UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
FORM 10-Q
(Mark One)
[X]☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20172019
 
   
 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
______________________
 
a3282014fmbilogoa30.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
8750 West Bryn Mawr Avenue, Suite 1300
Chicago, Illinois60631-3655
(Address of principal executive offices) (zip code)
______________________
Registrant's telephone number, including area code: (708) 831-7483
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]☒.
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueFMBIThe NASDAQ Stock Market
As of November 3, 2017,4, 2019, there were 102,728,899109,971,252 shares of common stock, $.01$0.01 par value, outstanding.
 



FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
   Page
Part I. FINANCIAL INFORMATION 
 
ItemITEM 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
78
  
Notes to the Condensed Consolidated Financial Statements
810
 
ItemITEM 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
4641
 
ItemITEM 3.
 
Quantitative and Qualitative Disclosures About Market Risk
7569
 
ItemITEM 4.
 
Controls and Procedures
7670
 
Part II.
 
OTHER INFORMATION
 
 
ItemITEM 1.
 
Legal Proceedings
7670
 
ItemITEM 1A.
 
Risk Factors
7670
 
ItemITEM 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
7771
 
ItemITEM 6.
 
Exhibits
7872




Table of Contents






PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except per share data)
    September 30,
2017		 December 31,
2016		   September 30,
2019		 December 31,
2018
Assets    (Unaudited)  Assets (Unaudited)  
Cash and due from banksCash and due from banks $174,147
 $155,055
Cash and due from banks $273,613
 $211,189
Interest-bearing deposits in other banksInterest-bearing deposits in other banks 252,753
 107,093
Interest-bearing deposits in other banks 202,054
 78,069
Trading securities, at fair value 20,425
 17,920
Equity securities, at fair valueEquity securities, at fair value 40,723
 30,806
Securities available-for-sale, at fair valueSecurities available-for-sale, at fair value 1,732,984
 1,919,450
Securities available-for-sale, at fair value 2,905,738
 2,272,009
Securities held-to-maturity, at amortized costSecurities held-to-maturity, at amortized cost 14,638
 22,291
Securities held-to-maturity, at amortized cost 22,566
 10,176
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 69,708
 59,131
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost 112,845
 80,302
LoansLoans 10,390,292
 8,254,145
Loans 12,773,319
 11,446,783
Allowance for loan lossesAllowance for loan losses (94,814) (86,083)Allowance for loan losses (109,028) (102,219)
Net loansNet loans 10,295,478
 8,168,062
Net loans 12,664,291
 11,344,564
Other real estate owned ("OREO")Other real estate owned ("OREO") 19,873
 26,083
Other real estate owned ("OREO") 12,428
 12,821
Premises, furniture, and equipment, netPremises, furniture, and equipment, net 131,295
 82,577
Premises, furniture, and equipment, net 147,064
 132,502
Investment in bank-owned life insurance ("BOLI")Investment in bank-owned life insurance ("BOLI") 279,639
 219,746
Investment in bank-owned life insurance ("BOLI") 297,610
 296,733
Goodwill and other intangible assetsGoodwill and other intangible assets 750,436
 366,876
Goodwill and other intangible assets 876,219
 790,744
Accrued interest receivable and other assetsAccrued interest receivable and other assets 525,766
 278,271
Accrued interest receivable and other assets 458,303
 245,734
Total assetsTotal assets $14,267,142
 $11,422,555
Total assets $18,013,454
 $15,505,649
LiabilitiesLiabilities    Liabilities    
Noninterest-bearing depositsNoninterest-bearing deposits $3,580,922
 $2,766,748
Noninterest-bearing deposits $3,832,744
 $3,642,989
Interest-bearing depositsInterest-bearing deposits 7,627,575
 6,061,855
Interest-bearing deposits 9,608,183
 8,441,123
Total depositsTotal deposits 11,208,497
 8,828,603
Total deposits 13,440,927
 12,084,112
Borrowed fundsBorrowed funds 700,536
 879,008
Borrowed funds 1,653,490
 906,079
Senior and subordinated debtSenior and subordinated debt 195,028
 194,603
Senior and subordinated debt 233,743
 203,808
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities 297,951
 263,261
Accrued interest payable and other liabilities 345,695
 256,652
Total liabilitiesTotal liabilities 12,402,012
 10,165,475
Total liabilities 15,673,855
 13,450,651
Stockholders' EquityStockholders' Equity    Stockholders' Equity    
Common stockCommon stock 1,123
 913
Common stock 1,204
 1,157
Additional paid-in capitalAdditional paid-in capital 1,029,002
 498,937
Additional paid-in capital 1,208,030
 1,114,580
Retained earningsRetained earnings 1,082,921
 1,016,674
Retained earnings 1,343,895
 1,192,767
Accumulated other comprehensive loss, net of tax (38,036) (40,910)
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax 6,738
 (52,512)
Treasury stock, at costTreasury stock, at cost (209,880) (218,534)Treasury stock, at cost (220,268) (200,994)
Total stockholders' equityTotal stockholders' equity 1,865,130
 1,257,080
Total stockholders' equity 2,339,599
 2,054,998
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity $14,267,142
 $11,422,555
Total liabilities and stockholders' equity $18,013,454
 $15,505,649
            
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
(Unaudited)    (Unaudited)    
Preferred Common Preferred CommonPreferred Common Preferred Common
Shares Shares Shares SharesShares Shares Shares Shares
       
Par value$—
 $0.01
 $—
 $0.01
Par value per share$—
 $0.01
 $—
 $0.01
Shares authorized1,000
 250,000
 1,000
 150,000
1,000
 250,000
 1,000
 250,000
Shares issued—
 112,348
 —
 91,284
—
 120,411
 —
 115,672
Shares outstanding—
 102,722
 —
 81,325
—
 109,970
 —
 106,375
Treasury shares—
 9,626
 —
 9,959
—
 10,441
 —
 9,297
 
See accompanying unaudited notes to the condensed consolidated financial statements.


3






Table of Contents






FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Interest Income                
Loans $118,101
 $87,505
 $345,286
 $252,486
 $159,978
 $133,997
 $462,462
 $380,420
Investment securities 10,667
 9,629
 31,678
 27,550
 19,452
 14,170
 53,463
 38,936
Other short-term investments 1,148
 772
 3,167
 1,968
 2,533
 1,365
 6,210
 3,609
Total interest income 129,916
 97,906
 380,131
 282,004
 181,963
 149,532
 522,135
 422,965
Interest Expense                
Deposits 4,369
 2,520
 11,307
 7,387
 21,754
 10,426
 57,672
 24,637
Borrowed funds 2,544
 1,782
 6,837
 4,597
 5,639
 3,927
 13,649
 10,919
Senior and subordinated debt 3,110
 2,632
 9,314
 8,353
 3,783
 3,152
 10,691
 9,416
Total interest expense 10,023
 6,934
 27,458
 20,337
 31,176
 17,505
 82,012
 44,972
Net interest income 119,893
 90,972
 352,673
 261,667
 150,787
 132,027
 440,123
 377,993
Provision for loan losses 10,109
 9,998
 23,266
 25,676
 12,498
 11,248
 34,433
 38,043
Net interest income after provision for loan losses 109,784
 80,974
 329,407
 235,991
 138,289
 120,779
 405,690
 339,950
Noninterest Income                
Service charges on deposit accounts 12,561
 10,708
 36,079
 30,350
 13,024
 12,378
 36,760
 36,088
Wealth management fees 10,169
 8,495
 30,354
 24,696
 12,063
 10,622
 35,853
 32,561
Card-based fees 5,992
 7,332
 22,940
 21,642
 4,694
 4,123
 13,621
 12,450
Capital market products income 2,592
 2,916
 6,185
 8,197
 4,161
 1,936
 7,594
 6,313
Mortgage banking income 2,246
 3,394
 5,779
 6,625
 3,066
 1,657
 5,971
 5,790
Other service charges, commissions, and fees 4,745
 5,621
 16,043
 16,484
 3,023
 2,786
 8,417
 8,172
Net gain on sale-leaseback transaction —
 5,509
 —
 5,509
Net securities gains 3,197
 187
 3,481
 1,097
Other income 1,846
 1,691
 7,383
 5,001
 2,920
 2,164
 8,167
 6,756
Total noninterest income 43,348
 45,853
 128,244
 119,601
 42,951
 35,666
 116,383
 108,130
Noninterest Expense                
Salaries and employee benefits 55,638
 46,372
 165,985
 137,233
 61,481
 54,160
 177,546
 168,879
Net occupancy and equipment expense 12,115
 10,755
 36,925
 30,380
 13,903
 13,183
 42,344
 40,607
Professional services 8,498
 6,772
 26,073
 17,984
 9,550
 7,944
 27,805
 23,822
Technology and related costs 4,505
 3,881
 13,423
 11,251
 5,062
 4,763
 14,566
 14,371
Net OREO expense 657
 313
 3,988
 2,099
 381
 (413) 1,356
 399
Other expenses 15,393
 13,623
 47,066
 41,074
 14,387
 14,541
 43,494
 40,083
Acquisition and integration related expenses 384
 1,172
 20,123
 6,810
 3,397
 60
 16,602
 60
Delivering Excellence implementation costs 234
 2,239
 934
 17,254
Total noninterest expense 97,190
 82,888
 313,583
 246,831
 108,395
 96,477
 324,647
 305,475
Income before income tax expense 55,942
 43,939
 144,068
 108,761
 72,845
 59,968
 197,426
 142,605
Income tax expense 17,707
 15,537
 48,028
 37,130
 18,300
 6,616
 49,809
 26,143
Net income $38,235
 $28,402
 $96,040
 $71,631
 $54,545
 $53,352
 $147,617
 $116,462
Per Common Share Data                
Basic earnings per common share $0.37
 $0.35
 $0.94
 $0.89
 $0.49
 $0.52
 $1.36
 $1.13
Diluted earnings per common share $0.37
 $0.35
 $0.94
 $0.89
 $0.49
 $0.52
 $1.35
 $1.13
Dividends declared per common share $0.10
 $0.09
 $0.29
 $0.27
 $0.14
 $0.11
 $0.40
 $0.33
Weighted-average common shares outstanding 101,752
 80,396
 101,307
 79,589
 109,281
 102,178
 107,852
 102,087
Weighted-average diluted common shares outstanding 101,772
 80,409
 101,327
 79,602
 109,662
 102,178
 108,246
 102,092
 
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 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Net income $38,235
 $28,402
 $96,040
 $71,631
 $54,545
 $53,352
 $147,617
 $116,462
Securities Available-for-Sale                
Unrealized holding gains (losses):                
Before tax 428
 (6,695) 11,078
 21,671
 13,636
 (13,632) 78,625
 (47,765)
Tax effect (174) 2,676
 (4,436) (8,665) (3,800) 3,548
 (21,900) 13,055
Net of tax 254
 (4,019) 6,642
 13,006
 9,836
 (10,084) 56,725
 (34,710)
Reclassification of net gains included in net income:      
Derivative Instruments        
Unrealized holding (losses) gains:        
Before tax 3,197
 187
 3,481
 1,097
 (399) (880) 3,500
 (948)
Tax effect (1,311) (75) (1,425) (439) 111
 231
 (975) 250
Net of tax 1,886
 112
 2,056
 658
 (288) (649) 2,525
 (698)
Net unrealized holding (losses) gains (1,632) (4,131) 4,586
 12,348
Derivative Instruments        
Unrealized holding gains (losses):        
Before tax 276
 (779) (2,849) 4,420
Tax effect (113) 311
 1,137
 (1,781)
Net of tax 163
 (468) (1,712) 2,639
Total other comprehensive (loss) income (1,469) (4,599) 2,874
 14,987
Total other comprehensive income (loss) 9,548
 (10,733) 59,250
 (35,408)
Total comprehensive income $36,766
 $23,803
 $98,914
 $86,618
 $64,093
 $42,619
 $206,867
 $81,054




  
Accumulated
Unrealized
Gain (Loss) on
Securities
Available-
for-Sale
 Accumulated Unrealized Gain (Loss) on Derivative Instruments 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2015 $(10,271) $(2,468) $(15,650) $(28,389)
Other comprehensive income 12,348
 2,639
 —
 14,987
Balance at September 30, 2016 $2,077
 $171
 $(15,650) $(13,402)
Balance at December 31, 2016 $(22,645) $(1,176) $(17,089) $(40,910)
Other comprehensive income 4,586
 (1,712) —
 2,874
Balance at September 30, 2017 $(18,059) $(2,888) $(17,089) $(38,036)
  
Accumulated
Unrealized
(Loss) Gain on
Securities
Available-
for-Sale
 
Accumulated Unrealized
(Loss) Gain on Derivative Instruments
 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
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 (34,710) (698) —
 (35,408)
Balance at September 30, 2018 $(51,550) $(5,245) $(18,338) $(75,133)
Balance at December 31, 2018 $(28,792) $(2,550) $(21,170) $(52,512)
Other comprehensive income 56,725
 2,525
 —
 59,250
Balance at September 30, 2019 $27,933
 $(25) $(21,170) $6,738
(1)
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive income (loss) to retained earnings as of January 1, 2018.
 
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
Income (Loss)
 
Treasury
Stock
 Total
Balance at December 31, 2015 77,952
 $882
 $446,672
 $953,516
 $(28,389) $(226,413) $1,146,268
Quarter Ended September 30, 2018              
Beginning balance 103,059
 $1,124
 $1,025,703
 $1,122,107
 $(64,400) $(200,971) $1,883,563
Net income —
 —
 —
 71,631
 —
 —
 71,631
 —
 —
 —
 53,352
 —
 —
 53,352
Other comprehensive income —
 —
 —
 —
 14,987
 —
 14,987
Common dividends declared
($0.27 per common share)
 —
 —
 —
 (21,876) —
 —
 (21,876)
Acquisition, net of issuance costs 3,042
 31
 54,865
 —
 —
 —
 54,896
Other comprehensive loss —
 —
 —
 —
 (10,733) —
 (10,733)
Common dividends declared
($0.11 per common share)
 —
 —
 —
 (11,326) —
 —
 (11,326)
Common stock issued 10
 —
 169
 —
 —
 —
 169
 3
 —
 66
 —
 —
 —
 66
Restricted stock activity 326
 —
 (10,610) —
 —
 8,062
 (2,548) (4) —
 (109) —
 —
 (85) (194)
Treasury stock issued to
benefit plans		 (6) —
 (21) —
 —
 (85) (106) —
 —
 7
 —
 —
 (28) (21)
Share-based compensation expense —
 —
 5,843
 —
 —
 —
 5,843
 —
 —
 2,968
 —
 —
 —
 2,968
Balance at September 30, 2016 81,324
 $913
 $496,918
 $1,003,271
 $(13,402) $(218,436) $1,269,264
Balance at December 31, 2016 81,325
 $913
 $498,937
 $1,016,674
 $(40,910) $(218,534) $1,257,080
Ending balance 103,058
 $1,124
 $1,028,635
 $1,164,133
 $(75,133) $(201,084) $1,917,675
Quarter Ended September 30, 2019              
Beginning balance 110,589
 $1,204
 $1,205,396
 $1,304,756
 $(2,810) $(207,973) $2,300,573
Net income —
 —
 —
 96,040
 —
 —
 96,040
 —
 —
 —
 54,545
 —
 —
 54,545
Other comprehensive income —
 —
 —
 —
 2,874
 —
 2,874
 —
 —
 —
 —
 9,548
 —
 9,548
Common dividends declared
($0.29 per common share)
 —
 —
 —
 (29,793) —
 —
 (29,793)
Acquisitions, net of issuance costs 21,078
 210
 533,322
 —
 —
 558
 534,090
Common dividends declared
($0.14 per common share)
 —
 —
 —
 (15,406) —
 —
 (15,406)
Repurchases of common stock (645) —
 —
 —
 —
 (12,738) (12,738)
Common stock issued 7
 —
 175
 —
 —
 —
 175
 4
 —
 81
 —
 —
 1
 82
Restricted stock activity 321
 —
 (11,987) —
 —
 8,308
 (3,679) 27
 —
 (599) —
 —
 536
 (63)
Treasury stock issued to
benefit plans
 (9) —
 1
 —
 —
 (212) (211) (5) —
 (3) —
 —
 (94) (97)
Share-based compensation expense —
 —
 8,554
 —
 —
 —
 8,554
 —
 —
 3,155
 —
 —
 —
 3,155
Balance at September 30, 2017 102,722
 $1,123
 $1,029,002
 $1,082,921
 $(38,036) $(209,880) $1,865,130
Ending balance 109,970
 $1,204
 $1,208,030
 $1,343,895
 $6,738
 $(220,268) $2,339,599

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – (Continued)
(Amounts in thousands, except per share data)
(Unaudited)
  
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 Total
Nine Months Ended September 30, 2018            
Beginning balance 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 —
 —
 —
 116,462
 —
 —
 116,462
Other comprehensive loss —
 —
 —
 —
 (35,408) —
 (35,408)
Common dividends declared
  ($0.33 per common share)
 —
 —
 —
 (34,008) —
 —
 (34,008)
Common stock issued 8
 1
 227
 —
 —
 667
 895
Restricted stock activity 335
 —
 (12,667) —
 —
 8,426
 (4,241)
Treasury stock issued to benefit plans (2) —
 41
 —
 —
 (104) (63)
Share-based compensation expense —
 —
 9,164
 —
 —
 —
 9,164
Ending balance 103,058
 $1,124
 $1,028,635
 $1,164,133
 $(75,133) $(201,084) $1,917,675
Nine Months Ended September 30, 2019            
Beginning balance 106,375
 $1,157
 $1,114,580
 $1,192,767
 $(52,512) $(200,994) $2,054,998
Adjustment to apply recent accounting
  pronouncements(2)
 —
 —
 —
 47,257
 —
 —
 47,257
Net income —
 —
 —
 147,617
 —
 —
 147,617
Other comprehensive income —
 —
 —
 —
 59,250
 —
 59,250
Common dividends declared
  ($0.40 per common share)
 —
 —
 —
 (43,746) —
 —
 (43,746)
Repurchases of common stock (1,687) —
 —
 —
 —
 (33,928) (33,928)
Acquisition, net of issuance costs 4,879
 47
 97,351
 —
 —
 4,098
 101,496
Common stock issued 34
 —
 12
 —
 —
 675
 687
Restricted stock activity 380
 —
 (13,919) —
 —
 10,086
 (3,833)
Treasury stock issued to benefit plans (11) —
 (12) —
 —
 (205) (217)
Share-based compensation expense —
 —
 10,018
 —
 —
 —
 10,018
Ending balance 109,970
 $1,204
 $1,208,030
 $1,343,895
 $6,738
 $(220,268) $2,339,599
(1)
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive income (loss) to retained earnings as of January 1, 2018.
(2)
As a result of accounting guidance adopted in the first quarter of 2019, the remaining deferred gain on a sale-leaseback transaction was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
See accompanying unaudited notes to the condensed consolidated financial statements.

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
  Nine Months Ended 
 September 30,
  2019 2018
Operating Activities    
Net income $147,617
 $116,462
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 34,433
 38,043
Depreciation of premises, furniture, and equipment 12,182
 11,693
Net amortization of premium on securities 11,897
 11,444
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale (6,327) (4,475)
Net gains on sales and valuation adjustments of OREO (2,358) (318)
Amortization of the FDIC indemnification asset 906
 906
Net losses on sales and valuation adjustments of premises, furniture, and equipment 1,226
 5,423
BOLI income (5,597) (4,280)
Share-based compensation expense 10,018
 9,164
Tax benefit related to share-based compensation 311
 208
Amortization of other intangible assets 7,737
 5,368
Originations of mortgage loans held-for-sale (335,903) (175,408)
Proceeds from sales of mortgage loans held-for-sale 297,967
 193,476
Net increase in equity securities (2,951) (1,191)
Net decrease (increase) in accrued interest receivable and other assets 1,244
 (14,725)
Net decrease in accrued interest payables and other liabilities (22,628) (1,949)
Net cash provided by operating activities 149,774
 189,841
Investing Activities    
Proceeds from maturities, repayments, and calls of securities available-for-sale 305,973
 233,659
Proceeds from sales of securities available-for-sale 93,332
 —
Purchases of securities available-for-sale (703,216) (595,477)
Proceeds from maturities, repayments, and calls of securities held-to-maturity 3,873
 1,087
Purchases of securities held-to-maturity (2,837) —
Net purchases of FHLB stock (31,062) (18,020)
Net increase in loans (655,871) (649,197)
Premiums paid on BOLI, net of proceeds from claims 4,720
 106
Proceeds from sales of OREO 9,430
 12,951
Proceeds from sales of premises, furniture, and equipment 2,538
 549
Purchases of premises, furniture, and equipment (13,540) (20,738)
Net cash paid for acquisition (13,532) —
Net cash used in investing activities (1,000,192) (1,035,080)
Financing Activities    
Net increase in deposit accounts 370,061
 473,789
Net increase in borrowed funds 745,665
 358,662
Purchase of treasury stock (33,928) —
Cash dividends paid (41,138) (32,942)
Restricted stock activity (3,833) (4,241)
Net cash provided by financing activities 1,036,827
 795,268
Net increase (decrease) in cash and cash equivalents 186,409
 (49,971)
Cash and cash equivalents at beginning of period 289,258
 346,570
Cash and cash equivalents at end of period $475,667
 $296,599

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollar amounts in thousands)
(Unaudited)
  Nine Months Ended 
 September 30,
  2019 2018
Supplemental Disclosures of Cash Flow Information:    
Income taxes paid (refunded) $29,331
 $(7,001)
Interest paid to depositors and creditors 80,017
 43,270
Dividends declared, but unpaid 15,281
 11,250
Stock issued for acquisitions, net of issuance costs 101,496
 —
Non-cash transfers of loans to OREO 519
 4,026
Non-cash transfers of loans to other assets 13,175
 —
Non-cash transfers of loans held-for-investment to loans held-for-sale 9,444
 12,373
Non-cash transfer of trading securities and securities available-for-sale to equity securities —
 27,855
Non-cash recognition of right-of-use asset 143,561
 —
Non-cash recognition of lease liability 143,561
 —
 
See accompanying unaudited notes to the condensed consolidated financial statements.


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FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
  Nine Months Ended 
 September 30,
  2017 2016
Net cash (used in) provided by operating activities $(50,073) $104,626
Investing Activities    
Proceeds from maturities, repayments, and calls of securities available-for-sale 251,160
 263,243
Proceeds from sales of securities available-for-sale 437,401
 42,794
Purchases of securities available-for-sale (289,244) (824,883)
Proceeds from maturities, repayments, and calls of securities held-to-maturity 7,663
 4,695
Purchases of securities held-to-maturity (10) (16)
Net purchases of FHLB stock (7,330) (12,651)
Net increase in loans (392,384) (630,012)
Premiums paid on BOLI, net of proceeds from claims 132
 1,597
Proceeds from sales of OREO 17,460
 6,069
Proceeds from sales of premises, furniture, and equipment 13,135
 150,747
Purchases of premises, furniture, and equipment (11,680) (12,320)
Net cash received from acquisitions 41,717
 57,347
Net cash provided by (used in) investing activities 68,020
 (953,390)
Financing Activities    
Net increase in deposit accounts 356,020
 413,445
Net (decrease) increase in borrowed funds (178,472) 472,027
Net proceeds from the issuance of subordinated notes —
 146,484
Payments for the maturity of subordinated debt —
 (38,500)
Cash dividends paid (26,852) (21,885)
Restricted stock activity (3,891) (2,318)
Net cash provided by financing activities 146,805
 969,253
Net increase in cash and cash equivalents 164,752
 120,489
Cash and cash equivalents at beginning of period 262,148
 381,202
Cash and cash equivalents at end of period $426,900
 $501,691
     
Supplemental Disclosures of Cash Flow Information:    
Income taxes paid $14,310
 $14,645
Interest paid to depositors and creditors 27,538
 17,656
Dividends declared, but unpaid 10,184
 7,241
Stock issued for acquisitions, net of issuance costs 534,090
 54,896
Non-cash transfers of loans to OREO 3,770
 3,894
Non-cash transfers of loans held-for-investment to loans held-for-sale 42,970
 77,030
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 and nine months ended September 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019.
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 20162018 Annual Report on Form 10-K ("20162018 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, lease obligations, 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 20162018 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 whichthat 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. Certain loans that were previously classified as covered loans are no longer covered under the FDIC Agreements, and are included in acquired 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") loans 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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deterioration was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCI loans and are accounted for as non-PCI 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 – 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-quartereight 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.
Lease Obligations – The Company leases certain premises under non-cancelable operating leases in the normal course of business operations. These lease obligations result in the recognition of right-of-use assets and associated lease liabilities. The amount of right-of-use assets and associated lease liabilities recorded is based on the present value of future minimum lease payments. Right-of-use assets are amortized on a straight-line basis over the estimated useful lives of the related premises, and interest associated with the net present value of future minimum lease payments is included in net occupancy and equipment expense in the consolidated financial statements.
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:Leases: In MarchFebruary 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 to the provision for income tax expense for the nine months ended September 30, 2017, 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 FASB issued guidance that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March of 2016, the FASB issued an amendment to this guidance to clarify the implementation of guidance on principal versus agent consideration. Additional amendments to clarify the implementation guidance on the identification of performance obligations and licensing were issued in April of 2016 and narrow-scope improvements and practical expedients were issued in May of 2016. The guidance was initially effective for annual and interim reporting periods beginning on or after December 15, 2016 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 is excluded from the scope of this guidance, and noninterest income. The primary sources of revenue within noninterest income are service charges on deposit accounts, wealth management fees, card-based fees, and merchant servicing fees. Based upon the Company's initial assessment, this guidance is expected to affect how the Company currently presents certain contract costs on a gross basis versus a net basis against the related noninterest income and will result in the expansion of the qualitative disclosures regarding noninterest income. The Company will adopt this guidance on January 1, 2018 using the modified retrospective approach and does not expect the changes in presentation of certain contract costs or the expanded disclosures to have a significant impact on the Company's financial condition, results of operations, or liquidity. The Company is in the process of completing its review of contracts to validate this initial assessment.
Amendments to Guidance on Classifying and Measuring Financial Instruments: In January of 2016, the FASB issued guidance that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value. Any changes in fair value will be recognized in net income unless the investments qualify for a new practicability exception. This guidance also requires entities to adjust the fair value 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. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Leases: In February of 2016, the FASB issued guidanceStandards Update ("ASU") 2016-02 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
The Company adopted this guidance on January 1, 2019, which resulted in the recognition of $143.6 million of right-of-use assets and additional associated lease liabilities for its operating leases. The amount of right-of-use assets and associated lease liabilities recorded upon adoption was based on the present value of future minimum lease payments, the amount of which depended on the population of leases in effect at the date of adoption. This guidance also applies to the Company's net investment in direct financing leases, which is permitted.included in loans, but did not have a material impact.

The Company has elected certain practical expedients contained in this guidance, which, among other provisions, allowed the Company to not reassess the historical lease classification, initial direct costs, or existing contracts for the inclusion of leases. The Company has also elected the practical expedients for the use of hindsight in determining the lease term and the right-of-use assets, as well as an election not to apply the recognition requirements of the guidance to leases with terms of 12 months or less. The application of the hindsight practical expedient resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.
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During 2016, First Midwest Bank (the "Bank") entered into a sale-leaseback transaction in 2016 that resulted in a deferred gain of $82.5 million, with $76.1 million remaining as of September 30, 2017.gain. Upon adoption of this guidance, the remaining deferred gain will beof $47.3 million after-tax was recognized immediately as a cumulative-effect

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adjustment to equity. For additional discussion of the sale-leaseback transaction, see Note 8, "Premises, Furniture,"Lease Obligations." The adoption of this guidance was applied retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment and Equipment." Managementdid not materially impact the Company's results of operations or liquidity but did result in a material increase in assets, liabilities, and equity.
Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued ASU 2017-08 that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is evaluating the neweffective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance and the additionalon January 1, 2019 did not materially impact to the Company's financial condition, results of operations, or liquidity.
Improvements to Nonemployee Share-based Payment Accounting: In June of 2018, the FASB issued ASU 2018-07 that aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract: In August of 2018, the FASB issued ASU 2018-15 to reduce diversity in practice by clarifying when implementation costs are required to be capitalized in a cloud computing arrangement that is a service contract. This guidance is effective for annual and interim periods beginning after December 15, 2019. The early adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Derivatives and Hedging, Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes: In October of 2018, the FASB issued ASU 2018-16 adding the overnight index swap rate based on the SOFR to the list of United States benchmark interest rates eligible for hedge accounting purposes. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Accounting Pronouncements Pending Adoption
Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASB issued guidanceASU 2016-13 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. The Company will adopt this guidance on January 1, 2020. Management is evaluatingcontinuing its implementation efforts, which are led by a cross-functional working group. Management is in the new guidance andprocess of determining the impact toon the Company's financial condition, results of operations, liquidity, 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 expectregulatory capital ratios, but expects that the adoption of this guidance will materially impactresult in an increase in the Company's Consolidated Statementallowance for credit losses. The extent of Cash Flows.
Income Taxes: In Octoberthe increase will depend on the composition of 2016, the FASB issued guidance that requires an entity to recognizeloan portfolio, as well as the income tax consequenceseconomic conditions and forecasts as 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.date.
Clarifying the Definition of a Business:Accounting for Goodwill Impairment: 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 guidanceASU 2017-04 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.
PresentationChanges to the Disclosure Requirements for Fair Value Measurement: In August of Defined Benefit Retirement Plan Costs: In March of 2017,2018, the FASB issued guidanceASU 2018-13 that changes how employers that sponsor defined pensioneliminates, modifies, and or other postretirement benefit plans presentadds to certain fair value measurement disclosure requirements associated with 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.three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2017.2019. 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:Changes to the Disclosure Requirements for Defined Benefit Plans: In MarchAugust of 2017,2018, the FASB issued guidanceASU 2018-14 that shortens the amortization period for the premium on certain purchased callable debt securitiesmakes minor changes and clarifications to the earliest call date.disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2018.2020. 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.
Share-based Payment Award Modifications: In May
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3. ACQUISITIONS
Pending
Park Bank
On August 27, 2019, the FASB issued guidanceCompany entered into a merger agreement to reduce diversityacquire Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in practice by clarifying when changesMilwaukee Wisconsin. As of June 30, 2019, Bankmanagers had approximately $1.0 billion of assets, $815 million of deposits, and $700 million of loans. The merger agreement provides for a fixed exchange ratio of 29.9675 shares of Company common stock, plus $623.02 of cash, for each share of Bankmanagers common stock, subject to the terms or conditions of a share-based payment award must be accounted for as a modification. 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.
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 ascertain adjustments. As of the perioddate of adoption. This guidanceannouncement, the overall transaction was valued at approximately $195 million. The transaction is effective for annualsubject to customary regulatory approvals, the approval of Bankmanagers' shareholders, and interim periods beginning after December 31, 2018. Early adoption is permitted. Management is evaluating

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the new guidance, but does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
3. ACQUISITIONSvarious closing conditions.
Completed Acquisitions
Standard Bancshares,Bridgeview Bancorp, Inc.
On January 6, 2017,May 9, 2019, the Company completed its acquisition of Standard Bancshares,Bridgeview Bancorp, Inc. ("Standard"Bridgeview"), the holding company for StandardBridgeview Bank Group. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and Trust Company. Pursuant to$711.7 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on January 6, 2017,May 9, 2019, each outstanding share of StandardBridgeview common stock was canceled and converted into the right to receive 0.4350 of a share of Company common stock. Based on the closing price ofexchanged for 0.2767 shares of Company common stock, plus $1.66 of $25.34 on that date, 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, andcash. In addition, each outstanding StandardBridgeview stock option and each share of Standard phantom stock was canceled and terminated in exchangeexchanged for the right to receive cash, in each case, pursuant to the terms of the merger agreement.cash. This resulted in an overall transaction valuemerger consideration of approximately $580.7$135.4 million, which consisted of 21,057,0854,728,541 shares of Company common stock and $47.1$37.1 million inof cash. Goodwill of $339.2$57.7 million associated with the acquisition was recorded by the Company. All Bridgeview operating systems were converted to the Company's operating platform during the firstsecond quarter of 2017.
During the third quarter of 2017, the Company updated the fair value adjustments associated with the Standard transaction. The adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations.2019. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.
Premier AssetNorthern Oak Wealth Management, LLCInc.
On February 28, 2017,January 16, 2019, the Company completed its acquisition of Premier AssetNorthern Oak Wealth Management, LLCInc. ("Premier"Northern Oak"), a registered investment advisoradviser based in Chicago, Illinois. At the close of the acquisition, the Company acquiredMilwaukee, Wisconsin with approximately $550.0$800.0 million of trust assets under management.management at closing. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.
NI BancsharesNorthern States Financial Corporation
On March 8, 2016,October 12, 2018, the Company completed its acquisition of NI BancsharesNorthern States Financial Corporation ("NI Bancshares"Northern States"), the holding company for The NationalNorStates Bank, & Trustbased in Waukegan, Illinois. At closing, the Company acquired $579.3 million of Sycamore, which included ten banking offices in northern Illinoisassets, $463.2 million of deposits, and over $700.0$284.9 million in trust assets under management. Theof loans, net of fair value adjustments. Under the terms of the merger considerationagreement, on October 12, 2018, each outstanding share of Northern States common stock was a combinationexchanged for 0.0363 shares of Company common stock and cash, at a purchase pricestock. This resulted in merger consideration of $70.1 million.$83.3 million, which consisted of 3,310,912 shares of Company common stock. Goodwill of $22.2$30.0 million associated with the acquisition was recorded by the Company. TheAll Northern States operating systems were converted to the Company's operating platform during the fourth quarter of 2018.
During the third quarter of 2019, the Company finalized the fair value adjustments associated with thisthe Northern States transaction, were finalized duringwhich required a measurement period adjustment to goodwill. This adjustment was recognized in the first quarter of 2017.current period in accordance with accounting guidance applicable to business combinations.


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The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the StandardBridgeview and NI BancsharesNorthern States 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
(AmountsDollar amounts in thousands, except share and per share data)
  Bridgeview Northern States
  May 9, 2019 October 12, 2018
Assets    
Cash and due from banks and interest-bearing deposits in other banks $35,097
 $160,145
Equity securities 6,966
 3,915
Securities available-for-sale 263,090
 47,149
Securities held-to-maturity 13,426
 —
FHLB and FRB stock 1,481
 554
Loans 711,688
 284,940
OREO 6,160
 2,549
Investment in BOLI —
 11,104
Goodwill 57,651
 30,016
Other intangible assets 15,603
 12,230
Premises, furniture, and equipment 18,095
 5,820
Accrued interest receivable and other assets 32,534
 20,911
Total assets $1,161,791
 $579,333
Liabilities    
Noninterest-bearing deposits $179,267
 $346,714
Interest-bearing deposits 807,487
 116,446
Total deposits 986,754
 463,160
Borrowed funds 1,746
 18,218
Senior and subordinated debt 29,360
 8,038
Accrued interest payable and other liabilities 8,579
 6,614
Total liabilities 1,026,439
 496,030
Consideration Paid    
Common stock (2019 – 4,728,541, shares issued at $28.61 per share, 2018 –
  3,310,912, shares issued at $25.16 per share), net of issuance costs
 98,212
 83,303
Cash paid 37,140
 —
Total consideration paid 135,352
 83,303
  $1,161,791
 $579,333
 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
Loans1,769,655
 396,181
OREO8,424
 2,863
Investment in BOLI55,629
 8,384
Goodwill339,207
 22,174
Other intangible assets31,072
 10,408
Premises, furniture, and equipment60,286
 19,636
Accrued interest receivable and other assets56,003
 16,453
Total assets$2,639,779
 $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 liabilities35,190
 10,239
Total liabilities2,059,064
 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
 $2,639,779
 $677,888

Expenses related to the acquisition and integration of thecompleted and pending transactions above totaled $384,000$3.4 million and $20.1$16.6 million during the quarter and nine months ended September 30, 2017,2019, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. Expenses related to the acquisition and integration of the transactions above totaled $1.2 million and $6.8 million during the quarter and nine months ended September 30, 2016, respectively. 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.

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The unaudited pro forma combined results of operations for the quarters and nine months ended September 30, 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 combined results of operations also do 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 $384,000 and $19.1 million was expensed during the quarter and nine months ended September 30, 2017, respectively.
Unaudited Pro Forma Combined Results of Operations
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Total revenues (1)
 $163,241
 $164,786
 $482,526
 $462,962
Net income 38,462
 32,589
 106,848
 85,054
(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 $126,469
 $1,643,186
Contractually required principal and interest payments 211,931
 1,937,060
Best estimate of contractual cash flows not expected to be collected (1)
 57,783
 100,762
Best estimate of contractual cash flows expected to be collected 154,148
 1,836,298
(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 20162018 10-K.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
  As of September 30, 2019 As of December 31, 2018
  Amortized Cost Gross Unrealized 
Fair
 Value
 Amortized Cost Gross Unrealized 
Fair
 Value
   Gains Losses   Gains Losses 
Securities Available-for-Sale              
U.S. treasury securities $40,946
 $143
 $(4) $41,085
 $37,925
 $17
 $(175) $37,767
U.S. agency securities 243,863
 1,251
 (1,027) 244,087
 144,125
 45
 (1,607) 142,563
Collateralized mortgage
  obligations ("CMOs")
 1,567,116
 25,483
 (2,046) 1,590,553
 1,336,531
 3,362
 (24,684) 1,315,209
Other mortgage-backed
  securities ("MBSs")
 668,935
 9,753
 (1,181) 677,507
 477,665
 520
 (11,251) 466,934
Municipal securities 231,757
 5,722
 (45) 237,434
 229,600
 461
 (2,874) 227,187
Corporate debt securities 114,407
 1,389
 (724) 115,072
 86,074
 —
 (3,725) 82,349
Total securities
  available-for-sale
 $2,867,024
 $43,741
 $(5,027) $2,905,738
 $2,311,920
 $4,405
 $(44,316) $2,272,009
Securities Held-to-Maturity              
Municipal securities $22,566
 $—
 $(584) $21,982
 $10,176
 $—
 $(305) $9,871
Equity Securities       $40,723
       $30,806
  As of September 30, 2017 As of December 31, 2016
  Amortized Cost Gross Unrealized 
Fair
 Value
 Amortized Cost Gross Unrealized 
Fair
 Value
   Gains Losses   Gains Losses 
Securities Available-for-Sale              
U.S. treasury securities $42,567
 $14
 $(77) $42,504
 $48,581
 $26
 $(66) $48,541
U.S. agency securities 154,666
 303
 (362) 154,607
 183,528
 519
 (410) 183,637
Collateralized mortgage
  obligations ("CMOs")
 949,762
 459
 (12,999) 937,222
 1,064,130
 969
 (17,653) 1,047,446
Other mortgage-backed
  securities ("MBSs")
 358,746
 307
 (3,580) 355,473
 337,139
 1,395
 (5,879) 332,655
Municipal securities 204,571
 1,294
 (841) 205,024
 273,319
 1,245
 (3,718) 270,846
Trust-preferred
  collateralized debt
  obligations ("CDOs")
 45,851
 275
 (15,300) 30,826
 47,681
 261
 (14,682) 33,260
Equity securities 7,358
 185
 (215) 7,328
 3,206
 147
 (288) 3,065
Total securities
  available-for-sale
 $1,763,521
 $2,837
 $(33,374) $1,732,984
 $1,957,584
 $4,562
 $(42,696) $1,919,450
Securities Held-to-Maturity              
Municipal securities $14,638
 $—
 $(1,717) $12,921
 $22,291
 $—
 $(4,079) $18,212
Trading Securities       $20,425
       $17,920


Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
  As of September 30, 2019
  Available-for-Sale Held-to-Maturity
  
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less $178,227
 $180,121
 $9,002
 $8,769
After one year to five years 175,643
 177,509
 6,158
 5,999
After five years to ten years 277,094
 280,039
 4,456
 4,341
After ten years 9
 9
 2,950
 2,873
Securities that do not have a single contractual maturity date 2,236,051
 2,268,060
 —
 —
Total $2,867,024
 $2,905,738
 $22,566
 $21,982
  As of September 30, 2017
  Available-for-Sale Held-to-Maturity
  
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less $97,905
 $94,691
 $1,947
 $1,718
After one year to five years 303,899
 293,924
 6,065
 5,354
After five years to ten years —
 —
 2,243
 1,980
After ten years 45,851
 44,346
 4,383
 3,869
Securities that do not have a single contractual maturity date 1,315,866
 1,300,023
 —
 —
Total $1,763,521
 $1,732,984
 $14,638
 $12,921

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $1.3$1.7 billion foras of September 30, 20172019 and $1.1$1.2 billion foras of December 31, 2016. No2018. NaN securities held-to-maturity were pledged as of September 30, 20172019 or December 31, 2016.

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2018.
During the quarters and nine months ended September 30, 20172019 and 20162018 there were no material gross trading gains (losses). The following table presents net0 realized gains on securities available-for-sale for the quarters and nine months ended September 30, 2017 and 2016.
Securities Available-for-Sale Gains
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Gains on sales of securities:        
Gross realized gains $3,197
 $187
 $3,481
 $1,266
Gross realized losses —
 —
 —
 (169)
Net realized gains on sales of securities 3,197
 187
 3,481
 1,097
Non-cash impairment charges:        
Other-than-temporary securities impairment ("OTTI") —
 —
 —
 —
Net realized gains $3,197
 $187
 $3,481
 $1,097
Securitiesavailable-for-sale. Certain securities acquired in the StandardBridgeview transaction in the firstsecond quarter of 20172019 were sold shortly after the acquisition date for $210.2$93.3 million, resulting in no gains or losses as the securities were recorded at fair value upon acquisition.
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.income (loss).
The
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There was 0 outstanding balance of OTTI previously recognized on securities available-for-sale was $23.3 million for bothas of either September 30, 2017 and2019 or December 31, 2016.2018. During the quarters and nine months ended September 30, 20172019 and 2016 there were no additions or reductions to the balance of2018 0 OTTI related towas recognized on securities available-for-sale.

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The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of September 30, 20172019 and December 31, 2016.2018.
Securities in an Unrealized Loss Position
(Dollar amounts in thousands)
    Less Than 12 Months 12 Months or Longer Total
  
Number of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
As of September 30, 2019            
Securities Available-for-Sale            
U.S. treasury securities 5
 $1,981
 $1
 $7,003
 $3
 $8,984
 $4
U.S. agency securities 46
 62,206
 447
 60,746
 580
 122,952
 1,027
CMOs 105
 60,802
 454
 288,184
 1,592
 348,986
 2,046
MBSs 54
 10,104
 38
 167,952
 1,143
 178,056
 1,181
Municipal securities 35
 1,194
 8
 13,975
 37
 15,169
 45
Corporate debt securities 8
 9,893
 107
 29,472
 617
 39,365
 724
Total 253
 $146,180
 $1,055
 $567,332
 $3,972
 $713,512
 $5,027
Securities Held-to-Maturity            
Municipal securities 31
 $12,467
 $331
 $9,515
 $253
 $21,982
 $584
As of December 31, 2018              
Securities Available-for-Sale            
U.S. treasury securities 17
 $15,894
 $57
 $13,886
 $118
 $29,780
 $175
U.S. agency securities 74
 34,263
 320
 93,227
 1,287
 127,490
 1,607
CMOs 234
 171,901
 1,671
 863,747
 23,013
 1,035,648
 24,684
MBSs 118
 135,791
 1,715
 284,273
 9,536
 420,064
 11,251
Municipal securities 423
 60,863
 558
 109,935
 2,316
 170,798
 2,874
Corporate debt securities 16
 82,349
 3,725
 —
 —
 82,349
 3,725
Total 882
 $501,061
 $8,046
 $1,365,068
 $36,270
 $1,866,129
 $44,316
Securities Held-to-Maturity    
Municipal securities 5
 $—
 $—
 $9,871
 $305
 $9,871
 $305
    Less Than 12 Months 12 Months or Longer Total
  
Number of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
As of September 30, 2017            
Securities Available-for-Sale            
U.S. treasury securities 16
 $30,469
 $51
 $5,998
 $26
 $36,467
 $77
U.S. agency securities 33
 71,538
 291
 8,241
 71
 79,779
 362
CMOs 195
 607,645
 7,680
 241,930
 5,319
 849,575
 12,999
MBSs 72
 262,080
 2,851
 41,994
 729
 304,074
 3,580
Municipal securities 138
 42,951
 461
 17,045
 380
 59,996
 841
CDOs 7
 —
 —
 30,015
 15,300
 30,015
 15,300
Equity securities 2
 —
 —
 6,833
 215
 6,833
 215
Total 463
 $1,014,683
 $11,334
 $352,056
 $22,040
 $1,366,739
 $33,374
Securities Held-to-Maturity            
Municipal securities 10
 $—
 $—
 $12,921
 $1,717
 $12,921
 $1,717
As of December 31, 2016              
Securities Available-for-Sale            
U.S. treasury securities 16
 $33,505
 $61
 $3,995
 $5
 $37,500
 $66
U.S. agency securities 28
 62,064
 364
 11,814
 46
 73,878
 410
CMOs 194
 523,233
 10,309
 411,758
 7,344
 934,991
 17,653
MBSs 68
 221,174
 4,726
 77,780
 1,154
 298,954
 5,880
Municipal securities 380
 133,957
 3,059
 29,280
 659
 163,237
 3,718
CDOs 7
 —
 —
 30,592
 14,682
 30,592
 14,682
Equity securities 2
 404
 201
 2,319
 86
 2,723
 287
Total 695
 $974,337
 $18,720
 $567,538
 $23,976
 $1,541,875
 $42,696
Securities Held-to-Maturity    
Municipal securities 14
 $—
 $—
 $18,212
 $4,079
 $18,212
 $4,079

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third partythird-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of September 30, 20172019 represent OTTI related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.
The unrealized losses on CDOs as of September 30, 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 16, "Fair Value."


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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
  September 30,
2019		 December 31,
2018
Commercial and industrial $4,570,361
 $4,120,293
Agricultural 417,740
 430,928
Commercial real estate:    
Office, retail, and industrial 1,892,877
 1,820,917
Multi-family 817,444
 764,185
Construction 637,256
 649,337
Other commercial real estate 1,425,292
 1,361,810
Total commercial real estate 4,772,869
 4,596,249
Total corporate loans 9,760,970
 9,147,470
Home equity 833,955
 851,607
1-4 family mortgages 1,686,967
 1,017,181
Installment 491,427
 430,525
Total consumer loans 3,012,349
 2,299,313
Total loans $12,773,319
 $11,446,783
Deferred loan fees included in total loans $7,233
 $6,715
Overdrawn demand deposits included in total loans 10,440
 8,583
  As of
  September 30,
2017		 December 31,
2016
Commercial and industrial $3,462,612
 $2,827,658
Agricultural 437,721
 389,496
Commercial real estate:    
Office, retail, and industrial 1,960,367
 1,581,967
Multi-family 711,101
 614,052
Construction 545,666
 451,540
Other commercial real estate 1,391,241
 979,528
Total commercial real estate 4,608,375
 3,627,087
Total corporate loans 8,508,708
 6,844,241
Home equity 847,209
 747,983
1-4 family mortgages 711,607
 423,922
Installment 322,768
 237,999
Total consumer loans 1,881,584
 1,409,904
Total loans $10,390,292
 $8,254,145
Deferred loan fees included in total loans $5,189
 $3,838
Overdrawn demand deposits included in total loans 6,616
 7,836
The increase in total loans for the quarter ended September 30, 2017 includes loans acquired in the Standard acquisition. For additional disclosure related to the Standard transaction, see Note 3, "Acquisitions."
The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.
It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's 20162018 10-K.


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Loan Sales
The following table presents loan sales for the quarters and nine months ended September 30, 20172019 and 2016.2018.
Loan Sales
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Corporate loan sales        
Proceeds from sales $5,108
 $2,868
 $10,484
 $15,180
Less book value of loans sold 4,950
 2,827
 10,198
 14,811
Net gains on corporate loan sales(1)
 158
 41
 286
 369
1-4 family mortgage loan sales        
Proceeds from sales $143,776
 $62,576
 $297,967
 $193,476
Less book value of loans sold 140,998
 61,276
 291,926
 189,370
Net gains on 1-4 family mortgage loan sales(2)
 2,778
 1,300
 6,041
 4,106
Total net gains on loan sales $2,936
 $1,341
 $6,327
 $4,475
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Corporate loan sales        
Proceeds from sales $11,833
 $12,223
 $46,770
 $36,082
Less book value of loans sold 11,512
 11,828
 45,752
 34,718
Net gains on corporate loan sales (1)
 321
 395
 1,018
 1,364
1-4 family mortgage loan sales        
Proceeds from sales $73,889
 $110,167
 190,544
 202,932
Less book value of loans sold 72,149
 107,255
 186,208
 198,024
Net gains on 1-4 family mortgage loan sales (2)
 1,740
 2,912
 4,336
 4,908
Total net gains on loan sales $2,061
 $3,307
 $5,354
 $6,272


(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. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 15,12, "Commitments, Guarantees, and Contingent Liabilities."

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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 September 30, 20172019 and December 31, 2016.2018.
Acquired and Covered Loans(1) 
(Dollar amounts in thousands)
  As of September 30, 2019 As of December 31, 2018
  PCI Non-PCI Total PCI Non-PCI Total
Acquired loans $160,360
 $1,404,960
 $1,565,320
 $108,049
 $1,247,492
 $1,355,541
Covered loans 5,466
 4,017
 9,483
 5,819
 4,869
 10,688
Total acquired and covered loans $165,826
 $1,408,977
 $1,574,803
 $113,868
 $1,252,361
 $1,366,229
  As of September 30, 2017 As of December 31, 2016
  PCI Non-PCI Total PCI Non-PCI Total
Acquired loans $150,405
 $1,694,032
 $1,844,437
 $53,772
 $613,339
 $667,111
Covered loans 6,871
 12,474
 19,345
 7,895
 15,379
 23,274
Total acquired and covered loans $157,276
 $1,706,506
 $1,863,782
 $61,667
 $628,718
 $690,385


(1) 
Included in loans in the Consolidated Statements of Financial Condition.
The outstanding balance of PCI loans was $229.1$244.8 million and $84.8$175.2 million as of September 30, 20172019 and December 31, 2016,2018, respectively.
The increase in acquired loans compared to December 31, 2016 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 $304.0$512.6 million and $117.6$458.0 million as of September 30, 20172019 and December 31, 2016,2018, respectively.

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In connection with the FDIC Agreements, the Company recorded an indemnification asset. To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the FDIC Agreements. The Company was in compliance with those requirements as of September 30, 2017 and December 31, 2016.
Rollforwards of the carrying value of the FDIC indemnification asset for the quarterswas $1.2 million and nine months ended$2.1 million as of September 30, 20172019 and 2016 are presented in the following table.
Changes in the FDIC Indemnification Asset
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Beginning balance $3,918
 $5,171
 $4,522
 $3,903
Amortization (302) (302) (906) (884)
Change in expected reimbursements from the FDIC for
  changes in expected credit losses
 (123) (228) (653) (487)
Net payments to the FDIC 123
 191
 653
 2,300
Ending balance $3,616
 $4,832
 $3,616
 $4,832
December 31, 2018, respectively.
Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Beginning balances $39,870
 $25,082
 $19,385
 $24,912
 $50,885
 $39,008
 $43,725
 $32,957
Additions —
 —
 27,316
 3,981
 —
 —
 16,037
 —
Accretion (4,263) (2,763) (12,106) (6,612) (5,759) (3,008) (13,630) (9,548)
Other (1)
 478
 (1,012) 1,490
 (974) (613) 2,672
 (1,619) 15,263
Ending balance $36,085
 $21,307
 $36,085
 $21,307
 $44,513
 $38,672
 $44,513
 $38,672
(1) 
Increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio, while decreases result from the resolution of certain loans occurring earlier than anticipated.
Total accretion on acquired and covered PCI and non-PCI loans for the quarterquarters and nine months ended September 30, 20172019 was $7.6$9.2 million and $27.7$25.9 million, respectively, and $4.6 million and $11.9$14.1 million for the same periods in 2016.2018.


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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 September 30, 20172019 and December 31, 2016.2018. 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
  
Current(1)
 
30-89 Days
Past Due
 
90 Days or
More Past
Due
 
Total
Past Due
 
Total
Loans
  
Non-
accrual
 90 Days or More Past Due, Still Accruing Interest
As of September 30, 2019               
Commercial and industrial $4,537,236
 $20,929
 $12,196
 $33,125
 $4,570,361
  $26,739
 $1,982
Agricultural 404,731
 6,966
 6,043
 13,009
 417,740
  6,242
 23
Commercial real estate:               
Office, retail, and industrial 1,869,816
 7,289
 15,772
 23,061
 1,892,877
  26,812
 —
Multi-family 813,422
 1,870
 2,152
 4,022
 817,444
  2,152
 —
Construction 635,270
 1,771
 215
 1,986
 637,256
  152
 63
Other commercial real estate 1,419,276
 1,851
 4,165
 6,016
 1,425,292
  4,680
 1,112
Total commercial real estate 4,737,784
 12,781
 22,304
 35,085
 4,772,869
  33,796
 1,175
Total corporate loans 9,679,751
 40,676
 40,543
 81,219
 9,760,970
  66,777
 3,180
Home equity 823,373
 6,373
 4,209
 10,582
 833,955
  7,326
 175
1-4 family mortgages 1,680,096
 5,292
 1,579
 6,871
 1,686,967
  3,589
 —
Installment 488,592
 1,533
 1,302
 2,835
 491,427
  —
 1,302
Total consumer loans 2,992,061
 13,198
 7,090
 20,288
 3,012,349
  10,915
 1,477
Total loans $12,671,812
 $53,874
 $47,633
 $101,507
 $12,773,319
�� $77,692
 $4,657
As of December 31, 2018               
Commercial and industrial $4,085,164
 $8,832
 $26,297
 $35,129
 $4,120,293
  $33,507
 $422
Agricultural 428,357
 940
 1,631
 2,571
 430,928
  1,564
 101
Commercial real estate:               
Office, retail, and industrial 1,803,059
 8,209
 9,649
 17,858
 1,820,917
  6,510
 4,081
Multi-family 759,402
 1,487
 3,296
 4,783
 764,185
  3,107
 189
Construction 645,774
 3,419
 144
 3,563
 649,337
  144
 —
Other commercial real estate 1,353,442
 4,921
 3,447
 8,368
 1,361,810
  2,854
 2,197
Total commercial real estate 4,561,677
 18,036
 16,536
 34,572
 4,596,249
  12,615
 6,467
Total corporate loans 9,075,198
 27,808
 44,464
 72,272
 9,147,470
  47,686
 6,990
Home equity 843,217
 6,285
 2,105
 8,390
 851,607
  5,393
 104
1-4 family mortgages 1,009,925
 4,361
 2,895
 7,256
 1,017,181
  3,856
 1,147
Installment 428,836
 1,648
 41
 1,689
 430,525
  —
 41
Total consumer loans 2,281,978
 12,294
 5,041
 17,335
 2,299,313
  9,249
 1,292
Total loans $11,357,176
 $40,102
 $49,505
 $89,607
 $11,446,783
  $56,935
 $8,282
  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
As of September 30, 2017               
Commercial and industrial $3,444,056
 $14,536
 $4,020
 $18,556
 $3,462,612
  $41,504
 $1,166
Agricultural 436,693
 325
 703
 1,028
 437,721
  380
 335
Commercial real estate:               
Office, retail, and industrial 1,950,010
 4,411
 5,946
 10,357
 1,960,367
  12,221
 —
Multi-family 707,959
 3,013
 129
 3,142
 711,101
  153
 129
Construction 545,119
 29
 518
 547
 545,666
  146
 374
Other commercial real estate 1,387,969
 1,356
 1,916
 3,272
 1,391,241
  2,239
 349
Total commercial real
  estate
 4,591,057
 8,809
 8,509
 17,318
 4,608,375
  14,759
 852
Total corporate loans 8,471,806
 23,670
 13,232
 36,902
 8,508,708
  56,643
 2,353
Home equity 840,966
 3,729
 2,514
 6,243
 847,209
  5,529
 44
1-4 family mortgages 707,498
 3,714
 395
 4,109
 711,607
  3,004
 —
Installment 320,210
 2,116
 442
 2,558
 322,768
  —
 442
Total consumer loans 1,868,674
 9,559
 3,351
 12,910
 1,881,584
  8,533
 486
Total loans $10,340,480
 $33,229
 $16,583
 $49,812
 $10,390,292
  $65,176
 $2,839
As of December 31, 2016               
Commercial and industrial $2,816,442
 $6,426
 $4,790
 $11,216
 $2,827,658
  $29,938
 $374
Agricultural 388,596
 —
 900
 900
 389,496
  181
 736
Commercial real estate:               
Office, retail, and industrial 1,564,007
 5,327
 12,633
 17,960
 1,581,967
  17,277
 1,129
Multi-family 612,446
 858
 748
 1,606
 614,052
  311
 604
Construction 450,927
 332
 281
 613
 451,540
  286
 —
Other commercial real estate 974,575
 1,307
 3,646
 4,953
 979,528
  2,892
 1,526
Total commercial real
  estate
 3,601,955
 7,824
 17,308
 25,132
 3,627,087
  20,766
 3,259
Total corporate loans 6,806,993
 14,250
 22,998
 37,248
 6,844,241
  50,885
 4,369
Home equity 740,919
 4,545
 2,519
 7,064
 747,983
  5,465
 109
1-4 family mortgages 420,264
 2,652
 1,006
 3,658
 423,922
  2,939
 272
Installment 236,264
 1,476
 259
 1,735
 237,999
  —
 259
Total consumer loans 1,397,447
 8,673
 3,784
 12,457
 1,409,904
  8,404
 640
Total loans $8,204,440
 $22,923
 $26,782
 $49,705
 $8,254,145
  $59,289
 $5,009


(1) 
PCI loans with an accretable yield are considered current.
(2)
Includes PCI loans of $239,000 and $681,000 as of September 30, 2017 and December 31, 2016, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition due to credit deterioration.




2322






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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 and nine months ended September 30, 20172019 and 20162018 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
Quarter Ended September 30, 2019              
Beginning balance $66,364
 $7,495
 $2,159
 $1,862
 $4,997
 $22,852
 $1,200
 $106,929
Charge-offs (7,176) (293) —
 —
 (184) (3,619) —
 (11,272)
Recoveries 1,205
 74
 38
 2
 227
 527
 —
 2,073
Net charge-offs (5,971) (219) 38
 2
 43
 (3,092) —
 (9,199)
Provision for loan
  losses and other
 5,002
 65
 565
 (98) 1,188
 5,776
 —
 12,498
Ending balance $65,395
 $7,341
 $2,762
 $1,766
 $6,228
 $25,536
 $1,200
 $110,228
Quarter Ended September 30, 2018              
Beginning balance $60,043
 $9,062
 $2,175
 $2,124
 $4,631
 $18,656
 $1,000
 $97,691
Charge-offs (6,277) (759) (1) (1) (177) (2,049) —
 (9,264)
Recoveries 416
 163
 —
 5
 154
 512
 —
 1,250
Net charge-offs (5,861) (596) (1) 4
 (23) (1,537) —
 (8,014)
Provision for loan
  losses and other
 6,776
 15
 200
 116
 740
 3,401
 —
 11,248
Ending balance $60,958
 $8,481
 $2,374
 $2,244
 $5,348
 $20,520
 $1,000
 $100,925
Nine Months Ended September 30, 2019            
Beginning balance $63,276
 $7,900
 $2,464
 $2,173
 $4,934
 $21,472
 $1,200
 $103,419
Charge-offs (20,143) (2,526) (340) (6) (723) (9,735) —
 (33,473)
Recoveries 3,764
 235
 39
 18
 293
 1,500
 —
 5,849
Net charge-offs (16,379) (2,291) (301) 12
 (430) (8,235) —
 (27,624)
Provision for loan
  losses and other
 18,498
 1,732
 599
 (419) 1,724
 12,299
 —
 34,433
Ending balance $65,395
 $7,341
 $2,762
 $1,766
 $6,228
 $25,536
 $1,200
 $110,228
Nine Months Ended September 30, 2018            
Beginning balance $55,791
 $10,996
 $2,534
 $3,481
 $6,381
 $16,546
 $1,000
 $96,729
Charge-offs (29,609) (1,525) (5) (1) (247) (6,271) —
 (37,658)
Recoveries 1,707
 286
 —
 26
 552
 1,240
 —
 3,811
Net charge-offs (27,902) (1,239) (5) 25
 305
 (5,031) —
 (33,847)
Provision for loan
  losses and other
 33,069
 (1,276) (155) (1,262) (1,338) 9,005
 —
 38,043
Ending balance $60,958
 $8,481
 $2,374
 $2,244
 $5,348
 $20,520
 $1,000
 $100,925

  
Commercial,
Industrial,
and
Agricultural
 
Office,
Retail, and
Industrial
 
Multi-
family
 Construction 
Other
Commercial
Real Estate
 Consumer 
Reserve for
Unfunded
Commitments
 
Total
Allowance for Credit Losses
Quarter ended September 30, 2017              
Beginning balance $46,271
 $15,008
 $2,919
 $4,094
 $7,479
 $16,600
 $1,000
 $93,371
Charge-offs (8,935) (14) —
 6
 (6) (1,617) —
 (10,566)
Recoveries 698
 1,825
 2
 19
 25
 331
 —
 2,900
Net charge-offs (8,237) 1,811
 2
 25
 19
 (1,286) —
 (7,666)
Provision for loan
  losses and other
 13,994
 (5,129) (296) 161
 (257) 1,636
 —
 10,109
Ending balance $52,028
 $11,690
 $2,625
 $4,280
 $7,241
 $16,950
 $1,000
 $95,814
Quarter ended September 30, 2016              
Beginning balance $40,084
 $12,985
 $2,933
 $2,239
 $7,492
 $14,372
 $1,400
 $81,505
Charge-offs (1,760) (2,193) —
 —
 (509) (1,488) —
 (5,950)
Recoveries 615
 42
 69
 9
 94
 326
 —
 1,155
Net charge-offs (1,145) (2,151) 69
 9
 (415) (1,162) —
 (4,795)
Provision for loan
  losses and other
 3,579
 3,019
 1,048
 916
 1,490
 (54) (400) 9,598
Ending balance $42,518
 $13,853
 $4,050
 $3,164
 $8,567
 $13,156
 $1,000
 $86,308
Nine months ended September 30, 2017            
Beginning balance $40,709
 $17,595
 $3,261
 $3,444
 $7,739
 $13,335
 $1,000
 $87,083
Charge-offs (15,966) (141) —
 (38) (721) (4,837) —
 (21,703)
Recoveries 2,764
 2,808
 36
 258
 205
 1,097
 —
 7,168
Net charge-offs (13,202) 2,667
 36
 220
 (516) (3,740) —
 (14,535)
Provision for loan
  losses and other
 24,521
 (8,572) (672) 616
 18
 7,355
 —
 23,266
Ending balance $52,028
 $11,690
 $2,625
 $4,280
 $7,241
 $16,950
 $1,000
 $95,814
Nine months ended September 30, 2016            
Beginning balance $37,074
 $13,124
 $2,469
 $1,440
 $6,109
 $13,414
 $1,225
 $74,855
Charge-offs (5,684) (4,358) (288) (134) (2,833) (3,975) —
 (17,272)
Recoveries 1,693
 153
 95
 44
 314
 975
 —
 3,274
Net charge-offs (3,991) (4,205) (193) (90) (2,519) (3,000) —
 (13,998)
Provision for loan
  losses and other
 9,435
 4,934
 1,774
 1,814
 4,977
 2,742
 (225) 25,451
Ending balance $42,518
 $13,853
 $4,050
 $3,164
 $8,567
 $13,156
 $1,000
 $86,308






2423






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The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of September 30, 20172019 and December 31, 2016.2018.
Loans and Related Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
  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
As of September 30, 2019                
Commercial, industrial, and
  agricultural
 $31,169
 $4,907,442
 $49,490
 $4,988,101
 $2,556
 $62,465
 $374
 $65,395
Commercial real estate:                
Office, retail, and industrial 26,255
 1,841,712
 24,910
 1,892,877
 522
 6,696
 123
 7,341
Multi-family 1,995
 809,711
 5,738
 817,444
 —
 2,666
 96
 2,762
Construction 123
 623,689
 13,444
 637,256
 —
 1,765
 1
 1,766
Other commercial real estate 3,657
 1,372,354
 49,281
 1,425,292
 95
 4,579
 1,554
 6,228
Total commercial real estate 32,030
 4,647,466
 93,373
 4,772,869
 617
 15,706
 1,774
 18,097
Total corporate loans 63,199
 9,554,908
 142,863
 9,760,970
 3,173
 78,171
 2,148
 83,492
Consumer —
 2,989,386
 22,963
 3,012,349
 —
 24,460
 1,076
 25,536
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,200
 —
 1,200
Total loans $63,199
 $12,544,294
 $165,826
 $12,773,319
 $3,173
 $103,831
 $3,224
 $110,228
As of December 31, 2018                
Commercial, industrial, and
  agricultural
 $32,415
 $4,514,349
 $4,457
 $4,551,221
 $3,961
 $58,947
 $368
 $63,276
Commercial real estate:                
Office, retail, and industrial 5,057
 1,799,304
 16,556
 1,820,917
 748
 5,984
 1,168
 7,900
Multi-family 3,492
 747,030
 13,663
 764,185
 —
 2,154
 310
 2,464
Construction —
 644,499
 4,838
 649,337
 —
 2,019
 154
 2,173
Other commercial real estate 1,545
 1,305,444
 54,821
 1,361,810
 —
 4,180
 754
 4,934
Total commercial real estate 10,094
 4,496,277
 89,878
 4,596,249
 748
 14,337
 2,386
 17,471
Total corporate loans 42,509
 9,010,626
 94,335
 9,147,470
 4,709
 73,284
 2,754
 80,747
Consumer —
 2,279,780
 19,533
 2,299,313
 —
 20,094
 1,378
 21,472
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,200
 —
 1,200
Total loans $42,509
 $11,290,406
 $113,868
 $11,446,783
 $4,709
 $94,578
 $4,132
 $103,419

  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
As of September 30, 2017                
Commercial, industrial, and
  agricultural
 $39,121
 $3,835,995
 $25,217
 $3,900,333
 $3,408
 $48,107
 $513
 $52,028
Commercial real estate:                
Office, retail, and industrial 11,211
 1,932,332
 16,824
 1,960,367
 9
 10,291
 1,390
 11,690
Multi-family 395
 696,490
 14,216
 711,101
 —
 2,524
 101
 2,625
Construction —
 532,016
 13,650
 545,666
 —
 4,060
 220
 4,280
Other commercial real estate 656
 1,325,280
 65,305
 1,391,241
 —
 6,126
 1,115
 7,241
Total commercial real estate 12,262
 4,486,118
 109,995
 4,608,375
 9
 23,001
 2,826
 25,836
Total corporate loans 51,383
 8,322,113
 135,212
 8,508,708
 3,417
 71,108
 3,339
 77,864
Consumer —
 1,859,520
 22,064
 1,881,584
 —
 15,684
 1,266
 16,950
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,000
 —
 1,000
Total loans $51,383
 $10,181,633
 $157,276
 $10,390,292
 $3,417
 $87,792
 $4,605
 $95,814
As of December 31, 2016                
Commercial, industrial, and
  agricultural
 $24,645
 $3,189,327
 $3,182
 $3,217,154
 $507
 $39,554
 $648
 $40,709
Commercial real estate:                
Office, retail, and industrial 16,287
 1,553,234
 12,446
 1,581,967
 —
 16,148
 1,447
 17,595
Multi-family 398
 601,429
 12,225
 614,052
 —
 3,059
 202
 3,261
Construction 34
 447,058
 4,448
 451,540
 —
 3,280
 164
 3,444
Other commercial real estate 1,286
 965,900
 12,342
 979,528
 18
 6,613
 1,108
 7,739
Total commercial real estate 18,005
 3,567,621
 41,461
 3,627,087
 18
 29,100
 2,921
 32,039
Total corporate loans 42,650
 6,756,948
 44,643
 6,844,241
 525
 68,654
 3,569
 72,748
Consumer —
 1,392,880
 17,024
 1,409,904
 —
 12,210
 1,125
 13,335
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,000
 —
 1,000
Total loans $42,650
 $8,149,828
 $61,667
 $8,254,145
 $525
 $81,864
 $4,694
 $87,083


2524






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Loans Individually Evaluated for Impairment
The following table presents loans individually evaluated for impairment by class of loan as of September 30, 20172019 and December 31, 2016.2018. PCI loans are excluded from this disclosure.
Impaired Loans Individually Evaluated by Class
(Dollar amounts in thousands)
  As of September 30, 2019  As of December 31, 2018
  Recorded Investment In    Recorded Investment In  
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
Commercial and industrial $10,600
 $14,540
 $50,231
 $1,636
  $7,550
 $23,349
 $49,102
 $3,960
Agricultural 1,905
 4,124
 9,566
 920
  1,318
 198
 3,997
 1
Commercial real estate:                 
Office, retail, and industrial 16,440
 9,815
 38,296
 522
  1,861
 3,196
 6,141
 748
Multi-family 1,995
 —
 1,995
 —
  3,492
 —
 3,492
 —
Construction 123
 —
 123
 —
  —
 —
 —
 —
Other commercial real estate 2,562
 1,095
 4,008
 95
  1,545
 —
 1,612
 —
Total commercial real estate 21,120
 10,910
 44,422
 617
  6,898
 3,196
 11,245
 748
Total impaired loans
�� individually evaluated for
  impairment
 $33,625
 $29,574
 $104,219
 $3,173
  $15,766
 $26,743
 $64,344
 $4,709

  As of September 30, 2017  As of December 31, 2016
  Recorded Investment In    Recorded Investment In  
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
Commercial and industrial $24,688
 $14,433
 $47,700
 $3,408
  $11,579
 $13,066
 $29,514
 $507
Agricultural —
 —
 —
 —
  —
 —
 —
 —
Commercial real estate:                 
Office, retail, and industrial 7,146
 4,065
 14,480
 9
  16,287
 —
 21,057
 —
Multi-family 395
 —
 395
 —
  398
 —
 398
 —
Construction —
 —
 —
 —
  34
 —
 34
 —
Other commercial real estate 656
 —
 754
 —
  1,016
 270
 2,141
 18
Total commercial real estate 8,197
 4,065
 15,629
 9
  17,735
 270
 23,630
 18
Total impaired loans
   individually evaluated
   for impairment
 $32,885
 $18,498
 $63,329
 $3,417
  $29,314
 $13,336
 $53,144
 $525


2625






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The following table presents the average recorded investment and interest income recognized on impaired loans by class for the quarters and nine months ended September 30, 20172019 and 2016.2018. PCI loans are excluded from this disclosure.
Average Recorded Investment and Interest Income Recognized on Impaired Loans by Class
(Dollar amounts in thousands)
 Quarters Ended September 30, Quarters Ended September 30,
 2017 2016 2019 2018
 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 $44,682
 $368
 $7,829
 $57
 $21,111
 $74
 $28,082
 $123
Agricultural 140
 —
 —
 —
 6,249
 9
 2,372
 —
Commercial real estate:        
        
Office, retail, and industrial 12,496
 —
 16,101
 3
 20,773
 2
 6,641
 105
Multi-family 396
 —
 399
 11
 3,578
 48
 3,757
 11
Construction —
 —
 34
 —
 123
 —
 —
 —
Other commercial real estate 1,415
 —
 2,561
 —
 3,496
 42
 2,831
 68
Total commercial real estate 14,307
 —
 19,095
 14
 27,970
 92
 13,229
 184
Total impaired loans $59,129
 $368
 $26,924
 $71
 $55,330
 $175
 $43,683
 $307
                
 Nine Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2019 2018
 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 $32,765
 $924
 $5,312
 $107
 $26,275
 $100
 $34,440
 $159
Agricultural 348
 —
 —
 —
 4,032
 20
 2,153
 25
Commercial real estate:        
        
Office, retail, and industrial 13,680
 262
 12,012
 80
 15,611
 6
 8,867
 873
Multi-family 396
 28
 500
 12
 3,456
 48
 2,132
 66
Construction 9
 136
 70
 —
 62
 —
 —
 —
Other commercial real estate 1,652
 20
 3,190
 72
 2,517
 84
 2,338
 181
Total commercial real estate 15,737
 446
 15,772
 164
 21,646
 138
 13,337
 1,120
Total impaired loans $48,850
 $1,370
 $21,084
 $271
 $51,953
 $258
 $49,930
 $1,304
(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 September 30, 20172019 and December 31, 2016.2018.
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 September 30, 2017          
As of September 30, 2019          
Commercial and industrial $3,286,087
 $72,491
 $62,530
 $41,504
 $3,462,612
 $4,404,464
 $63,434
 $75,724
 $26,739
 $4,570,361
Agricultural 417,612
 13,310
 6,419
 380
 437,721
 373,757
 22,495
 15,246
 6,242
 417,740
Commercial real estate:                    
Office, retail, and industrial 1,877,165
 25,919
 45,062
 12,221
 1,960,367
 1,793,811
 41,332
 30,922
 26,812
 1,892,877
Multi-family 703,659
 5,433
 1,856
 153
 711,101
 799,218
 10,068
 6,006
 2,152
 817,444
Construction 525,097
 9,113
 11,310
 146
 545,666
 612,810
 14,147
 10,147
 152
 637,256
Other commercial real estate 1,334,385
 32,693
 21,924
 2,239
 1,391,241
 1,352,801
 33,893
 33,918
 4,680
 1,425,292
Total commercial real estate 4,440,306
 73,158
 80,152
 14,759
 4,608,375
 4,558,640
 99,440
 80,993
 33,796
 4,772,869
Total corporate loans $8,144,005
 $158,959
 $149,101
 $56,643
 $8,508,708
 $9,336,861
 $185,369
 $171,963
 $66,777
 $9,760,970
As of December 31, 2016          
As of December 31, 2018          
Commercial and industrial $2,638,833
 $92,340
 $66,547
 $29,938
 $2,827,658
 $3,952,066
 $74,878
 $59,842
 $33,507
 $4,120,293
Agricultural 366,382
 17,039
 5,894
 181
 389,496
 407,542
 10,070
 11,752
 1,564
 430,928
Commercial real estate:                    
Office, retail, and industrial 1,491,170
 34,007
 39,513
 17,277
 1,581,967
 1,735,426
 35,853
 43,128
 6,510
 1,820,917
Multi-family 607,342
 4,370
 2,029
 311
 614,052
 745,131
 9,273
 6,674
 3,107
 764,185
Construction 438,946
 111
 12,197
 286
 451,540
 624,446
 16,370
 8,377
 144
 649,337
Other commercial real estate 951,284
 11,808
 13,544
 2,892
 979,528
 1,294,128
 47,736
 17,092
 2,854
 1,361,810
Total commercial real estate 3,488,742
 50,296
 67,283
 20,766
 3,627,087
 4,399,131
 109,232
 75,271
 12,615
 4,596,249
Total corporate loans $6,493,957
 $159,675
 $139,724
 $50,885
 $6,844,241
 $8,758,739
 $194,180
 $146,865
 $47,686
 $9,147,470
(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 $664,000$232,000 as of September 30, 20172019 and $834,000$630,000 as of December 31, 2016.2018.
Consumer Credit Quality Indicators by Class
(Dollar amounts in thousands)
  Performing Non-accrual Total
As of September 30, 2019      
Home equity $826,629
 $7,326
 $833,955
1-4 family mortgages 1,683,378
 3,589
 1,686,967
Installment 491,427
 —
 491,427
Total consumer loans $3,001,434
 $10,915
 $3,012,349
As of December 31, 2018      
Home equity $846,214
 $5,393
 $851,607
1-4 family mortgages 1,013,325
 3,856
 1,017,181
Installment 430,525
 —
 430,525
Total consumer loans $2,290,064
 $9,249
 $2,299,313

  Performing Non-accrual Total
As of September 30, 2017      
Home equity $841,680
 $5,529
 $847,209
1-4 family mortgages 708,603
 3,004
 711,607
Installment 322,768
 —
 322,768
Total consumer loans $1,873,051
 $8,533
 $1,881,584
As of December 31, 2016      
Home equity $742,518
 $5,465
 $747,983
1-4 family mortgages 420,983
 2,939
 423,922
Installment 237,999
 —
 237,999
Total consumer loans $1,401,500
 $8,404
 $1,409,904


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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 September 30, 20172019 and December 31, 2016.2018. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.
TDRs by Class
(Dollar amounts in thousands)
 As of September 30, 2017 As of December 31, 2016 As of September 30, 2019 As of December 31, 2018
 Accruing 
Non-accrual (1)
 Total Accruing 
Non-accrual (1)
 Total Accruing 
Non-accrual(1)
 Total Accruing 
Non-accrual(1)
 Total
Commercial and industrial $269
 $22,780
 $23,049
 $281
 $150
 $431
 $232
 $4,561
 $4,793
 $246
 $5,994
 $6,240
Agricultural —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Commercial real estate:                        
Office, retail, and industrial —
 4,512
 4,512
 155
 4,733
 4,888
 —
 —
 —
 —
 —
 —
Multi-family 577
 153
 730
 586
 168
 754
 165
 —
 165
 557
 —
 557
Construction —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Other commercial real estate 194
 —
 194
 268
 48
 316
 173
 —
 173
 181
 —
 181
Total commercial real estate 771
 4,665
 5,436
 1,009
 4,949
 5,958
 338
 —
 338
 738
 —
 738
Total corporate loans 1,040
 27,445
 28,485
 1,290
 5,099
 6,389
 570
 4,561
 5,131
 984
 5,994
 6,978
Home equity 88
 755
 843
 177
 820
 997
 107
 249
 356
 113
 327
 440
1-4 family mortgages 685
 462
 1,147
 824
 378
 1,202
 745
 278
 1,023
 769
 291
 1,060
Installment —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Total consumer loans 773
 1,217
 1,990
 1,001
 1,198
 2,199
 852
 527
 1,379
 882
 618
 1,500
Total loans $1,813
 $28,662
 $30,475
 $2,291
 $6,297
 $8,588
 $1,422
 $5,088
 $6,510
 $1,866
 $6,612
 $8,478
(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. ThereAs of September 30, 2019 and December 31, 2018, there were $1.3 million in0 specific reserves related to TDRs as of September 30, 2017. There were no specific reserves related to TDRs as of December 31, 2016.TDRs.
The following table presents a summary of loans that were restructured during the quarter and nine months endedSeptember 30, 2017. There were no material restructuresrestructurings during the quarterquarters and nine months ended September 30, 2016.
Loans Restructured During the Period
(Dollar amounts in thousands)
  
Number
of
Loans
 
Pre-
Modification
Recorded
Investment
 
Funds
Disbursed
 
Interest
and Escrow
Capitalized
 Charge-offs 
Post-
Modification
Recorded
Investment
Quarter ended September 30, 2017          
Commercial and industrial 10
 $25,811
 $196
 $—
 $1,736
 $24,271
Office, retail, and industrial 2
 3,656
 —
 —
 —
 3,656
Total TDRs restructured during the period 12
 $29,467
 $196
 $—
 $1,736
 $27,927
Nine months ended September 30, 2017          
Commercial and industrial 12
 $26,733
 $196
 $—
 $1,736
 $25,193
Office, retail, and industrial 2
 3,656
 —
 —
 —
 3,656
Total TDRs restructured during the period 14
 $30,389
 $196
 $—
 $1,736
 $28,849


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2019 and 2018.
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 and nine months ended September 30, 20172019 and 2016.2018.

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A rollforward of the carrying value of TDRs for the quarters and nine months ended September 30, 20172019 and 20162018 is presented in the following table.
TDR Rollforward
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Accruing        
Beginning balance $1,441
 $1,760
 $1,866
 $1,796
Additions —
 —
 12
 —
Net payments (19) (19) (73) (55)
Net transfers to non-accrual —
 —
 (383) —
Ending balance 1,422
 1,741
 1,422
 1,741
Non-accrual        
Beginning balance 7,841
 8,238
 6,612
 24,533
Additions —
 —
 —
 355
Net payments (2,753) (1,620) (1,279) (14,598)
Charge-offs —
 (253) (628) (3,925)
Net transfers from accruing —
 —
 383
 —
Ending balance 5,088
 6,365
 5,088
 6,365
Total TDRs $6,510
 $8,106
 $6,510
 $8,106
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Accruing        
Beginning balance $2,029
 $2,491
 $2,291
 $2,743
Additions 14,897
 —
 15,819
 —
Net payments received (1,798) (22) (1,905) (91)
Net transfers to non-accrual (13,315) (101) (14,392) (284)
Ending balance 1,813
 2,368
 1,813
 2,368
Non-accrual        
Beginning balance 3,036
 1,690
 6,297
 2,324
Additions 14,570
 —
 14,570
 —
Net payments received (127) (31) (4,352) (609)
Charge-offs (2,132) (170) (2,245) (409)
Net transfers from accruing 13,315
 101
 14,392
 284
Ending balance 28,662
 1,590
 28,662
 1,590
Total TDRs $30,475
 $3,958
 $30,475
 $3,958
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$1.6 million and $3.8 million of commitments to lend additional funds to borrowers with TDRs as of September 30, 20172019 and December 31, 2016.2018, respectively.

29


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
  September 30,
2017		 December 31,
2016
Land $30,267
 $18,304
Premises 119,325
 94,369
Furniture and equipment 114,547
 105,859
Total cost 264,139
 218,532
Accumulated depreciation (142,001) (140,030)
Net book value of premises, furniture, and equipment 122,138
 78,502
Assets held-for-sale 9,157
 4,075
Total premises, furniture, and equipment $131,295
 $82,577

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During 2016, 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. 8. LEASE OBLIGATIONS
The Bank concurrently entered into triple net lease agreements with certain affiliates of the third party for each of the branches sold. Subject toCompany has 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 $76.1 million of deferred pre-tax gains remaining as of September 30, 2017.
As of September 30, 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 $10.5 million for the quarter and nine months ended September 30, 2017, respectively. Depreciation on premises, furniture, and equipment totaled $3.4 million and $10.1 million for the same periods in 2016.
Operating Leases
As of September 30, 2017, the Company was obligated to utilize certain premises and equipment under certain non-cancelable operating leases which expire at variouswith varying maturity dates through the year ending December 31, 2033. ManyAs of September 30, 2019, the weighted-average remaining lease term on these leases was 10.79 years. Various leases contain renewal or termination options and certain leases providecontrolled by the Company or 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. Variable payments for real estate taxes and other operating expenses are considered to be non-lease components and are excluded from the determination of the lease liability. In addition, the Company rents or subleases certain real estate to third-parties. 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 and a reconciliation of those payments to the Company's lease liability as of September 30, 2017.2019.
Future Minimum Operating Lease PaymentsLiability
(Dollar amounts in thousands)
  As of  
 September 30, 2019
Year Ending December 31,  
2019 $4,059
2020 17,736
2021 17,611
2022 17,618
2023 17,752
2024 and thereafter 115,842
Total minimum lease payments 190,618
Discount(1)
 (30,783)
Lease liability(2)
 $159,835

(1)
Represents the net present value adjustment related to minimum lease payments.
(2)
Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.
  Total
One year or less $19,298
After one year to two years 17,737
After two years to three years 17,008
After three years to four years 16,815
After four years to five years 16,550
After five years 120,048
Total minimum lease payments $207,456
The discount rate for the Company's operating leases is the rate implicit in the lease and, if that rate cannot be readily determined, the Company's incremental borrowing rate. The weighted-average discount rate on the Company's operating leases was 3.20% as of September 30, 2019.
As of September 30, 2017, deferred pre-tax gains2019, right-of-use assets of $76.1$139.5 million related to the sale-lease back transaction will be accreted as a reduction toassociated with lease expense in other expenses on the Condensed Consolidated Statements of Income on a straight-line basis over the initial terms of the leases.

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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 isliabilities were included in accrued interest receivable and other liabilitiesassets 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 $1,011
After one year to two years 742
After two years to three years 648
After three years to four years 648
After four years to five years 648
After five years 3,511
Total accretion $7,208
The following table presents net operating lease expense for the quarters and nine months ended September 30, 20172019 and 2016.2018.
Net Operating Lease Expense
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Lease expense charged to operations $4,467
 $4,730
 $12,953
 $14,673
Accretion of operating lease intangible (1)
 —
 (211) —
 (716)
Accretion of deferred gain on sale-leaseback transaction (1)
 —
 (1,463) —
 (4,389)
Rental income from premises leased to others (1)
 (203) (122) (525) (384)
Net operating lease expense $4,264
 $2,934
 $12,428
 $9,184
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Lease expense charged to operations $4,747
 $2,229
 $14,027
 $5,729
Accretion of operating lease intangible (1)
 (295) (295) (885) (876)
Accretion of deferred gain on sale-leaseback transaction (1)
 (1,463) —
 (4,409) —
Rental income from premises leased to others (1)
 (171) (118) (521) (404)
Net operating lease expense $2,818
 $1,816
 $8,212
 $4,449


(1) 
Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
During 2016, the Bank completed a sale-leaseback transaction, whereby the Bank sold to a third-party 55 branches and concurrently entered into triple net lease agreements with certain affiliates of the third-party for each of the branches sold. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, of which $5.5 million was immediately recognized in earnings. Remaining deferred pre-tax gains were $65.5 million as of December 31, 2018. Upon adoption of new



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9.  GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's annual goodwill impairment testlease guidance on January 1, 2019, the remaining after-tax gain of $47.3 million was performed as of October 1, 2016. It was determined that no impairment existed as of that date or as of September 30, 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 and nine months ended September 30, 2017 and 2016.
Changes in the Carrying Amount of Goodwill
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Beginning balance $691,527
 $341,513
 $340,879
 $319,007
Acquisitions (46) (756) 350,602
 21,750
Ending balance $691,481
 $340,757
 $691,481
 $340,757
         
The decrease in goodwill for the quarter ended September 30, 2017 resulted from measurement period adjustments associated with the Standard transaction. The increase for the nine months ended September 30, 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. The decrease in goodwill for the quarter ended September 30, 2016 resulted from measurement period adjustments associated with the NI Bancshares acquisition. The increase for the nine months ended September 30, 2016 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 nine months ended September 30, 2017 resulted from the Standard and Premier acquisitions. The increase in other intangible assets for the nine months ended September 30, 2016 resulted from the NI Bancshares acquisition. During the quarters ended September 30, 2017 and September 30, 2016 there were no events or circumstances to indicate impairment.
Other Intangible Assets
(Dollar amounts in thousands)
  Nine Months Ended September 30,
  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
 10,409
 —
 10,409
Amortization expense —
 6,059
 (6,059) —
 3,475
 (3,475)
Ending balance $97,976
 $39,021
 $58,955
 $58,959
 $31,755
 $27,204
Scheduled Amortization of Other Intangible Assets
(Dollar amounts in thousands)
  Total
Year Ending September 30,  
2018 $7,173
2019 7,083
2020 7,036
2021 6,970
2022 6,898
2023 and thereafter 23,795
Total $58,955

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10.  DEPOSITS
The following table presents the Company's deposits by type.
Summary of Deposits
(Dollar amounts in thousands)
  As of
  September 30,
2017		 December 31,
2016
Demand deposits $3,580,922
 $2,766,748
Savings deposits 2,022,717
 1,615,833
NOW accounts 2,048,893
 1,675,421
Money market deposits 1,969,865
 1,577,316
Time deposits less than $100,000 888,238
 755,558
Time deposits greater than $100,000 697,862
 437,727
Total deposits $11,208,497
 $8,828,603

The increase in total deposits for the nine months ended September 30, 2017 includes deposits assumed in the Standard acquisition. For additional disclosure related to the Standard transaction, see Note 3, "Acquisitions."

11.  BORROWED FUNDS
The following table summarizes the Company's borrowed funds by funding source.
Summary of Borrowed Funds
(Dollar amounts in thousands)
  As of
  September 30,
2017		 December 31,
2016
Securities sold under agreements to repurchase $110,536
 $129,008
FHLB advances 590,000
 750,000
Total borrowed funds $700,536
 $879,008
Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase securities sold are includedrecognized as a liabilitycumulative-effect adjustment to equity in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities. The securities underlyingFor additional detail regarding the agreements remain in the respective asset accounts.
The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and municipal and mortgage-backed securities. As of September 30, 2017, the Company held various short-term FHLB advances with fixed interest rates that range from 1.18% to 1.24% and maturity dates that range from Octobernew lease guidance see Note 2, 2017 to December 1, 2017.
The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. See Note 14 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.
On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. On September 26, 2017, the Company entered into a first amendment to this credit facility, which extends the maturity to September 26, 2018. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. Management expects to use this line of credit for general corporate purposes. As of September 30, 2017, no amount was outstanding under the facility."Recent Accounting Pronouncements."
12.9. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
On May 17, 2017,March 19, 2019, the Company's stockholders approvedCompany announced a new stock repurchase program that authorizes the Company to repurchase up to $180 million of its common stock. Stock repurchases under this program may be made from time to time on the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for a one-year period, with repurchases made at prices to be determined by the Company. The stock repurchase program does not obligate the Company to repurchase a specific dollar amount or number of shares, and adopted an amendment to the Company's Restated Certificateprogram may be extended, modified, or discontinued at any time.
The Company repurchased 645,000 and 1.7 million shares of Incorporation. The amendment increased the Company's authorizedits common stock by 100,000,000 shares. Following this

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amendment, the Company is now authorized to issueat a total cost of 251,000,000 shares, including 1,000,000 shares of Preferred Stock, without a par value,$12.7 million and 250,000,000 shares of Common Stock, $0.01 par value per share.$33.9 million during the quarter and nine months ended September 30, 2019, respectively.
13.10. EARNINGS PER COMMON SHARE
The table below displays the calculation of basic and diluted earnings per common share ("EPS").
Basic and Diluted EPS
(Amounts in thousands, except per share data)
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Net income $38,235
 $28,402
 $96,040
 $71,631
 $54,545
 $53,352
 $147,617
 $116,462
Net income applicable to non-vested restricted shares (340) (324) (910) (826) (465) (441) (1,257) (992)
Net income applicable to common shares $37,895
 $28,078
 $95,130
 $70,805
 $54,080
 $52,911
 $146,360
 $115,470
Weighted-average common shares outstanding:                
Weighted-average common shares outstanding (basic) 101,752
 80,396
 101,307
 79,589
 109,281
 102,178
 107,852
 102,087
Dilutive effect of common stock equivalents 20
 13
 20
 13
 381
 —
 394
 5
Weighted-average diluted common shares outstanding 101,772
 80,409
 101,327
 79,602
 109,662
 102,178
 108,246
 102,092
Basic EPS $0.37
 $0.35
 $0.94
 $0.89
 $0.49
 $0.52
 $1.36
 $1.13
Diluted EPS $0.37
 $0.35
 $0.94
 $0.89
 $0.49
 $0.52
 $1.35
 $1.13
Anti-dilutive shares not included in the computation of
diluted EPS (1)
 190
 454
 242
 510
 —
 —
 —
 36
(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. The final outstanding stock options were exercised during the first quarter of 2018.
14.11. 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
  September 30, 2017 December 31, 2016
Gross notional amount outstanding $5,583
 $5,958
Derivative liability fair value (146) (282)
Weighted-average interest rate received 3.23% 2.63%
Weighted-average interest rate paid 5.96% 5.96%
Weighted-average maturity (in years) 1.10
 1.84
Fair value of derivative (1)
 $157
 $296

(1)
This amount represents the fair value if credit risk related contingent features were triggered.
Hedge ineffectiveness is recognized in other noninterest income in the Condensed Consolidated Statements of Income. For the quarters and nine months ended September 30, 2017 and 2016, gains or losses related to fair value hedge ineffectiveness were not material.

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Cash Flow Hedges
As of September 30, 2017,2019, the Company hedged $980.0$815.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $980.0 million$1.1 billion of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.
Forward starting interest rate swaps totaling $415.0$510.0 million began on various dates between June of 2015 and February of 2017 and mature between JuneSeptember of 2019 and mature between February of 2020.2020 and September of 2022. The remaining forward starting interest rate swaps totaling $565.0$555.0 million begin at various dates between FebruaryOctober of 20182019 and February of 20202021 and mature between FebruaryOctober of 20202021 and AprilAugust of 2022.2024. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 1.96%2.16% as of September 30, 2017.2019. These derivative contracts are designated as cash flow hedges.

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Cash Flow Hedges
(Dollar amounts in thousands)
  As of
  September 30, 2019 December 31, 2018
Gross notional amount outstanding $1,880,000
 $2,280,000
Derivative asset fair value in other assets(1)
 2,059
 6,889
Derivative liability fair value in other liabilities(1)
 (205) (11,328)
Weighted-average interest rate received 2.02% 2.12%
Weighted-average interest rate paid 1.97% 2.20%
Weighted-average maturity (in years) 1.41
 1.53

(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.
  As of
  September 30, 2017 December 31, 2016
Gross notional amount outstanding $1,960,000
 $1,470,000
Derivative asset fair value 3,234
 5,402
Derivative liability fair value (6,729) (7,390)
Weighted-average interest rate received 1.55% 1.37%
Weighted-average interest rate paid 1.51% 1.11%
Weighted-average maturity (in years) 2.50
 2.83
The effective portionChanges in the fair value of gains or losses on cash flow hedges isare recorded in accumulated other comprehensive lossincome (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 and nine months ended September 30, 2017 and 2016, there were no material gains or losses related to cash flow hedge ineffectiveness. As of September 30, 2017,2019, the Company estimates that $581,000$1.4 million will be reclassified from accumulated other comprehensive lossincome (loss) as a decreasean increase to interest income over the next twelve months.
Other Derivative Instruments
The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative 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 September 30, 20172019 and December 31, 2016,2018, 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 $2.6totaled $4.2 million and $6.2$7.6 million were recorded in noninterest income for the quarter and nine months ended September 30, 2017, respectively. There were $2.92019, respectively, and $1.9 million and $8.2$6.3 million of capital market products income recorded for the quarter and nine months ended September 30, 2016,2018, respectively.
Other Derivative Instruments
(Dollar amounts in thousands)
 As of As of
 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
Gross notional amount outstanding $2,463,967
 $1,656,612
 $3,738,566
 $3,085,226
Derivative asset fair value 18,268
 13,478
Derivative liability fair value (14,443) (13,478)
Derivative asset fair value in other assets(1)
 80,156
 25,168
Derivative liability fair value in other liabilities(1)
 (25,137) (17,533)
Fair value of derivative (1)(2)
 14,704
 13,753
 25,346
 18,013
(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.

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The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of September 30, 20172019 and December 31, 2016.2018. 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 and nine months ended September 30, 2019 and 2018.
Cash Flow Hedge Accounting on AOCI
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Gains (losses) recognized in other comprehensive income        
Interest rate swaps in interest income $2,218
 $2,578
 $11,515
 $13,151
Interest rate swaps in interest expense (1,625) (1,577) (13,621) (11,620)
Reclassification of gains (losses) included in net income        
Interest rate swaps in interest income $824
 $857
 $3,572
 $1,504
Interest rate swaps in interest expense (1,018) (978) (4,966) (2,087)

The following table presents the impact of derivative instruments on net interest income for the quarters and nine months ended September 30, 2019 and 2018.
Hedge Income
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Cash Flow Hedges        
Interest rate swaps in interest income $824
 $857
 $3,572
 $1,504
Interest rate swaps in interest expense (1,018) (978) (4,966) (2,087)
Total cash flow hedges $(194) $(121) $(1,394) $(583)

Credit Risk
Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of September 30, 20172019 and December 31, 2016,2018, 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 September 30, 20172019 and December 31, 2016.2018.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
 As of September 30, 2017 As of December 31, 2016 As of September 30, 2019 As of December 31, 2018
 Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Gross amounts recognized $21,502
 $21,318
 $18,880
 $21,150
 $82,215
 $25,342
 $32,057
 $28,861
Less: amounts offset in the Consolidated Statements of
Financial Condition
 —
 —
 —
 —
 —
 —
 —
 —
Net amount presented in the Consolidated Statements of
Financial Condition (1)
 21,502
 21,318
 18,880

21,150
 82,215
 25,342
 32,057

28,861
Gross amounts not offset in the Consolidated Statements of
Financial Condition:
                
Offsetting derivative positions (16,557) (16,557) (10,889) (10,889) (3,668) (3,668) (11,678) (11,678)
Cash collateral pledged —
 (4,761) —
 (10,261) —
 (16,557) (9,060) (3,506)
Net credit exposure $4,945
 $—
 $7,991
 $—
 $78,547
 $5,117
 $11,319
 $13,677
(1) 
Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of September 30, 20172019 and December 31, 2016,2018, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of September 30, 20172019 and December 31, 20162018 the Company was in compliance with these provisions.


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15.12. 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 andas well as standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.
Contractual or Notional Amounts of Financial Instruments
(Dollar amounts in thousands)
 As of As of
 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
Commitments to extend credit:        
Commercial, industrial, and agricultural $1,739,259
 $1,522,152
 $1,748,889
 $1,729,286
Commercial real estate 322,705
 397,423
 327,821
 296,882
Home equity 512,560
 426,384
 571,389
 570,553
Other commitments (1)
 246,609
 214,943
 254,689
 244,917
Total commitments to extend credit $2,821,133
 $2,560,902
 $2,902,788
 $2,841,638
        
Letters of credit $132,990
 $100,430
 $104,286
 $112,728
(1) 
Other commitments includes installment and overdraft protection program commitments.
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 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 early 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 and nine months ended September 30, 20172019 and 2016.2018.
Legal Proceedings
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at September 30, 2017.2019. 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 business, financial position, results of operations, or cash flows.


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16.13. 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 September 30, 2019 As of December 31, 2018
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets            
Equity securities $22,511
 $13,174
 $—
 $19,658
 $11,148
 $—
Securities available-for-sale            
U.S. treasury securities 41,085
 —
 —
 37,767
 —
 —
U.S. agency securities —
 244,087
 —
 —
 142,563
 —
CMOs —
 1,590,553
 —
 —
 1,315,209
 —
MBSs —
 677,507
 —
 —
 466,934
 —
Municipal securities —
 237,434
 —
 —
 227,187
 —
Corporate debt securities —
 115,072
 —
 —
 82,349
 —
Total securities available-for-sale 41,085
 2,864,653
 —
 37,767
 2,234,242
 —
Mortgage servicing rights ("MSRs")(1)
 —
 —
 5,682
 —
 —
 6,730
Derivative assets(1)
 —
 82,215
 —
 —
 32,057
 —
Liabilities            
Derivative liabilities(2)
 $—
 $25,342
 $—
 $—
 $28,861
 $—
  As of September 30, 2017 As of December 31, 2016
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets:            
Trading securities:            
Money market funds $1,738
 $—
 $—
 $1,645
 $—
 $—
Mutual funds 18,687
 —
 —
 16,275
 —
 —
Total trading securities 20,425
 —
 —
 17,920
 —
 —
Securities available-for-sale:            
U.S. treasury securities 42,504
 —
 —
 48,541
 —
 —
U.S. agency securities —
 154,607
 —
 —
 183,637
 —
CMOs —
 937,222
 —
 —
 1,047,446
 —
MBSs —
 355,473
 —
 —
 332,655
 —
Municipal securities —
 205,024
 —
 —
 270,846
 —
CDOs —
 —
 30,826
 —
 —
 33,260
Equity securities —
 7,328
 —
 —
 3,065
 —
Total securities available-for-sale 42,504
 1,659,654
 30,826
 48,541
 1,837,649
 33,260
Mortgage servicing rights ("MSRs") (1)
 —
 —
 5,766
 —
 —
 6,120
Derivative assets (1)
 —
 21,502
 —
 —
 18,880
 —
Liabilities:            
Derivative liabilities (2)
 $—
 $21,318
 $—
 $—
 $21,150
 $—


(1) 
Included in other assets in the Consolidated Statements of Financial Condition.
(2) 
Included in other liabilities in the Consolidated Statements of Financial Condition.
The following sections describe the specific valuation techniques and inputs used to measure financial assets and liabilities at fair value.
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 certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of September 30, 2019, the fair value of certain community development investments totaling $5.0 million was based on the net asset value per share ("NAV") practical expedient and can be redeemed at any month end with 30 days notice. Since these investments are measured at fair value using the NAV practical expedient, they are not classified in 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 in order to determine whether the valuations represent an exit price in the Company's principal markets.
CDOs are classified in level 3 of the fair value hierarchy. The Company estimates the fair values for each CDO using discounted cash flow analyses with the assistance of a structured credit valuation firm. This methodology is based on credit analysis and historical financial data for each of the issuers underlying the CDOs (the "Issuers"). These estimates are highly subjective and sensitive to several significant, unobservable inputs. The cash flows for each Issuer are then discounted to present values using LIBOR plus an adjustment to reflect the impact of market factors. Finally, the discounted cash flows for each Issuer are aggregated to derive the estimated fair value for the specific CDO.


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The following table presents the ranges of significant, unobservable inputs calculated using the weighted-average of the Issuers used by the Company as of September 30, 2017 and December 31, 2016.
Significant Unobservable Inputs Used in the Valuation of CDOs
  As of
  September 30, 2017 December 31, 2016
Probability of prepayment 0.0% -11.4% 0.0% -10.9%
Probability of default 16.5% -44.8% 16.7% -46.8%
Loss given default 93.4% -99.2% 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 quarterly 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 and nine months ended September 30, 2017 and 2016 is presented in the following table.
Carrying Value of CDOs
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Beginning balance $33,454
 $30,431
 $33,260
 $31,529
Change in other comprehensive income (1)
 (739) 1,794
 (604) 764
Other (1,889) (326) (1,830) (394)
Ending balance $30,826
 $31,899
 $30,826
 $31,899

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

During the third quarter of 2017, three CDOs with carrying values totaling $1.9 million were sold at gains.

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MSRs
The Company services loans for others totaling $616.7$652.2 million and $627.3 million as of September 30, 20172019 and $640.5 million as of December 31, 2016.2018, respectively. 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 September 30, 20172019 and December 31, 2016.2018.
Significant Unobservable Inputs Used in the Valuation of MSRs
  As of
  September 30, 2019 December 31, 2018
Prepayment speed 6.0% -10.6% 6.5% -13.5%
Maturity (months) 17
 -89 20
 -104
Discount rate 9.0% -12.0% 9.5% -12.0%
  As of
  September 30, 2017 December 31, 2016
Prepayment speed 8.8% -26.2% 7.7% -22.8%
Maturity (months) 7
 -91 12
 -103
Discount rate 9.5% -13.0% 9.5% -13.0%

The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.
A rollforward of the carrying value of MSRs for the quarters and nine months ended September 30, 20172019 and 20162018 is presented in the following table.
Carrying Value of MSRs
(Dollar amounts in thousands)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Beginning balance $5,831
 $6,671
 $6,730
 $5,894
New MSRs 404
 324
 861
 893
Total gains (losses) included in earnings(1):
        
Changes in valuation inputs and assumptions (284) 65
 (1,273) 627
Other changes in fair value(2)
 (269) (243) (636) (597)
Ending balance(3)
 $5,682
 $6,817
 $5,682
 $6,817
Contractual servicing fees earned(1)
 $404
 $375
 $1,175
 $1,122
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Beginning balance $5,925
 $4,938
 $6,120
 $1,853
Additions from acquisition —
 —
 —
 3,092
New MSRs 161
 581
 522
 928
Total losses included in earnings (1):
        
Changes in valuation inputs and assumptions (121) (205) (209) (377)
Other changes in fair value (2)
 (199) (238) (667) (420)
Ending balance $5,766
 $5,076
 $5,766
 $5,076
Contractual servicing fees earned (1)
 $379
 $373
 $1,158
 $922


(1) 
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of September 30, 20172019 and 2016.2018.
(2) 
Primarily represents changes in expected future cash flows due to payoffs and paydowns.
(3)
Included in other assets in the Consolidated Statements of Financial Condition.
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 September 30, 2017 As of December 31, 2016
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Collateral-dependent impaired loans (1)
 $—
 $—
 $19,265
 $—
 $—
 $22,019
OREO (2)
 —
 —
 8,304
 —
 —
 8,624
Loans held-for-sale (3)
 —
 —
 17,508
 —
 —
 10,484
Assets held-for-sale (4)
 —
 —
 9,157
 —
 —
 4,075

  As of September 30, 2019 As of December 31, 2018
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Collateral-dependent impaired loans(1)
 $—
 $—
 $35,984
 $—
 $—
 $24,565
OREO(2)
 —
 —
 3,461
 —
 —
 6,012
Loans held-for-sale(3)
 —
 —
 47,455
 —
 —
 3,478
Assets held-for-sale(4)
 —
 —
 8,626
 —
 —
 3,722
(1) 
Includes impaired loans with charge-offs and impaired loans with a specific reserve during the periods presented.
(2) 
Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.
(3) 
Included in other assets in the Consolidated Statements of Financial Condition.
(4) 
Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.
Collateral-Dependent Impaired Loans
Certain collateral-dependent impaired loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the value of the underlying collateral. The fair values of collateral-dependent impaired loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent impaired loans are classified in level 3 of the fair value hierarchy.
Collateral-dependent impaired loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.
OREO
The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.
Loans Held-for-Sale
As of September 30, 2017,2019 and December 31, 2018, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to 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, 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 September 30, 20172019 and December 31, 20162018 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
    September 30, 2019 December 31, 2018
  
Fair Value Hierarchy
Level
 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
Assets          
Cash and due from banks 1 $273,613
 $273,613
 $211,189
 $211,189
Interest-bearing deposits in other banks 2 202,054
 202,054
 78,069
 78,069
Securities held-to-maturity 2 22,566
 21,982
 10,176
 9,871
FHLB and FRB stock 2 112,845
 112,845
 80,302
 80,302
Loans 3 12,665,485
 12,561,148
 11,346,668
 11,052,040
Investment in BOLI 3 297,610
 297,610
 296,733
 296,733
Accrued interest receivable 3 58,223
 58,223
 54,847
 54,847
Liabilities          
Deposits 2 $13,440,927
 $13,438,885
 $12,084,112
 $12,064,604
Borrowed funds 2 1,653,490
 1,653,490
 906,079
 906,079
Senior and subordinated debt 2 233,743
 276,715
 203,808
 211,207
Accrued interest payable 2 12,000
 12,000
 10,005
 10,005
    As of
    September 30, 2017 December 31, 2016
  
Fair Value Hierarchy
Level
 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
Assets:          
Cash and due from banks 1 $174,147
 $174,147
 $155,055
 $155,055
Interest-bearing deposits in other banks 2 252,753
 252,753
 107,093
 107,093
Securities held-to-maturity 2 14,638
 12,921
 22,291
 18,212
FHLB and FRB stock 2 69,708
 69,708
 59,131
 59,131
Loans 3 10,299,094
 10,048,553
 8,172,584
 7,973,845
Investment in BOLI 3 279,639
 279,639
 219,746
 219,746
Accrued interest receivable 3 43,697
 43,697
 34,384
 34,384
Other interest-earning assets 3 327
 327
 834
 834
Liabilities:          
Deposits 2 $11,208,497
 $11,195,159
 $8,828,603
 $8,820,572
Borrowed funds 2 700,536
 700,536
 879,008
 879,008
Senior and subordinated debt 2 195,028
 194,449
 194,603
 197,888
Accrued interest payable 2 3,336
 3,336
 3,416
 3,416

Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments.
Short-Term Financial Assets and Liabilities - For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments 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 September 30, 2019 and December 31, 2018, 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

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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 through over 130 locations throughout themetropolitan Chicago, metropolitan area, northwest Indiana, southeast Wisconsin, central and western Illinois, and eastern Iowa. Our principal subsidiary, is First Midwest Bank, which providesand other affiliates provide a broadfull range of commercial, retail, treasury andmanagement, equipment leasing, consumer, 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 and nine months ended September 30, 20172019 and 20162018 and Consolidated Statements of Financial Condition as of September 30, 20172019 and December 31, 2016.2018. 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 20162018 Annual Report on Form 10-K ("20162018 10-K"). The results of operations for the quarter and nine months ended September 30, 20172019 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, 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.
•
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 ("DTAs"), (ii) Tier 1 capital, which consists of CET1 and the remaining portion of disallowed DTAs, and (iii) Tier 2 capital, which includes qualifying subordinated debt, qualifying trust-preferred securities, and the allowance for credit losses, subject to limitations.
Some of these metrics may be presented on a non-U.S.basis not in accordance with U.S. generally accepted accounting principles ("non-GAAP") basis.. For detail on our non-GAAP metrics, see the discussion in the section of this Item 2 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 September 30, 2017, the Company and the Bank each had total assets of over $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 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 2016 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, as well as any oral statements made by or on behalf of First Midwest, 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," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume,""assume" and words of similar import. Forward-looking statements are not historical facts or guarantees of future performance but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and weWe caution you not to place undue reliance

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on these statements. Forward-looking statements are madespeak only as of the date of this report,made, 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.statements.
Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, including the related outlook for 2019, 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 certain actions and initiatives, our Delivering Excellence initiative, including costs and benefits associated therewith and the timing thereof, anticipated trends in our business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including our proposed acquisition of Bankmanagers Corp., estimated synergies, cost savings and financial benefits of pending or consummatedannounced and completed 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 toincluding those discussed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in our 20162018 10-K, as well as our subsequent filings made with the SEC. However, theseSecurities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive. Otherexhaustive, and other sections of this reportthese reports 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 practicepractices within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on the best available information available as of the date of the financial statements that affect the amounts reported in the consolidated 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"Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations" included in the Company's 2016our 2018 10-K. There have been no material 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, 2016.2018.
SIGNIFICANT RECENT EVENTSPENDING ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD
AcquisitionsThe Company will adopt Accounting Standards Update 2016-13 on January 1, 2020, as issued by the Financial Accounting Standards Board. Management is continuing its implementation efforts, which are led by a cross-functional working group. Management is in the process of determining the impact of the adoption of this guidance on the Company's financial condition, results of operations, liquidity, and regulatory capital ratios. Based on current economic conditions, management expects the allowance for credit losses to increase approximately 65% to 85%, or $70 million to $95 million, upon adoption, which includes approximately 45%, or $50 million, attributable to acquired loans. Approximately $30 million of the acquired loan impact is related to the transition from current purchased credit impaired treatment to purchased credit deteriorated treatment, which has no impact on regulatory capital. Tier 1 capital ratios are expected to decrease 25 to 40 basis points upon adoption, which management believes can be absorbed by the Company's earnings over one to two quarters. However, the extent of the increase in the allowance for credit losses to total loans will depend on the composition of the loan portfolio, as well as the economic conditions and forecasts as of the adoption date. For additional discussion of accounting pronouncements pending adoption, see Note 2 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
Standard Bancshares,ACQUISITIONS
Pending
Park Bank
On August 27, 2019, the Company entered into a merger agreement to acquire Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee, Wisconsin. As of June 30, 2019, Bankmanagers had approximately $1.0 billion of assets, $815 million of deposits, and $700 million of loans. The merger agreement provides for a fixed exchange ratio of 29.9675 shares of Company common stock, plus $623.02 of cash, for each share of Bankmanagers common stock, subject to certain adjustments. As of the date of announcement, the overall transaction was valued at approximately $195 million. The transaction is subject to customary regulatory approvals, the approval of Bankmanagers' shareholders, and the completion of various closing conditions.

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Completed
Bridgeview Bancorp, Inc.
On January 6, 2017,May 9, 2019, the Company completed its acquisition of Standard Bancshares,Bridgeview Bancorp, Inc. ("Standard"Bridgeview"), the holding company for StandardBridgeview Bank and Trust Company. With the acquisition,Group. At closing, the Company acquired 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest Indiana, and added approximately $2.0$1.2 billion inof assets, $1.0 billion of deposits, and $1.8 billion in loans.$711.7 million of loans, net of fair value adjustments. The merger consideration totaled $580.7$135.4 million and consisted of $533.6 million in4,728,541 shares of Company common stock and $47.1$37.1 million inof cash. All Bridgeview operating systems were converted to our operating platform during the firstsecond quarter of 2017.2019.
Premier AssetNorthern Oak Wealth Management, LLCInc.
On February 28, 2017,January 16, 2019, the Company completed its acquisition of Premier AssetNorthern Oak Wealth Management, LLCInc. ("Premier"Northern Oak"), a registered investment advisoradviser based in Chicago, Illinois. At the close of the acquisition, the Company acquiredMilwaukee, Wisconsin with approximately $550.0$800 million of trust assets under management.management at closing.


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PERFORMANCE OVERVIEW
Table 1
Selected Financial Data
(Amounts in thousands, except per share data)
Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
2017 2016 2017 20162019 2018 2019 2018
Operating Results              
Interest income$129,916
 $97,906
 $380,131
 $282,004
$181,963
 $149,532
 $522,135
 $422,965
Interest expense10,023
 6,934
 27,458
 20,337
31,176
 17,505
 82,012
 44,972
Net interest income119,893
 90,972
 352,673
 261,667
150,787
 132,027
 440,123
 377,993
Provision for loan losses10,109
 9,998
 23,266
 25,676
12,498
 11,248
 34,433
 38,043
Noninterest income43,348
 45,853
 128,244
 119,601
42,951
 35,666
 116,383
 108,130
Noninterest expense97,190
 82,888
 313,583
 246,831
108,395
 96,477
 324,647
 305,475
Income before income tax expense55,942
 43,939
 144,068

108,761
72,845
 59,968
 197,426

142,605
Income tax expense17,707
 15,537
 48,028
 37,130
18,300
 6,616
 49,809
 26,143
Net income$38,235
 $28,402
 $96,040
 $71,631
$54,545
 $53,352
 $147,617
 $116,462
Weighted-average diluted common shares outstanding101,772
 80,409
 101,327
 79,602
109,662
 102,178
 108,246
 102,092
Diluted earnings per common share$0.37
 $0.35
 $0.94
 $0.89
$0.49
 $0.52
 $1.35
 $1.13
Diluted earnings per common share, excluding certain significant transactions (1)(2)
$0.37
 $0.32
 $1.06
 $0.90
Diluted earnings per common share, adjusted(1)
$0.52
 $0.46
 $1.47
 $1.19
Performance Ratios              
Return on average common equity (3)(2)
8.10% 8.85% 7.00% 7.72%9.22% 10.99% 8.75% 8.16%
Return on average tangible common equity (3)
14.03% 12.85% 12.40% 11.27%
Return on average tangible common equity, excluding certain significant transactions (1) (2) (3)
14.11% 11.69% 13.91% 11.39%
Return on average assets (3)
1.07% 1.00% 0.92% 0.89%
Return on average assets, excluding certain significant transactions (1) (2) (3)
1.08% 0.91% 1.04% 0.90%
Tax-equivalent net interest margin (2)(3)(4)
3.86% 3.60% 3.88% 3.66%
Efficiency ratio (2)
58.97% 60.83% 59.52% 62.12%
Return on average common equity, adjusted(1)(2)
9.68% 9.73% 9.54% 8.53%
Return on average tangible common equity(2)
15.36% 18.60% 14.55% 14.03%
Return on average tangible common equity, adjusted(1)(2)
16.10% 16.51% 15.80% 14.64%
Return on average assets(2)
1.22% 1.42% 1.18% 1.07%
Return on average assets, adjusted(1)(2)
1.28% 1.26% 1.29% 1.12%
Tax-equivalent net interest margin(1)(2)(3)
3.82% 3.92% 3.97% 3.88%
Efficiency ratio(1)
53.54% 56.03% 54.60% 58.81%
(1) 
Certain significant transactions include acquisition and integration related expenses associated with completed and pending acquisitions and a net gain on a sale-leaseback transaction.
(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)(2) 
These ratios are presented on an annualized basis.
(4)(3) 
See the section of this Item 2 titled "Earnings Performance" below for additional discussion and calculation of this financial measure.



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 As of September 30, 2019 
 Change From
September 30,
2019		 December 31,
2018		 September 30,
2018		 December 31,
2018		 September 30,
2018
Balance Sheet Highlights         
Total assets$18,013,454
 $15,505,649
 $14,961,499
 $2,507,805
 $3,051,955
Total loans12,773,319
 11,446,783
 11,050,548
 1,326,536
 1,722,771
Total deposits13,440,927
 12,084,112
 11,527,114
 1,356,815
 1,913,813
Core deposits10,454,236
 9,543,208
 9,466,127
 911,028
 988,109
Loans to deposits95.0% 94.7% 95.9%    
Core deposits to total deposits77.8% 79.0% 82.1%    
Asset Quality Highlights         
Non-accrual loans$77,692
 $56,935
 $64,766
 $20,757
 $12,926
90 days or more past due loans, still
  accruing interest(1)
4,657
 8,282
 2,949
 (3,625) 1,708
Total non-performing loans82,349
 65,217
 67,715
 17,132
 14,634
Accruing troubled debt
restructurings ("TDRs")		1,422
 1,866
 1,741
 (444) (319)
Foreclosed assets(2)
25,266
 12,821
 12,244
 12,445
 13,022
Total non-performing assets$109,037
 $79,904
 $81,700
 $29,133
 $27,337
30-89 days past due loans(1)
$46,171
 $37,524
 $46,257
 $8,647
 $(86)
Non-performing assets to total loans plus
foreclosed assets		0.85% 0.70% 0.74%    
Allowance for Credit Losses         
Allowance for credit losses$110,228
 $103,419
 $100,925
 $6,809
 $9,303
Allowance for credit losses to
total loans(3)
0.86% 0.90% 0.91%    
Allowance for credit losses to
total loans, excluding acquired loans(4)
0.98% 1.01% 1.01%    
Allowance for credit losses to
non-accrual loans(3)
141.88% 181.64% 155.83%    
 As of September 30, 2017 
 Change From
September 30,
2017		 December 31,
2016		 September 30,
2016		 December 31,
2016		 September 30,
2016
Balance Sheet Highlights         
Total assets$14,267,142
 $11,422,555
 $11,578,197
 $2,844,587
 $2,688,945
Total loans10,390,292
 8,254,145
 8,171,782
 2,136,147
 2,218,510
Total deposits11,208,497
 8,828,603
 9,106,104
 2,379,894
 2,102,393
Core deposits9,622,397
 7,635,318
 7,872,364
 1,987,079
 1,750,033
Loans to deposits92.7% 93.5% 89.7%    
Core deposits to total deposits85.8% 86.5% 86.5%    
Asset Quality Highlights         
Non-accrual loans$65,176
 $59,289
 $44,289
 $5,887
 $20,887
90 days or more past due loans, still
  accruing interest (1)
2,839
 5,009
 4,318
 (2,170) (1,479)
Total non-performing loans68,015
 64,298
 48,607
 3,717
 19,408
Accruing troubled debt
restructurings ("TDRs")		1,813
 2,291
 2,368
 (478) (555)
Other real estate owned ("OREO")19,873
 26,083
 28,049
 (6,210) (8,176)
Total non-performing assets$89,701
 $92,672
 $79,024
 $(2,971) $10,677
30-89 days past due loans (1)
$28,868
 $21,043
 $26,140
 $7,825
 $2,728
Non-performing assets to total loans plus
OREO		0.86% 1.12% 0.96%    
Allowance for Credit Losses         
Allowance for credit losses$95,814
 $87,083
 $86,308
 $8,731
 $9,506
Allowance for credit losses to
total loans (2)
0.92% 1.06% 1.06%    
Allowance for credit losses to
total loans, excluding acquired loans (3)
1.09% 1.11% 1.13%    
Allowance for credit losses to
non-accrual loans (2)
147.01% 146.88% 194.87%    

(1) 
Purchased credit impaired ("PCI") loans with an accretable yield are considered current and are not included in past due loan totals.
(2) 
Foreclosed assets consists of other real estate owned ("OREO") and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
(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)(4) 
The allowance for credit losses to total loans, excluding acquired loansThis 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 income for the third quarter and first nine months of 2017 was $38.2 million, or $0.37 per share, and $96.0 million, or $0.94 per share, respectively. Performance for all periods presented was impacted by certain significant transactions, which includes acquisition and integration related pre-tax expenses of $384,000 and $20.1 million for the third quarter and first nine months of 2017, respectively, and $1.2 million and $6.8 million for the same periods in 2016, as well as a pre-tax net gain of $5.5 million on the sale-leaseback transaction which was realized in the third quarter of 2016. Excluding these transactions, earnings per share was $0.37 for the third quarter of 2017 compared to $0.32 for the third quarter of 2016 and $1.06 for the first nine months of 2017 compared to $0.90 for the same period in 2016. The increase in net income and earnings per share compared to the third quarter and first nine months of 2016, excluding certain significant transactions, reflects the benefit of the Standard and Premier acquisitions completed in the first quarter of 2017 and loan growth, which were partially offset by higher noninterest expense. In addition, the benefit of the NI Bancshares Corporation ("NI Bancshares") acquisition completed late in the first quarter of 2016 and lower provision for loan losses also contributed to the increase in net income and earnings per share compared to the first nine months of 2016. A discussion of net interest income, noninterest income, and noninterest expense is presented in the following section titled "Earnings Performance."
Total loans of $10.4 billion grew by $2.1 billion, or 25.9%, from December 31, 2016. The growth was driven primarily by the Standard acquisition.


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Non-performing assets to loans plus OREO was 0.86% at September 30, 2017, down from 1.12% at December 31, 2016, and 0.96% at September 30, 2016. 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.

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 20162018 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 TablesTable 2 and 3.below. Although we believe that these non-GAAP financial measures enhance investors' understanding of our business and performance, they should not be considered an alternative to GAAP. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended September 30, 20172019and 2016,2018, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations. Table 3 below presents this same information for the nine months ended September 30, 20172019 and 2016.2018.

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Table 2
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
Quarters Ended September 30, 
Attribution of Change
in Net Interest Income
Quarters Ended September 30, 
Attribution of Change
in Net Interest Income
2017 2016 2019 2018 
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$237,727
 $793
 1.32  $282,101
 $472
 0.67  $(60) $381
 $321
$283,178
 $1,702
 2.38  $162,646
 $631
 1.54  $615
 $456
 $1,071
Securities (1)
1,961,382
 11,586
 2.36  1,896,195
 10,752
 2.27  372
 462
 834
2,869,461
 19,906
 2.77  2,245,784
 14,533
 2.59  4,140
 1,233
 5,373
Federal Home Loan Bank
("FHLB") and Federal Reserve
Bank ("FRB") stock
67,605
 312
 1.85  51,451
 261
 2.03  72
 (21) 51
108,735
 831
 3.06  83,273
 734
 3.53  172
 (75) 97
Loans (1)(2)
10,277,420
 119,267
 4.60  8,067,900
 88,500
 4.36  25,396
 5,371
 30,767
12,539,541
 160,756
 5.09  10,980,916
 134,768
 4.87  19,777
 6,211
 25,988
Total interest-earning assets (1)(2)
12,544,134
 131,958
 4.18  10,297,647
 99,985
 3.87  25,780
 6,193
 31,973
15,800,915
 183,195
 4.60  13,472,619
 150,666
 4.44  24,704
 7,825
 32,529
Cash and due from banks194,149
      150,467
           224,127
      196,382
           
Allowance for loan losses(99,249)      (84,088)           (110,616)      (100,717)           
Other assets1,516,732
      958,299
           1,784,754
      1,326,386
           
Total assets$14,155,766
      $11,322,325
           $17,699,180
      $14,894,670
           
Liabilities and Stockholders' EquityLiabilities and Stockholders' Equity                  Liabilities and Stockholders' Equity                  
Savings deposits$2,040,609
 391
 0.08  $1,655,604
 298
 0.07  73
 20
 93
$2,056,128
 308
 0.06  $2,003,928
 364
 0.07  9
 (65) (56)
NOW accounts2,039,593
 809
 0.16  1,754,330
 338
 0.08  63
 408
 471
2,483,176
 3,462
 0.55  2,164,018
 2,151
 0.39  351
 960
 1,311
Money market deposits1,928,962
 700
 0.14  1,680,886
 450
 0.11  73
 177
 250
2,080,274
 4,111
 0.78  1,772,821
 1,522
 0.34  304
 2,285
 2,589
Time deposits1,559,966
 2,469
 0.63  1,248,425
 1,434
 0.46  412
 623
 1,035
3,026,423
 13,873
 1.82  1,993,361
 6,389
 1.27  4,090
 3,394
 7,484
Borrowed funds648,275
 2,544
 1.56  605,177
 1,782
 1.17  134
 628
 762
1,369,079
 5,639
 1.63  980,421
 3,927
 1.59  1,598
 114
 1,712
Senior and subordinated debt194,961
 3,110
 6.33  166,101
 2,632
 6.30  460
 18
 478
233,642
 3,783
 6.42  195,526
 3,152
 6.40  618
 13
 631
Total interest-bearing
liabilities
8,412,366
 10,023
 0.47  7,110,523
 6,934
 0.39  1,215
 1,874
 3,089
11,248,722
 31,176
 1.10  9,110,075
 17,505
 0.76  6,970
 6,701
 13,671
Demand deposits3,574,012
      2,806,851
           3,800,569
      3,624,520
         
Total funding sources11,986,378
    9,917,374
         15,049,291
   0.82  12,734,595
   0.55       
Other liabilities313,741
      143,249
           322,610
      250,745
           
Stockholders' equity - common1,855,647
      1,261,702
           
Stockholders' equity – common
2,327,279
      1,909,330
           
Total liabilities and
stockholders' equity
$14,155,766
      $11,322,325
           $17,699,180
      $14,894,670
           
Tax-equivalent net interest
income/margin (1)
  121,935
 3.86    93,051
 3.60  $24,565
 $4,319
 $28,884
  152,019
 3.82    133,161
 3.92  $17,734
 $1,124
 $18,858
Tax-equivalent adjustment  (2,042)      (2,079)           (1,232)      (1,134)         
Net interest income (GAAP)  $119,893
      $90,972
           $150,787
      $132,027
         
Impact of acquired loan
accretion (1)
  $7,581
 0.24    $4,555
 0.18         $9,244
 0.23    $4,565
 0.13       
Tax-equivalent net interest income/
margin, excluding the impact of
acquired loan accretion (1)
  $114,354
 3.62    $88,496
 3.42       
Tax-equivalent net interest income/
margin, adjusted(1)
  $142,775
 3.59    $128,596
 3.79       
(1) 
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. For a discussion of tax-equivalent net interest income/margin, net interest income (GAAP), and tax-equivalent net interest income/margin, excluding the impact of acquired loan accretion, seeSee the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."Reconciliations" for a discussion of this non-GAAP financial measure.
(2) 
Non-accrual loans, which totaled $65.2$77.7 million as of September 30, 20172019 and $44.3$64.8 million as of September 30, 2016,2018, 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."




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Table 3
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
Nine Months Ended September 30, Attribution of Change
in Net Interest Income		Nine Months Ended September 30, Attribution of Change
in Net Interest Income
2017 2016 2019 2018 
Average
Balance		 Interest Yield/
Rate (%)		  Average
Balance		 Interest Yield/
Rate (%)		  Volume Yield/
Rate		 TotalAverage
Balance		 Interest Yield/
Rate (%)		  Average
Balance		 Interest Yield/
Rate (%)		  Volume Yield/
Rate		 Total
Assets                              
Other interest-earning assets$238,696
 $1,921
 1.08  $274,923
 $1,240
 0.60  $(137) $818
 $681
$206,949
 $3,670
 2.37  $141,112
 $1,573
 1.49  $926
 $1,171
 $2,097
Securities (1)
1,988,408
 34,602
 2.32  1,705,180
 31,386
 2.45  4,798
 (1,582) 3,216
2,626,020
 54,716
 2.78  2,158,701
 39,997
 2.47  8,998
 5,721
 14,719
FHLB and FRB stock59,681
 1,121
 2.50  44,620
 620
 1.85  245
 256
 501
92,230
 2,540
 3.67  80,088
 2,036
 3.39  325
 179
 504
Loans (1)(2)
10,088,658
 348,625
 4.62  7,767,015
 255,337
 4.39  79,657
 13,631
 93,288
12,010,709
 464,729
 5.17  10,757,925
 382,507
 4.75  46,780
 35,442
 82,222
Total interest-earning assets (1)(2)
12,375,443
 386,269
 4.17  9,791,738
 288,583
 3.94  84,563
 13,123
 97,686
14,935,908
 525,655
 4.70  13,137,826
 426,113
 4.34  57,029
 42,513
 99,542
Cash and due from banks186,726
    146,158
         213,977
    191,788
         
Allowance for loan losses(93,526)    (80,116)         (108,956)    (99,812)         
Other assets1,463,036
    926,752
         1,668,868
    1,335,269
         
Total assets$13,931,679
    $10,784,532
         $16,709,797
    $14,565,071
         
Liabilities and Stockholders' EquityLiabilities and Stockholders' Equity              Liabilities and Stockholders' Equity              
Savings deposits$2,047,568
 1,185
 0.08  $1,628,879
 873
 0.07  238
 74
 312
$2,058,004
 1,000
 0.06  $2,026,515
 1,106
 0.07  17
 (123) (106)
NOW accounts1,989,303
 1,950
 0.13  1,606,765
 783
 0.07  222
 945
 1,167
2,277,346
 8,400
 0.49  2,074,701
 4,671
 0.30  495
 3,234
 3,729
Money market deposits1,920,919
 1,967
 0.14  1,645,237
 1,369
 0.11  252
 346
 598
1,933,417
 9,501
 0.66  1,781,912
 3,419
 0.26  314
 5,768
 6,082
Time deposits1,538,299
 6,205
 0.54  1,236,571
 4,362
 0.47  1,160
 683
 1,843
2,842,612
 38,771
 1.82  1,867,673
 15,441
 1.11  10,393
 12,937
 23,330
Borrowed funds644,823
 6,837
 1.42  457,133
 4,597
 1.34  1,978
 262
 2,240
1,092,607
 13,649
 1.67  917,987
 10,919
 1.59  2,160
 570
 2,730
Senior and subordinated debt194,820
 9,314
 6.39  176,691
 8,353
 6.32  866
 95
 961
219,542
 10,691
 6.51  195,386
 9,416
 6.44  1,175
 100
 1,275
Total interest-bearing
liabilities		8,335,732
 27,458
 0.44  6,751,276
 20,337
 0.40  4,716
 2,405
 7,121
10,423,528
 82,012
 1.05  8,864,174
 44,972
 0.68  14,554
 22,486
 37,040
Demand deposits3,490,045
    2,681,021
           3,741,986
    3,571,577
           
Total funding sources11,825,777
    9,432,297
         14,165,514
   0.77  12,435,751
   0.48       
Other liabilities288,991
    126,839
           307,881
    238,030
           
Stockholders' equity - common1,816,911
    1,225,396
           
Stockholders' equity – common
2,236,402
    1,891,290
           
Total liabilities and
stockholders' equity		$13,931,679
    $10,784,532
           $16,709,797
    $14,565,071
           
Tax-equivalent net interest
income/margin (1)
  358,811
 3.88    268,246
 3.66  $79,847
 $10,718
 $90,565
  443,643
 3.97    381,141
 3.88  $42,475
 $20,027
 $62,502
Tax-equivalent adjustment  (6,138)    (6,579)         (3,520)    (3,148)       
Net interest income (GAAP)  $352,673
    $261,667
         $440,123
    $377,993
       
Impact of acquired loan
accretion (1)
  $27,683
 0.30    $11,905
 0.16         $25,921
 0.23    $14,122
 0.14       
Tax-equivalent net interest income/
margin, excluding the impact of
acquired loan accretion (1)
  $331,128
 3.58    $256,341
 3.50       
Tax-equivalent net interest income/
margin, adjusted(1)
  $417,722
 3.74    $367,019
 3.74       
(1) 
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. For a discussion of tax-equivalent net interest income/margin, net interest income (GAAP), and tax-equivalent net interest income/margin, excluding the impact of acquired loan accretion, seeSee the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."Reconciliations" for a discussion of this non-GAAP financial measure.
(2) 
Non-accrual loans, which totaled $65.2$77.7 million as of September 30, 20172019 and $44.3$64.8 million as of September 30, 2016,2018, 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"Non-performing Assets and Corporate Performing Potential Problem Loans.Loans."
Net interest income increased by 31.8%for the third quarter and 34.8%first nine months of 2019 was up 14.2% and 16.4% compared to the third quarter and first nine months of 2016,2018, respectively. Compared to both prior periods, the increaseThe rise in net interest income was drivenresulted primarily byfrom the acquisition of interest-earning assets from the Bridgeview transaction in the middle of the second quarter of 2019 and Northern States Financial Corporation ("Northern States") transaction in the fourth quarter of 2018, security purchases, loan growth, higher acquired loan accretion, from the Standard transaction early in the first quarter of 2017. Higherand higher interest rates, and loan growth also contributed to the increase in net interest income compared to both prior periods.partially offset by higher cost of funds.


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Acquired loan accretion contributed $7.6$9.2 million and $27.7$25.9 million to net interest income for the third quarter and first nine months of 2017,2019, respectively, higher than $4.6 million and $11.9$14.1 million for the same periods in 2016.2018.
Tax-equivalent net interest margin for the third quarter and first nine months of 20172019 was 3.86%3.82% and 3.88%3.97%, respectively, decreasing 10 basis points and increasing by 26 and 229 basis points from the same periods in 2016. The rise in2018. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was impacted by a 63.59% and 14 basis point increase in acquired loan accretion compared to3.74% for the third quarter and first nine months of 2016, respectively, combined2019, down 20 basis points from the third quarter of 2018 and consistent with the positive impact of higher interest rates. In addition, compared to the first nine months of 2016,2018. Compared to both prior periods, tax-equivalent net interest margin was impacted by actions taken to reduce rate sensitivity, higher cost of funds, and compression related to the impact of adding a greater mix of higher-yielding fixed-rate loansinterest-earning assets acquired from Standard contributed toin the increase, which was more thanBridgeview transaction, partially offset by growth inhigher interest rates.
For the securities portfoliothird quarter and the continued shiftfirst nine months of loan originations and mix to lower-yielding floating rate loans.
Total2019, total average interest-earning assets rose by $2.2$848.9 million and $1.8 billion from the same periods in 2018. The increase resulted primarily from the Bridgeview and $2.6 billion fromNorthern States transactions, loan growth, and security purchases.
Total average funding sources for the third quarter and first nine months of 2016, respectively. Compared2019 increased by $869.0 million and $1.7 billion from the same periods in 2018, due primarily to both prior periods, the increase resulted from interest-earning assets acquired in the Standard transaction, loanBridgeview and Northern States transactions, organic growth, and security purchases. In addition, interest-earning assets acquired in the NI Bancshares transaction contributed to the increase compared to the first nine months of 2016.
Compared to the third quarter and first nine months of 2016, total average funding sources increased by $2.1 billion and $2.4 billion, respectively. The increase compared to both prior periods resulted primarily from deposits acquired in the Standard transaction and the addition of FHLB advances. Deposits acquired in the NI Bancshares transaction also contributed to the increase compared to the first nine months of 2016.
Noninterest Income
A summary of noninterest income for the quarters and nine months ended September 30, 20172019 and 20162018 is presented in the following table.
Table 4
Noninterest Income Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		   Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		  
 2017 2016 % Change 2017 2016 % Change 2019 2018 % Change 2019 2018 % Change
Service charges on deposit accounts $12,561
 $10,708
 17.3
 $36,079
 $30,350
 18.9
 $13,024
 $12,378
 5.2
 $36,760
 $36,088
 1.9
Wealth management fees 10,169
 8,495
 19.7
 30,354
 24,696
 22.9
 12,063
 10,622
 13.6
 35,853
 32,561
 10.1
Card-based fees (1)
 5,992
 7,332
 (18.3) 22,940
 21,642
 6.0
Merchant servicing fees (2)
 2,237
 3,319
 (32.6) 8,569
 9,517
 (10.0)
Card-based fees, net (1)
 4,694
 4,123
 13.8
 13,621
 12,450
 9.4
Capital market products income 2,592
 2,916
 (11.1) 6,185
 8,197
 (24.5) 4,161
 1,936
 114.9
 7,594
 6,313
 20.3
Mortgage banking income 2,246
 3,394
 (33.8) 5,779
 6,625
 (12.8) 3,066
 1,657
 85.0
 5,971
 5,790
 3.1
Merchant servicing fees, net 385
 387
 (0.5) 1,093
 1,100
 (0.6)
Other service charges, commissions, and
fees
 2,508
 2,302
 8.9
 7,474
 6,967
 7.3
 2,638
 2,399
 10.0
 7,324
 7,072
 3.6
Total fee-based revenues 38,305
 38,466
 (0.4) 117,380
 107,994
 8.7
 40,031
 33,502
 19.5
 108,216
 101,374
 6.7
Net gain on sale-leaseback transaction —
 5,509
 (100.0) —
 5,509
 (100.0)
Net securities gains (3)
 3,197
 187
 1,609.6
 3,481
 1,097
 217.3
Other income (4)
 1,846
 1,691
 9.2
 7,383
 5,001
 47.6
Other income(2)
 2,920
 2,164
 34.9
 8,167
 6,756
 20.9
Total noninterest income $43,348
 $45,853
 (5.5) $128,244
 $119,601
 7.2
 $42,951
 $35,666
 20.4
 $116,383
 $108,130
 7.6
(1) 
Card-based fees, consistnet consists 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) 
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 revenues was consistent withnoninterest income of $43.0 million and $116.4 million for the third quarter of 2016 and increased by 8.7% compared to the first nine months of 2016.2019, respectively, was up 20.4% and 7.6% from the same periods in 2018. The increase in service charges on deposits accounts and net card-based fees compared to both prior periods was due to services provided to customers acquired in the Bridgeview and Northern States transactions. In addition, the rise in net card-based fees benefited from higher transaction volumes. Compared to both prior periods, fee-based revenues were positively impactedthe rise in wealth management fees was driven primarily by services provided to customers acquired in the Standard and Premier transactionsNorthern Oak transaction completed in the first quarter of 2017 and organic growth in wealth management and treasury management services. In addition, the full impact of customers acquired in the NI Bancshares transaction late in the first quarter of 2016 contributed to the increase in fee-based revenues compared to the first nine months of 2016.

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Card-based fees were negatively impacted by the reduction in interchange revenue as the Durbin Amendment of the Dodd-Frank Act ("Durbin") became effective in the third quarter of 2017. The decline in merchant servicing fees reflected lower customer volumes, virtually offset by the decline in merchant card expense included in noninterest expense for each period presented. The decline in capital2019. Capital market products income increased compared to both prior periods was consistent with loan production during the same periods.as a result of higher sales to corporate clients due to lower long-term rates.
Mortgage banking income resulted primarily from sales of $72.1 million and $186.2 million of 1-4 family mortgage loans in the secondary market during the third quarter and first nine months of 2017, respectively, down from sales of $107.3 million and $198.0 million for the same periods in 2016. In addition, mortgage banking income for the third quarter and first nine months of 2017 was2019 resulted from sales of $141.0 million and $291.9 million, respectively, of 1-4 family mortgage loans in the secondary market, compared to $61.3 million and $189.4 million for the same periods in 2018. Mortgage banking income is also impacted by a decreasefluctuations in the fair value of mortgage servicing

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rights, which fluctuates from quarterresulted in a decrease to quarter.
Duringmortgage banking income of $300,000 and $2.0 million compared to the third quarter and first nine months of 2016, the Company completed a sale-leaseback transaction of 55 branches that resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, of which $5.5 million was immediately recognized and the remaining $82.5 million was deferred.
Net securities gains of $3.2 million were recognized during the third quarter of 2017 as a result of the opportunistic repositioning of the securities portfolio in light of current market conditions.2018, respectively.
Other income was elevated in the first nine months of 2017compared to both prior periods due primarily to net gains from the disposition of vacant branch propertiesbenefit settlements on BOLI and other miscellaneous items.higher fair value adjustments on equity securities.
Noninterest Expense
A summary of noninterest expense for the quarters and nine months ended September 30, 20172019 and 20162018 is presented in the following table.
Table 5
Noninterest Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		   Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		  
 2017 2016 % Change 2017 2016 % Change 2019 2018 % Change 2019 2018 % Change
Salaries and employee benefits:                        
Salaries and wages $45,219
 $37,872
 19.4
 $134,303
 $112,084
 19.8
 $50,686
 $44,067
 15.0
 $144,597
 $136,153
 6.2
Retirement and other employee
benefits
 10,419
 8,500
 22.6
 31,682
 25,149
 26.0
 10,795
 10,093
 7.0
 32,949
 32,726
 0.7
Total salaries and employee
benefits
 55,638
 46,372
 20.0
 165,985
 137,233
 21.0
 61,481
 54,160
 13.5
 177,546
 168,879
 5.1
Net occupancy and equipment expense 12,115
 10,755
 12.6
 36,925
 30,380
 21.5
 13,903
 13,183
 5.5
 42,344
 40,607
 4.3
Professional services 8,498
 6,772
 25.5
 26,073
 17,984
 45.0
 9,550
 7,944
 20.2
 27,805
 23,822
 16.7
Technology and related costs 4,505
 3,881
 16.1
 13,423
 11,251
 19.3
 5,062
 4,763
 6.3
 14,566
 14,371
 1.4
Merchant card expense (1)
 1,737
 2,857
 (39.2) 6,954
 8,179
 (15.0)
Advertising and promotions 1,852
 1,941
 (4.6) 4,611
 5,457
 (15.5) 2,955
 3,526
 (16.2) 8,494
 7,237
 17.4
Cardholder expenses 1,962
 1,515
 29.5
 5,408
 4,386
 23.3
Net OREO expense 657
 313
 109.9
 3,988
 2,099
 90.0
 381
 (413) 192.3
 1,356
 399
 239.8
Other expenses 9,842
 7,310
 34.6
 30,093
 23,052
 30.5
 11,432
 11,015
 3.8
 35,000
 32,846
 6.6
Acquisition and integration related
expenses
 384
 1,172
 (67.2) 20,123
 6,810
 195.5
 3,397
 60
 N/M
 16,602
 60
 N/M
Delivering Excellence implementation
costs
 234
 2,239
 (89.5) 934
 17,254
 (94.6)
Total noninterest expense $97,190
 $82,888
 17.3
 $313,583
 $246,831
 27.0
 $108,395
 $96,477
 12.4
 $324,647
 $305,475
 6.3
Acquisition and integration related
expenses
 (3,397) (60) N/M
 (16,602) (60) N/M
Delivering Excellence implementation
costs
 (234) (2,239) (89.5) (934) (17,254) (94.6)
Total noninterest expense, adjusted(1)
 $104,764
 $94,178
 11.2
 $307,111
 $288,161
 6.6

N/M – Not meaningful.
(1) 
The related merchant servicing fees are included in noninterest income for each period presented.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."
Total noninterest expense increased 12.4% from the third quarter of 2018 and 6.3% from the first nine months of 2018. Noninterest expense for all periods presented was impacted by 17.3%acquisition and 27.0% comparedintegration related expenses and costs related to implementation of the Company's Delivering Excellence initiative. Excluding these items, noninterest expense for the third quarter and first nine months of 2016,2019 was $104.8 million and $307.1 million, respectively, up 11.2% and was impacted by acquisition and integration related expenses6.6% from the same periods in 2018.
Operating costs associated with completedthe Bridgeview, Northern Oak, and pending acquisitions.Northern States transactions contributed to noninterest expense for the third quarter and first nine months of 2019. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, professional services, and other expenses.
Compared to both prior periods, the increase in total noninterest expense resulted largely from operating costs associated with the Standard transaction, which impacted most categories. The full quarter impact of the NI Bancshares transaction also contributed to the increase compared to the first nine months of 2016.

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Excluding operating costs associated with completed acquisitions, the rise in salaries and employee benefits compared to both prior periods was also impacted by merit increases and investmentshigher commissions resulting from sales of 1-4 family mortgage loans in additional talentthe secondary market. In addition, salaries and employee benefits for the first nine months of 2019 was impacted by the ongoing benefits of the Delivering Excellence initiative and lower pension expense. Net occupancy and equipment expense was impacted by the adoption of lease accounting guidance in the first quarter of 2019. As a result, a deferred gain related to support growth. Higher loan remediation expensesa prior sale-leaseback transaction was no longer included as a reduction in net occupancy and certainequipment expense in the amount of approximately $1.5 million quarterly. Net occupancy and equipment expense for the first nine months of 2018 was elevated due to costs associated with organizational growth contributedrelated to the Company's corporate headquarters relocation. The increase in professional services compared tofrom both prior periods presented. The decrease in advertisingwas driven mainly by the timing of certain other professional fees associated with

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organizational growth and higher loan remediation costs and legal fees. Advertising and promotions expense comparedfor the third quarter of 2018 was impacted by a contribution to the First Midwest Charitable Foundation. Compared to the first nine months of 2016 resulted from2018, the timing of certainrise in advertising costs. and promotions expense was impacted by higher costs related to marketing campaigns.
Net OREO expense increased from both prior periods due primarily to higher valuation adjustments. In addition, other expenses increased compared to both prior periods due to a reduction in the reserve for unfunded commitments during the third quarter and first nine months of 2016.2018 was impacted by higher levels of gains on sales of properties. In addition, net OREO expense for the first nine months of 2018 benefited from higher levels of operating income.
Acquisition and integration related expenses for the third quarter and first nine months of 2017 resulted from the acquisitions of Standard and Premier during the first quarter of 2017. For the third quarter and first nine months of 2016, acquisition and integration related expenses2019 resulted from the acquisition of NI Bancshares duringBridgeview, Northern Oak, and Northern States and the first quarterpending acquisition of 2016. These expenses fluctuate basedPark Bank.
Delivering Excellence implementation costs for all periods presented resulted from certain actions initiated by the Company in connection with its Delivering Excellence initiative and include property valuation adjustments on the sizelocations identified for closure, employee severance, and timing of each transaction.general restructuring and advisory services.
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 and nine months ended September 30, 20172019 and 20162018 is detailed in the following table.
Table 6
Income Tax Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Income before income tax expense $55,942
 $43,939
 $144,068
 $108,761
 $72,845
 $59,968
 $197,426
 $142,605
Income tax expense:                
Federal income tax expense $16,355
 $12,665
 $41,408
 $30,498
 $13,545
 $2,634
 $36,544
 $17,403
State income tax expense 1,352
 2,872
 6,620
 6,632
 4,755
 3,982
 13,265
 8,740
Total income tax expense $17,707
 $15,537
 $48,028
 $37,130
 $18,300
 $6,616
 $49,809
 $26,143
Effective income tax rate 31.7% 35.4% 33.3% 34.1% 25.1% 11.0% 25.2% 18.3%
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 andas well as state income taxes. State income tax expense and the related effective income 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.
Compared to both prior periods, totalTotal income tax expense and the effective tax rate were impacted by the net benefit of an increase in Illinois tax rates in the third quarter quarter of 2017, which included a $2.8 million deferred tax asset benefit, partly offset by an increase in state income tax expense. Excluding these items, the effective tax rate for the quarter and nine months ended September 30, 2017 would have been consistent with prior periods.
There have been recent legislative proposals2019 were impacted by higher levels of income subject to reduce thetax at statutory federalrates and an increase in non-deductible acquisition and integration related expenses. In addition, total income tax rate. While there can be no assurance that a reduction will ultimately occur, any such reductionexpense and the effective tax rate for the same periods in the statutory federal2018 were impacted by $7.8 million of certain income tax benefits aligned with tax reform. Excluding this item, the Company's effective tax rate would impactfor the carrying value of our net deferred tax assets with a corresponding charge to income tax expense.quarter and nine months ended September 30, 2018 was 24.0% and 23.8%, respectively.
Our accounting policies regarding the recognition of income taxes in the Consolidated Statements of Financial Condition and Income are described in Notes 1 and 15 to the Consolidated Financial Statements of our 20162018 10-K.



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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.
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 7
Investment Portfolio
(Dollar amounts in thousands)
 As of September 30, 2017 As of December 31, 2016 As of September 30, 2019 As of December 31, 2018
 
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 $42,567
 $(63) $42,504
 2.5 $48,581
 $(40) $48,541
 2.5 $40,946
 $139
 $41,085
 1.4 $37,925
 $(158) $37,767
 1.7
U.S. agency securities 154,666
 (59) 154,607
 8.9 183,528
 109
 183,637
 9.6 243,863
 224
 244,087
 8.4 144,125
 (1,562) 142,563
 6.3
Collateralized mortgage
obligations ("CMOs")
 949,762
 (12,540) 937,222
 54.1 1,064,130
 (16,684) 1,047,446
 54.6 1,567,116
 23,437
 1,590,553
 54.7 1,336,531
 (21,322) 1,315,209
 57.9
Other mortgage-backed
securities ("MBSs")
 358,746
 (3,273) 355,473
 20.5 337,139
 (4,484) 332,655
 17.3 668,935
 8,572
 677,507
 23.3 477,665
 (10,731) 466,934
 20.5
Municipal securities 204,571
 453
 205,024
 11.8 273,319
 (2,473) 270,846
 14.1 231,757
 5,677
 237,434
 8.2 229,600
 (2,413) 227,187
 10.0
Trust-preferred
collateralized debt
obligations ("CDOs")
 45,851
 (15,025) 30,826
 1.8 47,681
 (14,421) 33,260
 1.7
Equity securities 7,358
 (30) 7,328
 0.4 3,206
 (141) 3,065
 0.2
Corporate debt securities 114,407
 665
 115,072
 4.0 86,074
 (3,725) 82,349
 3.6
Total securities
available-for-sale
 $1,763,521
 $(30,537) $1,732,984
 100.0 $1,957,584
 $(38,134) $1,919,450
 100.0 $2,867,024
 $38,714
 $2,905,738
 100.0 $2,311,920
 $(39,911) $2,272,009
 100.0
Securities Held-to-MaturitySecurities Held-to-Maturity           Securities Held-to-Maturity           
Municipal securities $14,638
 $(1,717) $12,921
 
 $22,291
 $(4,079) $18,212
  $22,566
 $(584) $21,982
 
 $10,176
 $(305) $9,871
 
Equity Securities     $40,723
     $30,806
 
Portfolio Composition
As of September 30, 2017,2019, our securities available-for-sale portfolio totaled $1.7$2.9 billion, decreasing $186.5increasing $633.7 million, or 9.7%27.9%, from December 31, 2016.2018. The decreaseincrease from December 31, 20162018 was driven primarily by securities salespurchases, consisting primarily of $193.1 million late in the third quarter of 2017 as a result of the opportunistic repositioning of the securities portfolio in light of current market conditions. The reinvestment of sales proceeds in securities with similar yield and duration was completed in the fourth quarter of 2017. For additional detail regarding sales of securities see the "Realized Gains and Losses" section below.
Approximately 98% of our securities available-for-sale portfolio is comprised of U.S. treasury securities, U.S. agency securities, CMOs, MBSs, and municipal securities. The remainder consistscorporate debt securities, as well as $263.1 million of eight CDOs withsecurities acquired in the Bridgeview transaction and a fair value of $30.8 millionchange in unrealized gains (losses) due to lower market interest rates, which were partially offset by maturities, calls, and miscellaneous other equity securities with a fair value of $7.3 million.prepayments.
Investments in municipal securities comprised $205.0 million, or 11.8%, of the total securities available-for-sale portfolio at September 30, 2017. The majority consistsconsist of general obligations of local municipalities in variousmultiple states. Our municipal securities portfolio has historically experienced very low default rates and provides a predictable cash flow.


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The following table presents the effective duration, average life, and yield to maturity for the Company's securities portfolio by category as of September 30, 2019 and December 31, 2018.
Table 8
Securities Effective Duration Analysis
 As of September 30, 2017 As of December 31, 2016
 Effective Average Yield to Effective Average Yield to
 
Duration (1)
 
Life (2)
 
Maturity (3)
 
Duration (1)
 
Life (2)
 
Maturity (3)
Securities Available-for-Sale           
U.S. treasury securities0.80% 0.82
 1.08% 1.39% 1.42
 0.99%
U.S. agency securities1.83% 3.02
 1.68% 2.65% 3.89
 1.55%
CMOs3.37% 4.25
 2.09% 3.76% 4.49
 1.88%
MBSs3.78% 5.22
 2.20% 4.15% 5.62
 2.07%
Municipal securities4.20% 4.32
 3.23% 4.17% 2.51
 3.85%
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
Total securities available-for-sale3.35% 4.27
 2.19% 3.72% 4.27
 2.14%
Securities Held-to-Maturity           
Municipal securities5.18% 6.96
 4.52% 6.47% 9.08
 3.98%

N/M - Not meaningful.
 As of September 30, 2019 As of December 31, 2018
 Effective Average Yield to Effective Average Yield to
 
Duration(1)
 
Life(2)
 
Maturity(3)
 
Duration(1)
 
Life(2)
 
Maturity(3)
Securities Available-for-Sale           
U.S. treasury securities0.68% 0.70
 2.34% 1.08% 1.12
 2.23%
U.S. agency securities2.29% 4.13
 2.64% 1.56% 2.97
 2.29%
CMOs2.08% 4.09
 2.72% 3.53% 4.71
 2.72%
MBSs3.54% 4.55
 2.84% 4.26% 5.63
 2.76%
Municipal securities4.13% 4.23
 2.72% 4.81% 5.05
 2.65%
Corporate debt securities1.28% 5.81
 3.25% 0.00% 6.93
 3.53%
Total securities available-for-sale2.55% 4.23
 2.76% 3.51% 4.85
 2.72%
Securities Held-to-Maturity           
Municipal securities3.29% 4.12
 4.51% 1.27% 1.35
 3.54%
(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 expected 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 4.274.23 years and 3.35%2.55%, respectively, as of September 30, 2017, consistent with 4.272019, down from 4.85 years and down from 3.72%3.51% as of December 31, 2016.2018. The decrease resulted primarily from maturities and saleshigher expected future prepayments of investment securities that were reinvested into lower-duration CMOs and MBSs.MBSs due to lower market interest rates.
Realized Gains and Losses
There were $3.2 million and $3.5 million ofno net securities gains or impairment charges recognized forduring the third quarter and first nine months of 2017, on securities with carrying values of $193.1 million2019 and $223.8 million, respectively. Third quarter of 2017 gains were the result of the opportunistic repositioning of the securities portfolio in light of current market conditions, including gains on the sale of three CDOs with carrying values totaling $1.9 million. In addition, $214.1 million of securities were acquired in the Standard transaction during the first quarter of 2017, of which $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. No impairment charges were recognized during the third quarter or first nine months of 2017.
Net securities gains for the third quarter and first nine months of 2016 were $187,000 and $1.1 million, respectively, on securities with carrying values of $2.6 million and $41.7 million for the same periods. No impairment charges were recognized during the third quarter or first nine months of 2016.2018.
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.net of deferred income taxes. This balance sheet component will fluctuate as current market interest rates and conditions change and affect the aggregate fair value of the portfolio. AsLower market interest rates drove the change to $38.7 million of unrealized gains as of September 30, 2017, net2019 compared to $39.9 million of unrealized losses totaled $30.5 million compared to net unrealized losses of $38.1 million as of December 31, 2016.

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Net unrealized losses in the CMO portfolio totaled $12.5 million as of September 30, 2017 compared to $16.7 million as of December 31, 2016. CMOs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. We do not believe any individual unrealized loss on these securities as of September 30, 2017 represents other-than-temporary securities impairment ("OTTI") related to credit deterioration. In addition, we do not intend to sell the CMOs with unrealized losses and we do not believe it is more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.
Our investments in CDOs are supported by the credit of the underlying banks and insurance companies. The net unrealized losses on these securities were $15.0 million as of September 30, 2017 and $14.4 million as of December 31, 2016. We do not believe the unrealized losses on the CDOs as of September 30, 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 16 of "Notes to the Condensed Consolidated Financial Statements," in Part I, Item 1 of this Form 10-Q.2018.
LOAN PORTFOLIO AND CREDIT QUALITY
Portfolio Composition
Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 81.9%76.5% of total loans atas of September 30, 2017.2019. 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

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concentrations, loan delinquencies, and non-performing and corporate performing potential problem loans to monitor and mitigate potential and current risks in the portfolio.
Table 9
Loan Portfolio
(Dollar amounts in thousands)
 As of  
 September 30, 2017		 
% of
Total Loans
 
As of
December 31, 2016
 % of
Total Loans		 % Change As of  
 September 30, 2019		 
% of
Total Loans
 
As of
December 31, 2018
 % of
Total Loans		 % Change
Commercial and industrial $3,462,612
 33.3 $2,827,658
 34.3 22.5 $4,570,361
 35.8 $4,120,293
 36.0 10.9
Agricultural 437,721
 4.2 389,496
 4.7 12.4 417,740
 3.3 430,928
 3.8 (3.1)
Commercial real estate:                    
Office, retail, and industrial 1,960,367
 18.9 1,581,967
 19.2 23.9 1,892,877
 14.8 1,820,917
 15.9 4.0
Multi-family 711,101
 6.8 614,052
 7.4 15.8 817,444
 6.4 764,185
 6.7 7.0
Construction 545,666
 5.3 451,540
 5.4 20.8 637,256
 5.0 649,337
 5.6 (1.9)
Other commercial real estate 1,391,241
 13.4 979,528
 11.9 42.0 1,425,292
 11.2 1,361,810
 11.9 4.7
Total commercial real estate 4,608,375
 44.4 3,627,087
 43.9 27.1 4,772,869
 37.4 4,596,249
 40.1 3.8
Total corporate loans 8,508,708
 81.9 6,844,241
 82.9 24.3 9,760,970
 76.5 9,147,470
 79.9 6.7
Home equity 847,209
 8.2 747,983
 9.1 13.3 833,955
 6.5 851,607
 7.4 (2.1)
1-4 family mortgages 711,607
 6.8 423,922
 5.1 67.9 1,686,967
 13.2 1,017,181
 8.9 65.8
Installment 322,768
 3.1 237,999
 2.9 35.6 491,427
 3.8 430,525
 3.8 14.1
Total consumer loans 1,881,584
 18.1 1,409,904
 17.1 33.5 3,012,349
 23.5 2,299,313
 20.1 31.0
Total loans $10,390,292
 100.0 $8,254,145
 100.0 25.9 $12,773,319
 100.0 $11,446,783
 100.0 11.6
TotalLoan growth in all categories was positively impacted by the Bridgeview acquisition in the second quarter of 2019, which totaled $629.9 million as of September 30, 2019. Excluding these loans, of $10.4 billiontotal loans grew by 25.9%8.1% annualized from December 31, 2016. Excluding2018. In addition, total corporate loans acquired in the Standard transaction, total loans grew by 7.3%benefited from December 31, 2016. Growthgrowth in commercial and industrial loans, primarily within our sector-based lending businesses, and multi-familymiddle market business units, and multifamily loans. Strong production within commercial real estate loans contributed to the increase in total loans. Total loans were also impactedwas offset by the additionimpact of the decision of certain customers to opportunistically sell their commercial business or investment real estate properties, as well as refinancing with non-bank lenders and real estate investors. Growth in consumer loans resulted primarily from purchases of 1-4 family mortgages installment loans, and shorter-duration, floating rate home equity loans.

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organic growth.
Commercial, Industrial, and Agricultural Loans
Commercial, industrial, and agricultural loans represent 37.5%represented 39.1% of total loans, and totaled $3.9$5.0 billion at September 30, 2017,2019, an increase of $683.2$436.9 million, or 21.2%9.6%, from December 31, 2016.2018. 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. Our commercialinventory and industrial portfolio does not have significant direct exposure to the oilequipment financing, and gas industry.select sector-based lending, such as healthcare, asset-based lending, structured finance, and syndications. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory. The underlying collateral securing commercial and industrial loans may fluctuate in value due to the success of the business or economic conditions. For loans secured by accounts receivable, the availability of funds for repayment and economic conditions may impact the cash flow of the borrower. Accordingly, the underwriting for these loans is based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and may incorporate a personal guarantee.
Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming operation. Risks uniquely inherent in agricultural loans relate to weather conditions, agricultural product pricing, and loss of crops or livestock due to disease or other factors. Therefore, as part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.

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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.markets. 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 made 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.

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The following table presents commercial real estate loan detail as of September 30, 20172019 and December 31, 2016.2018.
Table 10
Commercial Real Estate Loans
(Dollar amounts in thousands)
 As of  
 September 30, 2017		 % of
Total		 As of
December 31, 2016		 % of
Total		 As of  
 September 30, 2019		 % of
Total		 As of
December 31, 2018		 % of
Total
Office, retail, and industrial:          
Office $841,117
 18.3 $599,572
 16.5 $683,045
 14.3 $708,146
 15.4
Retail 447,392
 9.7 412,614
 11.4 593,903
 12.4 506,099
 11.0
Industrial 671,858
 14.6 569,781
 15.7 615,929
 12.9 606,672
 13.2
Total office, retail, and industrial 1,960,367
 42.6 1,581,967
 43.6 1,892,877
 39.6 1,820,917
 39.6
Multi-family 711,101
 15.4 614,052
 16.9 817,444
 17.1 764,185
 16.7
Construction 545,666
 11.8 451,540
 12.4 637,256
 13.4 649,337
 14.1
Other commercial real estate:          
Multi-use properties 331,620
 7.2 236,430
 6.5 297,504
 6.2 309,199
 6.7
Rental properties 202,375
 4.4 159,134
 4.4 288,810
 6.1 235,851
 5.1
Warehouses and storage 161,307
 3.5 136,853
 3.8 171,614
 3.6 197,185
 4.3
Hotels 142,972
 3.0 128,199
 2.8
Service stations and truck stops 117,690
 2.5 100,293
 2.2
Restaurants 115,761
 2.5 63,067
 1.7 105,632
 2.2 115,667
 2.5
Service stations and truck stops 108,258
 2.4 51,403
 1.5
Hotels 96,773
 2.1 41,780
 1.2
Recreational 89,062
 1.9 58,390
 1.6 87,716
 1.8 70,490
 1.5
Automobile dealers 42,245
 0.9 53,671
 1.4
Religious 34,491
 0.8 38,319
 1.1
Other 209,349
 4.5 140,481
 3.9 213,354
 4.5 204,926
 4.5
Total other commercial real estate 1,391,241
 30.2 979,528
 27.1 1,425,292
 29.9 1,361,810
 29.6
Total commercial real estate $4,608,375
 100.0 $3,627,087
 100.0 $4,772,869
 100.0 $4,596,249
 100.0
Commercial real estate loans represent 44.4%37.4% of total loans, and totaled $4.6$4.8 billion at September 30, 2017,2019, increasing by $981.3$176.6 million, or 27.1%3.8%, from December 31, 2016.2018.
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 43%41% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of September 30, 2017.2019. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was 215%194% and construction loans to total capital was 30%35% as of September 30, 2017.2019. Non-owner-occupied (investor) commercial real estate is calculated in accordance with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and commercial real estate loans that are not secured by real estate collateral.

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Consumer Loans
Consumer loans represent 18.1%represented 23.5% of total loans, and totaled $1.9$3.0 billion at September 30, 2017,2019, an increase of $471.7$713.0 million, or 33.5%31.0%, from December 31, 2016.2018. 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 that 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 11
Loan Portfolio by Performing/Non-PerformingNon-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 
Total
Loans
As of September 30, 2017           
As of September 30, 2019           
Commercial and industrial$14,998
 $3,392,367
 $12,577
 $1,166
 $41,504
 $3,462,612
$44,294
 $4,479,204
 $18,142
 $1,982
 $26,739
 $4,570,361
Agricultural10,065
 426,616
 325
 335
 380
 437,721
5,196
 399,313
 6,966
 23
 6,242
 417,740
Commercial real estate:  
          
        
Office, retail, and industrial16,824
 1,927,612
 3,710
 —
 12,221
 1,960,367
24,910
 1,837,498
 3,657
 —
 26,812
 1,892,877
Multi-family14,216
 693,590
 3,013
 129
 153
 711,101
5,738
 807,684
 1,870
 —
 2,152
 817,444
Construction13,648
 531,469
 29
 374
 146
 545,666
13,444
 621,826
 1,771
 63
 152
 637,256
Other commercial real estate65,222
 1,322,110
 1,321
 349
 2,239
 1,391,241
49,246
 1,368,474
 1,780
 1,112
 4,680
 1,425,292
Total commercial real estate109,910
 4,474,781
 8,073
 852
 14,759
 4,608,375
93,338
 4,635,482
 9,078
 1,175
 33,796
 4,772,869
Total corporate loans134,973
 8,293,764
 20,975
 2,353
 56,643
 8,508,708
142,828
 9,513,999
 34,186
 3,180
 66,777
 9,760,970
Home equity2,498
 836,059
 3,079
 44
 5,529
 847,209
2,882
 817,971
 5,601
 175
 7,326
 833,955
1-4 family mortgages18,423
 687,482
 2,698
 —
 3,004
 711,607
19,205
 1,659,322
 4,851
 —
 3,589
 1,686,967
Installment1,143
 319,067
 2,116
 442
 —
 322,768
876
 487,716
 1,533
 1,302
 —
 491,427
Total consumer loans22,064
 1,842,608
 7,893
 486
 8,533
 1,881,584
22,963
 2,965,009
 11,985
 1,477
 10,915
 3,012,349
Total loans$157,037
 $10,136,372
 $28,868
 $2,839
 $65,176
 $10,390,292
$165,791
 $12,479,008
 $46,171
 $4,657
 $77,692
 $12,773,319
As of December 31, 2016           
As of December 31, 2018           
Commercial and industrial$2,167
 $2,788,891
 $6,288
 $374
 $29,938
 $2,827,658
$1,175
 $4,076,842
 $8,347
 $422
 $33,507
 $4,120,293
Agricultural512
 388,067
 —
 736
 181
 389,496
3,282
 425,041
 940
 101
 1,564
 430,928
Commercial real estate:  
          
        
Office, retail, and industrial12,398
 1,546,078
 5,085
 1,129
 17,277
 1,581,967
16,556
 1,785,561
 8,209
 4,081
 6,510
 1,820,917
Multi-family12,225
 600,054
 858
 604
 311
 614,052
13,663
 745,739
 1,487
 189
 3,107
 764,185
Construction4,442
 446,480
 332
 —
 286
 451,540
4,838
 640,936
 3,419
 —
 144
 649,337
Other commercial real estate12,219
 961,709
 1,182
 1,526
 2,892
 979,528
54,763
 1,297,191
 4,805
 2,197
 2,854
 1,361,810
Total commercial real estate41,284
 3,554,321
 7,457
 3,259
 20,766
 3,627,087
89,820
 4,469,427
 17,920
 6,467
 12,615
 4,596,249
Total corporate loans43,963
 6,731,279
 13,745
 4,369
 50,885
 6,844,241
94,277
 8,971,310
 27,207
 6,990
 47,686
 9,147,470
Home equity615
 738,213
 3,581
 109
 5,465
 747,983
1,916
 839,206
 4,988
 104
 5,393
 851,607
1-4 family mortgages14,949
 403,521
 2,241
 272
 2,939
 423,922
16,655
 991,842
 3,681
 1,147
 3,856
 1,017,181
Installment1,459
 234,805
 1,476
 259
 —
 237,999
962
 427,874
 1,648
 41
 —
 430,525
Total consumer loans17,023
 1,376,539
 7,298
 640
 8,404
 1,409,904
19,533
 2,258,922
 10,317
 1,292
 9,249
 2,299,313
Total loans$60,986
 $8,107,818
 $21,043
 $5,009
 $59,289
 $8,254,145
$113,810
 $11,230,232
 $37,524
 $8,282
 $56,935
 $11,446,783
(1) 
PCI loans with an accretable yield are considered current.
(2)
Includes PCI loans of $239,000 and $681,000 as of September 30, 2017 and December 31, 2016, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition 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 12
Non-Performing Assets and Past Due Loans
(Dollar amounts in thousands)
As ofAs of
September 30,
2017		 June 30,
2017		 March 31,
2017		 December 31,
2016		 September 30,
2016		September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Non-accrual loans$65,176
 $79,196
 $54,294
 $59,289
 $44,289
$77,692
 $63,477
 $70,205
 $56,935
 $64,766
90 days or more past due loans, still
accruing interest (1)
2,839
 2,059
 2,633
 5,009
 4,318
4,657
 2,615
 8,446
 8,282
 2,949
Total non-performing loans68,015
 81,255
 56,927
 64,298
 48,607
82,349
 66,092
 78,651
 65,217
 67,715
Accruing TDRs1,813
 2,029
 2,112
 2,291
 2,368
1,422
 1,441
 1,844
 1,866
 1,741
OREO19,873
 26,493
 29,140
 26,083
 28,049
Foreclosed assets(2)
25,266
 28,488
 10,818
 12,821
 12,244
Total non-performing assets$89,701
 $109,777
 $88,179
 $92,672
 $79,024
$109,037
 $96,021
 $91,313
 $79,904
 $81,700
30-89 days past due loans (1)
$28,868
 $19,081
 $23,641
 $21,043
 $26,140
$46,171
 $34,460
 $45,764
 $37,524
 $46,257
Non-accrual loans to total loans0.63% 0.77% 0.54% 0.72% 0.54%0.61% 0.51% 0.61% 0.50% 0.59%
Non-performing loans to total loans0.65% 0.79% 0.57% 0.78% 0.59%0.64% 0.53% 0.68% 0.57% 0.61%
Non-performing assets to total loans plus
OREO
0.86% 1.07% 0.87% 1.12% 0.96%
Non-performing assets to total loans plus
foreclosed assets
0.85% 0.77% 0.79% 0.70% 0.74%
(1) 
PCI loans with an accretable yield are considered current and are not included in past due loan totals.
(2)
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
Total non-performing assets represented 0.86%0.85% of total loans and OREOforeclosed assets at September 30, 2017, down from 1.12%2019, compared to 0.70% and 0.74% at December 31, 20162018 and 0.96% at September 30, 2016. Included2018, respectively, reflective of normal fluctuations that can occur on a quarterly basis. Compared to December 31, 2018, the increase in non-performingnon-accrual loans was driven primarily by the transfer of two corporate loan relationships to non-accrual status, partially offset by the transfer of one corporate loan relationship to foreclosed assets during the first nine months of 2019, for which the Company has remediation plans in place. In addition, included in foreclosed assets as of September 30, 20172019 was $5.9$3.9 million of OREO acquired in the StandardBridgeview transaction.


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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 13
TDRs by Type
(Dollar amounts in thousands)
As ofAs of
September 30, 2017 December 31, 2016 September 30, 2016September 30, 2019 December 31, 2018 September 30, 2018
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 industrial14
 $23,049
 3
 $431
 3
 $436
4
 $4,793
 6
 $6,240
 5
 $5,853
Commercial real estate:                      
Office, retail, and industrial4
 4,512
 3
 4,888
 1
 157
—
 —
 —
 —
 —
 —
Multi-family3
 730
 3
 754
 3
 760
1
 165
 2
 557
 2
 563
Other commercial real estate1
 194
 3
 316
 3
 324
1
 173
 1
 181
 1
 184
Total commercial real estate8
 5,436
 9
 5,958
 7
 1,241
2
 338
 3
 738
 3
 747
Total corporate loans22
 28,485
 12
 6,389
 10
 1,677
6
 5,131
 9
 6,978
 8
 6,600
Home equity15
 843
 16
 997
 16
 1,060
9
 356
 11
 440
 11
 435
1-4 family mortgages11
 1,147
 11
 1,202
 11
 1,221
11
 1,023
 11
 1,060
 11
 1,071
Total consumer loans26
 1,990
 27
 2,199
 27
 2,281
20
 1,379
 22
 1,500
 22
 1,506
Total TDRs48
 $30,475
 39
 $8,588
 37
 $3,958
26
 $6,510
 31
 $8,478
 30
 $8,106
Accruing TDRs14
 $1,813
 18
 $2,291
 19
 $2,368
14
 $1,422
 15
 $1,866
 13
 $1,741
Non-accrual TDRs34
 28,662
 21
 6,297
 18
 1,590
12
 5,088
 16
 6,612
 17
 6,365
Total TDRs48
 $30,475
 39

$8,588
 37
 $3,958
26
 $6,510
 31

$8,478
 30
 $8,106
Year-to-date charge-offs on TDRs  $2,246
   $1,492
   $409
  $628
   $3,925
   $3,925
Specific reserves related to TDRs  1,264
   —
   —
  —
   —
   —
As of September 30, 2017, TDRs totaled $30.5 million, increasing by $21.9 million from December 31, 2016. The increase was driven primarily by the extension of two non-accrual credits during the third 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 14
Corporate Performing Potential Problem Loans
(Dollar amounts in thousands)
 As of September 30, 2017 As of December 31, 2016
 
Special
Mention (1)
 
Substandard (2)
 
Total (3)
 
Special
Mention (1)
 
Substandard (2)
 
Total (3)
Commercial and industrial$72,491
 $62,261
 $134,752
 $92,340
 $66,266
 $158,606
Agricultural13,310
 6,419
 19,729
 17,039
 5,894
 22,933
Commercial real estate:           
Office, retail, and industrial25,919
 45,062
 70,981
 33,852
 39,513
 73,365
Multi-family5,038
 1,856
 6,894
 3,972
 2,029
 6,001
Construction9,113
 11,310
 20,423
 111
 12,197
 12,308
Other commercial real estate32,693
 21,924
 54,617
 11,808
 13,544
 25,352
Total commercial real estate72,763
 80,152
 152,915
 49,743
 67,283
 117,026
Total corporate performing
  potential problem loans (4)
$158,564
 $148,832
 $307,396
 $159,122
 $139,443
 $298,565
Corporate performing potential
  problem loans to corporate
  loans
1.86% 1.75% 3.61% 2.33% 2.04% 4.36%
Corporate PCI performing
  potential problem loans
  included in the totals above
$19,782
 $37,446
 $57,228
 $1,868
 $13,598
 $15,466

 As of September 30, 2019 As of December 31, 2018
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
Commercial and industrial$63,434
 $75,492
 $138,926
 $74,878
 $59,597
 $134,475
Agricultural22,495
 15,246
 37,741
 10,070
 11,752
 21,822
Commercial real estate99,440
 80,993
 180,433
 109,232
 74,886
 184,118
Total corporate performing
  potential problem loans(4)
$185,369
 $171,731
 $357,100
 $194,180
 $146,235
 $340,415
Corporate performing potential
  problem loans to corporate
  loans
1.90% 1.76% 3.66% 2.12% 1.60% 3.72%
Corporate PCI performing
  potential problem loans
  included in the totals above
$6,576
 $38,573
 $45,149
 $14,650
 $20,638
 $35,288
(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 $664,000$232,000 as of September 30, 20172019 and $834,000$630,000 as of December 31, 2016.2018.
(4) 
Includes corporate PCI performing potential problem loans.

Corporate performing potential problem loans were 3.6% ofto corporate loans was 3.66% at September 30, 2017, lower than 4.4%2019 compared to 3.72% at December 31, 2016. The Standard acquisition added corporate performing potential problem loans that were designated as PCI.2018.

Foreclosed Assets
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OREO
OREOForeclosed assets consists of propertiesOREO and other foreclosed assets acquired as the resultin partial or total satisfaction of borrower defaults ondefaulted loans. OREO was $19.9 million at September 30, 2017, down from $26.1 million at December 31, 2016 and $28.0 million at September 30, 2016. AsOther foreclosed assets as of September 30, 2017, total OREO includes $5.9 million that was acquired2019 reflects the transfer of one corporate loan relationship for which the Company has remediation plans in the Standard transaction.place.
Table 15
OREOForeclosed Assets by Type
(Dollar amounts in thousands)
 As of As of
 September 30, 2017 December 31, 2016 September 30, 2016 September 30, 2019 December 31, 2018 September 30, 2018
Single-family homes $1,000
 $2,595
 $2,828
 $2,319
 $3,337
 $571
Land parcels:            
Raw land 849
 1,464
 1,464
 —
 —
 148
Commercial lots 7,504
 8,176
 8,982
 5,340
 2,310
 3,279
Single-family lots 2,150
 947
 1,110
 1,543
 1,962
 1,962
Total land parcels 10,503
 10,587
 11,556
 6,883
 4,272
 5,389
Multi-family units 48
 48
 48
Commercial properties 8,322
 12,853
 13,617
 3,226
 5,212
 6,284
Total OREO $19,873
 $26,083
 $28,049
 12,428
 12,821
 12,244
Other foreclosed assets(1)
 12,838
 —
 —
Total $25,266
 $12,821
 $12,244
(1)
Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.

OREO Activity
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A rollforward of OREO balancesforeclosed assets for the quarters and nine months ended September 30, 20172019 and 20162018 is presented in the following table.
Table 16
OREOForeclosed Assets Rollforward
(Dollar amounts in thousands)
 Quarters Ended September 30, Nine Months Ended September 30, Quarters Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016 2019 2018 2019 2018
Beginning balance $26,493
 $29,990
 $26,083
 $27,782
 $15,313
 $12,892
 $12,821
 $20,851
Transfers from loans 1,788
 219
 3,770
 3,894
 197
 2,854
 519
 4,026
Acquisitions —
 —
 8,424
 2,863
 (77) —
 6,160
 —
Proceeds from sales (8,984) (2,217) (17,460) (6,069) (4,194) (4,313) (9,430) (12,951)
Gains (losses) on sales of OREO 735
 (21) 794
 (154)
OREO valuation adjustments (159) 78
 (1,738) (267)
Gains on sales of foreclosed assets 295
 1,075
 648
 1,090
Valuation adjustments 894
 (264) 1,710
 (772)
Ending balance $19,873
 $28,049
 $19,873
 $28,049
 $12,428
 $12,244
 $12,428
 $12,244
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.trends, and other factors.
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 September 30, 2017.2019.
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 NoteNotes 1 and 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q. The following table provides additional details related to acquired loans, the allowance for credit losses as related to acquired loans, and the remaining acquisition adjustment associated with acquired loans as of September 30, 20172019 and December 31, 2016.2018.
Table 17
Allowance for Credit Losses and Acquisition Adjustment
(Dollar amounts in thousands)
 Loans, Excluding Acquired Loans 
Acquired Loans (1)
 Total Loans, Excluding Acquired Loans 
Acquired Loans(1)
 Total
Nine months ended September 30, 2017      
Nine months ended September 30, 2019      
Beginning balance $84,217
 $2,866
 $87,083
 $102,222
 $1,197
 $103,419
Net charge-offs (14,108) (427) (14,535) (26,874) (750) (27,624)
Provision for loan losses and other expense 22,942
 324
 23,266
 34,161
 272
 34,433
Ending balance $93,051
 $2,763
 $95,814
 $109,509
 $719
 $110,228
As of September 30, 2017      
As of September 30, 2019      
Total loans $8,574,324
 $1,815,968
 $10,390,292
 $11,226,603
 $1,546,716
 $12,773,319
Remaining acquisition adjustment (2)
 N/A
 78,284
 78,284
 N/A
 93,374
 93,374
Allowance for credit losses to total loans (3)
 1.09% 0.15% 0.92% 0.98% 0.05% 0.86%
Remaining acquisition adjustment to acquired loans N/A
 4.31% N/A
 N/A
 6.04% N/A
As of December 31, 2016      
As of December 31, 2018      
Total loans $7,620,100
 $634,045
 $8,254,145
 $10,114,113
 $1,332,670
 $11,446,783
Remaining acquisition adjustment (2)
 N/A
 22,574
 22,574
 N/A
 76,496
 76,496
Allowance for credit losses to total loans (3)
 1.11% 0.45% 1.06% 1.01% 0.09% 0.90%
Remaining acquisition adjustment to acquired loans N/A
 3.56% N/A
 N/A
 5.74% 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 $45.8$64.2 million and $32.5$29.1 million relating to PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of September 30, 2017,2019, and $10.8$45.4 million and $11.8$31.1 million relating to PCI and Non-PCI loans, respectively, as of December 31, 2016.2018.
(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 1.09%0.98% as of September 30, 2017.2019. The acquisition adjustment increased by $55.7$16.9 million during the first nine months of 2017,2019, driven primarily by the Standard transaction. This was partiallyloans acquired in the Bridgeview transaction, partly offset by acquired loan accretion, and resulting in a remaining acquisition adjustment as a percent of acquired loans of 4.31%6.04%. Acquired loans that are renewed are no longer classified as acquired loans. These loans totaled $304.0$512.6 million and $117.6$458.0 million as of September 30, 20172019 and December 31, 2016,2018, 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 $2.8 million$719,000 on acquired loans.loans as of September 30, 2019.


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Table 18
Allowance for Credit Losses and
and Summary of Credit Loss Experience
(Dollar amounts in thousands)
Quarters EndedQuarters Ended
September 30,
2017		 June 30,
2017		 March 31,
2017		 December 31,
2016		 September 30,
2016		September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Change in allowance for credit losses                  
Beginning balance$93,371
 $89,163
 $87,083
 $86,308
 $81,505
$106,929
 $104,779
 $103,419
 $100,925
 $97,691
Loan charge-offs:                  
Commercial, industrial, and agricultural8,935
 2,957
 4,074
 4,298
 1,760
7,176
 6,516
 6,451
 6,868
 6,277
Office, retail, and industrial14
 —
 127
 349
 2,193
293
 1,605
 628
 761
 759
Multi-family—
 —
 —
 19
 —
—
 —
 340
 —
 1
Construction(6) 39
 5
 —
 —
—
 —
 6
 —
 1
Other commercial real estate6
 307
 408
 99
 509
184
 329
 210
 163
 177
Consumer1,617
 1,556
 1,664
 1,256
 1,488
3,619
 2,974
 3,142
 2,535
 2,049
Total loan charge-offs10,566
 4,859
 6,278
 6,021
 5,950
11,272
 11,424
 10,777
 10,327
 9,264
Recoveries of loan charge-offs:                  
Commercial, industrial, and agricultural698
 400
 1,666
 758
 615
1,205
 1,258
 1,301
 1,239
 416
Office, retail, and industrial1,825
 8
 975
 184
 42
74
 151
 10
 48
 163
Multi-family2
 6
 28
 2
 69
38
 —
 1
 3
 —
Construction19
 12
 227
 12
 9
2
 10
 6
 99
 5
Other commercial real estate25
 79
 101
 210
 94
227
 45
 21
 980
 154
Consumer331
 323
 443
 323
 326
527
 619
 354
 441
 512
Total recoveries of loan charge-offs2,900
 828
 3,440
 1,489
 1,155
2,073
 2,083
 1,693
 2,810
 1,250
Net loan charge-offs7,666
 4,031
 2,838
 4,532
 4,795
9,199
 9,341
 9,084
 7,517
 8,014
Provision for loan losses10,109
 8,239
 4,918
 5,307
 9,998
12,498
 11,491
 10,444
 9,811
 11,248
Decrease in reserve for unfunded
commitments (1)
—
 —
 —
 —
 (400)
Increase in reserve for unfunded
commitments (1)
—
 —
 —
 200
 —
Total provision for loan losses and other
expense
10,109
 8,239
 4,918
 5,307
 9,598
12,498
 11,491
 10,444
 10,011
 11,248
Ending balance$95,814
 $93,371
 $89,163
 $87,083
 $86,308
$110,228
 $106,929
 $104,779
 $103,419
 $100,925
Allowance for credit losses         
Allowance for loan losses$109,028
 $105,729
 $103,579
 $102,219
 $99,925
Reserve for unfunded commitments1,200
 1,200
 1,200
 1,200
 1,000
Total allowance for credit losses$110,228
 $106,929
 $104,779
 $103,419
 $100,925
Allowance for credit losses to loans(1)
0.86% 0.85% 0.91% 0.90% 0.91%
Allowance for credit losses to loans, excluding
acquired loans(2)
0.98% 0.98% 1.00% 1.01% 1.01%
Allowance for credit losses to
non-accrual loans
141.88% 168.45% 149.25% 181.64% 155.83%
Allowance for credit losses to
non-performing loans
133.85% 161.79% 133.22% 158.58% 149.04%
Average loans$12,538,189
 $12,020,820
 $11,456,267
 $10,921,795
 $10,978,336
Net loan charge-offs to average loans,
annualized
0.29% 0.31% 0.32% 0.26% 0.29%
(1) 
Included in other noninterest income in the Condensed Consolidated Statements of Income.



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 Quarters Ended
 September 30,
2017		 June 30,
2017		 March 31,
2017		 December 31,
2016		 September 30,
2016
Allowance for credit losses         
Allowance for loan losses$94,814
 $92,371
 $88,163
 $86,083
 $85,308
Reserve for unfunded commitments1,000
 1,000
 1,000
 1,000
 1,000
Total allowance for credit losses$95,814
 $93,371
 $89,163
 $87,083
 $86,308
Allowance for credit losses to loans (1)
0.92% 0.91% 0.89% 1.06% 1.06%
Allowance for credit losses to loans, excluding
  acquired loans (2)
1.09% 1.10% 1.11% 1.11% 1.13%
Allowance for credit losses to
  non-accrual loans
147.01% 117.90% 164.22% 146.88% 194.87%
Allowance for credit losses to
  non-performing loans
140.87% 114.91% 156.63% 135.44% 177.56%
Average loans$10,273,630
 $10,059,968
 $9,916,281
 $8,171,953
 $8,062,035
Net loan charge-offs to average loans,
  annualized
0.30% 0.16% 0.12% 0.22% 0.24%

(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) 
The allowance for credit losses to total loans, excluding acquired loansThis 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."

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Activity in the Allowance for Credit Losses
The allowance for credit losses was $95.8$110.2 million as of September 30, 2017, an increase of $8.7 million from December 31, 2016,2019 and represents 0.92%represented 0.86% of total loans, down compared to 1.06%0.90% at December 31, 2016.2018. This decrease was driven primarily by loans acquired in the Bridgeview transaction, for which no allowance for credit losses was established at the time of acquisition.
The provision for loan losses was $10.1$12.5 million for the quarter ended September 30, 2017,2019, up from $5.3$9.8 million for the quarter ended December 31, 20162018 and consistent with $10.0$11.2 million for the quarter ended September 30, 2016.2018. The increase compared to both prior periods resulted primarily from loan growth. In addition, provision for the quarter ended December 31, 2016 resulted primarily from loan growth and a higher level2018 was impacted by lower levels of net loan charge-offs.
Total netNet loan charge-offs to average loans, annualized, were 0.29%, or $9.2 million, for the third quarter of 2017 was 30 basis points, or $7.7 million, increasing2019, up from 22 and 24 basis points0.26% for the fourth quarter of 2018 and third quarters of 2016, respectively. Included withinconsistent with the third quarter of 2017 were charge-offs related to two corporate credits identified in the second quarter of 2017, partially offset by a large recovery on a single commercial real estate loan.2018.

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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 19
Funding Sources -– Average Balances
(Dollar amounts in thousands)
Quarters Ended September 30, 2017 % Change FromQuarters Ended September 30, 2019 % Change From
September 30,
2017		 December 31,
2016		 September 30,
2016		  December 31,
2016		 September 30,
2016		September 30,
2019		 December 31,
2018		 September 30,
2018		  December 31,
2018		 September 30,
2018
Demand deposits$3,574,012
 $2,803,016
 $2,806,851
  27.5
 27.3
$3,800,569
 $3,685,806
 $3,624,520
  3.1
 4.9
Savings deposits2,040,609
 1,633,010
 1,655,604
  25.0
 23.3
2,056,128
 2,044,312
 2,003,928
  0.6
 2.6
NOW accounts2,039,593
 1,715,228
 1,754,330
  18.9
 16.3
2,483,176
 2,128,722
 2,164,018
  16.7
 14.7
Money market accounts1,928,962
 1,623,392
 1,680,886
  18.8
 14.8
2,080,274
 1,831,311
 1,772,821
  13.6
 17.3
Core deposits9,583,176
 7,774,646
 7,897,671
  23.3
 21.3
10,420,147
 9,690,151
 9,565,287
  7.5
 8.9
Time deposits1,551,767
 1,196,243
 1,230,286
  29.7
 26.1
2,836,854
 2,190,251
 1,971,629
  29.5
 43.9
Brokered deposits8,199
 16,805
 18,139
  (51.2) (54.8)189,569
 121,202
 21,732
  56.4
 772.3
Total time deposits1,559,966
 1,213,048
 1,248,425
  28.6
 25.0
3,026,423
 2,311,453
 1,993,361
  30.9
 51.8
Total deposits11,143,142
 8,987,694
 9,146,096
  24.0
 21.8
13,446,570
 12,001,604
 11,558,648
  12.0
 16.3
Securities sold under agreements to
repurchase
113,982
 122,866
 111,699
  (7.2) 2.0
90,514
 118,749
 103,921
  (23.8) (12.9)
Federal funds purchased21,456
 9,022
 3,641
  137.8
 489.3
FHLB advances534,293
 495,109
 493,478
  7.9
 8.3
1,257,109
 903,478
 872,859
  39.1
 44.0
Total borrowed funds648,275
 617,975
 605,177
  4.9
 7.1
1,369,079
 1,031,249
 980,421
  32.8
 39.6
Senior and subordinated debt194,961
 259,531
 166,101
  (24.9) 17.4
233,642
 204,030
 195,526
  14.5
 19.5
Total funding sources$11,986,378
 $9,865,200
 $9,917,374
  21.5
 20.9
$15,049,291
 $13,236,883
 $12,734,595
  13.7
 18.2
Average interest rate paid on
borrowed funds
1.56% 1.10% 1.17%     1.63% 1.72% 1.59%     
Weighted-average maturity of FHLB
advances
1.0 months
 0.9 months
 0.9 months
     52.1 months
 1.2 months
 1.0 months
     
Weighted-average interest rate of
FHLB advances
1.22% 0.60% 0.44%     1.59% 2.53% 2.23%     
Total average funding sources for the third quarter of 20172019 increased by $2.1$1.8 billion, or 21.5%, compared to13.7% from the fourth quarter of 20162018 and $2.1$2.3 billion, or 20.9%18.2%, compared to the third quarter of 2016.2018. The riseincrease in total average core depositsfunding sources compared to both prior periods resulted primarily from $1.7 billion in corewas driven by deposits assumed in the StandardBridgeview transaction, as well as organic growth.deposit growth, and FHLB advances. In addition, the rise in total average deposits compared to the third quarter of 2018 was impacted by deposits assumed in the Northern States transaction and various time deposit marketing initiatives. The increase in the weighted-average maturity of FHLB advances was


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driven by the addition of putable FHLB advances during the first nine months of 2019 that mature between June of 2024 and September of 2029.
Table 20
Borrowed Funds
(Dollar amounts in thousands)
As of September 30, 2017 As of September 30, 2016September 30, 2019 September 30, 2018
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$110,536
 0.07  $114,539
 0.06$93,490
 0.07  $98,546
 0.08
Federal funds purchased180,000
 0.21  —
 —
FHLB advances590,000
 1.22  525,000
 0.441,380,000
 1.59  975,000
 2.23
Total borrowed funds$700,536
 1.04  $639,539
 0.37$1,653,490
 1.33  $1,073,546
 2.03
Average for the year-to-date period:                
Securities sold under agreements to repurchase$121,003
 0.06  $124,244
 0.09$103,579
 0.08  $112,775
 0.07
Federal funds purchased16,223
 2.32  5,220
 1.74
FHLB advances523,820
 1.73  332,460
 1.81972,805
 1.83  799,992
 1.80
Other borrowings—
 —  429
 3.74
Total borrowed funds$644,823
 1.42  $457,133
 1.34$1,092,607
 1.67  $917,987
 1.59
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
  $122,441
    $128,553
  
Federal funds purchased295,000
  140,000
 
FHLB advances940,000
    625,000
  1,547,000
    1,105,000
  
Other borrowings—
  2,400
 
Average borrowed funds totaled $644.8 million$1.1 billion for the first nine months of 2017,2019, increasing by $187.7$174.6 million compared to the same period in 2016.2018. This increase was due primarily to higher levels of FHLB advances during the first nine months of 2017.advances. The weighted-average rate on FHLB advances for both periods presented was impacted by the hedging of $415.0$510.0 million and $325.0$710.0 million in FHLB advances as of September 30, 20172019 and 2016,2018, 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 2.17%1.79% and 2.19%1.91% as of September 30, 20172019 and 2016,2018, respectively. For a detailed discussion of interest rate swaps, see Note 1411 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.
On September 27, 2016,During the third quarter of 2019, the Company entered into arenewed its loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. Onfacility to provide that the credit facility will mature on September 26, 2017, the Company entered into a first amendment to this credit facility, which extends the maturity to September 26, 2018.2020. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. As of September 30, 2017,2019, no amount was outstanding under the facility.
Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.
MANAGEMENT OF CAPITAL
Capital Measurements
A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. On January 1, 2015, theThe Company and the Bank becameare 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 20162018 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

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Table of capital. The Company submitted its first required stress test report for the July 31, 2017 reporting date and the Bank will become subject to these stress test requirements starting with the July 31, 2018 reporting date.Contents



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

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and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels to be considered "well-capitalized," which is the highest capital category established. All regulatory mandated ratios for characterization as "well-capitalized" were exceeded as of September 30, 20172019 and December 31, 2016.2018.
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 21
Capital Measurements
(Dollar amounts in thousands)
    As of September 30, 2017    As of September 30, 2019
As of 
Regulatory
Minimum
For
Well-
Capitalized
  As of 
Regulatory
Minimum
for
Well-
Capitalized
  
September 30, 
 2017		 December 31, 2016 Excess Over
Required Minimums		September 30, 
 2019		 December 31, 2018 Excess Over
Required Minimums
Bank regulatory capital ratios                  
Total capital to risk-weighted assets10.75% 10.73% 10.00% 7% $90,173
11.27% 11.39% 10.00% 13% $181,551
Tier 1 capital to risk-weighted assets9.95% 9.83% 8.00% 24% $235,032
10.50% 10.58% 8.00% 31% $356,246
Common equity Tier 1 to risk-weighted assets9.95% 9.83% 6.50% 53% $415,536
CET1 to risk-weighted assets10.50% 10.58% 6.50% 62% $569,939
Tier 1 capital to average assets9.05% 8.76% 5.00% 81% $535,973
8.93% 9.41% 5.00% 79% $658,796
Company regulatory capital ratios                  
Total capital to risk-weighted assets11.79% 12.23% N/A
 N/A
 N/A
12.62% 12.62% N/A
 N/A
 N/A
Tier 1 capital to risk-weighted assets9.83% 9.90% N/A
 N/A
 N/A
10.18% 10.20% N/A
 N/A
 N/A
Common equity Tier 1 to risk-weighted assets9.42% 9.39% N/A
 N/A
 N/A
CET1 to risk-weighted assets10.18% 10.20% N/A
 N/A
 N/A
Tier 1 capital to average assets9.04% 8.99% N/A
 N/A
 N/A
8.67% 8.90% N/A
 N/A
 N/A
Company tangible common equity ratios (1)(2)
                  
Tangible common equity to tangible assets8.25% 8.05% N/A
 N/A
 N/A
8.54% 8.59% N/A
 N/A
 N/A
Tangible common equity, excluding
accumulated other comprehensive loss, to
tangible assets
8.53% 8.42% N/A
 N/A
 N/A
8.50% 8.95% N/A
 N/A
 N/A
Tangible common equity to risk-weighted
assets
9.02% 8.88% N/A
 N/A
 N/A
10.24% 9.81% 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."
The Company's total capital and Tier 1 capital to risk-weighted assetsCapital ratios decreasedwere consistent compared to December 31, 20162018 as strong earnings and deferred gains recognized due to the Standard and Premier acquisitions, whichadoption of lease accounting guidance at the beginning of 2019 were partly offset by an increase in retained earnings over the first nine monthsBridgeview and Northern Oak acquisitions, the impact of 2017.loan growth and securities purchases on risk-weighted assets, and stock repurchases.
The Board of Directors reviews the Company's capital plan each quarter, considering the current and expected operating environment as well as evaluatingand various capital alternatives.
Dividends
The Company's Board of Directors approved a quarterly cash dividend of $0.10$0.14 per common share during the third quarter of 2017,2019, which follows an increase of 17% from the first quarter of 2019 and is a dividend27% increase from $0.09the third quarter of 2018. This dividend represents the 147th consecutive cash dividend paid by the Company since its inception in 1983.
Stock Repurchase Program
On March 19, 2019, the Company announced a stock repurchase program that authorizes the Company to $0.10 perrepurchase up to $180 million of its common sharestock. Stock repurchases under this program may be made from time to time on the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for a one-year period, with repurchases made at prices to be determined by the Company. The stock repurchase program does not obligate the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time.

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The Company repurchased approximately 645,000 and 1.7 million shares of its common stock at a total cost of $12.7 million and $33.9 million during the second quarter of 2017.and nine months ended September 30, 2019, respectively.

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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, adjusted, noninterest expense, adjusted, effective income tax rate, adjusted, allowance for credit losses to loans, excluding the impact of acquired loan accretion,loans, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive loss,income ("AOCI"), to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, and return on average tangible common equity, excluding certain significant transactions, and allowance for credit losses to loans, excluding acquired loans.adjusted.
The Company presents its 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 Delivering Excellence implementation costs (all periods), acquisition and integration related expenses associated with completed and pending acquisitions (all periods presented)periods), and a net gain related to a sale-leaseback transactioncertain tax benefits aligned with tax reform (third quarter and first nine months of 2016)2018). Management believes excluding these transactions from our EPS, the efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity aremay be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion facilitatesmay facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics ismay be 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 enhancesmay enhance comparability for peer comparison purposes.
The Company presents noninterest expense, adjusted, which excludes Delivering Excellence implementation costs and acquisition and integration related expenses. In addition, the Company presents the effective tax rate, adjusted, which excludes certain income tax benefits aligned with tax reform. Management believes that excluding these items from noninterest expense and the effective tax rate may be useful in assessing the Company's underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate 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 assetsassets. Interest income and assumes a 35%yields on tax-exempt securities and loans are presented using the current federal income tax rate.rate of 21%. 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 enhancesmay enhance comparability for peer comparison purposes. In addition, management believes that thepresenting tax-equivalent net interest margin, excluding the impact of acquired loan accretion, enhancesadjusted, may enhance comparability for peer comparison purposes and ismay be useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.
In management's view, tangible common equity measures are capital adequacy metrics that may be 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 ismay be useful as it facilitatesmay facilitate 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 enhancesmay enhance comparability for peer comparison purposes. See Table 17 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. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and 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 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Earnings Per Share        
Net income $38,235
 $28,402
 $96,040
 $71,631
Net income applicable to non-vested restricted shares (340) (324) (910) (826)
Net income applicable to common shares 37,895
 28,078
 95,130
 70,805
Acquisition and integration related expenses 384
 1,172
 20,123
 6,810
Tax effect of acquisition and integration related expenses (154) (469) (8,049) (2,724)
Net gain on sale-leaseback transaction —
 (5,509) —
 (5,509)
Tax effect of gain on sale-leaseback transaction —
 2,204
 —
 2,204
Net income applicable to common shares, excluding
certain significant transactions (1)
 $38,125
 $25,476
 $107,204
 $71,586
Weighted-average common shares outstanding:      
Weighted-average common shares outstanding (basic) 101,752
 80,396
 101,307
 79,589
Dilutive effect of common stock equivalents 20
 13
 20
 13
Weighted-average diluted common shares
outstanding		 101,772
 80,409
 101,327
 79,602
Basic EPS $0.37
 $0.35
 $0.94

$0.89
Diluted EPS $0.37
 $0.35
 $0.94

$0.89
Diluted EPS, excluding certain significant transactions (1)
 $0.37
 $0.32
 $1.06

$0.90
Efficiency Ratio Calculation        
Noninterest expense $97,190
 $82,888
 $313,583
 $246,831
Less:        
Net OREO expense (657) (313) (3,988) (2,099)
Acquisition and integration related expenses (384) (1,172) (20,123) (6,810)
Total $96,149
 $81,403
 $289,472
 $237,922
Tax-equivalent net interest income (2)
 $121,935
 $93,051
 $358,811
 $268,246
Fee-based revenues 38,305
 38,466
 117,380
 107,994
Add:        
Other income, excluding BOLI income 422
 762
 3,288
 2,325
BOLI income 1,424
 929
 4,095
 2,676
Tax-equivalent adjustment of BOLI income 949
 619
 2,730
 1,784
Total $163,035
 $133,827
 $486,304
 $383,025
Efficiency ratio 58.97% 60.83% 59.52% 62.12%
  Quarters Ended 
 September 30,		  Nine Months Ended 
 September 30,
  2019 2018  2019 2018
EPS         
Net income $54,545
 $53,352
  $147,617
 $116,462
Net income applicable to non-vested restricted shares (465) (441)  (1,257) (992)
Net income applicable to common shares 54,080
 52,911
  146,360
 115,470
Adjustments to net income:         
Acquisition and integration related expenses 3,397
 60
  16,602
 60
Tax effect of acquisition and integration related expenses (849) (15)  (4,151) (15)
Delivering Excellence implementation costs 234
 2,239
  934
 17,254
Tax effect of Delivering Excellence implementation costs (59) (560)  (234) (4,314)
Income tax benefits —
 (7,798)  —
 (7,798)
Total adjustments to net income, net of tax 2,723
 (6,074)  13,151
 5,187
Net income applicable to common shares, adjusted $56,803
 $46,837
  $159,511
 $120,657
Weighted-average common shares outstanding:       
Weighted-average common shares outstanding (basic) 109,281
 102,178
  107,852
 102,087
Dilutive effect of common stock equivalents 381
 —
  394
 5
Weighted-average diluted common shares outstanding 109,662
 102,178
  108,246
 102,092
Basic EPS $0.49
 $0.52
  $1.36

$1.13
Diluted EPS $0.49
 $0.52
  $1.35

$1.13
Diluted EPS, adjusted $0.52
 $0.46
  $1.47

$1.18
Return on Average Assets       
Net income $54,545
 $53,352
  $147,617
 $116,462
Total adjustments to net income, net of tax(1)
 2,723
 (6,074)  13,151
 5,187
Net income, adjusted $57,268
 $47,278
  $160,768
 $121,649
Average assets $17,699,180
 $14,894,670
  $16,709,797
 $14,565,071
Return on average assets(2)(3)
 1.22% 1.42%  1.18% 1.07%
Return on average assets, adjusted(1)(2)(3)
 1.28% 1.26%  1.29% 1.12%
          
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


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  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Return on Average Common and Tangible Common Equity      
Net income applicable to common shares $37,895
 $28,078
 $95,130
 $70,805
Intangibles amortization 1,931
 1,245
 6,059
 3,475
Tax effect of intangibles amortization (772) (498) (2,424) (1,390)
Net income applicable to common shares, excluding
intangibles amortization		 39,054
 28,825
 98,765
 72,890
Acquisition and integration related expenses 384
 1,172
 20,123
 6,810
Tax effect of acquisition and integration related expenses (154) (469) (8,049) (2,724)
Net gain on sale-leaseback transaction —
 (5,509) —
 (5,509)
Tax effect of gain on sale-leaseback transaction —
 2,204
 —
 2,204
Net income applicable to common shares, excluding
intangibles amortization and certain significant
transactions (1)
 $39,284
 $26,223
 $110,839
 $73,671
Average stockholders' common equity $1,855,647
 $1,261,702
 1,816,911
 $1,225,396
Less: average intangible assets (751,366) (369,281) (751,828) (361,697)
Average tangible common equity $1,104,281
 $892,421
 $1,065,083
 $863,699
Return on average common equity (3)
 8.10% 8.85% 7.00% 7.72%
Return on average tangible common equity (3)
 14.03% 12.85% 12.40% 11.27%
Return on average tangible common equity, excluding
certain significant transactions (1) (3)
 14.11% 11.69% 13.91% 11.39%
Return on Average Assets      
Net income $38,235
 $28,402
 $96,040
 $71,631
Acquisition and integration related expenses 384
 1,172
 20,123
 6,810
Tax effect of acquisition and integration related expenses (154) (469) (8,049) (2,724)
Net gain on sale-leaseback transaction —
 (5,509) —
 (5,509)
Tax effect of gain on sale-leaseback transaction —
 2,204
 —
 2,204
Net income, excluding certain significant transactions (1)
 $38,465
 $25,800
 $108,114
 $72,412
Average assets $14,155,766
 $11,322,325
 $13,931,679
 $10,784,532
Return on average assets (3)
 1.07% 1.00% 0.92% 0.89%
Return on average assets, excluding certain significant
transactions (1) (3)
 1.08% 0.91% 1.04% 0.90%
  Quarters Ended 
 September 30,		  Nine Months Ended 
 September 30,
  2019 2018  2019 2018
Return on Average Common and Tangible Common Equity       
Net income applicable to common shares $54,080
 $52,911
  $146,360
 $115,470
Intangibles amortization 2,750
 1,772
  7,737
 5,368
Tax effect of intangibles amortization (688) (443)  (1,934) (1,400)
Net income applicable to common shares, excluding
  intangibles amortization
 56,142
 54,240
  152,163
 119,438
Total adjustments to net income, net of tax(1)
 2,723
 (6,074)  13,151
 5,187
Net income applicable to common shares, excluding
  intangibles amortization, adjusted(1)
 $58,865
 $48,166
  $165,314
 $124,625
Average stockholders' common equity $2,327,279
 $1,909,330
  2,236,402
 $1,891,290
Less: average intangible assets (877,069) (752,109)  (837,850) (753,282)
Average tangible common equity $1,450,210
 $1,157,221
  $1,398,552
 $1,138,008
Return on average common equity(2)(3)
 9.22% 10.99%  8.75% 8.16%
Return on average common equity, adjusted(1)(2)(3)
 9.68% 9.73%  9.54% 8.53%
Return on average tangible common equity(2)(3)
 15.36% 18.60%  14.55% 14.03%
Return on average tangible common equity, adjusted(1)(2)(3)
 16.10% 16.51%  15.80% 14.64%
          
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


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  As of
  September 30, 2017 December 31, 2016
Tangible Common Equity    
Stockholders' equity $1,865,130
 $1,257,080
Less: goodwill and other intangible assets (750,436) (366,876)
Tangible common equity 1,114,694
 890,204
Less: accumulated other comprehensive income ("AOCI") 38,036
 40,910
Tangible common equity, excluding AOCI $1,152,730
 $931,114
Total assets $14,267,142
 $11,422,555
Less: goodwill and other intangible assets (750,436) (366,876)
Tangible assets $13,516,706
 $11,055,679
Risk-weighted assets $12,362,833
 $10,019,434
Tangible common equity to tangible assets 8.25% 8.05%
Tangible common equity, excluding AOCI, to tangible assets 8.53% 8.42%
Tangible common equity to risk-weighted assets 9.02% 8.88%
 Quarters Ended 
 September 30,		  Nine Months Ended 
 September 30,
 2019 2018  2019 2018
Efficiency Ratio Calculation        
Noninterest expense$108,395
 $96,477
  $324,647
 $305,475
Less:        
Net OREO expense(381) 413
  (1,356) (399)
Acquisition and integration related expenses(3,397) (60)  (16,602) (60)
Delivering Excellence implementation costs(234) (2,239)  (934) (17,254)
Total$104,383
 $94,591
  $305,755
 $287,762
Tax-equivalent net interest income(2)
$152,019
 $133,161
  $443,643
 $381,141
Noninterest income42,951
 35,666
  116,383
 108,130
Total$194,970
 $168,827
  $560,026
 $489,271
Efficiency ratio53.54% 56.03%  54.60% 58.81%
         
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     
  As of
  September 30, 2019 December 31, 2018
Tangible Common Equity    
Stockholders' equity $2,339,599
 $2,054,998
Less: goodwill and other intangible assets (876,219) (790,744)
Tangible common equity 1,463,380
 1,264,254
Less: AOCI (6,738) 52,512
Tangible common equity, excluding AOCI $1,456,642
 $1,316,766
Total assets $18,013,454
 $15,505,649
Less: goodwill and other intangible assets (876,219) (790,744)
Tangible assets $17,137,235
 $14,714,905
Risk-weighted assets $14,294,011
 $12,892,180
Tangible common equity to tangible assets 8.54% 8.59%
Tangible common equity, excluding AOCI, to tangible assets 8.50% 8.95%
Tangible common equity to risk-weighted assets 10.24% 9.81%
     
Footnotes for non-GAAP reconciliations
(1) 
Certain significant transactions include acquisition and integration related expenses associated with completed and pending acquisitions and aAdjustments to net gain on a sale-leaseback transaction.income for each period presented are detailed in the EPS non-GAAP reconciliation above.
(2) 
Presented on a tax-equivalent basis, assuming athe federal income tax rate of 35%21%.
(3) 
Annualized based on the actual number of days for each period presented.


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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 20162018 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 and 200 basis points. Due to the low interest rate environment as of September 30, 2017 and December 31, 2016, management determined that an immediate decrease in interest rates greater than 100 basis points was not meaningful for this analysis.
This simulation analysis is based on expected future cash flows and repricing characteristics for balance sheet and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. In addition, this sensitivity analysis examines assets and liabilities at the beginning of the measurement period and does not assume any changes from growth or business plans over the next twelve months. Interest-earning assets and interest-bearing liabilities are assumed to re-price based on contractual terms over the twelve-month measurement period assuming an instantaneous parallel shift in interest rates in effect at the beginning of the measurement period. The simulation analysis also incorporates assumptions based on the historical behavior of deposit rates in relation to interest rates. Because these assumptions are inherently uncertain, the simulation analysis cannot definitively measure net interest income or predict the impact of the fluctuation in interest rates on net interest income, but does provide an indication of the Company's sensitivity to changes in interest rates. Actual results may differ from simulated results due to the 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, 50%48% of the loan portfolio consisted of fixed rate loans and 50%52% were floating rate loans as of September 30, 2017, compared to 48% and 52%, respectively, as of2019, consistent with December 31, 2016.2018. See Note 11 of "Notes to the CondensedConsolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.
As of September 30, 2017,2019, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 88%94% of the total compared to 12%6% for floating rate interest-bearing deposits in other banks. This compares to investments comprising 95% of fixed rate securities and 5% of floating rate interest-bearing deposits in other banks, as ofconsistent with December 31, 2016.2018. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the BankCompany 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 $96.0 million, or 2%, of the floating rate loan portfolionot meaningful as of September 30, 2017, compared to $271.5 million,2019 or 5%, of the floating rate loan portfolio as of December 31, 2016.2018. On the liability side of the balance sheet, 86%78% of deposits as of both September 30, 20172019 and December 31, 2016 are2018 were demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to risechange 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 -200
As of September 30, 2017        
As of September 30, 2019          
Dollar change $74,589
 $47,045
 $34,378
 $(45,452) $72,864
 $48,749
 $25,178
 $(33,563) $(63,961)
Percent change 16.1% 10.2% 7.4% (9.8)% 12.3% 8.2% 4.2% (5.7)% (10.8)%
As of December 31, 2016        
As of December 31, 2018          
Dollar change $44,092
 $25,412
 $12,763
 $(26,013) $86,602
 $57,888
 $28,573
 $(43,929) $(87,438)
Percent change 12.3% 7.1% 3.6% (7.2)% 15.3% 10.2% 5.0% (7.8)% (15.4)%
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 200100 basis point rise in interest rates as of September 30, 20172019 would increase net interest income by $47.0$25.2 million, or 10.2%4.2%, over the next twelve months compared to no change in interest rates. This same measure was $25.4$28.6 million, or 7.1%5.0%, as of December 31, 2016.2018.
Overall, positive interest rate risk volatility as of September 30, 2017 increased2019 compared to December 31, 2016. This increase2018 was driven primarily bylower as a reduction in short-term FHLB advances, resulting fromresult of securities and loan purchases and the salemix of securitiesinterest-earning assets acquired in the StandardBridgeview transaction. In addition, continued growth in floating rate loans funded with both core and time deposits contributed to the increase.
ITEM 4. CONTROLS AND PROCEDURES
AtAs of 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 PresidentChairman of the Board and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of ourthe Company's disclosure controls and procedures pursuant to Rules 13a-15(e)13a-15 and 15d-15 ofunder the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the PresidentChairman of the Board 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 September 30, 2017.2019. 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 business, financial condition, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
The Company providedWe provide a discussion of certain risks and uncertainties faced by the Company in the section entitled "Risk Factors" in its 2016 Formour 2018 10-K. These risks and uncertainties are not exhaustive. Additional risks and uncertainties are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, our 2016 Form2018 10-K, and our other filings made with the 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 Company announced a stock repurchase program on March 19, 2019 that will remain in effect for one year. Under this stock repurchase program, the Company may repurchase up to $180 million of its outstanding common stock, $0.01 par value per share. The Company has repurchased $33.9 million of its common stock under the program through September 30, 2019. The following table summarizes the Company's monthly Common Stock purchasescommon stock repurchases during the third quarter of 2017. The Board approved a stock repurchase program on November 27, 2007. Up to 2.5 million shares of the Company's Common Stock may be repurchased, and the total remaining authorization under the program was 2,487,947 shares as of September 30, 2017. The repurchase program has no set expiration or termination date.

2019.
Issuer Purchases of Equity Securities
  
Total
Number of
Shares
Purchased (1)
 
Average
Price
Paid per
Share
 
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program
 
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plan or
Program
July 1 - July 31, 2017 750
 $23.34
 —
 2,487,947
August 1 - August 31, 2017 105
 20.78
 —
 2,487,947
September 1 - September 30, 2017 3,732
 22.36
 —
 2,487,947
Total 4,587
 $22.48
 —
  
  
Total
Number
of Shares
Purchased(1)
 
Average
Price
Paid per
Share
 
Dollar Value
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program
 
Approximate Dollar Value of Shares that
May Yet Be
Purchased
Under the
Plan or
Program
July 1 - July 31, 2019 127,218
 $20.59
 $2,613,667
 $156,196,258
August 1 - August 31, 2019 518,341
 19.53
 10,123,962
 146,072,296
September 1 - September 30, 2019 2,628
 19.75
 —
 146,072,296
Total 648,187
 $19.74
 $12,737,629
  


(1) 
Consists of shares acquired pursuant to the Company's share-based compensation plans and not the Company's Board-approved stock repurchase program.program and the Company's share-based compensation plans. Under the terms of the Company's share-based compensation plans, the Company accepts previously owned shares of Common Stockcommon stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted shares or by option holders upon exercise to cover the exercise price of the stock options.stock.



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ITEM 6. EXHIBITS
Exhibit
Number
 Description of Documents
   
10.1
First Amendment to Loan Agreement, dated as of September 26, 2017, between First Midwest Bancorp, Inc. and U.S. Bank National Association, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2017.
11
 Statement re: Computation of Per Share Earnings – The computation of basic and diluted earnings per common share is included in Note 1310 of the Company's Notes to the Condensed Consolidated Financial Statements included in "ITEM 1. FINANCIAL STATEMENTS" of this document.
15
Acknowledgement of Independent Registered Public Accounting Firm.
31.1
 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)
 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)
 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99
101.INS		 Review Report of Independent Registered Public Accounting Firm.XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101101.SCH Interactive Data File.Inline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

(1) 
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: November 6, 20172019
* Duly authorized to sign on behalf of the registrant.


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