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 ~~March 31,~~September 30, 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~~001-39320

______________________

(Exact name of registrant as specified in its charter)


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

8750 West Bryn Mawr Avenue, Suite 1300

Chicago, Illinois 60631-3655

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

FMBI

The NASDAQ Stock Market

Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A

FMBIP

The NASDAQ Stock Market

Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C

FMBIO

The 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 every Interactive Data File required to be submitted 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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

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 ☒.

As of ~~May 5,~~October 31, 2020, there were ~~114,259,086~~114,301,970 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)
	Consolidated Statements of Financial Condition	3
	Condensed Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders' Equity	6
	Consolidated Statements of Cash Flows	78
	Notes to the Condensed Consolidated Financial Statements	910
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4042
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	7074
ITEM 4.	Controls and Procedures	7175
Part II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	7175
ITEM 1A.	Risk Factors	7175
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7377
ITEM 6.	Exhibits	7478

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)


										March 31, 2020				December 31, 2019								September 30, 2020			December 31, 2019
Assets	Assets									(Unaudited)							Assets					(Unaudited)
Cash and due from banks	Cash and due from banks									$	252,138			$	214,894		Cash and due from banks					$	254,212		$	214,894
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks									229,474				84,327			Interest-bearing deposits in other banks					936,528			84,327
Equity securities, at fair value	Equity securities, at fair value									40,098				42,136			Equity securities, at fair value					55,021			42,136
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value									3,382,865				2,873,386			Securities available-for-sale, at fair value					3,279,884			2,873,386
Securities held-to-maturity, at amortized cost, net	Securities held-to-maturity, at amortized cost, net									19,825				21,997			Securities held-to-maturity, at amortized cost, net					22,193			21,997
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost	Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost									154,357				115,409			Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost					138,120			115,409
Loans	Loans									13,965,017				12,840,330			Loans					14,653,188			12,840,330
Allowance for loan losses	Allowance for loan losses									(219,948)				(108,022)			Allowance for loan losses					(239,048)			(108,022)
Net loans	Net loans									13,745,069				12,732,308			Net loans					14,414,140			12,732,308
Other real estate owned ("OREO")	Other real estate owned ("OREO")									9,814				8,750			Other real estate owned ("OREO")					6,552			8,750
Premises, furniture, and equipment, net	Premises, furniture, and equipment, net									145,844				147,996			Premises, furniture, and equipment, net					132,267			147,996
Investment in bank-owned life insurance ("BOLI")	Investment in bank-owned life insurance ("BOLI")									298,827				296,351			Investment in bank-owned life insurance ("BOLI")					300,429			296,351
Goodwill and other intangible assets	Goodwill and other intangible assets									935,241				875,262			Goodwill and other intangible assets					935,801			875,262
Accrued interest receivable and other assets	Accrued interest receivable and other assets									539,748				437,581			Accrued interest receivable and other assets					612,996			437,581
Total assets	Total assets									$	19,753,300			$	17,850,397		Total assets					$	21,088,143		$	17,850,397
Liabilities	Liabilities																Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits									$	4,222,523			$	3,802,422		Noninterest-bearing deposits					$	5,555,735		$	3,802,422
Interest-bearing deposits	Interest-bearing deposits									9,876,427				9,448,856			Interest-bearing deposits					10,215,838			9,448,856
Total deposits	Total deposits									14,098,950				13,251,278			Total deposits					15,771,573			13,251,278
Borrowed funds	Borrowed funds									2,648,210				1,658,758			Borrowed funds					1,957,180			1,658,758
Senior and subordinated debt	Senior and subordinated debt									234,153				233,948			Senior and subordinated debt					234,563			233,948
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities									336,280				335,620			Accrued interest payable and other liabilities					460,656			335,620
Total liabilities	Total liabilities									17,317,593				15,479,604			Total liabilities					18,423,972			15,479,604
Stockholders' Equity	Stockholders' Equity																Stockholders' Equity
Preferred stock										Preferred stock								230,500		0
Common stock	Common stock									1,253				1,204			Common stock					1,254			1,204
Additional paid-in capital	Additional paid-in capital									1,274,935				1,211,274			Additional paid-in capital					1,271,859			1,211,274
Retained earnings	Retained earnings									1,357,395				1,380,612			Retained earnings					1,366,986			1,380,612
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax									35,323				(1,954)			Accumulated other comprehensive income (loss), net of tax					25,749			(1,954)
Treasury stock, at cost	Treasury stock, at cost									(233,199)				(220,343)			Treasury stock, at cost					(232,177)			(220,343)
Total stockholders' equity	Total stockholders' equity									2,435,707				2,370,793			Total stockholders' equity					2,664,171			2,370,793
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity									$	19,753,300			$	17,850,397		Total liabilities and stockholders' equity					$	21,088,143		$	17,850,397

		March 31, 2020						December 31, 2019										September 30, 2020						December 31, 2019
		(Unaudited)														(Unaudited)
		Preferred		Common		Preferred		Common				Preferred				Common		Preferred		Common
		Shares		Shares		Shares		Shares				Shares				Shares		Shares		Shares
Par value per share	Par value per share	$	—	$	0.01	$	—	$	0.01	Par value per share		$	—			$	0.01	$	—	$	0.01
Shares authorized	Shares authorized	1,000		250,000		1,000		250,000		Shares authorized		1,000				250,000		1,000		250,000
Shares issued	Shares issued	—		125,349		—		120,415		Shares issued		231				125,360		0		120,415
Shares outstanding	Shares outstanding	—		114,213		—		109,972		Shares outstanding		231				114,293		0		109,972
Treasury shares	Treasury shares	—		11,136		—		10,443		Treasury shares		—				11,067		—		10,443

See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

Quarters Ended
March 31,
2020 2019
Interest Income
Loans $ 147,786 $ 144,804
Investment securities 20,238 16,006
Other short-term investments 2,203 1,680
Total interest income 170,227 162,490
Interest Expense
Deposits 17,117 16,602
Borrowed funds 5,841 3,551
Senior and subordinated debt 3,694 3,313
Total interest expense 26,652 23,466
Net interest income 143,575 139,024
Provision for loan losses 39,532 10,444
Net interest income after provision for loan losses 104,043 128,580
Noninterest Income
Wealth management fees 12,361 11,600
Service charges on deposit accounts 11,781 11,540
Capital market products income 4,722 1,279
Card-based fees 3,968 4,378
Mortgage banking income 1,788 1,004
Other service charges, commissions, and fees 2,682 2,611
Net securities losses (1,005) —
Other income 3,065 2,494
Total noninterest income 39,362 34,906
Noninterest Expense
Salaries and employee benefits 62,859 57,373
Net occupancy and equipment expense 14,227 13,797
Professional services 10,390 7,087
Technology and related costs 8,548 6,270
Net OREO expense 420 681
Other expenses 15,415 12,953
Acquisition and integration related expenses 5,472 3,691
Delivering Excellence implementation costs — 258
Total noninterest expense 117,331 102,110
Income before income tax expense 26,074 61,376
Income tax expense 6,468 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 outstanding 109,922 105,770
Weighted-average diluted common shares outstanding 110,365 105,770


	Quarters Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest Income
Loans	$	138,228	$	159,978	$	426,833	$	462,462
Investment securities	19,082		19,452		59,706		53,463
Other short-term investments	1,775		2,533		4,817		6,210
Total interest income	159,085		181,963		491,356		522,135
Interest Expense
Deposits	6,837		21,754		34,031		57,672
Borrowed funds	6,021		5,639		15,018		13,649
Senior and subordinated debt	3,498		3,783		10,769		10,691
Total interest expense	16,356		31,176		59,818		82,012
Net interest income	142,729		150,787		431,538		440,123
Provision for loan losses	15,927		12,498		88,108		34,433
Net interest income after provision for loan losses	126,802		138,289		343,430		405,690
Noninterest Income
Wealth management fees	12,837		12,063		37,140		35,853
Service charges on deposit accounts	10,342		13,024		31,248		36,760
Mortgage banking income	6,659		3,066		11,924		5,971
Card-based fees	4,472		4,694		11,620		13,621

Other service charges, commissions, and fees	2,823		3,023		7,583		8,417
Capital market products income	886		4,161		6,302		7,594
Swap termination costs	(14,285)		0		(14,285)		0
Net securities gains	14,328		0		13,323		0
Other income	2,523		2,920		8,083		8,167
Total noninterest income	40,585		42,951		112,938		116,383
Noninterest Expense
Salaries and employee benefits	64,734		61,481		191,265		177,546
Net occupancy and equipment expense	13,736		12,787		43,079		38,878
Technology and related costs	10,416		6,960		28,817		20,358
Professional services	7,325		8,768		26,595		25,479

Net OREO expense	544		381		1,090		1,356
Other expenses	15,062		14,387		47,911		43,494
Optimization costs	18,376		0		18,376		0
Acquisition and integration related expenses	881		3,397		11,602		16,602
Delivering Excellence implementation costs	0		234		0		934
Total noninterest expense	131,074		108,395		368,735		324,647
Income before income tax expense	36,313		72,845		87,633		197,426
Income tax expense	8,690		18,300		21,340		49,809
Net income	$	27,623	$	54,545	$	66,293	$	147,617
Preferred dividends	(4,033)		0		(5,070)		0
Net income applicable to unvested restricted shares	(236)		(465)		(615)		(1,257)
Net income applicable to common shareholders	$	23,354	$	54,080	$	60,608	$	146,360

Per Common Share Data
Basic earnings per common share	$	0.21	$	0.49	$	0.54	$	1.36
Diluted earnings per common share	$	0.21	$	0.49	$	0.54	$	1.35
Dividends declared per common share	$	0.14	$	0.14	$	0.42	$	0.40
Weighted-average common shares outstanding	113,160		109,281		112,079		107,852
Weighted-average diluted common shares outstanding	113,436		109,662		112,401		108,246

See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Net income	Net income	$	19,606	$	46,058	Net income	$	27,623	$	54,545	$	66,293	$	147,617
Securities Available-for-Sale	Securities Available-for-Sale					Securities Available-for-Sale
Unrealized holding gains:
Unrealized holding (losses) gains:						Unrealized holding (losses) gains:
Before tax	Before tax	62,554		26,752		Before tax	(4,142)		13,636		54,683		78,625
Tax effect	Tax effect	(17,297)		(7,451)		Tax effect	1,138		(3,800)		(15,214)		(21,900)
Net of tax	Net of tax	45,257		19,301		Net of tax	(3,004)		9,836		39,469		56,725
Reclassification of net losses included in net income:
Reclassification of net gains included in net income:						Reclassification of net gains included in net income:
Before tax	Before tax	(1,005)		—		Before tax	14,328		0		13,323		0
Tax effect	Tax effect	282		—		Tax effect	(4,012)		0		(3,730)		0
Net of tax	Net of tax	(723)		—		Net of tax	10,316		0		9,593		0
Net unrealized holding gains		44,534		19,301
Net unrealized holding (losses) gains						Net unrealized holding (losses) gains	(13,320)		9,836		29,876		56,725
Derivative Instruments	Derivative Instruments					Derivative Instruments
Unrealized holding (losses) gains:
Unrealized holding gains (losses):						Unrealized holding gains (losses):
Before tax	Before tax	(10,040)		1,458		Before tax	28,614		(399)		11,274		3,500
Tax effect	Tax effect	2,783		(406)		Tax effect	(7,987)		111		(3,162)		(975)
Net of tax	Net of tax	(7,257)		1,052		Net of tax	20,627		(288)		8,112		2,525

Total other comprehensive income		37,277		20,353
Reclassification of net losses included in net income:						Reclassification of net losses included in net income:
Before tax						Before tax	(14,285)		0		(14,285)		0
Tax effect						Tax effect	4,000		0		4,000		0
Net of tax						Net of tax	(10,285)		0		(10,285)		0
Net unrealized holding gains (losses)						Net unrealized holding gains (losses)	10,342		(288)		(2,173)		2,525
Total other comprehensive (loss) income						Total other comprehensive (loss) income	(2,978)		9,548		27,703		59,250
Total comprehensive income	Total comprehensive income	$	56,883	$	66,411	Total comprehensive income	$	24,645	$	64,093	$	93,996	$	206,867


		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)			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	Balance at December 31, 2018	$	(28,792)	$	(2,550)	$	(21,170)	$	(52,512)	Balance at December 31, 2018	$	(28,792)	$	(2,550)	$	(21,170)	$	(52,512)

Other comprehensive income	Other comprehensive income	19,301		1,052		—		20,353		Other comprehensive income	56,725		2,525		0		59,250
Balance at March 31, 2019		$	(9,491)	$	(1,498)	$	(21,170)	$	(32,159)
Balance at September 30, 2019										Balance at September 30, 2019	$	27,933	$	(25)	$	(21,170)	$	6,738
Balance at December 31, 2019	Balance at December 31, 2019	$	15,808	$	819	$	(18,581)	$	(1,954)	Balance at December 31, 2019	$	15,808	$	819	$	(18,581)	$	(1,954)

Other comprehensive income	Other comprehensive income	44,534		(7,257)		—		37,277		Other comprehensive income	29,876		(2,173)		0		27,703
Balance at March 31, 2020		$	60,342	$	(6,438)	$	(18,581)	$	35,323
Balance at September 30, 2020										Balance at September 30, 2020	$	45,684	$	(1,354)	$	(18,581)	$	25,749

See accompanying unaudited notes to the condensed consolidated financial statements.

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
As of December 31, 2018
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⁽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 costs 150 — (814) — — 4,098 3,284
Common stock issued 27 — (137) — — 674 537
Restricted stock activity 352 — (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, 2019 106,900 $ 1,157 $ 1,103,991 $ 1,273,245 $ (32,159) $ (186,763) $ 2,159,471
As of December 31, 2019
Beginning balance 109,972 $ 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 costs 4,930 49 71,834 — — — 71,883
Common stock issued 37 — 172 — — 679 851
Restricted stock activity 449 — (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, 2020 114,213 $ 1,253 $ 1,274,935 $ 1,357,395 $ 35,323 $ (233,199) $ 2,435,707


	Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Quarter Ended September 30, 2019
Beginning balance	110,589	$	0	$	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
Balance at September 30, 2019	109,970	$	0	$	1,204	$	1,208,030	$	1,343,895	$	6,738	$	(220,268)	$	2,339,599
Quarter Ended September 30, 2020
Beginning balance	114,276	$	230,500	$	1,253	$	1,268,647	$	1,359,407	$	28,727	$	(232,323)	$	2,656,211

Net income	—	—		—		—		27,623		—		—		27,623
Other comprehensive loss	—	—		—		—		—		(2,978)		—		(2,978)
Preferred dividends	—	—		—		—		(4,033)		—		—		(4,033)
Common dividends declared ($0.14 per common share)	—	—		—		—		(16,011)		—		—		(16,011)


Preferred stock issued	—	—		—		(265)		—		—		—		(265)
Common stock issued	6	—		1		76		—		—		0		77
Restricted stock activity	18	—		—		(131)		—		—		203		72
Treasury stock issued to benefit plans	11	—		—		(33)		—		—		(57)		(90)
Share-based compensation expense	(18)	—		—		3,565		—		—		—		3,565
Balance at September 30, 2020	114,293	$	230,500	$	1,254	$	1,271,859	$	1,366,986	$	25,749	$	(232,177)	$	2,664,171

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – (Continued)

(Amounts in thousands, except per share data)

(Unaudited)


	Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Nine Months Ended September 30, 2019
Beginning balance	106,375	$	0	$	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	—	—		—		—		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)
Acquisitions, 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
Balance at September 30, 2019	109,970	$	0	$	1,204	$	1,208,030	$	1,343,895	$	6,738	$	(220,268)	$	2,339,599
Nine Months Ended September 30, 2020
Beginning balance	109,972	$	0	$	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	—	—		—		—		66,293		—				66,293
Other comprehensive income	—	—		—		—		—		27,703		—		27,703
Preferred dividends	—	—		—		—		(5,070)		—		—		(5,070)
Common dividends declared ($0.42 per common share)	—	—		—		—		(48,028)		—		—		(48,028)
Repurchases of common stock	(1,171)	—		—		—		—		—		(22,557)		(22,557)
Acquisition, net of issuance costs	4,930	—		49		71,834		—		—		—		71,883
Preferred stock issued	—	230,500		—		(9,453)		—		—		—		221,047
Common stock issued	49	—		1		327		—		—		679		1,007
Restricted stock activity	531	—		—		(13,311)		—		—		10,248		(3,063)
Treasury stock issued to benefit plans	—	—		—		(54)		—		—		(204)		(258)
Share-based compensation expense	(18)	—		—		11,242		—		—		—		11,242
Balance at September 30, 2020	114,293	$	230,500	$	1,254	$	1,271,859	$	1,366,986	$	25,749	$	(232,177)	$	2,664,171

(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."

See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)


		Three Months Ended March 31,							Nine Months Ended September 30,
		2020		2019			2020		2019
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	19,606	$	46,058	Net income	$	66,293	$	147,617
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	Provision for loan losses	39,532		10,444		Provision for loan losses	88,108		34,433
Depreciation of premises, furniture, and equipment	Depreciation of premises, furniture, and equipment	4,169		4,050		Depreciation of premises, furniture, and equipment	12,540		12,182
Net amortization of premium on securities	Net amortization of premium on securities	5,727		2,672		Net amortization of premium on securities	16,203		11,897
Net securities losses		1,005		—
Net securities gains						Net securities gains	(13,323)		0
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(2,629)		(1,410)		Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(14,091)		(6,327)
Net losses (gains) on sales and valuation adjustments of OREO	Net losses (gains) on sales and valuation adjustments of OREO	128		(792)		Net losses (gains) on sales and valuation adjustments of OREO	221		(2,358)
Amortization of the FDIC indemnification asset	Amortization of the FDIC indemnification asset	302		302		Amortization of the FDIC indemnification asset	892		906
Net losses on sales and valuation adjustments of premises, furniture, and equipment	Net losses on sales and valuation adjustments of premises, furniture, and equipment	105		391		Net losses on sales and valuation adjustments of premises, furniture, and equipment	9,033		1,226
BOLI income	BOLI income	(1,982)		(1,826)		BOLI income	(5,503)		(5,597)
Share-based compensation expense	Share-based compensation expense	3,922		3,679		Share-based compensation expense	11,242		10,018
Tax benefit related to share-based compensation	Tax benefit related to share-based compensation	62		55		Tax benefit related to share-based compensation	271		311
Amortization of other intangible assets	Amortization of other intangible assets	2,770		2,363		Amortization of other intangible assets	8,400		7,737
Originations of mortgage loans held-for-sale	Originations of mortgage loans held-for-sale	(104,694)		(62,895)		Originations of mortgage loans held-for-sale	(592,196)		(335,903)
Proceeds from sales of mortgage loans held-for-sale	Proceeds from sales of mortgage loans held-for-sale	119,159		58,783		Proceeds from sales of mortgage loans held-for-sale	551,105		297,967
Net decrease (increase) in equity securities		2,038		(2,498)
Net increase in equity securities						Net increase in equity securities	(12,885)		(2,951)
Net (increase) decrease in accrued interest receivable and other assets	Net (increase) decrease in accrued interest receivable and other assets	(114,028)		27,948		Net (increase) decrease in accrued interest receivable and other assets	(111,925)		1,244
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
Net increase (decrease) in accrued interest payables and other liabilities						Net increase (decrease) in accrued interest payables and other liabilities	80,487		(22,628)
Net cash provided by operating activities						Net cash provided by operating activities	94,872		149,774
Investing Activities	Investing Activities					Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	Proceeds from maturities, repayments, and calls of securities available-for-sale	229,391		77,601		Proceeds from maturities, repayments, and calls of securities available-for-sale	986,145		305,973
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	39,095		—		Proceeds from sales of securities available-for-sale	281,869		93,332
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(586,292)		(131,707)		Purchases of securities available-for-sale	(1,499,176)		(703,216)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	Proceeds from maturities, repayments, and calls of securities held-to-maturity	2,268		162		Proceeds from maturities, repayments, and calls of securities held-to-maturity	9,934		3,873
Purchases of securities held-to-maturity	Purchases of securities held-to-maturity	(16)		(2,828)		Purchases of securities held-to-maturity	(10,050)		(2,837)
Net purchases of FHLB stock	Net purchases of FHLB stock	(38,948)		(5,488)		Net purchases of FHLB stock	(22,711)		(31,062)
Net increase in loans	Net increase in loans	(373,138)		(131,221)		Net increase in loans	(1,078,458)		(655,871)
Premiums paid on BOLI, net of proceeds from claims	Premiums paid on BOLI, net of proceeds from claims	2,003		2,660		Premiums paid on BOLI, net of proceeds from claims	3,922		4,720
Proceeds from sales of OREO	Proceeds from sales of OREO	230		2,795		Proceeds from sales of OREO	3,709		9,430
Proceeds from sales of premises, furniture, and equipment	Proceeds from sales of premises, furniture, and equipment	—		557		Proceeds from sales of premises, furniture, and equipment	1,132		2,538
Purchases of premises, furniture, and equipment	Purchases of premises, furniture, and equipment	(3,168)		(5,081)		Purchases of premises, furniture, and equipment	(7,680)		(13,540)
Net cash received from (paid for) acquisition	Net cash received from (paid for) acquisition	142,282		(11,489)		Net cash received from (paid for) acquisition	142,282		(13,532)
Net cash used in investing activities	Net cash used in investing activities	(586,293)		(204,039)		Net cash used in investing activities	(1,189,082)		(1,000,192)
Financing Activities	Financing Activities					Financing Activities
Net (decrease) increase in deposit accounts		(102,404)		76,870
Net increase in deposit accounts						Net increase in deposit accounts	1,570,219		370,061
Net increase in borrowed funds	Net increase in borrowed funds	977,920		67,773		Net increase in borrowed funds	286,890		745,665
Swap termination costs						Swap termination costs	(14,285)		0
Net proceeds from the issuance of preferred stock						Net proceeds from the issuance of preferred stock	221,047		0
Repurchases of common stock	Repurchases of common stock	(22,557)		—		Repurchases of common stock	(22,557)		(33,928)
Cash dividends paid	Cash dividends paid	(15,431)		(12,782)		Cash dividends paid	(52,522)		(41,138)
Restricted stock activity	Restricted stock activity	(3,166)		(3,775)		Restricted stock activity	(3,063)		(3,833)
Net cash provided by financing activities	Net cash provided by financing activities	834,362		128,086		Net cash provided by financing activities	1,985,729		1,036,827
Net increase (decrease) in cash and cash equivalents		182,391		(26,499)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	891,519		186,409
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	299,221		289,258		Cash and cash equivalents at beginning of period	299,221		289,258
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	481,612	$	262,759	Cash and cash equivalents at end of period	$	1,190,740	$	475,667

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Dollar amounts in thousands)

(Unaudited)


		Three Months Ended March 31,							Nine Months Ended September 30,
		2020		2019			2020		2019
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Income taxes paid	Income taxes paid	$	1,029	$	321	Income taxes paid	$	40,012	$	29,331
Interest paid to depositors and creditors	Interest paid to depositors and creditors	28,285		23,707		Interest paid to depositors and creditors	65,198		80,017
Dividends declared, but unpaid	Dividends declared, but unpaid	15,854		12,728		Dividends declared, but unpaid	15,859		15,281
Stock issued for acquisitions, net of issuance costs	Stock issued for acquisitions, net of issuance costs	71,883		3,284		Stock issued for acquisitions, net of issuance costs	71,883		101,496
Non-cash transfers of loans to OREO	Non-cash transfers of loans to OREO	121		—		Non-cash transfers of loans to OREO	121		519

Non-cash transfers of loans to other assets						Non-cash transfers of loans to other assets	0		13,175
Non-cash transfers of loans held-for-investment to loans held-for-sale	Non-cash transfers of loans held-for-investment to loans held-for-sale	3,155		2,630		Non-cash transfers of loans held-for-investment to loans held-for-sale	(243)		9,444

Non-cash recognition of right-of-use asset	Non-cash recognition of right-of-use asset	—		143,561		Non-cash recognition of right-of-use asset	0		143,561
Non-cash recognition of lease liability	Non-cash recognition of lease liability	—		143,561		Non-cash recognition of lease liability	0		143,561

See accompanying unaudited notes to the condensed consolidated financial statements.	See accompanying unaudited notes to the condensed consolidated financial statements.					See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

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 ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 2019 Annual Report on Form 10-K ("2019 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 2019 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 Securities Held-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 Loans – Acquired loans consist of all loans that were acquired in business combinations, including loans which are covered by Federal Deposit Insurance Corporation ("FDIC") Agreements. Acquired loans are included within loans held-for-investment.

Acquired loans are separated into (i) non-purchased credit deteriorated ("non-PCD") loans and (ii) purchased credit deteriorated ("PCD") loans. Non-PCD loans include loans that did not have evidence of more-than-insignificant credit deterioration since origination at the acquisition date. PCD loans include loans that had evidence of more-than-insignificant credit deterioration

910

Table of Contents

since origination. Evidence of credit deterioration was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCD loans and are accounted for as non-PCD loans.

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

PCD loans are generally accounted for based on estimates of expected future cash flows. The 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 cash flow analysis include the probability of default ("PD"), loss given default ("LGD"), and discount rate. PCD loans are recorded at fair value, excluding credit-related adjustments, for which an 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. 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.

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.

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.

1011

Table of Contents

Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments and is maintained by management at a level believed adequate to absorb current expected credit losses 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, 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 allowance for individual loans where the recorded investment exceeds the value, (ii) an allowance based on 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 allowance for individual loans is based on a periodic analysis of non-accrual loans individually exceeding a specific dollar amount. If the estimated value of a non-accrual loan is less than its recorded book value, the Company either (i) provides an allowance in the amount of the excess of the book value over the estimated value of the related loan or, (ii) if the loss is confirmed, charges off the loss.

The allowance 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 given default factors as well as prepayment and curtailment assumptions to cash flows that are adjusted to a present value. This discounted cash flow analysis is updated quarterly, primarily using actual loss 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 includes an allowance on acquired non-PCD and PCD 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 through purchase accounting. Instead, an allowance is established on acquired non-PCD loans at the acquisition date in-line with all other loans in the portfolio as if the loans were originated at the acquisition date. On a periodic basis, the adequacy of this allowance is determined using either a PD/LGD methodology or a specific review methodology.

Allowance for Unfunded Commitments – The Company also maintains an allowance for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The allowance for unfunded commitments is estimated using the historical credit loss experience with consideration of reasonable and supportable forecasts of economic conditions for each loan category. The allowance for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.

1112

Table of Contents

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 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 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, 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~~income (loss) and is reclassified to earnings when the hedged transaction is reflected in earnings.

2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE

Adopted Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments: In June of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13 that requires 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 are 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.

The Company adopted this guidance on January 1, 2020, which resulted in the recognition of $76.0 million of 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 $220,000 attributable to securities held-to-maturity. The portion of the allowance for credit 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 amount of allowance 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

1213

Table of Contents

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. The adoption of this guidance on 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. The adoption of this guidance on 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.~~pandemic (the "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.~~the pandemic. 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~~the pandemic 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~~As of September 30, 2020, the Company has eligible modifications ~~completed in the three months ended March 31, 2020 were immaterial.~~with outstanding balances totaling $404.6 million.

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.~~

1314

Table of Contents

guidance is effective for annual and interim periods 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.

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.

Reference Rate Reform: In March of 2020, 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

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~~$687.9 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~~$60.9 million associated with the acquisition was recorded by the Company. All Park Bank ~~will be merged into First Midwest Bank and all~~ operating systems ~~are expected to be~~were converted to the Company's operating platform induring 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.

During the third quarter of 2020, the Company updated the fair value adjustments associated with the Bankmanagers transaction. These adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations.

Bridgeview 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 ~~$710.3~~$709.4 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 4.7 million shares of Company common stock and $37.1 million of cash. Goodwill of ~~$60.7~~$63.2 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~~second quarter of 2020, the Company ~~updated~~finalized the fair value adjustments associated with the Bridgeview ~~transaction. The~~transaction, which required measurement period adjustments ~~were recognized in the current period in accordance with accounting guidance applicable~~ to ~~business combinations.~~goodwill.

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. During the first quarter of 2020, the Company finalized the fair value adjustments associated with the Northern Oak 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.~~

1415

Table of Contents

The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Park Bank and Bridgeview 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)


		Park Bank		Bridgeview			Park Bank		Bridgeview
		March 9, 2020		May 9, 2019			March 9, 2020		May 9, 2019
Assets	Assets					Assets
Cash and due from banks and interest-bearing deposits in other banks	Cash and due from banks and interest-bearing deposits in other banks	$	244,781	$	35,097	Cash and due from banks and interest-bearing deposits in other banks	$	244,781	$	35,097
Equity securities	Equity securities	—		6,966		Equity securities	0		6,966
Securities available-for-sale	Securities available-for-sale	136,856		263,090		Securities available-for-sale	136,856		263,090
Securities held-to-maturity	Securities held-to-maturity	300		13,426		Securities held-to-maturity	300		13,426
FHLB and FRB stock	FHLB and FRB stock	—		1,481		FHLB and FRB stock	0		1,481
Loans	Loans	691,667		710,302		Loans	687,923		709,438
OREO	OREO	1,868		5,436		OREO	2,178		5,436
Goodwill	Goodwill	57,174		60,729		Goodwill	60,862		63,231
Other intangible assets	Other intangible assets	3,068		15,603		Other intangible assets	3,068		15,603
Premises, furniture, and equipment	Premises, furniture, and equipment	2,759		15,905		Premises, furniture, and equipment	2,550		16,138
Accrued interest receivable and other assets	Accrued interest receivable and other assets	11,891		37,098		Accrued interest receivable and other assets	12,522		35,909
Total assets	Total assets	$	1,150,364	$	1,165,133	Total assets	$	1,151,040	$	1,165,815
Liabilities	Liabilities					Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits	$	356,050	$	179,267	Noninterest-bearing deposits	$	356,050	$	179,267
Interest-bearing deposits	Interest-bearing deposits	594,026		807,487		Interest-bearing deposits	594,026		807,487
Total deposits	Total deposits	950,076		986,754		Total deposits	950,076		986,754
Borrowed funds	Borrowed funds	11,532		1,746		Borrowed funds	11,532		1,746
Senior and subordinated debt	Senior and subordinated debt	—		29,360		Senior and subordinated debt	0		29,360

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	14,374		11,921		Accrued interest payable and other liabilities	15,050		12,603
Total liabilities	Total liabilities	975,982		1,029,781		Total liabilities	976,658		1,030,463
Consideration Paid	Consideration Paid					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	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		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 paid	Cash paid	102,499		37,140		Cash paid	102,499		37,140
Total consideration paid	Total consideration paid	174,382		135,352		Total consideration paid	174,382		135,352
		$	1,150,364	$	1,165,133		$	1,151,040	$	1,165,815

Expenses related to the acquisition and integration of completed and pending transactions ~~totaled $5.5 million and $3.7 million during the quarters ended March 31, 2020 and 2019, respectively, and~~ are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. For the quarter and nine months ended September 30, 2020, these expenses totaled $881,000 and $11.6 million respectively, and for the same periods in 2019, these expenses totaled $3.4 million and $16.6 million, respectively.

1516

Table of Contents

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 2019 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, 2020																	As of December 31, 2019																								As of September 30, 2020													As of December 31, 2019
		Amortized Cost		Gross Unrealized								Fair Value		Amortized Cost		Gross Unrealized										Fair Value			Amortized Cost				Gross Unrealized										Fair Value				Amortized Cost				Gross Unrealized						Fair Value
						Gains			Losses									Gains		Losses											Gains			Losses											Gains						Losses
Securities Available-for-Sale	Securities Available-for-Sale																											Securities Available-for-Sale
U.S. treasury securities	U.S. treasury securities	$	32,954	$	355		$	—		$	33,309	$	33,939	$	137	$	(1)				$	34,075	U.S. treasury securities	$	13,999		$	128			$	0					$	14,127			$	33,939			$	137			$	(1)				$	34,075
U.S. agency securities	U.S. agency securities	616,469		3,940			(2,417)			617,992		249,502		758		(1,836)					248,424		U.S. agency securities	658,607��			4,731		(4,047)						659,291				249,502				758				(1,836)					248,424
Collateralized mortgage obligations ("CMOs")	Collateralized mortgage obligations ("CMOs")	1,640,928		59,820			(736)			1,700,012		1,547,805		14,893		(5,027)					1,557,671		Collateralized mortgage obligations ("CMOs")	1,532,516			34,132		(1,665)						1,564,983				1,547,805				14,893				(5,027)					1,557,671
Other mortgage-backed securities ("MBSs")	Other mortgage-backed securities ("MBSs")	662,529		24,836			(94)			687,271		678,804		7,728		(1,848)					684,684		Other mortgage-backed securities ("MBSs")	624,725			16,068		(592)						640,201				678,804				7,728				(1,848)					684,684
Municipal securities	Municipal securities	228,744		5,972			(157)			234,559		228,632		5,898		(99)					234,431		Municipal securities	226,149			10,694		(43)						236,800				228,632				5,898				(99)					234,431
Corporate debt securities	Corporate debt securities	117,785		394			(8,457)			109,722		112,797		1,791		(487)					114,101		Corporate debt securities	160,621			4,391		(530)						164,482				112,797				1,791				(487)					114,101

Total securities available-for-sale	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	Total securities available-for-sale	$	3,216,617		$	70,144	$	(6,877)					$	3,279,884			$	2,851,479			$	31,205			$	(9,298)				$	2,873,386

Securities Held-to-Maturity	Securities Held-to-Maturity																								Securities Held-to-Maturity
Municipal securities	Municipal securities	$	20,045	$	17		$	—		$	20,062	$	21,997	$	—	$	(763)				$	21,234	Municipal securities	$	22,413		$	139	$	0					$	22,552			$	21,997			$	0			$	(763)				$	21,234
Allowance for securities held-to- maturity⁽¹⁾	Allowance for securities held-to- maturity⁽¹⁾	(220)								$	(220)												Allowance for securities held-to- maturity(1)	(220)											$	(220)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	19,825	$	17		$	—		$	19,842												Total securities held-to-maturity, net	$	22,193		$	139	$	0					$	22,332
Equity Securities	Equity Securities									$	40,098										$	42,136	Equity Securities												$	55,021																$	42,136

⁽¹⁾The allowance for securities held-to-maturity was established upon adoption of CECL on January 1, 2020.

Accrued interest receivable on the securities portfolio totaled ~~$12.3~~$10.2 million and $11.3 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, and is included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.

Accounting guidance requires that the credit portion of a 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.

1617

Table of Contents

Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)


		As of March 31, 2020															As of September 30, 2020
		Available-for-Sale						Held-to-Maturity							Available-for-Sale				Held-to-Maturity
		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	One year or less	$	326,292	$	326,171	$	8,111	$	8,118	One year or less	$	279,309	$	283,349	$	1,094	$	1,101
After one year to five years	After one year to five years	178,785		178,718		5,573		5,578		After one year to five years	206,291		209,275		15,438		15,535
After five years to ten years	After five years to ten years	490,875		490,693		3,349		3,352		After five years to ten years	561,776		569,902		2,870		2,888
After ten years	After ten years	—		—		2,792		2,794		After ten years	12,000		12,174		2,791		2,808
Securities that do not have a single contractual maturity date	Securities that do not have a single contractual maturity date	2,303,457		2,387,283		—		—		Securities that do not have a single contractual maturity date	2,157,241		2,205,184		0		0
Total	Total	$	3,299,409	$	3,382,865	$	19,825	$	19,842	Total	$	3,216,617	$	3,279,884	$	22,193	$	22,332

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~~$1.8 billion as of ~~March 31,~~September 30, 2020 and $1.3 billion as of December 31, 2019. NaN securities held-to-maturity were pledged as of ~~March 31,~~September 30, 2020 or December 31, 2019.

There were realized ~~losses~~gains of ~~$1.0~~$14.3 million and ~~0 realized gains (losses)~~$13.3 million on securities available-for-sale for the quarter and nine months ended September 30, 2020, respectively, on sales of $228.4 million and $268.5 million of securities for the same periods. There were 0 realized gains (losses) for the quarters ended ~~March 31, 2020~~September 30, 2019 and ~~2019, respectively.~~nine months ended September 30, 2019.

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of ~~March 31,~~September 30, 2020 and December 31, 2019.

Securities in an Unrealized Loss Position

(Dollar amounts in thousands)


			Less Than 12 Months						12 Months or Longer							Total									Less Than 12 Months				12 Months or Longer		Total
		Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses				Number of Securities		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of March 31, 2020
As of September 30, 2020															As of September 30, 2020
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale

U.S. agency securities	U.S. agency securities	24	$	164,368	$	2,177	$	15,635	$	240	$	180,003	$	2,417	U.S. agency securities		44		$	235,984	$	3,816	$	14,772	$	231	$	250,756	$	4,047
CMOs	CMOs	12	27,840		422		17,505		314		45,345		736		CMOs		52		155,637		1,111		42,137		554		197,774		1,665
MBSs	MBSs	11	4,809		70		6,294		24		11,103		94		MBSs		19		92,959		581		3,395		11		96,354		592
Municipal securities	Municipal securities	22	6,607		148		5,510		9		12,117		157		Municipal securities		13		5,965		43		0		0		5,965		43

Corporate debt securities	Corporate debt securities	11	9,615		385		76,384		8,072		85,999		8,457		Corporate debt securities		3		4,996		4		12,349		526		17,345		530
Total	Total	80	$	213,239	$	3,202	$	121,328	$	8,659	$	334,567	$	11,861	Total		131		$	495,541	$	5,555	$	72,653	$	1,322	$	568,194	$	6,877

As of December 31, 2019	As of December 31, 2019														As of December 31, 2019
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale
U.S. treasury securities	U.S. treasury securities	5	$	4,966	$	1	$	—	$	—	$	4,966	$	1	U.S. treasury securities		5		$	4,966	$	1	$	0	$	0	$	4,966	$	1
U.S. agency securities	U.S. agency securities	52	97,729		1,200		49,387		636		147,116		1,836		U.S. agency securities		52		97,729		1,200		49,387		636		147,116		1,836
CMOs	CMOs	148	187,470		2,177		412,083		2,850		599,553		5,027		CMOs		148		187,470		2,177		412,083		2,850		599,553		5,027
MBSs	MBSs	59	66,340		996		121,861		852		188,201		1,848		MBSs		59		66,340		996		121,861		852		188,201		1,848
Municipal securities	Municipal securities	16	9,384		89		3,104		10		12,488		99		Municipal securities		16		9,384		89		3,104		10		12,488		99
Corporate debt securities	Corporate debt securities	6	9,719		281		21,955		206		31,674		487		Corporate debt securities		6		9,719		281		21,955		206		31,674		487
Total	Total	286	$	375,608	$	4,744	$	608,390	$	4,554	$	983,998	$	9,298	Total		286		$	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 ~~March 31,~~September 30, 2020 represent impairment 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

Table of Contents

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.

~~Table of Contents~~

5. LOANS

Loans Held-for-Investment

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

Loan Portfolio

(Dollar amounts in thousands)


		As of							As of
		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Commercial and industrial	Commercial and industrial	$	5,051,154	$	4,481,525	Commercial and industrial	$	4,635,571	$	4,481,525
Agricultural	Agricultural	393,138		405,616		Agricultural	377,466		405,616
Commercial real estate:	Commercial real estate:					Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	2,279,068		1,848,718		Office, retail, and industrial	1,950,406		1,848,718
Multi-family	Multi-family	906,281		856,553		Multi-family	868,293		856,553
Construction	Construction	562,689		593,093		Construction	631,607		593,093
Other commercial real estate	Other commercial real estate	1,349,812		1,383,708		Other commercial real estate	1,452,994		1,383,708
Total commercial real estate	Total commercial real estate	5,097,850		4,682,072		Total commercial real estate	4,903,300		4,682,072
Total corporate loans, excluding Paycheck Protection Program ("PPP") loans						Total corporate loans, excluding Paycheck Protection Program ("PPP") loans	9,916,337		9,569,213
PPP loans						PPP loans	1,196,538		0
Total corporate loans	Total corporate loans	10,542,142		9,569,213		Total corporate loans	11,112,875		9,569,213
Home equity	Home equity	965,771		851,454		Home equity	827,746		851,454
1-4 family mortgages	1-4 family mortgages	1,968,589		1,927,078		1-4 family mortgages	2,287,555		1,927,078
Installment	Installment	488,515		492,585		Installment	425,012		492,585
Total consumer loans	Total consumer loans	3,422,875		3,271,117		Total consumer loans	3,540,313		3,271,117
Total loans	Total loans	$	13,965,017	$	12,840,330	Total loans	$	14,653,188	$	12,840,330
Deferred loan fees included in total loans	Deferred loan fees included in total loans	$	8,264	$	7,972	Deferred loan fees included in total loans	$	9,608	$	7,972
Overdrawn demand deposits included in total loans	Overdrawn demand deposits included in total loans	7,126		10,675		Overdrawn demand deposits included in total loans	7,906		10,675

Accrued interest receivable on the loan portfolio totaled ~~$49.1~~$56.3 million and $48.4 million as of ~~March 31,~~September 30, 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 2019 10-K.

1819

Table of Contents

Loan Sales

The following table presents loan sales and purchases for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Loan Sales and Purchases

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Corporate loan sales	Corporate loan sales					Corporate loan sales
Proceeds from sales	Proceeds from sales	$	4,303	$	3,198	Proceeds from sales	$	50	$	5,108	$	4,648	$	10,484
Less book value of loans sold	Less book value of loans sold	4,188		3,116		Less book value of loans sold	65		4,950		4,542		10,198
Net gains on corporate loan sales⁽¹⁾		115		82
Net (losses) gains on corporate loan sales(1)						Net (losses) gains on corporate loan sales(1)	(15)		158		106		286
1-4 family mortgage loan sales	1-4 family mortgage loan sales					1-4 family mortgage loan sales
Proceeds from sales	Proceeds from sales	119,159		58,783		Proceeds from sales	258,695		143,776		551,105		297,967
Less book value of loans sold	Less book value of loans sold	116,645		57,455		Less book value of loans sold	251,819		140,998		537,120		291,926
Net gains on 1-4 family mortgage loan sales⁽²⁾	Net gains on 1-4 family mortgage loan sales⁽²⁾	2,514		1,328		Net gains on 1-4 family mortgage loan sales(2)	6,876		2,778		13,985		6,041
Total net gains on loan sales	Total net gains on loan sales	$	2,629	$	1,410	Total net gains on loan sales	$	6,861	$	2,936	$	14,091	$	6,327
Corporate loan purchases⁽³⁾	Corporate loan purchases⁽³⁾					Corporate loan purchases(3)
Commercial and industrial	Commercial and industrial	$	145,822	$	52,719	Commercial and industrial	$	10,196	$	95,967	$	178,912	$	277,577

Office, retail, and industrial						Office, retail, and industrial	0		20		0		1,731

Construction	Construction	639		834		Construction	3,692		1,852		7,589		4,118
Other commercial real estate	Other commercial real estate	—		3,986		Other commercial real estate	0		19,940		10,000		23,926
Total corporate loan purchases	Total corporate loan purchases	$	146,461	$	57,539	Total corporate loan purchases	$	13,888	$	117,779	$	196,501	$	307,352
Consumer loan purchases	Consumer loan purchases					Consumer loan purchases
Home equity	Home equity	$	144,967	$	38,252	Home equity	$	0	$	0	$	144,967	$	77,411
1-4 family mortgages	1-4 family mortgages	70,175		72,930		1-4 family mortgages	168,052		293,500		417,637		597,963
Installment						Installment	0		3,305		0		3,305
Total consumer loan purchases	Total consumer loan purchases	$	215,142	$	111,182	Total consumer loan purchases	$	168,052	$	296,805	$	562,604	$	678,679

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

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

⁽³⁾Consists of the Company's portion of loan participations purchased.

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 13, "Commitments, Guarantees, and Contingent Liabilities."

Table of Contents

6. ACQUIRED LOANS

The significant accounting policies related to acquired loans, which are classified as PCD and non-PCD at ~~March 31,~~September 30, 2020, are presented in Note 1, "Summary of Significant Accounting Policies."

The following table presents the carrying amount of acquired loans as of ~~March 31,~~September 30, 2020 and December 31, 2019.

Acquired Loans⁽¹⁾⁽²⁾

(Dollar amounts in thousands)

As of March 31, 2020 As of December 31, 2019
PCD Non-PCD Total PCI Non-PCI Total
Acquired loans $ 275,172 $ 1,706,402 $ 1,981,574 $ 167,183 $ 1,216,133 $ 1,383,316


	As of September 30, 2020						As of December 31, 2019
	PCD		Non-PCD		Total		PCI		Non-PCI		Total


Acquired loans	$	240,379	$	1,353,223	$	1,593,602	$	167,183	$	1,216,133	$	1,383,316

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

⁽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~~$278.3 million as of ~~March 31,~~September 30, 2020 and the outstanding balance of PCI loans was $243.0 million as of December 31, 2019.

Total accretion on acquired loans for the quarters and nine months ended September 30, 2020 and 2019 was $8.0 million and $21.9 million, respectively, and $9.2 million and $25.9 million for the same periods in 2019.

Table of Contents

~~Total accretion on acquired loans for the quarters ended March 31, 2020 and 2019 was $6.9 million and $6.4 million, respectively.~~

7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, NON-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 ~~March 31,~~September 30, 2020 and December 31, 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							Aging Analysis (Accruing and Non-accrual)					Non-performing Loans
		Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual		90 Days or More Past Due, Still Accruing Interest			Current		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 March 31, 2020
As of September 30, 2020																As of September 30, 2020
Commercial and industrial	Commercial and industrial	$	5,005,589	$	23,166	$	22,399	$	45,565	$	5,051,154	$	34,012	$	2,912	Commercial and industrial	$	4,583,661	$	4,644		$	47,266	$	51,910	$	4,635,571		$	49,866	$	1,003
Agricultural	Agricultural	382,440		5,420		5,278		10,698		393,138		5,823		146		Agricultural	370,387		428			6,651		7,079		377,466			13,293		0
Commercial real estate:	Commercial real estate:															Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	2,229,685		16,590		32,793		49,383		2,279,068		44,625		—		Office, retail, and industrial	1,914,480		2,428			33,498		35,926		1,950,406			35,241		502
Multi-family	Multi-family	897,392		5,697		3,192		8,889		906,281		2,869		558		Multi-family	865,499		395			2,399		2,794		868,293			2,433		73
Construction	Construction	532,427		1,342		28,920		30,262		562,689		28,920		—		Construction	624,789		3,260			3,558		6,818		631,607			6,446		89
Other commercial real estate	Other commercial real estate	1,320,169		25,052		4,591		29,643		1,349,812		11,851		22		Other commercial real estate	1,435,606		6,402			10,986		17,388		1,452,994			17,675		790
Total commercial real estate	Total commercial real estate	4,979,673		48,681		69,496		118,177		5,097,850		88,265		580		Total commercial real estate	4,840,374		12,485			50,441		62,926		4,903,300			61,795		1,454
Total corporate loans, excluding PPP loans																Total corporate loans, excluding PPP loans	9,794,422		17,557			104,358		121,915		9,916,337			124,954		2,457
PPP loans																PPP loans	1,196,538		0			0		0		1,196,538			0		0
Total corporate loans	Total corporate loans	10,367,702		77,267		97,173		174,440		10,542,142		128,100		3,638		Total corporate loans	10,990,960		17,557			104,358		121,915		11,112,875			124,954		2,457
Home equity	Home equity	956,764		4,548		4,459		9,007		965,771		9,503		360		Home equity	817,184		6,014			4,548		10,562		827,746			9,548		19
1-4 family mortgages	1-4 family mortgages	1,957,289		5,314		5,986		11,300		1,968,589		8,996		—		1-4 family mortgages	2,276,561		4,288			6,706		10,994		2,287,555			9,070		445
Installment	Installment	483,504		3,957		1,054		5,011		488,515		—		1,054		Installment	422,916		1,236			860		2,096		425,012			0		860
Total consumer loans	Total consumer loans	3,397,557		13,819		11,499		25,318		3,422,875		18,499		1,414		Total consumer loans	3,516,661		11,538			12,114		23,652		3,540,313			18,618		1,324
Total loans	Total loans	$	13,765,259	$	91,086	$	108,672	$	199,758	$	13,965,017	$	146,599	$	5,052	Total loans	$	14,507,621	$	29,095		$	116,472	$	145,567	$	14,653,188		$	143,572	$	3,781
As of December 31, 2019	As of December 31, 2019															As of December 31, 2019
Commercial and industrial	Commercial and industrial	$	4,455,381	$	11,468	$	14,676	$	26,144	$	4,481,525	$	29,995	$	2,207	Commercial and industrial	$	4,455,381	$	11,468		$	14,676	$	26,144	$	4,481,525		$	29,995	$	2,207
Agricultural	Agricultural	398,676		850		6,090		6,940		405,616		5,954		358		Agricultural	398,676		850			6,090		6,940		405,616			5,954		358
Commercial real estate:	Commercial real estate:															Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	1,830,321		2,943		15,454		18,397		1,848,718		25,857		546		Office, retail, and industrial	1,830,321		2,943			15,454		18,397		1,848,718			25,857		546
Multi-family	Multi-family	853,762		211		2,580		2,791		856,553		2,697		—		Multi-family	853,762		211			2,580		2,791		856,553			2,697		0
Construction	Construction	588,065		4,876		152		5,028		593,093		152		—		Construction	588,065		4,876			152		5,028		593,093			152		0
Other commercial real estate	Other commercial real estate	1,377,678		3,233		2,797		6,030		1,383,708		4,729		529		Other commercial real estate	1,377,678		3,233			2,797		6,030		1,383,708			4,729		529
Total commercial real estate	Total commercial real estate	4,649,826		11,263		20,983		32,246		4,682,072		33,435		1,075		Total commercial real estate	4,649,826		11,263			20,983		32,246		4,682,072			33,435		1,075
Total corporate loans	Total corporate loans	9,503,883		23,581		41,749		65,330		9,569,213		69,384		3,640		Total corporate loans	9,503,883		23,581			41,749		65,330		9,569,213			69,384		3,640
Home equity	Home equity	841,908		4,992		4,554		9,546		851,454		8,443		146		Home equity	841,908		4,992			4,554		9,546		851,454			8,443		146
1-4 family mortgages	1-4 family mortgages	1,917,648		5,452		3,978		9,430		1,927,078		4,442		1,203		1-4 family mortgages	1,917,648		5,452			3,978		9,430		1,927,078			4,442		1,203
Installment	Installment	491,406		1,167		12		1,179		492,585		—		12		Installment	491,406		1,167			12		1,179		492,585			0		12
Total consumer loans	Total consumer loans	3,250,962		11,611		8,544		20,155		3,271,117		12,885		1,361		Total consumer loans	3,250,962		11,611			8,544		20,155		3,271,117			12,885		1,361
Total loans	Total loans	$	12,754,845	$	35,192	$	50,293	$	85,485	$	12,840,330	$	82,269	$	5,001	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~~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.

2022

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~~expected in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the table below. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.

Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


		Commercial, Industrial, and Agricultural		Office, Retail, and Industrial		Multi- family		Construction		Other Commercial Real Estate		Consumer		Allowance for Unfunded Commitments		Total Allowance for Credit Losses			Commercial, Industrial, and Agricultural		Office, Retail, and Industrial		Multi- family		Construction		Other Commercial Real Estate		Consumer		Allowance for Unfunded Commitments		Total Allowance for Credit Losses
Quarter Ended March 31, 2020
Quarter Ended September 30, 2020																		Quarter Ended September 30, 2020
Beginning balance																		Beginning balance	$	123,977	$	24,441	$	5,311	$	11,522	$	21,862	$	52,939	$	7,625	$	247,677

Allowance established for acquired PCD loans																		Allowance established for acquired PCD loans	(1,188)		0		0		0		0		0		0		(1,188)
Charge-offs																		Charge-offs	(6,853)		(1,344)		0		(4,889)		(1,823)		(2,629)		0		(17,538)
Recoveries																		Recoveries	1,118		5		0		0		70		602		0		1,795
Net charge-offs																		Net charge-offs	(5,735)		(1,339)		0		(4,889)		(1,753)		(2,027)		0		(15,743)
Provision for loan losses and other																		Provision for loan losses and other	8,674		1,636		428		99		3,522		1,568		200		16,127
Ending balance																		Ending balance	$	125,728	$	24,738	$	5,739	$	6,732	$	23,631	$	52,480	$	7,825	$	246,873
Quarter Ended September 30, 2019																		Quarter Ended September 30, 2019
Beginning balance																		Beginning balance	$	66,364	$	7,495	$	2,159	$	1,862	$	4,997	$	22,852	$	1,200	$	106,929
Charge-offs																		Charge-offs	(7,176)		(293)		0		0		(184)		(3,619)		0		(11,272)
Recoveries																		Recoveries	1,205		74		38		2		227		527		0		2,073
Net charge-offs																		Net charge-offs	(5,971)		(219)		38		2		43		(3,092)		0		(9,199)
Provision for loan losses and other																		Provision for loan losses and other	5,002		65		565		(98)		1,188		5,776		0		12,498
Ending balance																		Ending balance	$	65,395	$	7,341	$	2,762	$	1,766	$	6,228	$	25,536	$	1,200	$	110,228
Nine Months Ended September 30, 2020																		Nine Months Ended September 30, 2020
Beginning balance	Beginning balance	$	62,830	$	7,580	$	2,950	$	1,697	$	6,408	$	26,557	$	1,200	$	109,222	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⁾	Adjustment to apply recent accounting pronouncements⁽¹⁾	20,159		11,686		397		10,300		11,427		16,235		5,553		75,757		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	Allowance established for acquired PCD loans	12,262		2,003		—		—		—		39		—		14,304		Allowance established for acquired PCD loans	11,452		2,003		0		0		0		39		872		14,366
Charge-offs	Charge-offs	(7,066)		(338)		(10)		(1,808)		(308)		(4,400)		—		(13,930)		Charge-offs	(19,592)		(4,774)		(19)		(7,495)		(2,162)		(11,660)		0		(45,702)
Recoveries	Recoveries	1,159		9		5		—		144		499		—		1,816		Recoveries	3,097		20		5		0		226		1,574		0		4,922
Net charge-offs	Net charge-offs	(5,907)		(329)		(5)		(1,808)		(164)		(3,901)		—		(12,114)		Net charge-offs	(16,495)		(4,754)		(14)		(7,495)		(1,936)		(10,086)		0		(40,780)
Provision for loan losses and other	Provision for loan losses and other	24,389		4,916		347		1,108		883		7,889		—		39,532		Provision for loan losses and other	47,782		8,223		2,406		2,230		7,732		19,735		200		88,308
Ending balance	Ending balance	$	113,733	$	25,856	$	3,689	$	11,297	$	18,554	$	46,819	$	6,753	$	226,701	Ending balance	$	125,728	$	24,738	$	5,739	$	6,732	$	23,631	$	52,480	$	7,825	$	246,873
Quarter Ended March 31, 2019
Nine Months Ended September 30, 2019																		Nine Months Ended September 30, 2019
Beginning balance	Beginning balance	$	63,276	$	7,900	$	2,464	$	2,173	$	4,934	$	21,472	$	1,200	$	103,419	Beginning balance	$	63,276	$	7,900	$	2,464	$	2,173	$	4,934	$	21,472	$	1,200	$	103,419
Charge-offs	Charge-offs	(6,451)		(628)		(340)		(6)		(210)		(3,142)		—		(10,777)		Charge-offs	(20,143)		(2,526)		(340)		(6)		(723)		(9,735)		0		(33,473)
Recoveries	Recoveries	1,301		10		1		6		21		354		—		1,693		Recoveries	3,764		235		39		18		293		1,500		0		5,849
Net charge-offs	Net charge-offs	(5,150)		(618)		(339)		—		(189)		(2,788)		—		(9,084)		Net charge-offs	(16,379)		(2,291)		(301)		12		(430)		(8,235)		0		(27,624)
Provision for loan losses and other	Provision for loan losses and other	6,559		397		91		(42)		185		3,254		—		10,444		Provision for loan losses and other	18,498		1,732		599		(419)		1,724		12,299		0		34,433
Ending balance	Ending balance	$	64,685	$	7,679	$	2,216	$	2,131	$	4,930	$	21,938	$	1,200	$	104,779	Ending balance	$	65,395	$	7,341	$	2,762	$	1,766	$	6,228	$	25,536	$	1,200	$	110,228

⁽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."

Table of Contents

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.

~~Table of Contents~~

The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of ~~March 31,~~September 30, 2020 and December 31, 2019.

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


		Loans														Allowance for Credit Losses															Loans				Allowance for Credit Losses
		Individually Evaluated		Collectively Evaluated		PCD/PCI⁽¹⁾		Total		Individually Evaluated		Collectively Evaluated		PCD/PCI⁽¹⁾		Total			Individually Evaluated		Collectively Evaluated		PCD/PCI(1)		Total		Individually 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
As of September 30, 2020																		As of September 30, 2020
Commercial, industrial, agricultural																		Commercial, industrial, agricultural	$	51,289	$	4,875,613	$	86,135	$	5,013,037	$	6,457	$	105,378	$	13,893	$	125,728
Commercial real estate:	Commercial real estate:																	Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	25,092		2,192,942		61,034		2,279,068		986		13,257		11,613		25,856		Office, retail, and industrial	25,345		1,875,811		49,250		1,950,406		1,105		15,207		8,426		24,738
Multi-family	Multi-family	2,338		900,583		3,360		906,281		—		3,642		47		3,689		Multi-family	1,280		860,002		7,011		868,293		0		5,465		274		5,739
Construction	Construction	18,734		522,832		21,123		562,689		—		3,678		7,619		11,297		Construction	2,977		612,681		15,949		631,607		0		4,722		2,010		6,732
Other commercial real estate	Other commercial real estate	3,467		1,297,591		48,754		1,349,812		—		8,422		10,132		18,554		Other commercial real estate	3,145		1,391,948		57,901		1,452,994		88		12,047		11,496		23,631
Total commercial real estate	Total commercial real estate	49,631		4,913,948		134,271		5,097,850		986		28,999		29,411		59,396		Total commercial real estate	32,747		4,740,442		130,111		4,903,300		1,193		37,441		22,206		60,840
Total corporate loans, excluding PPP loans																		Total corporate loans, excluding PPP loans	84,036		9,616,055		216,246		9,916,337		7,650		142,819		36,099		186,568
PPP loans																		PPP loans	0		1,196,538		0		1,196,538		0		0		0		0
Total corporate loans	Total corporate loans	78,313		10,213,321		250,508		10,542,142		2,807		120,603		49,719		173,129		Total corporate loans	84,036		10,812,593		216,246		11,112,875		7,650		142,819		36,099		186,568
Consumer	Consumer	—		3,398,211		24,664		3,422,875		—		46,315		504		46,819		Consumer	23		3,516,157		24,133		3,540,313		0		51,694		786		52,480
Allowance for unfunded commitments	Allowance for unfunded commitments	—		—		—		—		—		6,753		—		6,753		Allowance for unfunded commitments	0		0		0		0		0		7,825		0		7,825
Total loans	Total loans	$	78,313	$	13,611,532	$	275,172	$	13,965,017	$	2,807	$	173,671	$	50,223	$	226,701	Total loans	$	84,059	$	14,328,750	$	240,379	$	14,653,188	$	7,650	$	202,338	$	36,885	$	246,873

As of December 31, 2019	As of December 31, 2019																	As of December 31, 2019
Commercial, industrial, and agricultural	Commercial, industrial, and agricultural	$	34,142	$	4,807,114	$	45,885	$	4,887,141	$	3,414	$	59,108	$	308	$	62,830	Commercial, industrial, and agricultural	$	34,142	$	4,807,114	$	45,885	$	4,887,141	$	3,414	$	59,108	$	308	$	62,830
Commercial real estate:	Commercial real estate:																	Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	24,820		1,795,557		28,341		1,848,718		578		6,899		103		7,580		Office, retail, and industrial	24,820		1,795,557		28,341		1,848,718		578		6,899		103		7,580
Multi-family	Multi-family	1,995		851,857		2,701		856,553		—		2,854		96		2,950		Multi-family	1,995		851,857		2,701		856,553		0		2,854		96		2,950
Construction	Construction	123		581,747		11,223		593,093		—		1,681		16		1,697		Construction	123		581,747		11,223		593,093		0		1,681		16		1,697
Other commercial real estate	Other commercial real estate	3,241		1,323,635		56,832		1,383,708		—		4,867		1,541		6,408		Other commercial real estate	3,241		1,323,635		56,832		1,383,708		0		4,867		1,541		6,408
Total commercial real estate	Total commercial real estate	30,179		4,552,796		99,097		4,682,072		578		16,301		1,756		18,635		Total commercial real estate	30,179		4,552,796		99,097		4,682,072		578		16,301		1,756		18,635
Total corporate loans	Total corporate loans	64,321		9,359,910		144,982		9,569,213		3,992		75,409		2,064		81,465		Total corporate loans	64,321		9,359,910		144,982		9,569,213		3,992		75,409		2,064		81,465
Consumer	Consumer	—		3,248,916		22,201		3,271,117		—		25,424		1,133		26,557		Consumer	0		3,248,916		22,201		3,271,117		0		25,424		1,133		26,557
Allowance for unfunded commitments	Allowance for unfunded commitments	—		—		—		—		—		1,200		—		1,200		Allowance for unfunded commitments	0		0		0		0		0		1,200		0		1,200
Total loans	Total loans	$	64,321	$	12,608,826	$	167,183	$	12,840,330	$	3,992	$	102,033	$	3,197	$	109,222	Total loans	$	64,321	$	12,608,826	$	167,183	$	12,840,330	$	3,992	$	102,033	$	3,197	$	109,222

⁽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.

2224

Table of Contents

The 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,~~September 30, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.

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

(Dollar amounts in thousands)


		Type of Collateral												Non-accrual Loans With No Related Allowance				Type of Collateral									Non-accrual Loans With No Related Allowance
		Real Estate		Blanket Lien		Equipment				Non-accrual Loans With No Related Allowance			Real Estate				Blanket Lien			Equipment					Non-accrual Loans With No Related Allowance
																		Real Estate				Blanket Lien
Commercial and industrial	Commercial and industrial	$	7,292	$	60,475	$	2,055	$	9,497		$	27,238			$	39,761				$	39,507
Agricultural	Agricultural	4,755		2,043		—		5,610		Agricultural	10,259				2,677					0						2,406
Commercial real estate:	Commercial real estate:									Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	55,176		—		—��		17,674		Office, retail, and industrial	43,834				0			0					21,756
Multi-family	Multi-family	2,338		—		—		2,338		Multi-family	2,116				0			0					1,280
Construction	Construction	29,502		—		—		19,185		Construction	6,848				0			0					3,280
Other commercial real estate	Other commercial real estate	27,589		—		—		9,310		Other commercial real estate	32,805				0			0					10,471
Total commercial real estate	Total commercial real estate	114,605		—		—		48,507		Total commercial real estate	85,603				0			0					36,787

Total corporate loans	Total corporate loans	126,652		62,518		2,055		63,614		Total corporate loans	123,100				42,438			2,484					78,700
Home equity	Home equity	1,506		—		—		266		Home equity	247				0			0					123
1-4 family mortgages	1-4 family mortgages	96		—		—		1,942		1-4 family mortgages	2,725				0			0					552
Installment	Installment	—		—		—		—		Installment	0				0			0					0
Total consumer loans	Total consumer loans	1,602		—		—		2,208		Total consumer loans	2,972				0			0					675
Total loans	Total loans	$	128,254	$	62,518	$	2,055	$	65,822	Total loans	$	126,072			$	42,438		$	2,484				$	79,375

Loans Individually Evaluated

The following table presents loans individually evaluated by class of loan as of ~~March 31,~~September 30, 2020 and December 31, 2019. PCD and PCI loans are excluded from this disclosure.

Loans Individually Evaluated by Class

(Dollar amounts in thousands)


		As of March 31, 2020														As of December 31, 2019																As of September 30, 2020						As of December 31, 2019
		Recorded Investment In												Recorded Investment In													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			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	Commercial and industrial	$	6,876	$	16,196	$	47,302	$	1,821	$	12,885	$	15,516	$	52,559	$	2,456	Commercial and industrial	$	36,735	$	1,618	$	51,829	$	299		$	12,885	$	15,516		$	52,559	$	2,456
Agricultural	Agricultural	5,610		—		10,389		—		1,889		3,852		9,293		958		Agricultural	2,407		10,529		18,129		6,158			1,889		3,852			9,293		958
Commercial real estate:	Commercial real estate:																	Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	14,250		10,842		37,317		986		14,111		10,709		37,007		578		Office, retail, and industrial	20,308		5,037		29,422		1,105			14,111		10,709			37,007		578
Multi-family	Multi-family	2,338		—		2,338		—		1,995		—		1,995		—		Multi-family	1,280		0		1,279		0			1,995		0			1,995		0
Construction	Construction	18,734		—		18,734		—		123		—		123		—		Construction	2,977		0		3,144		0			123		0			123		0
Other commercial real estate	Other commercial real estate	3,467		—		3,755		—		3,241		—		3,495		—		Other commercial real estate	2,231		914		4,207		88			3,241		0			3,495		0
Total commercial real estate	Total commercial real estate	38,789		10,842		62,144		986		19,470		10,709		42,620		578		Total commercial real estate	26,796		5,951		38,052		1,193			19,470		10,709			42,620		578
Total corporate loans																		Total corporate loans	65,938		18,098		108,010		7,650			34,244		30,077			104,472		3,992
Consumer																		Consumer	23		0		23		0			0		0			0		0
Total non-accrual loans individually evaluated	Total non-accrual loans individually evaluated	$	51,275	$	27,038	$	119,835	$	2,807	$	34,244	$	30,077	$	104,472	$	3,992	Total non-accrual loans individually evaluated	$	65,961	$	18,098	$	108,033	$	7,650		$	34,244	$	30,077		$	104,472	$	3,992

Interest income recognized on non-accrual loans using the cash basis of accounting ~~totaled $278,000 and $79,000~~ for the quarters ended ~~March 31,~~and nine months ended September 30, 2020 and 2019 ~~respectively.~~was $1.0 million and $1.4 million, respectively, and $292,000 and $440,000 for the same periods in 2019.

Table of Contents

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 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,~~September 30, 2020 and net loan charge-offs for the nine months ended September 30, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.

~~Table of Contents~~

Corporate Loan Portfolio by Origination Year

(Dollar amounts in thousands)


		2020⁽¹⁾		2019		2018		2017		2016		Prior		Revolving Loans		Total			2020(1)		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial, industrial, and agricultural:
Commercial, industrial, agricultural:																		Commercial, industrial, agricultural:
Pass	Pass	$	347,347	$	886,843	$	969,223	$	536,226	$	254,029	$	496,992	$	1,684,205	$	5,174,865	Pass	$	554,985	$	850,903	$	810,527	$	487,372	$	212,757	$	424,072	$	1,214,399	$	4,555,015
Special Mention⁽²⁾	Special Mention⁽²⁾	4,155		10,109		11,814		4,424		10,296		14,678		65,270		120,746		Special Mention(2)	6,498		18,569		41,688		9,943		21,798		17,137		115,293		230,926
Substandard⁽³⁾	Substandard⁽³⁾	523		3,256		25,569		17,947		14,907		15,875		30,769		108,846		Substandard(3)	337		3,855		62,921		21,842		16,511		23,337		35,134		163,937
Non-accrual⁽⁴⁾	Non-accrual⁽⁴⁾	—		130		2,199		10,969		5,300		6,129		15,108		39,835		Non-accrual(4)	0		3,900		23,665		9,190		1,197		7,327		17,880		63,159
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
Total commercial, industrial, agricultural																		Total commercial, industrial, agricultural	$	561,820	$	877,227	$	938,801	$	528,347	$	252,263	$	471,873	$	1,382,706	$	5,013,037
Commercial, industrial, agricultural, net loan charge-offs																		Commercial, industrial, agricultural, net loan charge-offs	$	0	$	586	$	1,431	$	1,626	$	1,934	$	1,589	$	9,329	$	16,495
Office, retail, and industrial:	Office, retail, and industrial:																	Office, retail, and industrial:
Pass	Pass	$	91,286	$	261,537	$	269,725	$	369,944	$	336,235	$	730,037	$	97,171	$	2,155,935	Pass	$	115,443	$	263,308	$	218,204	$	312,063	$	287,643	$	628,127	$	5,664	$	1,830,452
Special Mention⁽²⁾	Special Mention⁽²⁾	790		3,170		1,888		5,127		20,430		12,494		—		43,899		Special Mention(2)	1,425		646		4,392		12,086		24,284		17,765		200		60,798
Substandard⁽³⁾	Substandard⁽³⁾	—		—		—		374		626		33,609		—		34,609		Substandard(3)	0		0		0		283		1,499		22,133		0		23,915
Non-accrual⁽⁴⁾	Non-accrual⁽⁴⁾	—		—		132		2,166		11,878		30,018		431		44,625		Non-accrual(4)	0		0		131		181		10,238		24,691		0		35,241
Total office, retail, and industrial	Total office, retail, and industrial	$	92,076	$	264,707	$	271,745	$	377,611	$	369,169	$	806,158	$	97,602	$	2,279,068	Total office, retail, and industrial	$	116,868	$	263,954	$	222,727	$	324,613	$	323,664	$	692,716	$	5,864	$	1,950,406
Office, retail, and industrial net loan charge-offs	Office, retail, and industrial net loan charge-offs	$	—	$	333	$	—	$	—	$	4	$	(8)	$	—	$	329	Office, retail, and industrial net loan charge-offs	$	0	$	333	$	155	$	5	$	1,628	$	2,633	$	0	$	4,754
Multi-family:	Multi-family:																	Multi-family:
Pass	Pass	$	64,735	$	204,728	$	112,066	$	103,257	$	108,573	$	263,163	$	33,223	$	889,745	Pass	$	134,824	$	171,572	$	82,460	$	111,504	$	87,424	$	236,960	$	27,511	$	852,255
Special Mention⁽²⁾	Special Mention⁽²⁾	—		—		—		—		—		7,754		—		7,754		Special Mention(2)	0		98		0		0		5,496		2,170		0		7,764
Substandard⁽³⁾	Substandard⁽³⁾	—		—		389		84		—		5,440		—		5,913		Substandard(3)	0		0		385		78		0		5,378		0		5,841
Non-accrual⁽⁴⁾	Non-accrual⁽⁴⁾	—		—		—		2,339		237		293		—		2,869		Non-accrual(4)	0		0		0		1,279		0		1,154		0		2,433
Total multi-family	Total multi-family	$	64,735	$	204,728	$	112,455	$	105,680	$	108,810	$	276,650	$	33,223	$	906,281	Total multi-family	$	134,824	$	171,670	$	82,845	$	112,861	$	92,920	$	245,662	$	27,511	$	868,293
Multi-family net loan charge-offs	Multi-family net loan charge-offs	$	—	$	4	$	—	$	1	$	—	$	—	$	—	$	5	Multi-family net loan charge-offs	$	0	$	3	$	0	$	1	$	0	$	10	$	0	$	14
Construction:	Construction:																	Construction:
Pass	Pass	$	6,359	$	124,887	$	125,846	$	89,101	$	66,763	$	64,836	$	31,327	$	509,119	Pass	$	56,790	$	129,311	$	172,855	$	82,528	$	57,401	$	65,769	$	29,494	$	594,148
Special Mention⁽²⁾	Special Mention⁽²⁾	—		—		—		2,621		13,494		1,258		—		17,373		Special Mention(2)	0		0		44		3,655		3,838		1,286		0		8,823
Substandard⁽³⁾	Substandard⁽³⁾	—		—		—		—		—		7,277		—		7,277		Substandard(3)	0		0		0		7,717		10,335		4,138		0		22,190
Non-accrual⁽⁴⁾	Non-accrual⁽⁴⁾	—		—		—		1,282		—		25,915		1,723		28,920		Non-accrual(4)	0		0		0		0		0		4,787		1,659		6,446
Total construction	Total construction	$	6,359	$	124,887	$	125,846	$	93,004	$	80,257	$	99,286	$	33,050	$	562,689	Total construction	$	56,790	$	129,311	$	172,899	$	93,900	$	71,574	$	75,980	$	31,153	$	631,607
Construction net loan charge-offs	Construction net loan charge-offs	$	—	$	118	$	—	$	—	$	—	$	1,690	$	—	$	1,808	Construction net loan charge-offs	$	0	$	118	$	0	$	5,490	$	0	$	1,887	$	0	$	7,495
Other commercial real estate:	Other commercial real estate:																	Other commercial real estate:
Pass	Pass	$	14,525	$	166,652	$	241,391	$	202,227	$	105,808	$	488,295	$	27,508	$	1,246,406	Pass	$	114,175	$	183,856	$	227,370	$	201,760	$	117,615	$	381,532	$	26,480	$	1,252,788
Special Mention⁽²⁾	Special Mention⁽²⁾	—		1,506		6,523		22,233		7,204		12,288		1,300		51,054		Special Mention(2)	0		3,863		19,906		7,574		7,874		47,524		243		86,984
Substandard⁽³⁾	Substandard⁽³⁾	—		—		—		1,409		2,926		36,166		—		40,501		Substandard(3)	0		1,483		22,662		6,400		10,341		54,661		0		95,547
Non-accrual⁽⁴⁾	Non-accrual⁽⁴⁾	—		—		228		481		326		10,238		578		11,851		Non-accrual(4)	0		0		671		3,315		1,545		12,051		93		17,675
Total other commercial real estate	Total other commercial real estate	$	14,525	$	168,158	$	248,142	$	226,350	$	116,264	$	546,987	$	29,386	$	1,349,812	Total other commercial real estate	$	114,175	$	189,202	$	270,609	$	219,049	$	137,375	$	495,768	$	26,816	$	1,452,994
Other commercial real estate net loan charge- offs	Other commercial real estate net loan charge- offs	$	—	$	38	$	1	$	—	$	183	$	(58)	$	—	$	164	Other commercial real estate net loan charge- offs	$	0	$	430	$	179	$	366	$	183	$	778	$	0	$	1,936

⁽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.

2426

Table of Contents

Consumer Loan Portfolio by Origination Year

(Dollar amounts in thousands)


		2020⁽¹⁾		2019		2018		2017		2016		Prior		Revolving Loans		Total			2020(1)		2019		2018		2017		2016		Prior		Revolving Loans		Total
Home equity:	Home equity:																	Home equity:
Performing	Performing	$	6,977	$	12,504	$	17,504	$	13,646	$	12,349	$	60,561	$	832,727	$	956,268	Performing	$	11,158	$	12,747	$	15,191	$	12,661	$	10,187	$	58,265	$	697,989	$	818,198
Non-accrual	Non-accrual	—		22		110		265		494		7,159		1,453		9,503		Non-accrual	0		22		238		261		520		7,133		1,374		9,548
Total home equity	Total home equity	$	6,977	$	12,526	$	17,614	$	13,911	$	12,843	$	67,720	$	834,180	$	965,771	Total home equity	$	11,158	$	12,769	$	15,429	$	12,922	$	10,707	$	65,398	$	699,363	$	827,746
Home equity net loan charge-offs	Home equity net loan charge-offs	$	—	$	—	$	1	$	—	$	1	$	51	$	(7)	$	46	Home equity net loan charge-offs	$	0	$	0	$	1	$	(1)	$	1	$	(61)	$	(21)	$	(81)
1-4 family mortgages:	1-4 family mortgages:																	1-4 family mortgages:
Performing	Performing	$	134,450	$	798,396	$	378,397	$	181,443	$	196,581	$	269,883	$	443	$	1,959,593	Performing	$	794,744	$	670,925	$	261,250	$	146,737	$	176,780	$	228,049	$	0	$	2,278,485
Non-accrual	Non-accrual	—		—		422		83		63		8,428		—		8,996		Non-accrual	0		0		439		83		63		8,485		0		9,070
Total 1-4 family mortgages	Total 1-4 family mortgages	$	134,450	$	798,396	$	378,819	$	181,526	$	196,644	$	278,311	$	443	$	1,968,589	Total 1-4 family mortgages	$	794,744	$	670,925	$	261,689	$	146,820	$	176,843	$	236,534	$	0	$	2,287,555
1-4 family mortgages net loan charge-offs	1-4 family mortgages net loan charge-offs	$	—	$	—	$	4	$	—	$	4	$	81	$	—	$	89	1-4 family mortgages net loan charge-offs	$	0	$	0	$	32	$	0	$	7	$	729	$	0	$	768
Installment:	Installment:																	Installment:
Performing	Performing	$	42,072	$	204,697	$	120,799	$	53,601	$	21,380	$	23,003	$	22,963	$	488,515	Performing	$	76,270	$	169,380	$	93,266	$	38,384	$	14,695	$	12,492	$	20,525	$	425,012
Non-accrual	Non-accrual	—		—		—		—		—		—		—		—		Non-accrual	0		0		0		0		0		0		0		0
Total installment	Total installment	$	42,072	$	204,697	$	120,799	$	53,601	$	21,380	$	23,003	$	22,963	$	488,515	Total installment	$	76,270	$	169,380	$	93,266	$	38,384	$	14,695	$	12,492	$	20,525	$	425,012
Installment net loan charge-offs	Installment net loan charge-offs	$	—	$	1,685	$	1,183	$	455	$	52	$	391	$	—	$	3,766	Installment net loan charge-offs	$	190	$	4,995	$	2,835	$	885	$	85	$	373	$	36	$	9,399

⁽¹⁾Represents year-to-date loans originated during 2020.

During the quarter and nine months ended ~~March 31,~~September 30, 2020, ~~$7.0~~$5.2 million and $29.0 million, respectively, 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 December 31, 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
Agricultural	350,827		32,764		16,071		5,954		405,616
Commercial real estate:
Office, retail, and industrial	1,747,287		42,230		33,344		25,857		1,848,718
Multi-family	839,615		8,279		5,962		2,697		856,553
Construction	564,495		17,977		10,469		152		593,093
Other commercial real estate	1,295,155		39,788		44,036		4,729		1,383,708
Total commercial real estate	4,446,552		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.

2527

Table of Contents

Consumer Credit Quality Indicators by Class

(Dollar amounts in thousands)


		Performing		Non-accrual		Total			Performing		Non-accrual		Total
As of December 31, 2019	As of December 31, 2019							As of December 31, 2019
Home equity	Home equity	$	843,011	$	8,443	$	851,454	Home equity	$	843,011	$	8,443	$	851,454
1-4 family mortgages	1-4 family mortgages	1,922,636		4,442		1,927,078		1-4 family mortgages	1,922,636		4,442		1,927,078
Installment	Installment	492,585		—		492,585		Installment	492,585		0		492,585
Total consumer loans	Total consumer loans	$	3,258,232	$	12,885	$	3,271,117	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 ~~March 31,~~September 30, 2020 and December 31, 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, 2020										As of December 31, 2019											As of September 30, 2020				As of December 31, 2019
		Accruing		Non-accrual⁽¹⁾		Total		Accruing		Non-accrual⁽¹⁾		Total			Accruing		Non-accrual(1)		Total		Accruing		Non-accrual(1)		Total
Commercial and industrial	Commercial and industrial	$	223	$	12,905	$	13,128	$	227	$	16,420	$	16,647	Commercial and industrial	$	0	$	12,982	$	12,982	$	227	$	16,420	$	16,647
Agricultural	Agricultural	—		—		—		—		—		—		Agricultural	0		0		0		0		0		0
Commercial real estate:	Commercial real estate:													Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	—		4,410		4,410		—		3,600		3,600		Office, retail, and industrial	0		2,340		2,340		0		3,600		3,600
Multi-family	Multi-family	161		—		161		163		—		163		Multi-family	0		160		160		163		0		163
Construction	Construction	—		—		—		—		—		—		Construction	0		0		0		0		0		0
Other commercial real estate	Other commercial real estate	167		—		167		170		—		170		Other commercial real estate	193		0		193		170		0		170
Total commercial real estate	Total commercial real estate	328		4,410		4,738		333		3,600		3,933		Total commercial real estate	193		2,500		2,693		333		3,600		3,933
Total corporate loans	Total corporate loans	551		17,315		17,866		560		20,020		20,580		Total corporate loans	193		15,482		15,675		560		20,020		20,580
Home equity	Home equity	35		354		389		36		240		276		Home equity	31		123		154		36		240		276
1-4 family mortgages	1-4 family mortgages	630		248		878		637		—		637		1-4 family mortgages	617		232		849		637		0		637
Installment	Installment	—		—		—		—		252		252		Installment	0		0		0		0		254		254
Total consumer loans	Total consumer loans	665		602		1,267		673		492		1,165		Total consumer loans	648		355		1,003		673		494		1,167
Total loans	Total loans	$	1,216	$	17,917	$	19,133	$	1,233	$	20,512	$	21,745	Total loans	$	841	$	15,837	$	16,678	$	1,233	$	20,514	$	21,747

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

TDRs are included in the calculation of the allowance for credit losses in the same manner as non-accrual loans. As of ~~March 31,~~September 30, 2020 and December 31, 2019 there were ~~$1.9 million~~$186,000 and $2.2 million of specific allowances, respectively, related to TDRs.

There were no material restructurings during the quarters and nine months ended ~~March 31,~~September 30, 2020 and 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 and nine months ended ~~March 31,~~September 30, 2020 and 2019.

2628

Table of Contents

A rollforward of the carrying value of TDRs for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the following table.

TDR Rollforward

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Accruing	Accruing					Accruing
Beginning balance	Beginning balance	$	1,233	$	1,866	Beginning balance	$	1,201	$	1,441	$	1,233	$	1,866
Additions	Additions	—		12		Additions	0		0		0		12
Net payments	Net payments	(17)		(34)		Net payments	(13)		(19)		(45)		(73)

Net transfers to non-accrual	Net transfers to non-accrual	—		—		Net transfers to non-accrual	(347)		0		(347)		(383)
Ending balance	Ending balance	1,216		1,844		Ending balance	841		1,422		841		1,422
Non-accrual	Non-accrual					Non-accrual
Beginning balance	Beginning balance	20,514		6,612		Beginning balance	12,093		7,841		20,514		6,612
Additions	Additions	934		—		Additions	11,636		0		11,636		0
Net (payments) advances		(658)		2,921
Net payments						Net payments	(5,886)		(2,753)		(8,205)		(1,279)
Charge-offs	Charge-offs	(2,873)		(158)		Charge-offs	(2,353)		0		(8,455)		(628)

Net transfers from accruing	Net transfers from accruing	—		—		Net transfers from accruing	347		0		347		383
Ending balance	Ending balance	17,917		9,375		Ending balance	15,837		5,088		15,837		5,088
Total TDRs	Total TDRs	$	19,133	$	11,219	Total TDRs	$	16,678	$	6,510	$	16,678	$	6,510

There were ~~$813,000 and~~0 commitments to lend additional funds to borrowers with TDRs as of September 30, 2020. There were $530,000 of commitments to lend additional funds to borrowers with TDRs as of ~~March 31, 2020 and~~ December 31, ~~2019, respectively.~~2019.

2729

Table of Contents

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, 2059. As of ~~March 31,~~September 30, 2020, the weighted-average remaining lease term on these leases was ~~10.98~~10.43 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 leases 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 ~~March 31,~~September 30, 2020.

Lease Liability

(Dollar amounts in thousands)


		As of March 31, 2020			As of September 30, 2020
Year Ending December 31,	Year Ending December 31,			Year Ending December 31,
2020	2020	$	14,167	2020	$	4,770
2021	2021	18,773		2021	18,888
2022	2022	18,657		2022	18,813
2023	2023	18,756		2023	18,920
2024	2024	18,458		2024	18,611
2025 and thereafter	2025 and thereafter	105,945		2025 and thereafter	104,380
Total minimum lease payments	Total minimum lease payments	194,756		Total minimum lease payments	184,382
Discount⁽¹⁾	Discount⁽¹⁾	(30,101)		Discount(1)	(27,223)
Lease liability⁽²⁾	Lease liability⁽²⁾	$	164,655	Lease liability(2)	$	157,159

⁽¹⁾Represents the net present value adjustment related to minimum lease payments.

⁽²⁾Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.

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 ~~3.01%~~2.96% as of ~~March 31,~~September 30, 2020.

As of ~~March 31,~~September 30, 2020, right-of-use assets of ~~$144.2~~$127.2 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.

During third quarter of 2020, the Company initiated certain actions that include optimizing its retail branch network and delivery model through the consolidation of 17 branches, or approximately 15% of its branch network, in early 2021. These actions resulted in pre-tax costs of $18.4 million, including $9.1 million of right-of-use asset impairment charges and $8.9 million of impairment charges on branch locations, furniture, and equipment, associated with valuation adjustments related to locations identified for closure, among other items, and are recorded within optimization costs within noninterest expense.

The following table presents net operating lease expense for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Net Operating Lease Expense

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Lease expense charged to operations	Lease expense charged to operations	$	4,675	$	4,060	Lease expense charged to operations	$	4,739	$	4,467	$	14,253	$	12,953

Rental income from premises leased to others ⁽¹⁾	Rental income from premises leased to others ⁽¹⁾	(215)		(157)		Rental income from premises leased to others (1)	(158)		(203)		(556)		(525)
Net operating lease expense	Net operating lease expense	$	4,460	$	3,903	Net operating lease expense	$	4,581	$	4,264	$	13,697	$	12,428

⁽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

Table of Contents

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~~The remaining deferred pre-tax gains were $65.5 million as of December 31, 2018. Upon adoption of new 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.

9. BORROWED FUNDS

The following table summarizes the Company's borrowed funds by funding source.

Summary of Borrowed Funds

(Dollar amounts in thousands)


		As of							As of
		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	$	127,682	$	103,515	Securities sold under agreements to repurchase	$	132,652	$	103,515
Federal funds purchased	Federal funds purchased	245,000		160,000		Federal funds purchased	0		160,000
FHLB advances	FHLB advances	2,275,528		1,395,243		FHLB advances	1,824,528		1,395,243

Total borrowed funds	Total borrowed funds	$	2,648,210	$	1,658,758	Total borrowed funds	$	1,957,180	$	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,~~September 30, 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,~~September 30, 2020, the Company held various short-term FHLB advances with fixed interest rates that range from 0.00% to ~~1.73%~~1.97% and maturity dates that range from ~~April~~October 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 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,~~September 30, 2020 and December 31, 2019.

Short-Term Credit Lines Available for Use

(Dollar amounts in thousands)


		As of							As of
		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
FRB's Discount Window Primary Credit Program	FRB's Discount Window Primary Credit Program	$	908,271	$	874,256	FRB's Discount Window Primary Credit Program	$	869,724	$	874,256
Available federal funds lines	Available federal funds lines	633,000		718,000		Available federal funds lines	814,000		718,000
Correspondent bank line of credit	Correspondent bank line of credit	50,000		50,000		Correspondent bank line of credit	50,000		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,~~2020, the Company entered into a ~~third~~fourth amendment to this credit facility, which extends the maturity to September 26, ~~2020.~~2021. 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,~~September 30, 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.

Table of Contents

10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

~~Issued~~Issuance of 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".

29Issuance of Preferred Stock

~~Table~~During the second quarter of ~~Contents~~

2020, the Company issued 4.3 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.0 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.

Stock Repurchases

On March 19, 2019, the Company announced a stock repurchase program that authorized the Company to repurchase up to $180 million of its common stock from time to time on the open market or in privately negotiated transactions, at the discretion of the Company.

On February 26, 2020, the Company announced a new stock repurchase program authorizing 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 stock repurchases in March as it shifted its capital deployment strategy in response to the ~~COVID-19~~ pandemic. Prior to the suspension, the Company had repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2020.

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 March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Net income	Net income	$	19,606	$	46,058	Net income	$	27,623	$	54,545	$	66,293	$	147,617
Preferred dividends						Preferred dividends	(4,033)		0		(5,070)		0
Net income applicable to unvested restricted shares	Net income applicable to unvested restricted shares	(192)		(403)		Net income applicable to unvested restricted shares	(236)		(465)		(615)		(1,257)
Net income applicable to common shares	Net income applicable to common shares	$	19,414	$	45,655	Net income applicable to common shares	$	23,354	$	54,080	$	60,608	$	146,360
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:					Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	Weighted-average common shares outstanding (basic)	109,922		105,770		Weighted-average common shares outstanding (basic)	113,160		109,281		112,079		107,852
Dilutive effect of common stock equivalents	Dilutive effect of common stock equivalents	443		—		Dilutive effect of common stock equivalents	276		381		322		394
Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	110,365		105,770		Weighted-average diluted common shares outstanding	113,436		109,662		112,401		108,246
Basic EPS	Basic EPS	$	0.18	$	0.43	Basic EPS	$	0.21	$	0.49	$	0.54	$	1.36
Diluted EPS	Diluted EPS	$	0.18	$	0.43	Diluted EPS	$	0.21	$	0.49	$	0.54	$	1.35
Anti-dilutive shares not included in the computation of diluted EPS		—		—

Table of Contents

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 ~~March 31,~~September 30, 2020, the Company hedged ~~$630.0~~$430.0 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 ~~$1.4 billion~~$510.0 million of borrowed funds using ~~forward starting~~ interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.

~~Forward starting interest~~Interest rate swaps totaling ~~$920.0~~$225.0 million began on various dates between ~~May~~March of ~~2018~~2020 and ~~March~~July of 2020 and mature between ~~May of 2020 and~~ March of ~~2023.~~2022 and August of 2024. The remaining forward starting interest rate swaps totaling ~~$485.0~~$285.0 million begin at various dates between ~~July~~November of 2020 and February of ~~2023~~2021 and mature between November of 2022 and February of ~~2021 and August of 2024.~~2023. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was ~~1.86%~~2.05% as of ~~March 31,~~September 30, 2020. These derivative contracts are designated as cash flow hedges.

~~Table~~During the third quarter of ~~Contents~~

2020, the Company terminated longer term interest rate swaps with a notional amount of $1.1 billion, as well as reduced a portion of the borrowed funds related to terminated swaps as a result of excess liquidity and in response to current market conditions. As a result, a $14.3 million pre-tax loss was reclassified from AOCI and recorded in noninterest income.

Cash Flow Hedges

(Dollar amounts in thousands)


		As of										As of
		March 31, 2020			December 31, 2019				September 30, 2020			December 31, 2019
Gross notional amount outstanding	Gross notional amount outstanding	$	2,035,000		$	1,905,000		Gross notional amount outstanding	$	940,000		$	1,905,000
Derivative asset fair value in other assets⁽¹⁾	Derivative asset fair value in other assets⁽¹⁾	6,850			727			Derivative asset fair value in other assets(1)	5,067			727
Derivative liability fair value in other liabilities⁽¹⁾	Derivative liability fair value in other liabilities⁽¹⁾	(631)			(119)			Derivative liability fair value in other liabilities(1)	152			(119)
Weighted-average interest rate received	Weighted-average interest rate received	1.73		%	1.88		%	Weighted-average interest rate received	1.51		%	1.88		%
Weighted-average interest rate paid	Weighted-average interest rate paid	1.30		%	1.74		%	Weighted-average interest rate paid	0.61		%	1.74		%
Weighted-average maturity (in years)	Weighted-average maturity (in years)	1.85			1.18			Weighted-average maturity (in years)	2.05			1.18

⁽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 ~~March 31,~~September 30, 2020, the Company estimates that ~~$586,000~~$2.3 million will be reclassified from accumulated other comprehensive income (loss) as ~~an increase~~a decrease to interest income over the next twelve months.

Table of Contents

Other Derivative Instruments

The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of ~~March 31,~~September 30, 2020 and December 31, 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 ~~$4.7 million~~$886,000 and ~~$1.3~~$6.3 million for the ~~quarters~~quarter and nine months ended ~~March 31,~~September 30, 2020, respectively, and were $4.2 million and $7.6 million for the quarter and nine months ended September 30, 2019, respectively.

Other Derivative Instruments

(Dollar amounts in thousands)


		As of							As of
		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Gross notional amount outstanding	Gross notional amount outstanding	$	4,563,930	$	4,340,384	Gross notional amount outstanding	$	4,583,706	$	4,340,384
Derivative asset fair value in other assets⁽¹⁾	Derivative asset fair value in other assets⁽¹⁾	175,903		61,709		Derivative asset fair value in other assets(1)	172,723		61,709
Derivative liability fair value in other liabilities⁽¹⁾	Derivative liability fair value in other liabilities⁽¹⁾	(53,246)		(18,416)		Derivative liability fair value in other liabilities(1)	(51,668)		(18,416)
Fair value of derivative⁽²⁾	Fair value of derivative⁽²⁾	53,820		18,856		Fair value of derivative(2)	52,928		18,856

⁽¹⁾Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.

⁽²⁾This amount represents the fair value if credit risk related contingent features were triggered.

The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of ~~March 31,~~September 30, 2020 and December 31, 2019. The Company does not enter into derivative transactions for purely speculative purposes.

~~Table of Contents~~

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

Cash Flow Hedge Accounting on AOCI

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Gains (losses) recognized in other comprehensive income	Gains (losses) recognized in other comprehensive income					Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income	Interest rate swaps in interest income	$	22,004	$	3,353	Interest rate swaps in interest income	$	96	$	2,218	$	28,051	$	11,515
Interest rate swaps in interest expense	Interest rate swaps in interest expense	(12,409)		(4,180)		Interest rate swaps in interest expense	(239)		(1,625)		(13,924)		(13,621)
Reclassification of gains (losses) included in net income	Reclassification of gains (losses) included in net income					Reclassification of gains (losses) included in net income
Interest rate swaps in interest income	Interest rate swaps in interest income	$	445	$	1,393	Interest rate swaps in interest income	$	2,165	$	824	$	5,234	$	3,572
Interest rate swaps in interest expense	Interest rate swaps in interest expense	—		(2,024)		Interest rate swaps in interest expense	(16,350)		(1,018)		(16,350)		(4,966)

Table of Contents

The following table presents the impact of derivative instruments on net interest income for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Hedge Income

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019

Cash Flow Hedges	Cash Flow Hedges					Cash Flow Hedges
Interest rate swaps in interest income	Interest rate swaps in interest income	$	445	$	1,393	Interest rate swaps in interest income	$	2,165	$	824	$	5,234	$	3,572
Interest rate swaps in interest expense	Interest rate swaps in interest expense	—		(2,024)		Interest rate swaps in interest expense	(16,350)		(1,018)		(16,350)		(4,966)
Total cash flow hedges	Total cash flow hedges	$	445	$	(631)	Total cash flow hedges	$	(14,185)	$	(194)	$	(11,116)	$	(1,394)

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 ~~March 31,~~September 30, 2020 and December 31, 2019, these collateral agreements covered 100% of the fair value of the Company's outstanding derivatives. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.

~~Table of Contents~~

Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of ~~March 31,~~September 30, 2020 and December 31, 2019.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)


		As of March 31, 2020						As of December 31, 2019							As of September 30, 2020				As of December 31, 2019
		Assets		Liabilities		Assets		Liabilities			Assets		Liabilities		Assets		Liabilities
Gross amounts recognized	Gross amounts recognized	$	182,753	$	53,877	$	62,436	$	18,535	Gross amounts recognized	$	177,790	$	51,516	$	62,436	$	18,535
Less: amounts offset in the Consolidated Statements of Financial Condition	Less: amounts offset in the Consolidated Statements of Financial Condition	—		—		—		—		Less: amounts offset in the Consolidated Statements of Financial Condition	0		0		0		0
Net amount presented in the Consolidated Statements of Financial Condition⁽¹⁾	Net amount presented in the Consolidated Statements of Financial Condition⁽¹⁾	182,753		53,877		62,436		18,535		Net amount presented in the Consolidated Statements of Financial Condition(1)	177,790		51,516		62,436		18,535
Gross amounts not offset in the Consolidated Statements of Financial Condition:	Gross amounts not offset in the Consolidated Statements of Financial Condition:									Gross amounts not offset in the Consolidated Statements of Financial Condition:
Offsetting derivative positions	Offsetting derivative positions	(8,062)		(8,062)		(2,674)		(2,674)		Offsetting derivative positions	(6,356)		(6,356)		(2,674)		(2,674)
Cash collateral pledged	Cash collateral pledged	—		(44,798)		—		(15,861)		Cash collateral pledged	0		(46,250)		0		(15,861)
Net credit exposure	Net credit exposure	$	174,691	$	1,017	$	59,762	$	—	Net credit exposure	$	171,434	$	(1,090)	$	59,762	$	0

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

As of ~~March 31,~~September 30, 2020 and December 31, 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 ~~March 31,~~September 30, 2020 and December 31, 2019 the Company was in compliance with these provisions.

3335

Table of Contents

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							As of
		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Commitments to extend credit:	Commitments to extend credit:					Commitments to extend credit:
Commercial, industrial, and agricultural	Commercial, industrial, and agricultural	$	2,011,047	$	1,852,040	Commercial, industrial, and agricultural	$	2,296,304	$	1,852,040
Commercial real estate	Commercial real estate	325,291		296,053		Commercial real estate	334,528		296,053
Home equity	Home equity	596,402		576,956		Home equity	601,011		576,956
Other commitments⁽¹⁾	Other commitments⁽¹⁾	246,644		251,093		Other commitments(1)	262,698		251,093
Total commitments to extend credit	Total commitments to extend credit	$	3,179,384	$	2,976,142	Total commitments to extend credit	$	3,494,541	$	2,976,142

Letters of credit	Letters of credit	$	122,592	$	103,684	Letters of credit	$	123,110	$	103,684

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

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

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

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. 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 and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Legal Proceedings

~~In the ordinary course of business,~~At September 30, 2020, there were certain legal proceedings pending against the Company and its subsidiaries ~~at March 31, 2020.~~in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any potential liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial position, or results of operations.

3436

Table of Contents

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.

3537

Table of Contents

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, 2020										As of December 31, 2019											As of September 30, 2020				As of December 31, 2019
		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets	Assets													Assets
Equity securities	Equity securities	$	21,505	$	13,593	$	—	$	23,703	$	13,400	$	—	Equity securities	$	25,400	$	24,621	$	0	$	23,703	$	13,400	$	0
Securities available-for-sale	Securities available-for-sale													Securities available-for-sale
U.S. treasury securities	U.S. treasury securities	33,309		—		—		34,075		—		—		U.S. treasury securities	14,127		0		0		34,075		0		0
U.S. agency securities	U.S. agency securities	—		617,992		—		—		248,424		—		U.S. agency securities	0		659,291		0		0		248,424		0
CMOs	CMOs	—		1,700,012		—		—		1,557,671		—		CMOs	0		1,564,983		0		0		1,557,671		0
MBSs	MBSs	—		687,271		—		—		684,684		—		MBSs	0		640,201		0		0		684,684		0
Municipal securities	Municipal securities	—		234,559		—		—		234,431		—		Municipal securities	0		236,800		0		0		234,431		0

Corporate debt securities	Corporate debt securities	—		109,722		—		—		114,101		—		Corporate debt securities	0		164,482		0		0		114,101		0
Total securities available-for-sale	Total securities available-for-sale	33,309		3,349,556		—		34,075		2,839,311		—		Total securities available-for-sale	14,127		3,265,757		0		34,075		2,839,311		0
Mortgage servicing rights ("MSRs")⁽¹⁾	Mortgage servicing rights ("MSRs")⁽¹⁾	—		—		4,874		—		—		5,858		Mortgage servicing rights ("MSRs")(1)	0		0		4,458		0		0		5,858
Derivative assets⁽¹⁾	Derivative assets⁽¹⁾	—		182,753		—		—		62,436		—		Derivative assets(1)	0		177,790		0		0		62,436		0
Liabilities	Liabilities													Liabilities
Derivative liabilities⁽²⁾	Derivative liabilities⁽²⁾	$	—	$	53,877	$	—	$	—	$	18,535	$	—	Derivative liabilities(2)	$	0	$	51,516	$	0	$	0	$	18,535	$	0

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

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

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

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 ~~March 31,~~September 30, 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.

3638

Table of Contents

MSRs

The Company services loans for others totaling ~~$641.1~~$712.1 million and $653.7 million as of ~~March 31,~~September 30, 2020 and December 31, 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 ~~March 31,~~September 30, 2020 and December 31, 2019.

Significant Unobservable Inputs Used in the Valuation of MSRs


		As of																As of
		March 31, 2020							December 31, 2019						September 30, 2020				December 31, 2019
Prepayment speed	Prepayment speed	8.2	%	-	12.9%	6.7	%	-	12.0%	Prepayment speed	6.7	%	-	15.5%	6.7	%	-	12.0%
Maturity (months)	Maturity (months)	17		-	88	18		-	94	Maturity (months)	14		-	71	18		-	94
Discount rate	Discount rate	9.3	%	-	12.0%	9.3	%	-	12.0%	Discount rate	9.4	%	-	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 and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Beginning balance	Beginning balance	$	5,858	$	6,730	Beginning balance	$	4,464	$	5,831	$	5,858	$	6,730

New MSRs	New MSRs	156		253		New MSRs	727		404		1,628		861
Total gains (losses) included in earnings⁽¹⁾:	Total gains (losses) included in earnings⁽¹⁾:					Total gains (losses) included in earnings(1):
Changes in valuation inputs and assumptions	Changes in valuation inputs and assumptions	(908)		(600)		Changes in valuation inputs and assumptions	(432)		(284)		(2,090)		(1,273)
Other changes in fair value⁽²⁾	Other changes in fair value⁽²⁾	(232)		(155)		Other changes in fair value(2)	(301)		(269)		(938)		(636)
Ending balance⁽³⁾	Ending balance⁽³⁾	$	4,874	$	6,228	Ending balance(3)	$	4,458	$	5,682	$	4,458	$	5,682
Contractual servicing fees earned⁽¹⁾	Contractual servicing fees earned⁽¹⁾	$	403	$	381	Contractual servicing fees earned(1)	$	424	$	404	$	1,221	$	1,175

⁽¹⁾Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of ~~March 31,~~September 30, 2020 and 2019.

⁽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.

3739

Table of Contents

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, 2020										As of December 31, 2019											As of September 30, 2020				As of December 31, 2019
		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Collateral-dependent non-accrual loans⁽¹⁾	Collateral-dependent non-accrual loans⁽¹⁾	$	—	$	—	$	57,739	$	—	$	—	$	41,326	Collateral-dependent non-accrual loans(1)	$	0	$	0	$	57,322	$	0	$	0	$	41,326
OREO⁽²⁾	OREO⁽²⁾	—		—		530		—		—		3,325		OREO(2)	0		0		530		0		0		3,325
Loans held-for-sale⁽³⁾	Loans held-for-sale⁽³⁾	—		—		23,048		—		—		36,032		Loans held-for-sale(3)	0		0		86,323		0		0		36,032
Assets held-for-sale⁽⁴⁾	Assets held-for-sale⁽⁴⁾	—		—		5,043		—		—		6,824		Assets held-for-sale(4)	0		0		4,280		0		0		6,824

⁽¹⁾Includes non-accrual loans with charge-offs and non-accrual loans with a specific allowance 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 Non-accrual Loans

Certain collateral-dependent non-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 non-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 non-accrual loans are classified in level 3 of the fair value hierarchy.

Collateral-dependent non-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, 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 ~~March 31,~~September 30, 2020 and December 31, 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 ~~March 31,~~September 30, 2020 and December 31, 2019 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.

3840

Table of Contents

Financial Instruments Not Required to be Measured at Fair Value

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

Fair Value Measurements of Other Financial Instruments

(Dollar amounts in thousands)


			As of																As of
			March 31, 2020						December 31, 2019								September 30, 2020				December 31, 2019
		Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value			Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets	Assets										Assets
Cash and due from banks	Cash and due from banks	1	$	252,138	$	252,138	$	214,894	$	214,894	Cash and due from banks	1	$	254,212	$	254,212	$	214,894	$	214,894
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	2	229,474		229,474		84,327		84,327		Interest-bearing deposits in other banks	2	936,528		936,528		84,327		84,327
Securities held-to-maturity	Securities held-to-maturity	2	19,825		19,842		21,997		21,234		Securities held-to-maturity	2	22,193		22,332		21,997		21,234
FHLB and FRB stock	FHLB and FRB stock	2	154,357		154,357		115,409		115,409		FHLB and FRB stock	2	138,120		138,120		115,409		115,409
Loans	Loans	3	13,745,659		13,749,883		12,733,200		12,535,848		Loans	3	14,414,140		14,435,555		12,733,200		12,535,848
Investment in BOLI	Investment in BOLI	3	298,827		298,827		296,351		296,351		Investment in BOLI	3	300,429		300,429		296,351		296,351
Accrued interest receivable	Accrued interest receivable	3	61,333		61,333		59,716		59,716		Accrued interest receivable	3	66,647		66,647		59,716		59,716

Liabilities	Liabilities										Liabilities
Deposits	Deposits	2	$	14,098,950	$	14,104,641	$	13,251,278	$	13,247,871	Deposits	2	$	15,771,573	$	15,778,878	$	13,251,278	$	13,247,871
Borrowed funds	Borrowed funds	2	2,648,210		2,648,210		1,658,758		1,658,758		Borrowed funds	2	1,957,180		1,957,180		1,658,758		1,658,758
Senior and subordinated debt	Senior and subordinated debt	2	234,153		261,970		233,948		277,203		Senior and subordinated debt	2	234,563		279,846		233,948		277,203
Accrued interest payable	Accrued interest payable	2	8,869		8,869		10,502		10,502		Accrued interest payable	2	5,122		5,122		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 ~~March 31,~~September 30, 2020 and December 31, 2019, the Company estimated the fair value of lending commitments outstanding to be immaterial.

3941

Table of Contents

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 in metropolitan Chicago, southeast Wisconsin, northwest Indiana, central and western Illinois, eastern Iowa, and 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 through ~~132~~131 banking locations. We are committed to meeting the financial needs of the ~~people~~individuals and businesses in the communities where we live and work by providing 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 and nine months ended ~~March 31,~~September 30, 2020 and 2019 and Consolidated Statements of Financial Condition as of ~~March 31,~~September 30, 2020 and December 31, 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 2019 Annual Report on Form 10-K ("2019 10-K"). The results of operations for the quarter and nine months ended ~~March 31,~~September 30, 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.

•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. First

4042

Table of Contents

Midwest cautions you not to place undue reliance on these statements. Forward-looking statements speak only as of the date made, and First Midwest undertakes no obligation to update any forward-looking statements.

Forward-looking statements may be deemed to include, among other things, statements relating to First Midwest's future financial performance, including the related outlook for 2020, the performance of First Midwest's loan or securities portfolio, the expected amount of future credit allowances or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, acquisition transactions, estimated synergies, cost savings and financial benefits of announced and completed transactions, growth strategies, including possible future acquisitions, and the continued effects of the COVID-19 pandemic (the "pandemic") on our business, financial condition, liquidity, capital, loans, asset quality and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including the 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~~clients 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 First Midwest's 2019 10-K, and 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 First 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 2019 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

4143

Table of Contents

between amortized cost and fair value. Securities for which there is an unrealized loss that is not deemed to be a credit-related impairment are recorded through other comprehensive income (loss). 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 income taxes and goodwill and other intangible assets since December 31, 2019.

ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD

On January 1, 2020, the Company adopted 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 increased the allowance for credit losses by $76 million, which includes $32 million attributable to loans and unfunded commitments and $44 million attributable to purchased credit deteriorated ("PCD") and non-PCD acquired loans. For additional discussion of adopted accounting pronouncements, see Note 2 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

COVID-19 PANDEMIC

The ~~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.~~continue to be in place. The pandemic and these governmental measures have created and are expected to continue to create significant economic disruption and decreased economic activity.

We 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~~Administration's Paycheck Protection Program ("PPP"), and have funded approximately $1.2 billion of these loans. PPP loans ~~are being~~have been 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~~We have modified our operations to comply with governmental restrictions and public health authority guidelines. ~~Substantially all~~The majority of our non-client facing colleagues are working remotely. A majority of our branches remain open for business through drive-up services and, with ~~lobbies~~certain branches open ~~by appointment only.~~for walk-in lobby traffic. 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~~We have expanded our paid time off programs ~~for all colleagues. We~~and 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 the Company's current or future ~~expense.~~expense as the foundation is a separate entity that is not included in our consolidated financial statements. 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~~the pandemic and its expected impact on the Company, refer to the section entitled "Risk Factors" in Part II, Item 1A of this Form 10-Q.

4244

Table of Contents

RETAIL OPTIMIZATION

First Midwest continues its commitment to best meet the evolving needs and preferences of its clients. During the third quarter of 2020, the Company initiated certain actions that include optimizing its retail branch network and delivery model through the consolidation of 17 branches, or approximately 15% of its branch network, in early 2021. These actions resulted in pre-tax costs of $18.4 million associated with valuation adjustments related to locations identified for closure, the related modernization of its ATM network through outsourcing, and related advisory fees and are recorded within optimization costs within noninterest expense.

BALANCE SHEET OPTIMIZATION

During the third quarter of 2020, the Company terminated longer term interest rate swaps with a notional amount of $1.1 billion, as well as reduced a portion of the borrowed funds related to the terminated swaps. At the same time, the Company liquidated $159.8 million of securities. As a result of these transactions, $14.3 million of pre-tax securities gains was fully offset by $14.3 million of pre-tax loss on swap terminations, with both items recorded within noninterest income. These actions are expected to positively impact future net interest income along with reducing high levels of excess liquidity as the remaining borrowed funds hedged by the terminated swaps mature in the fourth quarter of 2020.

PARK BANK ACQUISITION

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~~$687.9 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~~$60.9 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~~were converted in the second quarter of 2020.

ISSUANCE OF PREFERRED STOCK

During the second quarter of 2020, the Company issued 4.3 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.0 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.

STOCK REPURCHASES

On February 26, 2020, the Company announced a 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 stock repurchase program ~~replaces~~replaced 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 the Company's repurchase programs are made at prices determined by the Company.

The Company suspended stock 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~~nine months ended ~~March 31,~~September 30, 2020.

4345

Table of Contents

PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)


		Quarters Ended March 31,										Quarters Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019			2020			2019
Operating Results	Operating Results							Operating Results
Interest income	Interest income	$	170,227		$	162,490		Interest income	$	159,085		$	181,963		$	491,356		$	522,135
Interest expense	Interest expense	26,652			23,466			Interest expense	16,356			31,176			59,818			82,012
Net interest income	Net interest income	143,575			139,024			Net interest income	142,729			150,787			431,538			440,123
Provision for loan losses	Provision for loan losses	39,532			10,444			Provision for loan losses	15,927			12,498			88,108			34,433
Noninterest income	Noninterest income	39,362			34,906			Noninterest income	40,585			42,951			112,938			116,383
Noninterest expense	Noninterest expense	117,331			102,110			Noninterest expense	131,074			108,395			368,735			324,647
Income before income tax expense	Income before income tax expense	26,074			61,376			Income before income tax expense	36,313			72,845			87,633			197,426
Income tax expense	Income tax expense	6,468			15,318			Income tax expense	8,690			18,300			21,340			49,809
Net income	Net income	$	19,606		$	46,058		Net income	$	27,623		$	54,545		$	66,293		$	147,617
Preferred dividends								Preferred dividends	(4,033)			—			(5,070)			—
Net income applicable to non-vested restricted shares								Net income applicable to non-vested restricted shares	(236)			(465)			(615)			(1,257)
Net income applicable to common shares								Net income applicable to common shares	$	23,354		$	54,080		$	60,608		$	146,360
Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	110,365			105,770			Weighted-average diluted common shares outstanding	113,436			109,662			112,401			108,246
Diluted earnings per common share	Diluted earnings per common share	$	0.18		$	0.43		Diluted earnings per common share	$	0.21		$	0.49		$	0.54		$	1.35
Diluted earnings per common share, adjusted⁽¹⁾	Diluted earnings per common share, adjusted⁽¹⁾	$	0.22		$	0.46		Diluted earnings per common share, adjusted(1)	$	0.33		$	0.52		$	0.75		$	1.47
Performance Ratios	Performance Ratios							Performance Ratios
Return on average common equity⁽²⁾	Return on average common equity⁽²⁾	3.23		%	8.66		%	Return on average common equity(2)	3.80		%	9.22		%	3.33		%	8.75		%
Return on average common equity, adjusted⁽¹⁾⁽²⁾	Return on average common equity, adjusted⁽¹⁾⁽²⁾	4.03		%	9.22		%	Return on average common equity, adjusted(1)(2)	6.15		%	9.68		%	4.60		%	9.54		%
Return on average tangible common equity⁽²⁾	Return on average tangible common equity⁽²⁾	5.66		%	14.41		%	Return on average tangible common equity(2)	6.73		%	15.36		%	5.90		%	14.55		%
Return on average tangible common equity, adjusted⁽¹⁾⁽²⁾	Return on average tangible common equity, adjusted⁽¹⁾⁽²⁾	6.94		%	15.31		%	Return on average tangible common equity, adjusted(1)(2)	10.53		%	16.10		%	7.95		%	15.80		%
Return on average assets⁽²⁾	Return on average assets⁽²⁾	0.43		%	1.19		%	Return on average assets(2)	0.51		%	1.22		%	0.44		%	1.18		%
Return on average assets, adjusted⁽¹⁾⁽²⁾	Return on average assets, adjusted⁽¹⁾⁽²⁾	0.53		%	1.27		%	Return on average assets, adjusted(1)(2)	0.78		%	1.28		%	0.59		%	1.29		%
Tax-equivalent net interest margin^(1)(2)(3)	Tax-equivalent net interest margin^(1)(2)(3)	3.54		%	4.04		%	Tax-equivalent net interest margin(1)(2)(3)	2.95		%	3.82		%	3.19		%	3.97		%
Tax-equivalent net interest margin, adjusted^(1)(2)(3)	Tax-equivalent net interest margin, adjusted^(1)(2)(3)	3.37		%	3.86		%	Tax-equivalent net interest margin, adjusted(1)(2)(3)	2.79		%	3.59		%	3.03		%	3.74		%
Efficiency ratio⁽¹⁾	Efficiency ratio⁽¹⁾	60.21		%	55.69		%	Efficiency ratio(1)	60.36		%	53.54		%	61.52		%	54.60		%

⁽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" below for additional discussion and calculation of this financial measure.

4446

Table of Contents


		As of																			March 31, 2020 Change From											As of						September 30, 2020 Change From
					March 31, 2020				December 31, 2019				March 31, 2019			December 31, 2019			March 31, 2019				September 30, 2020				December 31, 2019				September 30, 2019			December 31, 2019			September 30, 2019
Balance Sheet Highlights	Balance Sheet Highlights																		Balance Sheet Highlights
Total assets	Total assets	$	19,753,300			$	17,850,397			$	15,817,769			$	1,902,903		$	3,935,531	Total assets	$	21,088,143			$	17,850,397			$	18,013,454			$	3,237,746		$	3,074,689
Total loans	Total loans	13,965,017				12,840,330				11,569,003				1,124,687			2,396,014		Total loans	14,653,188				12,840,330				12,773,319				1,812,858			1,879,869
Total deposits	Total deposits	14,098,950				13,251,278				12,160,982				847,672			1,937,968		Total deposits	15,771,573				13,251,278				13,440,927				2,520,295			2,330,646
Core deposits	Core deposits	11,162,753				10,217,824				9,559,684				944,929			1,603,069		Core deposits	13,563,809				10,217,824				10,454,236				3,345,985			3,109,573
Loans to deposits	Loans to deposits	99.1		%		96.9		%		95.1		%							Loans to deposits	92.9		%		96.9		%		95.0		%
Core deposits to total deposits	Core deposits to total deposits	79.2		%		77.1		%		78.6		%							Core deposits to total deposits	86.0		%		77.1		%		77.8		%
Asset Quality Highlights	Asset Quality Highlights																		Asset Quality Highlights
Non-accrual loans, excluding PCD loans⁽¹⁾⁽²⁾	Non-accrual loans, excluding PCD loans⁽¹⁾⁽²⁾	$	97,649			$	82,269			$	70,205			$	15,380		$	27,444	Non-accrual loans, excluding PCD loans(1)(2)	$	103,582			$	82,269			$	77,692			$	21,313		$	25,890
Non-accrual PCD loans⁽¹⁾	Non-accrual PCD loans⁽¹⁾	48,950				—				—				48,950			48,950		Non-accrual PCD loans(1)	39,990				—				—				39,990			39,990
Total non-accrual loans	Total non-accrual loans	146,599				82,269				70,205				64,330			76,394		Total non-accrual loans	143,572				82,269				77,692				61,303			65,880
90 days or more past due loans, still accruing interest⁽¹⁾	90 days or more past due loans, still accruing interest⁽¹⁾	5,052				5,001				8,446				51			(3,394)		90 days or more past due loans, still accruing interest(1)	3,781				5,001				4,657				(1,220)			(876)
Total non-performing loans	Total non-performing loans	151,651				87,270				78,651				64,381			73,000		Total non-performing loans	147,353				87,270				82,349				60,083			65,004
Accruing troubled debt restructurings ("TDRs")	Accruing troubled debt restructurings ("TDRs")	1,216				1,233				1,844				(17)			(628)		Accruing troubled debt restructurings ("TDRs")	841				1,233				1,422				(392)			(581)
Foreclosed assets⁽³⁾	Foreclosed assets⁽³⁾	21,027				20,458				10,818				569			10,209		Foreclosed assets(3)	15,299				20,458				25,266				(5,159)			(9,967)
Total non-performing assets	Total non-performing assets	$	173,894			$	108,961			$	91,313			$	64,933		$	82,581	Total non-performing assets	$	163,493			$	108,961			$	109,037			$	54,532		$	54,456
30-89 days past due loans⁽¹⁾	30-89 days past due loans⁽¹⁾	$	81,127			$	31,958			$	45,764			$	49,169		$	35,363	30-89 days past due loans(1)	$	21,551			$	31,958			$	46,171			$	(10,407)		$	(24,620)
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	Non-performing assets to total loans plus foreclosed assets	1.24		%		0.85		%		0.79		%							Non-performing assets to total loans plus foreclosed assets	1.11		%		0.85		%		0.85		%
Non-performing assets to total loans plus foreclosed assets, excluding PCD loans⁽¹⁾⁽²⁾		0.91		%		0.85		%		0.79		%
Non-performing assets to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(2)(5)																			Non-performing assets to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(2)(5)	0.93		%		0.85		%		0.85		%
Allowance for Credit Losses	Allowance for Credit Losses																		Allowance for Credit Losses
Allowance for credit losses	Allowance for credit losses	$	226,701			$	109,222			$	104,779			$	117,479		$	121,922	Allowance for credit losses	$	246,873			$	109,222			$	110,228			$	137,651		$	136,645
Allowance for credit losses to total loans⁽⁴⁾	Allowance for credit losses to total loans⁽⁴⁾	1.62		%		0.85		%		0.91		%							Allowance for credit losses to total loans(4)	1.68		%		0.85		%		0.86		%

Allowance for credit losses to total loans, excluding PPP loans(4)(5)																			Allowance for credit losses to total loans, excluding PPP loans(4)(5)	1.83		%		0.85		%		0.86		%
Allowance for credit losses to non-accrual loans	Allowance for credit losses to non-accrual loans	154.64		%		132.76		%		149.25		%							Allowance for credit losses to non-accrual loans	171.95		%		132.76		%		141.88		%

⁽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.loans. 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.

(5)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Table of Contents

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 2019 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 ~~March 31,~~September 30, 2020 and 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, 2020 and 2019.

4648

Table of Contents

Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)


		Quarters Ended March 31,																						Attribution of Change in Net Interest Income											Quarters Ended September 30,									Attribution of Change in Net Interest Income
		2020									2019																				2020									2019			Attribution of Change in Net Interest Income
		Average Balance		Interest		Yield/ Rate (%)	Average Balance		Interest		Yield/ Rate (%)	Volume		Yield/ Rate		Total			Average Balance		Interest		Yield/ Rate (%)				Average Balance			Interest		Yield/ Rate (%)				Volume			Yield/ Rate			Total
Assets	Assets																	Assets
Other interest-earning assets	Other interest-earning assets	$	164,351	$	816	2.00	$	125,615	$	728	2.35	$	164	$	(76)	$	88	Other interest-earning assets	$	1,234,948	$	799	0.26		$	283,178		$	1,702		2.38		$	5,719			$	(6,622)		$	(903)
Securities⁽¹⁾	Securities⁽¹⁾	3,066,574		20,757		2.71	2,371,692		16,387		2.76	4,597		(227)		4,370		Securities(1)	3,291,724		19,721		2.40		2,869,461			19,906			2.77		2,937				(3,122)			(185)
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock	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		Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock	150,033		976		2.60		108,735			831			3.06		238				(93)			145
Loans⁽¹⁾⁽²⁾		13,073,752		148,420		4.57	11,458,233		145,531		5.15	11,697		(8,808)		2,889
Loans, excluding PPP loans(1)																		Loans, excluding PPP loans(1)	13,558,857		131,680		3.86		12,539,541			160,756			5.09		14,667				(43,743)			(29,076)
PPP loans(1)																		PPP loans(1)	1,194,808		7,001		2.33		—			—			—		1,600				5,401			7,001
Total loans(1)(2)																		Total loans(1)(2)	14,753,665		138,681		3.74		12,539,541			160,756			5.09		16,267				(38,342)			(22,075)
Total interest-earning assets⁽¹⁾⁽²⁾	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		Total interest-earning assets(1)(2)	19,430,370		160,177		3.28		15,800,915			183,195			4.60		25,161				(48,179)			(23,018)
Cash and due from banks	Cash and due from banks	261,336					202,101											Cash and due from banks	284,730						224,127
Allowance for loan losses	Allowance for loan losses	(179,392)					(107,520)											Allowance for loan losses	(243,667)						(110,616)
Other assets	Other assets	1,891,557					1,537,897											Other assets	2,055,262						1,784,754
Total assets	Total assets	$	18,404,821				$	15,667,839										Total assets	$	21,526,695					$	17,699,180
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity																			Liabilities and Stockholders' Equity
Savings deposits	Savings deposits	$	2,069,163	164		0.03	$	2,037,831	346		0.07	5		(187)		(182)		Savings deposits	$	2,342,355	104		0.02		$	2,056,128		308			0.06		50				(254)			(204)
NOW accounts	NOW accounts	2,273,156		1,630		0.29	2,083,366		2,162		0.42	223		(755)		(532)		NOW accounts	2,744,034		307		0.04		2,483,176			3,462			0.55		407				(3,562)			(3,155)
Money market deposits	Money market deposits	2,227,707		3,099		0.56	1,809,234		2,349		0.53	573		177		750		Money market deposits	2,781,666		724		0.10		2,080,274			4,111			0.78		2,149				(5,536)			(3,387)
Time deposits	Time deposits	2,932,466		12,224		1.68	2,647,316		11,745		1.80	1,092		(613)		479		Time deposits	2,302,019		5,702		0.99		3,026,423			13,873			1.82		(2,798)				(5,373)			(8,171)
Borrowed funds	Borrowed funds	2,007,700		5,841		1.17	877,995		3,551		1.64	2,929		(639)		2,290		Borrowed funds	2,436,922		6,021		0.98		1,369,079			5,639			1.63		784				(402)			382
Senior and subordinated debt	Senior and subordinated debt	234,053		3,694		6.35	203,899		3,313		6.59	466		(85)		381		Senior and subordinated debt	234,464		3,498		5.94		233,642			3,783			6.42		50				(335)			(285)
Total interest-bearing liabilities	Total interest-bearing liabilities	11,744,245		26,652		0.91	9,659,641		23,466		0.99	5,288		(2,102)		3,186		Total interest-bearing liabilities	12,841,460		16,356		0.51		11,248,722			31,176			1.10		642				(15,462)			(14,820)
Demand deposits	Demand deposits	3,884,015					3,587,480											Demand deposits	5,631,355						3,800,569
Total funding sources	Total funding sources	15,628,260				0.69	13,247,121				0.72							Total funding sources	18,472,815				0.35		15,049,291						0.82
Other liabilities	Other liabilities	361,404					282,437											Other liabilities	378,786						322,610
Stockholders' equity – common		2,415,157					2,138,281
Stockholders' equity																		Stockholders' equity	2,675,094						2,327,279
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	18,404,821				$	15,667,839										Total liabilities and stockholders' equity	$	21,526,695					$	17,699,180
Tax-equivalent net interest income/margin⁽¹⁾	Tax-equivalent net interest income/margin⁽¹⁾			144,728		3.54			140,132		4.04	$	11,675	$	(7,079)	$	4,596	Tax-equivalent net interest income/margin(1)			143,821		2.95					152,019			3.82		$	24,519			$	(32,717)		$	(8,198)
Tax-equivalent adjustment	Tax-equivalent adjustment			(1,153)					(1,108)									Tax-equivalent adjustment			(1,092)							(1,232)
Net interest income (GAAP)	Net interest income (GAAP)			$	143,575				$	139,024								Net interest income (GAAP)			$	142,729						$	150,787
Impact of acquired loan accretion⁽¹⁾				$	6,946	0.17			$	6,369	0.18
Impact of acquired loan accretion																		Impact of acquired loan accretion			$	7,960	0.16					$	9,244		0.23
Tax-equivalent net interest income/ margin, adjusted⁽¹⁾	Tax-equivalent net interest income/ margin, adjusted⁽¹⁾			$	137,782	3.37			$	133,763	3.86							Tax-equivalent net interest income/ margin, adjusted(1)			$	135,861	2.79					$	142,775		3.59

⁽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 ~~$146.6~~$143.6 million as of ~~March 31,~~September 30, 2020 and ~~$70.2~~$77.7 million as of ~~March 31,~~September 30, 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."

Table of Contents

Table 3

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)


	Nine Months Ended September 30,										Attribution of Change in Net Interest Income
	2020					2019
	Average Balance		Interest		Yield/ Rate (%)	Average Balance		Interest		Yield/ Rate (%)	Volume		Yield/ Rate		Total
Assets
Other interest-earning assets	$	684,080	$	2,086	0.41	$	206,949	$	3,670	2.37	$	(3,945)	$	2,361	$	(1,584)
Securities(1)	3,238,954		61,518		2.53	2,626,020		54,716		2.78	10,929		(4,127)		6,802
FHLB and FRB stock	143,807		2,731		2.53	92,230		2,540		3.67	429		(238)		191
Loans, excluding PPP loans(1)	13,454,336		416,052		4.13	12,010,709		464,729		5.17	72,582		(121,259)		(48,677)
PPP loans(1)	696,095		12,369		2.37	—		—		—	7,447		4,922		12,369
Total loans(1)(2)	14,150,431		428,421		4.04	12,010,709		464,729		5.17	80,029		(116,337)		(36,308)
Total interest-earning assets(1)(2)	18,217,272		494,756		3.63	14,935,908		525,655		4.70	87,442		(118,341)		(30,899)
Cash and due from banks	273,960					213,977
Allowance for loan losses	(215,961)					(108,956)
Other assets	1,995,869					1,668,868
Total assets	$	20,271,140				$	16,709,797
Liabilities and Stockholders' Equity
Savings deposits	$	2,219,836	366		0.02	$	2,058,004	1,000		0.06	86		(720)		(634)
NOW accounts	2,522,903		2,574		0.14	2,277,346		8,400		0.49	1,021		(6,847)		(5,826)
Money market deposits	2,558,482		4,981		0.26	1,933,417		9,501		0.66	5,209		(9,729)		(4,520)
Time deposits	2,590,437		26,110		1.35	2,842,612		38,771		1.82	(3,211)		(9,450)		(12,661)
Borrowed funds	2,304,127		15,018		0.87	1,092,607		13,649		1.67	2,407		(1,038)		1,369
Senior and subordinated debt	234,260		10,769		6.14	219,542		10,691		6.51	473		(395)		78
Total interest-bearing liabilities	12,430,045		59,818		0.64	10,423,528		82,012		1.05	5,985		(28,179)		(22,194)
Demand deposits	4,942,682					3,741,986
Total funding sources	17,372,727				0.46	14,165,514				0.77
Other liabilities	367,210					307,881
Stockholders' equity	2,531,203					2,236,402
Total liabilities and stockholders' equity	$	20,271,140				$	16,709,797
Tax-equivalent net interest income/margin(1)			434,938		3.19			443,643		3.97	$	81,457	$	(90,162)	$	(8,705)
Tax-equivalent adjustment			(3,400)					(3,520)
Net interest income (GAAP)			$	431,538				$	440,123
Impact of acquired loan accretion			$	21,905	0.16			$	25,921	0.23
Tax-equivalent net interest income/ margin, adjusted(1)			$	413,033	3.03			$	417,722	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 $143.6 million as of September 30, 2020 and $77.7 million as of September 30, 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."

Net interest income for the third quarter and first ~~quarter~~nine months of 2020 was ~~up 3.3% from~~down 5.3% and 2.0% compared to the third quarter and first ~~quarter~~nine months of ~~2019. The rise in~~2019, respectively. Compared to both prior periods, net interest income ~~resulted primarily from~~was impacted by lower interest rates, partially offset by growth in loans and securities, the acquisition of interest-earning assets from the Park Bank ~~and Bridgeview Bank Group ("Bridgeview") transactions~~transaction that closed in March 2020, interest income and ~~May 2019, respectively, growth in~~fees on PPP loans, ~~and securities,~~ and lower cost of ~~funds, significantly offset by lower interest rates.~~funds.

4750

Table of Contents

Acquired loan accretion contributed ~~$6.9~~$8.0 million and ~~$6.4~~$21.9 million ~~to net interest income~~ for the third quarter and first ~~quarter~~nine months of 2020, respectively, lower than the $9.2 million and ~~2019, respectively.~~$25.9 million for the same periods in 2019.

Tax-equivalent net interest margin for the third quarter and first ~~quarter~~nine months of 2020 was ~~3.54%~~2.95% and 3.19%, respectively, decreasing 5087 basis points and 78 basis points from the same ~~period~~periods in 2019. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was ~~3.37%~~2.79% and 3.03% for the third quarter and first ~~quarter~~nine months of 2020, down 4980 basis points and 71 basis points from the ~~first quarter of~~same periods in 2019. ~~The decline in~~Compared to both prior periods, tax-equivalent net interest margin ~~compared to the first quarter~~decreased as a result of ~~2019 was due primarily to~~ lower interest rates on loans and ~~actions taken~~securities, lower yields on PPP loans, as well as a higher balance of other interest-earning assets due to ~~reduce rate sensitivity.~~higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by lower cost of funds.

For the third quarter and first ~~quarter~~nine months of 2020, total average interest-earning assets rose by ~~$2.4~~$3.6 billion and $3.3 billion from the same ~~period~~periods in 2019. ~~The~~Compared to both prior periods, the increase resulted primarily from the Park Bank transaction, PPP loans and ~~Bridgeview transactions,~~other loan growth, securities purchases, and ~~security purchases.~~a higher balance of other interest-earning assets. In addition, the increase compared to the first nine months of 2019 was impacted by the assets acquired in the Bridgeview Bancorp, Inc. ("Bridgeview") transaction in May 2019.

Total average funding sources for the third quarter and first ~~quarter~~nine months of 2020 increased by ~~$2.4~~$3.4 billion and $3.2 billion from the same ~~period~~periods in 2019, due primarily to the Park Bank transaction, FHLB advances, and higher customer balances resulting from PPP funds and other government stimulus. In addition, the increase compared to the first nine months of 2019 was impacted by deposits assumed in the Bridgeview ~~transactions, organic growth, and FHLB advances.~~transaction.

Noninterest Income

A summary of noninterest income for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the following table.

Table 34

Noninterest Income Analysis

(Dollar amounts in thousands)


		Quarters Ended March 31,								Quarters Ended September 30,					Nine Months Ended September 30,
		2020		2019		% Change		2020		2019		% Change	2020		2019		% Change
Wealth management fees	Wealth management fees	$	12,361	$	11,600	6.6	Wealth management fees	$	12,837	$	12,063	6.4	$	37,140	$	35,853	3.6
Service charges on deposit accounts	Service charges on deposit accounts	11,781		11,540		2.1	Service charges on deposit accounts	10,342		13,024		(20.6)	31,248		36,760		(15.0)
Mortgage banking income							Mortgage banking income	6,659		3,066		117.2	11,924		5,971		99.7
Card-based fees, net (1)							Card-based fees, net (1)	4,472		4,694		(4.7)	11,620		13,621		(14.7)
Capital market products income	Capital market products income	4,722		1,279		269.2	Capital market products income	886		4,161		(78.7)	6,302		7,594		(17.0)
Card-based fees, net ⁽¹⁾		3,968		4,378		(9.4)
Mortgage banking income		1,788		1,004		78.1

Other service charges, commissions, and fees	Other service charges, commissions, and fees	2,682		2,611		2.7	Other service charges, commissions, and fees	2,823		3,023		(6.6)	7,583		8,417		(9.9)
Total fee-based revenues	Total fee-based revenues	37,302		32,412		15.1	Total fee-based revenues	38,019		40,031		(5.0)	105,817		108,216		(2.2)
Other income⁽²⁾	Other income⁽²⁾	3,065		2,494		22.9	Other income(2)	2,523		2,920		(13.6)	8,083		8,167		(1.0)

Net securities losses		(1,005)		—		—
Swap termination costs							Swap termination costs	(14,285)		—		N/M	(14,285)		—		N/M
Net securities gains							Net securities gains	14,328		—		N/M	13,323		—		N/M

Total noninterest income	Total noninterest income	$	39,362	$	34,906	12.8	Total noninterest income	$	40,585	$	42,951	(5.5)	$	112,938	$	116,383	(3.0)

^{N/M – Not meaningful}

(1)Card-based fees, net consists of debit and credit card interchange fees for processing transactions, various fees on both ~~consumer~~customer 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 ~~$39.4~~$40.6 million and $112.9 million for the third quarter and first ~~quarter~~nine months of 2020, respectively, was ~~up 12.8%~~down 5.5% and 3.0% from the same ~~period~~periods in 2019. ~~The~~Compared to both prior periods, the increase in wealth management fees ~~compared to the first quarter of 2019 resulted from~~was driven primarily by continued sales of fiduciary and investment advisory services to new and existing ~~customers. Capital~~customers and a recovering market ~~products income increased compared to the prior period as a result of higher sales to corporate clients reflecting the lower long-term rate~~ environment. The decrease in services charges on deposit accounts, net card-based fees, and other service charges, commissions and fees compared to ~~the first quarter of 2019~~both prior periods was due primarily to the impact of lower transaction volumes and the fee assistance programs offered to our clients as a result of ~~COVID-19.~~the pandemic.

Table of Contents

Mortgage banking income for the third quarter and first ~~quarter~~nine months of 2020 resulted from sales of ~~$116.6~~$251.8 million and $537.1 million of 1-4 family mortgage loans in the secondary market, compared to ~~$57.5~~$141.0 million and $291.9 million for the same ~~period~~periods in 2019. ~~In addition, mortgage banking~~Capital market products income ~~for~~decreased compared to both prior periods as a result of lower levels of sales to corporate clients in light of market conditions.

During the ~~first~~third quarter of 2020, ~~was impacted by negative changes~~the Company terminated longer term interest rate swaps with a notional amount of $1.1 billion as a result of excess liquidity and in ~~the fair value of mortgage servicing rights due~~response to current market conditions.

~~Other income increased compared to~~ At the ~~first quarter~~same time, the Company liquidated $159.8 million of ~~2019 due primarily to benefit settlements~~securities. As a result of these transactions, $14.3 million of pre-tax securities gains was fully offset by $14.3 million of pre-tax loss on ~~BOLI.~~

~~Net~~swap terminations. In addition, net securities losses of $1.0 million were recognized during the first ~~quarter~~nine months of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.

~~Table of Contents~~

Noninterest Expense

A summary of noninterest expense for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the following table.

Table 45

Noninterest Expense Analysis

(Dollar amounts in thousands)


		Quarters Ended March 31,								Quarters Ended September 30,					Nine Months Ended September 30,
		2020		2019		% Change		2020		2019		% Change	2020		2019		% Change
Salaries and employee benefits:	Salaries and employee benefits:						Salaries and employee benefits:
Salaries and wages	Salaries and wages	$	49,990	$	46,135	8.4	Salaries and wages	$	53,385	$	50,686	5.3	$	155,967	$	144,597	7.9
Retirement and other employee benefits	Retirement and other employee benefits	12,869		11,238		14.5	Retirement and other employee benefits	11,349		10,795		5.1	35,298		32,949		7.1
Total salaries and employee benefits	Total salaries and employee benefits	62,859		57,373		9.6	Total salaries and employee benefits	64,734		61,481		5.3	191,265		177,546		7.7
Net occupancy and equipment expense(1)	Net occupancy and equipment expense(1)	14,227		13,797		3.1	Net occupancy and equipment expense(1)	13,736		12,787		7.4	43,079		38,878		10.8
Professional services		10,390		7,087		46.6
Technology and related costs		8,548		6,270		36.3
Technology and related costs(1)							Technology and related costs(1)	10,416		6,960		49.7	28,817		20,358		41.6
Professional services(1)							Professional services(1)	7,325		8,768		(16.5)	26,595		25,479		4.4
Advertising and promotions	Advertising and promotions	2,761		2,372		16.4	Advertising and promotions	2,688		2,955		(9.0)	8,259		8,494		(2.8)
Net OREO expense	Net OREO expense	420		681		38.3	Net OREO expense	544		381		(42.8)	1,090		1,356		(19.6)
Other expenses	Other expenses	12,654		10,581		19.6	Other expenses	12,374		11,432		8.2	39,652		35,000		13.3
Optimization costs							Optimization costs	18,376		—		—	18,376		—		—
Acquisition and integration related expenses	Acquisition and integration related expenses	5,472		3,691		48.3	Acquisition and integration related expenses	881		3,397		(74.1)	11,602		16,602		(30.1)
Delivering Excellence implementation costs	Delivering Excellence implementation costs	—		258		(100.0)	Delivering Excellence implementation costs	—		234		(100.0)	—		934		(100.0)
Total noninterest expense	Total noninterest expense	$	117,331	$	102,110	14.9	Total noninterest expense	$	131,074	$	108,395	20.9	$	368,735	$	324,647	13.6
Optimization costs							Optimization costs	(18,376)		—		—	(18,376)		—		—
Acquisition and integration related expenses	Acquisition and integration related expenses	(5,472)		(3,691)		48.3	Acquisition and integration related expenses	(881)		(3,397)		(74.1)	(11,602)		(16,602)		(30.1)
Delivering Excellence implementation costs	Delivering Excellence implementation costs	—		(258)		(100.0)	Delivering Excellence implementation costs	—		(234)		(100.0)	—		(934)		(100.0)
Total noninterest expense, adjusted⁽¹⁾		$	111,859	$	98,161	14.0
Total noninterest expense, adjusted(2)							Total noninterest expense, adjusted(2)	$	111,817	$	104,764	6.7	$	338,757	$	307,111	10.3

⁽¹⁾Certain reclassifications were made to prior year amounts to conform to the current year presentation.

(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."

Total noninterest expense increased ~~14.9%~~20.9% and 13.6% from the third quarter and first ~~quarter~~nine months of ~~2019.~~2019, respectively. Noninterest expense for ~~both~~all periods presented was impacted by acquisition and integration related expenses. The third quarter and first ~~quarter~~nine months of 2020 were impacted by optimization costs associated with the retail optimization strategies, and the same periods in 2019 ~~was~~were impacted by costs related to ~~implementation of~~ the ~~Company's~~ Delivering Excellence initiative. Excluding these items, noninterest expense for the third quarter and first ~~quarter~~nine months of 2020, respectively, was ~~$111.9~~$111.8 million and $338.8 million, up ~~14.0%~~6.7% and 10.3% from the same ~~period~~periods in 2019. Overall, noninterest expense, adjusted, to average assets, ~~was well controlled at 2.44%~~excluding PPP loans, decreased to 2.19% and 2.31% for the third quarter and first ~~quarter~~nine months of 2020, respectively, down 1016 basis points and 15 basis points from the third quarter and first ~~quarter~~nine months of ~~2019.~~2019, respectively.

Table of Contents

Operating costs associated with the Park Bank ~~and Bridgeview transactions~~transaction contributed to the increase in noninterest expense ~~for~~compared to both prior periods. In addition, operating costs associated with the Bridgeview transaction contributed to the increase in noninterest expense compared to the first ~~quarter~~nine months of ~~2020.~~2019. 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 ~~the~~both prior ~~period,~~periods, the increase in salaries and employee benefits was also impacted by merit increases and commissions resulting from sales of 1-4 family mortgage loans in the secondary market, partially offset by lower incentive compensation ~~expense and equity compensation valuations. Technology and related costs~~expenses. In addition, compared to the first ~~quarter~~nine months of 2019, salaries and employee benefits were impacted by expanded health and welfare benefits related to the pandemic. Expenses from the pandemic contributed to the increase in occupancy and equipment costs compared to both prior periods. Compared to both prior periods, the increase in technology and related costs was impacted by investments in ~~technology.~~technology, including certain costs associated with the origination of PPP loans. Professional services ~~increased~~was positively impacted by lower loan remediation expenses compared to both prior periods. For the first ~~quarter~~nine months of ~~2019 due to~~2020, professional services were impacted by process enhancements and ~~expenses associated with higher capital market products income.~~organizational growth. Compared to ~~the first quarter of 2019,~~both prior periods, other expenses increased as a result of higher servicing fees from purchases of consumer loans and other miscellaneous expenses associated with organizational growth. Other expenses for the first nine months of 2020 was impacted by a negative valuation adjustment on a foreclosed asset.

Optimization costs of $18.4 million for the third quarter and first nine months of 2020 primarily include valuation adjustments associated with retail branch optimization strategies.

Acquisition and integration related expenses for the third quarter and first ~~quarter~~nine months of 2020 resulted primarily from the Park Bank acquisition. In addition, acquisition and integration related expenses for the first nine months of 2020 were impacted by the Bridgeview acquisitions. For the third quarter and first ~~quarter~~nine months of 2019, acquisition and integration related expenses resulted from the Northern States Financial Corporation, Northern Oak, and Bridgeview acquisitions.

~~Table of Contents~~

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is detailed in the following table.

Table 56

Income Tax Expense Analysis

(Dollar amounts in thousands)


		Quarters Ended March 31,										Quarters Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019			2020			2019
Income before income tax expense	Income before income tax expense	$	26,074		$	61,376		Income before income tax expense	$	36,313		$	72,845		$	87,633		$	197,426
Income tax expense:	Income tax expense:							Income tax expense:
Federal income tax expense	Federal income tax expense	$	5,337		$	11,066		Federal income tax expense	$	6,323		$	13,545		$	16,623		$	36,544
State income tax expense	State income tax expense	1,131			4,252			State income tax expense	2,367			4,755			4,717			13,265
Total income tax expense	Total income tax expense	$	6,468		$	15,318		Total income tax expense	$	8,690		$	18,300		$	21,340		$	49,809
Effective income tax rate	Effective income tax rate	24.8		%	25.0		%	Effective income tax rate	23.9		%	25.1		%	24.4		%	25.2		%

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~~The decrease in income tax expense and effective tax rate for the third quarter and nine months ended ~~March 31,~~September 30, 2020 was ~~impacted~~driven primarily by lower levels of income subject to tax at statutory ~~rates and an increase in non-deductible acquisition and integration related expenses.~~rates.

Our accounting policies regarding the recognition of income taxes in the Consolidated Statements of Financial Condition and Income are described in Notes 1 and 16 to the Consolidated Financial Statements of our 2019 10-K.

Table of Contents

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.~~income (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.

~~Table of Contents~~

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 67

Investment Portfolio

(Dollar amounts in thousands)


		As of March 31, 2020													As of December 31, 2019													As of September 30, 2020			As of December 31, 2019
		Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total		Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale
U.S. treasury securities	U.S. treasury securities	$	32,954	$	355	$	33,309	1.0	$	33,939	$	136	$	34,075	1.2	U.S. treasury securities	$	13,999	$	128	$	14,127	0.4	$	33,939	$	136	$	34,075	1.2
U.S. agency securities	U.S. agency securities	616,469		1,523		617,992		18.3	249,502		(1,078)		248,424		8.6	U.S. agency securities	658,607		684		659,291		20.1	249,502		(1,078)		248,424		8.6
Collateralized mortgage obligations ("CMOs")	Collateralized mortgage obligations ("CMOs")	1,640,928		59,084		1,700,012		50.3	1,547,805		9,866		1,557,671		54.2	Collateralized mortgage obligations ("CMOs")	1,532,516		32,467		1,564,983		47.7	1,547,805		9,866		1,557,671		54.2
Other mortgage-backed securities ("MBSs")	Other mortgage-backed securities ("MBSs")	662,529		24,742		687,271		20.3	678,804		5,880		684,684		23.8	Other mortgage-backed securities ("MBSs")	624,725		15,476		640,201		19.5	678,804		5,880		684,684		23.8
Municipal securities	Municipal securities	228,744		5,815		234,559		6.9	228,632		5,799		234,431		8.2	Municipal securities	226,149		10,651		236,800		7.2	228,632		5,799		234,431		8.2
Corporate debt securities	Corporate debt securities	117,785		(8,063)		109,722		3.2	112,797		1,304		114,101		4.0	Corporate debt securities	160,621		3,861		164,482		5.0	112,797		1,304		114,101		4.0
Total securities available-for-sale	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	Total securities available-for-sale	$	3,216,617	$	63,267	$	3,279,884	100.0	$	2,851,479	$	21,907	$	2,873,386	100.0
Securities Held-to-Maturity	Securities Held-to-Maturity																	Securities Held-to-Maturity
Municipal securities⁽¹⁾	Municipal securities⁽¹⁾	$	19,825	$	17	$	19,842		$	21,997	$	(763)	$	21,234		Municipal securities(1)	$	22,193	$	139	$	22,332		$	21,997	$	(763)	$	21,234
Equity Securities	Equity Securities					$	40,098						$	42,136		Equity Securities					$	55,021						$	42,136

⁽¹⁾Net of $220,000 of allowance for securities held-to-maturity as of ~~March 31,~~September 30, 2020 which was established upon adoption of CECL on January 1, 2020.

Portfolio Composition

As of ~~March 31,~~September 30, 2020, our securities available-for-sale portfolio totaled ~~$3.4~~$3.3 billion, increasing ~~$509.5~~$406.5 million, or ~~17.7%~~14.1%, from December 31, 2019. The increase from December 31, 2019 was driven primarily by purchases, consisting primarily of U.S. agency securities and CMOs, as well as $136.9 million of securities acquired in the Park Bank transaction and a change in unrealized gains (losses) due to lower market interest rates, which were partially offset by sales, 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.

5154

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 ~~March 31,~~September 30, 2020 and December 31, 2019.

Table 78

Securities Effective Duration Analysis


		As of March 31, 2020								As of December 31, 2019										As of September 30, 2020			As of December 31, 2019
		Effective		Average	Yield to		Effective		Average	Yield to			Effective		Average	Yield to		Effective		Average	Yield to
		Duration⁽¹⁾		Life⁽²⁾	Maturity⁽³⁾		Duration⁽¹⁾		Life⁽²⁾	Maturity⁽³⁾			Duration(1)		Life(2)	Maturity(3)		Duration(1)		Life(2)	Maturity(3)
Securities Available-for-Sale	Securities Available-for-Sale											Securities Available-for-Sale
U.S. treasury securities	U.S. treasury securities	0.53	%	0.54	2.08	%	0.66	%	0.69	2.27	%	U.S. treasury securities	0.42	%	0.44	2.51	%	0.66	%	0.69	2.27	%
U.S. agency securities	U.S. agency securities	3.90	%	5.54	2.65	%	3.07	%	5.50	2.56	%	U.S. agency securities	4.81	%	7.75	2.32	%	3.07	%	5.50	2.56	%
CMOs	CMOs	1.75	%	3.48	2.50	%	2.98	%	4.59	2.55	%	CMOs	3.11	%	4.59	2.17	%	2.98	%	4.59	2.55	%
MBSs	MBSs	2.91	%	3.64	2.65	%	4.05	%	4.94	2.79	%	MBSs	2.73	%	4.06	2.22	%	4.05	%	4.94	2.79	%
Municipal securities	Municipal securities	4.37	%	4.63	2.86	%	4.35	%	4.58	2.77	%	Municipal securities	4.47	%	4.52	2.84	%	4.35	%	4.58	2.77	%
Corporate debt securities	Corporate debt securities	1.26	%	5.65	3.02	%	1.39	%	5.63	3.15	%	Corporate debt securities	2.21	%	4.61	2.70	%	1.39	%	5.63	3.15	%

Total securities available-for-sale	Total securities available-for-sale	2.54	%	4.02	2.60	%	3.26	%	4.75	2.65	%	Total securities available-for-sale	3.42	%	5.11	2.29	%	3.26	%	4.75	2.65	%
Securities Held-to-Maturity	Securities Held-to-Maturity											Securities Held-to-Maturity
Municipal securities	Municipal securities	3.28	%	3.92	4.22	%	3.24	%	4.09	4.52	%	Municipal securities	3.25	%	3.82	4.73	%	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.

⁽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 ~~4.02~~5.11 years and ~~2.54%~~3.42%, respectively, as of ~~March 31,~~September 30, 2020, ~~down~~up from 4.75 years and 3.26% as of December 31, 2019. The ~~decrease~~increase resulted primarily from ~~higher expected future prepayments~~sales of CMOs and MBSs ~~due to lower market interest rates.~~nearing maturity during the third quarter of 2020.

Realized Gains and Losses

There were $14.3 million and $13.3 million of net securities ~~losses of $1.0 million~~gains for the third quarter and the first ~~quarter~~nine months of 2020, respectively, as a result of repositioning of the securities portfolio due to market ~~conditions.~~conditions in the first quarter of 2020 and balance sheet optimization strategies in the third quarter of 2020. There were no securities gains (losses) or impairment charges recognized during the third quarter and first ~~quarter~~nine months of 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,~~income (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 ~~$83.5~~$63.3 million of unrealized gains as of ~~March 31,~~September 30, 2020 compared to $21.9 million of unrealized gains as of December 31, 2019.

LOAN PORTFOLIO AND CREDIT QUALITY

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing ~~75.5%~~75.8% of total loans as of ~~March 31,~~September 30, 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

Table of Contents

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

Table ~~of Contents~~

~~Table 8~~9

Loan Portfolio

(Dollar amounts in thousands)


		As of
		March 31, 2020											December 31, 2019		% Change
		Legacy		Acquired⁽¹⁾		Total		% of Total Loans	Total		% of Total Loans	Legacy	Total			As of September 30, 2020		% of Total Loans	As of December 31, 2019		% of Total Loans	% Change
Commercial and industrial	Commercial and industrial	$	4,768,577	$	282,577	$	5,051,154	36.2	$	4,481,525	34.9	6.4	12.7	Commercial and industrial		$	4,635,571	31.6	$	4,481,525	34.9	3.4
Agricultural	Agricultural	393,063		75		393,138		2.8	405,616		3.2	(3.1)	(3.1)	Agricultural		377,466		2.6	405,616		3.2	(6.9)
Commercial real estate:	Commercial real estate:													Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	1,876,618		402,450		2,279,068		16.3	1,848,718		14.4	1.5	23.3	Office, retail, and industrial		1,950,406		13.3	1,848,718		14.4	5.5
Multi-family	Multi-family	884,442		21,839		906,281		6.5	856,553		6.7	3.3	5.8	Multi-family		868,293		5.9	856,553		6.7	1.4
Construction	Construction	562,689		—		562,689		4.0	593,093		4.6	(5.1)	(5.1)	Construction		631,607		4.3	593,093		4.6	6.5
Other commercial real estate	Other commercial real estate	1,349,812		—		1,349,812		9.7	1,383,708		10.8	(2.4)	(2.4)	Other commercial real estate		1,452,994		9.9	1,383,708		10.8	5.0
Total commercial real estate	Total commercial real estate	4,673,561		424,289		5,097,850		36.5	4,682,072		36.5	(0.2)	8.9	Total commercial real estate		4,903,300		33.4	4,682,072		36.5	4.7
Total corporate loans, excluding PPP loans														Total corporate loans, excluding PPP loans		9,916,337		67.6	9,569,213		74.6	3.6
PPP loans														PPP loans		1,196,538		8.2	—		—	N/M
Total corporate loans	Total corporate loans	9,835,201		706,941		10,542,142		75.5	9,569,213		74.6	2.8	10.2	Total corporate loans		11,112,875		75.8	9,569,213		74.5	13.9
Home equity	Home equity	955,012		10,759		965,771		6.9	851,454		6.6	12.2	13.4	Home equity		827,746		5.7	851,454		6.6	(2.8)
1-4 family mortgages	1-4 family mortgages	1,957,027		11,562		1,968,589		14.1	1,927,078		15.0	1.6	2.2	1-4 family mortgages		2,287,555		15.6	1,927,078		15.0	18.7
Installment	Installment	480,110		8,405		488,515		3.5	492,585		3.8	(2.5)	(0.8)	Installment		425,012		2.9	492,585		3.8	(13.7)
Total consumer loans	Total consumer loans	3,392,149		30,726		3,422,875		24.5	3,271,117		25.4	3.7	4.6	Total consumer loans		3,540,313		24.2	3,271,117		25.4	8.2
Total loans	Total loans	$	13,227,350	$	737,667	$	13,965,017	100.0	$	12,840,330	100.0	3.0	8.8	Total loans		$	14,653,188	100.0	$	12,840,330	100.0	14.1

⁽¹⁾ ~~Amount represents~~N/M – Not meaningful.

Total loans includes loans originated under the PPP loan program in the second and third quarters of 2020, which totaled $1.2 billion as of September 30, 2020, as well as loans acquired in ~~the Park Bank acquisition, which was completed in the first quarter of 2020.~~

~~Loan growth was positively impacted by~~ the Park Bank acquisition in the first quarter of 2020, which ~~added loans of $737.7~~totaled $787.8 million as of ~~March 31,~~September 30, 2020. Excluding these loans, total loans ~~grew 12.1% annualized~~were down 1.3% from December 31, 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 businesses. ~~Strong~~Overall, corporate loans, excluding PPP loans, were impacted by lower production ~~within commercial real estate loans was offset by~~and line usage and higher paydowns due to current economic conditions as a result of the ~~impact of certain customers selling their commercial business or investment real estate properties, as well as refinancing with institutions offering loan terms outside of our credit parameters.~~ongoing pandemic. Growth in consumer loans resulted primarily from strong production and purchases of home equity loans and 1-4 family mortgages, ~~as well as organic growth.~~which more than offset prepayments.

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represented ~~39.0%~~34.2% of total loans, and totaled ~~$5.4~~$5.0 billion at ~~March 31,~~September 30, 2020, an increase of ~~$557.2~~$125.9 million, or ~~11.4%~~2.6%, from December 31, 2019. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that include supporting 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.

5356

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 ~~March 31,~~September 30, 2020 and December 31, 2019.

Table 910

Commercial Real Estate Loans

(Dollar amounts in thousands)


		As of March 31, 2020		% of Total	As of December 31, 2019		% of Total		As of September 30, 2020		% of Total	As of December 31, 2019		% of Total
Office, retail, and industrial:	Office, retail, and industrial:							Office, retail, and industrial:
Office	Office	$	764,264	15.0	$	643,575	13.7	Office	$	696,073	14.2	$	643,575	13.7
Retail	Retail	727,392		14.3	607,712		13.0	Retail	575,160		11.7	607,712		13.0
Industrial	Industrial	787,412		15.4	597,431		12.8	Industrial	679,173		13.9	597,431		12.8
Total office, retail, and industrial	Total office, retail, and industrial	2,279,068		44.7	1,848,718		39.5	Total office, retail, and industrial	1,950,406		39.8	1,848,718		39.5
Multi-family	Multi-family	906,281		17.8	856,553		18.3	Multi-family	868,293		17.7	856,553		18.3
Construction	Construction	562,689		11.1	593,093		12.7	Construction	631,607		12.9	593,093		12.7
Other commercial real estate:	Other commercial real estate:							Other commercial real estate:
Multi-use properties	Multi-use properties	296,890		5.8	300,488		6.4	Multi-use properties	345,670		7.0	300,488		6.4
Rental properties	Rental properties	270,832		5.3	277,350		5.9	Rental properties	302,894		6.2	277,350		5.9
Warehouses and storage	Warehouses and storage	175,245		3.4	166,750		3.6	Warehouses and storage	187,176		3.8	166,750		3.6
Hotels	Hotels	116,235		2.3	127,213		2.7	Hotels	121,241		2.5	127,213		2.7
Restaurants								Restaurants	104,417		2.1	102,341		2.2
Service stations and truck stops	Service stations and truck stops	112,097		2.2	114,205		2.4	Service stations and truck stops	102,826		2.1	114,205		2.4
Recreational	Recreational	92,653		1.8	89,246		1.9	Recreational	89,379		1.8	89,246		1.9
Restaurants		91,046		1.8	102,341		2.2
Other	Other	194,814		3.8	206,115		4.4	Other	199,391		4.1	206,115		4.4
Total other commercial real estate	Total other commercial real estate	1,349,812		26.4	1,383,708		29.5	Total other commercial real estate	1,452,994		29.6	1,383,708		29.5
Total commercial real estate	Total commercial real estate	$	5,097,850	100.0	$	4,682,072	100.0	Total commercial real estate	$	4,903,300	100.0	$	4,682,072	100.0

Commercial real estate loans represent ~~36.5%~~33.4% of total loans, and totaled ~~$5.1~~$4.9 billion at ~~March 31,~~September 30, 2020, increasing ~~$415.8~~$221.2 million, or ~~8.9%~~4.7%, from December 31, 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 ~~36%~~47% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of ~~March 31,~~September 30, 2020. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was ~~202%~~173% and construction loans to total capital was ~~34%~~28% as of ~~March 31,~~September 30, 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.

As a result of the Company's review of its loan portfolio in connection with the pandemic, certain elevated risk segments were identified in the corporate loan portfolio including recreation and entertainment, hotels, and restaurants, which are included in

Table of Contents

~~As a result of COVID-19, the Company identified certain elevated risk segments~~commercial and industrial loans in ~~the corporate loan portfolio including franchises, hotels, recreation and entertainment, dental professionals, restaurants, and retailers.~~addition to commercial real estate loans detailed above. As of ~~March 31,~~September 30, 2020, these elevated risk segments ~~approximate 5%~~totaled $510 million and approximated 4% of our granular and diverse total loan ~~portfolio.~~portfolio, excluding PPP loans.

Consumer Loans

Consumer loans represented ~~24.5%~~24.2% of total loans, and totaled ~~$3.4~~$3.5 billion at ~~March 31,~~September 30, 2020, an increase of ~~$151.8~~$269.2 million, or ~~4.6%~~8.2%, from December 31, 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.

As a result of ~~COVID-19,~~ the ~~Company identified~~Company's review of its loan portfolio in connection with the pandemic, unsecured installment loans, which totaled approximately $240 million and was less than 2% of our total loan portfolio, excluding PPP loans, as of ~~March 31,~~September 30, 2020, were identified as an elevated risk segment in the consumer loan portfolio. These loans are high credit quality, geographically dispersed, and have average loan sizes of less than ~~$10,000,~~$9,000, which reduces our risk exposure.

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 allowance for unfunded commitments and is maintained by management at a level believed adequate to absorb current expected credit losses inherent in the existing loan portfolio. 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 on non-accrual 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.

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 ~~March 31,~~September 30, 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.

5558

Table of Contents

Table 1011

Allowance for Credit Losses and

Summary of Credit Loss Experience

(Dollar amounts in thousands)


		Quarters Ended																												Quarters Ended
		March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019				September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Change in allowance for credit losses	Change in allowance for credit losses																Change in allowance for credit losses
Beginning balance	Beginning balance	$	109,222		$	110,228		$	106,929		$	104,779		$	103,419		Beginning balance	$	247,677		$	226,701		$	109,222		$	110,228		$	106,929
Adjustment to apply recent accounting pronouncements⁽¹⁾	Adjustment to apply recent accounting pronouncements⁽¹⁾	75,757			—			—			—			—			Adjustment to apply recent accounting pronouncements(1)	—			—			75,757			—			—
Allowance established for acquired PCD loans	Allowance established for acquired PCD loans	14,304			—			—			—			—			Allowance established for acquired PCD loans	(1,188)			1,250			14,304			—			—
Loan charge-offs:	Loan charge-offs:																Loan charge-offs:
Commercial, industrial, and agricultural	Commercial, industrial, and agricultural	7,066			7,865			7,176			6,516			6,451			Commercial, industrial, and agricultural	6,853			5,673			7,066			7,865			7,176
Office, retail, and industrial	Office, retail, and industrial	338			274			293			1,605			628			Office, retail, and industrial	1,344			3,092			338			274			293
Multi-family	Multi-family	10			—			—			—			340			Multi-family	—			9			10			—			—
Construction	Construction	1,808			4			—			—			6			Construction	4,889			798			1,808			4			—
Other commercial real estate	Other commercial real estate	308			77			184			329			210			Other commercial real estate	1,823			31			308			77			184
Consumer	Consumer	4,400			4,515			3,619			2,974			3,142			Consumer	2,629			4,631			4,400			4,515			3,619
Total loan charge-offs	Total loan charge-offs	13,930			12,735			11,272			11,424			10,777			Total loan charge-offs	17,538			14,234			13,930			12,735			11,272
Recoveries of loan charge-offs:	Recoveries of loan charge-offs:																Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	Commercial, industrial, and agricultural	1,159			1,051			1,205			1,258			1,301			Commercial, industrial, and agricultural	1,118			820			1,159			1,051			1,205
Office, retail, and industrial	Office, retail, and industrial	9			18			74			151			10			Office, retail, and industrial	5			6			9			18			74
Multi-family	Multi-family	5			439			38			—			1			Multi-family	—			—			5			439			38
Construction	Construction	—			1			2			10			6			Construction	—			—			—			1			2
Other commercial real estate	Other commercial real estate	144			64			227			45			21			Other commercial real estate	70			12			144			64			227
Consumer	Consumer	499			562			527			619			354			Consumer	602			473			499			562			527
Total recoveries of loan charge-offs	Total recoveries of loan charge-offs	1,816			2,135			2,073			2,083			1,693			Total recoveries of loan charge-offs	1,795			1,311			1,816			2,135			2,073
Net loan charge-offs	Net loan charge-offs	12,114			10,600			9,199			9,341			9,084			Net loan charge-offs	15,743			12,923			12,114			10,600			9,199
Provision for loan losses	Provision for loan losses	39,532			9,594			12,498			11,491			10,444			Provision for loan losses	15,927			32,649			39,532			9,594			12,498

Increase in reserve for unfunded commitments																	Increase in reserve for unfunded commitments	200			—			—			—			—

Ending balance	Ending balance	$	226,701		$	109,222		$	110,228		$	106,929		$	104,779		Ending balance	$	246,873		$	247,677		$	226,701		$	109,222		$	110,228
Total net loan charge-offs, excluding PCD loans⁽²⁾	Total net loan charge-offs, excluding PCD loans⁽²⁾	$	10,394		$	10,600		$	9,199		$	9,341		$	9,084		Total net loan charge-offs, excluding PCD loans(2)	$	8,820		$	9,090		$	10,394		$	10,600		$	9,199
Allowance for credit losses	Allowance for credit losses																Allowance for credit losses
Allowance for loan losses	Allowance for loan losses	$	219,948		$	108,022		$	109,028		$	105,729		$	103,579		Allowance for loan losses	$	239,048		$	240,052		$	219,948		$	108,022		$	109,028
Allowance for unfunded commitments	Allowance for unfunded commitments	6,753			1,200			1,200			1,200			1,200			Allowance for unfunded commitments	7,825			7,625			6,753			1,200			1,200
Total allowance for credit losses	Total allowance for credit losses	$	226,701		$	109,222		$	110,228		$	106,929		$	104,779		Total allowance for credit losses	$	246,873		$	247,677		$	226,701		$	109,222		$	110,228
Allowance for credit losses to loans	Allowance for credit losses to loans	1.62		%	0.85		%	0.86		%	0.85		%	0.91		%	Allowance for credit losses to loans	1.68		%	1.66		%	1.62		%	0.85		%	0.86		%

Allowance for credit losses to loans, excluding PPP loans(3)																	Allowance for credit losses to loans, excluding PPP loans(3)	1.83		%	1.80		%	1.62		%	0.85		%	0.86		%
Allowance for credit losses to non-accrual loans	Allowance for credit losses to non-accrual loans	154.64		%	132.76		%	141.88		%	168.45		%	149.25		%	Allowance for credit losses to non-accrual loans	171.95		%	177.98		%	154.64		%	132.76		%	141.88		%

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	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, annualized	0.42		%	0.36		%	0.37		%	0.33		%	0.29		%
Net loan charge-offs to average loans, excluding PCD loans, annualized⁽²⁾		0.32		%	0.33		%	0.29		%	0.31		%	0.32		%
Net loan charge-offs to average loans, excluding PCD and PPP loans, annualized(2)(3)																	Net loan charge-offs to average loans, excluding PCD and PPP loans, annualized(2)(3)	0.26		%	0.27		%	0.32		%	0.33		%	0.29		%

⁽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."

(3)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Table of Contents

Activity in the Allowance for Credit Losses

The allowance for credit losses was ~~$226.7~~$246.9 million or ~~1.62%~~1.68% of total loans as of ~~March 31,~~September 30, 2020, increasing ~~$117.5~~$137.7 million and ~~$121.9~~$136.6 million compared to December 31, 2019 and ~~March 31,~~September 30, 2019, respectively. Excluding the impact of PPP loans, allowance for credit losses to total loans was 1.83% as of September 30, 2020. 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,~~the pandemic, a provision for loan losses of $28.0 million, $25.0 million and $10.0 million was recorded in the first, ~~quarter~~second and third quarters of ~~2020.~~2020, respectively. In addition, $14.3 million in allowance for credit losses was established through acquisition accounting adjustments for PCD loans acquired in the Park 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 ~~$39.5~~$15.9 million for the quarter ended ~~March 31,~~September 30, 2020, up from $9.6 million for the quarter ended December 31, 2019 and from ~~$10.4~~$12.5 million for the quarter ended ~~March 31,~~September 30, 2019. The increase compared to both prior periods was driven primarily by a provision for loan losses of ~~$28~~$10.0 million recorded as a result of the estimated impact of ~~COVID-19.~~the pandemic.

Net loan charge-offs to average loans, annualized, were ~~0.37%~~0.42%, or ~~$12.1~~$15.7 million, for the ~~first~~third quarter of 2020, compared to 0.33% for the fourth quarter of 2019 and ~~0.32%~~0.29% for the ~~first~~third quarter of 2019. Excluding charge-offs on PCD loans, net loan charge-offs to average loans of ~~0.32%~~0.26% was ~~consistent with~~lower than both prior periods.

5760

Table of Contents

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 1112

Loan Portfolio by Performing/Non-performing Status ⁽¹⁾

(Dollar amounts in thousands)


		Accruing															Accruing
		Current		30-89 Days Past Due		90 Days Past Due		Non-accrual		Total Loans			Current		30-89 Days Past Due		90 Days Past Due		Non-accrual		Total Loans
As of March 31, 2020
As of September 30, 2020												As of September 30, 2020
Commercial and industrial	Commercial and industrial	$	4,991,522	$	22,708	$	2,912	$	34,012	$	5,051,154	Commercial and industrial	$	4,580,452	$	4,250	$	1,003	$	49,866	$	4,635,571
Agricultural	Agricultural	381,931		5,238		146		5,823		393,138		Agricultural	363,836		337		—		13,293		377,466
Commercial real estate:	Commercial real estate:											Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	2,223,227		11,216		—		44,625		2,279,068		Office, retail, and industrial	1,912,640		2,023		502		35,241		1,950,406
Multi-family	Multi-family	897,270		5,584		558		2,869		906,281		Multi-family	865,500		287		73		2,433		868,293
Construction	Construction	532,427		1,342		—		28,920		562,689		Construction	624,534		538		89		6,446		631,607
Other commercial real estate	Other commercial real estate	1,315,009		22,930		22		11,851		1,349,812		Other commercial real estate	1,429,902		4,627		790		17,675		1,452,994
Total commercial real estate	Total commercial real estate	4,967,933		41,072		580		88,265		5,097,850		Total commercial real estate	4,832,576		7,475		1,454		61,795		4,903,300
Total corporate loans, excluding PPP loans												Total corporate loans, excluding PPP loans	9,776,864		12,062		2,457		124,954		9,916,337
PPP loans												PPP loans	1,196,538		—		—		—		1,196,538
Total corporate loans	Total corporate loans	10,341,386		69,018		3,638		128,100		10,542,142		Total corporate loans	10,973,402		12,062		2,457		124,954		11,112,875
Home equity	Home equity	952,723		3,185		360		9,503		965,771		Home equity	813,420		4,759		19		9,548		827,746
1-4 family mortgages	1-4 family mortgages	1,954,626		4,967		—		8,996		1,968,589		1-4 family mortgages	2,274,546		3,494		445		9,070		2,287,555
Installment	Installment	483,504		3,957		1,054		—		488,515		Installment	422,916		1,236		860		—		425,012
Total consumer loans	Total consumer loans	3,390,853		12,109		1,414		18,499		3,422,875		Total consumer loans	3,510,882		9,489		1,324		18,618		3,540,313
Total loans	Total loans	$	13,732,239	$	81,127	$	5,052	$	146,599	$	13,965,017	Total loans	$	14,484,284	$	21,551	$	3,781	$	143,572	$	14,653,188
As of December 31, 2019	As of December 31, 2019											As of December 31, 2019
Commercial and industrial	Commercial and industrial	$	4,438,063	$	11,260	$	2,207	$	29,995	$	4,481,525	Commercial and industrial	$	4,438,063	$	11,260	$	2,207	$	29,995	$	4,481,525
Agricultural	Agricultural	398,676		628		358		5,954		405,616		Agricultural	398,676		628		358		5,954		405,616
Commercial real estate:	Commercial real estate:											Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	1,820,502		1,813		546		25,857		1,848,718		Office, retail, and industrial	1,820,502		1,813		546		25,857		1,848,718
Multi-family	Multi-family	853,762		94		—		2,697		856,553		Multi-family	853,762		94		—		2,697		856,553
Construction	Construction	588,065		4,876		—		152		593,093		Construction	588,065		4,876		—		152		593,093
Other commercial real estate	Other commercial real estate	1,375,712		2,738		529		4,729		1,383,708		Other commercial real estate	1,375,712		2,738		529		4,729		1,383,708
Total commercial real estate	Total commercial real estate	4,638,041		9,521		1,075		33,435		4,682,072		Total commercial real estate	4,638,041		9,521		1,075		33,435		4,682,072
Total corporate loans	Total corporate loans	9,474,780		21,409		3,640		69,384		9,569,213		Total corporate loans	9,474,780		21,409		3,640		69,384		9,569,213
Home equity	Home equity	838,575		4,290		146		8,443		851,454		Home equity	838,575		4,290		146		8,443		851,454
1-4 family mortgages	1-4 family mortgages	1,916,341		5,092		1,203		4,442		1,927,078		1-4 family mortgages	1,916,341		5,092		1,203		4,442		1,927,078
Installment	Installment	491,406		1,167		12		—		492,585		Installment	491,406		1,167		12		—		492,585
Total consumer loans	Total consumer loans	3,246,322		10,549		1,361		12,885		3,271,117		Total consumer loans	3,246,322		10,549		1,361		12,885		3,271,117
Total loans	Total loans	$	12,721,102	$	31,958	$	5,001	$	82,269	$	12,840,330	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.

5861

Table of Contents

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

Table 1213

Non-Performing Assets and Past Due Loans

(Dollar amounts in thousands)


		As of																												As of
		March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019				September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Non-accrual loans, excluding PCD loans⁽¹⁾⁽²⁾	Non-accrual loans, excluding PCD loans⁽¹⁾⁽²⁾	$	97,649		$	82,269		$	77,692		$	63,477		$	70,205		Non-accrual loans, excluding PCD loans(1)(2)	$	103,582		$	94,044		$	97,649		$	82,269		$	77,692
Non-accrual PCD loans⁽¹⁾	Non-accrual PCD loans⁽¹⁾	48,950			—			—			—			—			Non-accrual PCD loans(1)	39,990			45,116			48,950			—			—
Total non-accrual loans	Total non-accrual loans	146,599			82,269			77,692			63,477			70,205			Total non-accrual loans	143,572			139,160			146,599			82,269			77,692
90 days or more past due loans, still accruing interest⁽¹⁾	90 days or more past due loans, still accruing interest⁽¹⁾	5,052			5,001			4,657			2,615			8,446			90 days or more past due loans, still accruing interest(1)	3,781			3,241			5,052			5,001			4,657
Total non-performing loans	Total non-performing loans	151,651			87,270			82,349			66,092			78,651			Total non-performing loans	147,353			142,401			151,651			87,270			82,349
Accruing TDRs	Accruing TDRs	1,216			1,233			1,422			1,441			1,844			Accruing TDRs	841			1,201			1,216			1,233			1,422
Foreclosed assets⁽³⁾	Foreclosed assets⁽³⁾	21,027			20,458			25,266			28,488			10,818			Foreclosed assets(3)	15,299			19,024			21,027			20,458			25,266
Total non-performing assets	Total non-performing assets	$	173,894		$	108,961		$	109,037		$	96,021		$	91,313		Total non-performing assets	$	163,493		$	162,626		$	173,894		$	108,961		$	109,037
30-89 days past due loans⁽¹⁾	30-89 days past due loans⁽¹⁾	$	81,127		$	31,958		$	46,171		$	34,460		$	45,764		30-89 days past due loans(1)	$	21,551		$	36,342		$	81,127		$	31,958		$	46,171
30-89 days past due loans, excluding PCD loans⁽¹⁾⁽²⁾	30-89 days past due loans, excluding PCD loans⁽¹⁾⁽²⁾	$	75,581		$	31,958		$	46,171		$	34,460		$	45,764		30-89 days past due loans, excluding PCD loans(1)(2)	$	19,042		$	34,872		$	75,581		$	31,958		$	46,171
Non-accrual loans to total loans:																	Non-accrual loans to total loans:
Non-accrual loans to total loans	Non-accrual loans to total loans	1.05		%	0.64		%	0.61		%	0.51		%	0.61		%	Non-accrual loans to total loans	0.98		%	0.93		%	1.05		%	0.64		%	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 loans		1.09		%	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		%
Non-accrual loans to total loans, excluding PPP loans(1)(2)(4)																	Non-accrual loans to total loans, excluding PPP loans(1)(2)(4)	1.07		%	1.01		%	1.05		%	0.64		%	0.61		%
Non-accrual loans to total loans, excluding PCD and PPP loans(1)(2)(4)																	Non-accrual loans to total loans, excluding PCD and PPP loans(1)(2)(4)	0.78		%	0.70		%	0.71		%	0.64		%	0.61		%
Non-performing loans to total loans:																	Non-performing loans to total loans:
NPLs to total loans																	NPLs to total loans	1.01		%	0.95		%	1.09		%	0.68		%	0.64		%
NPLs to total loans, excluding PPP loans(1)(2)(4)																	NPLs to total loans, excluding PPP loans(1)(2)(4)	1.10		%	1.04		%	1.09		%	0.68		%	0.64		%
NPLs to total loans, excluding PCD and PPP loans(1)(2)(4)																	NPLs to total loans, excluding PCD and PPP loans(1)(2)(4)	0.81		%	0.72		%	0.75		%	0.68		%	0.64		%
Non-performing assets to total loans plus foreclosed assets:																	Non-performing assets to total loans plus foreclosed assets:
NPAs to total loans plus foreclosed assets																	NPAs to total loans plus foreclosed assets	1.11		%	1.09		%	1.24		%	0.85		%	0.85		%
NPAs to total loans plus foreclosed assets, excluding PPP loans(1)(2)(4)																	NPAs to total loans plus foreclosed assets, excluding PPP loans(1)(2)(4)	1.21		%	1.18		%	1.24		%	0.85		%	0.85		%
NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(2)(4)																	NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(2)(4)	0.93		%	0.87		%	0.91		%	0.85		%	0.85		%

⁽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.

(4)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Total non-performing assets represented ~~1.24%~~1.11% of total loans and foreclosed assets at ~~March 31,~~September 30, 2020, compared to 0.85% and ~~0.79%~~0.85% at December 31, 2019 and ~~March 31,~~September 30, 2019, respectively. Excluding the impact of PCD and PPP loans, non-performing assets to total loans plus foreclosed assets was ~~0.91%~~0.93% at ~~March~~September 30, 2020 up 8 basis points from both December 31, ~~2020,~~2019 and September 30, 2019, 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.

5962

Table of Contents

Total 30-89 days past due loans, excluding PCD loans of $19.0 million decreased by $12.9 million and $27.1 million from December 31, 2019 and September 30, 2019, respectively.

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 1314

TDRs by Type

(Dollar amounts in thousands)


		As of																		As of
		March 31, 2020				December 31, 2019							March 31, 2019				September 30, 2020			December 31, 2019		September 30, 2019
		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount			Number of Loans		Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	Commercial and industrial	9	$	13,128	9	$	16,647	5	$	9,070	Commercial and industrial	7		$	12,982	9	$	16,647	4	$	4,793

Commercial real estate:	Commercial real estate:										Commercial real estate:
Office, retail, and industrial	Office, retail, and industrial	2	4,410		1	3,600		—	—		Office, retail, and industrial	1		2,340		1	3,600		—	—
Multi-family	Multi-family	1	161		1	163		2	552		Multi-family	1		160		1	163		1	165

Other commercial real estate	Other commercial real estate	1	167		1	170		1	179		Other commercial real estate	2		193		1	170		1	173
Total commercial real estate	Total commercial real estate	4	4,738		3	3,933		3	731		Total commercial real estate	4		2,693		3	3,933		2	338
Total corporate loans	Total corporate loans	13	17,866		12	20,580		8	9,801		Total corporate loans	11		15,675		12	20,580		6	5,131
Home equity	Home equity	9	389		8	276		9	378		Home equity	5		154		8	276		9	356
1-4 family mortgages	1-4 family mortgages	9	878		6	637		11	1,040		1-4 family mortgages	9		849		6	637		11	1,023
Installment	Installment	—	—		4	254		—	—		Installment	—		—		4	254		—	—
Total consumer loans	Total consumer loans	18	1,267		18	1,167		20	1,418		Total consumer loans	14		1,003		18	1,167		20	1,379
Total TDRs	Total TDRs	31	$	19,133	30	$	21,747	28	$	11,219	Total TDRs	25		$	16,678	30	$	21,747	26	$	6,510
Accruing TDRs	Accruing TDRs	12	$	1,216	12	$	1,233	15	$	1,844	Accruing TDRs	9		$	841	12	$	1,233	14	$	1,422
Non-accrual TDRs	Non-accrual TDRs	19	17,917		18	20,514		13	9,375		Non-accrual TDRs	16		15,837		18	20,514		12	5,088
Total TDRs	Total TDRs	31	$	19,133	30	$	21,747	28	$	11,219	Total TDRs	25		$	16,678	30	$	21,747	26	$	6,510
Year-to-date charge-offs on TDRs	Year-to-date charge-offs on TDRs		$	2,873		$	3,557		$	158	Year-to-date charge-offs on TDRs			$	8,455		$	3,557		$	628
Specific allowances related to TDRs	Specific allowances related to TDRs		1,937			2,245			173		Specific allowances related to TDRs			186			2,245			—

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.~~the pandemic. 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~~the pandemic 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~~As of September 30, 2020, the Company has eligible modifications ~~completed in the three months ended March 31, 2020 were immaterial.~~with outstanding balances totaling $404.6 million.

6063

Table of Contents

~~Corporate~~Adverse Rated Performing ~~Potential Problem~~ Loans

~~Corporate~~Adverse rated performing ~~potential problem~~ loans consist of corporate special mention loans and substandard loans, excluding accruing ~~TDRs.~~TDRs, and are considered potential problem loans. 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 1415

~~Corporate~~Adverse Rated Performing ~~Potential Problem~~ Loans

(Dollar amounts in thousands)

As of March 31, 2020 As 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
Agricultural 36,277 14,683 50,960 32,764 16,071 48,835
Commercial real estate 120,080 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 loans 2.28 % 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 %


	As of September 30, 2020									As of December 31, 2019
	Special Mention(1)			Substandard(2)			Total(3)			Special Mention(1)			Substandard(2)			Total(3)
Commercial and industrial	$	209,457		$	148,910		$	358,367		$	47,665		$	78,929		$	126,594
Agricultural	21,469			15,027			36,496			32,764			16,071			48,835




Commercial real estate	164,369			147,493			311,862			108,274			93,811			202,085
Total adverse rated performing loans(4)	$	395,295		$	311,430		$	706,725		$	188,703		$	188,811		$	377,514
PCD and PCI adverse rated performing loans included in the totals above(4)	$	31,155		$	24,465		$	55,620		$	21,892		$	46,207		$	68,099

Adverse rated performing loans to corporate loans	3.56		%	2.80		%	6.36		%	1.97		%	1.97		%	3.95		%
Adverse rated performing loans, excluding PPP loans to corporate loans(5)(6)	3.99		%	3.14		%	7.13		%	1.97		%	1.97		%	3.95		%

⁽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~~adverse rated performing ~~potential problem~~ loans excludes accruing TDRs.

⁽⁴⁾Includes ~~corporate~~ PCD adverse rated performing ~~potential problem~~ loans, subsequent to the adoption of CECL on January 1, 2020. Prior to the adoption of CECL, included ~~corporate~~ PCI adverse rated performing ~~potential problem~~ loans.

⁽⁵⁾This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans.

(6)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~~Adverse rated performing loans to corporate loans was ~~4.15%~~6.36% at ~~March 31, 2020~~September 30, 2020. Excluding the impact of PPP loans on this metric, adverse rated performing loans to corporate loans was 7.13% 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~~the impact of ~~commercial~~the pandemic on certain borrowers primarily focused in elevated risk sectors that the Company has determined require additional monitoring. These loans exhibit potential or well-defined weaknesses but continue to accrue interest because they are well-secured and ~~industrial loans classified as special mention~~collection of principal and ~~substandard. Management has specific monitoring and remediation plans associated with these loans.~~interest is expected.

6164

Table of Contents

Foreclosed Assets

Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans.

Table 1516

Foreclosed Assets by Type

(Dollar amounts in thousands)


		As of											As of
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		December 31, 2019		September 30, 2019
Single-family homes	Single-family homes	$	1,640	$	1,636	$	2,241	Single-family homes	$	32	$	1,636	$	2,319
Land parcels:	Land parcels:							Land parcels:
Raw land	Raw land	—		—		—		Raw land	—		—		—

Commercial lots	Commercial lots	4,253		5,178		2,654		Commercial lots	3,736		5,178		5,340
Single-family lots	Single-family lots	1,543		1,543		1,543		Single-family lots	1,542		1,543		1,543
Total land parcels	Total land parcels	5,796		6,721		4,197		Total land parcels	5,278		6,721		6,883

Multi-family units								Multi-family units	—		—		—
Commercial properties	Commercial properties	2,261		393		4,380		Commercial properties	1,242		393		3,226
Total OREO	Total OREO	9,814		8,750		10,818		Total OREO	6,552		8,750		12,428
Other foreclosed assets⁽¹⁾	Other foreclosed assets⁽¹⁾	11,213		11,708		—		Other foreclosed assets(1)	8,747		11,708		12,838
Total	Total	$	21,027	$	20,458	$	10,818	Total	$	15,299	$	20,458	$	25,266

⁽¹⁾Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.

Other foreclosed assets as of ~~March 31,~~September 30, 2020 includes one corporate loan relationship for which the Company has remediation plans in place.

A rollforward of foreclosed assets balances for the quarters and nine months ended ~~March 31,~~September 30, 2020 and 2019 is presented in the following table.

Table 1617

Foreclosed Assets Rollforward

(Dollar amounts in thousands)


		Quarters Ended March 31,							Quarters Ended September 30,				Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Beginning balance	Beginning balance	$	20,458	$	12,821	Beginning balance	$	19,024	$	15,313	$	20,458	$	12,821
Transfers from loans	Transfers from loans	121		—		Transfers from loans	—		197		121		519
Acquisitions	Acquisitions	1,868		—		Acquisitions	—		(77)		2,001		6,160
Acquisition accounting adjustment	Acquisition accounting adjustment	(567)		—		Acquisition accounting adjustment	177		—		(390)		—
Proceeds from sales	Proceeds from sales	(725)		(2,795)		Proceeds from sales	(3,809)		(4,194)		(4,862)		(9,430)
Gains on sales of foreclosed assets		142		107
(Losses) gains on sales of foreclosed assets						(Losses) gains on sales of foreclosed assets	(93)		295		49		648
Valuation adjustments	Valuation adjustments	(270)		685		Valuation adjustments	—		894		(2,078)		1,710
Ending balance	Ending balance	$	21,027	$	10,818	Ending balance	$	15,299	$	12,428	$	15,299	$	12,428

6265

Table of Contents

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 1718

Funding Sources – Average Balances

(Dollar amounts in thousands)


		Quarters Ended													March 31, 2020 % Change From								Quarters Ended			September 30, 2020 % Change From
		March 31, 2020			December 31, 2019			March 31, 2019			December 31, 2019	March 31, 2019		September 30, 2020			December 31, 2019			September 30, 2019				December 31, 2019	September 30, 2019
Demand deposits	Demand deposits	$	3,884,015		$	3,862,157		$	3,587,480		0.6	8.3	Demand deposits	$	5,631,355		$	3,862,157		$	3,800,569			45.8	48.2
Savings deposits	Savings deposits	2,069,163			2,044,386			2,037,831			1.2	1.5	Savings deposits	2,342,355			2,044,386			2,056,128				14.6	13.9
NOW accounts	NOW accounts	2,273,156			2,291,667			2,083,366			(0.8)	9.1	NOW accounts	2,744,034			2,291,667			2,483,176				19.7	10.5
Money market accounts	Money market accounts	2,227,707			2,178,518			1,809,234			2.3	23.1	Money market accounts	2,781,666			2,178,518			2,080,274				27.7	33.7
Core deposits	Core deposits	10,454,041			10,376,728			9,517,911			0.7	9.8	Core deposits	13,499,410			10,376,728			10,420,147				30.1	29.6
Time deposits	Time deposits	2,626,405			2,792,343			2,412,052			(5.9)	8.9	Time deposits	2,254,675			2,792,343			2,836,854				(19.3)	(20.5)
Brokered deposits	Brokered deposits	306,061			241,560			235,264			26.7	30.1	Brokered deposits	47,344			241,560			189,569				(80.4)	(75.0)
Total time deposits	Total time deposits	2,932,466			3,033,903			2,647,316			(3.3)	10.8	Total time deposits	2,302,019			3,033,903			3,026,423				(24.1)	(23.9)
Total deposits	Total deposits	13,386,507			13,410,631			12,165,227			(0.2)	10.0	Total deposits	15,801,429			13,410,631			13,446,570				17.8	17.5
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	104,389			97,843			112,717			6.7	(7.4)	Securities sold under agreements to repurchase	127,340			97,843			90,514				30.1	40.7
Federal funds purchased	Federal funds purchased	258,300			114,180			722			126.2	35,675.6	Federal funds purchased	194,565			114,180			21,456				70.4	806.8
FHLB advances	FHLB advances	1,645,011			1,347,303			764,556			22.1	115.2	FHLB advances	2,115,017			1,347,303			1,257,109				57.0	68.2
Total borrowed funds	Total borrowed funds	2,007,700			1,559,326			877,995			28.8	128.7	Total borrowed funds	2,436,922			1,559,326			1,369,079				56.3	78.0
Senior and subordinated debt	Senior and subordinated debt	234,053			233,848			203,899			0.1	14.8	Senior and subordinated debt	234,464			233,848			233,642				0.3	0.4
Total funding sources	Total funding sources	$	15,628,260		$	15,203,805		$	13,247,121		2.8	18.0	Total funding sources	$	18,472,815		$	15,203,805		$	15,049,291			21.5	22.7
Average interest rate paid on borrowed funds	Average interest rate paid on borrowed funds	1.17		%	1.17		%	1.64		%			Average interest rate paid on borrowed funds	0.98		%	1.17		%	1.63		%
Weighted-average maturity of FHLB advances	Weighted-average maturity of FHLB advances	54.5 months			52.4 months			1.2 months					Weighted-average maturity of FHLB advances	62.9 months			52.4 months			52.1 months
Weighted-average interest rate of FHLB advances	Weighted-average interest rate of FHLB advances	0.85		%	1.34		%	2.60		%			Weighted-average interest rate of FHLB advances	0.77		%	1.34		%	1.59		%

Total average funding sources for the ~~first~~third quarter of 2020 increased ~~$424.5 million,~~$3.3 billion, or ~~2.8%~~21.5% from the fourth quarter of 2019 and ~~$2.4~~$3.4 billion, or ~~18.0%~~22.7%, compared to the ~~first~~third quarter of 2019. The increase in total average funding sources compared to both prior periods resulted primarily from the Park Bank transaction in the first quarter of 2020, FHLB advances, and ~~FHLB advances.~~higher customer balances resulting from PPP loan funds and other government stimulus. In addition, the rise in average ~~funding sources~~deposits compared to the ~~first~~fourth quarter of 2019 was impacted by ~~deposits assumed in the Bridgeview transaction and organic growth~~seasonal inflows of municipal deposits. The increase in the weighted-average maturity of FHLB advances compared to March 31, 2019 was driven by the addition of putable FHLB advances during the first quarter of 2020 that mature between April of 2020 and March of 2030.

As of ~~March 31,~~September 30, 2020, the Company had ~~$6.4~~$7.4 billion of additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with ~~$3.6~~$4.1 billion of the additional funding comprised of ~~$2.0~~$2.1 billion of unencumbered securities and cash, ~~$687.5 million of available FHLB capacity, and $908.3~~$873.0 million of Federal Reserve ~~availability.~~availability, and $1.2 billion of available FHLB capacity. In addition, the Company has the ability to utilize the Paycheck Protection Program Liquidity Facility ("PPPLF") to fund ~~PPP~~certain demand for PPP loans. As of September 30, 2020, no amount was outstanding under the PPPLF.

6366

Table of Contents

Table 1819

Borrowed Funds

(Dollar amounts in thousands)


		March 31, 2020					March 31, 2019					September 30, 2020				September 30, 2019
		Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)		Amount		Weighted- Average Rate (%)		Amount		Weighted- Average Rate (%)
At period-end:	At period-end:							At period-end:
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	$	127,682	0.07	$	118,852	0.09	Securities sold under agreements to repurchase	$	132,652	0.11		$	93,490	0.07
Federal funds purchased	Federal funds purchased	245,000		0.20	—		—	Federal funds purchased	—		—		180,000		0.21
FHLB advances	FHLB advances	2,275,528		0.85	855,000		2.60	FHLB advances	1,824,528		0.77		1,380,000		1.59

Total borrowed funds	Total borrowed funds	$	2,648,210	0.73	$	973,852	2.29	Total borrowed funds	$	1,957,180	0.73		$	1,653,490	1.33
Average for the year-to-date period:	Average for the year-to-date period:							Average for the year-to-date period:
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	$	104,389	0.08	$	112,717	0.08	Securities sold under agreements to repurchase	$	120,641	0.10		$	103,579	0.08
Federal funds purchased	Federal funds purchased	258,300		1.34	722		2.25	Federal funds purchased	173,717		0.75		16,223		2.32
FHLB advances	FHLB advances	1,645,011		1.21	764,556		1.87	FHLB advances	2,009,769		0.93		972,805		1.83

Total borrowed funds	Total borrowed funds	$	2,007,700	1.17	$	877,995	1.64	Total borrowed funds	$	2,304,127	0.87		$	1,092,607	1.67
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	Securities sold under agreements to repurchase	$	133,329		$	122,441		Securities sold under agreements to repurchase	$	159,751			$	122,441
Federal funds purchased	Federal funds purchased	400,000			65,000			Federal funds purchased	400,000				295,000
FHLB advances	FHLB advances	2,275,528			885,000			FHLB advances	2,420,528				1,547,000

Average borrowed funds totaled ~~$2.0~~$2.3 billion for the ~~first~~third quarter of 2020, increasing by ~~$1.1~~$1.2 billion compared to the same period in 2019. This increase was due primarily to higher levels of FHLB advances and federal funds purchased. The weighted-average rate on ~~FHLB advances~~borrowed funds for both periods presented was impacted by the hedging of ~~$920.0~~$225.0 million and ~~$740.0~~$510.0 million ~~in FHLB advances~~of borrowed funds as of ~~March 31,~~September 30, 2020 and 2019, 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 ~~1.26%~~1.47% and ~~1.88%~~1.79% as of ~~March 31,~~September 30, 2020 and 2019, respectively. For a detailed discussion of interest rate swaps, see Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

The Company has a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility that matures on September 26, ~~2020.~~2021. 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 ~~March 31,~~September 30, 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 2019 10-K.

The following table presents the 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 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. All regulatory mandated ratios for characterization of the Bank as "well-capitalized" were exceeded as of ~~March 31,~~September 30, 2020 and December 31, 2019.

6467

Table of Contents

Table 1920

Capital Measurements

(Dollar amounts in thousands)


						As of March 31, 2020																									As of September 30, 2020
						Minimum Requirement Plus Capital Conservation Buffer						Well-Capitalized⁽¹⁾															Minimum Requirement Plus Capital Conservation Buffer					Well-Capitalized(1)
		As of						Minimum		Excess Over Minimums		Minimum				Excess Over Minimums			As of					Minimum			Excess Over Minimums				Minimum					Excess Over Minimums
		March 31, 2020		December 31, 2019																	September 30, 2020									Minimum					Excess Over Minimums
Bank regulatory capital ratios	Bank regulatory capital ratios														Bank regulatory capital ratios
Total capital to risk-weighted assets	Total capital to risk-weighted assets	10.97	%	11.28	%	10.50	%	$	69,192	10.00	%		$	142,770	Total capital to risk-weighted assets		11.19	%	11.28	%		10.50	%		$	105,292		10.00		%			$	181,092
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	10.10	%	10.51	%	8.50	%	$	234,907	8.00	%		$	308,485	Tier 1 capital to risk-weighted assets		10.17	%	10.51	%		8.50	%	$	253,515		8.00		%			$	329,315
CET1 to risk-weighted assets	CET1 to risk-weighted assets	10.10	%	10.51	%	7.00	%	$	455,641	6.50	%		$	529,219	CET1 to risk-weighted assets		10.17	%	10.51	%		7.00	%	$	480,915		6.50		%			$	556,715
Tier 1 capital to average assets	Tier 1 capital to average assets	8.63	%	8.79	%	4.00	%	$	796,840	5.00	%		$	624,617	Tier 1 capital to average assets		7.52	%	8.79	%		4.00	%	$	722,313		5.00		%			$	517,363
Company regulatory capital ratios	Company regulatory capital ratios														Company regulatory capital ratios
Total capital to risk-weighted assets	Total capital to risk-weighted assets	12.00	%	12.96	%	10.50	%	$	233,935	10.00	%		$	311,804	Total capital to risk-weighted assets		14.06	%	12.96	%		10.50	%	$	542,409		10.00		%			$	618,490
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	9.64	%	10.52	%	8.50	%	$	177,150	6.00	%		$	566,492	Tier 1 capital to risk-weighted assets		11.48	%	10.52	%		8.50	%	$	453,162		6.00		%			$	833,564
CET1 to risk-weighted assets	CET1 to risk-weighted assets	9.64	%	10.52	%	7.00	%	$	410,755	N/A			N/A		CET1 to risk-weighted assets		9.97	%	10.52	%		7.00	%	$	451,631		N/A					N/A
Tier 1 capital to average assets	Tier 1 capital to average assets	8.60	%	8.81	%	4.00	%	$	803,183	N/A			N/A		Tier 1 capital to average assets		8.50	%	8.81	%		4.00	%	$	694,901		N/A					N/A
Company tangible common equity ratios⁽²⁾⁽³⁾	Company tangible common equity ratios⁽²⁾⁽³⁾														Company tangible common equity ratios(2)(3)
Tangible common equity to tangible assets	Tangible common equity to tangible assets	7.97	%	8.81	%	N/A		N/A		N/A			N/A		Tangible common equity to tangible assets		7.43	%	8.81	%		N/A		N/A			N/A					N/A
Tangible common equity, excluding accumulated other comprehensive loss, to tangible assets		7.79	%	8.82	%	N/A		N/A		N/A			N/A
Tangible common equity to tangible assets, excluding PPP loans															Tangible common equity to tangible assets, excluding PPP loans		7.90	%	8.81	%		N/A		N/A			N/A					N/A
Tangible common equity, excluding accumulated other comprehensive income (loss), to tangible assets															Tangible common equity, excluding accumulated other comprehensive income (loss), to tangible assets		7.30	%	8.82	%		N/A		N/A			N/A					N/A
Tangible common equity, excluding accumulated other comprehensive income (loss), to tangible assets, excluding PPP loans															Tangible common equity, excluding accumulated other comprehensive income (loss), to tangible assets, excluding PPP loans		7.77	%	8.82	%		N/A		N/A			N/A					N/A
Tangible common equity to risk-weighted assets	Tangible common equity to risk-weighted assets	9.63	%	10.51	%	N/A		N/A		N/A			N/A		Tangible common equity to risk-weighted assets		9.84	%	10.51	%		N/A		N/A			N/A					N/A

N/A – Not applicable.

⁽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."

~~Capital~~The Company's total and Tier 1 capital ratios ~~decreased~~increased compared to December 31, 2019 as a result of retained earnings, the issuance of preferred stock, and the mix of risk-weighted assets. In addition, all Company capital ratios were ~~more than offset~~impacted by the approximately 50 basis point ~~impact of~~decrease due to the Park Bank acquisition, ~~on all ratios,~~and 15 basis point ~~impact~~decrease due to stock repurchasesin the first quarter of ~~stock repurchases on all ratios,~~2020. The Company elected CECL transition relief for regulatory capital which retained approximately 30 basis points of CET1 and Tier 1 capital as ~~well as the impact~~ of ~~loan growth and securities purchases on risk-weighted assets.~~September 30, 2020.

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, which retained approximately 2030 basis points of CET1 and ~~tier~~Tier 1 ~~capital.~~capital as of September 30, 2020. 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.

Table of Contents

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

Issuance of Preferred Stock

Stock Repurchase Program

On February 26, 2020, the Company announced a ~~new~~ stock repurchase program, ~~authorizing~~under which the ~~discretionary~~Company is authorized to repurchase of up to $200 million of its outstanding common ~~stock.~~stock through December 31, 2021. This stock repurchase program replaced the ~~Company's~~ prior $180 million ~~stock repurchase~~ program,

~~Table of Contents~~

which was ~~set~~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 the suspension, the Company repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2020.

Dividends

The Board approved a quarterly cash dividend of $0.14 per common share during the ~~first~~third quarter of 2020, ~~an increase~~which is consistent with the second quarter of ~~17% from the first~~2020 and third quarter of 2019. This dividend represents the ~~149~~151^thst 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, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive income (loss) ("AOCI"), to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, return on average tangible common equity, adjusted, non-accrual loans, excluding PCD loans, 30-89 days past due loans, excluding PCD loans, non-accrual loans to total loans, excluding PPP loans, non-accrual loans to total loans, excluding PCD and PPP loans, non-performing loans to total loans, excluding PPP loans, non-performing loans to total loans, excluding PCD and PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PCD and PPP loans, net loan charge-offs, excluding PCD loans, and net loan charge-offs to average loans, excluding PPP loans, net loan charge-offs to average loans, excluding PCD and PPP loans, adverse rated performing loans to average corporate loans, excluding PPP loans, and ~~CPPPLs~~adverse rated performing loans 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 ~~(first quarter~~(nine months ended September 30, 2019), optimization costs (nine months ended September 30, 2020), net securities ~~losses (first quarter~~gains (nine months ended September 30, 2020), termination of swaps (nine months ended September 30, 2020), and acquisition and integration related expenses associated with completed and pending acquisitions (all periods). In addition, net OREO expense is excluded from the calculation of 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.~~expenses, and optimization costs. Management believes that excluding these items from noninterest expense may be useful in assessing the Company's underlying operational performance as these items either do not pertain to its

Table of Contents

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~~income (loss) in stockholders' equity.

The Company presents non-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 PCD and/or PPP loans. Management believes excluding PCD and PPP loans is useful as it facilitates better comparability between periods as 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 and non-accrual loan totals and the portion of PCI

~~Table of Contents~~

loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, 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 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. The Company began originating PPP loans during the second quarter of 2020 and the loans are expected to be forgiven by the Small Business Administration ("SBA") if the applicable criteria are met. Additionally, management believes excluding PCD and PPP loans from these metrics may enhance comparability for peer comparison purposes.

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.

Table of Contents

Non-GAAP Reconciliations

(Amounts in thousands, except per share data)


		Quarters Ended March 31,										Quarters Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019			2020			2019
EPS	EPS							EPS
Net income	Net income	$	19,606		$	46,058		Net income	$	27,623		$	54,545		$	66,293		$	147,617
Preferred dividends								Preferred dividends	(4,033)			—			(5,070)			—
Net income applicable to non-vested restricted shares	Net income applicable to non-vested restricted shares	(192)			(403)			Net income applicable to non-vested restricted shares	(236)			(465)			(615)			(1,257)
Net income applicable to common shares	Net income applicable to common shares	19,414			45,655			Net income applicable to common shares	23,354			54,080			60,608			146,360
Adjustments to net income:	Adjustments to net income:							Adjustments to net income:
Net securities losses		1,005			—
Tax effect of net securities losses		(251)			—

Optimization costs								Optimization costs	18,376			—			18,376			—
Tax effect of optimization costs								Tax effect of optimization costs	(4,594)			—			(4,594)			—
Swap termination costs								Swap termination costs	14,285			—			14,285			—
Tax effect of swap termination costs								Tax effect of swap termination costs	(3,571)			—			(3,571)			—
Acquisition and integration related expenses	Acquisition and integration related expenses	5,472			3,691			Acquisition and integration related expenses	881			3,397			11,602			16,602
Tax effect of acquisition and integration related expenses	Tax effect of acquisition and integration related expenses	(1,368)			(923)			Tax effect of acquisition and integration related expenses	(220)			(849)			(2,900)			(4,151)
Net securities gains								Net securities gains	(14,328)			—			(13,323)			—
Tax effect of net securities gains								Tax effect of net securities gains	3,582			—			3,331			—
Delivering Excellence implementation costs	Delivering Excellence implementation costs	—			258			Delivering Excellence implementation costs	—			234			—			934
Tax effect of Delivering Excellence implementation costs	Tax effect of Delivering Excellence implementation costs	—			(65)			Tax effect of Delivering Excellence implementation costs	—			(59)			—			(234)
Income tax benefits		—			—

Total adjustments to net income, net of tax	Total adjustments to net income, net of tax	4,858			2,961			Total adjustments to net income, net of tax	14,411			2,723			23,206			13,151
Net income applicable to common shares, adjusted	Net income applicable to common shares, adjusted	$	24,272		$	48,616		Net income applicable to common shares, adjusted	$	37,765		$	56,803		$	83,814		$	159,511
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	Weighted-average common shares outstanding (basic)	109,922			105,770			Weighted-average common shares outstanding (basic)	113,160			109,281			112,079			107,852
Dilutive effect of common stock equivalents	Dilutive effect of common stock equivalents	443			—			Dilutive effect of common stock equivalents	276			381			322			394
Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	110,365			105,770			Weighted-average diluted common shares outstanding	113,436			109,662			112,401			108,246
Basic EPS	Basic EPS	$	0.18		$	0.43		Basic EPS	$	0.21		$	0.49		$	0.54		$	1.36
Diluted EPS	Diluted EPS	$	0.18		$	0.43		Diluted EPS	$	0.21		$	0.49		$	0.54		$	1.35
Diluted EPS, adjusted	Diluted EPS, adjusted	$	0.22		$	0.46		Diluted EPS, adjusted	$	0.33		$	0.52		$	0.75		$	1.47

Return on Average Assets	Return on Average Assets									Return on Average Assets
Net income	Net income	$	19,606		$	46,058		Net income	$	27,623		$	54,545		$	66,293		$	147,617
Total adjustments to net income, net of tax⁽¹⁾	Total adjustments to net income, net of tax⁽¹⁾	4,858			2,961			Total adjustments to net income, net of tax(1)	14,411			2,723			23,206			13,151
Net income, adjusted	Net income, adjusted	$	24,464		$	49,019		Net income, adjusted	$	42,034		$	57,268		$	89,499		$	160,768
Average assets	Average assets	$	18,404,821		$	15,667,839		Average assets	$	21,526,695		$	17,699,180		$	20,271,140		$	16,709,797
Return on average assets⁽²⁾⁽³⁾	Return on average assets⁽²⁾⁽³⁾	0.43		%	1.19		%	Return on average assets(2)(3)	0.51		%	1.22		%	0.44		%	1.18		%
Return on average assets, adjusted^(1)(2)(3)	Return on average assets, adjusted^(1)(2)(3)	0.53		%	1.27		%	Return on average assets, adjusted(1)(2)(3)	0.78		%	1.28		%	0.59		%	1.29		%

Note: Non-GAAP Reconciliations footnotes are located at the end of this section.	Note: Non-GAAP Reconciliations footnotes are located at the end of this section.												Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

6771

Table of Contents


		Quarters Ended March 31,										Quarters Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019			2020			2019
Return on Average Common and Tangible Common Equity	Return on Average Common and Tangible Common Equity									Return on Average Common and Tangible Common Equity
Net income applicable to common shares	Net income applicable to common shares	$	19,414		$	45,655		Net income applicable to common shares	$	23,354		54,080			$	60,608		$	146,360
Intangibles amortization	Intangibles amortization	2,770			2,363			Intangibles amortization	2,810			2,750			8,400			7,737
Tax effect of intangibles amortization	Tax effect of intangibles amortization	(693)			(591)			Tax effect of intangibles amortization	(703)			(688)			(2,100)			(1,934)
Net income applicable to common shares, excluding intangibles amortization	Net income applicable to common shares, excluding intangibles amortization	21,491			47,427			Net income applicable to common shares, excluding intangibles amortization	25,461			56,142			66,908			152,163
Total adjustments to net income, net of tax⁽¹⁾	Total adjustments to net income, net of tax⁽¹⁾	4,858			2,961			Total adjustments to net income, net of tax(1)	14,411			2,723			23,206			13,151
Net income applicable to common shares, excluding intangibles amortization, adjusted⁽¹⁾	Net income applicable to common shares, excluding intangibles amortization, adjusted⁽¹⁾	$	26,349		$	50,388		Net income applicable to common shares, excluding intangibles amortization, adjusted(1)	$	39,872		$	58,865		$	90,114		$	165,314
Average stockholders' common equity	Average stockholders' common equity	$	2,415,157		$	2,138,281		Average stockholders' common equity	$	2,444,594		$	2,327,279		$	2,434,358		$	2,236,402
Less: average intangible assets	Less: average intangible assets	(887,600)			(803,408)			Less: average intangible assets	(938,712)			(877,069)			(920,180)			(837,850)
Average tangible common equity	Average tangible common equity	$	1,527,557		$	1,334,873		Average tangible common equity	$	1,505,882		$	1,450,210		$	1,514,178		$	1,398,552
Return on average common equity⁽²⁾⁽³⁾	Return on average common equity⁽²⁾⁽³⁾	3.23		%	8.66		%	Return on average common equity(2)(3)	3.80		%	9.22		%	3.33		%	8.75		%
Return on average common equity, adjusted^(1)(2)(3)	Return on average common equity, adjusted^(1)(2)(3)	4.03		%	9.22		%	Return on average common equity, adjusted(1)(2)(3)	6.15		%	9.68		%	4.60		%	9.54		%
Return on average tangible common equity⁽²⁾⁽³⁾	Return on average tangible common equity⁽²⁾⁽³⁾	5.66		%	14.41		%	Return on average tangible common equity(2)(3)	6.73		%	15.36		%	5.90		%	14.55		%
Return on average tangible common equity, adjusted^(1)(2)(3)	Return on average tangible common equity, adjusted^(1)(2)(3)	6.94		%	15.31		%	Return on average tangible common equity, adjusted(1)(2)(3)	10.53		%	16.10		%	7.95		%	15.80		%

Note: Non-GAAP Reconciliations footnotes are located at the end of this section.	Note: Non-GAAP Reconciliations footnotes are located at the end of this section.												Note: Non-GAAP Reconciliations footnotes are located at the end of this section.


		Quarters Ended March 31,										Quarters Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019			2020			2019
Efficiency Ratio Calculation	Efficiency Ratio Calculation							Efficiency Ratio Calculation
Noninterest expense	Noninterest expense	$	117,331		$	102,110		Noninterest expense	$	131,074		$	108,395		$	368,735		$	324,647
Less:	Less:							Less:
Net OREO expense	Net OREO expense	(420)			(681)			Net OREO expense	(544)			(381)			(1,090)			(1,356)
Optimization costs								Optimization costs	(18,376)			—			(18,376)			—
Acquisition and integration related expenses	Acquisition and integration related expenses	(5,472)			(3,691)			Acquisition and integration related expenses	(881)			(3,397)			(11,602)			(16,602)
Delivering Excellence implementation costs	Delivering Excellence implementation costs	—			(258)			Delivering Excellence implementation costs	—			(234)			—			(934)
Total	Total	$	111,439		$	97,480		Total	$	111,273		$	104,383		$	337,667		$	305,755
Tax-equivalent net interest income⁽²⁾	Tax-equivalent net interest income⁽²⁾	$	144,728		$	140,132		Tax-equivalent net interest income(2)	$	143,821		$	152,019		$	434,938		$	443,643
Noninterest income	Noninterest income	39,362			34,906			Noninterest income	40,585			42,951			112,938			116,383
Less: net securities losses		1,005			—
Less:								Less:
Swap termination costs								Swap termination costs	14,285			—			14,285			—
Net securities gains								Net securities gains	(14,328)			—			(13,323)			—
Total	Total	$	185,095		$	175,038		Total	$	184,363		$	194,970		$	548,838		$	560,026
Efficiency ratio	Efficiency ratio	60.21		%	55.69		%	Efficiency ratio	60.36		%	53.54		%	61.52		%	54.60		%

Note: Non-GAAP Reconciliations footnotes are located at the end of this section.	Note: Non-GAAP Reconciliations footnotes are located at the end of this section.												Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

6872

Table of Contents


		As of										As of
		March 31, 2020			December 31, 2019				September 30, 2020			December 31, 2019
Tangible Common Equity	Tangible Common Equity							Tangible Common Equity
Stockholders' equity	Stockholders' equity	$	2,435,707		$	2,370,793		Stockholders' equity	$	2,433,671		$	2,370,793
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(935,241)			(875,262)			Less: goodwill and other intangible assets	(935,801)			(875,262)
Tangible common equity	Tangible common equity	1,500,466			1,495,531			Tangible common equity	1,497,870			1,495,531
Less: AOCI	Less: AOCI	(35,323)			1,954			Less: AOCI	(25,749)			1,954
Tangible common equity, excluding AOCI	Tangible common equity, excluding AOCI	$	1,465,143		$	1,497,485		Tangible common equity, excluding AOCI	$	1,472,121		$	1,497,485
Total assets	Total assets	$	19,753,300		$	17,850,397		Total assets	$	21,088,143		$	17,850,397
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(935,241)			(875,262)			Less: goodwill and other intangible assets	(935,801)			(875,262)
Tangible assets	Tangible assets	$	18,818,059		$	16,975,135		Tangible assets	20,152,342			16,975,135
Less: PPP loans								Less: PPP loans	(1,196,538)			—
Tangible assets								Tangible assets	$	18,955,804		$	16,975,135
Risk-weighted assets	Risk-weighted assets	$	15,573,684		$	14,225,444		Risk-weighted assets	$	15,216,075		$	14,225,444
Tangible common equity to tangible assets	Tangible common equity to tangible assets	7.97		%	8.81		%	Tangible common equity to tangible assets	7.43		%	8.81		%
Tangible common equity to tangible assets, excluding PPP loans								Tangible common equity to tangible assets, excluding PPP loans	7.90		%	8.81		%
Tangible common equity, excluding AOCI, to tangible assets	Tangible common equity, excluding AOCI, to tangible assets	7.79		%	8.82		%	Tangible common equity, excluding AOCI, to tangible assets	7.30		%	8.82		%
Tangible common equity, excluding AOCI, to tangible assets, excluding PPP loans								Tangible common equity, excluding AOCI, to tangible assets, excluding PPP loans	7.77		%	8.82		%
Tangible common equity to risk-weighted assets	Tangible common equity to risk-weighted assets	9.63		%	10.51		%	Tangible common equity to risk-weighted assets	9.84		%	10.51		%

Footnotes for non-GAAP reconciliations

⁽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.

6973

Table of Contents

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 2019 10-K.

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

Net Interest Income Sensitivity

The analysis of net interest income sensitivity assesses the magnitude of changes in net interest income over a twelve-month measurement period resulting from immediate changes in interest rates using multiple rate scenarios. These scenarios include, but are not limited to, a flat or unchanged rate environment, immediate increases of 100, 200, and 300 basis points, and an immediate decrease of 100 basis points.

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, ~~46%~~48% of the loan portfolio consisted of fixed rate loans and ~~54%~~52% were floating rate loans as of ~~March 31,~~September 30, 2020, compared to 49% and 51% at December 31, 2019. See Note 12 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 ~~March 31,~~September 30, 2020, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at ~~94%~~79% of the total compared to 6%21% for floating rate interest-bearing deposits in other banks, compared to 97% of the total compared to 3% for the floating rate interest-bearing deposits in other banks at December 31, 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 $877.0 million, or 12%, of the floating rate loan portfolio as of September 30, 2020 and was not meaningful as of ~~March 31, 2020 or~~ December 31, 2019. On the liability side of the balance sheet, ~~79%~~86% and 77% of deposits as of ~~March 31,~~September 30, 2020 and December 31, 2019 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.

7074

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
As of March 31, 2020
As of September 30, 2020														As of September 30, 2020
Dollar change	Dollar change	$	112,134		$	75,112		$	38,887		$	(49,922)		Dollar change	$	113,033		$	75,762		$	37,774		$	(15,474)
Percent change	Percent change	19.2		%	12.9		%	6.7		%	(8.5)		%	Percent change	20.6		%	13.8		%	6.9		%	(2.8)		%
As of December 31, 2019	As of December 31, 2019													As of December 31, 2019
Dollar change	Dollar change	$	59,842		$	40,687		$	21,525		$	(32,217)		Dollar change	$	59,842		$	40,687		$	21,525		$	(32,217)
Percent change	Percent change	10.3		%	7.0		%	3.7		%	(5.6)		%	Percent change	10.3		%	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 ~~March 31,~~September 30, 2020 would increase net interest income by ~~$38.9~~$37.8 million, or ~~6.7%~~6.9%, over the next twelve months compared to no change in interest rates. This same measure was $21.5 million, or 3.7%, as of December 31, 2019.

Overall, interest rate risk volatility as of ~~March 31,~~September 30, 2020 compared to December 31, 2019 was higher due to an increase in ~~the mix of floating rate loans~~balance sheet liquidity and ~~fixed FHLB advances,~~reduced funding needs, as well as the 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~~Form 10-Q (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

ITEM 1A. RISK FACTORS

A discussion of certain risks and uncertainties faced by the Company is provided in the section entitled "Risk Factors" in the 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, the 2019 10-K, and the 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, loans, asset quality, 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, including the ~~continued~~

7175

Table of Contents

possibility of resurgence of the pandemic after initial abatement, the continued effectiveness of the Company's business continuity plan including work-from-home arrangements and staffing ~~in operational~~at branches and certain other 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, or that may yet be 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 and business confidence and ~~business generally,~~economic activity, leading to certain lower loan demand and an increased risk of loan delinquencies, defaults and foreclosures.

•Ratings downgrades, credit deterioration and defaults in many industries, including, but not limited to, hotels and hospitality, restaurants, entertainment, 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 resulting from the pandemic 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).~~at certain of our branches.

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~~individuals 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, capital and results of operations. If such measures are not effective in mitigating the effects of ~~COVID-19~~the pandemic on our borrowers, or if such measures exacerbate the effects of ~~COVID-19~~the pandemic 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.~~the pandemic. Furthermore, various government programs such as the ~~Paycheck Protection Program~~PPP 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 the 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~~As a result of the pandemic, the Company has experienced and ~~expects to~~may 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, capital, loans, asset quality 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.

7276

Table of Contents

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

The following table summarizes the Company's monthly common stock repurchases during the ~~first~~third quarter of 2020. ~~The Board approved a stock repurchase program, which was announced on March 19, 2019, under which~~On February 26, 2020, 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 approvedannounced a ~~new~~ stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding shares of 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 stock 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, 2020 73,000 $ 20.08 73,000 $ 144,606,649
February 1 - February 29, 2020 855,378 20.50 735,000 194,479,653
March 1 - March 31, 2020 366,893 16.60 363,000 188,458,427
Total 1,295,271 $ 19.37 1,171,000


	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
July 1 - July 31, 2020	888	$	12.00	—	$	188,458,427
August 1 - August 31, 2020	432	11.96		—	188,458,427
September 1 - September 30, 2020	1,353	11.07		—	188,458,427
Total	2,673	$	11.52	—

⁽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.

7377

Table of Contents

ITEM 6. EXHIBITS


Exhibit Number						Description of Documents












1 ~~0.1~~⁽¹⁾						~~Form of 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.~~






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⁽²⁾(1)						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2~~32 .2⁽²⁾(1)						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and included in Exhibit 101)

⁽¹⁾~~Management contract or compensatory plan or arrangement.~~

⁽²⁾Furnished, not filed.

7478

Table of Contents

SIGNATURES

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


First Midwest Bancorp, Inc.

/s/ PATRICK S. BARRETT
Patrick S. Barrett Executive Vice President and Chief Financial Officer*

Date: ~~May 8,~~November 3, 2020

* Duly authorized to sign on behalf of the registrant.

7579


	As of March 31, 2020															As 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
Agricultural	36,277			14,683			50,960			32,764			16,071			48,835




Commercial real estate	120,080			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 loans	2.28		%	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		%


	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, 2020	73,000	$	20.08	73,000	$	144,606,649
February 1 - February 29, 2020	855,378	20.50		735,000	194,479,653
March 1 - March 31, 2020	366,893	16.60		363,000	188,458,427
Total	1,295,271	$	19.37	1,171,000