UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
FORM 10-Q
(Mark One)
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019March 31, 2020
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
______________________
fmbi-20200331_g1.jpg
(Exact name of registrant as specified in its charter)
Delaware36-3161078
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueFMBIThe NASDAQ Stock Market
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 ☒ 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 ☒ 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☒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 ☒.
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 4, 2019,May 5, 2020, there were 109,971,252114,259,086 shares of common stock, $0.01 par value, outstanding.




FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
Part I.FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements (Unaudited)
 
 
3
4
5
6
87
109
 
ITEM 2.
4140
 
ITEM 3.
6970
 
ITEM 4.
7071
 
Part II.
OTHER INFORMATION
 
ITEM 1.
7071
 
ITEM 1A.
7071
 
ITEM 2.
7173
 
ITEM 6.
7274



Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except per share data)
  September 30,
2019		 December 31,
2018		 March 31,
2020		December 31,
2019
AssetsAssets (Unaudited)  Assets(Unaudited) 
Cash and due from banksCash and due from banks $273,613
 $211,189
Cash and due from banks$252,138  $214,894  
Interest-bearing deposits in other banksInterest-bearing deposits in other banks 202,054
 78,069
Interest-bearing deposits in other banks229,474  84,327  
Equity securities, at fair valueEquity securities, at fair value 40,723
 30,806
Equity securities, at fair value40,098  42,136  
Securities available-for-sale, at fair valueSecurities available-for-sale, at fair value 2,905,738
 2,272,009
Securities available-for-sale, at fair value3,382,865  2,873,386  
Securities held-to-maturity, at amortized cost 22,566
 10,176
Securities held-to-maturity, at amortized cost, netSecurities held-to-maturity, at amortized cost, net19,825  21,997  
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 112,845
 80,302
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost154,357  115,409  
LoansLoans 12,773,319
 11,446,783
Loans13,965,017  12,840,330  
Allowance for loan lossesAllowance for loan losses (109,028) (102,219)Allowance for loan losses(219,948) (108,022) 
Net loansNet loans 12,664,291
 11,344,564
Net loans13,745,069  12,732,308  
Other real estate owned ("OREO")Other real estate owned ("OREO") 12,428
 12,821
Other real estate owned ("OREO")9,814  8,750  
Premises, furniture, and equipment, netPremises, furniture, and equipment, net 147,064
 132,502
Premises, furniture, and equipment, net145,844  147,996  
Investment in bank-owned life insurance ("BOLI")Investment in bank-owned life insurance ("BOLI") 297,610
 296,733
Investment in bank-owned life insurance ("BOLI")298,827  296,351  
Goodwill and other intangible assetsGoodwill and other intangible assets 876,219
 790,744
Goodwill and other intangible assets935,241  875,262  
Accrued interest receivable and other assetsAccrued interest receivable and other assets 458,303
 245,734
Accrued interest receivable and other assets539,748  437,581  
Total assetsTotal assets $18,013,454
 $15,505,649
Total assets$19,753,300  $17,850,397  
LiabilitiesLiabilities    Liabilities
Noninterest-bearing depositsNoninterest-bearing deposits $3,832,744
 $3,642,989
Noninterest-bearing deposits$4,222,523  $3,802,422  
Interest-bearing depositsInterest-bearing deposits 9,608,183
 8,441,123
Interest-bearing deposits9,876,427  9,448,856  
Total depositsTotal deposits 13,440,927
 12,084,112
Total deposits14,098,950  13,251,278  
Borrowed fundsBorrowed funds 1,653,490
 906,079
Borrowed funds2,648,210  1,658,758  
Senior and subordinated debtSenior and subordinated debt 233,743
 203,808
Senior and subordinated debt234,153  233,948  
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities 345,695
 256,652
Accrued interest payable and other liabilities336,280  335,620  
Total liabilitiesTotal liabilities 15,673,855
 13,450,651
Total liabilities17,317,593  15,479,604  
Stockholders' EquityStockholders' Equity    Stockholders' Equity
Common stockCommon stock 1,204
 1,157
Common stock1,253  1,204  
Additional paid-in capitalAdditional paid-in capital 1,208,030
 1,114,580
Additional paid-in capital1,274,935  1,211,274  
Retained earningsRetained earnings 1,343,895
 1,192,767
Retained earnings1,357,395  1,380,612  
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax 6,738
 (52,512)Accumulated other comprehensive income (loss), net of tax35,323  (1,954) 
Treasury stock, at costTreasury stock, at cost (220,268) (200,994)Treasury stock, at cost(233,199) (220,343) 
Total stockholders' equityTotal stockholders' equity 2,339,599
 2,054,998
Total stockholders' equity2,435,707  2,370,793  
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity $18,013,454
 $15,505,649
Total liabilities and stockholders' equity$19,753,300  $17,850,397  
    
September 30, 2019 December 31, 2018March 31, 2020December 31, 2019
(Unaudited)    (Unaudited)
Preferred Common Preferred CommonPreferredCommonPreferredCommon
Shares Shares Shares SharesSharesSharesSharesShares
Par value per share$—
 $0.01
 $—
 $0.01
Par value per share$—  $0.01  $—  $0.01  
Shares authorized1,000
 250,000
 1,000
 250,000
Shares authorized1,000  250,000  1,000  250,000  
Shares issued—
 120,411
 —
 115,672
Shares issued—  125,349  —  120,415  
Shares outstanding—
 109,970
 —
 106,375
Shares outstanding—  114,213  —  109,972  
Treasury shares—
 10,441
 —
 9,297
Treasury shares—  11,136  —  10,443  

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 
 March 31,
 20202019
Interest Income
Loans$147,786  $144,804  
Investment securities20,238  16,006  
Other short-term investments2,203  1,680  
Total interest income170,227  162,490  
Interest Expense  
Deposits17,117  16,602  
Borrowed funds5,841  3,551  
Senior and subordinated debt3,694  3,313  
Total interest expense26,652  23,466  
Net interest income143,575  139,024  
Provision for loan losses39,532  10,444  
Net interest income after provision for loan losses104,043  128,580  
Noninterest Income  
Wealth management fees12,361  11,600  
Service charges on deposit accounts11,781  11,540  
Capital market products income4,722  1,279  
Card-based fees3,968  4,378  
Mortgage banking income1,788  1,004  
Other service charges, commissions, and fees2,682  2,611  
Net securities losses(1,005) —  
Other income3,065  2,494  
Total noninterest income39,362  34,906  
Noninterest Expense
Salaries and employee benefits62,859  57,373  
Net occupancy and equipment expense14,227  13,797  
Professional services10,390  7,087  
Technology and related costs8,548  6,270  
Net OREO expense420  681  
Other expenses15,415  12,953  
Acquisition and integration related expenses5,472  3,691  
Delivering Excellence implementation costs—  258  
Total noninterest expense117,331  102,110  
Income before income tax expense26,074  61,376  
Income tax expense6,468  15,318  
Net income$19,606  $46,058  
Per Common Share Data  
Basic earnings per common share$0.18  $0.43  
Diluted earnings per common share$0.18  $0.43  
Dividends declared per common share$0.14  $0.12  
Weighted-average common shares outstanding109,922  105,770  
Weighted-average diluted common shares outstanding110,365  105,770  
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Interest Income        
Loans $159,978
 $133,997
 $462,462
 $380,420
Investment securities 19,452
 14,170
 53,463
 38,936
Other short-term investments 2,533
 1,365
 6,210
 3,609
Total interest income 181,963
 149,532
 522,135
 422,965
Interest Expense        
Deposits 21,754
 10,426
 57,672
 24,637
Borrowed funds 5,639
 3,927
 13,649
 10,919
Senior and subordinated debt 3,783
 3,152
 10,691
 9,416
Total interest expense 31,176
 17,505
 82,012
 44,972
Net interest income 150,787
 132,027
 440,123
 377,993
Provision for loan losses 12,498
 11,248
 34,433
 38,043
Net interest income after provision for loan losses 138,289
 120,779
 405,690
 339,950
Noninterest Income        
Service charges on deposit accounts 13,024
 12,378
 36,760
 36,088
Wealth management fees 12,063
 10,622
 35,853
 32,561
Card-based fees 4,694
 4,123
 13,621
 12,450
Capital market products income 4,161
 1,936
 7,594
 6,313
Mortgage banking income 3,066
 1,657
 5,971
 5,790
Other service charges, commissions, and fees 3,023
 2,786
 8,417
 8,172
Other income 2,920
 2,164
 8,167
 6,756
Total noninterest income 42,951
 35,666
 116,383
 108,130
Noninterest Expense        
Salaries and employee benefits 61,481
 54,160
 177,546
 168,879
Net occupancy and equipment expense 13,903
 13,183
 42,344
 40,607
Professional services 9,550
 7,944
 27,805
 23,822
Technology and related costs 5,062
 4,763
 14,566
 14,371
Net OREO expense 381
 (413) 1,356
 399
Other expenses 14,387
 14,541
 43,494
 40,083
Acquisition and integration related expenses 3,397
 60
 16,602
 60
Delivering Excellence implementation costs 234
 2,239
 934
 17,254
Total noninterest expense 108,395
 96,477
 324,647
 305,475
Income before income tax expense 72,845
 59,968
 197,426
 142,605
Income tax expense 18,300
 6,616
 49,809
 26,143
Net income $54,545
 $53,352
 $147,617
 $116,462
Per Common Share Data        
Basic earnings per common share $0.49
 $0.52
 $1.36
 $1.13
Diluted earnings per common share $0.49
 $0.52
 $1.35
 $1.13
Dividends declared per common share $0.14
 $0.11
 $0.40
 $0.33
Weighted-average common shares outstanding 109,281
 102,178
 107,852
 102,087
Weighted-average diluted common shares outstanding 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 
 March 31,
 20202019
Net income$19,606  $46,058  
Securities Available-for-Sale  
Unrealized holding gains:    
Before tax62,554  26,752  
Tax effect(17,297) (7,451) 
Net of tax45,257  19,301  
Reclassification of net losses included in net income:   
Before tax(1,005) —  
Tax effect282  —  
Net of tax(723) —  
Net unrealized holding gains  44,534  19,301  
Derivative Instruments
Unrealized holding (losses) gains: 
Before tax(10,040) 1,458  
Tax effect2,783  (406) 
Net of tax(7,257) 1,052  
Total other comprehensive income  37,277  20,353  
Total comprehensive income$56,883  $66,411  
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Net income $54,545
 $53,352
 $147,617
 $116,462
Securities Available-for-Sale        
Unrealized holding gains (losses):        
Before tax 13,636
 (13,632) 78,625
 (47,765)
Tax effect (3,800) 3,548
 (21,900) 13,055
Net of tax 9,836
 (10,084) 56,725
 (34,710)
Derivative Instruments        
Unrealized holding (losses) gains:        
Before tax (399) (880) 3,500
 (948)
Tax effect 111
 231
 (975) 250
Net of tax (288) (649) 2,525
 (698)
Total other comprehensive income (loss) 9,548
 (10,733) 59,250
 (35,408)
Total comprehensive income $64,093
 $42,619
 $206,867
 $81,054



 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, 2018$(28,792) $(2,550) $(21,170) $(52,512) 
Other comprehensive income  19,301  1,052  —  20,353  
Balance at March 31, 2019$(9,491) $(1,498) $(21,170) $(32,159) 
Balance at December 31, 2019$15,808  $819  $(18,581) $(1,954) 
Other comprehensive income  44,534  (7,257) —  37,277  
Balance at March 31, 2020$60,342  $(6,438) $(18,581) $35,323  

  
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
Income (Loss)
 
Treasury
Stock
 Total
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 —
 —
 —
 53,352
 —
 —
 53,352
Other comprehensive loss —
 —
 —
 —
 (10,733) —
 (10,733)
Common dividends declared
  ($0.11 per common share)
 —
 —
 —
 (11,326) —
 —
 (11,326)
Common stock issued 3
 —
 66
 —
 —
 —
 66
Restricted stock activity (4) —
 (109) —
 —
 (85) (194)
Treasury stock issued to benefit plans —
 —
 7
 —
 —
 (28) (21)
Share-based compensation expense —
 —
 2,968
 —
 —
 —
 2,968
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 —
 —
 —
 54,545
 —
 —
 54,545
Other comprehensive income —
 —
 —
 —
 9,548
 —
 9,548
Common dividends declared
  ($0.14 per common share)
 —
 —
 —
 (15,406) —
 —
 (15,406)
Repurchases of common stock (645) —
 —
 —
 —
 (12,738) (12,738)
Common stock issued 4
 —
 81
 —
 —
 1
 82
Restricted stock activity 27
 —
 (599) —
 —
 536
 (63)
Treasury stock issued to benefit plans (5) —
 (3) —
 —
 (94) (97)
Share-based compensation expense —
 —
 3,155
 —
 —
 —
 3,155
Ending balance 109,970
 $1,204
 $1,208,030
 $1,343,895
 $6,738
 $(220,268) $2,339,599

6



Table of Contents

 Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
As of December 31, 2018
Beginning balance106,375  $1,157  $1,114,580  $1,192,767  $(52,512) $(200,994) $2,054,998  
Adjustment to apply recent accounting
  pronouncements(1)
—  —  —  47,257  —  —  47,257  
Net income—  —  —  46,058  —  —  46,058  
Other comprehensive income—  —  —  —  20,353  —  20,353  
Common dividends declared
($0.12 per common share)		—  —  —  (12,837) —  —  (12,837) 
Acquisitions, net of issuance costs150  —  (814) —  —  4,098  3,284  
Common stock issued27  —  (137) —  —  674  537  
Restricted stock activity352  —  (13,313) —  —  9,538  (3,775) 
Treasury stock issued to benefit plans(4) —  (4) —  —  (79) (83) 
Share-based compensation expense—  —  3,679  —  —  —  3,679  
Balance at March 31, 2019106,900  $1,157  $1,103,991  $1,273,245  $(32,159) $(186,763) $2,159,471  
As of December 31, 2019
Beginning balance109,972  $1,204  $1,211,274  $1,380,612  $(1,954) $(220,343) $2,370,793  
Adjustment to apply recent accounting
  pronouncements(2)
—  —  —  (26,821) —  —  (26,821) 
Net income—  —  —  19,606  —  —  19,606  
Other comprehensive income—  —  —  —  37,277  —  37,277  
Common dividends declared
($0.14 per common share)		—  —  —  (16,002) —  —  (16,002) 
Repurchases of common stock(1,171) —  —  —  —  (22,557) (22,557) 
Acquisition, net of issuance costs4,930  49  71,834  —  —  —  71,883  
Common stock issued37  —  172  —  —  679  851  
Restricted stock activity449  —  (12,268) —  —  9,102  (3,166) 
Treasury stock issued to benefit plans(4) —  1  —  —  (80) (79) 
Share-based compensation expense—  —  3,922  —  —  —  3,922  
Balance at March 31, 2020114,213  $1,253  $1,274,935  $1,357,395  $35,323  $(233,199) $2,435,707  

(1)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.

(2)As a result of accounting guidance adopted in the first quarter of 2020, a portion of the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
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

 Three Months Ended 
 March 31,
 20202019
Operating Activities
Net income$19,606  $46,058  
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses39,532  10,444  
Depreciation of premises, furniture, and equipment4,169  4,050  
Net amortization of premium on securities5,727  2,672  
Net securities losses1,005  —  
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale(2,629) (1,410) 
Net losses (gains) on sales and valuation adjustments of OREO128  (792) 
Amortization of the FDIC indemnification asset302  302  
Net losses on sales and valuation adjustments of premises, furniture, and equipment105  391  
BOLI income(1,982) (1,826) 
Share-based compensation expense3,922  3,679  
Tax benefit related to share-based compensation62  55  
Amortization of other intangible assets2,770  2,363  
Originations of mortgage loans held-for-sale(104,694) (62,895) 
Proceeds from sales of mortgage loans held-for-sale119,159  58,783  
Net decrease (increase) in equity securities 2,038  (2,498) 
Net (increase) decrease in accrued interest receivable and other assets (114,028) 27,948  
Net decrease in accrued interest payables and other liabilities  (40,870) (37,870) 
Net cash (used in) provided by operating activities (65,678) 49,454  
Investing Activities  
Proceeds from maturities, repayments, and calls of securities available-for-sale229,391  77,601  
Proceeds from sales of securities available-for-sale39,095  —  
Purchases of securities available-for-sale(586,292) (131,707) 
Proceeds from maturities, repayments, and calls of securities held-to-maturity2,268  162  
Purchases of securities held-to-maturity(16) (2,828) 
Net purchases of FHLB stock(38,948) (5,488) 
Net increase in loans(373,138) (131,221) 
Premiums paid on BOLI, net of proceeds from claims2,003  2,660  
Proceeds from sales of OREO230  2,795  
Proceeds from sales of premises, furniture, and equipment—  557  
Purchases of premises, furniture, and equipment(3,168) (5,081) 
Net cash received from (paid for) acquisition 142,282  (11,489) 
Net cash used in investing activities  (586,293) (204,039) 
Financing Activities  
Net (decrease) increase in deposit accounts (102,404) 76,870  
Net increase in borrowed funds  977,920  67,773  
Repurchases of common stock(22,557) —  
Cash dividends paid(15,431) (12,782) 
Restricted stock activity(3,166) (3,775) 
Net cash provided by financing activities  834,362  128,086  
Net increase (decrease) in cash and cash equivalents 182,391  (26,499) 
Cash and cash equivalents at beginning of period299,221  289,258  
Cash and cash equivalents at end of period$481,612  $262,759  
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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollar amounts in thousands)
(Unaudited)
 Three Months Ended 
 March 31,
 20202019
Supplemental Disclosures of Cash Flow Information:
Income taxes paid$1,029  $321  
Interest paid to depositors and creditors28,285  23,707  
Dividends declared, but unpaid15,854  12,728  
Stock issued for acquisitions, net of issuance costs71,883  3,284  
Non-cash transfers of loans to OREO121  —  
Non-cash transfers of loans held-for-investment to loans held-for-sale3,155  2,630  
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.

8

  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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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, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
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 20182019 Annual Report on Form 10-K ("20182019 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 20182019 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.
Allowance for SecuritiesHeld-to-Maturity– The Company maintains an allowance for securities held-to-maturity for the risk of loss inherent in these financial assets, which reflects the difference between the carrying value and the discounted expected future cash flows of these assets and is included in securities held-to-maturity, at amortized cost, net in the Consolidated Statements of Financial Condition.
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 that 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, thatincluding loans which are not covered by the FDICFederal Deposit Insurance Corporation ("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 acquiredAcquired loans are included within loans held-for-investment.
Acquired and covered loans are separated into (i) non-purchased credit impaireddeteriorated ("non-PCI"non-PCD") loans and (ii) purchased credit impaireddeteriorated ("PCI"PCD") loans. Non-PCINon-PCD loans include loans that did not have evidence of more-than-insignificant credit deterioration since origination at the acquisition date. PCIPCD loans include loans that had evidence of more-than-insignificant credit deterioration
9



since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments.origination. Evidence of credit

10



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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 PCIPCD loans and are accounted for as non-PCInon-PCD loans.
The acquisition adjustment related to non-PCInon-PCD loans is amortized into interest income over the contractual life of the related loans. If an acquired non-PCInon-PCD 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.
PCIPCD loans are generally accounted for based on estimates of expected future cash flows. To estimateThe Company uses a discounted cash flow analysis involving significant unobservable inputs and assumptions to measure the fair value of PCD loans. The significant assumptions utilized in the Company generally aggregates purchased consumer loanscash flow analysis include the probability of default ("PD"), loss given default ("LGD"), 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 commercialdiscount rate. PCD loans are estimated onrecorded at fair value, excluding credit-related adjustments, for which an individual basis.allowance for loan losses is established at the acquisition date through purchase accounting adjustments. 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 throughacquisition date, the allowance for loan losses or providing an allowanceon PCD loans is estimated as are the allowances for loan losses.all other loans in the portfolio.
Prior to the adoption of the current expected credit losses ("CECL") accounting guidance on January 1, 2020, acquired loans were separated into (i) non-purchased credit impaired ("non-PCI") loans and (ii) purchased credit impaired ("PCI") loans. The significant accounting policies related to non-PCI and PCI acquired loans are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2019 10-K.
90-Days Past Due Loans – The Company's accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.
Non-accrual Loans – Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection, or (ii) when an individual analysis of a borrower's creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual status, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.
Non-accrual loans with balances under a specified threshold are not individually evaluated for impairment. For all other non-accrual loans, impairment is measured by comparing the estimated value of the loan to the recorded book value. The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's effective interest rate.
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.
10
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.

11



Table of Contents



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 reserveallowance for unfunded commitments and is maintained by management at a level believed adequate to absorb estimatedcurrent expected credit 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,actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, 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 reservesallowance 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 with consideration of reasonable and supportable forecasts of economic conditions 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 lossesindividual loans is based on a periodic analysis of impairednon-accrual loans individually exceeding a fixedspecific dollar amount. If the estimated value of an impaireda non-accrual loan is less than theits recorded book value, the Company either establishes a valuation(i) provides an allowance (i.e., a specific reserve) equal toin the amount of the excess of the book value over the collateralestimated value of the related loan as a component ofor, (ii) if the allowance for loan losses orloss is confirmed, charges off the amount if it is a confirmed loss.
The general reserve componentallowance by loan category is based on a discounted cash flows analysis as future cash flows are discounted at an effective rate of return. In addition, estimates of losses on future cash flows is forecasted by applying probability of default and loss migration analysis, which examines actual loss experience by loan category forgiven default factors as well as prepayment and curtailment assumptions to cash flows that are adjusted to a rolling eight quarter period and the related internal risk rating for corporate loans. The loss migrationpresent value. This discounted cash flow analysis is updated quarterly, primarily using actual loss experience. experience adjusted for current reasonable and supportable forecasts of economic conditions over a one-year forecast period. After the one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis. These forecasts consider multiple scenarios of key assumptions including national unemployment rates, housing price indices, and gross domestic product.
This general allowance 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, regional, 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 ofincludes an allowance on acquired non-PCD and covered non-PCI and PCIPCD loans. An allowance for loan losses is recorded on acquired PCD loans at the acquisition date through purchase accounting adjustments. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio. No allowance for loan losses is recorded on acquired non-PCD loans at the acquisition date. Subsequent todate through purchase accounting. Instead, an allowance is established on acquired non-PCD loans at 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-PCIin-line with all other loans is calculated in the same mannerportfolio as if the general reserve component based on a loss migration analysis as discussed above. The acquired and covered PCI allowance reflectsloans were originated at the difference between the carrying value and the discounted expected future cash flows of the acquired and covered PCI loans.acquisition date. 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")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.
ReserveAllowance for Unfunded Commitments – The Company also maintains a reservean allowance for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserveallowance for unfunded commitments is estimated using the historical credit loss migration analysis from theexperience with consideration of reasonable and supportable forecasts of economic conditions for each loan category. 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.
11



The establishment of the allowance for credit losses involves a high degree of judgment and estimation 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

12



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, current national, regional, and local economic trends, reasonable and supportable forecasts about the economy,future, changes in interest rates and property values, the amounts and timing of expected future cash flows on non-accrual loans, estimated losses on pools of homogenous loans, the interpretation of loan risk classifications by regulatory authorities.authorities, various internal and external qualitative factors, and other factors.
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, 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 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.
2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE
Adopted Accounting Pronouncements
Leases: In February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards 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.
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 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.
First Midwest Bank (the "Bank") entered into a sale-leaseback transaction in 2016 that resulted in a deferred gain. Upon adoption of this guidance, the remaining deferred gain of $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, "Lease Obligations." The adoption of this guidance was applied retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment and did 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 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.
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 FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standard Update ("ASU") 2016-13 that will requirerequires 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 beare 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 adoptadopted this guidance on January 1, 2020. Management is continuing its implementation efforts,2020, which are led by a cross-functional working group. Management isresulted in the processrecognition of determining the impact on the Company's financial condition, results$76.0 million of operations, liquidity,allowance for credit losses which includes $26.0 million attributable to loans, $5.6 million attributable to unfunded commitments, $35.7 million attributable to PCD loans, $8.5 million attributable to non-PCD acquired loans, and regulatory capital ratios, but expects that the adoption$220,000 attributable to securities held-to-maturity. The portion of this guidance will result in an increase in the allowance for credit losses.losses attributable to PCD loans did not have an impact on equity as the credit-related portion of acquisition adjustments on loans previously classified as PCI transitioned to PCD accounting treatment upon adoption. The extentamount of the increase will dependallowance for credit losses recognized upon adoption was based on the composition of the loan portfolio, as well as the economic conditions and forecasts as of the adoption date. The Company adopted this guidance using the modified retrospective approach which resulted in the recognition of a $26.8 million after-tax
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reduction to retained earnings as a cumulative-effect adjustment on January 1, 2020. Prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in the Company's 2019 10-K.
The Company has made the following elections upon adoption of ASU 2016-13:
•When determining the allowance and net carrying value amount for financial assets in which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty, the Company will use the fair value of collateral at the reporting date.
•The Company writes off uncollectible accrued interest in a timely manner and, therefore, will not measure an allowance for credit losses for accrued interest receivable.
•The Company uses a discounted cash flow approach for the majority of its applicable instruments. The change in the present value from one reporting period to the next may result from the passage of time, in addition to changes in estimates of the timing of the cash flows. The Company will report the entire change in the present value as provision for loan losses (or reversal of provision for loan losses) versus reporting the change related to the passage of time as interest income.
For additional discussion of the allowance for credit losses, see Note 7 "Past Due Loans, Allowance for Credit Losses, Non-Accrual Loans, and TDRs."
Accounting for Goodwill Impairment: In January of 2017, the FASB issued ASU 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 theThe adoption of this guidance willon January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.
Changes to the Disclosure Requirements for Fair Value Measurement: In August of 2018, the FASB issued ASU 2018-13 that eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. Management does not expect theThe adoption of this guidance willon January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.
Loan Modifications Due to COVID-19: In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the COVID-19 pandemic. The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States terminates. Accordingly, the Company is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial.
Regulatory Capital Delay of CECL Impact: In February of 2019, the federal bank regulatory agencies issued a final rule, the 2019 CECL Rule, that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March of 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accordance with GAAP.
Accounting Pronouncements Pending Adoption
Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the FASB issued ASU 2018-14 that makes minor changes and clarifications to the disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted.
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Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Income Taxes: In December of 2019, the FASB issued ASU 2019-12 that removes certain exceptions to the general principles of accounting for income taxes. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 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.

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TableReference Rate Reform: In March of Contents2020, the FASB issued ASU 2020-04 that provides optional expedients and exceptions for applying GAAP to contracts and other transactions affected by reference rate reform, if certain criteria are met. This guidance is effective as of March 12, 2020 through December 31, 2022. Management is in the process of determining the impact on the Company's financial condition, results of operations, and liquidity.



3. 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.
Completed Acquisitions
Park Bank
On March 9, 2020, the Company completed its acquisition of Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee Wisconsin. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $691.7 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $57.2 million associated with the acquisition was recorded by the Company. Park Bank will be merged into First Midwest Bank and all operating systems are expected to be converted to the Company's operating platform in the second quarter of 2020. The fair value adjustments, including goodwill, associated with the transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.
Bridgeview Bancorp, Inc.Bank Group
On May 9, 2019, the Company completed its acquisition of Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $711.7$710.3 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on May 9, 2019, each outstanding share of Bridgeview common stock was exchanged for 0.2767 shares of Company common stock, plus $1.66 of cash. In addition, each outstanding Bridgeview stock option was exchanged for the right to receive cash. This resulted in merger consideration of $135.4 million, which consisted of 4,728,5414.7 million shares of Company common stock and $37.1 million of cash. Goodwill of $57.7$60.7 million associated with the acquisition was recorded by the Company. All Bridgeview operating systems were converted to the Company's operating platform during the second quarter of 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.
During the first quarter of 2020, the Company updated the fair value adjustments associated with the Bridgeview transaction. The adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations.
Northern Oak Wealth Management, Inc.
On January 16, 2019, the Company completed its acquisition of Northern Oak Wealth Management, Inc. ("Northern Oak"), a registered investment adviser based in Milwaukee, Wisconsin with approximately $800.0 million of assets under management at closing. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change asDuring the Company continues to finalize the fair value of the assets and liabilities acquired.
Northern States Financial Corporation
On October 12, 2018, the Company completed its acquisition of Northern States Financial Corporation ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. At closing, the Company acquired $579.3 million of assets, $463.2 million of deposits, and $284.9 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on October 12, 2018, each outstanding share of Northern States common stock was exchanged for 0.0363 shares of Company common stock. This resulted in merger consideration of $83.3 million, which consisted of 3,310,912 shares of Company common stock. Goodwill of $30.0 million associated with the acquisition was recorded by the Company. All Northern States operating systems were converted to the Company's operating platform during the fourthfirst quarter of 2018.
During the third quarter of 2019,2020, the Company finalized the fair value adjustments associated with the Northern StatesOak transaction, which required a measurement period adjustment to goodwill. This adjustment was recognized in the 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 BridgeviewPark Bank and Northern StatesBridgeview 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
(Dollar 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

Park BankBridgeview
March 9, 2020May 9, 2019
Assets
Cash and due from banks and interest-bearing deposits in other banks$244,781  $35,097  
Equity securities—  6,966  
Securities available-for-sale136,856  263,090  
Securities held-to-maturity300  13,426  
FHLB and FRB stock—  1,481  
Loans691,667  710,302  
OREO1,868  5,436  
Goodwill57,174  60,729  
Other intangible assets3,068  15,603  
Premises, furniture, and equipment2,759  15,905  
Accrued interest receivable and other assets11,891  37,098  
Total assets$1,150,364  $1,165,133  
Liabilities
Noninterest-bearing deposits$356,050  $179,267  
Interest-bearing deposits594,026  807,487  
Total deposits950,076  986,754  
Borrowed funds11,532  1,746  
Senior and subordinated debt—  29,360  
Accrued interest payable and other liabilities14,374  11,921  
Total liabilities975,982  1,029,781  
Consideration Paid
Common stock (2020 – 4,930,231, shares issued at $14.58 per share, 2019 –
  4,728,541, shares issued at $20.77 per share), net of issuance costs
71,883  98,212  
Cash paid102,499  37,140  
Total consideration paid174,382  135,352  
$1,150,364  $1,165,133  
Expenses related to the acquisition and integration of completed and pending transactions totaled $3.4$5.5 million and $16.6$3.7 million during the quarterquarters ended March 31, 2020 and nine months ended September 30, 2019, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income.

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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 20182019 10-K.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
 As of March 31, 2020As of December 31, 2019
 Amortized CostGross UnrealizedFair
Value		Amortized CostGross UnrealizedFair
Value
 GainsLossesGainsLosses
Securities Available-for-Sale      
U.S. treasury securities$32,954  $355  $—  $33,309  $33,939  $137  $(1) $34,075  
U.S. agency securities616,469  3,940  (2,417) 617,992  249,502  758  (1,836) 248,424  
Collateralized mortgage obligations
("CMOs")		1,640,928  59,820  (736) 1,700,012  1,547,805  14,893  (5,027) 1,557,671  
Other mortgage-backed securities
("MBSs")		662,529  24,836  (94) 687,271  678,804  7,728  (1,848) 684,684  
Municipal securities228,744  5,972  (157) 234,559  228,632  5,898  (99) 234,431  
Corporate debt securities117,785  394  (8,457) 109,722  112,797  1,791  (487) 114,101  
Total securities available-for-sale$3,299,409  $95,317  $(11,861) $3,382,865  $2,851,479  $31,205  $(9,298) $2,873,386  
Securities Held-to-Maturity       
Municipal securities$20,045  $17  $—  $20,062  $21,997  $—  $(763) $21,234  
Allowance for securities held-to-
  maturity(1)
(220) $(220) 
Total securities held-to-maturity,
net		$19,825  $17  $—  $19,842  
Equity Securities$40,098  $42,136  
  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
(1)
The allowance for securities held-to-maturity was established upon adoption of CECL on January 1, 2020.
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

The carrying value ofAccrued interest receivable on the securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by lawportfolio totaled $1.7 billion$12.3 million and $11.3 million as of September 30, 2019March 31, 2020 and $1.2 billion as of December 31, 2018. NaN securities held-to-maturity were pledged as of September 30, 2019, or December 31, 2018.
During the quartersrespectively, and nine months ended September 30, 2019is included in accrued interest receivable and 2018 there were 0 realized gains on securities available-for-sale. Certain securities acquiredother assets in the Bridgeview transaction in the second quarterConsolidated Statements of 2019 were sold shortly after the acquisition date for $93.3 million, resulting in no gains or losses as the securities were recorded at fair value upon acquisition.Financial Condition.
Accounting guidance requires that the credit portion of an other-than-temporary impairment ("OTTI") chargea decline in fair value be recognized as an allowance for credit losses, established as a charge to expense 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 (loss).

 In determining whether a decline in fair value of a security is credit related, the Company considers adverse conditions specific to the security, deterioration in economic conditions or market environment that may affect the value of the securities and related collateral, if any, events of default, changes to the credit rating of the security by a rating agency, and guarantees applicable to the security, among other factors.
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Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 As of March 31, 2020
 Available-for-SaleHeld-to-Maturity
 Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
One year or less$326,292  $326,171  $8,111  $8,118  
After one year to five years178,785  178,718  5,573  5,578  
After five years to ten years490,875  490,693  3,349  3,352  
After ten years—  —  2,792  2,794  
Securities that do not have a single contractual maturity date2,303,457  2,387,283  —  —  
Total$3,299,409  $3,382,865  $19,825  $19,842  
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 $1.4 billion as of March 31, 2020 and $1.3 billion as of December 31, 2019. NaN securities held-to-maturity were pledged as of March 31, 2020 or December 31, 2019.
There waswere realized losses of $1.0 million and 0 outstanding balance of OTTI previously recognizedrealized gains (losses) on securities available-for-sale as of either September 30, 2019 or December 31, 2018. Duringfor the quarters ended March 31, 2020 and nine months ended September 30, 2019, and 2018 0 OTTI was recognized on securities available-for-sale.respectively.
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, 2019March 31, 2020 and December 31, 2018.2019.
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 Months12 Months or LongerTotal
 Number of
Securities		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
As of March 31, 2020      
Securities Available-for-Sale
U.S. agency securities24  $164,368  $2,177  $15,635  $240  $180,003  $2,417  
CMOs12  27,840  422  17,505  314  45,345  736  
MBSs11  4,809  70  6,294  24  11,103  94  
Municipal securities22  6,607  148  5,510  9  12,117  157  
Corporate debt securities11  9,615  385  76,384  8,072  85,999  8,457  
Total80  $213,239  $3,202  $121,328  $8,659  $334,567  $11,861  
As of December 31, 2019         
Securities Available-for-Sale
U.S. treasury securities5  $4,966  $1  $—  $—  $4,966  $1  
U.S. agency securities52  97,729  1,200  49,387  636  147,116  1,836  
CMOs148  187,470  2,177  412,083  2,850  599,553  5,027  
MBSs59  66,340  996  121,861  852  188,201  1,848  
Municipal securities16  9,384  89  3,104  10  12,488  99  
Corporate debt securities6  9,719  281  21,955  206  31,674  487  
Total286  $375,608  $4,744  $608,390  $4,554  $983,998  $9,298  
Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of September 30, 2019March 31, 2020 represent OTTIimpairment 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.

17
18



5. LOANS
Loans Held-for-Investment
The following table presents the Company's loans held-for-investment by class.
Loan Portfolio
(Dollar amounts in thousands)
As of
 March 31,
2020		December 31,
2019
Commercial and industrial$5,051,154  $4,481,525  
Agricultural393,138  405,616  
Commercial real estate:    
Office, retail, and industrial2,279,068  1,848,718  
Multi-family906,281  856,553  
Construction562,689  593,093  
Other commercial real estate1,349,812  1,383,708  
Total commercial real estate5,097,850  4,682,072  
Total corporate loans10,542,142  9,569,213  
Home equity965,771  851,454  
1-4 family mortgages1,968,589  1,927,078  
Installment488,515  492,585  
Total consumer loans3,422,875  3,271,117  
Total loans$13,965,017  $12,840,330  
Deferred loan fees included in total loans$8,264  $7,972  
Overdrawn demand deposits included in total loans7,126  10,675  
  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

Accrued interest receivable on the loan portfolio totaled $49.1 million and $48.4 million as of March 31, 2020 and December 31, 2019, respectively and is included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
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 20182019 10-K.

18
19



Table of Contents



Loan Sales
The following table presents loan sales and purchases for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
Loan Sales and Purchases
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,
 20202019
Corporate loan sales
Proceeds from sales$4,303  $3,198  
Less book value of loans sold4,188  3,116  
Net gains on corporate loan sales(1)
115  82  
1-4 family mortgage loan sales
Proceeds from sales119,159  58,783  
Less book value of loans sold116,645  57,455  
Net gains on 1-4 family mortgage loan sales(2)
2,514  1,328  
Total net gains on loan sales$2,629  $1,410  
Corporate loan purchases(3)
Commercial and industrial$145,822  $52,719  
Construction639  834  
Other commercial real estate—  3,986  
Total corporate loan purchases$146,461  $57,539  
Consumer loan purchases
Home equity$144,967  $38,252  
1-4 family mortgages70,175  72,930  
Total consumer loan purchases$215,142  $111,182  
  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
(1)
Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.
(1)
(2)Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.
(3)Consists of the Company's portion of loan participations purchased.
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 12,13, "Commitments, Guarantees, and Contingent Liabilities."

20



6. ACQUIRED AND COVERED LOANS
The significant accounting policies related to acquired and covered loans, which are classified as PCIPCD and non-PCI,non-PCD at March 31, 2020, 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, 2019March 31, 2020 and December 31, 2018.2019.
Acquired and Covered Loans(1)(2)
(Dollar amounts in thousands)
 As of March 31, 2020As of December 31, 2019
 PCDNon-PCDTotalPCINon-PCITotal
Acquired loans$275,172  $1,706,402  $1,981,574  $167,183  $1,216,133  $1,383,316  
  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
(1)
Included in loans in the Consolidated Statements of Financial Condition.
(1)
Included in loans in
(2)Prior to the adoption of CECL on January 1, 2020, 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 were classified as PCI.
The outstanding balance of PCD loans was $315.5 million as of March 31, 2020 and the Consolidated Statements of Financial Condition.
The outstanding balance of PCI loans was $244.8 million and $175.2$243.0 million as of September 30, 2019 and December 31, 2018, respectively.
Acquired non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled $512.6 million and $458.0 million as of September 30, 2019 and December 31, 2018, respectively.
In connection with the FDIC Agreements, the Company recorded an indemnification asset. The carrying value of the FDIC indemnification asset was $1.2 million and $2.1 million as of September 30, 2019 and 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)2019.
19

  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
Beginning balances $50,885
 $39,008
 $43,725
 $32,957
Additions —
 —
 16,037
 —
Accretion (5,759) (3,008) (13,630) (9,548)
Other(1)
 (613) 2,672
 (1,619) 15,263
Ending balance $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 quarters and nine months ended September 30,March 31, 2020 and 2019 was $9.2$6.9 million and $25.9$6.4 million, respectively, and $4.6 million and $14.1 million for the same periods in 2018.respectively.

21



7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIREDNON-ACCRUAL 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, 2019March 31, 2020 and December 31, 2018.2019 with balances presented on an amortized cost basis. 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(1)
(Dollar amounts in thousands)
 Aging Analysis (Accruing and Non-accrual)Non-performing Loans
 Current30-89 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 March 31, 2020       
Commercial and industrial$5,005,589  $23,166  $22,399  $45,565  $5,051,154  $34,012  $2,912  
Agricultural382,440  5,420  5,278  10,698  393,138  5,823  146  
Commercial real estate:  
Office, retail, and industrial2,229,685  16,590  32,793  49,383  2,279,068  44,625  —  
Multi-family897,392  5,697  3,192  8,889  906,281  2,869  558  
Construction532,427  1,342  28,920  30,262  562,689  28,920  —  
Other commercial real estate1,320,169  25,052  4,591  29,643  1,349,812  11,851  22  
Total commercial real estate4,979,673  48,681  69,496  118,177  5,097,850  88,265  580  
Total corporate loans10,367,702  77,267  97,173  174,440  10,542,142  128,100  3,638  
Home equity956,764  4,548  4,459  9,007  965,771  9,503  360  
1-4 family mortgages1,957,289  5,314  5,986  11,300  1,968,589  8,996  —  
Installment483,504  3,957  1,054  5,011  488,515  —  1,054  
Total consumer loans3,397,557  13,819  11,499  25,318  3,422,875  18,499  1,414  
Total loans$13,765,259  $91,086  $108,672  $199,758  $13,965,017  $146,599  $5,052  
As of December 31, 2019       
Commercial and industrial$4,455,381  $11,468  $14,676  $26,144  $4,481,525  $29,995  $2,207  
Agricultural398,676  850  6,090  6,940  405,616  5,954  358  
Commercial real estate:       
Office, retail, and industrial1,830,321  2,943  15,454  18,397  1,848,718  25,857  546  
Multi-family853,762  211  2,580  2,791  856,553  2,697  —  
Construction588,065  4,876  152  5,028  593,093  152  —  
Other commercial real estate1,377,678  3,233  2,797  6,030  1,383,708  4,729  529  
Total commercial real estate4,649,826  11,263  20,983  32,246  4,682,072  33,435  1,075  
Total corporate loans9,503,883  23,581  41,749  65,330  9,569,213  69,384  3,640  
Home equity841,908  4,992  4,554  9,546  851,454  8,443  146  
1-4 family mortgages1,917,648  5,452  3,978  9,430  1,927,078  4,442  1,203  
Installment491,406  1,167  12  1,179  492,585  —  12  
Total consumer loans3,250,962  11,611  8,544  20,155  3,271,117  12,885  1,361  
Total loans$12,754,845  $35,192  $50,293  $85,485  $12,840,330  $82,269  $5,001  
(1) Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
  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
20

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

22



Table of Contents



Allowance for Credit Losses
The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses inherent in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 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		ConstructionOther
Commercial
Real Estate		ConsumerAllowance for
Unfunded
Commitments		Total
Allowance for Credit Losses
Quarter Ended March 31, 2020       
Beginning balance$62,830  $7,580  $2,950  $1,697  $6,408  $26,557  $1,200  $109,222  
Adjustment to apply
  recent accounting
  pronouncements(1)
20,159  11,686  397  10,300  11,427  16,235  5,553  75,757  
Allowance established
for acquired PCD
loans		12,262  2,003  —  —  —  39  —  14,304  
Charge-offs(7,066) (338) (10) (1,808) (308) (4,400) —  (13,930) 
Recoveries1,159  9  5  —  144  499  —  1,816  
Net charge-offs(5,907) (329) (5) (1,808) (164) (3,901) —  (12,114) 
Provision for loan
losses and other		24,389  4,916  347  1,108  883  7,889  —  39,532  
Ending balance$113,733  $25,856  $3,689  $11,297  $18,554  $46,819  $6,753  $226,701  
Quarter Ended March 31, 2019       
Beginning balance$63,276  $7,900  $2,464  $2,173  $4,934  $21,472  $1,200  $103,419  
Charge-offs(6,451) (628) (340) (6) (210) (3,142) —  (10,777) 
Recoveries1,301  10  1  6  21  354  —  1,693  
Net charge-offs(5,150) (618) (339) —  (189) (2,788) —  (9,084) 
Provision for loan
losses and other		6,559  397  91  (42) 185  3,254  —  10,444  
Ending balance$64,685  $7,679  $2,216  $2,131  $4,930  $21,938  $1,200  $104,779  
  
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
(1) As a result of accounting guidance adopted in the first quarter of 2020, the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
The allowance for credit losses increased from December 31, 2019 primarily due to the adoption of CECL and the estimated impact of the COVID-19 pandemic on the allowance for credit losses, which considers multiple macroeconomic scenarios of stressed GDP, unemployment, and housing price index, detailed portfolio reviews of elevated risk sectors, and the effects of governmental responses to the COVID-19 pandemic.
21





23



The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
Loans and Related Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
 LoansAllowance for Credit Losses
 Individually
Evaluated		Collectively
Evaluated
PCD/PCI(1)
TotalIndividually
Evaluated		Collectively
Evaluated
PCD/PCI(1)
Total
As of March 31, 2020        
Commercial, industrial, and
  agricultural		$28,682  $5,299,373  $116,237  $5,444,292  $1,821  $91,604  $20,308  $113,733  
Commercial real estate:        
Office, retail, and industrial25,092  2,192,942  61,034  2,279,068  986  13,257  11,613  25,856  
Multi-family2,338  900,583  3,360  906,281  —  3,642  47  3,689  
Construction18,734  522,832  21,123  562,689  —  3,678  7,619  11,297  
Other commercial real estate3,467  1,297,591  48,754  1,349,812  —  8,422  10,132  18,554  
Total commercial real estate49,631  4,913,948  134,271  5,097,850  986  28,999  29,411  59,396  
Total corporate loans78,313  10,213,321  250,508  10,542,142  2,807  120,603  49,719  173,129  
Consumer—  3,398,211  24,664  3,422,875  —  46,315  504  46,819  
Allowance for unfunded
commitments		—  —  —  —  —  6,753  —  6,753  
Total loans$78,313  $13,611,532  $275,172  $13,965,017  $2,807  $173,671  $50,223  $226,701  
As of December 31, 2019        
Commercial, industrial, and
  agricultural		$34,142  $4,807,114  $45,885  $4,887,141  $3,414  $59,108  $308  $62,830  
Commercial real estate:        
Office, retail, and industrial24,820  1,795,557  28,341  1,848,718  578  6,899  103  7,580  
Multi-family1,995  851,857  2,701  856,553  —  2,854  96  2,950  
Construction123  581,747  11,223  593,093  —  1,681  16  1,697  
Other commercial real estate3,241  1,323,635  56,832  1,383,708  —  4,867  1,541  6,408  
Total commercial real estate30,179  4,552,796  99,097  4,682,072  578  16,301  1,756  18,635  
Total corporate loans64,321  9,359,910  144,982  9,569,213  3,992  75,409  2,064  81,465  
Consumer—  3,248,916  22,201  3,271,117  —  25,424  1,133  26,557  
Allowance for unfunded
commitments		—  —  —  —  —  1,200  —  1,200  
Total loans$64,321  $12,608,826  $167,183  $12,840,330  $3,992  $102,033  $3,197  $109,222  
  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
(1)Prior to the adoption of CECL on January 1, 2020, 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 were classified as PCI.
22



24The following table presents collateral-dependent loans, including PCD loans, without regard to accrual status by primary collateral type and non-accrual loans with no related allowance as of March 31, 2020.

Collateral-dependent Loans and Non-accrual Loans With No Related Allowance by Class


(Dollar amounts in thousands)
Table of Contents



Type of CollateralNon-accrual Loans
With No Related
Allowance
Real
Estate		Blanket
Lien		Equipment
Commercial and industrial$7,292  $60,475  $2,055  $9,497  
Agricultural4,755  2,043  —  5,610  
Commercial real estate:
Office, retail, and industrial55,176  —  —�� 17,674  
Multi-family2,338  —  —  2,338  
Construction29,502  —  —  19,185  
Other commercial real estate27,589  —  —  9,310  
Total commercial real estate114,605  —  —  48,507  
Total corporate loans126,652  62,518  2,055  63,614  
Home equity1,506  —  —  266  
1-4 family mortgages96  —  —  1,942  
Installment—  —  —  —  
Total consumer loans1,602  —  —  2,208  
Total loans$128,254  $62,518  $2,055  $65,822  
Loans Individually Evaluated for Impairment
The following table presents loans individually evaluated for impairment by class of loan as of September 30, 2019March 31, 2020 and December 31, 2018.2019. PCD and 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 March 31, 2020As of December 31, 2019
 Recorded Investment In Recorded Investment In 
 Loans with
No Specific
Allowance		Loans with
a Specific
Allowance		Unpaid
Principal
Balance		Specific
Allowance		Loans with
No Specific
Allowance		Loans with
a Specific
Allowance		Unpaid
Principal
Balance		Specific
Allowance
Commercial and industrial$6,876  $16,196  $47,302  $1,821  $12,885  $15,516  $52,559  $2,456  
Agricultural5,610  —  10,389  —  1,889  3,852  9,293  958  
Commercial real estate:        
Office, retail, and industrial14,250  10,842  37,317  986  14,111  10,709  37,007  578  
Multi-family2,338  —  2,338  —  1,995  —  1,995  —  
Construction18,734  —  18,734  —  123  —  123  —  
Other commercial real estate3,467  —  3,755  —  3,241  —  3,495  —  
Total commercial real estate38,789  10,842  62,144  986  19,470  10,709  42,620  578  
Total non-accrual loans
individually evaluated		$51,275  $27,038  $119,835  $2,807  $34,244  $30,077  $104,472  $3,992  

25



The following table presents the average recorded investment and interestInterest income recognized on impairednon-accrual loans by classusing the cash basis of accounting totaled $278,000 and $79,000 for the quarters ended March 31, 2020 and nine months ended September 30, 2019, and 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,
  2019 2018
  Average
Recorded
Investment		 
Interest
Income
Recognized(1)
 Average
Recorded
Investment		 
Interest
Income
Recognized(1)
Commercial and industrial $21,111
 $74
 $28,082
 $123
Agricultural 6,249
 9
 2,372
 —
Commercial real estate:        
Office, retail, and industrial 20,773
 2
 6,641
 105
Multi-family 3,578
 48
 3,757
 11
Construction 123
 —
 —
 —
Other commercial real estate 3,496
 42
 2,831
 68
Total commercial real estate 27,970
 92
 13,229
 184
Total impaired loans $55,330
 $175
 $43,683
 $307
         
  Nine Months Ended September 30,
  2019 2018
  Average
Recorded
Investment		 
Interest
Income
Recognized(1)
 Average
Recorded
Investment		 
Interest
Income
Recognized(1)
Commercial and industrial $26,275
 $100
 $34,440
 $159
Agricultural 4,032
 20
 2,153
 25
Commercial real estate:        
Office, retail, and industrial 15,611
 6
 8,867
 873
Multi-family 3,456
 48
 2,132
 66
Construction 62
 —
 —
 —
Other commercial real estate 2,517
 84
 2,338
 181
Total commercial real estate 21,646
 138
 13,337
 1,120
Total impaired loans $51,953
 $258
 $49,930
 $1,304
(1)
Recorded using the cash basis of accounting.

26



respectively.
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. at least annually or more often if events or circumstances arise that could impact the rating. The following tables present credit quality indicators for corporate and consumer loans on an amortized cost basis as of March 31, 2020.
23



Corporate Loan Portfolio by Origination Year
(Dollar amounts in thousands)
 
2020(1)
2019201820172016Prior
Revolving
Loans
Total
Commercial, industrial,
and agricultural:		     
Pass$347,347  $886,843  $969,223  $536,226  $254,029  $496,992  $1,684,205  $5,174,865  
Special Mention(2)
4,155  10,109  11,814  4,424  10,296  14,678  65,270  120,746  
Substandard(3)
523  3,256  25,569  17,947  14,907  15,875  30,769  108,846  
Non-accrual(4)
—  130  2,199  10,969  5,300  6,129  15,108  39,835  
Total commercial,
industrial, and
agricultural		$352,025  $900,338  $1,008,805  $569,566  $284,532  $533,674  $1,795,352  $5,444,292  
Commercial, industrial,
and agricultural net
loan charge-offs		$—  $1  $533  $196  $398  $1,612  $3,167  $5,907  
Office, retail, and
industrial:
Pass$91,286  $261,537  $269,725  $369,944  $336,235  $730,037  $97,171  $2,155,935  
Special Mention(2)
790  3,170  1,888  5,127  20,430  12,494  —  43,899  
Substandard(3)
—  —  —  374  626  33,609  —  34,609  
Non-accrual(4)
—  —  132  2,166  11,878  30,018  431  44,625  
Total office, retail,
and industrial		$92,076  $264,707  $271,745  $377,611  $369,169  $806,158  $97,602  $2,279,068  
Office, retail, and
industrial net loan
charge-offs		$—  $333  $—  $—  $4  $(8) $—  $329  
Multi-family:
Pass$64,735  $204,728  $112,066  $103,257  $108,573  $263,163  $33,223  $889,745  
Special Mention(2)
—  —  —  —  —  7,754  —  7,754  
Substandard(3)
—  —  389  84  —  5,440  —  5,913  
Non-accrual(4)
—  —  —  2,339  237  293  —  2,869  
Total multi-family$64,735  $204,728  $112,455  $105,680  $108,810  $276,650  $33,223  $906,281  
Multi-family net loan
charge-offs		$—  $4  $—  $1  $—  $—  $—  $5  
Construction:
Pass$6,359  $124,887  $125,846  $89,101  $66,763  $64,836  $31,327  $509,119  
Special Mention(2)
—  —  —  2,621  13,494  1,258  —  17,373  
Substandard(3)
—  —  —  —  —  7,277  —  7,277  
Non-accrual(4)
—  —  —  1,282  —  25,915  1,723  28,920  
Total construction$6,359  $124,887  $125,846  $93,004  $80,257  $99,286  $33,050  $562,689  
Construction net loan
charge-offs		$—  $118  $—  $—  $—  $1,690  $—  $1,808  
Other commercial real
estate:
Pass$14,525  $166,652  $241,391  $202,227  $105,808  $488,295  $27,508  $1,246,406  
Special Mention(2)
—  1,506  6,523  22,233  7,204  12,288  1,300  51,054  
Substandard(3)
—  —  —  1,409  2,926  36,166  —  40,501  
Non-accrual(4)
—  —  228  481  326  10,238  578  11,851  
Total other
commercial real
estate		$14,525  $168,158  $248,142  $226,350  $116,264  $546,987  $29,386  $1,349,812  
Other commercial real
estate net loan charge-
offs		$—  $38  $1  $—  $183  $(58) $—  $164  
(1)Represents year-to-date loans originated during 2020.
(2)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.
(3)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.
(4)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.

24



Consumer Loan Portfolio by Origination Year
(Dollar amounts in thousands)
 
2020(1)
2019201820172016Prior
Revolving
Loans
Total
Home equity:     
Performing$6,977  $12,504  $17,504  $13,646  $12,349  $60,561  $832,727  $956,268  
Non-accrual—  22  110  265  494  7,159  1,453  9,503  
Total home equity$6,977  $12,526  $17,614  $13,911  $12,843  $67,720  $834,180  $965,771  
Home equity net
loan charge-offs		$—  $—  $1  $—  $1  $51  $(7) $46  
1-4 family mortgages:
Performing$134,450  $798,396  $378,397  $181,443  $196,581  $269,883  $443  $1,959,593  
Non-accrual—  —  422  83  63  8,428  —  8,996  
Total 1-4 family
mortgages		$134,450  $798,396  $378,819  $181,526  $196,644  $278,311  $443  $1,968,589  
1-4 family mortgages
net loan charge-offs		$—  $—  $4  $—  $4  $81  $—  $89  
Installment:
Performing$42,072  $204,697  $120,799  $53,601  $21,380  $23,003  $22,963  $488,515  
Non-accrual—  —  —  —  —  —  —  —  
Total installment$42,072  $204,697  $120,799  $53,601  $21,380  $23,003  $22,963  $488,515  
Installment net loan
charge-offs		$—  $1,685  $1,183  $455  $52  $391  $—  $3,766  
(1)Represents year-to-date loans originated during 2020.
During the quarter ended March 31, 2020, $7.0 million of revolving loans converted to term loans.
The following tables present credit quality indicators by class for corporate and consumer loans on an amortized cost basis as of September 30, 2019 and December 31, 2018.2019.
Corporate Credit Quality Indicators by Class
(Dollar amounts in thousands)
Pass
Special
Mention(1)
Substandard(2)
Non-accrual(3)
Total
As of December 31, 2019     
Commercial and industrial$4,324,709  $47,665  $79,156  $29,995  $4,481,525  
Agricultural350,827  32,764  16,071  5,954  405,616  
Commercial real estate:     
Office, retail, and industrial1,747,287  42,230  33,344  25,857  1,848,718  
Multi-family839,615  8,279  5,962  2,697  856,553  
Construction564,495  17,977  10,469  152  593,093  
Other commercial real estate1,295,155  39,788  44,036  4,729  1,383,708  
Total commercial real estate4,446,552  108,274  93,811  33,435  4,682,072  
Total corporate loans$9,122,088  $188,703  $189,038  $69,384  $9,569,213  
(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 a well-defined weakness 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 a well-defined weakness that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.
25

  Pass 
Special
 Mention(1)(4)
 
Substandard(2)(4)
 
Non-accrual(3)
 Total
As of September 30, 2019          
Commercial and industrial $4,404,464
 $63,434
 $75,724
 $26,739
 $4,570,361
Agricultural 373,757
 22,495
 15,246
 6,242
 417,740
Commercial real estate:          
Office, retail, and industrial 1,793,811
 41,332
 30,922
 26,812
 1,892,877
Multi-family 799,218
 10,068
 6,006
 2,152
 817,444
Construction 612,810
 14,147
 10,147
 152
 637,256
Other commercial real estate 1,352,801
 33,893
 33,918
 4,680
 1,425,292
Total commercial real estate 4,558,640
 99,440
 80,993
 33,796
 4,772,869
Total corporate loans $9,336,861
 $185,369
 $171,963
 $66,777
 $9,760,970
As of December 31, 2018          
Commercial and industrial $3,952,066
 $74,878
 $59,842
 $33,507
 $4,120,293
Agricultural 407,542
 10,070
 11,752
 1,564
 430,928
Commercial real estate:          
Office, retail, and industrial 1,735,426
 35,853
 43,128
 6,510
 1,820,917
Multi-family 745,131
 9,273
 6,674
 3,107
 764,185
Construction 624,446
 16,370
 8,377
 144
 649,337
Other commercial real estate 1,294,128
 47,736
 17,092
 2,854
 1,361,810
Total commercial real estate 4,399,131
 109,232
 75,271
 12,615
 4,596,249
Total corporate loans $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 $232,000 as of September 30, 2019 and $630,000 as of December 31, 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


27



PerformingNon-accrualTotal
As of December 31, 2019   
Home equity$843,011  $8,443  $851,454  
1-4 family mortgages1,922,636  4,442  1,927,078  
Installment492,585  —  492,585  
Total consumer loans$3,258,232  $12,885  $3,271,117  
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, 2019March 31, 2020 and December 31, 2018.2019. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.
TDRs by Class
(Dollar amounts in thousands)
 As of March 31, 2020As of December 31, 2019
 Accruing
Non-accrual(1)
TotalAccruing
Non-accrual(1)
Total
Commercial and industrial$223  $12,905  $13,128  $227  $16,420  $16,647  
Agricultural—  —  —  —  —  —  
Commercial real estate:      
Office, retail, and industrial—  4,410  4,410  —  3,600  3,600  
Multi-family161  —  161  163  —  163  
Construction—  —  —  —  —  —  
Other commercial real estate167  —  167  170  —  170  
Total commercial real estate328  4,410  4,738  333  3,600  3,933  
Total corporate loans551  17,315  17,866  560  20,020  20,580  
Home equity35  354  389  36  240  276  
1-4 family mortgages630  248  878  637  —  637  
Installment—  —  —  —  252  252  
Total consumer loans665  602  1,267  673  492  1,165  
Total loans$1,216  $17,917  $19,133  $1,233  $20,512  $21,745  
  As of September 30, 2019 As of December 31, 2018
  Accruing 
Non-accrual(1)
 Total Accruing 
Non-accrual(1)
 Total
Commercial and industrial $232
 $4,561
 $4,793
 $246
 $5,994
 $6,240
Agricultural —
 —
 —
 —
 —
 —
Commercial real estate:            
Office, retail, and industrial —
 —
 —
 —
 —
 —
Multi-family 165
 —
 165
 557
 —
 557
Construction —
 —
 —
 —
 —
 —
Other commercial real estate 173
 —
 173
 181
 —
 181
Total commercial real estate 338
 —
 338
 738
 —
 738
Total corporate loans 570
 4,561
 5,131
 984
 5,994
 6,978
Home equity 107
 249
 356
 113
 327
 440
1-4 family mortgages 745
 278
 1,023
 769
 291
 1,060
Installment —
 —
 —
 —
 —
 —
Total consumer loans 852
 527
 1,379
 882
 618
 1,500
Total loans $1,422
 $5,088
 $6,510
 $1,866
 $6,612
 $8,478
(1)(1)These TDRs are included in non-accrual loans in the preceding tables.
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 impairednon-accrual loans. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, there were 0$1.9 million and $2.2 million of specific reservesallowances, respectively, related to TDRs.
There were no material restructurings during the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.

2019.
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A rollforward of the carrying value of TDRs for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 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 
 March 31,
20202019
Accruing
Beginning balance$1,233  $1,866  
Additions—  12  
Net payments  (17) (34) 
Net transfers to non-accrual  —  —  
Ending balance1,216  1,844  
Non-accrual
Beginning balance20,514  6,612  
Additions934  —  
Net (payments) advances (658) 2,921  
Charge-offs(2,873) (158) 
Net transfers from accruing  —  —  
Ending balance17,917  9,375  
Total TDRs$19,133  $11,219  
There were $1.6 million$813,000 and $3.8 million$530,000 of commitments to lend additional funds to borrowers with TDRs as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.

27
29



8. LEASE OBLIGATIONS
The Company has the right to utilize certain premises under non-cancelable operating leases with varying maturity dates through the year ending December 31, 2033.2059. As of September 30, 2019,March 31, 2020, the weighted-average remaining lease term on these leases was 10.7910.98 years. Various leases contain renewal or termination options controlled 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 rentsleases 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, 2019.March 31, 2020.
Lease Liability
(Dollar amounts in thousands)
 As of  
 March 31, 2020
Year Ending December 31,
2020$14,167  
202118,773  
202218,657  
202318,756  
202418,458  
2025 and thereafter105,945  
Total minimum lease payments194,756  
Discount(1)
(30,101) 
Lease liability(2)
$164,655  
  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.
(1)
(2)Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.
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.
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%3.01% as of September 30, 2019.March 31, 2020.
As of September 30, 2019,March 31, 2020, right-of-use assets of $139.5$144.2 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
The following table presents net operating lease expense for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
Net Operating Lease Expense
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,
 20202019
Lease expense charged to operations$4,675  $4,060  
Rental income from premises leased to others (1)
(215) (157) 
Net operating lease expense$4,460  $3,903  
  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
(1)
Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
(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

30



lease guidance on January 1, 2019, the remaining after-tax gain of $47.3 million was recognized as a cumulative-effect adjustment to equity in the Consolidated Statements of Financial Condition. For additional detail regarding
28


9.  BORROWED FUNDS
The following table summarizes the new lease guidance seeCompany's borrowed funds by funding source.
Summary of Borrowed Funds
(Dollar amounts in thousands)
 As of
 March 31,
2020		December 31,
2019
Securities sold under agreements to repurchase$127,682  $103,515  
Federal funds purchased245,000  160,000  
FHLB advances2,275,528  1,395,243  
Total borrowed funds$2,648,210  $1,658,758  
Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase securities sold are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities which are held in third-party pledge accounts if required. The securities underlying the agreements remain in the respective asset accounts. As of March 31, 2020, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders' equity.
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 certain municipal and mortgage-backed securities. As of March 31, 2020, the Company held various short-term FHLB advances with fixed interest rates that range from 0.00% to 1.73% and maturity dates that range from April 1, 2020 to March 4, 2030.
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 2, "Recent Accounting Pronouncements."12 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.
The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of March 31, 2020 and December 31, 2019.
9.Short-Term Credit Lines Available for Use
(Dollar amounts in thousands)
 As of
 March 31,
2020		December 31,
2019
FRB's Discount Window Primary Credit Program$908,271  $874,256  
Available federal funds lines633,000  718,000  
Correspondent bank line of credit50,000  50,000  
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, 2019, the Company entered into a third amendment to this credit facility, which extends the maturity to September 26, 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. Management expects to use this line of credit for general corporate purposes. As of March 31, 2020, 0 amount was outstanding under the facility.
A discussion of terms relevant to senior and subordinated debt is presented in Note 13, "Senior and Subordinated Debt" to the Consolidated Financial Statements in the Company's 2019 10-K.
10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
Issued Common Stock
On March 9, 2020, the Company issued 4.9 million shares of its common stock with a market value of $14.58 per share at issuance as part of the consideration in the Park Bank acquisition. Additional information regarding the Park Bank acquisition is presented in Note 3, "Acquisitions".
29



Stock Repurchases
On March 19, 2019, the Company announced a new stock repurchase program that authorizesauthorized the Company to repurchase up to $180 million of its common stock. Stock repurchases under this program may be madestock 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
On February 26, 2020, the Company announced a one-year period, with repurchases made at prices to be determined by the Company. Thenew stock repurchase program does not obligateauthorizing the discretionary repurchase of up to $200 million of its outstanding common stock through December 31, 2021. This program replaced the Company's prior $180 million stock repurchase program, which was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to the suspension, the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time.
The Company repurchased 645,000 and 1.71.2 million shares of its common stock at a total cost of $12.7 million and $33.9$22.6 million during the quarter and nine months ended September 30, 2019, respectively.March 31, 2020.
10.11. EARNINGS PER COMMON SHARE
The table below displays the calculation of basic and diluted earnings per common share ("EPS").
Basic and Diluted EPS
(Amounts in thousands, except per share data)
  Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2019 2018 2019 2018
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
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
Anti-dilutive shares not included in the computation of diluted EPS(1)
 —
 —
 —
 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.
 Quarters Ended 
 March 31,
 20202019
Net income$19,606  $46,058  
Net income applicable to unvested restricted shares(192) (403) 
Net income applicable to common shares$19,414  $45,655  
Weighted-average common shares outstanding:  
Weighted-average common shares outstanding (basic)109,922  105,770  
Dilutive effect of common stock equivalents443  —  
Weighted-average diluted common shares outstanding110,365  105,770  
Basic EPS$0.18  $0.43  
Diluted EPS$0.18  $0.43  
Anti-dilutive shares not included in the computation of diluted EPS—  —  
11.
12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."
Cash Flow Hedges
As of September 30, 2019,March 31, 2020, the Company hedged $815.0$630.0 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 $1.1$1.4 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 $510.0$920.0 million began on various dates between FebruaryMay of 20172018 and SeptemberMarch of 20192020 and mature between FebruaryMay of 2020 and SeptemberMarch of 2022.2023. The remaining forward starting interest rate swaps totaling $555.0$485.0 million begin at various dates between OctoberJuly of 20192020 and February of 20212023 and mature between OctoberFebruary of 2021 and August of 2024. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 2.16%1.86% as of September 30, 2019.March 31, 2020. These derivative contracts are designated as cash flow hedges.

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Cash Flow Hedges
(Dollar amounts in thousands)
As of
 March 31, 2020December 31, 2019
Gross notional amount outstanding$2,035,000  $1,905,000  
Derivative asset fair value in other assets(1)
6,850  727  
Derivative liability fair value in other liabilities(1)
(631) (119) 
Weighted-average interest rate received1.73 %1.88 %
Weighted-average interest rate paid1.30 %1.74 %
Weighted-average maturity (in years)1.851.18
  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.
(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.
Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (loss) on an after-tax basis and are subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. As of September 30, 2019,March 31, 2020, the Company estimates that $1.4 million$586,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income over the next twelve months.
Other Derivative Instruments
The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative 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, 2019March 31, 2020 and December 31, 2018,2019, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third-parties; therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments totaled $4.2$4.7 million and $7.6$1.3 million for the quarterquarters ended March 31, 2020 and nine months ended September 30, 2019, respectively, and $1.9 million and $6.3 million for the quarter and nine months ended September 30, 2018, respectively.
Other Derivative Instruments
(Dollar amounts in thousands)
As of
 March 31, 2020December 31, 2019
Gross notional amount outstanding$4,563,930  $4,340,384  
Derivative asset fair value in other assets(1)
175,903  61,709  
Derivative liability fair value in other liabilities(1)
(53,246) (18,416) 
Fair value of derivative(2)
53,820  18,856  
  As of
  September 30, 2019 December 31, 2018
Gross notional amount outstanding $3,738,566
 $3,085,226
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(2)
 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.
(1)
(2)This amount represents the fair value if credit risk related contingent features were triggered.
Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(2)
This amount represents the fair value if credit risk related contingent features were triggered.
The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of September 30, 2019March 31, 2020 and December 31, 2018.2019. The Company does not enter into derivative transactions for purely speculative purposes.

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The following table presents the impact of derivative instruments on comprehensive income and the reclassification of gains (losses) from accumulated other comprehensive loss to net interest income for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
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)

Quarters Ended 
 March 31,
20202019
Gains (losses) recognized in other comprehensive income 
Interest rate swaps in interest income$22,004  $3,353  
Interest rate swaps in interest expense(12,409) (4,180) 
Reclassification of gains (losses) included in net income 
Interest rate swaps in interest income$445  $1,393  
Interest rate swaps in interest expense—  (2,024) 
The following table presents the impact of derivative instruments on net interest income for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
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)

 Quarters Ended 
 March 31,
 20202019
Cash Flow Hedges
Interest rate swaps in interest income$445  $1,393  
Interest rate swaps in interest expense—  (2,024) 
Total cash flow hedges$445  $(631) 
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, 2019March 31, 2020 and December 31, 2018,2019, these collateral agreements covered 100% of the fair value of the Company's outstanding fair value hedges.derivatives. 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, 2019March 31, 2020 and December 31, 2018.2019.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
As of March 31, 2020As of December 31, 2019
 AssetsLiabilitiesAssetsLiabilities
Gross amounts recognized$182,753  $53,877  $62,436  $18,535  
Less: amounts offset in the Consolidated Statements of
Financial Condition		—  —  —  —  
Net amount presented in the Consolidated Statements of
  Financial Condition(1)
182,753  53,877  62,436  18,535  
Gross amounts not offset in the Consolidated Statements of
Financial Condition:
Offsetting derivative positions(8,062) (8,062) (2,674) (2,674) 
Cash collateral pledged—  (44,798) —  (15,861) 
Net credit exposure$174,691  $1,017  $59,762  $—  
  As of September 30, 2019 As of December 31, 2018
  Assets Liabilities Assets Liabilities
Gross amounts recognized $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)
 82,215
 25,342
 32,057

28,861
Gross amounts not offset in the Consolidated Statements of
  Financial Condition:
        
Offsetting derivative positions (3,668) (3,668) (11,678) (11,678)
Cash collateral pledged —
 (16,557) (9,060) (3,506)
Net credit exposure $78,547
 $5,117
 $11,319
 $13,677
(1)(1)Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, 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, 2019March 31, 2020 and December 31, 20182019 the Company was in compliance with these provisions.

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12.13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES
Credit Commitments and Guarantees
In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit as 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
 March 31, 2020December 31, 2019
Commitments to extend credit:  
Commercial, industrial, and agricultural$2,011,047  $1,852,040  
Commercial real estate325,291  296,053  
Home equity596,402  576,956  
Other commitments(1)
246,644  251,093  
Total commitments to extend credit$3,179,384  $2,976,142  
  
Letters of credit$122,592  $103,684  
  As of
  September 30, 2019 December 31, 2018
Commitments to extend credit:    
Commercial, industrial, and agricultural $1,748,889
 $1,729,286
Commercial real estate 327,821
 296,882
Home equity 571,389
 570,553
Other commitments(1)
 254,689
 244,917
Total commitments to extend credit $2,902,788
 $2,841,638
     
Letters of credit $104,286
 $112,728
(1)(1)Other commitments includes installment and overdraft protection program commitments.
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. 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-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 ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019.
Legal Proceedings
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at September 30, 2019.March 31, 2020. 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, or results of operations, or cash flows.

operations.
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13.14. FAIR VALUE
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Statements of Financial Condition. Those assets and liabilities are presented below in the sections titled "Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis" and "Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis."
Other assets and liabilities are not required to be measured at fair value in the Consolidated Statements of Financial Condition, but must be disclosed at fair value. See the "Fair Value Measurements of Other Financial Instruments" section of this note. Any aggregation of the estimated fair values presented in this note does not represent the value of the Company.
Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. GAAP provides a three-tiered fair value hierarchy based on the inputs used to measure fair value. The hierarchy is defined as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs require significant management judgment or estimation, some of which use model-based techniques and may be internally developed.
Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.

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Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.
Recurring Fair Value Measurements
(Dollar amounts in thousands)
 As of March 31, 2020As of December 31, 2019
 Level 1Level 2Level 3Level 1Level 2Level 3
Assets      
Equity securities$21,505  $13,593  $—  $23,703  $13,400  $—  
Securities available-for-sale      
U.S. treasury securities33,309  —  —  34,075  —  —  
U.S. agency securities—  617,992  —  —  248,424  —  
CMOs—  1,700,012  —  —  1,557,671  —  
MBSs—  687,271  —  —  684,684  —  
Municipal securities—  234,559  —  —  234,431  —  
Corporate debt securities—  109,722  —  —  114,101  —  
Total securities available-for-sale33,309  3,349,556  —  34,075  2,839,311  —  
Mortgage servicing rights ("MSRs")(1)
—  —  4,874  —  —  5,858  
Derivative assets(1)
—  182,753  —  —  62,436  —  
Liabilities      
Derivative liabilities(2)
$—  $53,877  $—  $—  $18,535  $—  
  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
 $—
(1)
Included in other assets in the Consolidated Statements of Financial Condition.
(1)
(2)Included in other liabilities in the Consolidated Statements of Financial Condition.
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.
Equity Securities
The Company's equity securities consist primarily of community development investments and certain diversified investment securities held in a grantor trust for 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,March 31, 2020, 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.

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MSRs
The Company services loans for others totaling $652.2$641.1 million and $627.3$653.7 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. These loans are owned by third-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, 2019March 31, 2020 and December 31, 2018.2019.
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
March 31, 2020December 31, 2019
Prepayment speed8.2 % -12.9%  6.7 % -12.0%  
Maturity (months)17 -8818 -94
Discount rate9.3 % -12.0%  9.3 % -12.0%  
The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.
A rollforward of the carrying value of MSRs for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 is presented in the following table.
Carrying Value of MSRs
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,
 20202019
Beginning balance$5,858  $6,730  
New MSRs156  253  
Total gains (losses) included in earnings(1):
  
Changes in valuation inputs and assumptions(908) (600) 
Other changes in fair value(2)
(232) (155) 
Ending balance(3)
$4,874  $6,228  
Contractual servicing fees earned(1)
$403  $381  
  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
(1)
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of March 31, 2020 and 2019.
(1)
(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.
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of September 30, 2019 and 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 March 31, 2020As of December 31, 2019
 Level 1Level 2Level 3Level 1Level 2Level 3
Collateral-dependent non-accrual loans(1)
$—  $—  $57,739  $—  $—  $41,326  
OREO(2)
—  —  530  —  —  3,325  
Loans held-for-sale(3)
—  —  23,048  —  —  36,032  
Assets held-for-sale(4)
—  —  5,043  —  —  6,824  
  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 non-accrual loans with charge-offs and non-accrual loans with a specific allowance during the periods presented.
(1)
(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.
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 ImpairedNon-accrual Loans
Certain collateral-dependent impairednon-accrual loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the fair value of the underlying collateral. The fair values of collateral-dependent impairednon-accrual 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 impairednon-accrual loans are classified in level 3 of the fair value hierarchy.
Collateral-dependent impairednon-accrual 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.contract, all less estimated costs to sell. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.
Loans Held-for-Sale
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, 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.
Assets Held-for-Sale
Assets held-for-sale as of September 30, 2019March 31, 2020 and December 31, 20182019 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
 March 31, 2020December 31, 2019
 Fair Value Hierarchy
Level		Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
Assets    
Cash and due from banks1$252,138  $252,138  $214,894  $214,894  
Interest-bearing deposits in other banks2229,474  229,474  84,327  84,327  
Securities held-to-maturity219,825  19,842  21,997  21,234  
FHLB and FRB stock2154,357  154,357  115,409  115,409  
Loans313,745,659  13,749,883  12,733,200  12,535,848  
Investment in BOLI3298,827  298,827  296,351  296,351  
Accrued interest receivable361,333  61,333  59,716  59,716  
Liabilities     
Deposits2$14,098,950  $14,104,641  $13,251,278  $13,247,871  
Borrowed funds22,648,210  2,648,210  1,658,758  1,658,758  
Senior and subordinated debt2234,153  261,970  233,948  277,203  
Accrued interest payable28,869  8,869  10,502  10,502  
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. Loans include the FDIC indemnification asset and net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company estimated the fair value of lending commitments outstanding to be immaterial.

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40



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 Chicago, Illinois, with operations throughoutin metropolitan Chicago, southeast Wisconsin, northwest Indiana, southeast Wisconsin, central and western Illinois, eastern Iowa, and eastern Iowa.other markets in the Midwest. Our principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust, and private banking products and services to commercial and industrial, commercial real estate, municipal, and consumer customers.through 132 banking locations. 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 and wealth management solutions, quality products, and innovative services that fulfill those financial needs.
The following discussion and analysis is intended to address the significant factors affecting our Condensed Consolidated Statements of Income for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 and Consolidated Statements of Financial Condition as of September 30, 2019March 31, 2020 and December 31, 2018.2019. 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 20182019 Annual Report on Form 10-K ("20182019 10-K"). The results of operations for the quarter and nine months ended September 30, 2019March 31, 2020 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, regional, and national economic conditions, business spending, consumer confidence, legislative and regulatory changes, certain seasonal factors, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:
•
•Net Interest Income – Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.
•Net Interest Margin – Net interest margin equals tax-equivalent net interest income divided by total average interest-earning assets.
•Noninterest Income – Noninterest income is the income we earn from fee-based revenues, investment in bank-owned life insurance ("BOLI"), other income, and non-operating revenues.
•Noninterest Expense – Noninterest expense is the expense we incur to operate the Company, which includes salaries and employee benefits, net occupancy and equipment, professional services, and other costs.
•Asset Quality – Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.
• – 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 basis not in accordance with U.S. generally accepted accounting principles ("non-GAAP"). 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.
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" 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. We cautionFirst
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Midwest cautions you not to place undue reliance

41



on these statements. Forward-looking statements speak only as of the date made, and we undertakeFirst Midwest undertakes no obligation to update any forward-looking statements.
Forward-looking statements may be deemed to include, among other things, statements relating to ourFirst Midwest's future financial performance, including the related outlook for 2019,2020, the performance of ourFirst Midwest's loan or securities portfolio, the expected amount of future credit reservesallowances 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 ourFirst Midwest's 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 announced and completed transactions, and growth strategies, including possible future acquisitions.acquisitions, and the continued effects of the COVID-19 pandemic on our business, financial condition, liquidity, loans and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including thosethe duration, extent and severity of the COVID-19 pandemic, including the continued effects on our business, operations and employees, as well as on our customers and service providers, and on economies and markets more generally and other risks, uncertainties and assumptions that are 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 2018First Midwest's 2019 10-K, as well as ourand in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these reports describe additional factors that could adversely impact ourFirst Midwest's 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 practices within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on the best available information 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 Discussion and Analysis of Financial Condition and Results of Operations" included in our 20182019 10-K.
Upon adoption of Accounting Standards Updated ("ASU") 2016-13 on January 1, 2020, there were material changes to the Company's application of critical accounting estimates related to the allowance for credit losses and valuation of securities since December 31, 2019.
Allowance for Credit Losses
The 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, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors, all of which are susceptible to significant change. Credit exposures 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 credit losses. Additions to the allowance for credit losses are established through the provision for credit losses charged to expense. The amount charged to operating expense depends on a number of factors, including historic loan growth, changes in the composition of the loan portfolio, net charge-off levels, and our assessment of the allowance for credit losses, including our estimate of the impact of the COVID-19 pandemic. For additional discussion of the allowance for credit losses, see Notes 1 and 7 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
Valuation of Securities
The fair values of securities are based on quoted prices obtained from third-party pricing services or dealer market participants where a ready market for such securities exists. In the absence of quoted prices or where a market for the security does not exist, management judgment and estimation is used, which may include modeling-based techniques. The use of different judgments and estimates to determine the fair value of securities could result in a different fair value estimate.
On a quarterly basis, the Company assesses securities with unrealized losses to determine whether impairment has occurred. In evaluating impairment, management considers many factors, including the severity of the impairment, the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades for debt securities, intent to hold the security until its value recovers, and the likelihood that the Company would be required to sell the securities before a recovery in value, which may be at maturity. Securities for which there is an unrealized loss that is deemed to be a credit-related impairment are recorded as an allowance through a charge to expense through noninterest expense, limited to the difference
41



between amortized cost and fair value. The determination of impairment is subjective and different judgments and assumptions could affect the timing and amount of loss realization. For additional discussion of securities, see Notes 1 and 4 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
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, 2018.2019.
PENDING ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD
TheOn January 1, 2020, the Company will adopt Accounting Standards Update 2016-13adopted the current expected credit losses accounting standard ("CECL"), which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected considering our current estimate of all expected credit losses. Adoption of this standard 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 expectsincreased the allowance for credit losses to increase approximately 65% to 85%, or $70by $76 million, to $95 million, upon adoption, which includes approximately 45%, or $50$32 million attributable to acquired loans. Approximately $30loans and unfunded commitments and $44 million of the acquired loan impact is related to the transition from current purchased credit impaired treatmentattributable 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("PCD") and forecasts as of the adoption date.non-PCD acquired loans. For additional discussion of adopted 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.
ACQUISITIONSCOVID-19 PANDEMIC
PendingThe COVID-19 pandemic and the resulting governmental responses continue to impact our business and operations, as well as the business and operations of our clients. A variety of restrictions have been placed on companies and individuals throughout our primary operating footprint of Illinois, Wisconsin, Indiana and Iowa. In Illinois, where we are headquartered and conduct the substantial majority of our operations, a shelter-in-place order has been in place since March of 2020 and is currently set to expire on May 30, 2020, although additional extensions are possible and ongoing business restrictions are likely. The pandemic and these governmental measures have created and are expected to continue to create significant economic disruption and decreased economic activity.
Park BankWe have experienced, and are likely to continue to experience in the future, a number of financial impacts as a result of the pandemic and governmental responses to it, including a higher provision for loan losses and lower net interest and noninterest income. Additionally, we are actively participating in the U.S. Small Business Association's Paycheck Protection Program ("PPP"), and have funded approximately $1.2 billion of these loans. PPP loans are being funded by a combination of deposits and borrowings, with the related processing fees earned being recognized as a yield adjustment over the terms of these loans. We are also committed to using our strong capital levels and ample liquidity to support our clients and communities as they navigate the pandemic. We are offering several programs and services to support our clients, including:
•Consumer, mortgage, and auto loan payment deferrals;
•Small business payment deferrals;
•Consumer and small business fee assistance programs;
•A suspension of foreclosure and repossession actions; and
•A wide range of financial accommodations for our commercial clients based on individual circumstances.
We have included additional disclosure throughout this Item 2 in this Form 10-Q regarding the impact of the COVID-19 pandemic, including with respect to our loan portfolio, income, and funding and liquidity.
As a financial institution, we are considered an essential business and, therefore, continue to operate during applicable shelter-in-place orders. However, we have modified our operations to comply with governmental restrictions and public health authority guidelines. Substantially all non-client facing colleagues are working remotely. A majority of our branches remain open for business through drive-up services, with lobbies open by appointment only. For those colleagues who continue to work on-site, they are subject to enhanced health and safety protocols.
Additionally, we have implemented a variety of policies and programs to support our colleagues during the pandemic. On-site colleagues have received incentive bonuses and pay premiums, and we have expanded our paid time off programs for all colleagues. We have also added health and welfare benefits for all colleagues, including emergency medical and hardship loans, enhanced health insurance programs, and access to retirement benefits under certain pandemic-related circumstances.
Consistent with our long-standing emphasis on community engagement, we are actively supporting the communities we serve during the pandemic. We have committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of our communities. This commitment does not impact current or future expense. We also recently introduced enhanced matching gift programs to support colleague donations to eligible 501(c)(3) organizations.
For additional information regarding the risks associated with COVID-19 and its expected impact on the Company, refer to the section entitled "Risk Factors" in Part II, Item 1A of this Form 10-Q.
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PARK BANK ACQUISITION
On August 27, 2019,March 9, 2020, the Company entered into a merger agreement to acquirecompleted its acquisition of 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 May 9, 2019, the Company completed its acquisition of Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $711.7$691.7 million of loans, net of fair value adjustments. TheUnder the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration totaled $135.4of $174.4 million, andwhich consisted of 4,728,5414.9 million shares of Company common stock and $37.1$102.5 million of cash. All BridgeviewGoodwill of $57.2 million associated with the acquisition was recorded by the Company. Park Bank will be merged into First Midwest Bank and all operating systems wereare expected to be converted to our operating platform duringin the second quarter of 2019.2020.
Northern Oak Wealth Management, Inc.STOCK REPURCHASES
On January 16, 2019,February 26, 2020, the Company completed its acquisition of Northern Oak Wealth Management, Inc. ("Northern Oak"),announced a registered investment adviser based in Milwaukee, Wisconsin with approximately $800stock repurchase program, under which the Company is authorized to repurchase up to $200 million of assetsits outstanding common stock through December 31, 2021. This stock repurchase program replaces the prior $180 million program, which was scheduled to expire in March 2020. 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. Repurchases under managementthe Company's repurchase programs are made at closing.prices determined by the Company.

The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to this action, the Company repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the quarter ended March 31, 2020.
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PERFORMANCE OVERVIEW
Table 1
Selected Financial Data
(Amounts in thousands, except per share data)
 Quarters Ended 
 March 31,
 20202019
Operating Results  
Interest income$170,227  $162,490  
Interest expense26,652  23,466  
Net interest income143,575  139,024  
Provision for loan losses39,532  10,444  
Noninterest income39,362  34,906  
Noninterest expense117,331  102,110  
Income before income tax expense26,074  61,376  
Income tax expense6,468  15,318  
Net income$19,606  $46,058  
Weighted-average diluted common shares outstanding110,365  105,770  
Diluted earnings per common share$0.18  $0.43  
Diluted earnings per common share, adjusted(1)
$0.22  $0.46  
Performance Ratios  
Return on average common equity(2)
3.23 %8.66 %
Return on average common equity, adjusted(1)(2)
4.03 %9.22 %
Return on average tangible common equity(2)
5.66 %14.41 %
Return on average tangible common equity, adjusted(1)(2)
6.94 %15.31 %
Return on average assets(2)
0.43 %1.19 %
Return on average assets, adjusted(1)(2)
0.53 %1.27 %
Tax-equivalent net interest margin(1)(2)(3)
3.54 %4.04 %
Tax-equivalent net interest margin, adjusted(1)(2)(3)
3.37 %3.86 %
Efficiency ratio(1)
60.21 %55.69 %
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2019 2018 2019 2018
Operating Results       
Interest income$181,963
 $149,532
 $522,135
 $422,965
Interest expense31,176
 17,505
 82,012
 44,972
Net interest income150,787
 132,027
 440,123
 377,993
Provision for loan losses12,498
 11,248
 34,433
 38,043
Noninterest income42,951
 35,666
 116,383
 108,130
Noninterest expense108,395
 96,477
 324,647
 305,475
Income before income tax expense72,845
 59,968
 197,426

142,605
Income tax expense18,300
 6,616
 49,809
 26,143
Net income$54,545
 $53,352
 $147,617
 $116,462
Weighted-average diluted common shares outstanding109,662
 102,178
 108,246
 102,092
Diluted earnings per common share$0.49
 $0.52
 $1.35
 $1.13
Diluted earnings per common share, adjusted(1)
$0.52
 $0.46
 $1.47
 $1.19
Performance Ratios       
Return on average common equity(2)
9.22% 10.99% 8.75% 8.16%
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)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."
(1)
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."
(2)
These ratios are presented on an annualized basis.
(3)
See the section of this Item 2 titled "Earnings Performance"
(2)These ratios are presented on an annualized basis.
(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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Table of Contents



 As ofMarch 31, 2020 
 Change From
March 31,
2020		December 31,
2019		March 31,
2019		December 31,
2019		March 31,
2019
Balance Sheet Highlights     
Total assets$19,753,300  $17,850,397  $15,817,769  $1,902,903  $3,935,531  
Total loans13,965,017  12,840,330  11,569,003  1,124,687  2,396,014  
Total deposits14,098,950  13,251,278  12,160,982  847,672  1,937,968  
Core deposits11,162,753  10,217,824  9,559,684  944,929  1,603,069  
Loans to deposits99.1 %96.9 %95.1 %  
Core deposits to total deposits79.2 %77.1 %78.6 %  
Asset Quality Highlights     
Non-accrual loans, excluding PCD
  loans(1)(2)
$97,649  $82,269  $70,205  $15,380  $27,444  
Non-accrual PCD loans(1)
48,950  —  —  48,950  48,950  
Total non-accrual loans146,599  82,269  70,205  64,330  76,394  
90 days or more past due loans, still
  accruing interest(1)
5,052  5,001  8,446  51  (3,394) 
Total non-performing loans151,651  87,270  78,651  64,381  73,000  
Accruing troubled debt
restructurings ("TDRs")		1,216  1,233  1,844  (17) (628) 
Foreclosed assets(3)
21,027  20,458  10,818  569  10,209  
Total non-performing assets$173,894  $108,961  $91,313  $64,933  $82,581  
30-89 days past due loans(1)
$81,127  $31,958  $45,764  $49,169  $35,363  
30-89 days past due loans, excluding PCD
  loans(1)(2)
$75,581  $31,958  $45,764  $43,623  $29,817  
Non-performing assets to total loans plus
foreclosed assets		1.24 %0.85 %0.79 %
Non-performing assets to total loans plus
  foreclosed assets, excluding PCD
  loans(1)(2)
0.91 %0.85 %0.79 %
Allowance for Credit Losses
Allowance for credit losses$226,701  $109,222  $104,779  $117,479  $121,922  
Allowance for credit losses to total loans(4)
1.62 %0.85 %0.91 %
Allowance for credit losses to
non-accrual loans		154.64 %132.76 %149.25 %  
(1)Prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("PCI") loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
(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)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.
(4)Prior to the adoption of CECL on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans, which incorporated credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment was accreted into income over future periods, an allowance for credit losses on acquired loans was established as necessary to reflect credit deterioration. Subsequent to adoption, an allowance for credit losses on acquired loans is established as of the acquisition date and the acquired loans are no longer recorded net of a credit-related acquisition adjustment.
 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%    
45

(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."
(4)
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."

44



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 20182019 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 Table 2 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, 2019March 31, 2020 and 2018,2019, 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, 2019 and 2018.

46
45



Table 2
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 Quarters Ended March 31,Attribution of Change
in Net Interest Income
 20202019
 Average
Balance		InterestYield/
Rate (%)		Average
Balance		InterestYield/
Rate (%)		VolumeYield/
Rate		Total
Assets         
Other interest-earning assets$164,351  $816  2.00  $125,615  $728  2.35  $164  $(76) $88  
Securities(1)
3,066,574  20,757  2.71  2,371,692  16,387  2.76  4,597  (227) 4,370  
Federal Home Loan Bank
("FHLB") and Federal Reserve
Bank ("FRB") stock		126,643  1,387  4.38  79,821  952  4.77  505  (70) 435  
Loans(1)(2)
13,073,752  148,420  4.57  11,458,233  145,531  5.15  11,697  (8,808) 2,889  
Total interest-earning assets(1)(2)
16,431,320  171,380  4.19  14,035,361  163,598  4.72  16,963  (9,181) 7,782  
Cash and due from banks261,336      202,101         
Allowance for loan losses(179,392)     (107,520)        
Other assets1,891,557      1,537,897         
Total assets$18,404,821      $15,667,839         
Liabilities and Stockholders' Equity            
Savings deposits$2,069,163  164  0.03  $2,037,831  346  0.07  5  (187) (182) 
NOW accounts2,273,156  1,630  0.29  2,083,366  2,162  0.42  223  (755) (532) 
Money market deposits2,227,707  3,099  0.56  1,809,234  2,349  0.53  573  177  750  
Time deposits2,932,466  12,224  1.68  2,647,316  11,745  1.80  1,092  (613) 479  
Borrowed funds2,007,700  5,841  1.17  877,995  3,551  1.64  2,929  (639) 2,290  
Senior and subordinated debt234,053  3,694  6.35  203,899  3,313  6.59  466  (85) 381  
Total interest-bearing
liabilities		11,744,245  26,652  0.91  9,659,641  23,466  0.99  5,288  (2,102) 3,186  
Demand deposits3,884,015      3,587,480      
Total funding sources15,628,260  0.69  13,247,121  0.72  
Other liabilities361,404      282,437         
Stockholders' equity – common
2,415,157      2,138,281         
Total liabilities and
stockholders' equity		$18,404,821      $15,667,839         
Tax-equivalent net interest
  income/margin(1)
 144,728  3.54   140,132  4.04  $11,675  $(7,079) $4,596  
Tax-equivalent adjustment (1,153)   (1,108)       
Net interest income (GAAP) $143,575      $139,024        
Impact of acquired loan
  accretion(1)
$6,946  0.17  $6,369  0.18  
Tax-equivalent net interest income/
  margin, adjusted(1)
$137,782  3.37  $133,763  3.86  
 Quarters Ended September 30,  
Attribution of Change
in Net Interest Income
 2019  2018  
 
Average
Balance
 Interest 
Yield/
Rate (%)
  
Average
Balance
 Interest 
Yield/
Rate (%)
  Volume 
Yield/
Rate
 Total
Assets                   
Other interest-earning assets$283,178
 $1,702
 2.38  $162,646
 $631
 1.54  $615
 $456
 $1,071
Securities(1)
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
108,735
 831
 3.06  83,273
 734
 3.53  172
 (75) 97
Loans(1)(2)
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)
15,800,915
 183,195
 4.60  13,472,619
 150,666
 4.44  24,704
 7,825
 32,529
Cash and due from banks224,127
      196,382
           
Allowance for loan losses(110,616)      (100,717)           
Other assets1,784,754
      1,326,386
           
Total assets$17,699,180
      $14,894,670
           
Liabilities and Stockholders' Equity                  
Savings deposits$2,056,128
 308
 0.06  $2,003,928
 364
 0.07  9
 (65) (56)
NOW accounts2,483,176
 3,462
 0.55  2,164,018
 2,151
 0.39  351
 960
 1,311
Money market deposits2,080,274
 4,111
 0.78  1,772,821
 1,522
 0.34  304
 2,285
 2,589
Time deposits3,026,423
 13,873
 1.82  1,993,361
 6,389
 1.27  4,090
 3,394
 7,484
Borrowed funds1,369,079
 5,639
 1.63  980,421
 3,927
 1.59  1,598
 114
 1,712
Senior and subordinated debt233,642
 3,783
 6.42  195,526
 3,152
 6.40  618
 13
 631
Total interest-bearing
  liabilities
11,248,722
 31,176
 1.10  9,110,075
 17,505
 0.76  6,970
 6,701
 13,671
Demand deposits3,800,569
      3,624,520
           
Total funding sources15,049,291
   0.82  12,734,595
   0.55       
Other liabilities322,610
      250,745
           
Stockholders' equity – common
2,327,279
      1,909,330
           
Total liabilities and
  stockholders' equity
$17,699,180
      $14,894,670
           
Tax-equivalent net interest
  income/margin(1)
  152,019
 3.82    133,161
 3.92  $17,734
 $1,124
 $18,858
Tax-equivalent adjustment  (1,232)      (1,134)         
Net interest income (GAAP)  $150,787
      $132,027
         
Impact of acquired loan
  accretion(1)
  $9,244
 0.23    $4,565
 0.13       
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 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. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(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 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. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(2)
Non-accrual loans, which totaled $77.7 million as of September 30, 2019 and $64.8 million as of September 30, 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.
(2)Non-accrual loans, which totaled $146.6 million as of March 31, 2020 and $70.2 million as of March 31, 2019, 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."


46



Table 3
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 Nine Months Ended September 30,  Attribution of Change
in Net Interest Income
 2019  2018  
 Average
Balance		 Interest Yield/
Rate (%)		  Average
Balance		 Interest Yield/
Rate (%)		  Volume Yield/
Rate		 Total
Assets                   
Other interest-earning assets$206,949
 $3,670
 2.37  $141,112
 $1,573
 1.49  $926
 $1,171
 $2,097
Securities(1)
2,626,020
 54,716
 2.78  2,158,701
 39,997
 2.47  8,998
 5,721
 14,719
FHLB and FRB stock92,230
 2,540
 3.67  80,088
 2,036
 3.39  325
 179
 504
Loans(1)(2)
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)
14,935,908
 525,655
 4.70  13,137,826
 426,113
 4.34  57,029
 42,513
 99,542
Cash and due from banks213,977
      191,788
           
Allowance for loan losses(108,956)      (99,812)           
Other assets1,668,868
      1,335,269
           
Total assets$16,709,797
      $14,565,071
           
Liabilities and Stockholders' Equity                  
Savings deposits$2,058,004
 1,000
 0.06  $2,026,515
 1,106
 0.07  17
 (123) (106)
NOW accounts2,277,346
 8,400
 0.49  2,074,701
 4,671
 0.30  495
 3,234
 3,729
Money market deposits1,933,417
 9,501
 0.66  1,781,912
 3,419
 0.26  314
 5,768
 6,082
Time deposits2,842,612
 38,771
 1.82  1,867,673
 15,441
 1.11  10,393
 12,937
 23,330
Borrowed funds1,092,607
 13,649
 1.67  917,987
 10,919
 1.59  2,160
 570
 2,730
Senior and subordinated debt219,542
 10,691
 6.51  195,386
 9,416
 6.44  1,175
 100
 1,275
Total interest-bearing
liabilities		10,423,528
 82,012
 1.05  8,864,174
 44,972
 0.68  14,554
 22,486
 37,040
Demand deposits3,741,986
      3,571,577
           
Total funding sources14,165,514
   0.77  12,435,751
   0.48       
Other liabilities307,881
      238,030
           
Stockholders' equity – common
2,236,402
      1,891,290
           
Total liabilities and
stockholders' equity		$16,709,797
      $14,565,071
           
Tax-equivalent net interest
income/margin(1)
  443,643
 3.97    381,141
 3.88  $42,475
 $20,027
 $62,502
Tax-equivalent adjustment  (3,520)      (3,148)         
Net interest income (GAAP)  $440,123
      $377,993
         
Impact of acquired loan
accretion(1)
  $25,921
 0.23    $14,122
 0.14       
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 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. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(2)
Non-accrual loans, which totaled $77.7 million as of September 30, 2019 and $64.8 million as of September 30, 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."
Net interest income for the thirdfirst quarter and first nine months of 20192020 was up 14.2% and 16.4% compared to3.3% from the thirdfirst quarter and first nine months of 2018, respectively.2019. The rise in net interest income resulted primarily from the acquisition of interest-earning assets from the Park Bank and Bridgeview transactionBank Group ("Bridgeview") transactions that closed in the middleMarch 2020 and May 2019, respectively, growth in loans and securities, and lower cost 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, and higher interest rates, partiallyfunds, significantly offset by higher cost of funds.lower interest rates.

47



Table of Contents



Acquired loan accretion contributed $9.2$6.9 million and $25.9$6.4 million to net interest income for the thirdfirst quarter of 2020 and first nine months of 2019, respectively, higher than $4.6 million and $14.1 million for the same periods in 2018.respectively.
Tax-equivalent net interest margin for the thirdfirst quarter and first nine months of 20192020 was 3.82% and 3.97%3.54%, respectively, decreasing 10 basis points and increasing 950 basis points from the same periodsperiod in 2018.2019. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 3.59% and 3.74%3.37% for the thirdfirst quarter and first nine months of 2019,2020, down 2049 basis points from the thirdfirst quarter of 2018 and consistent with the first nine months of 2018. Compared to both prior periods,2019. The decline in tax-equivalent net interest margin compared to the first quarter of 2019 was impacted bydue primarily to lower interest rates and actions taken to reduce rate sensitivity, higher cost of funds, and compression related to the mix of interest-earning assets acquired in the Bridgeview transaction, partially offset by higher interest rates.sensitivity.
For the thirdfirst quarter and the first nine months of 2019,2020, total average interest-earning assets rose by $848.9 million and $1.8$2.4 billion from the same periodsperiod in 2018.2019. The increase resulted primarily from the BridgeviewPark Bank and Northern StatesBridgeview transactions, loan growth, and security purchases.
Total average funding sources for the thirdfirst quarter and first nine months of 20192020 increased by $869.0 million and $1.7$2.4 billion from the same periodsperiod in 2018,2019, due primarily to the BridgeviewPark Bank and Northern StatesBridgeview transactions, organic growth, and FHLB advances.
Noninterest Income
A summary of noninterest income for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 is presented in the following table.
Table 43
Noninterest Income Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 
 20202019% Change
Wealth management fees$12,361  $11,600  6.6  
Service charges on deposit accounts11,781  11,540  2.1  
Capital market products income4,722  1,279  269.2  
Card-based fees, net (1)
3,968  4,378  (9.4) 
Mortgage banking income1,788  1,004  78.1  
Other service charges, commissions, and fees2,682  2,611  2.7  
Total fee-based revenues37,302  32,412  15.1  
Other income(2)
3,065  2,494  22.9  
Net securities losses(1,005) —  —  
Total noninterest income$39,362  $34,906  12.8  
  Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		  
  2019 2018 % Change 2019 2018 % Change
Service charges on deposit accounts $13,024
 $12,378
 5.2
 $36,760
 $36,088
 1.9
Wealth management fees 12,063
 10,622
 13.6
 35,853
 32,561
 10.1
Card-based fees, net (1)
 4,694
 4,123
 13.8
 13,621
 12,450
 9.4
Capital market products income 4,161
 1,936
 114.9
 7,594
 6,313
 20.3
Mortgage banking income 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
 2,638
 2,399
 10.0
 7,324
 7,072
 3.6
Total fee-based revenues 40,031
 33,502
 19.5
 108,216
 101,374
 6.7
Other income(2)
 2,920
 2,164
 34.9
 8,167
 6,756
 20.9
Total noninterest income $42,951
 $35,666
 20.4
 $116,383
 $108,130
 7.6
(1)Card-based fees, net consists of debit and credit card interchange fees for processing transactions, various fees on both consumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks, as well as the related cardholder expense.
(1)
(2)Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.
Card-based fees, net consists of debit and credit card interchange fees for processing transactions, various fees on both consumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks, as well as the related cardholder expense.
(2)
Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.
Total noninterest income of $43.0 million and $116.4$39.4 million for the thirdfirst quarter and first nine months of 2019, respectively, was up 20.4% and 7.6%12.8% from the same periodsperiod in 2018.2019. 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, the rise in wealth management fees was driven primarily by services providedcompared to customers acquired in the Northern Oak transaction completed in the first quarter of 2019.2019 resulted from continued sales of fiduciary and investment advisory services to new and existing customers. Capital market products income increased compared to boththe prior periodsperiod as a result of higher sales to corporate clients due toreflecting the lower long-term rates.rate environment. The decrease in net card-based fees compared to the first quarter of 2019 was due primarily to the fee assistance programs offered to our clients as a result of COVID-19.
Mortgage banking income for the thirdfirst quarter and first nine months of 20192020 resulted from sales of $141.0$116.6 million and $291.9 million, respectively, of 1-4 family mortgage loans in the secondary market, compared to $61.3 million and $189.4$57.5 million for the same periodsperiod in 2018. Mortgage2019. In addition, mortgage banking income is alsofor the first quarter of 2020 was impacted by fluctuationsnegative changes in the fair value of mortgage servicing rights due to market conditions.

48



rights, which resulted in a decrease to mortgage bankingOther income of $300,000 and $2.0 millionincreased compared to the thirdfirst quarter and first nine months of 2018, respectively.
Other income was elevated compared to both prior periods2019 due primarily to benefit settlements on BOLI and higher fair value adjustments on equity securities.BOLI.
Net securities losses of $1.0 million were recognized during the first quarter of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.
48



Noninterest Expense
A summary of noninterest expense for the quarters ended March 31, 2020 and nine months ended September 30, 2019 and 2018 is presented in the following table.
Table 54
Noninterest Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 March 31,		 
 20202019% Change
Salaries and employee benefits:
Salaries and wages$49,990  $46,135  8.4  
Retirement and other employee benefits12,869  11,238  14.5  
Total salaries and employee benefits62,859  57,373  9.6  
Net occupancy and equipment expense14,227  13,797  3.1  
Professional services10,390  7,087  46.6  
Technology and related costs8,548  6,270  36.3  
Advertising and promotions2,761  2,372  16.4  
Net OREO expense420  681  38.3  
Other expenses12,654  10,581  19.6  
Acquisition and integration related expenses5,472  3,691  48.3  
Delivering Excellence implementation costs—  258  (100.0) 
Total noninterest expense$117,331  $102,110  14.9  
Acquisition and integration related expenses(5,472) (3,691) 48.3  
Delivering Excellence implementation costs—  (258) (100.0) 
Total noninterest expense, adjusted(1)
$111,859  $98,161  14.0  
  Quarters Ended 
 September 30,		   Nine Months Ended 
 September 30,		  
  2019 2018 % Change 2019 2018 % Change
Salaries and employee benefits:            
Salaries and wages $50,686
 $44,067
 15.0
 $144,597
 $136,153
 6.2
Retirement and other employee benefits 10,795
 10,093
 7.0
 32,949
 32,726
 0.7
Total salaries and employee benefits 61,481
 54,160
 13.5
 177,546
 168,879
 5.1
Net occupancy and equipment expense 13,903
 13,183
 5.5
 42,344
 40,607
 4.3
Professional services 9,550
 7,944
 20.2
 27,805
 23,822
 16.7
Technology and related costs 5,062
 4,763
 6.3
 14,566
 14,371
 1.4
Advertising and promotions 2,955
 3,526
 (16.2) 8,494
 7,237
 17.4
Net OREO expense 381
 (413) 192.3
 1,356
 399
 239.8
Other expenses 11,432
 11,015
 3.8
 35,000
 32,846
 6.6
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 $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)(1)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."
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%14.9% from the first nine monthsquarter of 2018.2019. Noninterest expense for allboth periods presented was impacted by acquisition and integration related expenses andexpenses. The first quarter of 2019 was impacted by costs related to implementation of the Company's Delivering Excellence initiative. Excluding these items, noninterest expense for the thirdfirst quarter and first nine months of 20192020 was $104.8$111.9 million, and $307.1 million, respectively, up 11.2% and 6.6%14.0% from the same periodsperiod in 2018.2019. Overall, noninterest expense, adjusted, to average assets was well controlled at 2.44% for the first quarter of 2020, down 10 basis points from the first quarter of 2019.
Operating costs associated with the Bridgeview, Northern Oak,Park Bank and Northern StatesBridgeview transactions contributed to noninterest expense for the thirdfirst quarter and first nine months of 2019.2020. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, professional services, technology and related costs, and other expenses.
Compared to boththe prior periods,period, the increase in salaries and employee benefits was also impacted by merit increases and higher commissions resulting from sales of 1-4 family mortgage loans in the secondary market. In addition, salariesmarket, partially offset by lower incentive compensation expense and employee benefits for the first nine months of 2019 was impacted by the ongoing benefits of the Delivering Excellence initiativeequity compensation valuations. Technology and lower pension expense. Net occupancy and equipment expense was impacted by the adoption of lease accounting guidance inrelated costs compared to the first quarter of 2019. As a result, a deferred gain related2019 were impacted by investments in technology. Professional services increased compared to a prior sale-leaseback transaction was no longer included as a reduction in net occupancy and equipment expense in the amount of approximately $1.5 million quarterly. Net occupancy and equipment expense for the first nine monthsquarter of 2018 was elevated2019 due to costs related to the Company's corporate headquarters relocation. The increase in professional services from both prior periods was driven mainly by the timing of certain other professional feesprocess enhancements and expenses associated with

49



organizational growth and higher loan remediation costs and legal fees. Advertising and promotions expense for the third quarter of 2018 was impacted by a contribution to the First Midwest Charitable Foundation.capital market products income. Compared to the first nine monthsquarter of 2018, the rise in advertising2019, other expenses increased as a result of higher servicing fees from purchases of consumer loans and promotions expense was impacted by higher costs related to marketing campaigns.
Net OREO expense for the third quarter and first nine months of 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.other miscellaneous expenses associated with organizational growth.
Acquisition and integration related expenses for the thirdfirst quarter and first nine months of 20192020 resulted from the Park Bank and Bridgeview acquisitions. For the first quarter of 2019, acquisition of Bridgeview,and integration related expenses resulted from the Northern States, Northern Oak, and Northern States and the pending acquisitionBridgeview acquisitions.
49

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 locations identified for closure, employee severance, and 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 ended March 31, 2020 and nine months ended September 30, 2019 and 2018 is detailed in the following table.
Table 65
Income Tax Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Quarters Ended 
 March 31,
 2019 2018 2019 2018 20202019
Income before income tax expense $72,845
 $59,968
 $197,426
 $142,605
Income before income tax expense$26,074  $61,376  
Income tax expense:        Income tax expense:
Federal income tax expense $13,545
 $2,634
 $36,544
 $17,403
Federal income tax expense$5,337  $11,066  
State income tax expense 4,755
 3,982
 13,265
 8,740
State income tax expense1,131  4,252  
Total income tax expense $18,300
 $6,616
 $49,809
 $26,143
Total income tax expense$6,468  $15,318  
Effective income tax rate 25.1% 11.0% 25.2% 18.3%Effective income tax rate24.8 %25.0 %
Federal income tax expense and the related effective income tax rate are influenced by the amount of tax-exempt income derived from investment securities and BOLI in relation to pre-tax income as 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.
Total income tax expense and the effective tax rate for the quarter and nine months ended September 30, 2019 wereMarch 31, 2020 was impacted by higherlower levels of income subject to tax at statutory rates and an increase in non-deductible acquisition and integration related expenses. In addition, total income tax expense and the effective tax rate for the same periods in 2018 were impacted by $7.8 million of certain income tax benefits aligned with tax reform. Excluding this item, the Company's effective tax rate for the 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 1516 to the Consolidated Financial Statements of our 20182019 10-K.

50



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. Equity securities are carried at fair value and consist primarily of community development investments and certain diversified investment securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and 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.
50



From time to time, we adjust the size and composition of our securities portfolio based on a number of factors, including expected loan growth, anticipated changes in collateralized public funds on account, the interest rate environment, and the related value of various segments of the securities markets. The following table provides a valuation summary of our investment portfolio.
Table 76
Investment Portfolio
(Dollar amounts in thousands)
 As of March 31, 2020As of December 31, 2019
 Amortized
Cost		Net
Unrealized
Gains
(Losses)		Fair Value% of TotalAmortized
Cost		Net
Unrealized
Gains
(Losses)		Fair Value% of Total
Securities Available-for-Sale       
U.S. treasury securities$32,954  $355  $33,309  1.0  $33,939  $136  $34,075  1.2  
U.S. agency securities616,469  1,523  617,992  18.3  249,502  (1,078) 248,424  8.6  
Collateralized mortgage
obligations ("CMOs")		1,640,928  59,084  1,700,012  50.3  1,547,805  9,866  1,557,671  54.2  
Other mortgage-backed
securities ("MBSs")		662,529  24,742  687,271  20.3  678,804  5,880  684,684  23.8  
Municipal securities228,744  5,815  234,559  6.9  228,632  5,799  234,431  8.2  
Corporate debt securities117,785  (8,063) 109,722  3.2  112,797  1,304  114,101  4.0  
Total securities
available-for-sale		$3,299,409  $83,456  $3,382,865  100.0  $2,851,479  $21,907  $2,873,386  100.0  
Securities Held-to-Maturity    
Municipal securities(1)
$19,825  $17  $19,842  $21,997  $(763) $21,234  
Equity Securities$40,098  $42,136  
  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
Securities Available-for-Sale              
U.S. treasury securities $40,946
 $139
 $41,085
 1.4 $37,925
 $(158) $37,767
 1.7
U.S. agency securities 243,863
 224
 244,087
 8.4 144,125
 (1,562) 142,563
 6.3
Collateralized mortgage
  obligations ("CMOs")
 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")
 668,935
 8,572
 677,507
 23.3 477,665
 (10,731) 466,934
 20.5
Municipal securities 231,757
 5,677
 237,434
 8.2 229,600
 (2,413) 227,187
 10.0
Corporate debt securities 114,407
 665
 115,072
 4.0 86,074
 (3,725) 82,349
 3.6
Total securities
  available-for-sale
 $2,867,024
 $38,714
 $2,905,738
 100.0 $2,311,920
 $(39,911) $2,272,009
 100.0
Securities Held-to-Maturity              
Municipal securities $22,566
 $(584) $21,982
 
 $10,176
 $(305) $9,871
  
Equity Securities     $40,723
       $30,806
  
(1)Net of $220,000 of allowance for securities held-to-maturity as of March 31, 2020 which was established upon adoption of CECL on January 1, 2020.
Portfolio Composition
As of September 30, 2019,March 31, 2020, our securities available-for-sale portfolio totaled $2.9$3.4 billion, increasing $633.7$509.5 million, or 27.9%17.7%, from December 31, 2018.2019. The increase from December 31, 20182019 was driven primarily by purchases, consisting primarily of U.S. agency securities CMOs, MBSs, and corporate debt securities,CMOs, as well as $263.1$136.9 million of securities acquired in the BridgeviewPark Bank transaction and a change in unrealized gains (losses) due to lower market interest rates, which were partially offset by maturities, calls, and prepayments.
Investments in municipal securities consist of general obligations of local municipalities in multiple states. Our municipal securities portfolio has historically experienced very low default rates and provides a predictable cash flow.

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Table of Contents



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, 2019March 31, 2020 and December 31, 2018.2019.
Table 87
Securities Effective Duration Analysis
 As of March 31, 2020As of December 31, 2019
EffectiveAverageYield toEffectiveAverageYield to
 
Duration(1)
Life(2)
Maturity(3)
Duration(1)
Life(2)
Maturity(3)
Securities Available-for-Sale      
U.S. treasury securities0.53 %0.54  2.08 %0.66 %0.69  2.27 %
U.S. agency securities3.90 %5.54  2.65 %3.07 %5.50  2.56 %
CMOs1.75 %3.48  2.50 %2.98 %4.59  2.55 %
MBSs2.91 %3.64  2.65 %4.05 %4.94  2.79 %
Municipal securities4.37 %4.63  2.86 %4.35 %4.58  2.77 %
Corporate debt securities1.26 %5.65  3.02 %1.39 %5.63  3.15 %
Total securities available-for-sale2.54 %4.02  2.60 %3.26 %4.75  2.65 %
Securities Held-to-Maturity      
Municipal securities3.28 %3.92  4.22 %3.24 %4.09  4.52 %
(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.
 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)(3)Yields on municipal securities are reflected on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented.
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 the applicable federal income tax rate for each period presented.
Effective Duration
The average life and effective duration of our securities available-for-sale portfolio was 4.234.02 years and 2.55%2.54%, respectively, as of September 30, 2019,March 31, 2020, down from 4.854.75 years and 3.51%3.26% as of December 31, 2018.2019. The decrease resulted primarily from higher expected future prepayments of CMOs and MBSs due to lower market interest rates.
Realized Gains and Losses
There were no net securities losses of $1.0 million for the first quarter of 2020 as a result of repositioning of the securities portfolio due to market conditions. There were no securities gains (losses) or impairment charges recognized during the thirdfirst quarter and first nine months of 2019 and 2018.2019.
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, net of deferred income taxes. This balance sheet component will fluctuate as interest rates and conditions change and affect the aggregate fair value of the portfolio. Lower market interest rates drove the change to $38.7$83.5 million of unrealized gains as of September 30, 2019March 31, 2020 compared to $39.9$21.9 million of unrealized lossesgains as of December 31, 2018.2019.
LOAN PORTFOLIO AND CREDIT QUALITY
Portfolio Composition
Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 76.5%75.5% of total loans as of September 30, 2019.March 31, 2020. 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 certain of 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

52



concentrations, loan delinquencies, and non-performing and corporate performing potential problem loans to monitor and mitigate potential and current risks in the portfolio.
52



Table 8
Loan Portfolio
(Dollar amounts in thousands)
As of
 March 31, 2020December 31, 2019% Change
Legacy
Acquired(1)
Total% of
Total Loans		Total% of
Total Loans		LegacyTotal
Commercial and
industrial		$4,768,577  $282,577  $5,051,154  36.2  $4,481,525  34.9  6.4  12.7  
Agricultural393,063  75  393,138  2.8  405,616  3.2  (3.1) (3.1) 
Commercial real estate:             
Office, retail, and
industrial		1,876,618  402,450  2,279,068  16.3  1,848,718  14.4  1.5  23.3  
Multi-family884,442  21,839  906,281  6.5  856,553  6.7  3.3  5.8  
Construction562,689  —  562,689  4.0  593,093  4.6  (5.1) (5.1) 
Other commercial real
estate		1,349,812  —  1,349,812  9.7  1,383,708  10.8  (2.4) (2.4) 
Total commercial real
estate		4,673,561  424,289  5,097,850  36.5  4,682,072  36.5  (0.2) 8.9  
Total corporate
loans		9,835,201  706,941  10,542,142  75.5  9,569,213  74.6  2.8  10.2  
Home equity955,012  10,759  965,771  6.9  851,454  6.6  12.2  13.4  
1-4 family mortgages1,957,027  11,562  1,968,589  14.1  1,927,078  15.0  1.6  2.2  
Installment480,110  8,405  488,515  3.5  492,585  3.8  (2.5) (0.8) 
Total consumer loans3,392,149  30,726  3,422,875  24.5  3,271,117  25.4  3.7  4.6  
Total loans$13,227,350  $737,667  $13,965,017  100.0  $12,840,330  100.0  3.0  8.8  
  As of  
 September 30, 2019		 
% of
Total Loans
 
As of
December 31, 2018
 % of
Total Loans		 % Change
Commercial and industrial $4,570,361
 35.8 $4,120,293
 36.0 10.9
Agricultural 417,740
 3.3 430,928
 3.8 (3.1)
Commercial real estate:          
Office, retail, and industrial 1,892,877
 14.8 1,820,917
 15.9 4.0
Multi-family 817,444
 6.4 764,185
 6.7 7.0
Construction 637,256
 5.0 649,337
 5.6 (1.9)
Other commercial real estate 1,425,292
 11.2 1,361,810
 11.9 4.7
Total commercial real estate 4,772,869
 37.4 4,596,249
 40.1 3.8
Total corporate loans 9,760,970
 76.5 9,147,470
 79.9 6.7
Home equity 833,955
 6.5 851,607
 7.4 (2.1)
1-4 family mortgages 1,686,967
 13.2 1,017,181
 8.9 65.8
Installment 491,427
 3.8 430,525
 3.8 14.1
Total consumer loans 3,012,349
 23.5 2,299,313
 20.1 31.0
Total loans $12,773,319
 100.0 $11,446,783
 100.0 11.6
(1) Amount represents loans acquired in the Park Bank acquisition, which was completed in the first quarter of 2020.
Loan growth in all categories was positively impacted by the BridgeviewPark Bank acquisition in the secondfirst quarter of 2019,2020, which totaled $629.9added loans of $737.7 million as of September 30, 2019.March 31, 2020. Excluding these loans, total loans grew 8.1%12.1% annualized from December 31, 2018.2019. In addition, total corporate loans benefited from growth in commercial and industrial loans as a result of both new production and existing line draws, primarily within our sector-based lending and middle market business units, and multifamily loans.businesses. Strong production within commercial real estate loans was offset by the impact of the decision of certain customers to opportunistically sellselling their commercial business or investment real estate properties, as well as refinancing with non-bank lenders and real estate investors.institutions offering loan terms outside of our credit parameters. Growth in consumer loans resulted primarily from purchases of home equity loans and 1-4 family mortgages, andas well as organic growth.
Commercial, Industrial, and Agricultural Loans
Commercial, industrial, and agricultural loans represented 39.1%39.0% of total loans, and totaled $5.0$5.4 billion at September 30, 2019,March 31, 2020, an increase of $436.9$557.2 million, or 9.6%11.4%, from December 31, 2018.2019. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that include supporting seasonal working capital needs, accounts receivable financing, inventory and equipment financing, and 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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Table of Contents



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 real estate 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 long-term 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.
The following table presents commercial real estate loan detail as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
Table 109
Commercial Real Estate Loans
(Dollar amounts in thousands)
 As of  
 September 30, 2019		 % of
Total		 As of
December 31, 2018		 % of
Total		As of  
 March 31, 2020		% of
Total		As of  
 December 31, 2019		% of
Total
Office, retail, and industrial:     Office, retail, and industrial:  
Office $683,045
 14.3 $708,146
 15.4Office$764,264  15.0  $643,575  13.7  
Retail 593,903
 12.4 506,099
 11.0Retail727,392  14.3  607,712  13.0  
Industrial 615,929
 12.9 606,672
 13.2Industrial787,412  15.4  597,431  12.8  
Total office, retail, and industrial 1,892,877
 39.6 1,820,917
 39.6Total office, retail, and industrial2,279,068  44.7  1,848,718  39.5  
Multi-family 817,444
 17.1 764,185
 16.7Multi-family906,281  17.8  856,553  18.3  
Construction 637,256
 13.4 649,337
 14.1Construction562,689  11.1  593,093  12.7  
Other commercial real estate:     Other commercial real estate:  
Multi-use properties 297,504
 6.2 309,199
 6.7Multi-use properties296,890  5.8  300,488  6.4  
Rental properties 288,810
 6.1 235,851
 5.1Rental properties270,832  5.3  277,350  5.9  
Warehouses and storage 171,614
 3.6 197,185
 4.3Warehouses and storage175,245  3.4  166,750  3.6  
Hotels 142,972
 3.0 128,199
 2.8Hotels116,235  2.3  127,213  2.7  
Service stations and truck stops 117,690
 2.5 100,293
 2.2Service stations and truck stops112,097  2.2  114,205  2.4  
RecreationalRecreational92,653  1.8  89,246  1.9  
Restaurants 105,632
 2.2 115,667
 2.5Restaurants91,046  1.8  102,341  2.2  
Recreational 87,716
 1.8 70,490
 1.5
Other 213,354
 4.5 204,926
 4.5Other194,814  3.8  206,115  4.4  
Total other commercial real estate 1,425,292
 29.9 1,361,810
 29.6Total other commercial real estate1,349,812  26.4  1,383,708  29.5  
Total commercial real estate $4,772,869
 100.0 $4,596,249
 100.0Total commercial real estate$5,097,850  100.0  $4,682,072  100.0  
Commercial real estate loans represent 37.4%36.5% of total loans, and totaled $4.8$5.1 billion at September 30, 2019,March 31, 2020, increasing $176.6$415.8 million, or 3.8%8.9%, from December 31, 2018.2019.
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 41%36% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of September 30, 2019.March 31, 2020. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was 194%202% and construction loans to total capital was 35%34% as of September 30, 2019.March 31, 2020. 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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As a result of COVID-19, the Company identified certain elevated risk segments in the corporate loan portfolio including franchises, hotels, recreation and entertainment, dental professionals, restaurants, and retailers. As of March 31, 2020, these elevated risk segments approximate 5% of our granular and diverse total loan portfolio.
Consumer Loans
Consumer loans represented 23.5%24.5% of total loans, and totaled $3.0$3.4 billion at September 30, 2019,March 31, 2020, an increase of $713.0$151.8 million, or 31.0%4.6%, from December 31, 2018.2019. 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.
Non-performing Assets and Corporate Performing Potential Problem Loans
The following table presentsAs a result of COVID-19, the Company identified unsecured installment loans, which was less than 2% of our total 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-performing Status
(Dollar amounts in thousands)
 Accruing    
 
PCI(1)
 Current 
30-89 Days
Past Due
 
90 Days
Past Due
 Non-accrual 
Total
Loans
As of September 30, 2019           
Commercial and industrial$44,294
 $4,479,204
 $18,142
 $1,982
 $26,739
 $4,570,361
Agricultural5,196
 399,313
 6,966
 23
 6,242
 417,740
Commercial real estate:  
        
Office, retail, and industrial24,910
 1,837,498
 3,657
 —
 26,812
 1,892,877
Multi-family5,738
 807,684
 1,870
 —
 2,152
 817,444
Construction13,444
 621,826
 1,771
 63
 152
 637,256
Other commercial real estate49,246
 1,368,474
 1,780
 1,112
 4,680
 1,425,292
Total commercial real estate93,338
 4,635,482
 9,078
 1,175
 33,796
 4,772,869
Total corporate loans142,828
 9,513,999
 34,186
 3,180
 66,777
 9,760,970
Home equity2,882
 817,971
 5,601
 175
 7,326
 833,955
1-4 family mortgages19,205
 1,659,322
 4,851
 —
 3,589
 1,686,967
Installment876
 487,716
 1,533
 1,302
 —
 491,427
Total consumer loans22,963
 2,965,009
 11,985
 1,477
 10,915
 3,012,349
Total loans$165,791
 $12,479,008
 $46,171
 $4,657
 $77,692
 $12,773,319
As of December 31, 2018           
Commercial and industrial$1,175
 $4,076,842
 $8,347
 $422
 $33,507
 $4,120,293
Agricultural3,282
 425,041
 940
 101
 1,564
 430,928
Commercial real estate:  
        
Office, retail, and industrial16,556
 1,785,561
 8,209
 4,081
 6,510
 1,820,917
Multi-family13,663
 745,739
 1,487
 189
 3,107
 764,185
Construction4,838
 640,936
 3,419
 —
 144
 649,337
Other commercial real estate54,763
 1,297,191
 4,805
 2,197
 2,854
 1,361,810
Total commercial real estate89,820
 4,469,427
 17,920
 6,467
 12,615
 4,596,249
Total corporate loans94,277
 8,971,310
 27,207
 6,990
 47,686
 9,147,470
Home equity1,916
 839,206
 4,988
 104
 5,393
 851,607
1-4 family mortgages16,655
 991,842
 3,681
 1,147
 3,856
 1,017,181
Installment962
 427,874
 1,648
 41
 —
 430,525
Total consumer loans19,533
 2,258,922
 10,317
 1,292
 9,249
 2,299,313
Total loans$113,810
 $11,230,232
 $37,524
 $8,282
 $56,935
 $11,446,783
(1)
PCI loans with an accretable yield are considered current.

55



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 of
 September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Non-accrual loans$77,692
 $63,477
 $70,205
 $56,935
 $64,766
90 days or more past due loans, still
accruing interest(1)
4,657
 2,615
 8,446
 8,282
 2,949
Total non-performing loans82,349
 66,092
 78,651
 65,217
 67,715
Accruing TDRs1,422
 1,441
 1,844
 1,866
 1,741
Foreclosed assets(2)
25,266
 28,488
 10,818
 12,821
 12,244
Total non-performing assets$109,037
 $96,021
 $91,313
 $79,904
 $81,700
30-89 days past due loans(1)
$46,171
 $34,460
 $45,764
 $37,524
 $46,257
Non-accrual loans to total loans0.61% 0.51% 0.61% 0.50% 0.59%
Non-performing loans to total loans0.64% 0.53% 0.68% 0.57% 0.61%
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 0.85% of total loans and foreclosed assets at September 30, 2019, compared to 0.70% and 0.74% at December 31, 2018 and September 30, 2018, respectively, reflective of normal fluctuations that can occur on a quarterly basis. Compared to December 31, 2018, the increase in non-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, 2019 was $3.9 million of OREO acquiredMarch 31, 2020, as an elevated risk segment in the Bridgeview 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 of
 September 30, 2019 December 31, 2018 September 30, 2018
 
Number
of Loans
 Amount 
Number
of Loans
 Amount 
Number
of Loans
 Amount
Commercial and industrial4
 $4,793
 6
 $6,240
 5
 $5,853
Commercial real estate:           
Office, retail, and industrial—
 —
 —
 —
 —
 —
Multi-family1
 165
 2
 557
 2
 563
Other commercial real estate1
 173
 1
 181
 1
 184
Total commercial real estate2
 338
 3
 738
 3
 747
Total corporate loans6
 5,131
 9
 6,978
 8
 6,600
Home equity9
 356
 11
 440
 11
 435
1-4 family mortgages11
 1,023
 11
 1,060
 11
 1,071
Total consumer loans20
 1,379
 22
 1,500
 22
 1,506
Total TDRs26
 $6,510
 31
 $8,478
 30
 $8,106
Accruing TDRs14
 $1,422
 15
 $1,866
 13
 $1,741
Non-accrual TDRs12
 5,088
 16
 6,612
 17
 6,365
Total TDRs26
 $6,510
 31

$8,478
 30
 $8,106
Year-to-date charge-offs on TDRs  $628
   $3,925
   $3,925
Specific reserves related to TDRs  —
   —
   —

57



Corporate Performing Potential Problem Loans
Corporate performing potential problem loans consist of special mention loans and substandard loans, excluding accruing TDRs.consumer loan portfolio. These loans are performing in accordance with their contractual terms, but wehigh credit quality, geographically dispersed, and have concerns about the abilityaverage loan sizes of the borrower to continue to comply with loan terms due to the borrower's operating or financial difficulties.less than $10,000, which reduces our risk exposure.
Table 14
Corporate Performing Potential Problem Loans
(Dollar amounts in thousands)
 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 $232,000 as of September 30, 2019 and $630,000 as of December 31, 2018.
(4)
Includes corporate PCI performing potential problem loans.
Corporate performing potential problem loans to corporate loans was 3.66% at September 30, 2019 compared to 3.72% at December 31, 2018.
Foreclosed Assets
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets as of September 30, 2019 reflects the transfer of one corporate loan relationship for which the Company has remediation plans in place.
Table 15
Foreclosed Assets by Type
(Dollar amounts in thousands)
  As of
  September 30, 2019 December 31, 2018 September 30, 2018
Single-family homes $2,319
 $3,337
 $571
Land parcels:      
Raw land —
 —
 148
Commercial lots 5,340
 2,310
 3,279
Single-family lots 1,543
 1,962
 1,962
Total land parcels 6,883
 4,272
 5,389
Commercial properties 3,226
 5,212
 6,284
Total OREO 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.

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A rollforward of foreclosed assets for the quarters and nine months ended September 30, 2019 and 2018 is presented in the following table.
Table 16
Foreclosed Assets Rollforward
(Dollar amounts in thousands)
  Quarters Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Beginning balance $15,313
 $12,892
 $12,821
 $20,851
Transfers from loans 197
 2,854
 519
 4,026
Acquisitions (77) —
 6,160
 —
Proceeds from sales (4,194) (4,313) (9,430) (12,951)
Gains on sales of foreclosed assets 295
 1,075
 648
 1,090
Valuation adjustments 894
 (264) 1,710
 (772)
Ending balance $12,428
 $12,244
 $12,428
 $12,244
Allowance for Credit Losses
Methodology for the Allowance for Credit Losses
On January 1, 2020, the Company adopted CECL, which requires the Company 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. Prior to the adoption of CECL, the allowance for credit losses was estimated using an incurred loss model based on historical loss experience. The adoption of CECL impacted both the level of allowance for credit loss reserves as well as other asset quality metrics due to the change in accounting for acquired PCD loans. As a result, certain metrics are presented excluding PCD loans to provide comparability to prior periods.
The allowance for credit losses is comprised of the allowance for loan losses and the reserveallowance for unfunded commitments and is maintained by management at a level believed adequate to absorb estimatedcurrent expected credit losses inherent in the existing loan portfolio. DeterminationThe 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 impairednon-accrual loans, estimated losses on pools of homogeneous loans,actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, 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 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.
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 current expected credit losses inherent in the existing loan portfolio as of September 30, 2019.March 31, 2020.
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 Notes 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 related to acquired loans, and the remaining acquisition adjustment associated with acquired loans as of September 30, 2019 and December 31, 2018.
Table 17
Allowance for Credit Losses and Acquisition Adjustment
(Dollar amounts in thousands)

  Loans, Excluding Acquired Loans 
Acquired Loans(1)
 Total
Nine months ended September 30, 2019      
Beginning balance $102,222
 $1,197
 $103,419
Net charge-offs (26,874) (750) (27,624)
Provision for loan losses and other expense 34,161
 272
 34,433
Ending balance $109,509
 $719
 $110,228
As of September 30, 2019      
Total loans $11,226,603
 $1,546,716
 $12,773,319
Remaining acquisition adjustment(2)
 N/A
 93,374
 93,374
Allowance for credit losses to total loans(3)
 0.98% 0.05% 0.86%
Remaining acquisition adjustment to acquired loans N/A
 6.04% N/A
As of December 31, 2018      
Total loans $10,114,113
 $1,332,670
 $11,446,783
Remaining acquisition adjustment(2)
 N/A
 76,496
 76,496
Allowance for credit losses to total loans(3)
 1.01% 0.09% 0.90%
Remaining acquisition adjustment to acquired loans 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 $64.2 million and $29.1 million relating to PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of September 30, 2019, and $45.4 million and $31.1 million relating to PCI and Non-PCI loans, respectively, as of December 31, 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 0.98% as of September 30, 2019. The acquisition adjustment increased $16.9 million during the first nine months of 2019, driven primarily by the loans 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 6.04%. Acquired loans that are renewed are no longer classified as acquired loans. These loans totaled $512.6 million and $458.0 million as of September 30, 2019 and December 31, 2018, respectively, and are included in loans, excluding acquired loans, and allocated an allowance in accordance with our allowance for loan losses methodology. In addition, there is an allowance for credit losses of $719,000 on acquired loans as of September 30, 2019.

60



Table 1810
Allowance for Credit Losses and
Summary of Credit Loss Experience
(Dollar amounts in thousands)
Quarters Ended
March 31,
2020		December 31, 2019September 30, 2019June 30,
2019		March 31,
2019
Change in allowance for credit losses    
Beginning balance$109,222  $110,228  $106,929  $104,779  $103,419  
Adjustment to apply recent accounting
  pronouncements(1)
75,757  —  —  —  —  
Allowance established for acquired PCD loans14,304  —  —  —  —  
Loan charge-offs:
Commercial, industrial, and agricultural7,066  7,865  7,176  6,516  6,451  
Office, retail, and industrial338  274  293  1,605  628  
Multi-family10  —  —  —  340  
Construction1,808  4  —  —  6  
Other commercial real estate308  77  184  329  210  
Consumer4,400  4,515  3,619  2,974  3,142  
Total loan charge-offs13,930  12,735  11,272  11,424  10,777  
Recoveries of loan charge-offs:  
Commercial, industrial, and agricultural1,159  1,051  1,205  1,258  1,301  
Office, retail, and industrial9  18  74  151  10  
Multi-family5  439  38  —  1  
Construction—  1  2  10  6  
Other commercial real estate144  64  227  45  21  
Consumer499  562  527  619  354  
Total recoveries of loan charge-offs1,816  2,135  2,073  2,083  1,693  
Net loan charge-offs12,114  10,600  9,199  9,341  9,084  
Provision for loan losses39,532  9,594  12,498  11,491  10,444  
Ending balance$226,701  $109,222  $110,228  $106,929  $104,779  
Total net loan charge-offs, excluding
  PCD loans(2)
$10,394  $10,600  $9,199  $9,341  $9,084  
Allowance for credit losses
Allowance for loan losses$219,948  $108,022  $109,028  $105,729  $103,579  
Allowance for unfunded commitments6,753  1,200  1,200  1,200  1,200  
Total allowance for credit losses$226,701  $109,222  $110,228  $106,929  $104,779  
Allowance for credit losses to loans1.62 %0.85 %0.86 %0.85 %0.91 %
Allowance for credit losses to
non-accrual loans		154.64 %132.76 %141.88 %168.45 %149.25 %
Average loans$13,073,005  $12,020,820  $12,538,138  $12,020,820  $11,456,267  
Net loan charge-offs to average loans,
  annualized		0.37 %0.33 %0.29 %0.31 %0.32 %
Net loan charge-offs to average loans, excluding
  PCD loans, annualized(2)
0.32 %0.33 %0.29 %0.31 %0.32 %
 Quarters Ended
 September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Change in allowance for credit losses         
Beginning balance$106,929
 $104,779
 $103,419
 $100,925
 $97,691
Loan charge-offs:         
Commercial, industrial, and agricultural7,176
 6,516
 6,451
 6,868
 6,277
Office, retail, and industrial293
 1,605
 628
 761
 759
Multi-family—
 —
 340
 —
 1
Construction—
 —
 6
 —
 1
Other commercial real estate184
 329
 210
 163
 177
Consumer3,619
 2,974
 3,142
 2,535
 2,049
Total loan charge-offs11,272
 11,424
 10,777
 10,327
 9,264
Recoveries of loan charge-offs:         
Commercial, industrial, and agricultural1,205
 1,258
 1,301
 1,239
 416
Office, retail, and industrial74
 151
 10
 48
 163
Multi-family38
 —
 1
 3
 —
Construction2
 10
 6
 99
 5
Other commercial real estate227
 45
 21
 980
 154
Consumer527
 619
 354
 441
 512
Total recoveries of loan charge-offs2,073
 2,083
 1,693
 2,810
 1,250
Net loan charge-offs9,199
 9,341
 9,084
 7,517
 8,014
Provision for loan losses12,498
 11,491
 10,444
 9,811
 11,248
Increase in reserve for unfunded
  commitments (1)
—
 —
 —
 200
 —
Total provision for loan losses and other
  expense
12,498
 11,491
 10,444
 10,011
 11,248
Ending balance$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)As a result of accounting guidance adopted in the first quarter of 2020, the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
(1)
(2)Prior to the adoption of CECL on January 1, 2020, the portion of PCI loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, an allowance for credit losses on PCD loans, including those previously identified as PCI, is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the allowance for credit losses. 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."
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)
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."

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56



Table of Contents



Activity in the Allowance for Credit Losses
The allowance for credit losses was $110.2$226.7 million as of September 30, 2019 and represented 0.86%or 1.62% of total loans downas of March 31, 2020, increasing $117.5 million and $121.9 million compared to 0.90% at December 31, 2018. This decrease2019 and March 31, 2019, respectively. Adoption of the CECL standard on January 1, 2020 increased the allowance for credit losses by $75.8 million, which includes $31.6 million attributable to loans and unfunded commitments, $35.7 million for PCD acquired loans, and $8.5 million for non-PCD acquired loans. As a result of COVID-19, a provision for loan losses of $28.0 million was driven primarily by loans acquiredrecorded in the Bridgeview transaction, for which nofirst quarter of 2020. In addition, $14.3 million in allowance for credit losses was established atthrough acquisition accounting adjustments for PCD loans acquired in the timePark Bank acquisition in the first quarter of 2020 along with an additional $1.7 million in provision for loan losses on non-PCD loans subsequent to acquisition.
The provision for loan losses was $12.5$39.5 million for the quarter ended September 30, 2019,March 31, 2020, up from $9.8$9.6 million for the quarter ended December 31, 20182019 and $11.2from $10.4 million for the quarter ended September 30, 2018.March 31, 2019. The increase compared to both prior periods resultedwas driven primarily from loan growth. In addition,by a provision for loan losses of $28 million recorded as a result of the quarter ended December 31, 2018 was impacted by lower levelsestimated impact of net loan charge-offs.COVID-19.
Net loan charge-offs to average loans, annualized, were 0.29%0.37%, or $9.2$12.1 million, for the thirdfirst quarter of 2019, up from 0.26%2020, compared to 0.33% for the fourth quarter of 20182019 and 0.32% for the first quarter of 2019. Excluding charge-offs on PCD loans, net loan charge-offs to average loans of 0.32% was consistent with the third quarter of 2018.both prior periods.
57



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-performing Status (1)
(Dollar amounts in thousands)
 Accruing  
 Current30-89 Days
Past Due		90 Days
Past Due		Non-accrualTotal
Loans
As of March 31, 2020     
Commercial and industrial$4,991,522  $22,708  $2,912  $34,012  $5,051,154  
Agricultural381,931  5,238  146  5,823  393,138  
Commercial real estate:   
Office, retail, and industrial2,223,227  11,216  —  44,625  2,279,068  
Multi-family897,270  5,584  558  2,869  906,281  
Construction532,427  1,342  —  28,920  562,689  
Other commercial real estate1,315,009  22,930  22  11,851  1,349,812  
Total commercial real estate4,967,933  41,072  580  88,265  5,097,850  
Total corporate loans10,341,386  69,018  3,638  128,100  10,542,142  
Home equity952,723  3,185  360  9,503  965,771  
1-4 family mortgages1,954,626  4,967  —  8,996  1,968,589  
Installment483,504  3,957  1,054  —  488,515  
Total consumer loans3,390,853  12,109  1,414  18,499  3,422,875  
Total loans$13,732,239  $81,127  $5,052  $146,599  $13,965,017  
As of December 31, 2019     
Commercial and industrial$4,438,063  $11,260  $2,207  $29,995  $4,481,525  
Agricultural398,676  628  358  5,954  405,616  
Commercial real estate:   
Office, retail, and industrial1,820,502  1,813  546  25,857  1,848,718  
Multi-family853,762  94  —  2,697  856,553  
Construction588,065  4,876  —  152  593,093  
Other commercial real estate1,375,712  2,738  529  4,729  1,383,708  
Total commercial real estate4,638,041  9,521  1,075  33,435  4,682,072  
Total corporate loans9,474,780  21,409  3,640  69,384  9,569,213  
Home equity838,575  4,290  146  8,443  851,454  
1-4 family mortgages1,916,341  5,092  1,203  4,442  1,927,078  
Installment491,406  1,167  12  —  492,585  
Total consumer loans3,246,322  10,549  1,361  12,885  3,271,117  
Total loans$12,721,102  $31,958  $5,001  $82,269  $12,840,330  
(1) Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
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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 of
 March 31,
2020		December 31, 2019September 30, 2019June 30,
2019		March 31,
2019
Non-accrual loans, excluding PCD
  loans(1)(2)
$97,649  $82,269  $77,692  $63,477  $70,205  
Non-accrual PCD loans(1)
48,950  —  —  —  —  
Total non-accrual loans146,599  82,269  77,692  63,477  70,205  
90 days or more past due loans, still
  accruing interest(1)
5,052  5,001  4,657  2,615  8,446  
Total non-performing loans151,651  87,270  82,349  66,092  78,651  
Accruing TDRs1,216  1,233  1,422  1,441  1,844  
Foreclosed assets(3)
21,027  20,458  25,266  28,488  10,818  
Total non-performing assets$173,894  $108,961  $109,037  $96,021  $91,313  
30-89 days past due loans(1)
$81,127  $31,958  $46,171  $34,460  $45,764  
30-89 days past due loans, excluding PCD
  loans(1)(2)
$75,581  $31,958  $46,171  $34,460  $45,764  
Non-accrual loans to total loans1.05 %0.64 %0.61 %0.51 %0.61 %
Non-accrual loans to total loans, excluding
  PCD loans(1)(2)
0.71 %0.64 %0.61 %0.51 %0.61 %
Non-performing loans to total loans1.09 %0.68 %0.64 %0.53 %0.68 %
Non-performing loans to total loans,
  excluding PCD loans(1)(2)
0.75 %0.68 %0.64 %0.53 %0.68 %
Non-performing assets to total loans plus
foreclosed assets		1.24 %0.85 %0.85 %0.77 %0.79 %
Non-performing assets to total loans plus
  foreclosed assets, excluding PCD
  loans(1)(2)
0.91 %0.85 %0.85 %0.77 %0.79 %
(1)Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
(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)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 1.24% of total loans and foreclosed assets at March 31, 2020, compared to 0.85% and 0.79% at December 31, 2019 and March 31, 2019, respectively. Excluding the impact of PCD loans, non-performing assets to total loans plus foreclosed assets was 0.91% at March 31, 2020, reflective of normal fluctuations that occur on a quarterly basis. These fluctuations occurred within non-accrual loans and foreclosed assets and are isolated to certain credits for which the Company has remediation plans in place.
Total 30-89 days past due loans, excluding PCD loans of $75.6 million increased by $43.6 million and $29.8 million compared to December 31, 2019 and March 31, 2019, respectively. Reported levels were elevated largely due to timing as renewal and payment activity on two loan relationships was delayed into in the first week of April 2020.
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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 of
 March 31, 2020December 31, 2019March 31, 2019
 Number
of Loans		AmountNumber
of Loans		AmountNumber
of Loans		Amount
Commercial and industrial9  $13,128  9  $16,647  5  $9,070  
Commercial real estate:      
Office, retail, and industrial2  4,410  1  3,600  —  —  
Multi-family1  161  1  163  2  552  
Other commercial real estate1  167  1  170  1  179  
Total commercial real estate4  4,738  3  3,933  3  731  
Total corporate loans13  17,866  12  20,580  8  9,801  
Home equity9  389  8  276  9  378  
1-4 family mortgages9  878  6  637  11  1,040  
Installment—  —  4  254  —  —  
Total consumer loans18  1,267  18  1,167  20  1,418  
Total TDRs31  $19,133  30  $21,747  28  $11,219  
Accruing TDRs12  $1,216  12  $1,233  15  $1,844  
Non-accrual TDRs19  17,917  18  20,514  13  9,375  
Total TDRs31  $19,133  30  $21,747  28  $11,219  
Year-to-date charge-offs on TDRs $2,873   $3,557   $158  
Specific allowances related to TDRs 1,937   2,245   173  
In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the COVID-19 pandemic. The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States terminates. Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial.
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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 March 31, 2020As of December 31, 2019
 
Special
Mention(1)
Substandard(2)
Total(3)
Special
Mention(1)
Substandard(2)
Total(3)
Commercial and industrial$84,469  $93,940  $178,409  $47,665  $78,929  $126,594  
Agricultural36,277  14,683  50,960  32,764  16,071  48,835  
Commercial real estate120,080  88,300  208,380  108,274  93,811  202,085  
Total corporate performing
  potential problem loans
  ("CPPPLs")(4)
240,826  196,923  437,749  188,703  188,811  377,514  
Less: PCD and PCI CPPPLs
  included in the totals above(4)
(47,795) (31,346) (79,141) (21,892) (46,207) (68,099) 
Total CPPPLs, excluding PCD
and PCI loans		$193,031  $165,577  $358,608  $166,811  $142,604  $309,415  
CPPPLs to corporate loans2.28 %1.87 %4.15 %1.97 %1.97 %3.95 %
CPPPLs, excluding PCD and PCI
  loans, to corporate loans(5)
1.88 %1.61 %3.48 %1.77 %1.51 %3.28 %
(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.
(4)Includes corporate PCD performing potential problem loans, subsequent to the adoption of CECL on January 1, 2020. Prior to the adoption of CECL, included corporate PCI performing potential problem loans.
(5)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."
CPPPLs to corporate loans was 4.15% at March 31, 2020 compared to 3.95% at December 31, 2019. The increase in PCD and PCI CPPPLs was driven primarily by loans acquired in the Park Bank transaction, partially offset by the transition of certain loans previously classified as PCI to non-accrual PCD status upon adoption of CECL. Excluding PCD and PCI loans, CPPPLs to corporate loans was 3.48% at March 31, 2020 compared to 3.28% at December 31, 2019. The increase resulted primarily from higher levels of commercial and industrial loans classified as special mention and substandard. Management has specific monitoring and remediation plans associated with these loans.
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Foreclosed Assets
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans.
Table 15
Foreclosed Assets by Type
(Dollar amounts in thousands)
As of
 March 31, 2020December 31, 2019March 31, 2019
Single-family homes$1,640  $1,636  $2,241  
Land parcels:   
Raw land—  —  —  
Commercial lots4,253  5,178  2,654  
Single-family lots1,543  1,543  1,543  
Total land parcels5,796  6,721  4,197  
Commercial properties2,261  393  4,380  
Total OREO9,814  8,750  10,818  
Other foreclosed assets(1)
11,213  11,708  —  
Total$21,027  $20,458  $10,818  
(1)Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
Other foreclosed assets as of March 31, 2020 includes one corporate loan relationship for which the Company has remediation plans in place.
A rollforward of foreclosed assets balances for the quarters ended March 31, 2020 and 2019 is presented in the following table.
Table 16
Foreclosed Assets Rollforward
(Dollar amounts in thousands)
Quarters Ended March 31,
 20202019
Beginning balance$20,458  $12,821  
Transfers from loans121  —  
Acquisitions1,868  —  
Acquisition accounting adjustment(567) —  
Proceeds from sales(725) (2,795) 
Gains on sales of foreclosed assets  142  107  
Valuation adjustments(270) 685  
Ending balance$21,027  $10,818  


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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 1917
Funding Sources – Average Balances
(Dollar amounts in thousands)
Quarters Ended September 30, 2019 % Change From Quarters EndedMarch 31, 2020
% Change From
September 30,
2019		 December 31,
2018		 September 30,
2018		  December 31,
2018		 September 30,
2018		 March 31,
2020		December 31,
2019		March 31,
2019		December 31,
2019		March 31,
2019
Demand deposits$3,800,569
 $3,685,806
 $3,624,520
  3.1
 4.9
Demand deposits$3,884,015  $3,862,157  $3,587,480  0.6  8.3  
Savings deposits2,056,128
 2,044,312
 2,003,928
  0.6
 2.6
Savings deposits2,069,163  2,044,386  2,037,831  1.2  1.5  
NOW accounts2,483,176
 2,128,722
 2,164,018
  16.7
 14.7
NOW accounts2,273,156  2,291,667  2,083,366  (0.8) 9.1  
Money market accounts2,080,274
 1,831,311
 1,772,821
  13.6
 17.3
Money market accounts2,227,707  2,178,518  1,809,234  2.3  23.1  
Core deposits10,420,147
 9,690,151
 9,565,287
  7.5
 8.9
Core deposits10,454,041  10,376,728  9,517,911  0.7  9.8  
Time deposits2,836,854
 2,190,251
 1,971,629
  29.5
 43.9
Time deposits2,626,405  2,792,343  2,412,052  (5.9) 8.9  
Brokered deposits189,569
 121,202
 21,732
  56.4
 772.3
Brokered deposits306,061  241,560  235,264  26.7  30.1  
Total time deposits3,026,423
 2,311,453
 1,993,361
  30.9
 51.8
Total time deposits2,932,466  3,033,903  2,647,316  (3.3) 10.8  
Total deposits13,446,570
 12,001,604
 11,558,648
  12.0
 16.3
Total deposits13,386,507  13,410,631  12,165,227  (0.2) 10.0  
Securities sold under agreements to
repurchase
90,514
 118,749
 103,921
  (23.8) (12.9)Securities sold under agreements to
repurchase		104,389  97,843  112,717  6.7  (7.4) 
Federal funds purchased21,456
 9,022
 3,641
  137.8
 489.3
Federal funds purchased258,300  114,180  722  126.2  35,675.6  
FHLB advances1,257,109
 903,478
 872,859
  39.1
 44.0
FHLB advances1,645,011  1,347,303  764,556  22.1  115.2  
Total borrowed funds1,369,079
 1,031,249
 980,421
  32.8
 39.6
Total borrowed funds2,007,700  1,559,326  877,995  28.8  128.7  
Senior and subordinated debt233,642
 204,030
 195,526
  14.5
 19.5
Senior and subordinated debt234,053  233,848  203,899  0.1  14.8  
Total funding sources$15,049,291
 $13,236,883
 $12,734,595
  13.7
 18.2
Total funding sources$15,628,260  $15,203,805  $13,247,121  2.8  18.0  
Average interest rate paid on
borrowed funds
1.63% 1.72% 1.59%     
Average interest rate paid on
borrowed funds
1.17 %1.17 %1.64 %  
Weighted-average maturity of FHLB
advances
52.1 months
 1.2 months
 1.0 months
     
Weighted-average maturity of FHLB
advances
54.5 months52.4 months1.2 months  
Weighted-average interest rate of
FHLB advances
1.59% 2.53% 2.23%     
Weighted-average interest rate of
FHLB advances
0.85 %1.34 %2.60 %  
Total average funding sources for the thirdfirst quarter of 20192020 increased $1.8 billion,$424.5 million, or 13.7%2.8% from the fourth quarter of 20182019 and $2.3$2.4 billion, or 18.2%18.0%, compared to the thirdfirst quarter of 2018.2019. The increase in total average funding sources compared to both prior periods was driven by deposits assumedresulted primarily from the Park Bank transaction in the Bridgeview transaction, organic deposit growth,first quarter of 2020 and FHLB advances. In addition, the rise in total average depositsfunding sources compared to the thirdfirst quarter of 20182019 was impacted by deposits assumed in the Northern StatesBridgeview transaction and various time deposit marketing initiatives.organic growth of deposits. The increase in the weighted-average maturity of FHLB advances compared to March 31, 2019 was

62



driven by the addition of putable FHLB advances during the first nine monthsquarter of 20192020 that mature between JuneApril of 20242020 and SeptemberMarch of 2029.2030.
As of March 31, 2020, the Company had $6.4 billion of additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with $3.6 billion of the additional funding comprised of $2.0 billion of unencumbered securities and cash, $687.5 million of available FHLB capacity, and $908.3 million of Federal Reserve availability. In addition, the Company has the ability to utilize the Paycheck Protection Program Liquidity Facility to fund PPP demand for loans.

63



Table 18
Borrowed Funds
(Dollar amounts in thousands)
September 30, 2019 September 30, 2018 March 31, 2020March 31, 2019
Amount 
Weighted-
Average
Rate (%)
  Amount 
Weighted-
Average
Rate (%)
 AmountWeighted-
Average
Rate (%)		AmountWeighted-
Average
Rate (%)
At period-end:        At period-end:    
Securities sold under agreements to repurchase$93,490
 0.07  $98,546
 0.08Securities sold under agreements to repurchase$127,682  0.07  $118,852  0.09  
Federal funds purchased180,000
 0.21  —
 —Federal funds purchased245,000  0.20  —  —  
FHLB advances1,380,000
 1.59  975,000
 2.23FHLB advances2,275,528  0.85  855,000  2.60  
Total borrowed funds$1,653,490
 1.33  $1,073,546
 2.03Total borrowed funds$2,648,210  0.73  $973,852  2.29  
Average for the year-to-date period:        Average for the year-to-date period:    
Securities sold under agreements to repurchase$103,579
 0.08  $112,775
 0.07Securities sold under agreements to repurchase$104,389  0.08  $112,717  0.08  
Federal funds purchased16,223
 2.32  5,220
 1.74Federal funds purchased258,300  1.34  722  2.25  
FHLB advances972,805
 1.83  799,992
 1.80FHLB advances1,645,011  1.21  764,556  1.87  
Total borrowed funds$1,092,607
 1.67  $917,987
 1.59Total borrowed funds$2,007,700  1.17  $877,995  1.64  
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$122,441
    $128,553
  Securities sold under agreements to repurchase$133,329   $122,441   
Federal funds purchased295,000
  140,000
 Federal funds purchased400,000  65,000  
FHLB advances1,547,000
    1,105,000
  FHLB advances2,275,528   885,000   
Average borrowed funds totaled $1.1$2.0 billion for the first nine monthsquarter of 2019,2020, increasing by $174.6 million$1.1 billion compared to the same period in 2018.2019. This increase was due primarily to higher levels of FHLB advances.advances and federal funds purchased. The weighted-average rate on FHLB advances for both periods presented was impacted by the hedging of $510.0$920.0 million and $710.0$740.0 million in FHLB advances as of September 30,March 31, 2020 and 2019, and 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 1.79%1.26% and 1.91%1.88% as of September 30,March 31, 2020 and 2019, and 2018, respectively. For a detailed discussion of interest rate swaps, see Note 1112 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.
During the third quarter of 2019, theThe Company renewed itshas a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility to provide that the credit facility will maturematures on September 26, 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, 2019,March 31, 2020, no amount was outstanding under the facility.
We make interchangeable use of repurchase agreements, FHLB advances, and federal funds purchased to supplement deposits. 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. The Company and the Bank are subject to the Basel III Capital rules, a 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 20182019 10-K.

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The following table presents our consolidatedthe Company's and the Bank's 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."Company and the Bank. We manage our capital levels for both the Company and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels to be considered "well-capitalized," which is the highest capital category established.levels. All regulatory mandated ratios for characterization of the Bank as "well-capitalized" were exceeded as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
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Table 19
Capital Measurements
(Dollar amounts in thousands)
As of March 31, 2020
    As of September 30, 2019Minimum Requirement
Plus Capital
Conservation Buffer
Well-Capitalized(1)
As of 
Regulatory
Minimum
for
Well-
Capitalized
  As ofMinimumExcess
Over
Minimums		MinimumExcess
Over
Minimums
September 30, 
 2019		 December 31, 2018 Excess Over
Required Minimums		 March 31, 
 2020		December 31, 
 2019
Bank regulatory capital ratios         Bank regulatory capital ratios
Total capital to risk-weighted assets11.27% 11.39% 10.00% 13% $181,551
Total capital to risk-weighted assets10.97 %11.28 %10.50 %$69,192  10.00 %$142,770  
Tier 1 capital to risk-weighted assets10.50% 10.58% 8.00% 31% $356,246
Tier 1 capital to risk-weighted assets10.10 %10.51 %8.50 %$234,907  8.00 %$308,485  
CET1 to risk-weighted assets10.50% 10.58% 6.50% 62% $569,939
CET1 to risk-weighted assets10.10 %10.51 %7.00 %$455,641  6.50 %$529,219  
Tier 1 capital to average assets8.93% 9.41% 5.00% 79% $658,796
Tier 1 capital to average assets8.63 %8.79 %4.00 %$796,840  5.00 %$624,617  
Company regulatory capital ratios         Company regulatory capital ratios
Total capital to risk-weighted assets12.62% 12.62% N/A
 N/A
 N/A
Total capital to risk-weighted assets12.00 %12.96 %10.50 %$233,935  10.00 %$311,804  
Tier 1 capital to risk-weighted assets10.18% 10.20% N/A
 N/A
 N/A
Tier 1 capital to risk-weighted assets9.64 %10.52 %8.50 %$177,150  6.00 %$566,492  
CET1 to risk-weighted assets10.18% 10.20% N/A
 N/A
 N/A
CET1 to risk-weighted assets9.64 %10.52 %7.00 %$410,755  N/AN/A
Tier 1 capital to average assets8.67% 8.90% N/A
 N/A
 N/A
Tier 1 capital to average assets8.60 %8.81 %4.00 %$803,183  N/AN/A
Company tangible common equity ratios(2)(3)
             
Tangible common equity to tangible assets8.54% 8.59% N/A
 N/A
 N/A
Tangible common equity to tangible assets7.97 %8.81 %N/AN/AN/AN/A
Tangible common equity, excluding
accumulated other comprehensive loss, to
tangible assets
8.50% 8.95% N/A
 N/A
 N/A
Tangible common equity, excluding
accumulated other comprehensive loss, to
tangible assets		7.79 %8.82 %N/AN/AN/AN/A
Tangible common equity to risk-weighted
assets
10.24% 9.81% N/A
 N/A
 N/A
Tangible common equity to risk-weighted
assets		9.63 %10.51 %N/AN/AN/AN/A
N/A – Not applicable.
(1)
(1)"Well-capitalized" minimum CET1 to risk-weighted assets and Tier 1 capital to average assets ratios are not formally defined under applicable banking regulations for bank holding companies.
(2)Ratios are not subject to formal Federal Reserve regulatory guidance.
(3)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."
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."
Capital ratios were consistentdecreased compared to December 31, 20182019 as strong earnings and deferred gains recognized due to the adoption of lease accounting guidance at the beginning of 2019 were more than offset by the Bridgeview and Northern Oak acquisitions,approximately 50 basis point impact of the Park Bank acquisition on all ratios, 15 basis point impact of stock repurchases on all ratios, as well as the impact of loan growth and securities purchases on risk-weighted assets,assets.
In February of 2019, the federal bank regulatory agencies issued a final rule, the 2019 CECL Rule, that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March of 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three year transition option of the 2019 CECL Rule and stock repurchases.also provides banking organizations that were required under GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option, which retained approximately 20 basis points of CET1 and tier 1 capital. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accord with GAAP.
The Company's Board of Directors (the "Board") reviews the Company's capital plan each quarter, considering the current and expected operating environment andas well as evaluating various capital alternatives.
Dividends
The Company's Board of Directors approved a quarterly cash dividend of $0.14 per common share during the third quarter of 2019, which follows an increase of 17% from the first quarter of 2019 and is a 27% increase from the 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,February 26, 2020, the Company announced a new stock repurchase program that authorizesauthorizing the Company todiscretionary repurchase of up to $180$200 million of its common stock. Stock repurchases under thisThis program may be made from time to time onreplaced 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. TheCompany's prior $180 million stock repurchase program, does not obligate
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which was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to the suspension, 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 1.71.2 million shares of its common stock at a total cost of $12.7 million and $33.9$22.6 million during the quarter and nine months ended September 30, 2019, respectively.March 31, 2020.
Dividends
The Board approved a quarterly cash dividend of $0.14 per common share during the first quarter of 2020, an increase of 17% from the first quarter of 2019. This dividend represents the 149th consecutive cash dividend paid by the Company since its inception in 1983.
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"), adjusted, the efficiency ratio, return on average assets, 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 acquired loans, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive 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, adjusted.adjusted, non-accrual loans, excluding PCD loans, 30-89 days past due loans, excluding PCD loans, non-accrual loans to total loans, excluding PCD loans, non-performing loans to total loans, excluding PCD loans, non-performing assets to total loans plus foreclosed assets, excluding PCD loans, net loan charge-offs, excluding PCD loans, net loan charge-offs to average loans, excluding PCD loans, and CPPPLs to average corporate loans, excluding PCD and PCI loans.
The Company presents its EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity, all adjusted for certain significant transactions. These transactions include Delivering Excellence implementation costs (all periods)(first quarter 2019), net securities losses (first quarter 2020), and acquisition and integration related expenses associated with completed and pending acquisitions (all periods), and certain tax benefits aligned with tax reform (third quarter and first nine months. In addition, net OREO expense is excluded from the calculation of 2018).the efficiency ratio. Management believes excluding these transactions from our EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics may 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 may 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 assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax 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 may enhance comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, adjusted, may enhance comparability for peer comparison purposes and may 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 lossesnon-accrual loans, 30-89 days past due loans, non-accrual loans to total loans, non-performing loans to total loans, non-performing assets to total loans plus foreclosed assets, net loan charge-offs, net loan charge-offs to average loans, and CPPPLs to average corporate loans, all excluding acquiredPCD loans. Management believes excluding acquiredPCD loans may beis useful as it may facilitatefacilitates better comparability between periods as theseprior to the adoption of CECL on January 1, 2020, PCI loans arewith an accretable yield were considered current and were not included in past due and non-accrual loan totals and the portion of PCI
66



loans deemed to be uncollectible was recorded at fair value, which incorporates credit risk, atas a reduction of the date of acquisition. No allowance for credit losses is recorded on the acquisition date. As thecredit-related acquisition adjustment, is accreted into income over future periods,which was netted within loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals and an allowance for credit losses on PCD loans is established as necessaryof the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to reflectbe uncollectible are recorded as a charge-off through the allowance for credit deterioration.losses. Additionally, management believes excluding these transactionsPCD loans from these metrics may 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.

65



Non-GAAP Reconciliations
(Amounts in thousands, except per share data)
  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.     

Quarters Ended 
 March 31,
20202019
EPS
Net income$19,606  $46,058  
Net income applicable to non-vested restricted shares(192) (403) 
Net income applicable to common shares19,414  45,655  
Adjustments to net income:
Net securities losses1,005  —  
Tax effect of net securities losses(251) —  
Acquisition and integration related expenses5,472  3,691  
Tax effect of acquisition and integration related expenses(1,368) (923) 
Delivering Excellence implementation costs—  258  
Tax effect of Delivering Excellence implementation costs—  (65) 
Income tax benefits—  —  
Total adjustments to net income, net of tax4,858  2,961  
Net income applicable to common shares, adjusted$24,272  $48,616  
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)109,922  105,770  
Dilutive effect of common stock equivalents443  —  
Weighted-average diluted common shares outstanding110,365  105,770  
Basic EPS$0.18  $0.43  
Diluted EPS$0.18  $0.43  
Diluted EPS, adjusted$0.22  $0.46  
Return on Average Assets
Net income$19,606  $46,058  
Total adjustments to net income, net of tax(1)
4,858  2,961  
Net income, adjusted$24,464  $49,019  
Average assets$18,404,821  $15,667,839  
Return on average assets(2)(3)
0.43 %1.19 %
Return on average assets, adjusted(1)(2)(3)
0.53 %1.27 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.
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Quarters Ended 
 March 31,
20202019
Return on Average Common and Tangible Common Equity
Net income applicable to common shares$19,414  $45,655  
Intangibles amortization2,770  2,363  
Tax effect of intangibles amortization(693) (591) 
Net income applicable to common shares, excluding intangibles amortization21,491  47,427  
Total adjustments to net income, net of tax(1)
4,858  2,961  
Net income applicable to common shares, excluding intangibles amortization, adjusted(1)
$26,349  $50,388  
Average stockholders' common equity$2,415,157  $2,138,281  
Less: average intangible assets(887,600) (803,408) 
Average tangible common equity$1,527,557  $1,334,873  
Return on average common equity(2)(3)
3.23 %8.66 %
Return on average common equity, adjusted(1)(2)(3)
4.03 %9.22 %
Return on average tangible common equity(2)(3)
5.66 %14.41 %
Return on average tangible common equity, adjusted(1)(2)(3)
6.94 %15.31 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

Quarters Ended 
 March 31,
20202019
Efficiency Ratio Calculation
Noninterest expense$117,331  $102,110  
Less:
Net OREO expense(420) (681) 
Acquisition and integration related expenses(5,472) (3,691) 
Delivering Excellence implementation costs—  (258) 
Total$111,439  $97,480  
Tax-equivalent net interest income(2)
$144,728  $140,132  
Noninterest income39,362  34,906  
Less: net securities losses1,005  —  
Total$185,095  $175,038  
Efficiency ratio60.21 %55.69 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

68
  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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 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 ofAs of
 September 30, 2019 December 31, 2018March 31, 2020December 31, 2019
Tangible Common Equity    Tangible Common Equity
Stockholders' equity $2,339,599
 $2,054,998
Stockholders' equity$2,435,707  $2,370,793  
Less: goodwill and other intangible assets (876,219) (790,744)Less: goodwill and other intangible assets(935,241) (875,262) 
Tangible common equity 1,463,380
 1,264,254
Tangible common equity1,500,466  1,495,531  
Less: AOCI (6,738) 52,512
Less: AOCI(35,323) 1,954  
Tangible common equity, excluding AOCI $1,456,642
 $1,316,766
Tangible common equity, excluding AOCI$1,465,143  $1,497,485  
Total assets $18,013,454
 $15,505,649
Total assets$19,753,300  $17,850,397  
Less: goodwill and other intangible assets (876,219) (790,744)Less: goodwill and other intangible assets(935,241) (875,262) 
Tangible assets $17,137,235
 $14,714,905
Tangible assets$18,818,059  $16,975,135  
Risk-weighted assets $14,294,011
 $12,892,180
Risk-weighted assets$15,573,684  $14,225,444  
Tangible common equity to tangible assets 8.54% 8.59%Tangible common equity to tangible assets7.97 %8.81 %
Tangible common equity, excluding AOCI, to tangible assets 8.50% 8.95%Tangible common equity, excluding AOCI, to tangible assets7.79 %8.82 %
Tangible common equity to risk-weighted assets 10.24% 9.81%Tangible common equity to risk-weighted assets9.63 %10.51 %
    
Footnotes for non-GAAP reconciliations
(1)
(1)Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above.
(2)Presented on a tax-equivalent basis, assuming the federal income tax rate of 21%.
(3)Annualized based on the actual number of days for each period presented.
Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above.
(2)
Presented on a tax-equivalent basis, assuming the federal income tax rate of 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 20182019 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.
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.
The Company'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, 48%46% of the loan portfolio consisted of fixed rate loans and 52%54% were floating rate loans as of September 30, 2019, consistent withMarch 31, 2020, compared to 49% and 51% at December 31, 2018.2019. See Note 1112 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.
As of September 30, 2019,March 31, 2020, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 94% of the total compared to 6% for floating rate interest-bearing deposits in other banks, consistent withcompared to 97% of the total compared to 3% for the floating rate interest-bearing deposits in other banks at December 31, 2018.2019. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the Company limits its loans with maturities that extend beyond 5 years. The majority of floating rate loans are indexed to the short-term LIBOR or Prime rates. The amount of floating rate loans with active interest rate floors was not meaningful as of September 30, 2019March 31, 2020 or December 31, 2018.2019. On the liability side of the balance sheet, 78%79% and 77% of deposits as of September 30, 2019March 31, 2020 and December 31, 20182019 were demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to change at a slower pace than short-term interest rates.

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Table of Contents



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, 2019          
As of March 31, 2020As of March 31, 2020    
Dollar change $72,864
 $48,749
 $25,178
 $(33,563) $(63,961)Dollar change$112,134  $75,112  $38,887  $(49,922) 
Percent change 12.3% 8.2% 4.2% (5.7)% (10.8)%Percent change19.2 %12.9 %6.7 %(8.5)%
As of December 31, 2018          
As of December 31, 2019As of December 31, 2019    
Dollar change $86,602
 $57,888
 $28,573
 $(43,929) $(87,438)Dollar change$59,842  $40,687  $21,525  $(32,217) 
Percent change 15.3% 10.2% 5.0% (7.8)% (15.4)%Percent change10.3 %7.0 %3.7 %(5.6)%
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 100 basis point rise in interest rates as of September 30, 2019March 31, 2020 would increase net interest income by $25.2$38.9 million, or 4.2%6.7%, over the next twelve months compared to no change in interest rates. This same measure was $28.6$21.5 million, or 5.0%3.7%, as of December 31, 2018.2019.
Overall, interest rate risk volatility as of September 30, 2019March 31, 2020 compared to December 31, 20182019 was lower as a result of securities and loan purchases andhigher due to an increase in the mix of interest-earning assets acquired infloating rate loans and fixed FHLB advances, as well as the Bridgeview transaction.impact of recently declining market interest rates which limits our capacity to lower interest-bearing deposit rates further.
ITEM 4. CONTROLS AND PROCEDURES
As 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 Chairman 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 the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chairman 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 SEC 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, 2019.March 31, 2020. 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, or results of operations, or cash flows.operations.
ITEM 1A. RISK FACTORS
We provide aA discussion of certain risks and uncertainties faced by the Company is provided in the section entitled "Risk Factors" in our 2018the Company's 2019 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 2018the 2019 10-K, and ourthe Company's other filings made with the SEC, as well as in other sections of such reports. The following risk factor represents material updates and additions to, and should be read together with, the risk factors previously disclosed in the 2019 10-K.

The Company's business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the Company's business, financial condition, liquidity, capital and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect the Company's business, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of the Company's control, including the scope and duration of the pandemic, the continued
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effectiveness of the Company's business continuity plan including work-from-home arrangements and staffing in operational facilities, the direct and indirect impact of the pandemic on the Company's employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.
Among other things, the COVID-19 pandemic has contributed to, and is likely to continue to contribute to:
•Increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of loan delinquencies, defaults and foreclosures.
•Ratings downgrades, credit deterioration and defaults in many industries, including, but not limited to, hospitality, transportation and commercial real estate.
•A decrease in the rates and yields on U.S. Treasury securities, which may lead to further decreased net interest income.
•Volatility in financial and capital markets, interest rates and exchange rates.
•Significant draws on credit lines, including syndicated credit lines, as customers and clients seek to increase liquidity.
•Declines in collateral values.
•Increased demands on capital and liquidity, leading the Company to suspend purchases of its common stock in order to meet client needs.
•A reduction in the value of the assets that the Company manages or otherwise administers or services for others, affecting related fee income and demand for the Company's services.
•Heightened cybersecurity, information security and operational risks as cybercriminals attempt to profit from the disruption given increased online and remote activity, including as a result of work-from-home arrangements.
•Disruptions to business operations at counterparties and service providers.
•Decreased demands for our products and services.
As a result, our credit, operational and other risks are generally expected to increase until the pandemic subsides.
In addition, our own business operations are at risk of disruption if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, failures in systems or technology that disrupt work-from-home arrangements or other effects of the pandemic, or if we are unable to keep our branches open, including because of risk of infection. We have already taken action to reduce operating hours at our branches and to eliminate lobby services (other than by appointment).
Governmental authorities have taken unprecedented measures both to contain the spread of the COVID-19 pandemic, including shelter in place orders, business limitations and other shutdowns, which have severely restricted economic activity, and to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as payment deferrals on mortgage and other loans, suspension of certain foreclosures, repossessions and other loan collection activity, continuation of certain fee assistance programs and other client accommodations may have a negative impact on the Company's business, financial condition, liquidity and results of operations. If such measures are not effective in mitigating the effects of COVID-19 on our borrowers, or if such measures exacerbate the effects of COVID-19 on our borrowers, we may also experience higher rates of default and increased credit losses in future periods. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various government programs such as the Paycheck Protection Program are complex and our participation may lead to litigation and governmental, regulatory and third party scrutiny, negative publicity and damage to our reputation.
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. There are no comparable recent events that provide guidance as to the economic recovery from effects of the pandemic or the effect the spread of COVID-19 as a global pandemic may have. Much of the impact from COVID-19 will occur after March 31, 2020, and as a result of the pandemic, the Company has experienced and expects to continue to experience draws on lines of credit, reduced net interest income and net interest margin, reduced revenues in its fee-based businesses, and increased client defaults, including defaults on unsecured loans, resulting in overall declines in credit quality and higher credit loss expense. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and the Company anticipates that its businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects the Company's business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in the 2019 10-K and the Company's other filings made with the SEC, as well as in other sections of those 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 repurchases during the thirdfirst quarter of 2019.2020. The Board approved a stock repurchase program, which was announced on March 19, 2019, under which the Company was authorized to repurchase up to $180 million of its outstanding common stock. The Company repurchased $11.1 million of its common stock under this program through February 19, 2020. On February 19, 2020, the Board approved a new stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding common stock through December 31, 2021. This new stock repurchase program replaces the prior $180 million program, which was scheduled to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to this action, the Company repurchased $11.5 million of its common stock under the program through March 31, 2020, for a total of $22.6 million for the first quarter of 2020.
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		Approximate Dollar Value of Shares that
May Yet Be
Purchased
Under the
Plan or
Program
January 1 - January 31, 202073,000  $20.08  73,000  $144,606,649  
February 1 - February 29, 2020855,378  20.50  735,000  194,479,653  
March 1 - March 31, 2020366,893  16.60  363,000  188,458,427  
Total1,295,271  $19.37  1,171,000   

(1)Consists of shares acquired pursuant to the Company's Board-approved stock repurchase 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 stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.
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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 Board-approved stock repurchase 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 stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.

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ITEM 6. EXHIBITS
Exhibit
Number		Description of Documents
Exhibit
Number10.1(1)
DescriptionForm of Documents
Performance Shares Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan.
1131.1
Statement re: Computation of Per Share Earnings – The computation of basic and diluted earnings per common share is included in Note 10 of the Company's Notes to the Condensed Consolidated Financial Statements included in "ITEM 1. FINANCIAL STATEMENTS" of this document.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)(2)
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)(2)
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101.SCHInline 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
104Cover Page Interactive Data File (formatted as inline XBRL and included in Exhibit 101)
(1)
(1)Management contract or compensatory plan or arrangement.
(2)Furnished, not filed.
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, 2019May 8, 2020
* Duly authorized to sign on behalf of the registrant.

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