 6,297
Net payments received (4,150) (56)
Additions 355
 —
Net payments (3,113) (4,150)
Charge-offs (112) —
 (1,309) (112)
Net transfers from accruing 1,077
 —
 —
 1,077
Ending balance 3,112
 2,268
 20,466
 3,112
Total TDRs $5,224
 $4,970
 $22,244
 $5,224
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 March 31, 20172018 and December 31, 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
  March 31,
2017		 December 31,
2016
Land $29,942
 $18,304
Premises 138,748
 94,369
Furniture and equipment 133,618
 105,859
Total cost 302,308
 218,532
Accumulated depreciation (178,801) (140,030)
Net book value of premises, furniture, and equipment 123,507
 78,502
Assets held-for-sale 17,146
 4,075
Total premises, furniture, and equipment $140,653
 $82,577
2017.

29



During 2016, First Midwest Bank (the "Bank") completed a sale-leaseback transaction, whereby the Bank sold to a third party for an aggregate cash purchase price of $150.3 million, 55 properties with book values totaling $58.8 million, owned and operated by the Bank as branches. Upon the sale of the branches the Bank concurrently entered into triple net lease agreements with certain affiliates of the third party for each of the branches sold. Subject to the right of the Bank to terminate certain of the lease agreements at the end of the eleventh year, the lease agreements have initial terms of 14 years. Each lease agreement provides the Bank with five consecutive renewal options of five years each. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, with $79.5 million of deferred pre-tax gains remaining as of March 31, 2017.
As of March 31, 2017 and December 31, 2016 assets held-for-sale consisted of former branches that are no longer in operation and parcels of land previously purchased for expansion.
Depreciation on premises, furniture, and equipment totaled $3.5 million and $3.2 million for the quarters ended March 31, 2017 and 2016, respectively.
Operating Leases
As of March 31, 2017, the Company was obligated to utilize certain premises and equipment under certain non-cancelable operating leases, which expire at various dates through the year ending December 31, 2033. Many of these leases contain renewal options and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. The following 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 March 31, 2017.
Future Minimum Operating Lease Payments
(Dollar amounts in thousands)
  Total
One year or less $18,809
After one year to two years 16,591
After two years to three years 16,800
After three years to four years 16,276
After four years to five years 16,190
After five years 124,340
Total minimum lease payments $209,006
As of March 31, 2017, deferred pre-tax gains of $79.5 million related to the sale-lease back transaction will be accreted as a reduction to lease expense in other expenses on the Condensed Consolidated Statements of Income on a straight-line basis over the initial terms of the leases.

30



The Company assumed certain operating leases related to various branches in previous acquisitions. An intangible liability is recorded when the cash flows of a lease exceeds its fair market value. This intangible liability will be accreted into income as a reduction to net occupancy and equipment expense using the straight-line method over the initial term of each lease, which expire between 2018 and 2030. The intangible liability is included in accrued interest and other liabilities in the Consolidated Statements of Financial Condition.
The following table presents the remaining scheduled accretion of the intangible liability by year.
Scheduled Accretion of Operating Lease Intangible
(Dollar amounts in thousands)
  Total
One year or less $1,180
After one year to two years 829
After two years to three years 658
After three years to four years 648
After four years to five years 648
After five years 3,835
Total accretion $7,798
The following table presents net operating lease expense for the quarters ended March 31, 2017 and 2016.
Net Operating Lease Expense
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2017 2016
Lease expense charged to operations $4,559
 $1,727
Accretion of operating lease intangible (1)
 (295) (286)
Accretion of deferred gain on sale-leaseback transaction (1)
 (1,473) —
Rental income from premises leased to others (1)
 (181) (158)
Net operating lease expense $2,610
 $1,283

(1)
Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
9.  GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's annual goodwill impairment test was performed as of October 1, 2016. It was determined that no impairment existed as of that date or as of March 31, 2017. For a discussion of the accounting policies for goodwill and other intangible assets, see Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2016 10-K.
The following table presents changes in the carrying amount of goodwill for the quarters ended March 31, 2017 and 2016.
Changes in the Carrying Amount of Goodwill
(Dollar amounts in thousands)
  Quarters Ended March 31,
  2017 2016
Beginning balance $340,879
 $319,007
Acquisitions 350,693
 20,761
Ending balance $691,572
 $339,768
     

31



The 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 other intangible assets are core deposit intangibles and 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.
Other Intangible Assets
(Dollar amounts in thousands)
  Three Months Ended March 31,
  2017 2016
  Gross 
Accumulated
Amortization
 Net Gross 
Accumulated
Amortization
 Net
Beginning balance $58,959
 $32,962
 $25,997
 $48,550
 $28,280
 $20,270
Additions 39,017
 —
 39,017
 10,925
 —
 10,925
Amortization expense —
 1,965
 (1,965) —
 985
 (985)
Ending balance $97,976
 $34,927
 $63,049
 $59,475
 $29,265
 $30,210
Scheduled Amortization of Other Intangible Assets
(Dollar amounts in thousands)
  Total
Year Ending March 31, 2017  
2018 $7,702
2019 7,108
2020 7,064
2021 7,009
2022 6,922
2023 and thereafter 27,244
Total $63,049
10.  DEPOSITS
The following table presents the Company's deposits by type.
Summary of Deposits
(Dollar amounts in thousands)
  As of
  March 31,
2017		 December 31,
2016
Demand deposits $3,492,987
 $2,766,748
Savings deposits 2,073,518
 1,615,833
NOW accounts 1,876,215
 1,675,421
Money market deposits 1,972,566
 1,577,316
Time deposits less than $100,000 918,092
 755,558
Time deposits greater than $100,000 623,163
 437,727
Total deposits $10,956,541
 $8,828,603

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


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11.8. 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 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Net income $22,855
 $17,962
 $33,510
 $22,855
Net income applicable to non-vested restricted shares (234) (212) (311) (234)
Net income applicable to common shares $22,621
 $17,750
 $33,199
 $22,621
Weighted-average common shares outstanding:        
Weighted-average common shares outstanding (basic) 100,411
 77,980
 101,922
 100,411
Dilutive effect of common stock equivalents 21
 12
 16
 21
Weighted-average diluted common shares outstanding 100,432
 77,992
 101,938
 100,432
Basic EPS $0.23
 $0.23
 $0.33
 $0.23
Diluted EPS $0.23
 $0.23
 $0.33
 $0.23
Anti-dilutive shares not included in the computation of
diluted EPS (1)
 343
 608
 110
 343
(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.
12.9. 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
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Gross notional amount outstanding $5,833
 $5,958
 $5,333
 $5,458
Derivative liability fair value (226) (282)
Derivative liability fair value in other liabilities (61) (101)
Weighted-average interest rate received 2.83% 2.63% 3.69% 3.38%
Weighted-average interest rate paid 5.96% 5.96% 5.96% 5.96%
Weighted-average maturity (in years) 1.60
 1.84
 0.60
 0.84
Fair value of derivative (1)
 $240
 $296
 $70
 $110
(1) 
This amount represents the fair value if credit risk related contingent features were triggered.
Hedge ineffectiveness isChanges in the fair value of fair value hedges are recognized in other noninterest income in the Condensed Consolidated Statements of Income. For the quarters ended March 31, 2017 and 2016, gains or losses related to fair value hedge ineffectiveness were not material.
Cash Flow Hedges
As of March 31, 2017,2018, the Company hedged $980.0 million$1.1 billion 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 $980.0 million of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.

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Forward starting interest rate swaps totaling $415.0$510.0 million began on various dates between June of 2015 and FebruaryMarch of 2017,2018, and mature between June of 2019 and FebruaryMarch of 2020. The remaining forward starting interest rate swaps totaling $470.0 million begin at various dates between FebruaryMay of 2018 and February of 2020 and mature between FebruaryMay of 2020 and April of 2022. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 1.89% as of March 31, 2018. These derivative contracts are designated as cash flow hedges.
Cash Flow Hedges
(Dollar amounts in thousands)
 As of As of
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Gross notional amount outstanding $1,960,000
 $1,470,000
 $2,060,000
 $1,960,000
Derivative asset fair value 4,078
 5,402
Derivative liability fair value (8,286) (7,390)
Derivative asset fair value in other assets(1)
 7,291
 3,989
Derivative liability fair value in other liabilities(1)
 (15,729) (10,219)
Weighted-average interest rate received 1.42% 1.37% 1.78% 1.58%
Weighted-average interest rate paid 1.23% 1.11% 1.85% 1.61%
Weighted-average maturity (in years) 3.00
 2.83
 2.17
 2.25
(1)
Certain cash flow hedges are transacted through a clearinghouse ("centrally cleared") and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
The effective portionChanges in the fair value of gains or losses on cash flow hedges isare recorded in accumulated other comprehensive loss on an after-tax basis and isare subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. Hedge effectiveness is determined using a regressionanalysis at the inception of the hedge relationship and on an ongoing basis. For the quarters ended March 31, 2017 and 2016, there were no material gains or losses related to cash flow hedge ineffectiveness. As of March 31, 2017,2018, the Company estimates that $7.6$1.3 million will be reclassified from accumulated other comprehensive loss as an increasea decrease 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 transaction with 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 March 31, 20172018 and December 31, 2016,2017, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third parties,third-parties, therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments of $1.4$1.6 million and $3.2$1.4 million were recorded in noninterest income for the quarters ended March 31, 20172018 and 2016,2017, respectively.
Other Derivative Instruments
(Dollar amounts in thousands)
 As of As of
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Gross notional amount outstanding $2,100,325
 $1,656,612
 $2,755,248
 $2,665,358
Derivative asset fair value 15,722
 13,478
Derivative liability fair value (15,722) (13,478)
Derivative asset fair value in other assets(1)
 21,019
 17,079
Derivative liability fair value in other liabilities(1)
 (22,948) (14,930)
Fair value of derivative (1)(2)
 16,340
 13,753
 22,682
 15,059
(1)
Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(2) 
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 March 31, 20172018 and December 31, 2016.2017. The Company does not enter into derivative transactions for purely speculative purposes.

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The following table presents the impact of derivative instruments on comprehensive income and the reclassification of gains (losses) from accumulated other comprehensive loss to net interest income for the quarters ended March 31, 2018 and 2017.
Cash Flow Hedge Accounting on AOCI
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2018 2017
Gains (losses) recognized in other comprehensive income    
Interest rate swaps in interest income $6,996
 $1,811
Interest rate swaps in interest expense (7,183) (302)
Reclassification of gains (losses) included in net income    
Interest rate swaps in interest income $271
 $1,856
Interest rate swaps in interest expense (606) (1,145)
The following table presents the impact of derivative instruments on net interest income for the quarters ended March 31, 2018 and 2017.
Hedge Income
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2018 2017
Fair Value Hedges    
Interest rate swaps in interest income $(41) $(34)
Cash Flow Hedges    
Interest rate swaps in interest income 271
 1,856
Interest rate swaps in interest expense (606) (1,145)
Total cash flow hedges (335) 711
Total net gains (losses) on hedges $(376) $677
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

34



securities or cash to collateralize either party's net losses above a stated minimum threshold. As of March 31, 20172018 and December 31, 2016,2017, 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.

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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 March 31, 20172018 and December 31, 2016.2017.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Gross amounts recognized $19,800
 $24,234
 $18,880
 $21,150
 $28,310
 $38,738
 $21,068
 $25,250
Less: amounts offset in the Consolidated Statements of
Financial Condition
 —
 —
 —
 —
 —
 —
 —
 —
Net amount presented in the Consolidated Statements of
Financial Condition (1)
 19,800
 24,234
 18,880

21,150
 28,310
 38,738
 21,068

25,250
Gross amounts not offset in the Consolidated Statements of
Financial Condition:
                
Offsetting derivative positions (11,293) (11,293) (10,889) (10,889) (18,362) (18,362) (16,880) (16,880)
Cash collateral pledged —
 (12,941) —
 (10,261) —
 (20,376) —
 (8,370)
Net credit exposure $8,507
 $—
 $7,991
 $—
 $9,948
 $—
 $4,188
 $—
(1) 
Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of March 31, 20172018 and December 31, 2016,2017, 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 March 31, 20172018 and December 31, 20162017 the Company was in compliance with these provisions.

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13.10. 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
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Commitments to extend credit:        
Commercial, industrial, and agricultural $1,737,410
 $1,522,152
 $1,712,750
 $1,729,426
Commercial real estate 427,425
 397,423
 356,393
 377,551
Home equity 486,880
 426,384
 529,808
 514,973
Other commitments (1)
 250,123
 214,943
 244,206
 244,222
Total commitments to extend credit $2,901,838
 $2,560,902
 $2,843,157
 $2,866,172
        
Letters of credit $146,632
 $100,430
 $117,926
 $128,801
Recourse on assets sold:    
Unpaid principal balance of loans sold $185,101
 $187,158
Carrying value of recourse obligation (2)
 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.customers for the full contractual amount. 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.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 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 partythird-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-performingearly payment default 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, 20172018 and 2016.2017.
Legal Proceedings
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at March 31, 2017.2018. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's financial position, results of operations, or cash flows.

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14.11. 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.

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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 March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 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:            
Assets            
Trading securities:                        
Money market funds $1,768
 $—
 $—
 $1,645
 $—
 $—
 $—
 $—
 $—
 $1,685
 $—
 $—
Mutual funds 17,362
 —
 —
 16,275
 —
 —
 —
 —
 —
 18,762
 —
 —
Total trading securities(1) 19,130
 —
 —
 17,920
 —
 —
 —
 —
 —
 20,447
 —
 —
Securities available-for-sale:            
Equity securities(1)
 21,322
 7,191
 —
 —
 —
 —
Securities available-for-sale(1)
            
U.S. treasury securities 48,516
 —
 —
 48,541
 —
 —
 50,191
 —
 —
 46,345
 —
 —
U.S. agency securities —
 181,030
 —
 —
 183,637
 —
 —
 159,538
 —
 —
 156,847
 —
CMOs —
 1,051,364
 —
 —
 1,047,446
 —
 —
 1,181,735
 —
 —
 1,095,186
 —
MBSs —
 352,966
 —
 —
 332,655
 —
 —
 423,362
 —
 —
 369,543
 —
Municipal securities —
 262,710
 —
 —
 270,846
 —
 —
 213,984
 —
 —
 208,991
 —
CDOs —
 —
 33,436
 —
 —
 33,260
Corporate debt securities —
 12,140
 —
 —
 —
 —
Equity securities —
 7,102
 —
 —
 3,065
 —
 —
 —
 —
 —
 7,297
 —
Total securities available-for-sale 48,516
 1,855,172
 33,436
 48,541
 1,837,649
 33,260
 50,191
 1,990,759
 —
 46,345
 1,837,864
 —
Mortgage servicing rights ("MSRs") (1)
 —
 —
 6,245
 

 

 6,120
Derivative assets (1)
 —
 19,800
 —
 —
 18,880
 —
Liabilities:            
Derivative liabilities (2)
 $—
 $24,234
 $—
 $—
 $21,150
 $—
Mortgage servicing rights ("MSRs")(2)
 —
 —
 6,468
 —
 —
 5,894
Derivative assets(2)
 —
 28,310
 —
 —
 21,068
 —
Liabilities            
Derivative liabilities(3)
 $—
 $38,738
 $—
 $—
 $25,250
 $—
(1)
As a result of recently adopted accounting guidance, equity securities are no longer presented within trading securities or securities available-for-sale for the prior period and are now presented within equity securities for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.
(2) 
Included in other assets in the Consolidated Statements of Financial Condition.
(2)(3) 
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.
TradingEquity Securities
The Company's tradingequity securities consist primarily of community development investments and certain diversified investment securities held in a grantor trust andfor participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds. The fair value of thesecommunity development investments 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 the 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.

3834



The following table presents the ranges of significant, unobservable inputs calculated using the weighted-average of the Issuers used by the Company as of March 31, 2017 and December 31, 2016.
Significant Unobservable Inputs Used in the Valuation of CDOs
  As of
  March 31, 2017 December 31, 2016
Probability of prepayment 0.0% -10.9% 0.0% -10.9%
Probability of default 16.6% -44.1% 16.7% -46.8%
Loss given default 93.3% -99.1% 93.3% -98.9%
Probability of deferral cure 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 2016 is presented in the following table.
Carrying Value of CDOs
(Dollar amounts in thousands)
  Quarters Ended 
 March 31,
  2017 2016
Beginning balance $33,260
 $31,529
Change in other comprehensive income (1)
 129
 (786)
Other 47
 14
Ending balance $33,436
 $30,757

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

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MSRs
The Company services loans for others totaling $632.7$604.2 million as of March 31, 20172018 and $640.5$607.0 million as of December 31, 2016.2017. These loans are owned by third partiesthird-parties and are not included in the Consolidated Statements of Financial Condition. 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 March 31, 2018 and December 31, 2017.
Significant Unobservable Inputs Used in the Valuation of MSRs
 As of As of
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Prepayment speed 7.7% -25.5% 7.7% -22.8% 6.7% -13.1% 4.2% -13.1%
Maturity (months) 10
 -102 12
 -103 5
 -102 6
 -92
Discount rate 9.5% -13.0% 9.5% -13.0% 9.5% -12.0% 9.5% -12.0%
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, 20172018 and 20162017 is presented in the following table.
Carrying Value of MSRs
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Beginning balance $6,120
 $1,853
 $5,894
 $6,120
Additions from acquisition —
 3,092
New MSRs 156
 185
 176
 156
Total gains (losses) included in earnings (1):
    
Total losses (gains) included in earnings(1):
    
Changes in valuation inputs and assumptions 172
 (40) 560
 172
Other changes in fair value (2)
 (203) (68) (162) (203)
Ending balance $6,245
 $5,022
 $6,468
 $6,245
Contractual servicing fees earned (1)
 $395
 $183
 $378
 $395
(1) 
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of March 31, 20172018 and 2016.2017.
(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.

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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 March 31, 2017 As of December 31, 2016
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Collateral-dependent impaired loans (1)
 $—
 $—
 $11,528
 $—
 $—
 $22,019
OREO (2)
 —
 —
 780
 —
 —
 8,624
Loans held-for-sale (3)
 —
 —
 9,144
 —
 —
 10,484
Assets held-for-sale (4)
 —
 —
 17,146
 —
 —
 4,075

  As of March 31, 2018 As of December 31, 2017
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Collateral-dependent impaired loans(1)
 $—
 $—
 $35,715
 $—
 $—
 $33,240
OREO(2)
 —
 —
 4,792
 —
 ���
 12,340
Loans held-for-sale(3)
 —
 —
 5,970
 —
 —
 21,098
Assets held-for-sale(4)
 —
 —
 3,383
 —
 —
 2,208
(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 March 31, 2017,2018, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell and three corporate loans.sell. 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, 2016,2017, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell, and a corporate loan.
Assets Held-for-Sale
Assets held-for-sale as of March 31, 20172018 and December 31, 20162017 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.

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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
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
 
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:          
Assets          
Cash and due from banks 1 $174,268
 $174,268
 $155,055
 $155,055
 1 $150,138
 $150,138
 $192,800
 $192,800
Interest-bearing deposits in other banks 2 74,892
 74,892
 107,093
 107,093
 2 84,898
 84,898
 153,770
 153,770
Securities held-to-maturity 2 17,742
 15,118
 22,291
 18,212
 2 13,400
 11,287
 13,760
 12,013
FHLB and FRB stock 2 46,306
 46,306
 59,131
 59,131
 2 80,508
 80,508
 69,708
 69,708
Loans 3 9,970,427
 9,712,763
 8,172,584
 7,973,845
 3 10,584,932
 10,256,027
 10,345,397
 10,059,992
Investment in BOLI 3 276,960
 276,960
 219,746
 219,746
 3 281,285
 281,285
 279,900
 279,900
Accrued interest receivable 3 39,868
 39,868
 34,384
 34,384
 3 45,703
 45,703
 45,261
 45,261
Other interest-earning assets 3 635
 635
 834
 834
 3 146
 146
 228
 228
Liabilities:          
Liabilities          
Deposits 2 $10,956,541
 $10,945,331
 $8,828,603
 $8,820,572
 2 $11,146,022
 $11,123,916
 $11,053,325
 $11,038,819
Borrowed funds 2 547,923
 547,923
 879,008
 879,008
 2 950,688
 950,688
 714,884
 714,884
Senior and subordinated debt 2 194,745
 202,522
 194,603
 197,888
 2 195,312
 194,980
 195,170
 198,806
Accrued interest payable 2 2,564
 2,564
 3,416
 3,416
 2 4,107
 4,107
 4,704
 4,704
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 Loans 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, and the allowance for loan losses. The fair valueAs of loans is estimated usingboth March 31, 2018 and December 31, 2017, 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.
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

42



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 values of senior and subordinated notes are estimated based on quoted market 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.immaterial.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
First Midwest Bancorp, Inc. is a bank holding company headquartered in the Chicago suburb of Itasca, Illinois, with operations throughout the Chicago metropolitan area, as well as northwest Indiana, central and western Illinois, and eastern Iowa through over 130 banking locations. Our principal subsidiary, is First Midwest Bank, which providesand other affiliates provide a broad range of commercial, retail, treasury andmanagement, equipment leasing, wealth management, trust, and private banking 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, 20172018 and 20162017 and Consolidated Statements of Financial Condition as of March 31, 20172018 and December 31, 2016.2017. 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 20162017 Annual Report on Form 10-K ("20162017 10-K"). The results of operations for the quarter ended March 31, 20172018 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.
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 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 March 31, 2017,2018, the Company and the Bank each had total assets of approximately $13.8over $14.0 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, these requirements are phased in and become applicable to 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 20162017 10-K, as well as our subsequent filings made with the Securities and Exchange Commission ("SEC").

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This 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 or outcome, 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, including the impact of strategic actions and initiatives, anticipated trends in our business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including estimated synergies, cost savings and financial benefits of pending or consummated transactions, 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 20162017 10-K, as well as our subsequent filings made with the 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.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and are consistent with general practice within the banking industry. 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 20162017 10-K. There have been no significantmaterial 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, 2016.
SIGNIFICANT RECENT EVENTS
Acquisitions
Standard Bancshares, Inc.
On January 6, 2017, the Company completed its acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. With the acquisition, the Company acquired 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest Indiana, and added approximately $2.0 billion in deposits and $1.8 billion in loans. The merger consideration totaled $580.7 million and consisted of $533.6 million in Company common stock and $47.1 million in cash. All operating systems were converted during the first quarter of 2017.
Premier Asset Management LLC
On February 28, 2017, the Company completed its acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company acquired approximately $550.0 million of trust assets under management. With this acquisition, the assets the Company collectively manages on behalf of its clients increased to nearly $10.0 billion.

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PERFORMANCE OVERVIEW
Table 1
Selected Financial Data
(Amounts in thousands, except per share data)
Quarters Ended 
 March 31,		Quarters Ended 
 March 31,
2017 20162018 2017
Operating Results      
Interest income$123,699
 $87,548
$131,345
 $123,699
Interest expense8,502
 6,834
12,782
 8,502
Net interest income115,197
 80,714
118,563
 115,197
Provision for loan losses4,918
 7,593
15,181
 4,918
Noninterest income39,951
 35,926
35,517
 39,951
Noninterest expense116,642
 82,589
95,582
 116,642
Income before income tax expense33,588
 26,458
43,317
 33,588
Income tax expense10,733
 8,496
9,807
 10,733
Net income$22,855
 $17,962
$33,510
 $22,855
Weighted-average diluted common shares outstanding100,432
 77,992
101,938
 100,432
Diluted earnings per common share$0.23
 $0.23
$0.33
 $0.23
Diluted earnings per common share, excluding certain significant transactions (1)(2)
$0.34
 $0.27
Diluted earnings per common share, adjusted(1)(2)
$0.33
 $0.34
Performance Ratios      
Return on average common equity (3)
5.20% 6.06%7.19% 5.20%
Return on average common equity, adjusted(1)(2)(3)
7.19% 7.76%
Return on average tangible common equity (3)
9.53% 8.87%12.50% 9.53%
Return on average tangible common equity, excluding certain significant transactions (1) (2) (3)
13.99% 10.32%
Return on average tangible common equity, adjusted(1)(2)(3)
12.50% 13.99%
Return on average assets (3)
0.68% 0.72%0.96% 0.68%
Return on average assets, excluding certain significant transactions (1) (2) (3)
1.01% 0.84%
Return on average assets, adjusted(1)(2)(3)
0.96% 1.01%
Tax-equivalent net interest margin (2)(3)(4)
3.89% 3.66%3.80% 3.89%
Efficiency ratio (2)
60.98% 64.82%60.96% 61.31%
Efficiency ratio (prior presentation)(5)
N/A
 60.98%
(1) 
Certain significant transactionsAdjustments to net income include acquisition and integration related expenses associated with completed and pending acquisitions.acquisitions (first quarter 2017). For additional discussion of adjustments, see the "Non-GAAP Financial Information and Reconciliations" section.
(2) 
This item is a non-GAAP 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) 
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 financial measure.

(5)
Presented as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.

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As of March 31, 2017 
 Change From		As of March 31, 2018 
 Change From
March 31,
2017		 December 31,
2016		 March 31,
2016		 December 31,
2016		 March 31,
2016		March 31,
2018		 December 31,
2017		 March 31,
2017		 December 31,
2017		 March 31,
2017
Balance Sheet Highlights                  
Total assets$13,773,471
 $11,422,555
 $10,728,922
 $2,350,916
 $3,044,549
$14,379,971
 $14,077,052
 $13,773,471
 $302,919
 $606,500
Total loans10,054,370
 8,254,145
 7,822,555
 1,800,225
 2,231,815
10,676,774
 10,437,812
 10,054,370
 238,962
 622,404
Total deposits10,956,541
 8,828,603
 8,780,818
 2,127,938
 2,175,723
11,146,022
 11,053,325
 10,956,541
 92,697
 189,481
Core deposits9,415,286
 7,635,318
 7,493,696
 1,779,968
 1,921,590
9,339,760
 9,406,542
 9,415,286
 (66,782) (75,526)
Loans to deposits91.8% 93.5% 89.1%    95.8% 94.4% 91.8%    
Core deposits to total deposits85.9% 86.5% 85.3%    83.8% 85.1% 85.9%    
         
Asset Quality Highlights                  
Non-accrual loans$54,294
 $59,289
 $31,890
 $(4,995) $22,404
$75,015
 $66,924
 $54,294
 $8,091
 $20,721
90 days or more past due loans, still
accruing interest (1)
2,633
 5,009
 5,835
 (2,376) (3,202)4,633
 3,555
 2,633
 1,078
 2,000
Total non-performing loans56,927
 64,298
 37,725
 (7,371) 19,202
79,648
 70,479
 56,927
 9,169
 22,721
Accruing troubled debt
restructurings ("TDRs")		2,112
 2,291
 2,702
 (179) (590)1,778
 1,796
 2,112
 (18) (334)
Other real estate owned ("OREO")29,140
 26,083
 29,649
 3,057
 (509)17,472
 20,851
 29,140
 (3,379) (11,668)
Total non-performing assets$88,179
 $92,672
 $70,076
 $(4,493) $18,103
$98,898
 $93,126
 $88,179
 $5,772
 $10,719
30-89 days past due loans (1)
$23,641
 $21,043
 $30,142
 $2,598
 $(6,501)$42,573
 $39,725
 $23,641
 $2,848
 $18,932
Non-performing assets to loans plus
OREO (2)
0.87% 1.12% 0.89%    
Non-performing assets to total loans plus
OREO		0.92% 0.89% 0.87%    
Allowance for Credit Losses                  
Allowance for credit losses$89,163
 $87,083
 $78,375
 $2,080
 $10,788
$95,854
 $96,729
 $89,163
 $(875) $6,691
Allowance for credit losses to
total loans (3)
0.89% 1.06% 1.00%    
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%    
Allowance for credit losses to
total loans(2)
0.90% 0.93% 0.89%    
Allowance for credit losses to
total loans, excluding acquired loans(3)
1.01% 1.07% 1.11%    
Allowance for credit losses to
non-accrual loans(2)
127.78% 144.54% 164.22%    
(1) 
Purchased credit impaired ("PCI") loans with an accretable yield are considered current and are not included in 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."
(3)
The allowance for credit losses to total loans, excluding acquired loans is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Net income for the first quarter 2017of 2018 was $22.9$33.5 million, or $0.23$0.33 per share, compared to $18.0$22.9 million, or $0.23 per share, for the first quarter of 2016.2017. Performance for both periodsthe first quarter of 2017 was impacted by certain significant transactions which include acquisition and integration related pre-tax expenses of $18.6 million and $5.0 million for the first quarters of 2017 and 2016, respectively.million. Excluding these transactions, earnings per share was $0.34expenses, net income for the first quarter of 2017 compared to $0.27 for the same period in 2016.was $33.8 million, or $0.34 per share. The increasemodest decrease in net income and earnings per share, excluding certain significant transactions, reflects the benefit of the Standard acquisition completed inand integration related expenses, compared to the first quarter of 2017 and the NI Bancshares Corporation ("NI Bancshares") acquisition completed late in the first quarter of 2016, organic loan growth, increases in fee-based revenues, and lowerreflects higher provision for loan losses, which were partially offset by higher net interest income and noninterest expense.income, controlled noninterest expenses, and a lower effective income tax rate. A discussion of net interest income, noninterest income, noninterest expense, and noninterestincome tax expense is presented in the following section titled "Earnings Performance."
Total loans of $10.1$10.7 billion grew by $1.8 billion,$239.0 million, or 21.8%,9.3% annualized, from December 31, 2016. This growth was driven primarily by the acquisition of Standard, which represents $1.7 billion of loans at March 31, 2017.
Non-performing assets to loans plus OREO was 0.87%0.92% at March 31, 2017, down2018, up from 1.12%0.89% and 0.87% at December 31, 2016.2017 and March 31, 2017, respectively. See the following "Loan Portfolio and Credit Quality" section for further discussion of our loan portfolio, non-accrual loans, 90 days or more past due loans, TDRs, and OREO.

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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 included in our 20162017 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 TableTables 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 March 31, 20172018 and 2016,2017, 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.


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Table 2
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
Quarters Ended March 31, 
Attribution of Change
in Net Interest Income
Quarters Ended March 31, 
Attribution of Change
in Net Interest Income
2017 2016 2018 2017 
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$215,915
 $441
 0.83  $241,645
 $342
 0.57  $(31) $130
 $99
$112,137
 $423
 1.53  $215,915
 $441
 0.83  $(206) $188
 $(18)
Securities (1)
2,021,157
 11,535
 2.28  1,495,462
 9,998
 2.67  2,634
 (1,097) 1,537
2,063,223
 12,141
 2.35  2,021,157
 11,535
 2.28  233
 373
 606
Federal Home Loan Bank
("FHLB") and Federal Reserve
Bank ("FRB") stock
54,219
 368
 2.71  39,773
 159
 1.60  72
 137
 209
76,883
 438
 2.28  54,219
 368
 2.71  114
 (44) 70
Loans (1)(2)
9,920,513
 113,409
 4.64  7,346,035
 79,356
 4.34  29,323
 4,730
 34,053
10,499,283
 119,318
 4.61  9,920,513
 113,409
 4.64  6,413
 (504) 5,909
Total interest-earning assets (1)(2)
12,211,804
 125,753
 4.17  9,122,915
 89,855
 3.96  31,998
 3,900
 35,898
12,751,526
 132,320
 4.20  12,211,804
 125,753
 4.17  6,554
 13
 6,567
Cash and due from banks176,953
      133,268
           181,797
      176,953
           
Allowance for loan losses(89,065)      (75,654)           (99,234)      (89,065)           
Other assets1,373,433
      876,316
           1,352,964
      1,373,433
           
Total assets$13,673,125
      $10,056,845
           $14,187,053
      $13,673,125
           
Liabilities and Stockholders' EquityLiabilities and Stockholders' Equity                  Liabilities and Stockholders' Equity                  
Savings deposits$2,029,631
 400
 0.08  $1,575,174
 283
 0.07  85
 32
 117
$2,015,679
 368
 0.07  $2,029,631
 400
 0.08  (3) (29) (32)
NOW accounts1,916,816
 478
 0.10  1,448,666
 200
 0.06  80
 198
 278
1,992,672
 1,048
 0.21  1,916,816
 478
 0.10  20
 550
 570
Money market deposits1,890,703
 619
 0.13  1,583,898
 465
 0.12  96
 58
 154
1,814,057
 824
 0.18  1,890,703
 619
 0.13  (24) 229
 205
Time deposits1,515,597
 1,712
 0.46  1,183,463
 1,437
 0.49  403
 (128) 275
1,735,155
 3,939
 0.92  1,515,597
 1,712
 0.46  279
 1,948
 2,227
Borrowed funds734,091
 2,194
 1.21  303,232
 1,316
 1.75  1,128
 (250) 878
858,297
 3,479
 1.64  734,091
 2,194
 1.21  414
 871
 1,285
Senior and subordinated debt194,677
 3,099
 6.46  201,253
 3,133
 6.26  (112) 78
 (34)195,243
 3,124
 6.49  194,677
 3,099
 6.46  9
 16
 25
Total interest-bearing
liabilities
8,281,515
 8,502
 0.42  6,295,686
 6,834
 0.44  1,680
 (12) 1,668
8,611,103
 12,782
 0.60  8,281,515
 8,502
 0.42  695
 3,585
 4,280
Demand deposits3,355,674
      2,463,017
           3,466,832
      3,355,674
           
Total funding sources11,637,189
    8,758,703
         12,077,935
   0.43  11,637,189
   0.30       
Other liabilities272,398
      119,554
           235,699
      272,398
           
Stockholders' equity - common1,763,538
      1,178,588
           1,873,419
      1,763,538
           
Total liabilities and
stockholders' equity
$13,673,125
      $10,056,845
           $14,187,053
      $13,673,125
           
Tax-equivalent net interest
income/margin (1)
  117,251
 3.89    83,021
 3.66  $30,318
 $3,912
 $34,230
  119,538
 3.80    117,251
 3.89  $5,859
 $(3,572) $2,287
Tax-equivalent adjustment  (2,054)      (2,307)           (975)      (2,054)         
Net interest income (GAAP)  $115,197
      $80,714
           $118,563
      $115,197
         
Impact of acquired loan
accretion (1)
  $11,345
 0.38    $2,423
 0.11         $5,112
 0.16    $11,345
 0.38       
Tax-equivalent net interest margin,
excluding the impact of acquired
loan accretion (1)
  105,906
 3.51    80,598
 3.55       
Tax-equivalent net interest income/
margin, adjusted(1)
  $114,426
 3.64    $105,906
 3.51       
(1) 
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming athe applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented at the current federal income tax rate of 21% and prior periods are presented using the federal income tax rate applicable at that time, or 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 further details on the calculation of tax-equivalent net interest incomeSee the"Non-GAAP Financial Information and margin, net interest income and margin (GAAP), and tax-equivalent net interest margin, excluding the impact of acquired loan accretion, see the Reconciliations"section ofpresented later in this Item 2 titled "Non-GAAP Financial Information and Reconciliations."for a discussion of this non-GAAP financial measure.
(2) 
Non-accrual loans, which totaled $75.0 million as of March 31, 2018 and $54.3 million as of March 31, 2017, and $31.9 million as of 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."
Net interest income increased by 42.7%2.9% compared to the first quarter of 2016.2017. The rise in net interest income resultedcompared to the first quarter of 2017 was driven primarily from the acquisition of interest-earning assetsby higher interest rates and loan growth, partially offset by lower acquired loan accretion from the Standard transaction early in the first quarterand higher cost of funds.

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Table 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.Contents



Acquired loan accretion contributed $11.3$5.1 million and $2.4$11.3 million to net interest income for the first quartersquarter of 20172018 and 2016,2017, respectively.
Tax-equivalent net interest margin for the currentfirst quarter of 2018 was 3.89%3.80%, increasing by 23decreasing 9 basis points from the same period in 2017. The decrease in tax-equivalent net interest margin compared to the first quarter of 2017 was due primarily to a 22 basis point decrease in acquired loan accretion, partially offset by the positive impact of higher interest rates. In addition, tax-equivalent net interest margin for the first quarter of 2018 was negatively impacted by a 3 basis points reduction in the tax-equivalent adjustment as a result of lower federal income tax rates.
Total average interest-earning assets rose by $539.7 million from the first quarter of 2016.2017. The rise in tax-equivalent net interest marginincrease resulted primarily from loan growth, which was impactedpartially offset by a 27 basis point increasereduction in acquired loan accretion, due primarilyother interest-earning assets.
Compared 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.
For the first quarter of 2017, total average interest-earning assets rose $3.1 billion from the first quarter of 2016. The increase 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 impacted by organic loan growth, security purchases, and interest-earning assets acquired in the NI Bancshares transaction late in the first quarter of 2016.
Average funding sources increased by $2.9 billion from the first quarter of 2016. The$440.7 million, due primarily to an increase was impacted by deposits acquired in the Standard transaction early in the first quarter of 2017. Deposits acquired in the NI Bancshares transaction late in the first quarter of 2016 and the addition of FHLB advances during the second half of 2016 also contributed to the rise in average funding sources.and time deposits.
Noninterest Income
A summary of noninterest income for the quarters ended March 31, 20172018 and 20162017 is presented in the following table.
Table 3
Noninterest Income Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		   Quarters Ended 
 March 31,		  
 2017 2016 % Change 2018 2017 % Change
Service charges on deposit accounts $11,365
 $9,473
 20.0
 $11,652
 $11,365
 2.5
Wealth management fees 9,660
 7,559
 27.8
 10,958
 9,660
 13.4
Card-based fees (1)
 8,116
 6,718
 20.8
Merchant servicing fees (2)
 3,135
 3,028
 3.5
Card-based fees, net(1)(2):
      
Card-based fees 5,692
 8,116
 (29.9)
Cardholder expenses (1,759) —
 —
Card-based fees, net 3,933
 8,116
 (51.5)
Mortgage banking income 1,888
 1,368
 38.0
 2,397
 1,888
 27.0
Capital market products income 1,376
 3,215
 (57.2) 1,558
 1,376
 13.2
Merchant servicing fees, net(1)(3):
     

Merchant servicing fees 2,237
 3,135
 (28.6)
Merchant card expenses (1,907) —
 —
Merchant servicing fees, net 330
 3,135
 (89.5)
Other service charges, commissions, and fees 2,307
 2,233
 3.3
 2,218
 2,307
 (3.9)
Total fee-based revenues 37,847
 33,594
 12.7
Net securities gains (3)
 —
 887
 (100.0)
Other income (4)
 2,104
 1,445
 45.6
 2,471
 2,104
 17.4
Total noninterest income $39,951
 $35,926
 11.2
 $35,517
 $39,951
 (11.1)
(1) 
As a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior periods are presented on a net basis in noninterest income for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.
(2)
Card-based fees, net consist of debit and credit card interchange fees for processing transactions as well as various fees on both customerconsumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks.networks as well as the related cardholder expense.
(2)(3) 
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 bank-owned life insurance ("BOLI")BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.
Total fee-based revenuesnoninterest income for the first quarter of $37.82018 of $35.5 million grew by 12.7%was down 11.1% compared to the first quarter of 2016 resulting primarily from services provided to customers acquired2017. In the first quarter of 2018, the Company adopted accounting guidance which impacted how cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first quarter of 2018 versus a gross basis within noninterest expense for the prior period. In addition, the Durbin Amendment of the Dodd-Frank Act ("Durbin") became effective for the Company in the Standard transaction andthird quarter of 2017. Excluding the full-quarter$3.7 million reclassification impact of services provided to customers acquired in the NI Bancshares transaction lateaccounting guidance adopted in the first quarter of 2016.2018 on the current period

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and the $2.9 million impact of Durbin on the first quarter of 2017, noninterest income was $39.2 million, up 5.8% from $37.1 million in the first quarter of 2017. This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Net card-based fees were up 8.4% compared to the first quarter of 2017, excluding the accounting reclassification and Durbin, due to higher transaction volumes. Compared to the first quarter of 2017, the increase in wealth management fees was driven primarily by the full quarter impact of customers acquired in the Premier Asset Management LLC ("Premier") transaction and organic growth. The decline in merchant servicing fees from the first quarter of 2017 reflected lower customer volumes, substantially offset by the decline in merchant card expense.
Mortgage banking income for the first quarter of 2018 resulted from sales of $54.6$63.8 million of 1-4 family mortgage loans in the secondary market, duringcompared to $54.6 million in the first quarter of 2017, up from sales of $38.7 million2017. In addition, mortgage banking income for the first quarter of 2016.

50



The decline2018 was positively impacted by changes in capital market products incomethe fair value of mortgage servicing rights, which fluctuate from the first quarter of 2016 was consistent with loan production during the first quarter of 2017.to quarter.
Noninterest Expense
A summary of noninterest expense for the quarters ended March 31, 20172018 and 20162017 is presented in the following table.
Table 4
Noninterest Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		   Quarters Ended 
 March 31,		  
 2017 2016 % Change 2018 2017 % Change
Salaries and employee benefits:            
Salaries and wages $44,890
 $36,296
 23.7
 $45,830
 $44,890
 2.1
Retirement and other employee benefits 10,882
 8,298
 31.1
 10,957
 10,882
 0.7
Total salaries and employee benefits 55,772
 44,594
 25.1
 56,787
 55,772
 1.8
Net occupancy and equipment expense 12,325
 9,697
 27.1
 13,773
 12,325
 11.7
Professional services 8,463
 5,920
 43.0
 7,580
 8,463
 (10.4)
Technology and related costs 4,433
 3,701
 19.8
 4,771
 4,433
 7.6
Merchant card expense (1)
 2,585
 2,598
 (0.5)
Advertising and promotions 1,066
 1,589
 (32.9) 1,650
 1,066
 54.8
Cardholder expenses 1,764
 1,359
 29.8
Net OREO expense 1,700
 664
 156.0
 1,068
 1,700
 (37.2)
Merchant card expenses(1)
 —
 2,585
 (100.0)
Cardholder expenses(1)
 —
 1,764
 (100.0)
Other expenses 9,969
 7,447
 33.9
 9,953
 9,969
 (0.2)
Acquisition and integration related expenses 18,565
 5,020
 269.8
 —
 18,565
 (100.0)
Total noninterest expense(1) $116,642
 $82,589
 41.2
 $95,582
 $116,642
 (18.1)
(1) 
TheAs a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related merchant servicing feesnoninterest expense line items that are includedpresented on a gross basis for the prior periods are presented on a net basis in noninterest income for each period presented.the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.
Total noninterest expense increasedof $95.6 million decreased by 41.2%18.1% compared to the first quarter of 2016,2017. In the first quarter of 2018, the Company adopted accounting guidance which was impacted by certain significant transactions includinghow cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first quarter of 2018 versus a gross basis within noninterest expense for the prior period. Excluding the $3.7 million reclassification impact of this accounting guidance on the current period and $18.6 million acquisition and integration related expenses associated with completed and pending acquisitions. Excluding these certain significant transactions, total noninterest expense increased by 26.4%that resulted from the acquisition of Standard Bancshares, Inc ("Standard") in the first quarter of 2016.2017, noninterest expense for the first quarter of 2018 was $99.2 million, consistent with $98.1 million in the first quarter of 2017. This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
The increase in salaries and wages compared to the first quarter of 2017 was driven primarily by merit increases and organizational growth. Compared to the first quarter of 2016, approximately half2017, net occupancy and equipment expenses increased as a result of the increase in total noninterest expense, excluding certain significant transactions, resulted from operatinghigher costs associated with the Standard transactionrelated to winter weather conditions and the full quarter impacttiming of the NI Bancshares transaction. Compensation costs associated with merit increases, investments in additional talent to support growth, and higher loan remediation expenses also contributedrelated to the rise in salaries and employee benefits and professionalCompany's planned corporate headquarters relocation. Professional services expense declined compared to the first quarter of 2016.
The decrease2017 due to lower loan remediation expenses. Compared to the first quarter of 2017, the rise in advertising and promotions expense compared to the first quarter of 2016 resulted from the timing of certain advertising costs.

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Net OREO expense increased from the first quarter of 2016 duedecreased compared to higher valuation adjustments and a rise in expenses related to the resolution of certain properties.
Acquisition and integration related expenses resulted from the acquisition of Standard and Premier during the first quarter of 2017 as a result of lower levels of operating expenses, losses on sales, and NI Bancshares during the first quarter of 2016. These expenses fluctuate based on the size and timing of each transaction.valuation adjustments.



51



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, 20172018 and 20162017 is detailed in the following table.
Table 5
Income Tax Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 Quarters Ended 
 March 31,
 2017 2016 2018 2017
Income before income tax expense $33,588
 $26,458
 $43,317
 $33,588
Income tax expense:        
Federal income tax expense $8,895
 $7,101
 $7,146
 $8,895
State income tax expense 1,838
 1,395
 2,661
 1,838
Total income tax expense $10,733
 $8,496
 $9,807
 $10,733
Effective income tax rate 32.0% 32.1% 22.6% 32.0%
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 increasedecrease in totalthe effective tax rate compared to the first quarter of 2017 was driven primarily by the reduction in the federal income tax rate from 35% to 21% which became effective in the first quarter of 2018 as a result of federal income tax reform. In addition, the first quarter of 2018 was impacted by a $1.0 million income tax benefit related to employee share-based payments.
Total income tax expense for the first quarter ended March 31, 2017of 2018 was down 8.6% compared to the same period in 2016 resulted primarily from higherthe prior year. Higher levels of income subject to tax at statutory rates offsetand a decrease in part by tax benefits of $638,000 relatedtax-exempt income compared to the implementationfirst quarter of Financial Accounting Standards Board ("FASB") guidance on employee share-based payments.2017 were more than offset by the decrease in the federal income tax rate.
Our accounting policies forregarding the recognition of income taxes in the Consolidated Statements of Financial Condition and Income are includeddescribed in Notes 1 and 15 to the Consolidated Financial Statements of our 20162017 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. TradingEquity securities are carried at fair value and consist primarily of community development investments and certain diversified investment securities held in a grantor trust for ourparticipants in the Company's nonqualified deferred compensation plan that are invested in money market and are not considered part of the traditional investment portfolio.mutual funds. 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.

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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 6
Investment Portfolio
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016 As of March 31, 2018 As of December 31, 2017
 
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-SaleSecurities Available-for-Sale              Securities Available-for-Sale              
U.S. treasury securities $48,574
 $(58) $48,516
 2.5 $48,581
 $(40) $48,541
 2.5 $50,487
 $(296) $50,191
 2.5 $46,529
 $(184) $46,345
 2.5
U.S. agency securities 180,894
 136
 181,030
 9.3 183,528
 109
 183,637
 9.6 160,936
 (1,398) 159,538
 7.8 157,636
 (789) 156,847
 8.3
Collateralized mortgage
obligations ("CMOs")
 1,066,439
 (15,075) 1,051,364
 54.3 1,064,130
 (16,684) 1,047,446
 54.6 1,213,796
 (32,061) 1,181,735
 57.9 1,113,019
 (17,833) 1,095,186
 58.1
Other mortgage-backed
securities ("MBSs")
 357,473
 (4,507) 352,966
 18.2 337,139
 (4,484) 332,655
 17.3 434,485
 (11,123) 423,362
 20.7 373,676
 (4,133) 369,543
 19.6
Municipal securities 263,606
 (896) 262,710
 13.6 273,319
 (2,473) 270,846
 14.1 217,855
 (3,871) 213,984
 10.5 209,558
 (567) 208,991
 11.1
Trust-preferred
collateralized debt
obligations ("CDOs")
 47,728
 (14,292) 33,436
 1.7 47,681
 (14,421) 33,260
 1.7
Corporate debt securities 12,161
 (21) 12,140
 0.6 —
 —
 —
 —
Equity securities(1) 7,246
 (144) 7,102
 0.4 3,206
 (141) 3,065
 0.2 —
 —
 —
 — 7,408
 (111) 7,297
 0.4
Total securities
available-for-sale
 $1,971,960
 $(34,836) $1,937,124
 100.0 $1,957,584
 $(38,134) $1,919,450
 100.0 $2,089,720
 $(48,770) $2,040,950
 100.0 $1,907,826
 $(23,617) $1,884,209
 100.0
Securities Held-to-MaturitySecurities Held-to-Maturity           Securities Held-to-Maturity           
Municipal securities $17,742
 $(2,624) $15,118
 
 $22,291
 $(4,079) $18,212
  $13,400
 $(2,113) $11,287
 
 $13,760
 $(1,747) $12,013
 
Equity Securities(1)
     $28,513
     $—
 
Trading Securities(1)
     $—
     $20,447
 
(1)
As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.
Portfolio Composition
As of March 31, 2017,2018, our securities available-for-sale portfolio totaled $1.9$2.0 billion, rising $17.7increasing $156.7 million, or 0.9%8.3%, from December 31, 2016.
Approximately 98%2017. The increase from December 31, 2017 was driven primarily by purchases of ourCMOs and MBSs in light of current market conditions. For additional detail regarding sales of securities available-for-sale portfolio is comprised of U.S. treasury securities, U.S. agency securities, CMOs, MBSs,see the "Realized Gains and municipal securities. The remainder consists of eleven CDOs with a fair value of $33.4 million and miscellaneous other securities with a fair value of $7.1 million.Losses" section below.
Investments in municipal securities comprised $262.7 million, or 13.6%, of the total securities available-for-sale portfolio at March 31, 2017. The majority consistsconsist 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.

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Table 7
Securities Effective Duration Analysis
As of March 31, 2017 As of December 31, 2016As of March 31, 2018 As of December 31, 2017
Effective Average Yield to Effective Average Yield toEffective 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 securities1.15% 1.17
 1.00% 1.39% 1.42
 0.99%1.10% 1.13
 1.54% 1.01% 1.03
 1.30%
U.S. agency securities2.50% 3.79
 1.65% 2.65% 3.89
 1.55%1.82% 3.22
 1.96% 1.80% 3.22
 1.74%
CMOs3.69% 4.43
 1.94% 3.76% 4.49
 1.88%3.75% 4.72
 2.44% 3.36% 4.51
 2.35%
MBSs4.05% 5.37
 2.13% 4.15% 5.62
 2.07%4.17% 5.60
 2.50% 3.77% 5.29
 2.30%
Municipal securities4.10% 2.34
 3.76% 4.17% 2.51
 3.85%4.75% 5.05
 2.60% 4.47% 4.87
 3.04%
CDOsN/M
 N/M
 N/M
 N/M
 N/M
 N/M
Equity securitiesN/M
 N/M
 N/M
  N/M
  N/M
 N/M
Corporate debt securities0.28% 7.98
 3.32% N/M
 N/M
 N/M
Total securities available-for-sale3.63% 4.17
 2.17% 3.72% 4.27
 2.14%3.71% 4.75
 2.41% 3.38% 4.51
 2.34%
Securities Held-to-Maturity                      
Municipal securities5.96% 8.14
 4.38% 6.47% 9.08
 3.98%5.15% 7.03
 3.52% 5.33% 7.15
 4.55%
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 athe applicable federal income tax rate of 35%.for each period presented.
Effective Duration
The average life and effective duration of our securities available-for-sale portfolio was 4.174.75 years and 3.63%3.71%, respectively, as of March 31, 2017, consistent with 4.272018, up from 4.51 years and 3.72%3.38% as of December 31, 2016.2017. The increase resulted primarily from purchases of CMOs and MBSs.
Realized Gains and Losses
There were no net securities gains or impairment charges recognized during the first quarters of 2018 and 2017. During the first quarter of 2017. Of the $214.12017, $210.2 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 first quarter of 2016 were $887,000 on securities with carrying values of $30.6 million. No impairment charges were recognized during the first quarter of 2016.
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. AsHigher market rates drove the rise in net unrealized losses to $48.8 million as of March 31, 2017, net unrealized losses totaled $34.8 million compared to net unrealized losses of $38.12018 from $23.6 million as of December 31, 2016.

53



2017.
Net unrealized losses in the CMO and MBS portfolio totaled $15.1$32.1 million and $11.1 million as of March 31, 20172018, respectively, compared to $16.7$17.8 million and $4.1 million as of December 31, 2016.2017 for the same portfolios. CMOs and MBSs 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, 20172018 represents other-than-temporary securities impairment ("OTTI") related to credit deterioration. In addition, we do not intend to sell the CMOs or MBSs 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
48



Table of the underlying banks and insurance companies. The net unrealized losses on these securities were $14.3 million as of March 31, 2017 and $14.4 million as of December 31, 2016. We do not believe the unrealized losses on the CDOs as of March 31, 2017 represent 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.Contents



LOAN PORTFOLIO AND CREDIT QUALITY
Portfolio Composition
Our loan portfolio is comprised of both corporate and consumer loans with corporate loans representing 83.3%81.2% of total loans atas of March 31, 2017.2018. 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 potential and current risks in the portfolio.
Table 8
Loan Portfolio
(Dollar amounts in thousands)
 As of March 31, 2017   
 Legacy 
Acquired (1)
 Total 
% of
Total Loans
 
As of December 31,
2016
 % of
Total Loans		 % Change As of  
 March 31, 2018		 
% of
Total Loans
 
As of
December 31, 2017
 % of
Total Loans		 % Change
Commercial and industrial $2,855,259
 $515,521
 $3,370,780
 33.5 $2,827,658
 34.3 19.2 $3,659,066
 34.3 $3,529,914
 33.8 3.7
Agricultural 394,855
 27,929
 422,784
 4.2 389,496
 4.7 8.5 435,734
 4.1 430,886
 4.1 1.1
Commercial real estate:                        
Office, retail, and industrial 1,542,831
 446,148
 1,988,979
 19.8 1,581,967
 19.2 25.7 1,931,202
 18.1 1,979,820
 19.0 (2.5)
Multi-family 634,500
 37,210
 671,710
 6.7 614,052
 7.4 9.4 695,830
 6.4 675,463
 6.5 3.0
Construction 453,001
 115,459
 568,460
 5.6 451,540
 5.4 25.9 585,766
 5.5 539,820
 5.2 8.5
Other commercial real estate 967,763
 390,018
 1,357,781
 13.5 979,528
 11.9 38.6 1,363,238
 12.8 1,358,515
 13.0 0.3
Total commercial real estate 3,598,095
 988,835
 4,586,930
 45.6 3,627,087
 43.9 26.5 4,576,036
 42.8 4,553,618
 43.7 0.5
Total corporate loans 6,848,209
 1,532,285
 8,380,494
 83.3 6,844,241
 82.9 22.4 8,670,836
 81.2 8,514,418
 81.6 1.8
Home equity 783,910
 96,757
 880,667
 8.8 747,983
 9.1 17.7 881,534
 8.3 827,055
 7.9 6.6
1-4 family mortgages 451,488
 88,660
 540,148
 5.4 423,922
 5.1 27.4 798,902
 7.5 774,357
 7.4 3.2
Installment 251,406
 1,655
 253,061
 2.5 237,999
 2.9 6.3 325,502
 3.0 321,982
 3.1 1.1
Total consumer loans 1,486,804
 187,072
 1,673,876
 16.7 1,409,904
 17.1 18.7 2,005,938
 18.8 1,923,394
 18.4 4.3
Total loans $8,335,013
 $1,719,357
 $10,054,370
 100.0 $8,254,145
 100.0 21.8 $10,676,774
 100.0 $10,437,812
 100.0 2.3

(1)
Amounts represent loans acquired in the Standard transaction, which was completed in the first quarter of 2017.
Total loans of $10.1$10.7 billion grewincreased by 21.8%9.3%, annualized from December 31, 2016. Excluding2017. Growth in commercial and industrial loans, acquiredprimarily within our sector-based lending businesses, multi-family, and construction loans drove the rise in the Standard transaction that totaled $1.7 billion, total corporate loans. Growth in consumer loans grew modestly fromcompared to December 31, 2016. The addition2017 benefited from the impact of purchases of shorter-duration floating rate home equity loans and the expansion of mortgage and installment loans drove the increase compared to December 31, 2016.

54



organic production.
Commercial, Industrial, and Agricultural Loans
Commercial, industrial, and agricultural loans represent 37.7%38.4% of total loans, and totaled $3.8$4.1 billion at March 31, 2017,2018, an increase of $576.4$134.0 million, or 17.9%3.4%, from December 31, 2016. Loans acquired in the Standard transaction during the first quarter of 2017 contributed $543.5 million to the increase.2017. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that range frominclude supporting seasonal working capital needs, to termaccounts receivable financing, of equipment.inventory and equipment financing, and select sector based lending, such as healthcare, asset-based lending, structured finance, and syndications. 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

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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,financing, 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.

55



The following table presents commercial real estate loan detail as of March 31, 20172018 and December 31, 2016.2017.
Table 9
Commercial Real Estate Loans
(Dollar amounts in thousands)
 As of  
 March 31, 2017		 % of
Total		 As of
December 31, 2016		 % of
Total		 As of  
 March 31, 2018		 % of
Total		 As of
December 31, 2017		 % of
Total
Office, retail, and industrial:          
Office $863,810
 18.8 $599,572
 16.5 $809,358
 17.7 $844,413
 18.5
Retail 463,837
 10.1 412,614
 11.4 469,321
 10.3 471,781
 10.4
Industrial 661,332
 14.4 569,781
 15.7 652,523
 14.3 663,626
 14.6
Total office, retail, and industrial 1,988,979
 43.3 1,581,967
 43.6 1,931,202
 42.3 1,979,820
 43.5
Multi-family 671,710
 14.6 614,052
 16.9 695,830
 15.2 675,463
 14.8
Construction 568,460
 12.4 451,540
 12.4 585,766
 12.8 539,820
 11.8
Other commercial real estate:          
Multi-use properties 304,269
 6.6 236,430
 6.5 330,934
 7.2 330,926
 7.3
Rental properties 215,776
 4.7 159,134
 4.4 184,394
 4.0 197,579
 4.3
Warehouses and storage 160,994
 3.5 136,853
 3.8 170,218
 3.7 172,505
 3.8
Hotels 122,600
 2.7 97,016
 2.1
Restaurants 116,765
 2.5 63,067
 1.7 121,025
 2.6 112,547
 2.5
Hotels 89,891
 2.0 41,780
 1.2
Service stations and truck stops 104,611
 2.3 107,834
 2.4
Recreational 84,927
 1.9 87,986
 1.9
Automobile dealers 86,108
 1.9 53,671
 1.5 38,153
 0.8 39,020
 0.9
Recreational 86,099
 1.9 58,390
 1.6
Service stations and truck stops 67,099
 1.6 51,403
 1.4
Religious 37,617
 0.8 38,319
 1.1
Other 193,163
 4.2 140,481
 3.9 206,376
 4.5 213,102
 4.7
Total other commercial real estate 1,357,781
 29.7 979,528
 27.1 1,363,238
 29.7 1,358,515
 29.9
Total commercial real estate $4,586,930
 100.0 $3,627,087
 100.0 $4,576,036
 100.0 $4,553,618
 100.0
Commercial real estate loans represent 45.6%42.8% of total loans, and totaled $4.6 billion at March 31, 2017,2018, increasing by $959.8$22.4 million or 26.5%, from December 31, 2016. Loans acquired in the Standard transaction during the first quarter of 2017 contributed $988.8 million to the increase, which more than offset lower loan production that was impacted by seasonality.2017.
The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and is diverse in terms of type and geographic location, generally within the Company's markets. Approximately 44%43% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of March 31, 2017.2018. Using outstanding loan balances, non-owner occupiednon-owner-occupied commercial real estate loans to total capital was 221%214% and construction loans to total capital was 37%32% as of March 31, 2017.2018. Non-owner-occupied (investor) commercial real estate is calculated in

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accordance with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and commercial real estate loans that are not secured by real estate loans.collateral.
Consumer Loans
Consumer loans represent 16.7%18.8% of total loans, and totaled $1.7$2.0 billion at March 31, 2017,2018, an increase of $264.0$82.5 million, or 18.7%4.3%, from December 31, 2016. Loans acquired in the Standard transaction during the first quarter of 2017 contributed $187.1 million to the increase.2017. 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.

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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 10
Loan Portfolio by Performing/Non-Performing Status
(Dollar amounts in thousands)
Accruing    Accruing    
PCI (1)
 Current 
30-89 Days
Past Due
 
90 Days
Past Due
 
Non-accrual (2)
 
Total
Loans
PCI(1)
 Current 
30-89 Days
Past Due
 
90 Days
Past Due
 
Non-accrual(2)
 
Total
Loans
As of March 31, 2017           
As of March 31, 2018           
Commercial and industrial$20,841
 $3,320,057
 $7,117
 $1,251
 $21,514
 $3,370,780
$3,373
 $3,599,159
 $10,597
 $1,963
 $43,974
 $3,659,066
Agricultural9,282
 411,395
 824
 —
 1,283
 422,784
7,234
 423,661
 264
 489
 4,086
 435,734
Commercial real estate:  
          
        
Office, retail, and industrial19,495
 1,949,084
 843
 52
 19,505
 1,988,979
14,426
 1,898,381
 5,577
 476
 12,342
 1,931,202
Multi-family14,545
 652,206
 4,782
 14
 163
 671,710
13,201
 667,212
 15,249
 24
 144
 695,830
Construction20,176
 545,530
 2,556
 —
 198
 568,460
8,405
 576,202
 35
 916
 208
 585,766
Other commercial real estate68,869
 1,283,117
 1,936
 1
 3,858
 1,357,781
59,820
 1,295,183
 4,083
 64
 4,088
 1,363,238
Total commercial real estate123,085
 4,429,937
 10,117
 67
 23,724
 4,586,930
95,852
 4,436,978
 24,944
 1,480
 16,782
 4,576,036
Total corporate loans153,208
 8,161,389
 18,058
 1,318
 46,521
 8,380,494
106,459
 8,459,798
 35,805
 3,932
 64,842
 8,670,836
Home equity3,018
 869,265
 2,721
 864
 4,799
 880,667
2,656
 870,443
 2,611
 44
 5,780
 881,534
1-4 family mortgages19,759
 516,211
 1,163
 41
 2,974
 540,148
17,775
 774,625
 1,977
 132
 4,393
 798,902
Installment1,334
 249,618
 1,699
 410
 —
 253,061
1,056
 321,741
 2,180
 525
 —
 325,502
Total consumer loans24,111
 1,635,094
 5,583
 1,315
 7,773
 1,673,876
21,487
 1,966,809
 6,768
 701
 10,173
 2,005,938
Total loans$177,319
 $9,796,483
 $23,641
 $2,633
 $54,294
 $10,054,370
$127,946
 $10,426,607
 $42,573
 $4,633
 $75,015
 $10,676,774
As of December 31, 2016           
As of December 31, 2017           
Commercial and industrial$2,167
 $2,788,891
 $6,288
 $374
 $29,938
 $2,827,658
$5,450
 $3,458,049
 $24,005
 $1,830
 $40,580
 $3,529,914
Agricultural512
 388,067
 —
 736
 181
 389,496
7,203
 423,007
 280
 177
 219
 430,886
Commercial real estate:  
          
        
Office, retail, and industrial12,398
 1,546,078
 5,085
 1,129
 17,277
 1,581,967
14,575
 1,950,564
 2,776
 345
 11,560
 1,979,820
Multi-family12,225
 600,054
 858
 604
 311
 614,052
14,071
 657,878
 3,117
 20
 377
 675,463
Construction4,442
 446,480
 332
 —
 286
 451,540
8,778
 530,264
 198
 371
 209
 539,820
Other commercial real estate12,219
 961,709
 1,182
 1,526
 2,892
 979,528
64,675
 1,287,522
 2,380
 317
 3,621
 1,358,515
Total commercial real estate41,284
 3,554,321
 7,457
 3,259
 20,766
 3,627,087
102,099
 4,426,228
 8,471
 1,053
 15,767
 4,553,618
Total corporate loans43,963
 6,731,279
 13,745
 4,369
 50,885
 6,844,241
114,752
 8,307,284
 32,756
 3,060
 56,566
 8,514,418
Home equity615
 738,213
 3,581
 109
 5,465
 747,983
2,745
 815,014
 3,252
 98
 5,946
 827,055
1-4 family mortgages14,949
 403,521
 2,241
 272
 2,939
 423,922
18,080
 750,555
 1,310
 —
 4,412
 774,357
Installment1,459
 234,805
 1,476
 259
 —
 237,999
1,113
 318,065
 2,407
 397
 —
 321,982
Total consumer loans17,023
 1,376,539
 7,298
 640
 8,404
 1,409,904
21,938
 1,883,634
 6,969
 495
 10,358
 1,923,394
Total loans$60,986
 $8,107,818
 $21,043
 $5,009
 $59,289
 $8,254,145
$136,690
 $10,190,918
 $39,725
 $3,555
 $66,924
 $10,437,812
(1) 
PCI loans with an accretable yield are considered current.
(2) 
Includes PCI loans of $387,000$760,000 and $682,000$763,000 as of March 31, 20172018 and December 31, 2016,2017, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition date due to credit deterioration.


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The following table provides a comparison of our non-performing assets and past due loans to prior periods.
Table 11
Non-Performing Assets and Past Due Loans
(Dollar amounts in thousands)
As ofAs of
March 31,
2017		 December 31,
2016		 September 30,
2016		 June 30,
2016		 March 31,
2016		March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
Non-accrual loans$54,294
 $59,289
 $44,289
 $37,312
 $31,890
$75,015
 $66,924
 $65,176
 $79,196
 $54,294
90 days or more past due loans, still
accruing interest (1)
2,633
 5,009
 4,318
 5,406
 5,835
4,633
 3,555
 2,839
 2,059
 2,633
Total non-performing loans56,927
 64,298
 48,607
 42,718
 37,725
79,648
 70,479
 68,015
 81,255
 56,927
Accruing TDRs2,112
 2,291
 2,368
 2,491
 2,702
1,778
 1,796
 1,813
 2,029
 2,112
OREO29,140
 26,083
 28,049
 29,990
 29,649
17,472
 20,851
 19,873
 26,493
 29,140
Total non-performing assets$88,179
 $92,672
 $79,024
 $75,199
 $70,076
$98,898
 $93,126
 $89,701
 $109,777
 $88,179
30-89 days past due loans (1)
$23,641
 $21,043
 $26,140
 $23,380
 $30,142
$42,573
 $39,725
 $28,868
 $19,081
 $23,641
Non-accrual loans to total loans (2)
0.54% 0.72% 0.54% 0.47% 0.41%0.70% 0.64% 0.63% 0.77% 0.54%
Non-performing loans to total loans (2)
0.57% 0.78% 0.59% 0.54% 0.48%0.75% 0.68% 0.65% 0.79% 0.57%
Non-performing assets to total loans plus
OREO (2)
0.87% 1.12% 0.96% 0.94% 0.89%0.92% 0.89% 0.86% 1.07% 0.87%
(1) 
PCI loans with an accretable yield are considered current and are not included in past due loan totals.
(2)
Excluding the impact of loans and OREO acquired in the Standard transaction, non-accrual loans to total loans, non-performing loans to total loans, and non-performing assets to total loans plus OREO were 0.65%, 0.68%, and 0.95%, respectively, at March 31, 2017.
Total non-performing assets represented 0.87%0.92% of total loans and OREO at March 31, 2017, down2018, up from 1.12%0.89% and 0.87% at December 31, 2016. Included in non-performing assets as of2017 and March 31, 2017, was $8.4 millionrespectively, reflective of OREO acquired in the Standard transaction.normal fluctuations that can occur on a quarterly basis.

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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 restructured loans remain classified as TDRs for the remaining term of these loans.
Table 12
TDRs by Type
(Dollar amounts in thousands)
As ofAs of
March 31, 2017 December 31, 2016 March 31, 2016March 31, 2018 December 31, 2017 March 31, 2017
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 industrial4
 $1,200
 3
 $431
 5
 $1,309
10
 $17,090
 11
 $19,223
 4
 $1,200
Commercial real estate:                      
Office, retail, and industrial2
 864
 3
 4,888
 1
 162
4
 2,336
 4
 4,236
 2
 864
Multi-family3
 745
 3
 754
 3
 774
3
 714
 3
 723
 3
 745
Other commercial real estate2
 263
 3
 316
 3
 334
1
 189
 1
 192
 2
 263
Total commercial real estate7
 1,872
 9
 5,958
 7
 1,270
8
 3,239
 8
 5,151
 7
 1,872
Total corporate loans11
 3,072
 12
 6,389
 12
 2,579
18
 20,329
 19
 24,374
 11
 3,072
Home equity16
 967
 16
 997
 16
 1,135
14
 809
 15
 824
 16
 967
1-4 family mortgages11
 1,185
 11
 1,202
 11
 1,256
11
 1,106
 11
 1,131
 11
 1,185
Total consumer loans27
 2,152
 27
 2,199
 27
 2,391
25
 1,915
 26
 1,955
 27
 2,152
Total TDRs38
 $5,224
 39
 $8,588
 39
 $4,970
43
 $22,244
 45
 $26,329
 38
 $5,224
Accruing TDRs17
 $2,112
 18
 $2,291
 22
 $2,702
13
 $1,778
 14
 $1,796
 17
 $2,112
Non-accrual TDRs21
 3,112
 21
 6,297
 17
 2,268
30
 20,466
 31
 24,533
 21
 3,112
Total TDRs38
 $5,224
 39

$8,588
 39
 $4,970
43
 $22,244
 45

$26,329
 38
 $5,224
Year-to-date charge-offs on TDRs  $112
   $1,492
   $—
  $1,309
   $6,345
   $112
Specific reserves related to TDRs  32
   —
   729
  2,374
   1,977
   32
As of March 31, 2017,2018, TDRs totaled $5.2$22.2 million, decreasing by $3.4$4.1 million or 39.2%, from December 31, 2016. This decrease resulted2017. The increase from $5.2 million at March 31, 2017 was driven primarily fromby the final resolutionextension of atwo non-accrual commercial loan relationshipcredits during the firstthird quarter of 2017.

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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 13
Corporate Performing Potential Problem Loans
(Dollar amounts in thousands)
 As of March 31, 2017 As of December 31, 2016
 
Special
Mention (1)
 
Substandard (2)
 
Total (3)
 
Special
Mention (1)
 
Substandard (2)
 
Total (3)
Commercial and industrial$113,944
 $100,217
 $214,161
 $92,340
 $66,266
 $158,606
Agricultural9,873
 6,274
 16,147
 17,039
 5,894
 22,933
Commercial real estate:           
Office, retail, and industrial39,545
 42,230
��81,775
 33,852
 39,513
 73,365
Multi-family3,940
 1,898
 5,838
 3,972
 2,029
 6,001
Construction8,927
 16,473
 25,400
 111
 12,197
 12,308
Other commercial real estate21,599
 19,977
 41,576
 11,808
 13,544
 25,352
Total commercial real estate74,011
 80,578
 154,589
 49,743
 67,283
 117,026
Total corporate performing
  potential problem loans (4)
$197,828
 $187,069
 $384,897
 $159,122
 $139,443
 $298,565
Corporate performing potential
  problem loans to corporate
  loans
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

 As of March 31, 2018 As of December 31, 2017
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
Commercial and industrial$95,259
 $14,444
 $109,703
 $70,863
 $30,074
 $100,937
Agricultural7,756
 6,248
 14,004
 10,989
 5,732
 16,721
Commercial real estate78,975
 61,270
 140,245
 72,749
 69,228
 141,977
Total corporate performing
  potential problem loans(4)
$181,990
 $81,962
 $263,952
 $154,601
 $105,034
 $259,635
Corporate performing potential
  problem loans to corporate
  loans
2.10% 0.95% 3.04% 1.82% 1.23% 3.05%
Corporate PCI performing
  potential problem loans
  included in the totals above
$17,422
 $22,775
 $40,197
 $17,685
 $26,635
 $44,320
(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 $674,000$651,000 as of March 31, 20172018 and $834,000$657,000 as of December 31, 2016.2017.
(4) 
Includes corporate PCI performing potential problem loans.

Corporate performing potential problem loans were 4.6%to corporate loans of corporate loans3.04% at March 31, 2017, higher than 4.4% at2018 were consistent with December 31, 2016. This increase was impacted by the Standard acquisition, which added $43.6 million of corporate performing potential problem loans that were designated as PCI.

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2017.
OREO
OREO consists of properties acquired as the result of borrower defaults on loans. OREO was $29.1 million at March 31, 2017, increasing by $3.1 million, or 11.7%, from December 31, 2016. As of March 31, 2017, total OREO includes $8.4 million acquired in the Standard transaction.
Table 14
OREO by Type
(Dollar amounts in thousands)
 As of As of
 March 31, 2017 December 31, 2016 March 31, 2016 March 31, 2018 December 31, 2017 March 31, 2017
Single-family homes $1,768
 $2,595
 $3,597
 $1,173
 $837
 $1,768
Land parcels:            
Raw land 1,025
 1,464
 1,689
 850
 850
 1,025
Commercial lots 10,638
 8,176
 9,163
 4,657
 8,698
 10,638
Single-family lots 2,232
 947
 1,289
 2,135
 2,150
 2,232
Total land parcels 13,895
 10,587
 12,141
 7,642
 11,698
 13,895
Multi-family units 272
 48
 116
 225
 48
 272
Commercial properties 13,205
 12,853
 13,795
 8,432
 8,268
 13,205
Total OREO $29,140
 $26,083
 $29,649
 $17,472
 $20,851
 $29,140

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OREO Activity
A rollforward of OREO balances for the quarters ended March 31, 20172018 and 20162017 is presented in the following table.
Table 15
OREO Rollforward
(Dollar amounts in thousands)
 Quarters Ended March 31, Quarters Ended March 31,
 2017 2016 2018 2017
Beginning balance $26,083
 $27,782
 $20,851
 $26,083
Transfers from loans 683
 942
 937
 683
Acquisitions 8,427
 2,863
 —
 8,427
Proceeds from sales (5,364) (1,640) (3,876) (5,364)
Losses on sales of OREO (156) (161) (20) (156)
OREO valuation adjustments (533) (137) (420) (533)
Ending balance $29,140
 $29,649
 $17,472
 $29,140
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.date for such loans. 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.

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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 March 31, 2017.2018.
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.

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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 March 31, 20172018 and December 31, 2016.2017.
Table 16
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
Quarter ended March 31, 2017      
Quarter Ended March 31, 2018      
Beginning balance $84,217
 $2,866
 $87,083
 $94,123
 $2,606
 $96,729
Net charge-offs (2,725) (113) (2,838) (15,806) (250) (16,056)
Provision for loan losses and other expense 4,957
 (39) 4,918
 15,215
 (34) 15,181
Ending balance $86,449
 $2,714
 $89,163
 $93,532
 $2,322
 $95,854
As of March 31, 2017      
As of March 31, 2018      
Total loans $7,813,950
 $2,240,420
 $10,054,370
 $9,219,842
 $1,456,932
 $10,676,774
Remaining acquisition adjustment (2)
 N/A
 98,882
 98,882
 N/A
 70,651
 70,651
Allowance for credit losses to total loans(3) 1.11% 0.12% 0.89% 1.01% 0.16% 0.90%
Remaining acquisition adjustment to acquired loans N/A
 4.41% N/A
 N/A
 4.85% N/A
As of December 31, 2016      
As of December 31, 2017      
Total loans $7,620,100
 $634,045
 $8,254,145
 $8,822,560
 $1,615,252
 $10,437,812
Remaining acquisition adjustment (2)
 N/A
 22,574
 22,574
 N/A
 74,677
 74,677
Allowance for credit losses to total loans(3) 1.11% 0.45% 1.06% 1.07% 0.16% 0.93%
Remaining acquisition adjustment to acquired loans N/A
 3.56% N/A
 N/A
 4.62% 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 $55.2$41.2 million and $43.7$29.5 million relating to PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of March 31, 2017,2018, and $10.8$43.5 million and $11.8$31.2 million relating to PCI and Non-PCI loans, respectively, as of December 31, 2016.2017.
(3)
The allowance for credit losses to total loans, excluding acquired loans is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Excluding acquired loans, the allowance for credit losses to total loans was 1.11%1.01% as of March 31, 2017.2018. The acquisition adjustment increased by $76.3decreased $4.0 million during the first quarter of 2017,2018, driven primarily by the 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 4.41%4.85%. Acquired loans that are renewed are no longer classified as acquired loans. These loans totaled $170.9$404.2 million and $117.6$366.0 million as of March 31, 20172018 and December 31, 2016,2017, 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 $2.7$2.3 million on acquired loans.

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Table 17
Allowance for Credit Losses and
and Summary of Credit Loss Experience
(Dollar amounts in thousands)
 Quarters Ended
 March 31,
2017		 December 31,
2016		 September 30,
2016		 June 30,
2016		 March 31,
2016
Change in allowance for credit losses         
Beginning balance$87,083
 $86,308
 $81,505
 $78,375
 $74,855
Loan charge-offs:         
Commercial, industrial, and agricultural4,074
 4,298
 1,760
 2,026
 1,898
Office, retail, and industrial127
 349
 2,193
 1,641
 524
Multi-family—
 19
 —
 84
 204
Construction5
 —
 —
 8
 126
Other commercial real estate408
 99
 509
 879
 1,445
Consumer1,664
 1,256
 1,488
 1,495
 992
Total loan charge-offs6,278
 6,021
 5,950
 6,133
 5,189
Recoveries of loan charge-offs:         
Commercial, industrial, and agricultural1,666
 758
 615
 576
 502
Office, retail, and industrial975
 184
 42
 8
 103
Multi-family28
 2
 69
 1
 25
Construction227
 12
 9
 20
 15
Other commercial real estate101
 210
 94
 69
 151
Consumer443
 323
 326
 329
 320
Total recoveries of loan charge-offs3,440
 1,489
 1,155
 1,003
 1,116
Net loan charge-offs2,838
 4,532
 4,795
 5,130
 4,073
Provision for loan losses4,918
 5,307
 9,998
 8,085
 7,593
(Decrease) increase in reserve for unfunded
  commitments (1)
—
 —
 (400) 175
 —
Total provision for loan losses and other
  expense
4,918
 5,307
 9,598
 8,260
 7,593
Ending balance$89,163
 $87,083
 $86,308
 $81,505
 $78,375

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



63



Quarters EndedQuarters Ended
March 31,
2017		 December 31,
2016		 September 30,
2016		 June 30,
2016		 March 31,
2016		March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
Change in allowance for credit losses         
Beginning balance$96,729
 $95,814
 $93,371
 $89,163
 $87,083
Loan charge-offs:         
Commercial, industrial, and agricultural14,670
 6,919
 8,935
 2,957
 4,074
Office, retail, and industrial461
 49
 14
 —
 127
Multi-family—
 —
 —
 —
 —
Construction—
 —
 (6) 39
 5
Other commercial real estate69
 34
 6
 307
 408
Consumer1,885
 2,118
 1,617
 1,556
 1,664
Total loan charge-offs17,085
 9,120
 10,566
 4,859
 6,278
Recoveries of loan charge-offs:         
Commercial, industrial, and agricultural538
 1,386
 698
 400
 1,666
Office, retail, and industrial97
 127
 1,825
 8
 975
Multi-family—
 3
 2
 6
 28
Construction13
 12
 19
 12
 227
Other commercial real estate39
 39
 25
 79
 101
Consumer342
 444
 331
 323
 443
Total recoveries of loan charge-offs1,029
 2,011
 2,900
 828
 3,440
Net loan charge-offs16,056
 7,109
 7,666
 4,031
 2,838
Provision for loan losses15,181
 8,024
 10,109
 8,239
 4,918
Ending balance$95,854
 $96,729
 $95,814
 $93,371
 $89,163
Allowance for credit losses                  
Allowance for loan losses$88,163
 $86,083
 $85,308
 $80,105
 $77,150
$94,854
 $95,728
 $94,814
 $92,371
 $88,163
Reserve for unfunded commitments1,000
 1,000
 1,000
 1,400
 1,225
1,000
 1,000
 1,000
 1,000
 1,000
Total allowance for credit losses$89,163
 $87,083
 $86,308
 $81,505
 $78,375
$95,854
 $96,728
 $95,814
 $93,371
 $89,163
Allowance for credit losses to loans (1)
0.89% 1.06% 1.06% 1.02% 1.00%0.90% 0.93% 0.92% 0.91% 0.89%
Allowance for credit losses to loans, excluding
acquired loans
1.11% 1.11% 1.13% 1.11% 1.11%
Allowance for credit losses to loans, excluding
acquired loans(2)
1.01% 1.07% 1.09% 1.10% 1.11%
Allowance for credit losses to
non-accrual loans
164.22% 146.88% 194.87% 218.44% 245.77%127.78% 144.54% 147.01% 117.90% 164.22%
Allowance for credit losses to
non-performing loans
156.63% 135.44% 177.56% 190.80% 207.75%120.35% 137.25% 140.87% 114.91% 156.63%
Average loans$9,916,281
 $8,171,953
 $8,062,035
 $7,878,544
 $7,341,331
$10,496,089
 $10,380,689
 $10,273,630
 $10,059,968
 $9,916,281
Net loan charge-offs to average loans,
annualized (2)
0.12% 0.22% 0.24% 0.26% 0.22%
Net loan charge-offs to average loans,
annualized
0.62% 0.27% 0.30% 0.16% 0.12%
(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) 
ExcludingThe allowance for credit losses to total loans, excluding acquired loans is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the impactsection of loans acquired in the Standard transaction, net loan charge-offs to average loans, annualized, was 0.14% at March 31, 2017.this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Activity in the Allowance for Credit Losses
The allowance for credit losses was $89.2$95.9 million as of March 31, 2017, an increase of $2.1 million from December 31, 2016,2018 and represents 0.89%0.90% of total loans, compared to 1.06%0.93% at December 31, 2016.2017.
The provision for loan losses was $4.9$15.2 million for the quarter ended March 31, 2017, decreasing2018, up from $5.3 million and $7.6$8.0 million for the quartersquarter ended December 31, 20162017. The increase compared to the quarter ended December 31, 2017 resulted primarily from higher levels of net charge-offs.

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Net loan charge-offs to average loans, annualized were 0.62%, or $16.1 million, for the first quarter of 2018, up from 0.27% and March 31, 2016,0.12% for the fourth and first quarters of 2017, respectively. The decreaseincrease in net loan charge-offs compared to both prior periods resulted primarilylargely from lower levels of charge-offs. In addition, greater loan production resulted in higher provision for the first quarter of 2016.
Totallosses on two corporate relationships based upon circumstances unique to these borrowers. Included within net loan charge-offs to average loans for the first quarter of 2017 was 12 basis points, or $2.8 million, decreasing from 22 basis points for the fourth quarter of 2016 and first quarter of 2016, respectively. Net loan charge-offs for the first quarter of 2017 includewere $3.4 million in recoveries which relate primarilyrelated 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 18
Funding Sources - Average Balances
(Dollar amounts in thousands)
Quarters Ended March 31, 2017 % Change FromQuarters Ended March 31, 2018 % Change From
March 31,
2017		 December 31,
2016		 March 31,
2016		  December 31,
2016		 March 31,
2016		March 31,
2018		 December 31,
2017		 March 31,
2017		  December 31,
2017		 March 31,
2017
Demand deposits$3,355,674
 $2,803,016
 $2,463,017
  19.7 % 36.2 %$3,466,832
 $3,611,811
 $3,355,674
  (4.0) 3.3
Savings deposits2,029,631
 1,633,010
 1,575,174
  24.3 % 28.9 %2,015,679
 2,017,489
 2,029,631
  (0.1) (0.7)
NOW accounts1,916,816
 1,715,228
 1,448,666
  11.8 % 32.3 %1,992,672
 1,992,150
 1,916,816
  —
 4.0
Money market accounts1,890,703
 1,623,392
 1,583,898
  16.5 % 19.4 %1,814,057
 1,938,195
 1,890,703
  (6.4) (4.1)
Core deposits9,192,824
 7,774,646
 7,070,755
  18.2 % 30.0 %9,289,240
 9,559,645
 9,192,824
  (2.8) 1.0
Time deposits1,473,882
 1,196,243
 1,165,434
  23.2 % 26.5 %1,726,082
 1,613,681
 1,473,882
  7.0
 17.1
Brokered deposits41,715
 16,805
 18,029
  148.2 % 131.4 %9,073
 6,077
 41,715
  49.3
 (78.3)
Total time deposits1,515,597
 1,213,048
 1,183,463
  24.9 % 28.1 %1,735,155
 1,619,758
 1,515,597
  7.1
 14.5
Total deposits10,708,421
 8,987,694
 8,254,218
  19.1 % 29.7 %11,024,395
 11,179,403
 10,708,421
  (1.4) 3.0
Securities sold under agreements to
repurchase
126,202
 122,866
 142,939
  2.7 % (11.7)%119,852
 119,797
 126,202
  —
 (5.0)
Federal funds purchased11,389
 —
 —
  N/M
 N/M
FHLB advances607,889
 495,109
 159,687
  22.8 % 280.7 %727,056
 434,837
 607,889
  67.2
 19.6
Other borrowings—
 —
 606
  N/M
 (100.0)%
Total borrowed funds734,091
 617,975
 303,232
  18.8 % 142.1 %858,297
 554,634
 734,091
  54.8
 16.9
Senior and subordinated debt194,677
 259,531
 201,253
  (25.0)% (3.3)%195,243
 195,102
 194,677
  0.1
 0.3
Total funding sources$11,637,189
 $9,865,200
 $8,758,703
  18.0 % 32.9 %$12,077,935
 $11,929,139
 $11,637,189
  1.2
 3.8
Average interest rate paid on
borrowed funds
1.21% 1.10% 1.75%     1.64% 1.62% 1.21%     
Weighted-average maturity of FHLB
advances
1.3 months
 0.9 months
 1.3 months
     0.9 months
 1.0 months
 1.3 months
     
Weighted-average interest rate of
FHLB advances
0.74% 0.60% 0.50%     1.74% 1.26% 0.74%     
N/M -– Not meaningful.
Total average funding sources for the first quarter of 20172018 increased by $1.8 billion,$148.8 million, or 18.0%1.2%, compared to the fourth quarter of 20162017 and $2.9 billion,$440.7 million, or 32.9%3.8%, compared to the first quarter of 2016.2017. The rise in average core depositsincrease compared to both prior periods resulted from $1.7 billionan increase in coreFHLB advances as related interest rate swaps became effective and a rise in time deposits assumed in the Standard transaction, which contributed $1.5 billion to average core deposits in the first quarter of 2017. In addition, compareddue to the first quartercontinued success of 2016, the risepromotions which started in average core deposits was impacted by organic growth and $443.1 million in core deposits assumed in the NI Bancshares transaction completed late in the first quarter of 2016. The addition of FHLB advances during the second half of 2016 also contributed to the rise in average funding sources compared to the first quarter of 2016.2017.

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Table 19
Borrowed Funds
(Dollar amounts in thousands)
As of March 31, 2017 As of March 31, 2016As of March 31, 2018 As of March 31, 2017
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$132,923
 0.06  $122,511
 0.06$120,688
 0.07  $132,923
 0.06
FHLB advances415,000
 0.74  262,500
 0.50830,000
 1.74  415,000
 0.74
Other borrowings—
 —  2,400
 3.50
Total borrowed funds$547,923
 0.58  $387,411
 0.38$950,688
 1.53  $547,923
 0.58
Average for the year-to-date period:                
Securities sold under agreements to repurchase$126,202
 0.05  $142,939
 0.14$119,852
 0.06  $126,202
 0.05
Federal funds purchased11,389
 1.60  —
 —
FHLB advances607,889
 1.45  159,687
 3.17727,056
 1.90  607,889
 1.45
Other borrowings—
 —  606
 3.98
Total borrowed funds$734,091
 1.21  $303,232
 1.75$858,297
 1.64  $734,091
 1.21
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$140,764
    $174,266
  $128,553
    $140,764
  
Federal funds purchased65,000
  —
 
FHLB advances940,000
    262,500
  930,000
    940,000
  
Other borrowings—
  2,400
 
Average borrowed funds totaled $734.1$858.3 million for the first quarter of 2017,2018, increasing by $430.9$124.2 million compared to the first quarter of 2016.same period in 2017. This increase was due primarily to higher levels of FHLB advances during the first quarter of 2017. The weighted-average rate on FHLB advances for both periods presented was impacted by the hedging of $415.0$510.0 million and $262.5$415.0 million in FHLB advances as of March 31, 20172018 and 2016,2017, respectively, using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. The weighted-average interest rate paid on these interest rate swaps was 2.19% and 2.17% as of March 31, 2018 and 2.13% for the first quarters of 2017, and 2016, respectively. For a detailed discussion of interest rate swaps, see Note 129 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.
Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.
MANAGEMENT OF CAPITAL
Capital Measurements
A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. On January 1, 2015, the Company and the Bank became subject to the Basel III Capital rules, a new comprehensive capital framework for U.S. banking organizations published by the Federal Reserve. These rules are discussed in the "Supervision and Regulation" section in Item 1, "Business" in the Company's 20162017 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 submitted its first required stress test report for the July 31, 2017 reporting date and the Bank will bebecome subject to these stress test requirements starting with the July 31, 2017 and 2018 reporting dates, respectively.date.
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 March 31, 20172018 and December 31, 2016.2017.

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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 20
Capital Measurements
(Dollar amounts in thousands)
    As of March 31, 2017    As of March 31, 2018
As of 
Regulatory
Minimum
For
Well-
Capitalized
  As of 
Regulatory
Minimum
For
Well-
Capitalized
  
March 31, 
 2017		 December 31, 2016 Excess Over
Required Minimums		March 31, 
 2018		 December 31, 2017 Excess Over
Required Minimums
Bank regulatory capital ratios                  
Total capital to risk-weighted assets10.63% 10.73% 10.00% 6% $74,727
10.82% 10.95% 10.00% 8% $99,042
Tier 1 capital to risk-weighted assets9.88% 9.83% 8.00% 23% $221,134
10.03% 10.13% 8.00% 25% $245,130
Common equity Tier 1 to risk-weighted assets9.88% 9.83% 6.50% 52% $397,811
CET1 to risk-weighted assets10.03% 10.13% 6.50% 54% $426,586
Tier 1 capital to average assets9.72% 8.76% 5.00% 94% $564,686
9.03% 9.10% 5.00% 81% $540,972
Company regulatory capital ratios                  
Total capital to risk-weighted assets11.48% 12.23% N/A
 N/A
 N/A
12.07% 12.15% N/A
 N/A
 N/A
Tier 1 capital to risk-weighted assets9.53% 9.90% N/A
 N/A
 N/A
10.07% 10.10% N/A
 N/A
 N/A
Common equity Tier 1 to risk-weighted assets9.11% 9.39% N/A
 N/A
 N/A
CET1 to risk-weighted assets9.65% 9.68% N/A
 N/A
 N/A
Tier 1 capital to average assets8.89% 8.99% N/A
 N/A
 N/A
9.07% 8.99% N/A
 N/A
 N/A
Company tangible common equity ratios (1)(2)
                  
Tangible common equity to tangible assets8.07% 8.05% N/A
 N/A
 N/A
8.18% 8.33% 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
8.60% 8.58% N/A
 N/A
 N/A
Tangible common equity to risk-weighted
assets
8.68% 8.88% N/A
 N/A
 N/A
9.18% 9.31% 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 financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Overall, the Company's regulatory capital ratios decreased compared to December 31, 20162017, due primarily to the Standardimpact of loan growth on risk-weighted assets and Premier acquisitions.the nearly 10 basis point impact of the phase-in of certain provisions related to regulatory capital ratio calculations, substantially offset by an increase in retained earnings.
The Board of Directors reviews the Company's capital plan each quarter, considering the current and expected operating environment as well as an evaluation ofevaluating various capital alternatives.
Dividends
The Board of Directors approved a quarterly cash dividend of $0.09$0.11 per common share during the first quarter of 2017,2018, which is consistent witha 10% increase from the fourth quarter of 2016.2017 and will represent the 141st consecutive cash dividend paid by the Company since its inception in 1983.

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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,adjusted, the efficiency ratio, return on average assets, excluding certain significant transactions,adjusted, 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, andadjusted, return on average tangible common equity, return on average tangible common equity, adjusted, and allowance for credit losses to loans, excluding certain significant transactions.acquired loans.
The Company presents EPS, the efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity, all excludingadjusted for certain significant transactions. Certain significantThese transactions include acquisition and integration related expenses for all periods presented.(first quarter of 2017). Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, return on average common equity, 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 Company presents noninterest income, excluding the accounting reclassification and Durbin and noninterest expense, excluding the accounting reclassification and acquisition and integration related expenses. Management believes that excluding these items from noninterest income and noninterest expense is useful in assessing the Company’s underlying operational performance as these items either do not pertain to its core business operations or their exclusion facilitates better comparability between periods and 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.acquisition, as well as from period to period.
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.
The Company presents the allowance for credit losses to total loans, excluding acquired loans. Management believes excluding acquired loans is useful as it facilitates better comparability between periods as these 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. Additionally, management believes excluding these transactions from these metrics enhances comparability for peer comparison purposes. See Table 16 in the section of this Item 2 titled "Loan Portfolio and Credit Quality" for details on the calculation of this measure.
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.

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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,
  2018 2017
Earnings Per Share    
Net income $33,510
 $22,855
Net income applicable to non-vested restricted shares (311) (234)
Net income applicable to common shares 33,199
 22,621
Adjustments to net income:    
Acquisition and integration related expenses —
 18,565
Tax effect of acquisition and integration related expenses —
 (7,426)
Total adjustments to net income, net of tax —
 11,139
Net income applicable to common shares, adjusted(1)
 $33,199
 $33,760
Weighted-average common shares outstanding:  
Weighted-average common shares outstanding (basic) 101,922
 100,411
Dilutive effect of common stock equivalents 16
 21
Weighted-average diluted common shares outstanding 101,938
 100,432
Basic EPS $0.33
 $0.23
Diluted EPS $0.33
 $0.23
Diluted EPS, adjusted(1)
 $0.33
 $0.34
Return on Average Assets  
Net income $33,510
 $22,855
Total adjustments to net income, net of tax —
 11,139
Net income, adjusted(1)
 $33,510
 $33,994
Average assets $14,187,053
 $13,673,125
Return on average assets(3)
 0.96% 0.68%
Return on average assets, adjusted(1)(3)
 0.96% 1.01%
Return on Average Common and Tangible Common Equity  
Net income applicable to common shares $33,199
 $22,621
Intangibles amortization 1,802
 1,965
Tax effect of intangibles amortization (721) (786)
Net income applicable to common shares, excluding intangibles amortization 34,280
 23,800
Total adjustments to net income, net of tax —
 11,139
Net income applicable to common shares, excluding intangibles amortization,
adjusted(1)
 $34,280
 $34,939
Average stockholders' common equity $1,873,419
 $1,763,538
Less: average intangible assets (753,870) (750,589)
Average tangible common equity $1,119,549
 $(1,012,949)
Return on average common equity(3)
 7.19% 5.20%
Return on average common equity, adjusted(3)
 7.19% 7.76%
Return on average tangible common equity(3)
 12.50% 9.53%
Return on average tangible common equity, adjusted(1)(3)
 12.50% 13.99%
     
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

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  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%
  Quarters Ended 
 March 31,
  2018 2017
Efficiency Ratio Calculation  
Noninterest expense $95,582
 $116,642
Less:    
Net OREO expense (1,068) (1,700)
Acquisition and integration related expenses —
 (18,565)
Total $94,514
 $96,377
Tax-equivalent net interest income(2)
 $119,538
 $117,251
Noninterest income 35,517
 39,951
Less: net securities gains (losses) —
 —
Total $155,055
 $157,202
Efficiency ratio 60.96% 61.31%
Efficiency ratio (prior presentation)(4)
 N/A
 60.98%
     
 As of As of
 March 31, 2017 December 31, 2016 March 31, 2018 December 31, 2017
Tangible Common Equity        
Stockholders' equity $1,804,733
 $1,257,080
 $1,869,287
 $1,864,874
Less: goodwill and other intangible assets (754,621) (366,876) (754,814) (754,757)
Tangible common equity 1,050,112
 890,204
 1,114,473
 1,110,117
Less: accumulated other comprehensive income ("AOCI") 40,264
 40,910
 57,531
 33,036
Tangible common equity, excluding AOCI $1,090,376
 $931,114
 $1,172,004
 $1,143,153
Total assets $13,773,471
 $11,422,555
 $14,379,971
 $14,077,052
Less: goodwill and other intangible assets (754,621) (366,876) (754,814) (754,757)
Tangible assets $13,018,850
 $11,055,679
 $13,625,157
 $13,322,295
Risk-weighted assets $12,095,592
 $10,019,434
 $12,135,662
 $11,920,372
Tangible common equity to tangible assets 8.07% 8.05% 8.18% 8.33%
Tangible common equity, excluding AOCI, to tangible assets 8.38% 8.42% 8.60% 8.58%
Tangible common equity to risk-weighted assets 8.68% 8.88% 9.18% 9.31%
(1) 
Certain significant transactionsAdjustments to net income include acquisition and integration related expenses associated with completed and pending acquisitions.
(2) 
Presented on a tax-equivalent basis, which reflectsassuming the applicable federal income tax rate for each period presented. As a result, interest income and stateyields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax benefits.rate of 21% and prior periods are computed using the federal income tax rate applicable at that time, or 35%.
(3) 
Annualized based on the actual number of days for each period presented.
(4)
Presented as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.


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Efficiency Ratio Calculation
(Dollar amounts in thousands)
  For the Years Ended December 31,
  2017 2016 2015 2014 2013
Efficiency Ratio
Noninterest expense $415,909
 $339,500
 $307,216
 $283,826
 $256,737
Less:          
Net OREO expense (4,683) (3,024) (5,281) (7,075) (8,547)
Special bonus (1,915) —
 —
 —
 —
Charitable contribution (1,600) —
 —
 —
 —
Acquisition and integration related expenses (20,123) (14,352) (1,389) (13,872) —
Lease cancellation fee —
 (950) —
 —
 —
Property valuation adjustments —
 —
 (8,581) —
 —
Total $387,588
 $321,174
 $291,965
 $262,879
 $248,190
Tax-equivalent net interest income(1)
 $479,965
 $358,334
 $322,277
 $288,589
 $272,429
Noninterest income 163,149
 159,312
 136,581
 126,618
 140,883
Less:          
Net securities gains (losses) 1,876
 (1,420) (2,373) (8,097) (34,164)
Net gain on sale-leaseback transaction —
 (5,509) —
 —
 —
Gains on sales of properties —
 —
 —
 (3,954)  
Loss on early extinguishment of debt —
 —
 —
 2,059
 —
Gain on termination of FHLB forward
  commitments
 —
 —
 —
 —
 (7,829)
Total $644,990
 $510,717
 $456,485
 $405,215
 $371,319
Efficiency ratio 60.09% 62.89% 63.96% 64.87% 66.84%
Efficiency ratio (prior presentation)(2)
 59.73% 62.59% 63.57% 64.57% 64.19%
(1)
Presented on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are computed using the federal income tax rate applicable at that time, or 35%.
(2)
Presented as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.

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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 20162017 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 March 31, 20172018 and December 31, 2016,2017, 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'sCompany's current simulation analysis indicates we would benefit from rising interest rates. Interest-earning assets consist of short and long-term products. Excluding non-accrual loans, and including the impact of hedging certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts, 51%49% of the loan portfolio consisted of fixed rate loans and 49%51% were floating rate loans as of March 31, 2017, compared to 48% and 52%, respectively, as of2018, consistent with December 31, 2016.2017.
As of March 31, 2017,2018, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 96% of the total compared to 4% for floating rate interest-bearing deposits in other banks. This compares to investments comprising 95%93% of fixed rate securities and 5%7% of floating rate interest-bearing deposits in other banks as of December 31, 2016.2017. 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 PrimeLIBOR or LIBORPrime rates. The amount of floating rate loans with active interest rate floors was $156.9$19.5 million, or 3%,less than 1% of the floating rate loan portfolio, as of March 31, 2017,2018, compared to $271.5$60.0 million, or 5%,1% of the floating rate loan portfolio, as of December 31, 2016.2017. On the liability side of the balance sheet, 86%84% of deposits as of both March 31, 20172018 and December 31, 20162017 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.

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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 March 31, 2017        
As of March 31, 2018        
Dollar change $61,936
 $36,938
 $19,311
 $(40,624) $71,025
 $43,560
 $27,235
 $(47,234)
Percent change 14.0% 8.3% 4.4% (9.2)% 14.1% 8.7% 5.4% (9.4)%
As of December 31, 2016        
As of December 31, 2017        
Dollar change $44,092
 $25,412
 $12,763
 $(26,013) $70,999
 $44,733
 $33,099
 $(44,579)
Percent change 12.3% 7.1% 3.6% (7.2)% 14.8% 9.3% 6.9% (9.3)%
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 March 31, 20172018 would increase net interest income by $36.9$43.6 million, or 8.3%8.7%, over the next twelve months compared to no change in interest rates. This same measure was $25.4$44.7 million, or 7.1%9.3%, as of December 31, 2016.2017.
Overall, positive interest rate risk volatility as of March 31, 2017 increased2018 decreased modestly compared to December 31, 2016.2017. This increasedecrease was driven primarily by a reductionhigher interest rates and continued growth in short-termfloating rate loans funded with time deposits and FHLB advances, resulting from the sale of securities acquired in the Standard transaction.advances.
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 Chairman of the Board, 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 Chairman of the Board, 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 CommissionSEC 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
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at March 31, 2017.2018. 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 condition, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
The Company provided a discussion of certain risks and uncertainties faced by the Company in the section entitled "Risk Factors" in its 20162017 Form 10-K. However, these factors mayThese risks and uncertainties are not beexhaustive. Additional risks and uncertainties are discussed in the only risks or uncertaintiessection entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, our 2017 Form 10-K, and our other filings made with the Company faces.SEC, as well as in other sections of such reports.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Company's monthly Common Stock purchases during the first quarter of 2017.2018. 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 March 31, 2017.2018. 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
 
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
 185
 $24.22
 —
 2,487,947
February 1 - February 28, 2017 119,740
 24.54
 —
 2,487,947
 122,074
 25.07
 —
 2,487,947
March 1 - March 31, 2017 131
 23.12
 —
 2,487,947
 8,231
 24.54
 —
 2,487,947
Total 119,871
 $24.54
 —
   130,490
 $25.04
 —
  

(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 sharesstock or by option holders upon exercise to cover the exercise price of the stock options.


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ITEM 6. EXHIBITS
Exhibit
Number
 Description of Documents
   
10.1(1)
Form of Performance Shares Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan.
10.2(1)
Employment Agreement, dated as of August 29, 2016, between the Company and its Director of Commercial Banking.
11
 Statement re: Computation of Per Share Earnings -– The computation of basic and diluted earnings per common share is included in Note 118 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)(2)
 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)(2)
 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) 
Management contract or compensatory plan or arrangement.
(2)
Furnished, not filed.

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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/ PATRICK S. BARRETT
                               Patrick S. Barrett
    Executive Vice President and Chief Financial Officer*
Date: May 10, 20177, 2018
* Duly authorized to sign on behalf of the registrant.

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